Is Foreign Aid Dead Aid?

Stephen DeAngelis

April 13, 2009

I have written a number of posts that stressed that sustained development requires foreign direct investment (FDI) not foreign aid. FDI provides assistance that is closer to the old adage: “Give a man a fish; you have fed him for today. Teach a man to fish; and you have fed him for a lifetime.” Over the years there have been lots of problems associated with foreign aid, or official development aid (ODA) as it is sometimes called. The sad fact of the matter is that billions of dollars of ODA has been siphoned off by corrupt leaders and the good those dollars were supposed to generate never materialized. Does that make the entire notion of ODA a bad one? Apparently that is the conclusion of a new book by an Oxford-trained economist named Dambisa Moyo [“‘Dead Aid,’ Dead Wrong,” by Michael Gerson, Washington Post, 3 April 2009]. The book is apparently getting a lot of attention and support.

“The broad American belief that foreign aid is stuffed down tropical rat holes has been recently reinforced by a young Zambian, Oxford-trained economist named Dambisa Moyo. Her book, “Dead Aid,” has launched her as a conservative celebrity, feted by Steve Forbes and embraced by the Cato Institute.”

As Gerson’s headline makes perfectly clear, however, he doesn’t believe that Moyo’s conclusions are justified. “Seldom,” he writes, “have so many sound economic arguments been employed to justify such disastrously wrongheaded conclusions.” Gerson argues that Moyo’s book is like a good joke — it leads you carefully down a storyline and then springs on you a completely unexpected ending. Only in this case, Gerson concludes that it’s a bad joke. He agrees with most of Moyo’s arguments “criticizing decades of direct foreign assistance to African governments.” He recognizes that “such aid has often propped up corrupt elites, shielded leaders from the consequences of their own incompetence and delayed reforms necessary for the development of working markets.” He also agrees with arguments that I have made before about “the decisive role of trade, direct foreign investment and local capital in the development of poor nations — sources of opportunity that dwarf aid flows in size and importance.” Gerson believes that past ODA represents “guilt money” — a payoff for all the past abuses that Westerners have heaped on the African continent. So where’s the beef?

Gerson claims that Moyo went wrong when she started lumping today’s efforts with past ODA efforts. ODA has dropped precipitously in the 30 years and most new aid is better targeted and, Gerson argues, has better oversight. He believes that Moyo is essentially throwing the baby out with the bathwater. To be honest, we know that not all ODA goes to “development.” Critics have lamented, for example, that the Bush administration militarized a lot of ODA by tying it to the war on terror. But the Bush administration also established the Millennium Challenge Account, a United States Government corporation designed to work with some of the poorest countries in the world. The MCA has generally received good reviews. According the MCA web site, the corporation was established in January 2004 and “is based on the principle that aid is most effective when it reinforces good governance, economic freedom and investments in people. MCC’s mission is to reduce global poverty through the promotion of sustainable economic growth.” Gerson also lauds public/private efforts to address hunger and healthcare issues that have largely bypassed corrupt administrations. Moyo, he insists, simply dismisses these efforts as inconsequential. He writes:

“Moyo dismisses these efforts, stating that her book is ‘not concerned with emergency and charity-based aid.’ But America’s AIDS and malaria programs are more than ‘charity.’ They herald a new approach to foreign aid — focused, centrally directed and results-oriented. The President’s Emergency Plan for AIDS Relief (PEPFAR), for example, a program I advocated while I worked at the White House, has helped more than 2 million people get treatment for AIDS. The scale of the program has also resulted in the strengthening of African supply, management and human resource systems — encouraging a professionalism that bleeds through an entire health system and beyond. But it is perhaps for the best that Moyo did not write on these issues, because she knows little about them.”

Gerson gets to the meat of his criticism at the end of his column. He writes:

“There are other limitations to ‘Dead Aid’ — its assertion that decimated global capital markets are a ready alternative to aid for African nations; its naive attitude toward Chinese engagement in Africa; its strange contention that African nations might be best served by ‘a decisive, benevolent dictator.’ But Moyo’s largest error is an overbroad condemnation of aid itself. ‘Aid fosters a military culture.’ ‘Aid engenders laziness on the part of the African policymakers.’ Surely there is a difference between aid provided to oppressive kleptocrats and aid given to faith-based organizations distributing AIDS drugs. If Moyo’s point is that some aid can be bad, then it is noncontroversial. If her point is that all aid is bad, then it is absurd. The productive political agenda is to increase the good while decreasing the bad. The productive academic debate is distinguishing between them. Instead, ‘Dead Aid’ chooses to push the envelope of absurdity, proposing a ‘world without aid’ on a five-year timetable. Moyo does not detail the possible outcomes. But we can reliably predict one of them. Many now alive would be dead.”

I agree with Gerson that the goal of having a world without aid is absurd. Readers of this blog know that I have the greatest admiration for those who reach out to help the poor and work to help those mired in poverty break its terrible grasp. As I noted in another post, “Development-in-a-Box™ focuses on ‘teaching a man to fish’ not providing him a fish. It is not an aid program, but business development process. Of course, the most effective aid programs have the same focus. There are times, however, when relief is much more important than development — like at the height of a famine or following a natural disaster.” There will also be those in every society who simply will never be able to care for themselves — the very young, the very old, and the very disabled. A society can largely be judged on how it treats such people. Moyo’s “world without aid” is not my ideal. (For more on information on the subject at hand, read my posts Programs that Fight Poverty, Will Money Solve Africa’s Problems? and Can Greed Save Africa?)

Gerson may be too hard on Moyo — I’m sure, as an African, her heart is in the right place. She wants what is best for her country (Zambia) and for the African continent as a whole. To sell books, however, authors are often encouraged to make some outrageous statements that will get the books noticed and the critics’ tongues wagging. My take away from Gerson’s column is that most right-thinking people understand that trade, foreign direct investment, and local entrepreneurial efforts form the foundation of sustainable development.