TCS Daily

Development Aid Harms Development

By Roger Bate - January 15, 2004 12:00 AM

As a regular subscriber to the Financial Times I have noticed an increasing amount of advertising by the United Nations Development Programme in the paper recently. Several well-respected development economists, including UCLA's Professor Deepak Lal, have noted that agencies have tried to make their grants and loans perform better in the recent past, compared with the dismal failure of aid through much of the past century. But this has left aid agencies having a hard time finding worthy projects to spend taxpayers' money on. And at least some agencies, including UNDP, have responded by using that most expensive of information dissemination devices -- advertising.

The latest full page ad features tennis star Martina Hingis and former World Champion racing driver Jacques Villeneuve, who are promoting the UN's Millennium Development Goals (MDGs) and especially the aim to halve global poverty by 2015. The sports stars are endorsing the numerous UNDP anti-poverty projects in Latin America and Africa under the "Teams to End Poverty" banner.

One might wonder what spending over $40,000 of taxpayers' money for a page in the FT is going to do for halving world poverty. And even if the FT is giving concessionary terms or even providing the space for free, the UNDP is crowding out more important advertisers since the latter actually might have something worthwhile to sell. The bottom line is that UNDP, USAID and all other development agencies are incapable of achieving the MDGs anyway, because development agencies are part of the problem, and are rarely any part of the solution.

In a recent paper, Fredrik Segerfeldt of the Confederation of Swedish Enterprise, explains that it is not aid that will help the poor but direct investment from business. The paper, "Companies are the Solution, not the Problem" analyses how "economic growth is more important than development assistance in eradicating poverty." And as the UNDP admits, poverty is the real enemy. "Therefore, the discussion about world poverty should, to a much greater extent, focus on how economic growth can be achieved, and less on how global resources can be redistributed. Redistribution will never eradicate poverty," Segerfeldt concludes.

Mr. Segerfeldt demonstrates that states that receive a lot of aid but grow slowly have much lower GDP per capita than states that receive little aid but grow faster. The latter grow fast usually due to western corporate direct investment. More importantly he finds that aid does not lead to growth. 12 of the 20 countries that received most aid per capita in the world in 1980 were still on the top-20 list in 1990 and 8 of them were still there in 2000. One would expect far more movement that this if aid actually generated growth, as its proponents at the UNDP claim.

If aid did lead to growth in poor countries we could trade that off against it slowing growth in rich countries by diverting resources from more productive uses. But as William Easterley, formerly of the World Bank, and author of the seminal book The Elusive Quest for Growth, demonstrated, aid nearly always slows or does not enhance growth, by refocusing attention from building the institutions of capitalism towards bodies that receive and plead for aid. He showed that aid also encouraged corruption.

Other academics, like Kent University scholar Frank Furedi, have shown how aid has promoted a victim and welfare culture. And a study just published by the libertarian Cato Institute reinforces the arguments put forward by Easterly. The study concludes: "The empirical results reported here suggest that foreign aid negatively affects economic growth even for recipient nations with sound economic policies" (emphasis in original).

Mr. Segerfeldt also pointed out how aid to improve the environment in poor countries is also wasted and occasionally counterproductive since it is essential for countries to reach a certain level of income before they start to be able to care greatly about their environment. Where average income is somewhere between $8,000 and $10,000 per person per year people start caring more deeply about the general environment. The corrupting and sidetracking nature of aid slows growth, and delays the time when poor countries improve their environment.

Indur Goklany of the U.S .Department of the Interior concurs saying that countries that have developed rapidly have better and cleaner environments in the medium and long term. Furthermore, the figures for life expectancy, infant mortality, illiteracy and numerous other indicators are better in countries that have grown rapidly rather than in those that receive lots of aid.

Meanwhile the UNDP and Ms. Hingis and Mr. Villeneuve claim that the UN must stop children being "neglected by society and denied shelter, food clothing and education." They are correct that reducing poverty will help these children out of a life of "crime and prostitution" and get the "start in life they deserve" including education, safety and the chance of fulfillment. But most of the evidence is that the UNDP's help is not necessary, and is likely to be harmful. The UNDP would be better off in not advertising but spending their resources on developing the capitalist institutions. This is the only way that the UNDP can really help the poor.


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