Angus Deaton makes the case against aid (and you get to vote)

I am grateful to Duncan Green for giving me an opportunity to respond to his comments on The Great Escape. I summarize the key evidence, and try to Angus Deaton Photo Jan2010 adjustedgive a coherent story of how I think aid works, and when it will fail. Like Duncan, I fully recognize (and am motivated by) the moral imperative to help people who are suffering, and I strongly endorse the idea of using aid to promote the international public goods that he describes.

My argument does not rely on evidence about projects; I have no doubt that many of these are good, but project evaluation cannot address the aggregate effects of aid on development. Cross-country regressions can estimate the aggregate effects in principle, though there are many problems, not least that neither writers nor commentators are good at explaining where the results come from, and authors sometimes retreat behind a fog of econometric technique. Yet we cannot ignore these studies; informal, undisciplined stories are not helpful.

Here is my take-away: (a) controlling for the factors that usually appear in growth regressions, aid as a share of recipient GDP is negatively correlated with growth, (b) similarly controlled, the change in growth is positively related with the previous period’s change in the aid to GDP ratio, where periods are several years long, and (c) the share of aid in GDP is larger for small recipients than large recipients, but the latter grow more rapidly than the former.

Point (a) is typically dismissed because well-directed aid will respond to bad growth shocks, which biases down the estimate of aid effectiveness. It is not clear that aid actually behaves like this, but I accept the point for now. On (b), lagging the aid variable and then taking changes flips the sign of the bias (the error term is this period’s shock minus last period’s shock and is this positively correlated with last period’s aid minus aid from two periods ago), so that if (a) is not evidence against aid, then (b) cannot be evidence for aid. I interpret point (c) as evidence against aid, not because country size might not favor growth directly, but because there is no other obviously powerful mechanism, while my account of aid has exactly that implication.

Why might aid fail in aggregate? One of my favorite stories in Duncan’s book is about owners of fishponds being violently dispossessed by more powerful people, and then getting them back through political action. Money and know-how were not the issues; power was the problem, and politics the solution. But this good outcome is unusual. The worst case I know happened in Goma in 1994, when the perpetrators of the genocide in Rwanda fled into the eastern DRC with their wives and families. Perhaps two-thirds of the aid for the humanitarian emergency was diverted for training the murderers to go back to finish off the Tutsi “cockroaches.” Alex de Waal, in Famine Crimes, explains over and over how aid can only reach the victims of war by paying off the warlords, and sometimes extending the war. Such aid saves lives, but at the price of other lives later.

anti aid cartoon foreign-aid-definition-wiley1The mechanisms of poverty and power are the same in peacetime, albeit with less catastrophic outcomes. With a government in control, it is impossible to reach those who are powerless without paying the powerful, and paying the President and the government will make them less interested in listening to their people. Instead of having to raise money through taxation and deliver services in return, they can instead use their people to extract money from donors. They can enrich themselves by keeping their population poor; such aid is an instrument of inequality. Some governments may be more benevolent, but large, prolonged amounts of aid ultimately corrupt benevolent rulers, or cause them to be replaced by exploitative rulers. Domestic NGOs or CSOs that monitor the state lose their legitimacy when they accept funds from abroad.

Duncan agrees that such undermining is a possibility, but doubts the evidence. Yet we need only look at the (very large) historical (and recent) literature on the resource curse; rulers who need not raise revenue from their people will often behave badly, sometimes spectacularly so.

There is also an extensive literature on how this happens by observers of aid, from historians, aid workers, journalists, and political scientists. Useful and insightful accounts include those by Michela Wrong (on Zaire, Eritrea, and Kenya), Michael Maren (Somalia), Nina Munk (Millennium Villages), Matthew Connelly (“aid” for population “control”) with broader discussions from Jonathan Glennie, Fiona Terry, Linda Polman, Martin Meredith, Charles Ferguson, and James Scott, as well as the well-known accounts by Bill Easterly and Peter Bauer. Many of these combine close observation with deep political, economic, and historical knowledge.

Histories of long-run development by Eric Jones, David Landes, Ian Morris, or by Daron Acemoglu and Jim Robinson (whose last chapter takes the same view of aid as my own) provide ample evidence on how development was crippled by rulers who had no reason to tax or consult their subjects. Jakob Svensson and Tim Besley and Torsten Persson have developed more formal accounts. Svensson is particularly insightful in noting that donors are responsive to well-meaning but necessarily ill-informed domestic constituents, including domestic interest groups from the aid industry, a process that is only too well-understood by the recipient governments. (Such politics makes “country ownership” impossible, and dooms agreements such as the Paris Declaration.) We are left with what Francisco Toro has aptly called co-dependency, in which the harm is largely borne by the citizens of the recipient Great Escape covercountries who have no voice in this political equilibrium.

Duncan says that aid has rather moved on since Mobutu and the Cold War. I wish. The US gives aid to those who support the “war on terror,” or who recognize the state of Israel, and European and American politicians can use aid to burnish sullied images, even when it harms the recipients. Is it really so much better to support regimes that imprison, torture and kill their enemies provided only that child mortality rates are falling? Perhaps. Yet it is well to recall Amartya Sen’s argument that the components of freedom are also instrumental in producing it: we make trade-offs between different freedoms at our practical and ethical peril.

Not sure if this is a good idea, but let’s have a poll (you can choose more than one option). I’m particularly anxious about this one, because Angus is a global survey guru, advising Gallup among others, and I haven’t had time to consult with him over the questions. But interactivity trumps prudence, so over to you to vote. And I suspect that there will be more contributions on this topic over the coming weeks.

And if you have 90 minutes to spare, I recommend Bill Easterly v Owen Barder, covering some of the same ground in last week’s CGD debate.

