Little to show after 50 years of int'l aid

Charlotte Denny and Julian Borger, Guardian News Service, London

When the UK's finance minister Gordon Brown called for a new Marshall Plan for the world's poorest countries last December, urging rich countries to double their aid spending, the response from the U.S. administration was swift and cold. At a meeting with Brown and other finance ministers, the U.S. treasury secretary, Paul O'Neill, said that billions had been spent on international aid since the war, with little to show for it.

O'Neill had a point. The iconoclastic economist William Easterly, who spent 16 years at the World Bank, estimates more than US$1,000 billion has been disbursed in aid since 1950 -- yet in many parts of south Asia and sub-Saharan Africa, living standards are now lower than they were 30 years ago.

Easterly was sent on "gardening leave" by the bank last year, after he published a book castigating the west's record on aid, entitled The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics. It is a sorry history of billions of dollars being poured into corrupt regimes whose citizens emerged poorer from the experience.

Before the Monterrey conference, the U.S. touted the work of aid insiders like Easterly to bolster its skepticism towards increasing spending.

The message that a lot of aid is wasted was hardly news to most other donor nations. But what riled them was that Washington has always been one of the worst offenders when it comes to directing aid to cronies rather than to where it is needed.

During the cold war, the Soviet Union and the west poured aid into dubious regimes throughout Africa. Much of the money was wasted on grandiose projects or siphoned off into bank accounts. Not surprisingly, many studies failed to find a link between aid spending and improvements in economic performance.

The fall of the Berlin Wall prompted a reassessment in many rich states about the role of aid. With fewer geopolitical alliances to maintain, some simply slashed their budgets. Others, such as Britain, have overhauled their aid programs, targeting them on poverty rather than bribing allies.

The change in approach has made a difference. The World Bank's research suggests that a flow of aid equivalent to one percent of national income will cause a 0.6 percent rise in growth, a 1.2 percent fall in poverty, and a similar decline in infant mortality. Countries with good policies can convert aid spending into growth, and even when governments are not running their economies well, aid still helps increase investment.

Easterly says he is worried that his argument about past aid failures is being used by some countries as an excuse for simple stinginess.

"Rich countries have not tried very hard to make aid work very well," he argues -- pointing also to staunch support from the U.S. for the World Bank and IMF's structural adjustment loans, which he says "have not been working for 20 years".

"They cut good social programs as well as bad patronage programs," he says.

"I don't think rich countries should use past record as an excuse, because it's mainly their own fault. If the U.S. had cared whether aid was helping people rather than creating markets it might have performed better.

"We shouldn't use our own failings to reduce aid."