Poor-Mouthing Aid; The truth is, it works.
People say that global poverty's a shame, but there's just no way to fix it. People say they'd welcome bigger aid programs, but aid is mostly wasted. Here is why these pessimists are utterly mistaken.</br></br>The doomsters say that pro-market policy reforms, supported by aid donors and especially by the World Bank, have been a failure. But two decades of reform have actually succeeded. Since 1980 the number of people living on less than $1 a day has fallen by about 200 million, even as the world's population has risen by 1.6 billion. That is a stunning achievement given that the ranks of the poor previously had swollen steadily at least since 1820.</br></br>The doomsters say that however much you throw aid at schools or health clinics, you never see much progress. But the adult illiteracy rate in the poor world has halved during the past three decades, and life expectancy has grown by 20 years during the past four. Again, a stunning achievement. The previous 20-year jump in longevity had taken since the Stone Age.</br></br>The doomsters say that even if some developing countries did well, there's no evidence that aid was the reason. But economists can measure aid's role by analyzing aid levels, growth rates and other variables across countries. The World Bank calculates that $1 billion in extra aid lifts more than 250,000 people above the $1-a-day line.</br></br>The doomsters say that even if aid has some effect, it's unproductive by the standards of advanced economies. Well, the World Bank's private-sector arm, which lends to businesses in the developing world, reports that the median project in its portfolio between 1998 and 2000 earned a post-tax return on capital of 10 percent. That compares well with the productivity of many multinational companies. At Alcoa, for example, the post-tax return on capital has averaged 9.6 percent during the past half-decade.