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13 Responses to “Angus Deaton makes the case against aid (and you get to vote)”
  1. Richard C

    Duncan, you are in danger of being labelled a wonk war-monger! I think you may need to narrow the questions in your poll; I am in danger of ticking all four boxes!

    • James Lee

      I have seen what aid in the wrong hands will do. The government is not the right hands because officials of these kind build buildings that are not for the poor people, and only a tenth of the aid reach the poor people. If the organizations and businesses follow up on their aid some would be shocked if not horrified as the inCompetency of so called government leaders. I totally disagree with Angus Deaton. People like Mr. Deaton, who writes books like The Great Escape, should be banned for selling propaganda of the worst kind. These books have a way of continuously causing adverse effects ,and the death of thousands of people if not millions. I am only one person, but I have to speak out about the greatest of injustice to the struggles and suffrage’s of mankind. To me it’s another way of mass killings around the world by design; let them die, because they are better off. I hope and pray that aid continue to flow to the countries that need. I also wish aid managers be appointed to ensure that the aid is given directly to the people for direct distribution to the people. I would like any company or organization not give aid to a country and then set up their own business by using the aid intended for the poor; the stop this practice, and it should be illegal. Maybe that’s what MR Angus Deaton should be researching , and he will find high form of corruption that is widely practiced in the poorest of countries where aid given. Please send aid to Haiti and counties like Haiti, because the Haitian people need your help more ever, I beg you please.

  2. Mark Wentling

    After 44 years in the front line trenches of development assistance in Africa, I am worn down by this endless debate and bowed and bloodied by the ‘moral imperative.’ For sure,as many say in Africa, if the words generated by this decades-old debate could be eaten, there would not be any hunger in Africa. The debate is always more interesting to me if it involves people who have credible first-hand field experience. Perhaps Professor Bauer said all that was needed over 40 years ago in his book, “Dissent and Development” when he wrote that “if a country really needs external aid to develop, it probably cannot develop.” But, did he mean eliminating aid or reforming it? I could go on but I have stated my positions in a number of professional articles and in novel-form in my progressing African Trilogy.

  3. Cornelius Chipoma


    I am still frankly amazed that the ‘rebuttal’ is the familiar effort to cast all recipients of aid as passive and victims. Even the idea that aid can be isolated as a variable to be tested in a generalized way against say political outcomes despite, as I noted in an earlier contribution, regime change happening constitutionally more often now, is misleading. My point is that beginning with the assumption that aid is a coherent thing (both in form and execution) that can be proven to cause ‘X’ is an exaggeration. Dana Epstein and Jacob Alex Klerman in their article entitled ‘When is a Program Ready for Rigorous Impact Evaluation? The Role of a Falsifiable Logic Model Eval Rev October 2012 36: 375-401, for example argue that for impact evaluation to be meaningful, program execution must go according to plan otherwise, what is being evaluated?

    Bill Easterly, in his debate with Owen Barder on his new book (The Tyranny of Experts), says he wants to move the debate beyond aid to address poor people’s rights. I believe there is a ‘tyranny of messaging aid’ that makes it difficult to move the debate in meaningful ways. The sensational cases of aid abuse are not helpful in making us clever about what to do to address the moral concerns that you acknowledge. I think more practically about ‘humanity concerns’, especially with inequalities that are in both poor and rich countries. I think that the quality of aid will be helped by a change in how it is motivated and the mental models that shape it. The ‘fixing things approach while addressing our national interests’ for example, has not worked well. I am looking at aid that informed by ideas that advance humanity (we are in this together – more pretence on the environment I guess).

    For example, poorly performing school systems is something that affects both poor and rich countries. What can we do to help improve performance? Increasingly, as the Busan resolution notes, it is not just the aid flows that matter but intangibles (Joseph Nye’s 2004 ‘soft power’) that might nudge/catalyze change. In other words, the solution must change. So I vote ‘no’ to the exaggeration of aid influence. The political reality is more dynamic and constantly changing.

  4. Nicholas Colloff

    I think I will side with those observers who suspect that simply talking about ‘aid’ as a kind beneficent or maleficent lump is, whilst entertaining, neither resolvable nor much to the point. I expect the answer is it depends into which context the ‘aid’ lands, how it is used, what unfolded in the history of its use, etc…etc.. so we are back to people making intelligent judgements into uncertainty, based on evidence that best reflects their context. So more evidence on what works, why and when and more flexibility on how money is spent. Now that would be a radical policy shift…

    • Duncan Green

      I agree Nicholas and others, that talking about aid as a single thing, or framing the discussion as ‘aid – good or bad?’ seldom casts much light. That is why, as a rule, I really try to avoid the trench warfare.
      This time, I got dragged into it this time because Angus was citing me in his defence, but the act of reading around for the piece actually made me less aid sceptic, not more, which I wasn’t expecting.
      As for whether to engage or not, I fear that donor governments will make their decisions on increasing/cutting their aid budgets at least partly on the basis of ‘is aid good or bad?’ so we may have no choice but to hold our noses and proceed.

  5. Amanda Jones

    Duncan, any chance you can introduce a facebook-style ‘like’ option for people’s comments? I was looking for the little ‘thumbs-up’ sign when reading Cornelius’ and Nicholas’ contributions.


  6. Dennis Arends

    I tend to hold a similar view as Nicholas’ im the sense that it might be better to talk about good and nad aid rather than about whether aid is good or bad. Besides being a moral imperitive, foreign aid is an instrument of public policy across borders. And public policy can be positive or negative. I do not think it is intrinsically bad.

  7. William Hayes

    Interesting: leading microeconomist Angus Deaton, damning himself with faint praise, cites Nina Munk’s The Idealist, which we know to be “more subtle than a simple hatchet job.”

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