Monday, May 01, 2006

Foreign Aid 4: Easterly vs. Sachs

What do Bono (U2 band), Jeff Sachs (Kofi Anan's chief consultant on the UN Millenium Devt. Goals, MDG), Bill and Melinda Gates (multi-billion philantrophists), former US Presidents Jimmy Carter and Bill Clinton, Make poverty history (headed by former rock star Bob Geldoff) and William Easterly (of NYU) have in common? They're either Americans or Brits?

Well, they are among the nominees in the "2006 Commitment to Development Award" sponsored by the Center for Global Development (CGD, and Foreign Policy magazine. And that's where the commonality among them ends. For these guys have varying, even opposing, ways in advancing development in the world's poorest regions and countries. For instance, while Bono, Geldoff and Sachs are campaigning hard for "more foreign aid" to Africa and other poor regions of the world (of course they cannot be as loud in campaigning as well for "more taxes please" to finance those "more foreign aid"), Easterly wrote a book, "The White Man's Burden: Why the West's Efforts to Aid the Rest HaveDone So Much Ill and So Little Good" ( ). I voted for Easterly in the CGD survey.

Dr. Easterly by the way came to my alma mater, the University of thePhilippines, School of Economics (UPSE) January 17 this year. He spoke on "Can national policies really raise growth?". His talk was based on his other book, "The elusive quest for growth: economists'adventures and misadventures in the tropics". I was in that big conference, also attended by the Philippines' 5 past economic planning secretaries and ministers! Easterly didn't talk much about foreign aid though. I spoke briefly during the open forum, and argued that "less government and less taxes can raise economic growth".

"The white man's burden" was among the recently featured articles in Tech Central Station (, below. For brevity purposes, I cut some paragraphs. If interested to see the entire article, see

Planners vs. Searchers
By Roger Bate
28 Apr 2006

The White Man's Burden is a rare book. Its author, William Easterlydistills all of his considerable knowledge and experience aboutforeign aid into it, and never pulls punches in a subject noted forstar-studded platitudes and uncritical thinking. Given how aid hasfailed so utterly in so many places to alleviate the suffering of thepoorest people, The White Man's Burden could have been a depressingread. But Easterly's natural good humor and humility -- as well as hissolid narrative abilities -- make it an inspirational work. Perhaps noone knows better than Easterly that you need a good sense of humor towork in foreign aid to begin with.

The 2005 love-fest with Africa -- G8 summit, Live8 concerts, Angelina,Bono and Brad highlighting the plight of the poor, etc. -- and theideal of making poverty history has led to an increase in aid fundingfrom private and, especially, state coffers. Easterly's conclusion,however, is that this money will not only be wasted, but it will becounterproductive.

Foreign-aid is driven by "Planners" says Easterly. Perhaps the most famous planner and a determined opponent of Easterly is Jeffrey Sachs of Columbia University and the United Nations. Planners think of development as a technical problem that can be overcome by ambitious, multi-faceted, centrally-controlled campaigns, backed up by oodles of cash. Unfortunately, planning lacks market feedback mechanisms, so cannot measure useful performance indicators. Plus, Planners are rarely held accountable for their myriad failures...

Easterly demonstrates that nearly all aid programs fail to reach individually set targets "A UN summit in 1990, for example, set a goal for the year 2000 of universal primary-school enrollment. (That is now planned for 2015). A previous summit, in 1977, set 1990 as the deadline for realizing the goal of universal access to water and sanitation. (Under theMillennium Development Goals, that target is now 2015). Nobody was held accountable for these missed goals....

While Easterly is critical of the foreign aid status quo, he cites many examples of ways in which aid has worked, such as food vouchersto poor families -- contingent upon children attending school ratherthan working in low productivity jobs. Such a scheme was pioneered inMexico and is working well there and elsewhere....

Last April 20, 2006, I wrote this:

Debt-Relievers are Themselves Indebted

The G7 countries -- US, Japan, Germany, UK, France, Italy, Canada -- are among the world's largest lender countries. They set aside billions of dollars every year in foreign aid to be lent to the world's poorest economies through the multilateral institutions like the UN, World Bank (WB), and Asian Development Bank (ADB), and their respective countries' international development agencies.

Presidents and politicians of indebted poor countries always look up to the G7 and other rich countries for "debt forgiveness/write-off", debt swaps like "debt for nature", "debt for UN MDG goals", and other forms of "debt relief". But are these rich countries, the G7 in particular, still that rich to throw in more money to the indebted poor countries? Nope, many of them are not, and they themselves are highly indebted. See table below.

General government gross debt as % of GDP, G7, 2000 and 2005 respectively:

1) Japan: 142.2%, 175.5%
2) Italy: 111.3%, 106.3%
3) Canada: 101.5%, 85.0%
4) Germany: 58.7%, 67.5%
5) France: 56.6%, 67.3%
6) US: 57.1%, 62.9%
7) UK: 41.6%, 43.3%.
(source: IMF, World Economic Outlook, April 2006 database).

So how can these countries continue their practice of throwing more money into the same problem in poor countries, when they themselves are indebted? The G7 and other indebted rich countries can help the poor countries even with less foreign aid if the former will reduce their indebtedness, reduce their borrowings, which will help push world interest rates downwards. Poor countries' debt service payment (both foreign and domestic debts) will decline if interest rates (both world and national) will go down. Then poor countries can either reallocate part of their expenditures from debt payment to social services, or cut taxes to encourage entrepreneurship and job creation among the people.

See also: Foreign Aid 3: Bob Geldoff and More Aid, November 10, 2005

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