Does foreign aid work?

So I attended a very interesting event last night at the Royal Ontario Museum. For those of you not from Toronto, the ROM (as its known in short) is a cultural institution that holds many high profile events and last year underwent a very high profile and controversial makeover adding new age design (French) to traditional architecture.

Tickets for this event came available two months ago and were sold out in 30 min. There were 1000 people at the event, 3000 that could not get tickets (I was one of the lucky ones) and 1000 more that joined for the first web cast of the event. That’s just a little background. The real question to ponder below.

http://www.munkdebates.com/

Be it resolved, Foreign aid does more harm than good.

The Debate

In a world where over 3 billion people live on under $2 a day, where economies and threats are globally interconnected, and where only small amounts of aid are given, should wealthy nations do more? Or, given the poor track record of aid, the support it provides to dictators and tyrants, and the actual need for individual entrepreneurialism and free markets, should we focus our limited resources elsewhere?
The third Munk Debate will explore the opportunities and hazards of foreign aid, by debating the question: “Is foreign aid to the developing countries doing more harm than good?”

http://www.munkdebates.com/debates/

The Debaters

Stephen Lewis
“There are few witnesses to Africa’s plight as powerful or eloquent as Lewis” – Time Magazine

“Truthfully, when I see what we can accomplish with money on the ground, it’s the only time in my life I have wished I was Bill Gates.” – Stehpen Lewis

Paul Collier
“His ideas should be at the centre of the policy debate” – The World Bank

“We need compassion to get ourselves started, and enlightened self-interest to get ourselves serious . . . that’s the alliance that changes the world” – Paul Collier

Dambisa Moyo

“Dambisa Moyo makes a compelling case for a new approach in Africa” – Kofi Annan (Seventh Secretary General of the United Nations)

“Evidence overwhelmingly demonstrates that aid to Africa has made the poor poorer, and the growth slower.” – Dambisa Moyo

Hernando De Soto
“The world’s greatest living economist” – Bill Clinton

“Poor people have always been seen as recipients of aid . . . whatever you are giving to them is peanuts compared to what they themselves can do.” – Hernando De Soto

I must say for someone who has not attended a debate since watching my high school counterparts duke it out over trivial topics such as garbage collection, cafeteria policy and then interesting but now common place “recycling” or staged and glorified big screen samples from Harvard, it was invigorating.

So here are a few highlights from my perspective covering both sides:

Doing more harm than good
• One of the fundamental points was that the developing nations do not have property rights like you and I. A great example they used was Haiti, the second largest benefactor of aid money from Canada. The President of Haiti recently tried to go around the country and distribute aid and property to the residents of his country. However, they quickly realized that they don’t have a property record system to prove who own what and is therefore useless.
• Aid contributes to African countries abdicating their own government’s responsibility for providing the basics (food, water, shelter and education).
• 1 Trillion dollars in aid has been spent in the last 60 years, have we seen growth, or a better life. They say no.
• Hungarian Economist, Peter Bauer (mentor to Dambisa Moyo) held the belief that money from the poor in the 1st world sent to the rich in 3rd world. http://en.wikipedia.org/wiki/Peter_Thomas_Bauer
• Good example of countries doing it on their own – China has moved 300 million people out of poverty in the last 10 years
• A great analogy – Development money going to Africa is like NASA going to Mars. They really never expect it to be successful.
• 60% of the African continent is under the age of 24 years old. There is a young, motivated and vibrant youth that craves technology that wants to be part of the global economy
• There are 15 stock markets in Africa (85% are not commodities – telecom, real estate, etc.)
• Interesting fact: There is only (since the US is $1 Trillion in debt I thought it interesting) $13 Trillion that exists in world currency today. Of course there is much more in assets. The problem is not currency, its assets. Since developing nations people have no property rights they cannot own and be compensated for land by foreign investors. Essentially they call it dead capital.
• Credit/Capital (paper) – backed by assets (homes, lands, airplanes)
• Good Example – A Study on hydro electric plant in African country where a Belgian Engineer is involved and he calls his local Belgian for specs and recommendations on infrastructure. Of course the parts are created in Belgian factory and work is done there with avg. 60% up sell price compared to reasonable rates that could be done locally. Documents recently have shown in Pakistan 100-300% uplift over what costs should be.
• The suggestion is to make aid compete with private sector as a competition in the world market, and get the numbers out in the open for transparency and accountability.

Doing just fine
• I have spent a little less time on this area, as most people are familiar with this side of the argument and quite honestly I was fascinated by the two speakers from third world countries saying that aid is not the answer. It does not mean Stephen Lewis and Paul Collier were any less persuasive, in fact, I believe the debate to be a saw off, with great points made on both sides and Stephen Lewis by far being the most magnetizing speaker I have scene in a couple years.
• It takes two to organize dictators and corruption. It does not solely fall on the shoulders of aid.
• Botswana – In a conversation Stephen Lewis recently had with their President Seretse Khama Ian KHAMA, he used the word extinction if foreign aid did not continue
• As Paul Collier wrote in his internationally acclaimed book “The Bottom Billion” Aid is working but is not getting to the bottom billion of people that desperately need it.
• Investment in African countries has been getting highest rate of return over last 5 years compared to developed markets.
• It bugs Stephen Lewis when Africa is singled out for corruption. What about Citibank, Bernie Madoff, and the recent corruption involving expense scandal and the speaker of British Parliament who abruptly resigned. The first speaker to resign in over 300 years. http://www.npr.org/templates/story/story.php?storyId=104315955
• Aid created in 1940’s where North America helped recover Europe. That is the greatest example of aid working and where it started. Of course, aid of the 1970-90’s to buy support of dictators and keep countries out of the hands of Russia took aid completely the wrong direction.
• The 2030 Climate report shows Africa will feel it the most and has most of the assets (forestation) that will be sacrificed. Do you think they can figure it out on their own in that time frame, and what is the impact on the world? Can we sit on the sidelines and cross our fingers? They will need it more now than they do now. Can they self repair in that amount of time on their own?

Well as I have just taken a look back at how long this post is going to be, I figure I better wrap it up with a couple thoughts. One, if you live in Toronto, get out to the next event; it will be worth your time and money ($30). If you do not, find a similar event in your city. Lastly, I attended the event with a York University Student I am mentoring, or as his cousin Dan (and my colleague) likes to chuckle about, the student that is mentoring me. It was fascinating to here the post debate view point of the younger generation, and of course those that are in the middle of academia right now and know these issues better than many of us. Take it upon yourself to spend some time learning from those with less years in this world, full of compelling and innovative thoughts.