The Kellogg Debates

6/10/2011 - Does international aid from the U.S. do more harm than good?

Before they attended a recent Kellogg debate on the subject, only a third of the Kellogg students polled would have said yes. But while listening to their peers and professors debate the matter, more minds were changed. At the close of the debate, two-thirds of those who attended said that foreign aid was more of a hindrance than a help.

The May 23 event, sponsored by the Kellogg Student Association’s global affairs and academic committees, was the third and last in series of debates this year focusing on matters of global concern. As in the prior two debates, a faculty member was paired with a student to compose each team.

Shashwat Yadav ’11 and Associate Professor Gad Allon took the “more harm” position with regard to the question of foreign aid. Yadav said U.S. aid typically goes to two sources: poor nations, where it often is used inefficiently, supports bad governments and leads to corruption; and “strategic” nations, where aid isn’t designed to help the nation’s people so much as buy allies.

Allon added that the World Bank has estimated that 85 percent of aid money goes to “unproductive activities,” while the International Monetary Fund has found that aid strengthens a country’s currency, which suppresses exports and adds to dependency.

On the “more good” side stood Adaobi Osakwe ’11 and Professor Paola Sapienza, who said that over time, the U.S. has learned how to make aid more effective by working through reliable organizations in nations whose governments are corrupt. She pointed to outcomes such as increased life expectancy, improved overall health, and rising literacy rates across the developing world.

“The health of a nation is a precursor to the wealth of a nation,” added Osakwe. She acknowledged that international aid is not a panacea, and that it has led to problems, but added that “lessons learned from these mistakes have led to innovative approaches.”

Yadav acknowledged that international aid unquestionably does some good. But only 6 percent of U.S. aid goes to health-related initiatives, while 7.2 percent builds social infrastructure — and approximately 46 percent goes to political and strategic initiatives, Yadav said.

“We are not claiming it cannot work,” Allon said, in response to a question about successes such as the Marshall Plan and the eradication of smallpox. But he noted that the Marshall Plan, through which the U.S. helped to rebuild European economies after World War II, had a defined, five-year window, and that the funding went to countries that prior to the war had strong institutions in place.

Osakwe noted that international aid goes in part toward providing technical assistance of the sort that builds strong institutions. She pointed to African countries such as Malawi and Botswana that are no longer dependent on U.S. aid.

“Aid has dramatically improved. It’s way more efficiently distributed,” Sapienza said. “We have more knowledge to understand, ‘What is the right way to funnel this aid?’”

The first debate, in December, focused on whether the U.S. should fear or welcome the rise of China. The second one, in March, posed the question of whether current U.S. immigration barriers should be relaxed. As in the first two debates, David Besanko, the Alvin J. Huss Professor of Management and Strategy, served as moderator.

(The views expressed by the participants in the debates do not necessarily reflect their actual views on the topic, nor that of the Kellogg School of Management.)