Can the West Help the Rest? A Review Essay of Sachs' the End of Poverty and Easterly's the White Man's Burden
John, Arielle, Storr, Virgil Henry, Journal of Private Enterprise
The rival opinions expressed by Jeffrey Sachs in his book The End of Poverty and by William Easterly in The White Man's Burden epitomize the dichotomy in the economics literature regarding the role of foreign aid in eliminating extreme poverty. On the one hand, the majority of governments see aid as a solution to ending poverty in developing countries. On the other hand, a growing body of research rejects the simple notion that aid leads to growth. This paper explores both Sachs' and Easterly's conclusions as a way of framing the contemporary debate on foreign aid and its role in alleviating poverty. Although The End of Poverty and The White Man's Burden raise interesting questions about the West's obligation to the Rest, there are problems with both of their analyses of past aid efforts and with the policy prescriptions that they advocate. Given the failure of decades of aid efforts, and recent studies demonstrating that foreign aid can actually retard economic growth in recipient countries, there is reason to be skeptical that we in the West can do much to help those in the Rest..
JEL Codes: F350, I300, O190
Keywords: Foreign aid; Poverty; Developing countries; Sachs; Easterly
Most of the world was poor two hundred and fifty years ago. Moreover, the difference between the richest and the poorest was quite small. Since then, however, much of the world has climbed out of poverty by embracing property rights and enforcing contracts. Still, about one sixth of the world's population is unable to meet their basic needs. Can people in the richest countries do anything to help those in the poorest nations?
Although many in rich countries understandably made it their duty to find solutions to developing world poverty given the widening disparity in the economic fortunes of the West and the Rest, foreign aid has not proven to be the panacea that some envisaged it would be. On the contrary, studies demonstrate repeatedly that the effect of foreign aid is to erode democratic institutions, encourage rent-seeking, increase corruption, and ultimately retard economic growth in aid-recipient countries. Osborne (2002), for instance, specifically evaluates the relationship between past aid efforts and economic growth in developing countries and concludes that aid has had a negative effect on growth. Similarly, Burnside and Dollar (2000) find that foreign aid simply does not affect economic growth in the donor country. Although they insist that "making aid more systematically conditional on the quality of policies would likely increase its impact on developing country growth," they admit that there is "no significant tendency for total aid or bilateral aid to favor good policy" (2000, p.864).
Furthermore, to combat to the popular ideas that shape the political reality of aid giving, economists such as Svensson (2000), Villanger (2004), Knack (2001), Alesina and Weder (2002) and Leeson (2008) illuminate the incentive systems that render foreign aid an ineffective strategy for promoting growth. Knack (2001), for instance, found that aid reduces the recipient government's accountability to its citizens since revenues for aid- financed projects are not dependent upon taxation. Furthermore, citizens begin to compete for government positions and the rents made possible by the influx of foreign aid, which not only has the effect of "siphoning away scarce talent from the civil service" (Knack, 2001, p. 31 3), but can also "increase political instability, by making control of the government a more valuable prize" (p. 312). Knack (p. 312) also argues that attempts by donor countries to tie aid to good governance have proven largely "ineffective." Similarly, as Alesina and Weder (2002, p.l 136) describe, while "Scandinavian donors (the most generous in per capita terms) do reward less corrupt receivers... the United States appears to favor democracies, but seems to pay no attention to the quality of governments of receiving countries. …