Does aid work?: Markets, big goals or both?

Posted May 25

The year 2015 was a significant time for the world as the Millennium Development Goals (MDGs) — targeted at a core of eight different issues, ranging from universal primary education and HIV/AIDS to extreme poverty and hunger — were replaced by the Sustainable Development Goals (SDGs). These are an even more aspirational set of goals targeted at 17 different issues. With the adoption of this new set of ambitious goals, designated to be achieved by 2030, it may be the right time to ask a simple but forward question — do big goals work?

In 1943, economist Paul Rosenstein-Rodan introduced the term “Big Push” — an idea that manifested itself in policy when President Harry S. Truman introduced the Point Four Program in 1949, calling for a “bold new” way to “relieve the suffering” of humanity. Through shifting thinking and fluctuations in aid money during the Cold War and the oil-influenced global recession of the 1980s, aid agencies’ approaches to foreign aid were influenced by a distinct planning mentality — what development economist William Easterly calls “applying a simplistic external answer from the West to a complex internal problem in the Rest.” A particular example is that attempts at comprehensive reforms, or “structural adjustment” that aid agencies used to help post-Cold War Russia, largely proved to be unsuccessful.

The Big Push idea saw a revival of interest with the signing of the Millennium Development Goals in 2000. At the World Economic Forum in 2005, British Prime Minister Tony Blair called for “a big, big push forward” in Africa to help reach its MDG-defined targets by 2015. The G8 Summit later that year agreed to forgive debt owed by African aid recipients accrued during previous Big Push programs, and to double aid from $25 billion to $50 billion annually.

Speaking from years of experience as a senior research economist at the World Bank and at the Center for Global Development, Easterly argues that despite the great amount of attention, goodwill and aid money ($2.3 trillion over the last five decades) that went into solving the problem of poverty, such efforts to aid the poor should become less of a public relations affair and take on a more scientific approach.

Part of the problem lies in feedback and accountability. The West seeks to “develop” a country that they ultimately don’t have accountability for, nor do the poor have an effective way to give feedback. Free markets provide the ideal vehicle for accountability and feedback, and yet, as previous efforts have shown, free markets cannot be planned — the social norms and ways of thinking that must exist in order to create the institutions necessary for an effective free market seem to be outside the scope of simple interventionist policies.

What the world needs are more searchers. Searchers do not get stuck on changing the world all at once, but look for piecemeal ways to relieve suffering. Instead of seeking to fix governments and societies, attach conditions to aid and IMF loans, or trying to make sweeping reforms, searchers pursue more modest, doable steps to make poor individuals’ lives better. Searchers with knowledge of local conditions, experimental methodologies, and ways to get feedback from the poor can develop cost-effective uses of foreign aid. Such solutions as remedial teaching in education, dietary supplements and indoor spraying to control malaria have been verified to be some of these cost-effective solutions. Easterly argues that the only Big Plan should be to eliminate Big Plans, because there is no Big Answer. Instead, what the world needs are searchers who can work on the complicated issues involved with making aid work.

John Hoffmire is director of the Impact Bond Fund at Saïd Business School at Oxford University and directs the Center on Business and Poverty at the Wisconsin School of Business at UW-Madison. He runs Progress Through Business, a nonprofit group promoting economic development. Heeje Yoo, Hoffmire’s colleague at Progress Through Business, did the research for this article.

John Hoffmire teaches at Sa√Źd Business School at the University of Oxford.


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