The fact that the world is a better place than it ever has been is due to innovations and the expansion of trade and mobility. People across the globe are wealthier, healthier and live longer and happier lives. Deaton is neither a free-market fundamentalist, nor Panglossian about global economic development; there have been major setbacks in terms of disease, and natural and man-made disasters that have fallen on the world’s poor. A billion people still live in conditions of destitution, and millions of children still die due to the accident of their birthplace.
There is something policy-wise that can be done about this, especially with regard to global health. But foreign aid programs since World War II have not provided the answer as to how to help the least advantaged and most vulnerable among the world population.
Foreign aid faces a dilemma: If extreme poverty is a result of poor institutions and bad politics, giving money only sustains that offending government. If a country has the conditions for development in place, then aid is not required — trade and foreign direct investment will provide the resources for development. If a country is hostile to economic development, then aid will be ineffective and perhaps even harmful by propping up bad regimes.
Deaton, thus, falls more or less on the P. T. Bauer/William Easterly spectrum of thinking about the effectiveness of foreign aid to address the problems of facing less developed economies as has been practiced to date. But his is not a wholesale rejection of foreign aid. We just have to rethink the project and learn how to do it more effectively. As he wrote in a 2013 essay, “Weak States, Poor Countries”:
“The absence of state capacity — that is, of the services and protections that people in rich countries take for granted — is one of the major causes of poverty and deprivation around the world. Without effective states working with active and involved citizens, there is little chance for the growth that is needed to abolish global poverty.”
Unfortunately, the world’s rich countries currently are making things worse. Foreign aid — transfers from rich countries to poor countries — has much to its credit, particularly in terms of health care, with many people alive today who would otherwise be dead. But foreign aid also undermines the development of local state capacity.
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