The Poverty of Nations: The Impact of Foreign Aid

Abstract

This article focuses on the debate over the usefulness of foreign aid, beginning with books by Jeffrey Sachs and William Easterly, combined with the more recent contributions of Dambisa Moyo and Paul Collier. Political Elasticity (PE) theory is put forward to facilitate our understanding what has to happen for countries to economically develop. In so doing, the theory attempts to reform terminology, including such words as corruption, democracy, decentralization, and power. Also introduced is the concept of political software, referring to the quality of relationships between leaders and followers. The case studies presented, dealing, first of all, with solid waste management in Lagos, Nigeria, and, secondly, with agricultural production in Ghana, are intended to illustrate the effect of software deficiency on urban and rural life. This is followed by comparison of Bangladesh and Vietnam, suggesting that from below (including microcredit programs) advocated by Muhammad Yunus, is not enough to enable countries to escape extreme poverty unless (as in Vietnam) leaders are motivated enough to engender the social energy necessary to do so. At the conclusion, the experience of the World Bank is presented, indicating various reasons why it has not been more successful in bringing about development and suggesting an alternative approach intended to be motivational, rather than charitable. Key Words: Foreign aid; Political elasticity theory; Political software; Bangladesh; Ghana; Nigeria; Vietnam; World Bank. Introduction There has been an interesting debate going on regarding the usefulness of foreign aid. Until recently, the debate has been dominated by Jeffrey Sachs and William Easterly. Professor Jeffrey Sachs of Columbia University, as chairman of the UN Millennium Project, is generally considered to be the world's leading advocate of more foreign aid. His arguments, as presented in his 2005 book, The End of Poverty: Economic Possibilities in Our Time, can be summarized as follows: (a) many of the poorest countries of the world are caught in a poverty trap (including very heavy debt burden) requiring significant foreign aid, together with debt relief, to escape; (b) the rich countries, particularly the United States (which spent $450 million on the military in 2004, as against only $ 1 5 billion for foreign aid), could be far more generous; (c) much foreign aid is undermined by tariffs and subsidies, making it, for example, impossible for African farmers to compete in exporting cotton, corn, and peanuts; (d) the Millennium Development Goals (elementary education, nutrition, antimalarial bed nets, safe drinking water and sanitation, improved cooking stoves, and minimal levels of infrastructure) can be financed within the bounds of official development assistance already promised; (e) poor countries need trade plus aid; (f) foreign aid allocation should be determined by real needs, rather than by extraneous considerations; and (g) explanations for the failure of foreign aid (e.g., inadequate democracy or excessive corruption) have been exaggerated or misunderstood. William Easterly's The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics, appeared in 2001, Since then, he has become leading critic of foreign aid and especially of the taken by Jeffrey Sachs and the UN Millennium Project. Hs criticism led to an early retirement from the World Bank, where he had been senior research economist for more than sixteen years, before becoming professor of economics at New York University and senior fellow at the Center for Global Development. Foreign aid has not been complete failure, according to Easterly's 2006 book, The White Man's Burden: Why the West's Effort to Aid the Rest Have Done so Much III and So Little Good. Since 1965, life expectancy in the typical poor country has risen from 48 years to 68 years; enrollment in primary school has reached 100 percent and in secondary school, 70 percent; and there has been dramatic fall in infant mortality. …

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