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How about global welfare reform?

12:00 AM, Apr 8, 2008 • By KEN HAGERTY
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THE END OF THE Cold War deprived our foreign aid system of its strategic underpinnings. No longer could official development assistance be justified as part of a global struggle between two great superpowers and their competing economic systems. Foreign aid became a more amorphous exercise, motivated by a marbled mixture of altruism, vanity, pragmatism, guilt, and nobles oblige. Development assistance has become a global welfare system, with many of the same syndromes that afflicted America's war on poverty.

In 1996 the United States scrapped the war on poverty and launched a remarkably successful reorganization of its Federal welfare system. Now, with the rise of venomous new threats to the American and the global economic system, it's time to apply the same kind of analysis that empowered Federal welfare reform to a re-thinking of our foreign aid system.

THE WELFARE REFORM movement was launched in 1984 with the publication of Charles Murray's classic Losing Ground. Opposition to welfare up to that time had focused on "waste, fraud and abuse" to little effect. Murray transformed the debate by amassing official Government data to demonstrate in irrefutable detail that the Johnson administration's war on poverty had created a series of perverse incentives that made it completely rational for aid recipients to choose dependency, illegitimacy, illiteracy, unemployment, and crime over self-sufficiency. Murray said, "The issue is not how much good we can afford to do (as the choice is usually put), but how to do good at all. In the debate over social policy, the angels are not arrayed against the accountants."

The unparalleled success of Federal welfare reform demonstrates that opportunity and accountability can trump despair and dependence. Malignant incentives can be reversed. And failing policy paradigms can be replaced.

THE INDISPENSABLE WELFARE critique that Charles Murray produced in the 1980s, former World Bank Senior Economist William Easterly has now provided for foreign aid. Easterly's energetic scholarship and impeccable development credentials make his analyses authoritative and persuasive.

Easterly's indictment of the foreign aid system echoes Charles Murray's analysis of the war on poverty on many levels. Murray noticed that welfare advocates nearly always used the amount of money spent as their main measure of society's "commitment" or "compassion," rather than talking about the results actually piling up in the real world. "The more we pay, the more certain we can be that we have done our part, and it is essential that we feel that way regardless of what we accomplish." The same has been true of development assistance. How much easier it is for legislators to respond to appeals from rock stars to "double our commitment" than it is to slog through the nitty-gritty of program evaluation and holding aid agencies accountable for achieving their goals.

Easterly's books and articles allow us to look in detail at both the dollars spent and results achieved by the current foreign aid system. He calculates that over the past five decades the West has poured a mind-boggling $2.3 trillion into foreign aid. And yet disease and poverty continue to stalk billions of people around the world, with no turnaround in sight. He explains the fallacy of focusing on spending over results by pointing out that money spent on aid is an input to development, not an output.

In a recent essay Easterly writes, "The West's efforts to aid the Rest have been even less successful at goals such as promoting rapid economic growth, changes in government economic policy to facilitate markets, or promotion of honest and democratic government. The evidence is stark: $568 billion spent on aid to Africa, and yet the typical African country is no richer today than 40 years ago. The evidence suggests that foreign aid results in less democratic and less honest government, not more."

Like Charles Murray, Easterly puts his finger on misplaced incentives as the chief culprit for explaining why development hasn't happened. "People respond to incentives--all the rest is commentary."

Easterly recommends that the aid agencies be relieved of their Sisyphean task of fostering broad societal development in favor of more focused goals. "Remember aid cannot achieve the end of poverty. Only homegrown development based on the dynamism of individuals and firms in free markets can do that. Shorn of the impossible task of general economic development, aid can achieve much more than it is achieving now to relive the suffering of the poor."