Kiss of Death vs eating GDP

You get the sense that politicians these days are racing to match Bill and Melinda Gates, Warren Buffett and the rest of the private sector in charity spending. Historians talk about the old scramble for Africa. That was a scramble to get -- European monarchs took land for colonies. Now we are witnessing a scramble to give.

The new scramble is as much a shame as the old one. Foreign aid can be the kiss of death for poor regions, as a former World Bank official, William Easterly, demonstrated in his recent book, ``The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good.''

Growth Distraction

Easterly's research found that $2.3 trillion in aid the U.S. and allies have spent over the past half-century has been a counterproductive distraction from achieving stable growth. And people die from the absence of growth -- the poverty-related malaria kills thousands a day.

This idea seems tailored to drive Gates crazy, and it has. A year ago at Davos, the usually affable Gates sputtered back at Easterly: ``When we put people on AIDS drugs, we don't say to them, `Hey, unless you raise the GDP we have wasted our money.'''

Plenty of others, though, agree with the Easterly thesis. In a recent paper, scholars Simeon Djankov, Jose G. Montalvo and Marta Reynal-Querol surveyed data from more than 100 countries over four decades. They also found that aid tends to supplant growth and makes countries quantifiably less democratic. They compared aid with petroleum wealth. Based on their research, they determined, ``aid is a bigger curse than oil.''

Losing Ground

The scholars monitored the quality of courts and other government institutions and assigned countries a democracy rank from zero to 10 for a given year. They measured foreign aid's influence on a country by quantifying its share of gross domestic product.

Over time, the countries that were most saturated with aid drop almost a full point, or 10 percent, on the democracy meter. Countries less dependent on aid also experienced weaker democracy, but less so. From the 1960s until 1980, more aid meant less democracy in Africa. From the late 1980s to the current period, the average level of aid dropped, while democracy increased. The same trends were visible in the rest of the world.

This makes sense when you consider that both oil and aid obviate the need to tax. Governments that don't need to collect taxes don't need voter support either. They also don't need to produce an environment friendly to business. Those who benefit from a windfall turn to autocrats.

-Obama, Bush Offer a U.S. Kiss of Death to Africa

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To a degree, Mr. Gates's speech is an answer to critics of rich-country efforts to help the poor. One perennial critic is Mr. Easterly, the New York University professor, whose 2006 book, "The White Man's Burden," found little evidence of benefit from the $2.3 trillion given in foreign aid over the past five decades.

Mr. Gates said he hated the book. His feelings surfaced in January 2007 during a Davos panel discussion with Mr. Easterly, Liberian President Ellen Johnson Sirleaf and then-World Bank chief Paul Wolfowitz. To a packed room of Davos attendees, Mr. Easterly noted that all the aid given to Africa over the years has failed to stimulate economic growth on the continent. Mr. Gates, his voice rising, snapped back that there are measures of success other than economic growth -- such as rising literacy rates or lives saved through smallpox vaccines. "I don't promise that when a kid lives it will cause a GNP increase," he quipped. "I think life has value."

Brushing off Mr. Gates's comments, Mr. Easterly responds, "The vested interests in aid are so powerful they resist change and they ignore criticism. It is so good to try to help the poor but there is this feeling that [philanthropists] should be immune from criticism."