Arvind Subramanian's op-ed in yesterday's Wall Street Journal, A Farewell to Alms has reignited a long-running debate about whether foreign aid works—a debate that NYT columnist Nicholas Kristof tried to put to rest recently in an elegant defense (subscription required) of some aid for some purposes. Arvind is currently a senior fellow at CGD (joint with the Peterson Institute. As our regular readers know, CGD fellows have full liberty to state their own views as long as they are based on scholarly analysis available to the public. In this case Arvind summarized research of his own that is available—shortly to be published in the journal Restat (Review of Economics and Statistics). His article, "What Undermines Aid's Impact on Growth?" (with Raghu Rajan, former Chief Economist at the IMF) has already been widely circulated and hotly debated; one more analysis is unlikely to put to rest an important debate.What is new in the op-ed is Arvind's outline of two trade-offs that he argues Kristof ignored. I disagree about these trade-offs.The first potential trade-off involves aid that improves health and saves lives, on the one hand, while at the same time possibly undermining growth. As Arvind writes "better health could be accompanied by slower growth, and hence reduced prospects for long-run prosperity." Surely most people would trade staying alive for sure today for uncertain prosperity tomorrow (even high-income economists with very low discount rates). And anyway, in some circumstances better health may contribute to future prosperity—as Jeff Sachs, among others, has argued in yet another unresolved debate (see, for example, the UN Millennium Project Taskforce Report on Child Health and Maternal Health, "Who's Got the Power? Transforming Health Systems for Women and Children").The second possible trade-off assumes that there is a limited stock of good will in the rich world. Arvind writes:
There is a limited stock of goodwill and good intentions in the rich world and the question becomes whether this stock is best harnessed by mobilizing more aid or by pursuing alternative actions that could have a bigger impact.
On this idea there is no evidence at all. And it seems to me that there may be no trade-off at all either. My intuition is that Angelina, Bono and others' efforts to mobilize more aid money have increased vastly the number of people in the rich world that understand the potential to improve lives in the poor world—and that understanding is the first step in mobilizing support for other ways to help: agricultural and health research geared to poor country needs; ending U.S. and European agricultural subsidies that constitute unfair competition; better enforcement of anti-corruption to reduce bribery of Western corporations in developing countries; and allowing more immigration from the poorest countries. In fact Bono's DATA is working on the trade issue, as are other aid advocacy organizations like Bread for the World.And by the way, I suspect that, contrary to Arvind's assumption, Bono (who is an awfully smart guy), is indeed "up on the economic literature." It's just that one or two sophisticated analyses suggesting that too much money may not help isn't going change their reasonable starting assumption: that lack of money might be the problem in some places at some times, and should not be the binding constraint when it comes to helping save and improve poor people's lives.More to the point, raising money—and the awareness that goes with it—may turn out to be not a distraction but the leading edge of other development-friendly steps by the rich.
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