Everyone shares a good deal of cynicism about foreign aid. Taxpayers in developed countries complain that aid is often spent on inflated bureaucracies at home, that it ends up in the Swiss bank accounts of dictators of developing countries, or that it is wasted on useless, if well-intentioned, projects. Governments and citizens in poor countries resent the use of aid as a means of buying political support, their lack of control over it, the development fads to which it is subject, and the administrative burden that accompanies it.

In response, some critics suggest we give up on it altogether. But renouncing essential human solidarity is morally unacceptable and politically risky. It would send a tremendously negative message to the world’s poorest people. Others suggest instead that foreign aid should be increased several-fold, in a big push to eradicate poverty throughout the world. Unfortunately, though, the track record on the ability either to raise considerable amounts of aid money or to spend it well is less than stellar.

The solution is an essential reform of how we allocate foreign aid. First, a substantial fraction of aid should be set aside to help countries experiment and evaluate solutions to the fundamental problems of their poorest citizens, using the same level of rigor as is used for testing new drugs. Most of the rest (excluding disaster relief) should be used to support the expansion of those projects that are proven to be effective. Poor countries demonstrating the will to implement projects placed on an approved list should be entitled to financial support and the required technical help to do so. Countries that want money to try something that is not on the list should be given access to pilot-program financing, on the condition that their evaluation plans are sound, and that they accept strict monitoring of its implementation....