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Foreign-Aid Follies

MUMBAI – The huge gap between the world’s richest and poorest countries remains one of the great moral dilemmas for the West. It also presents one of the greatest challenges for development economics. Do we really know how to help countries overcome poverty?

In his eloquently written and deeply researched new book The Great Escape: Health, Wealth, and the Origins of Inequality, Princeton University’s Angus Deaton urges caution. For those interested in world poverty, it is unquestionably the most important book on development assistance to appear in a long time.

Deaton suggests that far too often, Western aid serves to assuage donors’ guilt rather than improve recipients’ plight. This is particularly the case when naïve assistance serves to reinforce a dysfunctional status quo. Although Deaton supports select initiatives, particularly for delivering medical and technological knowledge, he questions whether the vast majority of aid passes the basic Hippocratic litmus test of “first do no harm.”

For starters, assessing and implementing aid policy requires developing tools to gauge accurately where need is greatest. Economists have developed some useful indicators, but they are vastly less precise than politicians and the media seem to understand.