www.economist.com/opinion/displayStory.cfm?story_id=1034243
He should start with his own policies Panos Panos BY DIPLOMATIC standards, it has become a dirty battle. One week before George Bush attends a big United Nations conference in Monterrey on how best to finance development, his Treasury secretary is in the midst of a public quarrel about the effectiveness of foreign aid. Led by Gordon Brown, Britain's finance minister, and Jim Wolfensohn, the World Bank's boss, aid advocates want to double assistance to poor countries to $100 billion a year. Mr O'Neill disagrees, arguing that poor countries have received "trillions of dollars of aid" and have "precious little" to show for it. He wants "evidence of what works" before committing any more money. Mr O'Neill is surely right that much, maybe even most, aid has been wasted over the years. He might have gone further, in fact, and said that a lot of aid has done more harm than good, propping up bad rulers and helping them impoverish their peoples. But he is quite wrong to suggest there is no evidence of what works, or where the difference between good and bad aid resides. Precisely because so many poor countries appear to have so little to show for years of foreign aid, the analysis of aid's effectiveness has become a mini-industry (see 53 article). Now would be a good time to put these lessons into practice. Foreign aid tends to work well--that is, it helps to reduce poverty--in countries with good economic policies. In countries with bad policies, it is ineffective at best. Second, aid is better at reducing poverty if it is spent in very poor countries, rather than in less-poor ones. Money spent in certain ways--such as on campaigns to eradicate river blindness and smallpox, or to raise rice yields--has been spectacularly successful. Other spending, such as food aid (which helps rich-country farmers) or tied aid (which must be spent on services from the donor country) is much less use. Judging by his silence on the way America itself allocates its aid, Mr O'Neill has not bothered to acquaint himself with these findings. Most of the money goes, for strategic reasons, to middle-income countries such as Egypt and Colombia. America spends only 40% of its aid on poorer countries, compared with the rich-country average of approaching 60%, which is itself too low. And American aid is not concentrated on countries with good economic policies: its measly African aid budget is scattered across numerous countries, many of them badly governed. America may be the most egregious hypocrite in the aid debate, but it is not the only villain. For all their fine words, many rich countries--with a few notable exceptions such as the Netherlands, Norway and, increasingly, Britain--focus more on foreign-policy concerns than on reducing poverty when designing their aid budgets. Around 70% of foreign aid is still spent bilaterally, even though the studies show that multilateral organisations, particularly the World Bank, reach the poor more accurately. The result of this bilateral bias is that many international aid efforts that could make a big difference--for example, the attempts to combat HIV/AIDS, tuberculosis, malaria and other infectious diseases--are often grossly underfunded. Even today, America spends much more on aid for Egypt than it does on battling AIDS in Africa. Unfortunately, the chances that America's Congress will switch large chunks of aid from Egypt to the deserving poor in Sub-Saharan Africa are about zero. The same is true of France and its bias towards its former colonies. That is why Mr O'Neill's argument against more aid is so misleading, and why, despite aid's sorry record, it is shameful that America's aid contributions are so low. Since the United States chooses to spend its aid so badly, from the poverty-reduction point of view, it can only make good on its avowals of concern for the poor by providing more money--money that, unlike most of its existing aid, is actually designed to reduce poverty. Unfortunately, that point is lost in the current slanging match. Instead of general exhortations to double aid flows, Messrs Wolfensohn and Brown should highlight the countries and programmes where existing aid could be used much better right now. Given its good historical record, health spending should be high on the list. A recent study for the World Health Organisation showed convincingly that a few key investments, costing donors around $27 billion annually, could save 8m lives a year in the poorest countries. America's share of this cost might plausibly be $9 billion, or around $30 per American. Most Americans, including even Mr O'Neill, might regard that as money well spent.
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