The case for aid

Tim Worstall at Tech Central Station has some good ideas about how to make foreign aid work better.

Rather than quibble with him, I’d make three elaborations.

First, private foreign aid would have two advantages over most traditional aid. One is that private projects would be more readily evaluated to see whether they’ve worked. In the past, the World Bank and national governments haven’t always done this.

Also, private projects would focus upon small-scale things that work – like delivering clean water. William Easterly has complained:

Aid agencies should set more modest objectives than expecting aid to ‘launch the take-off into self-sustained growth.’ Aid agencies have misspent much effort looking for the Next Big Idea that would enable aid to buy growth.

Secondly, although this is an important warning, I don't think we should be too pessimistic about what aid could actually do. Much of the scepticism about its effectiveness rests upon some out-dated Bayesian priors.

These priors are often derived from work by the late Peter Bauer in the 1960s and 70s, which showed that foreign aid had failed.

He was right. But we’ve made progress since then.

In the 1960s, people were morons; Germaine Greer was considered an intellectual then. Equally stupidly, they thought capital spending was the engine of growth. Plonk down a factory, they thought, and we’ll get economic growth. Of course, that sort of aid failed.

But we now know a lot better. There’s been a mountain of research in recent years on the causes of growth. Thanks to the likes of William Easterly, Xavier Sala-i-Martin, Paul Romer, Philippe Aghion and Robert Barro, to name but a tiny minority, we’ve got much better ideas about what works, or at least what doesn’t. This credible, if controversial, study has found that aid can promote growth under the right circumstances, not least of which is half-decent government.

Of course, we must, as always, guard against rationalist hubris. But there is, on empirical grounds, a case for at least giving aid a chance.

Thirdly, the moral case for aid is stronger than widely thought. It’s not just a matter of urging people to be generous, important as that is.

An interesting argument here is a variation on Ronald Dworkin’s famous papers, “What is equality?” in Philosophy and Public Affairs 1981.

Imagine you are in a group of people waiting to be born and you don’t know what society or condition you’ll be born into.

In this position, reasonable people would want to take out insurance against being born into really bad circumstances.

One such circumstance we would want to insure against is, surely, the risk of being born into a dirt-poor dictatorship.

We should regard aid to such people therefore not as merely an act of generosity, but rather as a pay-out on a hypothetical insurance policy. We’re just doing the job that markets would do, if they existed among people before they were conceived. We're rectifying a market failure.

Libertarians will object that this doesn’t justify imposing obligations on them. We cannot have an obligation to meet the terms of a hypothetical contract.

They’re right. You’re not obliged to give. But morality is about more than mere obligations. You’re not obliged to be a decent person. And if you’re not one, we’re not obliged to desist from pointing out that you’re a dickhead.

Comments

[Blimpish]

Have some sympathy with your point - I wonder if we could do better by removing government entirely from the direction and management of overseas aid, restricting it to just funding and priority-setting?

You're probably aware of Social Policy Bonds? (I assume so, because I read about them in Economic Affairs, and I remember reading an article in there about the minimum wage by a financial journalist...) Was just thinking there's no reason we couldn't fund a bond to (say) reduce malaria deaths over seven years, which we then auction off. Of course, in that case they might start surreptitiously using DDT, but hey: don't ask, don't tell.

[Tim Worstall]

Elaborations, umm, accepted. Especially the half decent Govt part. Than again, half my thought (way too simple to be a thesis) was that most of the problem is exactly the lack of those.