 oday
the United Nations convenes a major conference in Monterrey, Mexico,
on the need to sharply increase foreign aid. President Bush will be
heavily pressured to go along when he addresses the conference on
Friday.
The plight
of the developing world cannot be exaggerated. Poverty, disease,
unemployment, and a general sense of hopelessness affect most of
the world's population. It is impossible not to be moved by their
condition and want to help. However, it doesn't follow that more
foreign aid is the answer. Indeed, a strong case can be made that
foreign aid has been the problem for many developing countries,
rather than the solution.
The issue
is very analogous to the debate on welfare. Reformers argued that
welfare often did more harm than good by allowing people to avoid
the hard actions needed to straighten out their lives, such as getting
off drugs, avoiding pregnancies, getting married, finishing school,
and taking jobs. Welfare enabled people to make bad choices without
paying the price.
After innumerable
failed efforts to fix welfare by tinkering, a consensus emerged
that only a "tough love" solution would work. People had to be forced
off welfare in order for them to do what had to be done to fix their
lives and become productive citizens. In 1996, Congress enacted
and Bill Clinton signed landmark legislation that did exactly that.
By all accounts,
welfare reform has worked better than even the optimists thought
possible. Millions of former welfare recipients have found jobs
and managed to hold them even through the recession. So successful
has the U.S. experience been that other countries like Great Britain
are starting to experiment with similar reforms.
Sadly, the
success of welfare reform has not carried over into the foreign
aid debate, even though the issues are identical. Governments are
no less susceptible to bad behavior than are individuals, especially
when someone enables them to continue with it by subsidizing them
and allowing them to avoid the consequences.
The list of
ways in which poor countries have sabotaged development is almost
endless. Industries were nationalized and private enterprise snuffed
out by high taxes, regulations, and corruption. Price controls are
pervasive in the agricultural sector, leading to lower output and
famine. Much foreign aid is simply stolen by elites and almost all
the rest has been wasted on projects that yielded no economic benefits
whatsoever.
The real tragedy
is not the waste, but the fact that foreign aid allowed poor countries
to escape market discipline, resist changing their economies and
their laws to encourage growth, and continue with failed policies
year after year after year. When tragedy struck, as it did so often,
foreign aid filled the gap and kept them afloat for a while longer.
As a result, negative policies were perpetuated in the same way
that welfare perpetuated dependency.
Any number
of serious academic studies have looked carefully at the failure
of foreign aid. Among the most influential are those by economist
William Easterly, formerly of the World Bank and now with the Center
for Global Development in Washington. In a new paper, Mr. Easterly
presents overwhelming evidence that it is almost impossible for
foreign aid to succeed because the bureaucratic nature of the aid
system virtually guarantees failure.
In response,
the World Bank has tried to prove that aid can work if the right
conditions are present. Maybe so, but there is no evidence that
the bank has ever figured out how to create the right conditions
as long as the aid flows. Since aid is never cut off, countries
know that they never really have to reform. They just play games,
pretend to change, adopt purely cosmetic reforms, and continue to
cash their aid checks.
Indeed, there
is a perverse incentive not to adopt meaningful reform, because
that really would lead to a cutoff of aid. True reform would cause
a country to grow so rapidly that it would no longer qualify for
aid. Since it would also require that elites give up much of their
power and eliminate many of their opportunities for personal enrichment
through corruption, they retain the anti-growth policies. In effect,
they keep their countries in poverty to keep the aid flowing.
Not only is
there no case for doubling foreign aid, as the U.N. conference hopes
to accomplish, there is no case for existing aid. The U.S. would
do far more to help the world's poor by cutting off the subsidies
that enable them to avoid adopting sensible policies. Increasing
aid will only make a bad situation worse. What worked for welfare
will work internationally if given a chance. Tough love, not more
aid, is the answer.
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