According to a new report from the OECD, total economic development aid to poor countries fell by 3 percent last year to $134 billion -- the first drop in regular program assistance (as opposed to debt forgiveness) since 1997. OECD Secretary-General Angel Gurría acknowledged that the decline was linked to hard times, especially in Europe, where Greece, Spain and Belgium all slashed aid by double digits as part of their austerity budgets. But Gurría still managed some handwringing, arguing that "the crisis should not be used as an excuse to reduce development cooperation contributions." Should you be wringing your hands, too?
Two decades ago, only Grinches would have seen the question as even worth asking. Most people of goodwill thought that aid for everything from building public infrastructure to containing dread tropical diseases was a worthy activity. The UN's Millennium Development Goals, proclaimed with much fanfare in 2000, represent the high water mark for this sort of thinking.
Today, thanks in no small part to William Easterly, a former World Bank researcher who now teaches economics at New York University, skepticism about the efficacy of development aid is thoroughly mainstream. And the debate has taken on new urgency in light of the reality that the United States, the European Union, and Japan all face chronic structural budget deficits that will make development aid (as opposed to military and geostrategic aid) a political luxury. Indeed, it's hard to imagine the scenario in which the U.S. contribution -- some $30 billion aid in 2011 -- won't fall sharply in coming years.
So, what do Easterly and Co. have to say for themselves? While I can't do justice to their arguments in a few paragraphs, the attack on foreign aid comes from three directions. The first (and hardest to dispute), is that the economic return on the trillions (actually, close to $5 trillion) in official development aid delivered since independence movements swept away Europe's colonies has mostly been wasted. Indeed, the return on many aid projects may have been negative, cementing autocrats' power and feeding cultures of corruption while encouraging crony capitalists to suck the life from small entrepreneurs and would-be innovators.
Second, there seems to be a negative correlation between success in economic development and the amount of development aid received. Compare the record of China, which got relatively little aid over the decades, with that of Egypt or Zimbabwe or the kleptocracies of West Africa, which got a lot. For that matter, compare China's remarkable growth with India's, which was the darling of the aid community for decades, but merely limped along until the market reforms of the 1990s.
This critique is surely on target, but not quite as potent as it seems on its face because an awful lot of development aid really has been disguised strategic aid. The United States has effectively paid Egypt to keep the peace with Israel -- and thus arguably got its money's worth, even if most of the money went to the care and feeding of Egypt's elite. Likewise, it's next to impossible to defend the effectiveness of development aid in Iraq or Afghanistan (or for that matter, Vietnam or Nicaragua, back when they seemed to matter to Washington). But if development was a goal in these cases, it was an afterthought. And, to be fair, strategic aid did stimulate growth in some cases. Assistance to South Korea and Taiwan, which was entirely a byproduct of the Cold War, probably did generate substantial returns in terms of development.
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