The Trouble with Aid

At the launch of ?The Market for Aid? yesterday, authors Michael Klein and Tim Harford described how the market for development aid was changing–indeed, growing more competitive.? Will this increase in competition lead to more efficient aid agencies that will, in turn, make important reforms?

Not very likely.? The trouble with aid is that it’s difficult to ensure that it is properly dispersed.? Conditions attached to aid often do not create sustainable development within a country, and grants and loans given directly to governments often end up wasted in bureaucracy or corruption.? Creating a system of accountability and promoting the development of transparency within government is necessary if the current system is to continue–things that are far more easily said than done.? Even if ?rating agencies? are created to rate projects and organizations distributing aid, as the authors suggest, the problems of accountability and excessive bureaucracy still exist.

In the meantime, countries should pay more attention to distributing aid directly to the people of developing countries in order for it to have an effect.? The authors of the book hint at the importance of the private sector in doing this, but fail to create a viable solution.? Consider the outstanding benefits of remittances.? Now, what if aid were used instead to create viable, sustainable microfinance institutions, where the poor could have access to capital and go about their endeavors?? What if private enterprise were encouraged to set up shop in developing regions in a method of BOP development?? Not only would the economic situation of these countries improve, but sustainability would be achieved by creating jobs and spreading skills to locals.? Political power oft follows economic: perhaps empowering the people is the 21st century’s best bet at creating real change.