Foreign Aid: Diagnosis without Direction

I hate to admit it, but I liked this book. William Easterly is a professor of economics at New York University who earlier spent more than 15 years as a research economist at the World Bank. I knew him in his early years there and he was already original and independent. As a scholar he was devotedly evidence-based—that is, he let the results of empirical work speak for themselves. I imagine he liked surprising results best, seeing them as inspiration for new ideas rather than distractions to be buried in newly specified regressions. Easterly left the World Bank soon after the publication of his first book, The Elusive Quest for Growth. In that book he was critical of the World Bank and other well-intentioned institutions for their misguided efforts to help developing countries find the elusive growth elixir.

In his new book, The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good, Easterly is equally critical of the establishment, this time focusing on the failures of Western aid to make a difference in what he calls the "Rest" of the world. He also skewers nation-building in two chapters on colonialism and military intervention.

What I liked about the book is that besides being richly researched and accessible, it is clearly, indeed passionately, argued. Easterly grounds his argument in a rich and plentiful set of his own peer-reviewed journal articles, complemented by ample references to others' academic work. You don't need to buy the argument whole-cloth to enjoy the exposition.

Why do I hate to admit I liked the book? Because while I think Easterly's exposition of the aid system's problems is excellent, his recommended alternative is to go around rather than fix the system. Readers may conclude that if the round-about method is impractical, then the only good option is to reduce aid altogether. Yet the development community has been riding a wave of enthusiasm for increasing aid—for doubling or even tripling aid to Africa—in a movement supported by celebrities, politicians, and the U.S. evangelical community, in which Bono, Tony Blair, Bob Geldof, and Jeffrey Sachs have been prominent figures. This is the moment to try to channel that enthusiasm toward improving the aid system, not going around it. Both more and better aid, though hardly sufficient to end poverty in the world, ought to be on the policy agenda.

What exactly is Easterly's argument (which I like)? And what does he propose as an alternative (which I find insufficient) to the current aid system?

The argument starts with the simple point that markets don't work well in the absence of some elusive (to outsiders) social and political arrangements peculiar to each society. Before there are formal property titles and uncorrupted courts and bank supervisors (all of which come later in the elusive process of modernization), there are social institutions and customs at the 'bottom' of society which permit trade and implicit contracts between parties. In successful societies they evolve ("Bottom-Up Legal Evolution" is one of Easterly's chapter subtitles).

But official donors, who are often not only outsiders but development utopians, don't want to wait for evolution. They arrive in developing countries with comprehensive solutions (Millennium Development Goals) discussed at an endless series of conferences, and set out in thousands of pages of documents, further worked out in endless and feckless 'coordination' among themselves. Easterly identifies these official donors (the various agencies of the United Nations, the World Bank and the regional development banks, the International Monetary Fund, the bilateral aid agencies of the donor countries) as well-intentioned but fundamentally misguided top-down 'Planners.' They are trying to plan the market (for example with comprehensive structural adjustment reforms and shock therapy), without understanding local realities—cheating, predation, ethnic and other rivalries—and...