Foreign Aid and How to Make a Difference

As you probably know, I'm a critic of development aid. Why? Well, for one thing (and there are many other things), it's a massive waste of money. For a taste, let me quote myself quoting William Easterly in an article I wrote a while back on globalization and capitalism (or just skip down to the end of the post for some ideas about effective ways to express your altruistic impulses):

Adebe is an impoverished Ethiopian man. There’s a pothole the size of a Toyota in the street facing his house. He’d like to have it fixed before it devours his bicycle, his dog, or his four-year-old daughter. So what does it take to fix it?

According to William Easterly of the Center for Global Development, formerly of the World Bank, it takes, well, a lot.

In his paper, “The Cartel of Good Intentions: Bureaucracy Versus Markets in Foreign Aid,” Easterly lays out the mind-numbingly complex process. Unlike you and me, Adebe can’t just phone the Division of Public Works, or call his city council member. Fixing his pothole is an arduous, time-consuming journey of Godknows- how-many steps, an alphabet soup of acronym and bureaucracy as lovely as the process of bovine digestion, or sausage production.

It all starts, in Easterly’s words, like this:

Adebe somehow communicates his desires to “civil society representatives” and/or non-governmental organizations (NGOs), who allegedly articulate his needs through the government of Ethiopia (itself dominated by one minority ethnic group) to the international donors. The national government solicits a “poverty reduction support credit” (PRSC) from the World Bank and a Poverty Reduction and Growth Facility (PRGF) from the International Monetary Fund (IMF) … To get loans from the IMF and World Bank, the government completes a satisfactory poverty reduction strategy paper (PRSP), in consultation with civil society, NGOs, and other donors and creditors. The government prepares the PRSP in light of the fourteen-point Comprehensive Development Framework (CDF) of the World Bank . . .

That’s just the kick-off. Then there are more meetings, more bureaucratic hurdles to jump, more reports to file, and many, many more acronyms. The matter of Adebe’s pothole—as provincial as it may seem—turns out to be a massive international affair involving highly paid suits in posh Washington suites.

Easterly continues:

If the international lenders and donors approve the PRSP and release new funds to the national government, then government will allocate the money in accordance with the NDP, ADLI, CRSP, MTEF, CDF, PRGF, PRSC, and PRSP, after which the money will pass through the provincial governments and the district governments, and the district government may or may not repair the pothole in front of the poor person’s house.

Adebe might as well just pray.

The process isn’t cheap, either. The cost of paper-shuffling alone could have fixed Adebe’s pothole many times over. Easterly notes that “it takes $3521 in aid to raise a poor person’s income by $3.65 a year.”

However, it remains quite true that a few extra dollars is worth a lot more to most people on earth than it is worth to you. So you should give, but in a focused way. You should give directly to good causes with a minimum of bureaucracy where your money is likely to have a big effect. Last year I gave to the Fistula Foundation. A very small amount of money can help heal a women with a horrifying injury. (See how you feel when you just read about a fistula, and then think about what it must be like to have one.) I plan to give to them again this year.

Megan McCardle brings to our attention what I think is another good opportunity for giving. One of Megan's former U of Chicago classmates has set up an educational fund to support the tuition of elementary school students in s single school in his remote hometown village in China. Apparently, $40 is enough to send a kid to school for an entire year. Liang Qiao, who set up the fund, promises that 100% of the money will go to the kids. The kicker is that Liangqiao is dying rapidly of cancer. His lifelong dream was to set up an education fund is his village, which he had intended to do on his own. But since he is going to die soon, he's asking for our help.

This is an excellent way to spend your money. Investing in the human capital of children in a poor but high-growth country like China is a very good bet. Money given by a local to a single local school is likely to have a concentrated effect with little waste. And dying men, unlike the World Bank, aren't likely to skim off the top. I am going to send $40. How about you? Will you send a kid to school this year?

(The donation is not tax-deductible, but you're bigger than that. And if the informality and non-institutional nature of this makes you wary, keep in mind that it is the informal and non-institutional nature of this that is likely to make it effective. If you feel tentative, drop me a line and I'll forward you the email Megan forwarded to me.)