“Aid to the Rescue?”
“Aid does tend to speed up the growth process. A reasonable estimate is that over the last thirty years it has added around one percentage point to the annual growth rate of the bottom billion. This does not sound like a whole lot, but then the growth rate of the bottom billion over this period has been much less than 1 percent per year-in fact, it has been zero. So adding 1 percent has made the difference between stagnation and severe cumulative decline. Without aid, cumulatively the countries of the bottom billion would have become much poorer than they are today. Aid has been a holding operation preventing things from falling apart.
Strong words in a nominal, yet forceful, defense of aid. From the viewpoint of the Easterly's of the world, quite radical, I believe; the knowledge that while far from perfect, the situation without the cumulative input of aid dollars would be much worse; which is both encouraging for aid, and discouraging the overall situations of the poorest countries in the world. However, Collier then introduces the concept of “diminishing returns” in regard to increasing the amount of aid to further increase the effectiveness of this growth boost in the developing world. According to Collier, “A recent study by the Center For Global Development, a Washington think tank, came up with an estimate of diminishing returns implying that when aid reaches 16percent of GDP it more or less ceases to be effective.” Thus, this needs to be seen as a strong guideline in the deployment of resources; the ability of a government to intake vast sums of foreign aid is limited in many ways; the absorption of these funds is often near impossible by many small aid garnering nations. In looking at the effectiveness of aid vs. budget support (aka: providing countries with money to use at their discretion in distribution), Collier notes that aid has been much more effective and value-adding, due to the aid agencies themselves. While far from perfect in their bureaucracies and regulations, the agencies do enhance the effectiveness of the financial transfer (102). “Given the bad public image of aid agencies...this is hard to believe, but there it is. The projects, procedures, conditions, and suchlike have been beneficial overall, enhancing the value of the money transferred compared with just sending a check and hoping for the best...Aid has tended to be more effective where governance and policies are already reasonable...(this) is actually pretty controversial...people quite reasonably do not like the harsh-sounding implication that the countries with the worst problems should get the least money” (102). Collier continues, “...the biggest deviation was that far too much aid was going to middle-income countries rather than to the bottom billion. The middle-income countries get aid because they are of much more commercials and political interest than the tiny markets and powerlessness of the bottom billion.”
And thus, the revolutionary statement emerges: Aid should be reserved for the most needy. It should not be used as a carrot in a geopolitical stage set. And yet, of course, when the history of aid is studied, this is exactly what the vast bulk of aid has been earmarked for over the years. Think of the unwitting countries caught in the crossfire during the Cold War. Countries taken over by ideological battles, aid recipients chosen because of simple political proclamations, not based on the theory that the most needy should get first. Is it even a possibility that aid could exist in a non-politicized manner, where the welfare of the poor is the sole determining factor in disbursement?
