AID

There is a lot of debate lately on the effectiveness of foreign aid. There are extremes in this debate, both of which make sense to a degree, which tells me that the answer is somewhere in the middle. There is the Jeffrey Sachs school that says aid is essential to lifting countries and populations out of poverty because it saves lives and fosters growth. And there is the increasingly popular view of Dambisa Moyo, that says that aid is detrimental to countries because it isn't sustainable and leads to unaccountable governance.

Two of my favorite economists seem to think aid is not desirable for development: Paul Colliers and William Easterly. The more I read about the issue, the more I think that the effectiveness of aid depends primarily on the quality of the government and institutions. Whether a nation can take aid money and make good use of it, or whether politicians pocket it and/or use it to consolidate their rule, depends on the leaders themselves. In places like Rwanda, the government is able to take advantage of foreign aid to develop infrastructure and strengthen institutions. This can be seen as a success story, howeveer, the government of Paul Kagame has recently been accused of attacking his opposition, and perhaps aid has made this targeting more possible.

Aid may be an enemy of democracy because it can so easily be used by governments to prop themselves up. But aid can also be a friend of democracy by enabling weak governments to carry out the sorts of reforms and development plans necessary to create strong governance. So ultimately, as long as aid is given to governments and organizations without their being held accountable for progress, the impact of aid will be weak and unclear at best.