What Role for Foreign Aid?

The role of foreign aid in reducing poverty has been at the center of a heated debate in recent years. On one side, there are those such as Jeffrey Sachs, adviser to the United Nations and director of the Earth Institute at Columbia University, who push for large increases in foreign assistance budgets in the belief that poor countries and individuals are unable to create wealth on their own given their current disadvantages. As he explains in his best selling book The End of Poverty: When people are … utterly destitute, they need their entire income, or more, just to survive. There is no margin of income above survival that can be invested for the future. This is the main reason why the poorest of the poor are most prone to becoming trapped with low or negative economic growth rates. They are too poor to save for the future and thereby accumulate the capital that could pull them out of their current misery….1 [Foreign aid can create] an economy with roads that work the year round, rather than roads that are washed out each rainy season; electrical power that is reliable twenty-four hours each day, rather than electric power that is sporadic and unpredictable; workers who are healthy and at their jobs, rather than workers who are chronically absent with disease. … [Foreign aid can] enable the economy to break out of the poverty trap and begin growing on its own.2