The latest article in the Wall Street Journal proving the lamentable point that aid has hurt, not helped, Africa and the developing world. “Evidence overwhelmingly demonstrates that aid to Africa has made the poor poorer, and the growth slower. The insidious aid culture has left African countries more debt-laden, more inflation-prone, more vulnerable to the vagaries of the currency markets and more unattractive to higher-quality investment. It’s increased the risk of civil conflict and unrest (the fact that over 60% of sub-Saharan Africa’s population is under the age of 24 with few economic prospects is a cause for worry). Aid is an unmitigated political, economic and humanitarian disaster … Money from rich countries has trapped many African nations in a cycle of corruption, slower economic growth and poverty.”
Aid has proven harmful because it:
- Fuels rampant corruption
- Keeps inefficient or simply bad governments and leaders in power
- Eliminates incentives to achieve
- Fosters inflation and “Dutch disease” – large inflows of money kills off a country’s export sector, by driving up home prices and thus making their goods too expensive for export
- Adds to political volatility and civil strife
- Leads to malaise in preparing for and tapping into traditional capital markets
Although Aid has a place, it is important to see the proper role of the public and private sector in order to lift these countries out of poverty. Our work in microfinance and social investing does this at the ground level, tangibly effecting change for those living in poverty.
Check out this weekend’s WSJ article on global underground economies: http://online.wsj.com/article/SB123698646833925567.html
Approximately 95% of the loans that MFIs make are to street vendors, cab drivers, fish mongers, etc. – quoted “safe havens in a darkening financial climate.” I’m encouraged by the focus on this enormous, vital and poorly understood segment of world commerce.
A great article from the NYT. The movement is growing.