I have been looking for an excuse to link to a new blog from William Easterly. No, it’s not because he is clearly a cycling fan. It’s because I am very interested in international aid/development and how best to go about it since it’s easy to point to examples around the world where despite billions in aid, not much has really changed. Personally, I am a huge fan of microfinance (please visit Kiva for a quick overview)–I was happy to see the founder of Grameen win a Nobel not too long ago. Easterly is often a lonely voice calling for more reliance on markets (or perhaps it’s better stated to say less reliance on government) in international aid. He is the opposite of the Jeffrey Sachs/Bono crowd who I would consider the celebrities of the aid world even though there is very little evidence of their ideas ever really working.
Today, he gave me two opportunities. The first is the UN doing a fine job of recycling an old idea.
What was the breakthrough idea? Take government action to reap increasing returns to scale to industrial production, to get out of the free market’s “poverty trap” of low-scale industrial production.
The only problem with this major conceptual breakthrough is that it is 66 years old. It was presented in almost the same words in one of the first and most famous articles of development economics, by Paul Rosenstein-Rodan in 1943:
The second is about aid tying. I have long been a critic of this practice wherein a country offers aid, but mandates that the goods and/or services must be purchased in their country. Actually, only my wife knows that I have long been a critic of this and she has probably forgotten. The good news from this post is it looks like we are heading toward greater transparency on this front here in the US and this USAID researcher estimates that we are moving in the right direction as well.
In 1996, when the US stopped reporting complete tied aid statistics to the OECD, 28 percent of its aid was untied, while the donor country average was 71 percent….The new statistics now show 69 percent of US aid to be untied (as of 2007), compared to an average for all OECD donors of 85 percent.