Is foreign aid the solution to global poverty?

Question

A 2005 United Nations report called for a doubling of foreign aid to poor countries as the means to reduce poverty. Yet the 2006 Nobel Peace Prize was awarded to a for-profit microloan bank and its founder, an apparent vindication of the ideas of Peter T. Bauer, Henry Hazlitt, Deepak Lal, and others. As Bauer wrote, “Development aid, far from being necessary to rescue poor societies from a vicious circle of poverty, is far more likely to keep them in that state.…Emergence from poverty requires effort, firmly established property rights, and productive investment.

Answer 1

Econometric Data has shown that that public foreign aid (that is foreign aid that goes into the hands of government or some body of disbursement) per dollar is correlated to reduction in poverty, but that other factors make this relation weak. Levels of corruption, size and density of a country and other such factor are other such variables.

The more effective foreign aid is private foreign aid (foreign aid that goes directly to the family units, usually in the form of remittances to the receiving family coming from their family from another country. This form of foreign aid has much greater effects per dollar than that of public foreign aid.

If we speak just of public foreign aid in its current form, it is not an effective solution per dollar spent to global poverty. It creates dependence on public foreign aid, and creates the mentioned vicious cycle.

But, if we include private foreign aid, it is a effective solution per dollar spent. Money goes directly to family units who create economic growth from the bottom up. With enough aid and with the consequent growth, a middle class can emerge and with an emergence of a middle class come the investment and establishment of property rights that pull a country into what is now seen as a developed nation.

Answer 2

Foreign aid is obviously a temporary measure, but when used in the right way (NOT bilateral loans from country to country, but given in grants by the US government to nongovernmental organizations or institutions like the UN to do specific work targeted at poverty reduction) can make a huge difference. Most peoples in poverty are stuck in poverty traps, unable to help themselves because of structural situations out of their control, with their government or other organizations unable to help because of lack of resources. Increasing foreign aid specifically intended to target individuals or communities does work, so long as the aid is used in the right way. So often the debate over foreign aid focuses on sheer numbers. The amount of aid is important, do not doubt that, but what is even more important is the way in which it is being used. Much of the aid given by the US over the past 50 or so years has not been what most call effective: most has gone directly to governments, with little reaching those most in need, and has been tied to political decisions rather than need. If the aid given were given well, and if it were given enough to actually make a difference, peoples' lives could change for the better and they would no longer need the aid. The Borgen Project has many links to sites explaining this more, but essentially the most important aspect to remember is that aid is an investment. People cannot help themselves all the time without a push in the right direction; the aid would not (should not) be infinite, but should rather be targeted to allow for a sustainable escape from poverty.

Answer 3

I disagree with your statement that the recent Nobel Peace Prize banker is vindicating your quote by Bauer.

Micro finance is lending, not aid. A small loan is made to an individual, who uses that loan in a way think will best improve their life -- buy a bicycle, or an ox, or a washing machine. The idea is that the individual knows what small investment will raise their ability to earn more in the future. The loan is eventually paid off.

Aid is just a one time gift and its use is usually decided by the donor! The gift might not be in the best interest of the donee.

Answer 4

Large amounts of top-down aid only rewards bad behavior by 3rd world governments. Much of these nations are worse off now than when we started aid 50-60 years ago due to the perverse incentives this causes: for example, your check gets bigger the worse your economy gets.


The 2006 Nobel winner directly affected the liquidity of private business owners, who have an incentive to improve the economy. Interestingly, in most poor countries, a large chunk of the population does not have access to credit. A large part of this problem has to do with property rights (in most Western countries, you can use property that you own for collateral to borrow).

There is a large amount of research on this; William Easterly has done a lot in the past 7-8 years. Ironically, he used to work for the World Bank.

So to answer your question, foreign aid is not the solution to global poverty.

Answer 5

I'm afraid it's not. The vast majority of these nations have corrupt dictatorial governments that end up stealing most of the aid. Even when they don't, they end up stealing the development and 'nationalizing' it just when it's profitable.

Take a look at Mugabe stealing and destroying all the productive farms. Take a look at Chavez 'nationalizing' their various industries.

Unfortunately, the Foreign Aid is just a waste of money, even though it FEELS like the best thing to do to help people.

Orion

Answer 6

Foreign aid is a crutch. Like any crutch, if you become dependant on that crutch, you become weaker. That crutch needs to be removed. Unfortunately, it has become the feel good drug of politics. It is time to take foreign aid away from the rest of the world and let the world become dependant on themselves for their needs. Until this happens, they will always need their crutch.

Answer 7

Not in the longterm, but it is a start. Some politics have to change and education has to improve, as well as people have to care more about in a less egoistic way. People should notice, materialistic goods do not make happy.

Answer 8

No, that just gets swallowed by corrupt politicians and others.
Real investment and job creation is the answer

Answer 9

" give a man a fish and he will eat for a day, but teach him how to fish and he will eat for a lifetime... "

its like a " soup kitchen " you keep a man fed and warm for one meal, but keeps him dependent on your soup kitchen for warmth and sustenance... better to give him work , so he can feed and warm himself...

Answer 10

not a sulution but a band aid,