2005-09-12

Is less aid more?

Via Johan Norbergs blog I encountered an article where Fredrik Erixon argues that foreign aid to developing countries doesn't work. In fact he says that it actually is hurtful to the recipient countries. It's food for thought, and actually quite a scary idea.

But I think he is wrong. Because he looks only on how much aid has been given, but not what type. Much of the aid given during the 70s was grandiose, massive and industrial. It aimed to kick the countries into the industrial world by building factories. Much of the money ended up in corrupt pockets, and the industries seldom gave the desired effect.

In the 80s the aid was focused more on small scale healthcare and educational projects. These existed during the 70s too, but made up a small part of the relatively large sums spent on foreign aid during this decade. And the curves show no sudden increase in prosperity when the large scale aid stops, at least showing that aid does not need to be hurtful.

So I suspect that aid can help, if it is aimed at strengthening the basic needs of society. Aid should help in building a countries legal system, healthcare, schools and democracy. That together with economic freedom provides the basis for a country to get out of poverty.

Building big industries help with nothing of this, in fact, it often acts contrary to the economic freedom. But, although big industry aid is useless, it does not mean all aid is useless. I think this is Fredrik Erixons mistake.

2 kommentarer:

drbergh sa...

Good point! The fact that aid historically has failed in many cases, does not mean that all aid is bound to fail.

Those who read swedish might want to look at this little text:

http://www.nek.lu.se/nekabe/LNBek/u2.php.htm

Lennart Regebro sa...

Hi Andreas!

For those who don't read Swedish, Andreas argues that one of the major reasons that aid projects fail is because of the lack of trustworthy right of ownership. It's a good point. If you can't be sure that you are allowed to keep a piece of land or a house or a company, then you will not invest in it, making sustained economic development impossible. Aid will then just be spent, not invested, and no long term benefit will result.