Helping hands; how foreign aid could benefit everybody.(Annals of Economics)

Publication: The New Yorker

Publication Date: 18-MAR-02

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COPYRIGHT 2002 All rights reserved. Reproduced by permission of The Condé Nast Publications Inc.

Last summer, the economist William Easterly published a book entitled "The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics," in which he described how governments in many poor countries, particularly in Africa, have frittered away large amounts of aid money given to them by rich countries. People have written books critical of aid policy before, but the origin of this one was unusual: its author had spent sixteen years at the World Bank, the Washington-based international agency that runs many of the development programs he was criticizing.

Easterly's book read like the testimony of a Mafia turncoat who knew not only where the bodies were buried but who had put them there and why. He pointed out that between 1950 and 1995 the developed world dispensed the equivalent of more than a trillion dollars in today's money in economic assistance, yet many of the aid recipients remain poverty-stricken. Zambia, for example, received no fewer than twelve adjustment loans from the World Bank and its sister organization, the International Monetary Fund, between 1980 and 1994, yet it is still poorer, on a per-capita basis, than it was at independence, in 1964. Easterly listed dozens of countries that wasted significant amounts of aid, including Kenya, Tanzania, Somalia, Sierra Leone, Nicaragua, Haiti, and, most notoriously of all, Zaire (now the Democratic Republic of the Congo), where Mobutu Sese Seko and his cronies shipped money out of the country to their private bank accounts as fast as the World Bank and the I.M.F. could send it in.

Writing in the prologue, Easterly praised his employer for the fact that it "encourages gadflies like me to exercise intellectual freedom," but it turned out that he had tested this tolerance to the breaking point. His book appeared at the same time that many countries were pushing for a big increase in the resources devoted to the World Bank and other aid agencies. In September, 2000, in a Millennium Declaration, the members of the United Nations committed to an ambitious set of international development goals by 2015, including halving the number of people living in extreme poverty, a two-thirds reduction in child mortality, a reversal of the spread of H.I.V./AIDS, and the provision of primary education for children the world over. In order to meet these targets, the U.N. members, including the United States, pledged to provide "more generous development assistance" to poor countries, particularly those genuinely striving to reduce poverty. Following the events of September 11, 2001, many countries stepped up the pressure for increased aid, arguing that, in the words of Gordon Brown, Britain's Chancellor of the Exchequer, "what happens to the poorest citizen in the poorest country can directly affect the richest citizen in the richest country." Easterly's book amounted to a fierce assault on the case for more aid. Not surprisingly, many of his seniors didn't like its timing or its contents, and they didn't hide their displeasure. Last fall, Easterly went on indefinite leave from the World Bank, and he is now based at the Center for Global Development, a Washington think tank, where he is working on proposals to reform aid programs.

Easterly does not have a political agenda -- "Economic development is too important to be left to politicians," he told me a couple of weeks ago -- but since he left the World Bank senior officials at the Treasury Department have picked up on his work. Some of Easterly's arguments have started to show up in the speeches of Paul O'Neill, the blunt-talking Treasury Secretary. At the beginning of February, at the World Economic Forum, O'Neill repeated Easterly's point that many aid recipients remain chronically poor. The international community, O'Neill argued, should concentrate on "learning and saying in a forthright way what hasn't worked and why, so that we can agree to stop making such interventions." Referring to the Bush Administration's decision to cut off economic support to...

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