January 1, 2015

Foreign Aid Is a Failure

Veronique de Rugy

George Gibbs Chair in Political Economy
Summary

Foreign aid suffers from a principal-agent problem, in which organizations prioritize donors' political and commercial interests over recipients' needs.

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This article appears in the January edition of Reason Magazine

It's been almost a decade since one of the deadliest natural disasters in modern history devastated the coast of South Asia. In the final days of 2004, a 9.1-magnitude undersea earthquake triggered a tsunami in the Indian Ocean, killing over 230,000 people in places such as Indonesia and Sri Lanka and leaving thousands stranded without the basic necessities of life.

International leaders immediately called on the global community to provide help. What happened after that underscores the flaws in the developed world's approach toward foreign aid: Governments gave generously, pledging more than $10 billion. Yet the humanitarian response to the crisis fell far short, and many desperate needs went unmet.

For years, it was believed that solutions to complex global problems could be engineered if only wealthy nations mustered enough will and funding to see them through. But despite a desire to help and a willingness to give, the international community keeps stumbling to address both short-term crises, such as natural disasters, and longer-term challenges, such as global poverty and economic development.

In his 2013 book Doing Bad by Doing Good, the George Mason University economist Christopher Coyne explains why measures intended to alleviate suffering often go so wrong. Most people agree that wealthy countries have some responsibility to help relieve hardship in distressed areas. But while we are usually clear about our goals, we rarely stop to consider whether government can realistically accomplish them. Our efforts abroad tend to be marred by culturally illiteracy. Without meaning to, we frequently create perverse incentives that harm the people we are trying to assist.

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