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Global Development: Views from the Center

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August 23, 2007

A Farewell to Alms? If Only Things Were This Simple...

Posted by Nancy Birdsall at 04:21 PM

Arvind Subramanian's op-ed in yesterday's Wall Street Journal, A Farewell to Alms has reignited a long-running debate about whether foreign aid works—a debate that NYT columnist Nicholas Kristof tried to put to rest recently in an elegant defense (subscription required) of some aid for some purposes. Arvind is currently a senior fellow at CGD (joint with the Peterson Institute. As our regular readers know, CGD fellows have full liberty to state their own views as long as they are based on scholarly analysis available to the public. In this case Arvind summarized research of his own that is available—shortly to be published in the journal Restat (Review of Economics and Statistics). His article, "What Undermines Aid's Impact on Growth?" (with Raghu Rajan, former Chief Economist at the IMF) has already been widely circulated and hotly debated; one more analysis is unlikely to put to rest an important debate.

What is new in the op-ed is Arvind's outline of two trade-offs that he argues Kristof ignored. I disagree about these trade-offs.

The first potential trade-off involves aid that improves health and saves lives, on the one hand, while at the same time possibly undermining growth. As Arvind writes "better health could be accompanied by slower growth, and hence reduced prospects for long-run prosperity." Surely most people would trade staying alive for sure today for uncertain prosperity tomorrow (even high-income economists with very low discount rates). And anyway, in some circumstances better health may contribute to future prosperity—as Jeff Sachs, among others, has argued in yet another unresolved debate (see, for example, the UN Millennium Project Taskforce Report on Child Health and Maternal Health, "Who's Got the Power? Transforming Health Systems for Women and Children").

The second possible trade-off assumes that there is a limited stock of good will in the rich world. Arvind writes:

There is a limited stock of goodwill and good intentions in the rich world and the question becomes whether this stock is best harnessed by mobilizing more aid or by pursuing alternative actions that could have a bigger impact.

On this idea there is no evidence at all. And it seems to me that there may be no trade-off at all either. My intuition is that Angelina, Bono and others' efforts to mobilize more aid money have increased vastly the number of people in the rich world that understand the potential to improve lives in the poor world—and that understanding is the first step in mobilizing support for other ways to help: agricultural and health research geared to poor country needs; ending U.S. and European agricultural subsidies that constitute unfair competition; better enforcement of anti-corruption to reduce bribery of Western corporations in developing countries; and allowing more immigration from the poorest countries. In fact Bono's DATA is working on the trade issue, as are other aid advocacy organizations like Bread for the World.

And by the way, I suspect that, contrary to Arvind's assumption, Bono (who is an awfully smart guy), is indeed "up on the economic literature." It's just that one or two sophisticated analyses suggesting that too much money may not help isn't going change their reasonable starting assumption: that lack of money might be the problem in some places at some times, and should not be the binding constraint when it comes to helping save and improve poor people's lives.


More to the point, raising money—and the awareness that goes with it—may turn out to be not a distraction but the leading edge of other development-friendly steps by the rich.

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Comments

Subramanian's comments with regard to health aid are sweeping assertions that lack the requisite evidence, context or qualification. I make the following observations:

1) Properly designed and executed health programs do yield substantial independent reductions in the burden of disease, as demonstrated by Millions Saved. Reducing death and suffering is also a goal of development - not merely raising GDP growth rates. In fact, economic growth that does not yield widespread benefits in health status is of dubious merit.

2) Health aid contributes to longer life expectancy and lower infant mortality as demonstrated by the recent IMF study on this issue. More broadly, it is hard to argue that aid inputs have been irrelevant to the very significant reductions in child mortality and fertility, decreases in the burden of some infectious diseases or increasing access to HIV treatment and care.

3) Health programs can be effective even in low resource, low growth settings. Dean Jamison's work on this issue under the Disease Control Priorities Project has shown that technical progress (broadly understood to include the organization and execution of programs) has been the key to reducing the burden of disease, putting to rest the notion that poverty must be "solved" before substantial gains in health can be achieved.

