Perspectives on AID and Development by Catherine Gwin and Joan M. Nelson, eds.
The last decade has finally seen some countries shift toward freer markets and fiscal responsibility. Yet, the total number of poor individuals worldwide continues to increase. About 1.3 billion individuals live on less than one dollar a day, not counting home productivity. Many recent reform attempts have not hurt the poor, but they have done too little to help. Several of the authors here argue that structural adjustment (freer markets and fiscal responsibility) is important, but proper targeting is also important.
High income inequality is correlated with poor growth and countries with less inequality are correlated with higher rates of growth. The authors suggest AID should target poor countries with decent policies and lower levels of inequality. Unless good policies accompany AID, they argue, growth will be nonexistent.
The authors make the important point that attempts to require governments with poor policies to perform specific acts as a condition of receiving AID have failed. AID is fungible. If a politician is required to spend ten million dollars of AID money on health care, he will spend the AID money on health care but shift a different ten million being spent on health care into his favorite pockets.
Research suggests AID does not cause policy reform, no matter the conditions attached. Therefore, better to spend AID money on poor countries that enforce good policies. If countries with bad policies want AID money, they should show a long-term commitment to changing their policies first.
Countries that mix AID with good, long-term policies correlate with good growth. Reform minded countries put social and competitive pressures on neighboring countries to shape up. Then again, the good policies might be responsible for all the growth despite the aid.
Eliot Berg argues that AID levels in some African countries are too high, causing massive dependency and lack of local involvement problems. "[A]id to GDP ratios of even 5 percent set in motion the institutional dynamics that undermine local capacity." He argues for better targeting--focusing resources where the institutions of self-reliance would not be harmed.
Better targeting would not mean shifting AID to wealthier countries. There are poor countries with good policies to start targeting.
Paul Collier writes that "[A]t present, about a quarter of the African population is living in low-income environments in which AID can be effective in alleviating a poverty so shocking that when ordinary people in developed countries are physically confronted with it they are often traumatized." If AID budgets are not targeted better, popular discontent will eliminate them.
Some questions are left unanswered, for example, the criteria to use for selectivity (targeting). How can donor selectivity be coordinated? How can countries be persuaded to commit to better policies? How much support should civil society organizations receive? How much support should moral education receive? Recommended.
—Book review article by J.T. Fournier, last updated July 26, 2009