How to Help Poor Countries

GETTING DEVELOPMENT RIGHT

The year 2005 has become the year of development. In September, at the UN Millennium Summit meeting of heads of state, in New York, leaders of wealthy nations will emphasize their commitment to deeper debt relief and increased aid programs for developing countries. The Millennium Development Goals, the centerpiece of the conference's program, call for halving the levels of world poverty and hunger by 2015.

The summit will focus on increasing international aid to 0.7 percent of donors' gross national product to finance a doubling of aid transfers to especially needy areas, particularly in Africa. With respect to global trade, efforts will center on the Doha Round of multilateral trade negotiations and opening markets to important exports (such as cotton) from developing countries. The discussions will thus proceed based on two implicit but critical underlying assumptions: that wealthy nations can materially shape development in the poor world and that their efforts to do so should consist largely of providing resources to and trading opportunities for poor countries.

These assumptions ignore key lessons of the last four decades -- and of economic history more generally. Development is something largely determined by poor countries themselves, and outsiders can play only a limited role. Developing countries themselves emphasize this point, but in the rich world it is often forgotten. So too is the fact that financial aid and the further opening of wealthy countries' markets are tools with only a limited ability to trigger growth, especially in the poorest countries. The tremendous amount of energy and political capital expended on these efforts in official circles threatens to crowd out attention to other ways in which rich countries could do less harm and more good. A singular focus on aid and market access at the September 2005 Millennium Summit should not leave other potentially rewarding measures on the back burner.

BOOTSTRAPS

Consider Nicaragua and Vietnam. Both are poor countries with primarily agricultural economies. Both have suffered from long periods of conflict. And both have benefited from substantial foreign aid. But only Vietnam has reduced poverty dramatically and enjoyed steady economic growth (five percent per capita since 1988). Nicaragua has floundered economically, with per capita growth too modest to make a real dent in the number of poor people.