Why foreign aid can be counterproductive (and usually is)—A note on the influence of Peter Bauer
Why did I become an economist?
Well, there are several reasons, of course.
But one early influence on me was the work of Peter
Through most of my undergraduate years, I had never heard of Bauer or his work, largely because he was then (the 1970s)
regarded as a nut, a pariah, a peddler of dangerous ideas.
One evening, I was watching an episode of “The Age of Uncertainty,” a TV
series done by John Kenneth Galbraith, then a famous, well-respected, and influential economist. (Unfortunately, he turned out to be
wrong about almost everything.
Smart, but wrong.)
The show concerned the growth, or lack of it, in poor countries, and of course
lamented the pitifully low levels of foreign development aid being disbursed by the US and other developed countries.
At the end of
each segment, Galbraith had someone present the opposing view to his own.
For this one, the presenter was Peter Bauer.
Dressed in a formal suit, and speaking in his Hungarian-accented English, Professor Bauer argued that foreign aid was actually
destructive, because it weakened the economies of the recipient countries and made them incapable of further development.
What a crazy man! I thought.
But his arguments remained in my thoughts, and I tussled with them for months afterward.
Eventually, his arguments won, in my mind.
And in those of many others, too, especially as the sorry evidence of the effects of foreign
development aid programs mounted.
Bauer was fortunate that he lived to see himself, and his ideas, not only accepted but honored.
generation ago, his arguments were considered loony, indeed wicked; today, they are accepted almost as commonplace.
“Against Foreign Aid,” the article assigned for Chapter 1, lays out his thesis.
Here is a further explication, in Q&A format.
What is the intended purpose of foreign development aid?
Here’s the idea:
People living in poor countries suffer from poor infrastructure, such as bad or nonexistent roads, water and
sewage systems, electrical and communications systems, and the like, as well as sporadic or chronic food shortages.
hold them back from becoming more productive and hence wealthier.
Using money donated by the governments of rich Western
nations, the governments of these countries can build the infrastructure needed to solve these problems and clear away the obstacles
to economic growth.
Sounds like a good idea.
How can anybody argue with that?
Glad you asked.
The arguments against foreign aid fall into two categories.
1. Aid destroys the incentive to produce and grow.
Food aid is particularly harmful.