"Planners vs. Searchers in Foreign Aid"

William Easterly gave a talk as part of the Distinguished Speakers Program at the Asian Development Bank (ADB) Headquarters on 18 January 2006. Click here to read his paper and see his presentation. He began:

"Seventeen years after the fall of the Berlin Wall, there is only one major area of the world in which central planning is still seen as a way to achieve prosperity – countries that receive foreign aid. Behind the Aid Wall that divides poor countries from rich, the aid community is awash in plans, strategies, and frameworks to meet the very real needs of the world’s poor. These exercises only make sense in a central planning mentality in which the answer to the tragedies of poverty is a large bureaucratic apparatus to dictate quantities of different development goods and services by administrative fiat. The planning mindset is in turn linked to previously discredited theories, such as that poverty is due to a “poverty trap,” which can only be alleviated by a large inflow of aid from rich country to poor country governments to fill a “financing gap” for poor countries. The aid inflow is of course administered by this same planning apparatus.

"This is bad news for the world’s poor, as historically poverty has never been ended by central planners. It is only ended by “searchers”, both economic and political, who explore solutions by trial and error, have a way to get feedback on the ones that work, and then expand the ones that work, all of this in an unplanned, spontaneous way. Examples of searchers are firms in private markets and democratically accountable politicians. There is a robust correlation (0.73) between economic and political freedom, on one hand, and economic development, on the other hand."