The Gates Annual Letter – Oh No

gates.ly/1mTCrEw the Gates foundation 2014 annual letter reads inspiringly, but unfortunately a lot of it is off base. It sets up a straw man – a quasi-ignorant opponent of foreign aid who lumps together and attacks all types of aid and cannot see how the poor world is getting richer.  It says that many countries that used to be poor are now doing well, including in Africa, if only the doubters and naysayers would open their eyes. The basic problem with this assertion is that it involves a huge non-sequitur. Anyone who knows what’s going on would agree that many of even the poorest countries have been getting richer (at least up until 2009). But the whole point is that the countries that have done the best over time are simply not the countries that got a lot of development aid ! Take Morocco, Brazil, Mexico, Chile, Costa Rica , Peru, Thailand,  Mauritius, Singapore, Malaysia – all these countries that are specifically named in the Gates letter as doing well have none of them received significant  development aid in relation to the size of their economies (which is the relevant measure). As for other countries often held up as aid success stories, South Korea had a lot of aid but this was during the war of the early 1950s. The economy did not move for another 20 years so where was the connection? In fact the origin of South Korea’s industrial growth was probably the long term result of return migration of Korean workers from Japan. Take Botswana – this is not a story about development aid at all. It is a story about diamonds and sensible governance. Take China –  enormous growth but its aid to GDP ratio has never exceeded one half of one percent, a hardly noticeable proportion even of its annual GDP growth. Take India – now growing but its aid to GDP ratio has been less than one percent. These two countries account for a third of the World population so what has happened to them is significant.  Sorry Melinda, the countries that have suffered from high dependence on aid (over 10% of GDP for a long period of time) are clearly those that have done worst – a few in Asia, Latin America and the Pacific, but mostly in Africa, and it is Africa where the problem is now. Over the first decade of the millennium African countries at last started to do much better. But there is no evidence that this was to do with  development aid and plenty that it was to do with booming Global economic conditions.

But please note – I speak of development aid. This is in fact not exactly the business of the Gates Foundation. The Gates Foundation is rather about global health, global nutrition, education and global humanitarian aid. Much of this work is different  because it involves global public goods – inter- country help, emergencies and humanitarian activity, not so much national development strategies. So stick to global health and global nutrition. But in other respects the only way most poor countries can become wealthier, in the end, is through developing over time their own institutions, capabilities,  motivations, governance and capital, with development aid as a marginal help on technical issues if it can be done right. Development of a people’s capacity to produce wealth will not occur through massive infusions of cash from outside.

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