On Nick Kristof, Helping the World’s Poor, and Big Aid

November 25, 2009

In a masterful essay this past Sunday on how we can help the world’s poor (that was the title), Nicholas Kristof managed to honor Jeff Sachs (“indefatigable”) and Bill Easterly (“powerful and provocative book”).

But he probably has set off another round of the “ferocious intellectual debate” between those two and their adherents. That’s because he didn’t really get to the question the ferocious debate is actually about.

He noted that we know more and more about what makes highly focused programs that reach people directly on the ground more effective and more cost-effective; he cites Michael Kremer’s pathbreaking study of the cost/benefit of de-worming of schoolchildren in Kenya and the success of conditional cash transfer programs like Oportunidades in Mexico (for an early CGD book concluding that the poverty impact of these programs is limited go here). And he refers to the Millions (of children’s lives) Saved in the last decade thanks to global health programs.

But Easterly and other aid skeptics agree that aid programs directed to education, health, and micro-finance relieve poverty and human suffering. It’s the big infrastructure, agriculture, and direct budget support programs aimed at economic growth and nation-building — at transforming poor countries into middle-class societies with democratic and accountable government – whose effectiveness they doubt.

The real debate is about whether these “big aid” programs do any good at all, or sometimes even do harm. My colleagues Michael Clemens and Steven Radelet argue that, based on their econometric analysis, these programs do do good. Rajan and Subramanian argue (more econometric analysis) that aid is implicated in Dutch disease, undermining the export potential of local small businesses as large aid inflows drive up the value of local currencies. Others worry that “big aid” reduces the incentive for tax collection, and induces poaching of scarce local talent by the official aid community. On the problem of currency value, Kristof’s idea that the Chinese invest in textiles in Liberia is a non-starter — until and unless the Chinese let their exchange rate appreciate. At the moment their undervalued currency means their cheap exports make it hard for African textile producers to compete.

We need to face the cold hard truth: No amount of rigorous impact evaluation or fancy econometrics is likely to answer the “big aid” question, as my colleague David Roodman has pointed out.

That doesn’t mean big aid should be off the table. We suspect big aid works better in countries that are reasonably well governed (this is the Millennium Challenge Corporation approach among others) and we can learn from case study and thoughtful analysis what might work better in fragile states. And it’s worth taking reasonable risks and learning as we go – with aid abroad just as with education and health reform at home. But let’s keep aid in perspective. As I’ve argued, growth and good government are in the hands of the leadership in most developing countries; and helping the world’s poor is about many other policies on the part of rich countries besides aid.

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1. Kim Elliott Says:
   November 25th, 2009 at 1:36 pm

   Nancy mentions one reason that Kristof’s the Chinese apparel factory in Liberia is simplistic, but his assertion that “trade is usually preferable to aid” misses the point for another reason. For many poor countries, it is not one or the other. It is often difficult to trade competitively without some of the “big aid” that Nancy talks about, to build roads and ports, but also “small aid.” Even though two-thirds of Africa’s poor are in rural areas and mostly dependent on agriculture, and despite mostly free access to the US market under the Africa Growth and Opportunity Act, Africa exports very few agricultural goods to the United States. One reason is the inability of producers to certify compliance with US food safety standards and some small aid to provide technical assistance and training would certainly be useful!

2. VEDiCarlo Says:
   November 25th, 2009 at 3:56 pm

   I think Kim makes a good point regarding the need for infrastructure in developing countries in order to make trade a viable option, and that infrastructure most certainly is likely to come via aid. However, I think simply allowing any infrastructure aid to continue unchecked on the soul account of it being necessary to trade is too idealistic. As evidenced by displaced people all over the globe, there needs to be greater coordination in these large aid endeavors.

   To speak to the ills of big aid, it is necessary to consider the cyclical nature of foreign aid undermining local government by providing public works, which in turn makes governments dependent on foreign aid for legitimacy. Your last sentence sums up the essence of what is at stake: “good governments are (I would say, ’should be,’ as there clearly are not currently)in the hand of the leadership in most developing countries.” If local governments do not have the legitimacy and tools to create shape their own future, what use is the aid money in the long run?

3. Jennorins Says:
   November 28th, 2009 at 5:00 pm

   As all have pointed out, there are some major challenges to the aid regime, just as there are cases of success. As you have pointed out, aid works well in countries that are already on the development path, in that they have good governance and working institutions that make them more attractive to donors. The challenge is with determining the role and form of aid to the very poor countries. I recently read Paul Collier’s book on how to save \The Bottom Billion\. Certainly these countries need more intensive assistance that the middle income developing countries; indeed these countries are dependent on aid for minimum standards of living. But the challenge is that unless aid comes with security guarantees, high levels of oversight to prevent corruption, and some form of time limits to prevent Dutch disease, aid to these countries is not going to help them out of the quicksand in which they are stuck. Like VEDiCarlo mentioned, coordination among donor countries and among aid agencies is key to significantly improving the prospects of the bottom billion countries. However, such coordination seems unlikely, because of competition and differing regulations and policy agendas.

   I am also glad you shared the Commitment to Development Index, because I very much agree that development is not dependent on the amount of aid alone, but on the extent to which it is purposive for the needs of the recipient country, and in addition on other agendas that promote or prohibit developing country’s participation in the global economy. The CDI says quite a lot about the policy agenda’s of the different rich-countries listed, and suggests that the US has a long way to go before it can truly promote itself as the leader of the free world.

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