To the Editor:
Joseph Stiglitz's review of Benjamin Friedman's book The Moral Consequences of Economic Growth ("The Ethical Economist," November/December 2005) is curious. Stiglitz, after all, is famous for having produced the 1998 World Bank study Assessing Aid -- What Works, What Doesn't, and Why. This emperor-has-no-clothes report reportedly cost Stiglitz his job as the bank's chief economist.
In essence, Assessing Aid argues that the only development enterprise that matters is policy reform. Good policy is a necessary condition for effective aid, according to the report, and "the value of development projects is to strengthen institutions and policies" that are "the key to a quantum leap in poverty reduction." The report goes on to note that "the allocation of expenditures alone does not guarantee success"; if spending more money worked by itself, then any increase in the amount of aid would increase its utility proportionally.
But Stiglitz provides a very different prescription in his review of Friedman's book, writing that "if Bush were serious about his commitment to spreading democracy, he would invest more in [poor] countries' development, living up to the agreement made by all the advanced industrialized countries to commit 0.7 percent of their GDP to foreign assistance." When did Stiglitz enroll in the Jeffrey Sachs/Bono school of thought, which promotes increased spending alone as the way to good health and development? Although one might wish it were that easy, experience has long since undermined the optimistic notion that successful nation building can be achieved through aid-financed, government-led development strategies.