4) There is no basis for suggesting that better health lowers competitiveness or growth. On the contrary, as shown in recent Lancet publications, malnutrition and infection among children result in lifelong physical stunting and cognitive under-development, both of which reduce economic productivity. Child health programs redress this economic drag. Countries with HIV prevalence among working age adults clearly suffer economic consequences that can be alleviated by well designed HIV/AIDS programs. The same might be said of a host of infectious diseases, including malaria. More generally, Jamison has argued that longer life expectancy increases full income.

5) The proposition that health programs or the aid that supports them undermines governance is also wrong. Strengthening health systems, enhancing community participation, increasing accountability and strengthening coordinating and rule-making bodies have been the hallmarks of successful programs. Public health practitioners have long recognized that there simply isn't any other way for programs to succeed. In countries as diverse as Philippines, Senegal, and Peru, health programs - and the aid programs that support them - have proven to be a leading sector for promoting more democratic community participation and more effective local leadership. In many post conflict settings health has been a vehicle for rebuilding the social fabric, building local trust, and overcoming gender and ethnic barriers.

6) There is also no reason to believe that successful health programs militate against action on other fronts. The reality is that efforts to improve health have often led or reinforced action in other arenas, such as gender inequity and trade.

None of this is to suggest that all health aid or all health programs have been successful - far from it - or that all health programs yield equally beneficial results. There have been plenty of failures and mistakes. But, aid has also supported the delivery of technically sound, well-designed, properly executed programs aimed at the disease burden on the poor. These have reduced death and suffering, strengthened governance and enhanced economic growth. Sweeping assertions should be avoided, however catchy they may sound. It is far more helpful and responsible to explore when and how programs succeed or fail and then apply those lessons learned.

Posted by: Maurice Middleberg at August 24, 2007 02:40 PM

What the suffering millions need is DIGNITY not handouts. That need can be addressed by the commencing of labor intensive projects which while benefiting the surrounding areas that they live in can also give them a daily wage to support their families and enable to allow their children to go to school. The wonderful benefit to those people is the realization that THEY are able to control their own lives and that THEY are giving their children the gift of education. Education should not be a "gift" because it is in fact the birthright of EVERY child brought into our world by mothers, the giver of life to ALL of us. Those labor intensive projects need to be funded and well audited to ensure against what we call corruption.
The people who are suffering would welcome such a VISION, because it gives them the power to go forward with their lives and the lives of their children. Such a scheme would need money to get it started. Gandhi called it SWADESHI meaning uplift of the poor. Economists and Accountants would term such projects as being “not cost effective” and so would discard them as worthless, but I can tell you for sure it WOULD bring dignity to those suffering millions and give them and their families a new lease on life.

Sincerely
Garvin Brown
Mahatma Gandhi Awareness Australia

Posted by: Garvin Brown at August 28, 2007 04:50 PM

Arvind Subramanian's arguments are unnecessary diversions and waste of time. CGD should not give much space to such nonsense.

Posted by: Joao Costa at August 29, 2007 07:06 AM

I write out of my own years of experience involved in the aid machinery in very poor African countries. All too often aid does harm in the long-term, even while doing short-term good: programs to distribute free food and medicine can saves lives in the short run. But other effects have to be considered. These long term effects are hard to quantify, but I have seen them. Farmers in food surplus areas of Africa have no incentive to find sustainable mechanisms for delivering their goods to food deficit areas, because the aid machinery has a monopoly on food distribution.

Manufacturers of health products do not invest in building sustainable markets for their products because they are being given out for free. I would like to believe that Bono is making more people into sophisticated constituents for development, but I fear that what is really driving the current fad for aid is the feel-good charity that drives child sponsorship and perpetuates the myth of the helpless Africans.

Posted by: Jeffrey Barnes at August 29, 2007 01:40 PM

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