In the wake of the horrendous attacks of September 11, and with an enemy as loosely defined as international terrorism, it is no surprise that we, as a nation, are groping for solutions. The events of September 11 reminded us that the frustrations of poor or unhappy people in faraway lands are much closer to home than we imagine. It seems logical to surmise that increasing our wavering commitment to foreign aid is at least part of the solution. But as with many other proposed strategies for dealing with the terrorist attacks, establishing a clear cause and effect between economic development and terrorism is far from straightforward.
The richest country in the world by many measures, the United States lags behind all other industrialized countries in terms of the share of gross national product going to official development assistance. It will remain in last place even if the full $10 billion aid increase proposed by the administration is appropriated and disbursed over the next three years. The United States is currently second--well behind Japan--in terms of net resources going to development assistance (see table 1). Only four countries--Denmark, Holland, Norway, and Sweden--have met or exceeded the 0.7 percent of GNP target for donors established by the United Nations.
Increasing foreign assistance may have merit on a number of scores. Yet it is not clear that the terrorist problem can be solved by foreign aid, even in the long term. As a starting point, we know little about the links between economic underdevelopment--more specifically poverty--and terrorism. The perpetrators of the September 11 attacks were neither poor nor uneducated. True, terrorists often come from or seek asylum in poor countries, from Libya to Afghanistan to the Philippines. But not all poor countries have problems with terrorism, nor do their governments provide safe haven for terrorists.
Another variable in the equation, about which even less is known, is inequality and changes in the distribution of income. Economic development itself can increase inequality. Most studies find that countries that open their economies and join the global economy do better at reducing poverty. Yet the findings on inequality are much more mixed, as initial progress often increases rather than decreases within-country inequality. Decades ago, Albert Hirschman likened development to the break-up of traffic jammed in a tunnel. At first, progress in some lanes gives people in the stalled lanes hopeful expectations for the future. But if their lanes remain stalled long after other lanes move, frustration can mount and provoke radical behavior, like jumping the median strip.
Although economic development ultimately makes societies better off, in the short run it creates winners and losers. As Samuel Huntington has noted, social unrest flourishes not in countries mired in poverty, but in those that are developing and changing, either for good or for ill, raising or diminishing expectations.
When development alters relative income levels--and relative rewards to different economic sectors--even "winners" can become frustrated. Based on surveys in Peru and Russia, Stefano Pettinato and I found that more than half of the respondents whose income grew over a 10-year period assessed their new status as "negative" or "very negative" compared with their past position. And middle-income respondents were much more critical--even when their income had grown--than were the poor. We attribute these frustrations to heightened expectations, exacerbated perhaps by the global flow of information; to widening income gaps between the middle classes and the very wealthy; and to the precarious nature of income gains in the absence of adequate safety nets and social insurance.
Such findings by no means discount the role of economic development in vastly improving the lives of millions of people. …