The Failure of Foreign Aid

The Economist recently reported on the state of foreign aid:

Foreign aid can work wonders. It set South Korea and Taiwan on the path to riches, helped extinguish smallpox in the 1970s and has almost eliminated polio. Unfortunately, as Malawi shows, it is liable to be snaffled by crooks. Aid can also burden weak bureaucracies, distort markets, prop up dictators and help prolong civil wars. Taxpayers in rich countries dislike their cash being spent on Mercedes-Benzes. So donors strive to send the right sort of aid to the places where it will do the most good. How are they doing?

…By almost all of these measures, foreign aid is failing. It is as co-ordinated as a demolition derby. Much goes neither to poor people nor to well-run countries, and on some measures the targeting is getting worse. Donors try to reward decent regimes and punish bad ones, but their efforts are undermined by other countries and by their own impatience. It is extraordinary that so many clever, well-intentioned people have made such a mess.

Some economists (like NYU’s William Easterly) have been incredibly critical of foreign aid. Of course, not all aid is created equal, but there are better ways to help the poor abroad.