Why does foreign aid fail?

How do we make sure aid gets where it's going?
  • Transcript


Topic: Aid and Development

William Easterly: Well these days I’m best known for the critique of foreign aid to lift poor areas of the world like Africa out of poverty.  And the critique is . . . it comes from kind of a bitter experience.  I spent 16 years at the World Bank working to fight world poverty.  I’m very much an idealist wanting to help the world’s poor, and really seeing a lot of those efforts fail.  A lot of the official foreign aid efforts fail to help the world’s poor.  I saw 2.3 trillion dollars spend on foreign aid over the last 50 years, and I saw the results of that on the World Bank trips that I went on that were just nightmares of bureaucracy, and ineffective experts flying in, and thinking that they were experts in the problems of Africans after spending a week in a luxury hotel room in Africa.  Frankly there was a moment of disillusionment, and then there was a desire to change things.  A desire to change the foreign aid system so that it would work better so that more of that 2.3 trillion dollars that’s been spent over the last 50 years would reach poor people, and not be dissipated in luxury missions from World Bank headquarters, or in ineffective government bureaucracies on the other end.

Question: Why does foreign aid fail?

William Easterly: The critical thing that makes foreign aid fail so often – and this is really heartbreaking – is simply that the poor who are the intended customers of foreign aid, just like you are the intended customer of the Pepsi Corporation when they sale you Pepsis . . . But unlike your relationship with Pepsi, the poor have no right to complain and no right to turn down the product if they don’t like it. The poor just get foreign aid foisted on them by these ill-informed “experts”, and there’s no feedback from the poor – whether they’re satisfied or not, whether their money even reached them or not. There’s no accountability on the part of these official aid agencies for whether they got the money to the poor, whether they made the poor better off by getting them a drink of clean water when they previously didn’t have access to clean water. Or by getting them an essential immunization to prevent their child from getting measles. Or to get them a bed net to prevent them from getting bit by a malarial mosquito. There’s no accountability for these basic things, and so these basic things don’t happen. Where there are no incentives and no accountability, then that’s another insight of economics. And then that doesn’t happen, and that’s indeed what has happened in foreign aid tragically.

Question: Where does the money go?

William Easterly: You know the money sort of leaks out all along the chain that starts in Washington and New York with the United Nations, or the World Bank, or other official aid agencies, and it gets sort of lost all along the way.  Because on the part of the rich country public, they’re mainly concerned with how much aid money is spent and then they’re satisfied.  “Well we spent 2.3 trillion to help the world’s poor, so our job is done.”  And they’re pretty much not paying attention after the money is spent.  So with a long chain of officials in charge of the money with no one looking over their shoulder to see how they’re spending it, there’s plenty of ways that it leaks.  It leaks into expensive salaries for the people working at headquarters like me.  I have to admit I was one of those who benefited from this gravy train.  There’s all the administrative costs in which huge amounts of money are wasted of the official aid agencies.  The World Bank has a budget of one billion dollars to help the world’s poor, even though it only disperses about seven billion dollars in aid to help the world’s poor.  It has an administrative budget of one billion dollars.  Then the money is given to the government in the poor country, and then the money there either gets dissipated in an ineffective bureaucracy where it’s just paying the salaries of unmotivated civil servants who have no incentive to help the poor.  Or it’s outright stolen through corrupt officials.  There’s an estimate that something like 40 to 60 percent of drugs meant for health clinics in West Africa get stolen before they ever reach the clinics, and get sold on the free market . . . on the black market.  So that’s where the money disappears.  And then at the end of the day, unfortunately nobody seems to care.  That’s the tragedy that breaks my heart over and over again – that no one cares that this money is not actually reaching the most desperate people in the world for whom it is intended, people who live on less than a dollar a day.  It’s just an unbelievable measure of deprivation.  People living on less than a dollar a day, and that’s who the money was intended for but it never reaches them.

Question: Why isn't foreign aid tracked more carefully?

William Easterly: Well people just assume if the money is budgeted for helping the poor that it goes to help the poor.  Unfortunately there’s not a very strong incentive to . . .  If you’re just the average taxpayer in the U.S. or in Europe, there’s not much incentive to investigate whether some poor village off in Ghana, West Africa received the money or not.  You can’t mount your own investigation to find out.  The press, unfortunately, doesn’t seem to have enough motivation to really dig deep into whether the money reaches the poor, because they are mainly providing stories for U.S. consumption that are mainly mostly about disasters striking Africa, wars and earthquake, and famines and droughts, and not about the more kind of pedestrian matter of, you know, did a dollar of aid money get to a baby in time to give them a re-hydration treatment so they wouldn’t die from dehydration due to a disease that kills 2 million babies a year due to dehydration?

Recorded On: 7/6/07