Was Development Assistance a Mistake?

William Easterly (NYU) January 2007 “More than half the people of the world are living in conditions approaching misery... For the first time in history, humanity possesses the knowledge and the skill to relieve the suffering of these people.” Harry S. Truman, Inaugural Address, 1949 “We have the opportunity in the coming decade to cut world poverty by half. Billions more people could enjoy the fruits of the global economy...And for the first time, the cost is utterly affordable.” United Nations Millennium Project, 2005 The repetition of virtually the same language after more than half a century and $2.5 trillion worth of development assistance (in today’s dollars) is not encouraging for its promise to achieve the reduction of poverty and misery. This paper argues that development assistance as originally conceived and still largely conceived today, was a mistake. This is not based on any original research undertaken for this paper, it is just drawing the natural implication of a large body of literature quickly surveyed here. The conclusion of the paper will argue that foreign aid could still accomplish some good things for poor people, even if it cannot fulfill the purpose of “development assistance.” Development assistance is the combination of money, advice, and conditions from rich nations and international financial institutions like the World Bank and International Monetary Fund designed to achieve economic development in poor nations. This is broader than the usual definition of “foreign aid,” including such categories as structural adjustment loans, or even repeated stand-by loans from the IMF to low income countries at concessional rates. This article argues that development assistance was based on three assumptions that, with the benefit of hindsight (although a wise few also had foresight), turned out to be mistaken: 1. We know what actions achieve economic development. 2. Our advice and our money will make those correct actions happen.