The Aid Trap: A reply

The following post was written by Glenn Hubbard and William Duggan, authors of The Aid Trap, which we reviewed last week. We are delighted that the blog site that Bill Easterly oversees, Aid Watch, has reviewed our book, The Aid Trap. And we are further delighted that on balance the reviewer agrees with what we say in the book. But the reviewer also makes one major objection that we have heard many, many times in the months since the book came out. We have not replied to this objection yet:  Aid Watch is perhaps the best venue for such a reply. So here it is.

First, here is the objection.

The Aid Trap proposes a ‘new Marshall Plan’ for the world’s poorest countries, along the lines of the original Marshall Plan’s support for the local business sector in Europe after World War II.  The Aid Watch reviewer – and many others – point out that poor countries today, especially in Africa, never had the business infrastructure that Europe had before the war.  Rebuilding Europe’s business infrastructure is very different from building a business infrastructure from scratch in poor countries today.  So our proposal for a ‘new Marshall Plan’ won’t work.

Now, here is our reply.

We begin by invoking Bill Easterly’s key distinction between ‘searchers’ (good) and ‘planners’ (bad). Aid planners design and fund projects based on what they want to happen, while aid searchers find something that works and do more of that. But of course, when your search yields something that works, you never apply it wholesale to another situation.  Easterly, correctly, makes that very clear. In this he echoes T.S. Eliot: “Immature poets imitate, mature poets steal.”

In the Aid Trap, we do not propose to ‘imitate’ the Marshall Plan. We propose to ‘steal’ from it. If you see nothing to ‘steal’ from the Marshall Plan for poor countries today, then you have no imagination. If you see a little to steal, then you have a little imagination. If you see a lot to steal, then you have a lot of imagination. That’s why the most creative aid pioneer in modern history, Muhammad Yunus, says this about our book:

The Aid Trap is not about the failure of conventional aid but provides the outline of a solution that can work if taken seriously. It is that rare prescriptive book, and the world must pay attention.

And Bill Easterly says we:

persuasively argue that thriving private businesses are the best hope for the world’s poor and have taken a practical and pragmatic approach to allow business to thrive.

Do you think that Yunus and Easterly do not realize that post-war Europe is different from poor countries today?  Of course they know that.  We have a whole chapter in the book giving some preliminary details on how to adapt the successes of the Marshall Plan to the very different situation today.  It really calls for a whole book devoted just to that.  But these details will fall on deaf ears unless you recognize that development calls for ‘searching’ and then creatively applying what you find to different situations.

We also cite more recent programs that support local business, also worth stealing from.  The ANDE and DCED networks alone provide plenty of worthy examples. But these programs amount to perhaps 5 percent of current aid – scaling them up to 50 percent, which is what poor countries need, calls for some larger coordinating mechanism that operates very differently from the core practices of the major aid agencies. That’s what the Marshall Plan offers.

We would also like to reply to a somewhat less common objection to our book, that the Aid Watch reviewer also makes: institutional reform in poor countries to help their local business sectors will make aid unnecessary, because private loans will supply the necessary capital. So you don’t need a Marshall Plan to channel the aid. Well, here’s the problem: you will never get lasting institutional reform without a middle class that comes from the local business sector. For better or worse, aid is not going away anytime soon:  the best you can do is channel more of it to the right thing – local business – as the original Marshall Plan did. Otherwise, it goes to the wrong things, as Aid Watch correctly and relentlessly reminds us.


Related post: Could aid revive business instead of stamping it out?