Saturday, April 11, 2009

Band Aid? Dead Aid?

President Obama is seeking to increase aid to developing countries:

"I intend to work with Congress to provide $448 million in immediate assistance to vulnerable populations from Africa to Latin America and to double support for food safety to over $1 billion so that we are giving people the tools they need to lift themselves out of poverty."

This is heating up the debate on whether and how to provide aid. Most Americans, our president among them, want to do something. It is hard to watch people suffer, and not try to help. But sometimes it makes the donor feel good, while not helping the person who is suffering.

Can aid help? Is it just putting a band aid on much larger problem? Is it doomed to failure?

Jeffrey Sachs suggests the answer is Homegrown Aid. People are poor and hungry, and international aid can help, if done properly, he argues. Of course, his proper way is to have recipient governments come up with plans. Aid can be effective if undertaken with "generosity, good science and rigorous management."

George Ayittey was interviewed the same day, and decried "Dead Aid." How's this for provocative:
"Americans were justifiably outraged when AIG, which received billions in U.S.taxpayer money in bailouts, paid out hefty bonuses to its executives. So where is the outrage when African leaders, who receive U.S. taxpayers’ money in foreign aid, build palaces for themselves while their people wallow in abject poverty?"

Not enough? How about: "The African countries that received the most aid -- Somalia, Liberia and Zaire -- slid into virtual anarchy." He goes on to urge that aid be focused on building institutions that support liberty and freedom, not projects.

I recognize the need for aid, and have argued that it, as well as enterprise, plays a role in development. But the waste and ineffectiveness angers me. I think that development funds (as opposed to emergency aid) should flow to the approaches, and countries, with better records. I also believe that, just as in developed countries, aid is needed to subsidize health and education. If we left it just to markets, we would still have endemic small pox and polio in these countries.

There is also the issue of the capacity to receive these flows. Recently, ANDE was launched, providing a new resource network of $750 million for investing in developing world enterprises. Backed by some pretty smart funders in this field. They believe they can deploy these funds and make a return. But if there were 10 ANDE type funds, or 100, would they be able to find projects that would be able to provide a return on investment? Or would they start a "bubble" in social enterprises with too much money chasing too few investable deals?

The size of the Obama plan and ANDE are similar. It will be interesting to see whether either of them can help us understand new ways to help the patient.

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