Commentary

Poverty That Defies Aid

This article originally appeared in the Washington Times on June 19, 2005.

Tony Blair arrived recently in Washington to ask President George Bush to increase substantially U.S. aid to Africa. His visit came a few months after Columbia University Professor Jeffrey Sachs unveiled his own plan to end extreme poverty around the world by 2025. “In The End of Poverty,” Mr. Sachs argues rich countries should commit themselves to transferring some $1.5 trillion over the next decade to the poorest nations — primarily in Africa. But, in truth, foreign aid is unlikely to succeed, because most of Africa’s problems are internal.

In the 1960s, many developmental economists believed in the “vicious cycle of poverty” theory, which argued poverty in the developing world prevented accumulation of domestic savings. Low savings resulted in low domestic investment and low investment was seen as the main impediment to rapid economic growth. Foreign aid, therefore, was intended to fill that apparent gap between insufficient savings and the requisite investment in the economy.

And so, between 1960 and 2005, foreign aid worth more than $450 billion, inflation adjusted, poured into Africa. Result? Between 1975 and 2000, African gross domestic product (GDP) per capita declined at an average annual 0.59 percent rate. Over the same period, African GDP per capita fell from $1,770 in constant 1995 dollars adjusted for purchasing power parity (PPP) to $1,479.

In contrast, South Asia performed much better. Between 1975 and 2000, South Asian GDP per capita grew at an average annual 2.94 percent. South Asian GDP per capita grew from $1,010 in constant 1995 dollars adjusted for PPP to $2,056. Yet, between 1975 and 2000, the per capita foreign aid South Asians received was 21 percent that received by Africa. The link between foreign aid and economic development seems quite tenuous.

Foreign aid to Africa has also enabled government officials to embezzle large amounts of money and misspend much on loss-making projects. In total, Nigerian President Olusegun Obasanjo estimated, “Corrupt African leaders have stolen at least $140 billion from their people in the [four] decades since independence.” Large debt is all most Africans have been left.

As a result of the widespread corruption among politicians in Africa and other parts of the developing world, development economists began emphasizing good governance as a solution to underdevelopment. The focus on internal conditions in poor countries was not welcome news for the foreign aid lobby in Western capitals, which relies on foreign aid to keep it afloat.

Thousands of nongovernmental organizations (NGOs) derive their funding from aid. Many NGOs, therefore, focus on “externalization” of African problems, blaming Africa’s poverty on an unfair trade system and colonial legacy. Ian Vasquez of the Cato Institute observes that calls to massively increase foreign aid look like “giant conflicts of interest.”

Mr. Sachs, however, seems to dismiss thorough internal reform as a prerequisite for African economic growth. As he recently said in a New York Times interview, “The poor are blamed for their problems. We say the poor are poor because they are corrupt or because they don’t manage themselves. But in the past two years I’ve seen exactly the opposite. … The idea that African failure is due to African poor governance is one of the great myths of our time.”

But evidence is not on Professor Sachs’ side. African corruption has been getting worse, not better, over the last few years. Each year, Transparency International publishes its Corruption Perception Index (CPI). The CPI defines corruption as “abuse of public office for private gain.” It is measured on a scale from 0 to 10. The higher the number, the lower the corruption. In 2000, the average African CPI was 3.24. By 2004, the African CPI fell to 2.87.

With the African CPI score on the decline, how can Mr. Sachs claim to have “seen exactly the opposite”? Perhaps he confuses the growth of African democracy with the reduction of corruption. Indeed, Africa today has more democracy than ever before. Between 1960 and 2004, Africa had 198 leaders. Only one, the prime minister of Mauritius, was voted out of office between 1960 and 1989. Things changed thereafter. Between 1990 and 2004, 23 African heads of state were voted out of office.

The spread of democracy enables more Africans to vote corrupt governments out of office, and that surely is a step in the right direction. Unfortunately, elected officials’ behavior in power has not appreciably changed. Many Africans continue to see participation in the government as a means of becoming wealthy, and weak institutions allow them to succeed.

“Very few people believe that it is possible to reform the system,” says Robert Guest, Africa editor of The Economist. “They do not believe that they can ever have a clean government. And because they do not believe it, they think the rational thing to do is to try to get their own people into office and then try to get them to steal as much money as possible and distribute it among their kinfolk.”

The truth is there are no quick fixes to African poverty. Like so many times in the past, the grand utopian visions of well-meaning Westerners are likely to crash on the hard rocks of African reality. In the end, Africans will get it right and prosper, but they will not succeed by seeing foreign aid as a panacea or hoping someone else will solve their problems for them.

Marian L. Tupy is assistant director of the Project on Global Economic Liberty at the Cato Institute.