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Message to aid donors: First, do no harm
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THE gap between the richest and poorest countries remains one of the great moral dilemmas for the West. It also presents one of the greatest challenges for development economics. Do we really know how to help countries overcome poverty?
In his deeply researched new book “The Great Escape: Health, Wealth, and the Origins of Inequality,” Princeton University’s Angus Deaton urges caution. For those interested in world poverty, it is unquestionably the most important book on development assistance to appear in a long time.
Deaton suggests that far too often, Western aid serves to assuage donors’ guilt rather than improve recipients’ plight.
Although Deaton supports select initiatives, particularly for delivering medical and technological knowledge, he questions whether the vast majority of aid passes the basic Hippocratic litmus test of “first do no harm.”
Data dilemma
Most experts agree, and Deaton concurs, that at least a billion people on the planet live in desperate circumstances resembling conditions that prevailed hundreds of years ago. Our failure to alleviate their plight is morally reprehensible. But where, exactly, are the greatest concentrations of poor people? Data are hard to come by and even harder to interpret.
Attempts to convert national incomes into a common denominator are fraught with complications. To take one prominent example, there is a 25 percent margin of error on purchasing-power-parity comparisons between GDP in the United States and China. In other words, we cannot say whether Chinese output today equals 55 percent of US GDP or 92 percent.
This problem is hardly unique to comparisons of China and the US; it applies with perhaps even greater force when comparing incomes of the poor in Mumbai with those of the poor in Freetown, Sierra Leone.
Deaton goes on to offer a revealing critique of some of the most hyped and fashionable approaches to improving aid. For example, the “hydraulic model” of aid — the idea that if we simply pumped in more aid, better results would gush out — ignores the fact that funds are often fungible. Even if aid is narrowly targeted at say, food or health, a government can simply economize on expenditures that it might have made anyway and redirect them elsewhere.
Growing without aid
Deaton observes that, in general, Western countries developed without receiving any aid. (Perhaps America’s post-World War II Marshall Plan in Europe is an exception, but that aid was intended more for reconstruction than for development.)
China and India, too, have succeeded in lifting hundreds of millions of people out of poverty with relatively little Western aid (particularly China).
Deaton argues that aid providers must be extremely careful not to interfere with political and social forces that, over time, can generate organic — and therefore more lasting — internal change.
Deaton’s message is fundamentally positive. Highly targeted Western aid and advice can help, but donors must take more care not to stand in the way of the beneficiaries of their assistance.
Kenneth Rogoff, a former chief economist of the IMF, is professor of economics and public policy at Harvard University. Copyright: Project Syndicate, 2014.www.project-syndicate.org. Shanghai Daily condensed the article.
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