Foreign Aid Won’t Eliminate Poverty
Current foreign aid programs don’t address underlying causes of poverty. Pro or con?
Pro: A Better Model Exists
For 2011, the United States has committed nearly $57 billion in new foreign aid dollars, with billions more coming from private philanthropy. Yet this type of support will be a spectacular failure.
The trillions of dollars in aid that have flowed into undeveloped nations since the 1960s haven’t made a dent in world poverty. That’s because too often that aid is based on the charity model, with well-intentioned donors handing out food, medicine, and other supplies to the world’s poorest communities. While that charity is desperately needed, it doesn’t provide the education, tools, and capital resources required to help those communities create a self-sustaining business sector that can build true prosperity.
Instead of repeating these mistakes, it’s time to revisit the one strategy that has ever really worked: the Marshall Plan, which rebuilt Europe after World War II. It did not dole out supplies—that had ended by 1947, when the Marshall Plan began. Instead it made loans directly to local businesses. Those loans were paid back to their governments, which used that money for commercial infrastructure. More important, to qualify for the plan countries had to enact pro-business policies to ensure that local firms could succeed.
There is no doubt that rich countries today have both the technology and the wealth necessary to eliminate poverty. What we lack is the will to use those resources effectively. Shifting aid to the local business sector in order to cultivate a middle class, while tying it to government reform, is the oldest, surest, and only way to accomplish that.
Con: The Breakthroughs Are Undeniable
Simplistic statements that aid "fails" or "works" are not helpful or correct. Many global breakthroughs over the past decade have been financed by government-to-government foreign aid.
Although official aid still adds up to only 0.3 percent of rich countries’ average income, its successes have ranged from huge jumps in global primary school enrollment to Malawi’s recent doubling of national food production. Global health has seen pronounced gains, too. In less than 10 years, foreign-aid-backed programs helped deliver antiretroviral treatment to approximately 4 million people with HIV/AIDS in sub-Saharan Africa, a feat commonly viewed to be impossible in 2000. Over the same period, measles deaths worldwide dropped by nearly 80 percent. And since 2008 alone, more than 290 million modern antimalaria bed nets have been distributed throughout Africa, contributing to major reductions in child mortality across the region.
The successes share common attributes. In all these cases, leadership in developing countries is backed with enough resources to deliver proven goods and services to populations in need. A goal-oriented and transparent technical review process helps to ensure that programs are guided by evidence, rather than politics. And rigorous evaluation systems help promote accountability and course adjustment when programs fall short.
These world-changing breakthroughs do not imply that all aid has been allocated with equal impact. There have been many successes and many failures. But the evidence shows that results-oriented programs can—and do—bring critical breakthroughs to vast populations across the world’s poorest countries.Opinions and conclusions expressed in the Debate Room do not necessarily reflect the views of Bloomberg Businessweek, Businessweek.com, or Bloomberg LP.