Rogge Lecturer Calls for “Revolution in Foreign Aid Thinking and Practice
by Steve Charles
November 18, 2003
Billions of dollars in foreign aid funneled from developed nations to countries in Africa have failed to create economic growth on that continent, and New York University economics professor Bill Easterly can tell you why.
Easterly shares a lighter moment with a Wabash student.
The research fellow at the Center for Global Development and Institute for International Economics and former senior advisor at the World Bank offered insights into these unsuccessful attempts at economy building during a lecture honoring distinguished Wabash economist Benjamin Rogge, calling for a “revolution in development thinking and practice.”
“Our attempts to help nations achieve economic growth have been muddled by many myths that have led the World Bank and International Monetary Fund astray,” Easterly said, drawing from his recent book, The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics. He detailed three of the most prevalent of these fallacies, beginning with notion that money is “all-powerful”—that money alone can create economic growth in a country.
“Money doesn’t finance investment if the incentives in a country’s economy direct it toward consumption,” Easterly said. “Even invested money does not necessarily translate into growth. In fact, on average, high levels of investment in a country has not led to high payoff for growth,” Easterly said, citing the influx of aid to Zambia that failed to stem a consistent drop in per capita income.
Explaining another fallacy, the “myth of the all-seeing bureaucracy,” Easterly said that governments in polarized societies often choose redistribution over development. “And even well-intentioned governments often can’t implement economic reforms,” he said.
Frustrated in their attempts improve per capita income and fuel economic growth, Easterly said, aid agencies “expand their bureaucracies and redefine their mission with meaningless phrases like ‘empowering the poor,’ ‘mainstreaming gender,’ and ‘resource mobilization.”
Easterly labels the third pervasive fallacy causing aid agency missteps “the myth of the all-transforming intervention.”
“We’ve developed a long list of magical interventions—schools, clinics, independence, debt relief, even democracy—that we believe will transform nations,” Easterly said. “And while these have worked in different contexts, we’ve attempted to transfer them into places and situations where they don’t work.”
“Debt relief has been tried for 20 years, but it doesn’t bring about economic growth,” Easterly said, “and Africa has grown faster than East Asia in providing education for its citizens, but its gross domestic product growth is slower. In these contexts, there’s no cause/effect relationship between education and economic growth.”
Does this failure this mean the world’s richest economies should do nothing to aid developing nations? Easterly’s answer is a firm and convincing, “No.”
“We need a revolution in development thinking and practice,” the economist said. “We overemphasize high quantities of input—in money, machines, debt relief—as opposed to incentives; yet only when the right incentives are operating within an economy will that economy grow.
“We need to help nations establish property rights, rule of law, honest courts and police—we need deep changes in institutions.
“We need to hold international financial institutions accountable for past and present successes and failures,” Easterly said, joking, “You can see why I’m no longer at the World Bank!”
“And, instead of seeking the ‘silver bullet’, we need to work one village at a time with programs that work there."
“We’ll not ‘transform’ nations overnight, but with diligence and discipline we can truly help some of the people in some of the countries some of the time, and help them find their own lasting solutions.”