Development is the flavour of the season as the debate rages over whether the Millennium Development Goals (MDGs) will meet their deadline five years from now. On Wednesday, over 140 world leaders concluded a review of the goals, which seek to alleviate by 2015 widespread global ills that include extreme poverty, hunger, illiteracy, and child and maternal mortality.
It’s a noble cause, and for good reason. Estimates suggest more than one billion people the world over live on less than $1.25 a day, with a similar number of undernourished in 2009. The financial crisis has left a long trail of unemployment. And despite advances in reducing child and maternal mortality and the prevalence of HIV/AIDS, there is still much to be done, especially in regions such as sub-Saharan Africa.
These are serious issues that governments need to engage with. But there is cause for concern, not least with the preferred method of intervention—aid.
At the New York meet, for example, European leaders have pledged $1.3 billion to reducing poverty, and the United Nations (UN) has promised $40 billion to fight child and maternal mortality. The 2010 MDG report says aid continues to rise, though slowly, but areas such as Africa seem to receive a lesser share of the money. Further, though the UN estimates that at least $120 billion more will be needed to meet the goals, experts judge this amount to be higher.
How useful is this aid? In a policy brief for the Brookings Institution, economist Homi Kharas points to the important micro/macro paradox in aid (at the macroeconomic level, aid has little link to development or growth, while at the micro level, there is more space for specific aid efforts). Pushing MDGs through increasing aid outlays, therefore, is unlikely to work unless these are linked with unit-level development issues, instead of the current blanket approach, and focus on creating better growth infrastructure. As Kharas points out, aid efforts seldom aggregate into major development breakthroughs.
There is enough evidence about aid creating negative dependencies, including law and order problems caused by sudden stoppages of aid. Imagine Pakistan without US aid, and you will get the picture. And the problem is not just multilateral. The global tendency to promote aid is reflected in the national policies of countries such as India, where social sector outlays create incentive problems. Throwing money at the world’s ills doesn’t result in development, much less in growth.
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