My friend, former colleague and one-time co-author Bill Easterly, in his inaugural blog post, takes issue with Bob Zoellick’s Op-Eds in the New York Times and the Financial Times on the need for more aid to poor countries in the wake of the global financial and economic crisis. Bill’s argument is that Bob is calling for more aid without specifying what results that additional aid will achieve, so that the World Bank is not being held accountable for anything.
I agree with Bill that, in normal times, aid and, more generally, public spending is insufficiently linked to outcomes. When people are not accountable for outcomes, much of the aid or spending is wasted. We have made this point separately (see here and here) and jointly.
But these are not normal times we are living in. Poor countries, especially those in Sub-Saharan Africa, are facing an unprecedented crisis. Private capital flows, which had been rising faster in Africa than any other region, are drying up or reversing. Remittances, estimated at $20 billion a year to the continent, are also slowing because, for the first time, the crisis started in the sending countries (77 percent of remittances to Africa come from the U.S. and Western Europe). And the fall in commodity prices is sending many commodity exporters into a recession. Previous growth decelerations in Africa have been associated with increases in poverty, infant and child mortality and out-of-school children. Worst of all, just when economic reforms were beginning to take effect in Africa (growth had been sustained for ten years and accelerating over the last three), people are being asked to tighten their belts—for a crisis that is not even remotely their fault.
In these circumstances, the role of foreign aid is different from its usual role. It is to substitute for the private capital and transfers that had been flowing into the continent, but are slowing because of the financial crisis in the U.S. and Europe. It is analogous to President Obama’s fiscal stimulus in the U.S., which will use public spending to replace the shortfall in private consumption and investment to keep output from falling too fast. The purpose of aid is to reduce the size of the growth deceleration that African countries will experience. This is the result we are seeking to achieve with additional aid. Such results are hard to measure precisely—we would need to know the size of the growth deceleration in the absence of additional aid—which is why Bob Zoellick suggested possible activities that the money could be spent on. Of course, each country will have to tailor its spending according to its particular needs and circumstances. When they do, we will, as we increasingly do now, develop monitorable indicators of performance to hold them and us accountable.