Foreign Aid Not Always in the Best Interest of Poor Countries


It might shock progressives and mainstream liberals to hear a Nobel-prize-winning economist say such a thing, but it really isn’t all that radical to note that foreign aid may not always be in the interest of the people of poor countries:

The effect wasn’t limited to Africa. Many economists were noticing that an influx of foreign aid did not seem to produce economic growth in countries around the world. Rather, lots of foreign aid flowing into a country tended to be correlated with lower economic growth, as this chart from a paper byArvind Subramanian and Raghuram Rajan shows. …

Why was this happening? The answer wasn’t immediately clear, but Deaton and other economists argued that it had to do with how foreign money changed the relationship between a government and its people.

Think of it this way: In order to have the funding to run a country, a government needs to collect taxes from its people. Since the people ultimately hold the purse strings, they have a certain amount of control over their government. If leaders don’t deliver the basic services they promise, the people have the power to cut them off.

The cost of providing aid to a poor person in an undeveloped or dictatorial society is inflated many times over not only by the lack of infrastructure, but also the need to pay off (in one way or another) the local thugs.  Moreover, alleviating some of the worst of the difficulties reduces the demand to make political changes, find sustainable economic activities, and build out infrastructure.

Aid can be an important piece of the puzzle of foreign destitution (although whether or how governments should be involved is debatable as a separate question), but it can’t be the only piece.  Moreover, we can’t let blurry notions of charity lead us to the cold, hard realities of the world.  (Note: That’s not a knock on charity; it’s a call for a mature charity that is focused on helping the recipient, rather than assuaging the emotions of the giver.)

  • Mike678

    Add in another factor–see “Warlords Inc.” Some thugs in failed states actually cause a crisis so as to attract aid workers which they then “tax.” Human life is viewed differently outside the safety of the US.

  • Poor countries need freedom: free markets, free enterprise, free people, the rule of law, enforcement of contracts, a fair playing field, in which “fair” is defined by equal application of the law.

  • Rhett Hardwick

    Why does this article remind me of, oh, I don’ know, Detroit?

  • ShannonEntropy

    Foreign aid: Taxing poor people in rich countries for the benefit of rich people in poor countries