Friday, January 02, 2015

A thought about foreign aid

Development occurs when there is a widespread movement of people doing things better. They better protect their health, living longer, healthier lives as a result. They better produce goods and services, seeing the GDP per capita increase as a result.

How do people come to do things better? Well they do them smarter, and they do them with better technology. Farmers plant better cultivars, they are smarter about the use of agricultural chemicals, they use better equipment. Factory workers similarly are better organized, they are better equipped, and they work smarter to produce better products more efficiently. I could go on to talk about lumberjacks, bankers, teachers, health workers, etc. but you get the picture.

As economists have pointed out, doing things better on a society wide basis involves investment -- usually improving technology involves investing in new plant and equipment. Some of that investment is in better infrastructure (and better infrastructure technology) -- roads, ports, railroads, airports, electric power infrastructure, water and sanitation infrastructure, dams, canals. It also requires investment in people, especially their education and training and their health physical well being.

This seems so obvious, the question arises, why has development been so difficult. One reason seems to be rapacious people in power who use their power to acquire all the loose resources in their societies, exporting the capital and living high; there is nothing left for investment by the majority, and little reason for the majority to do things better since they will not benefit from doing so.

Another reason is conflict. Wars destroy the very resources that are needed for development, diverting those who could do things better for society into destructive activities.

Disorganization, as typified by failed states, is still another reason that people don't do better.

A number of people are suggesting that foreign aid has failed because it has too often been directed toward places where these things get in the way of progress. The focus on the technical problems combined with acceptance of corruption, emphasis on countries in conflict and emergency aid had resulted in ineffective aid.

I think there is merit to the criticism, but perhaps it fails to recognize that there have been big victories from the technical approach. The green revolution that has seen food production keep up with population growth, the spread of contraceptive technologies that have allowed population growth rates to be reduced, and the improvement in life expectancy globally are examples.

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