Easterly vs. Sachs on Aid

Keywords: Nicholas Kristof; William Easterly; Jeffrey Sachs; Amartya Sen; Monterrey Consensus; Millennium Development Goals; poverty; health care; trade; globalization

Nicholas Kristof’s article, “Aid: Can It Work?” in the New York Review of Books shook me up. It’s a rather positive review of William Easterly’s book, The White Man's Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good. Probably I should not have been surprised, since Easterly’s main argument has been around for decades. Yet I have shrugged off that perspective on purely idealistic grounds: it is just too mean-spirited.

To be sure, all the reviewers of Easterly’s new book seem to depict it as rhetorically excessive and remarkably full of spleen. But they manage to put aside their distaste for his nasty tone long enough to acknowledge that he has a point or two. And that acknowledgment is what makes me anxious. Is it really true that foreign aid has worked so poorly? Can a conscientious person actually question whether it is, on balance, a bad idea?

Maybe not — but Easterly comes close enough to earn some admiration from Nicholas Kristof and even from Amartya Sen, whose generosity of spirit is beyond question. I haven’t read Easterly’s book yet and probably won’t, but I am vicariously shaken by it.

First, Kristof’s review. He points out the well-known fact that Easterly bases his career primarily on criticizing Jeffrey Sachs (see photo). Now Sachs has had a career that previously merited considerable criticism; he originated “shock therapy” as a way of bringing the recently Communist countries into a modern world economy — a program that, to be kind, had its flaws. Still, in recent years Sachs has become the most influential economist promoting a campaign of international aid to end poverty around the world. The governments that agreed to this program (at the “Monterrey Consensus”) have fallen far short of fulfilling it, but that doesn’t make it a bad idea. The specific objectives set out as part of the “Millennium Development Goals” would, if attained, be one of humankind’s greatest triumphs. For inventing and pushing it, I have to keep rooting for Sachs.

Yet Easterly objects to Sachs’s approach so intemperately that the two men are said not to be on speaking terms. The main issue seems to be the difficulty of measuring progress toward these various goals. Sachs wants to attack poverty on a whole range of fronts simultaneously, though many of these specific goals, such as the reduction of maternal mortality or the eradication of malaria, cannot be quantified empirically. Easterly claims that the UN is setting itself up for a big failure because it will not be able to demonstrate success or – more importantly – determine which kinds of intervention are successful and which ones need to be changed.

That sounds to me like a reasonable objection, though I can’t get enthusiastic about Easterly’s proposed solution: to tackle one measurable problem at a time, then move on to the next. Sachs is right; because health and money and infrastructure are all causally related, you can’t solve one of them at a time. The people would be dying of something else while you were solving one of their problems. But it’s true that you can’t easily measure one variable while changing a whole bunch of other related variables. But Sachs says that we already know what works enough to get on with the job anyway. That argument sounds reasonable too, though surely there must be some effort to monitor results as we go along.

Unfortunately, Easterly seems to have a devastating come-back to this proposal. He says that aid has not helped development, on the whole, and that it’s a mistake to count on future success with it. Here he marshals some evidence – that the Asian countries that have successfully battled poverty have received very little aid. Kristof notes,

“The median ratio of aid to GDP of the ten countries with the highest per capita growth rates between 1980 and 2002 was just 0.23 percent. In contrast, as Easterly shows, the ten countries with the lowest per capital growth rates in that period, all negative rates, had a median aid-to-GDP ratio of 10.98 percent. That says nothing about causation, but it’s still not very encouraging.”

True, but what shall we make of that little caveat, “That says nothing about causation”? If these figures really do say nothing about causation, I need not get upset and start changing my whole worldview. So I turned to Amartya Sen on that point. He reviewed Easterly’s book for Foreign Affairs, “The Man Without a Plan,” pointing out a problem with this research:

“To arrive at his negative view of economic aid, Easterly draws on large-scale cross-sectional statistical analysis, as well as on case studies of particular plans and programs. Such intercountry comparisons have become fashionable as a way of isolating solid connections between causes and effects, but they are seriously compromised by the difficulty of comparing diverse experiences: countries can differ significantly in variables other than those that are brought under cross-sectional scrutiny. Many such studies are also impaired by difficulties in identifying what is causing what. For example, a country's economic distress may induce donors to give it more aid -- which may, in terms of associative statistics, suggest a connection between aid and bad economic performance.”

Ah, so there’s no definitive case against economic aid in these statistics after all! And Sen points out that Easterly’s subtitle claim is excessive — that the West’s efforts to aid have done great harm. They haven’t always worked out well, but rarely have they done actual harm, according to Sen, who knows a thing or two about the subject.

On the other hand, Kristof points to research by Raghuran Rajan and Arvind Subramanian of the International Monetary Fund that lends credence to Easterly’s argument:

“After closely examining the evidence they concluded that ‘aid inflows have systematic adverse effects on a country’s competitiveness.’ They conclude that one reason aid can be counterproductive is that it tends to boost the recipient country’s exchange rate. That in turn makes its exports less competitive, undermining local manufacturing. Indeed, Subramanian compares aid inflows to the ‘natural resources curse’ by which a country is flooded with revenues from oil or diamonds — and ends up suffering as a result.”

If that’s true, it would seem to mean that there are inherent disadvantages to aid. At a minimum, one corollary follows: that when aid is given, it should be carefully directed toward interventions that are most likely to work. And, as Kristof notes, those tend to be health measures.

“By and large, you get better results per dollar by investing in health care than anywhere else — where else can you spend a few dollars and save a life?”

That is absolutely right. But Kristof, despite strongly defending the value of aid generally, also acknowledges another of Easterly’s key points:

“More broadly, one of the lessons not only of his book but of modern history is that the best way for a country to escape poverty is not so much through aid as through increasing its trade and investment. Aid isn’t the preferred path to development.”

This observation largely accounts for the success of the “Asian tigers” such as Singapore, China, and Malaysia. It seems to me that Western liberals – the people who most fervently encourage their governments to increase overseas development aid – are the very people who are least likely to consider trade a crucial aspect of development. If we are to learn anything essential from Easterly, it is this. We need to think about it while we address one of the top issues of our day: globalization.