Foreign Aid Can Hurt Developing Nations
Photo: Anne Case

When commercials with images of starving children — coupled with appeals for pocket change to save them — appear on television, Angus Deaton gets angry. 

The idea that for small amounts of money you can save a child’s life is “one of the most pernicious things out there,” says Deaton, a professor of economics and international affairs at the Woodrow Wilson School and the author of The Great Escape: Health, Wealth, and the Origins of Inequality (Princeton University Press).

Deaton hates those commercials because direct foreign aid to the developing world — from individuals and governments — does far more harm than good, he argues in his book. Not only does aid often end up in the wrong hands, but handouts prevent developing nations from forming good governments that are accountable to their citizens and capable of long-term economic growth. Pumping money into African countries makes their poverty worse, he says.

“We need to let poor people help themselves and get out of the way,” Deaton writes. In sub-Saharan Africa, “aid is so large that it undermines local institutions and blights long-term prosperity.”

Instead, Deaton proposes that people in wealthy nations offer more college scholarships to students from the developing world. He also supports free-trade policies, like an end to U.S. farm subsidies for cotton, which artificially lower the world price and make it difficult for African cotton-growers to compete. And he says that the developed world should stop selling weapons to countries with records of violence and civil war. 

Although a major part of The Great Escape addresses poverty in the developing world, the book ranges from early modern England to the contemporary United States, looking at the ways in which people and societies have escaped from poverty (or not). Deaton asserts that material and technological progress has led to greater inequality between countries.

Societies began dramatically reducing chronic poverty and premature death in the 18th and 19th centuries with better sanitation and cleaner water supplies. But by the early 21st century, the gap between prosperous and poor countries was as wide as ever. “For every country with a catch-up story, there has been a country with a left-behind story,” he writes. 

Even medical aid, which Deaton believes is far more helpful than simply giving money to the developing world, has its limits, he says. “You can’t supply a medical system from the outside forever,” he says. “It has to be developed as part of the contract between the government and the people.”

Deaton ultimately argues that good government makes the difference. Countries with effective democratic institutions have prospered over the long term, which is why, he says, progress in the developing world has to come from within.