Foreign Aid

It is a well-known fact that, despite all the millions and billions of dollars of aid that have been given by wealthy countries to their poorer brethren, the majority of these countries continue to be mired in poverty. Why is this the case? Why cannot the many well-intentioned economists who study and advise on these matters put these countries back together again on the road to economic prosperity?

All kinds of different remedies have been attempted, with varying degrees of success or failure: public education, better health care, family planning – meaning reducing the number of children per family, building factories, dams, power plants, or other large-scale infrastructure projects to create employment, providing electricity, clean water, or a system of roads and public transportation, and so on. But in all of these cases, not a single one of these solutions has been able to effect the desired – or perhaps it were better to call it, due to its elusiveness, the magical – transformation from poverty to wealth, or at least to self-sufficiency. And the well-intentioned but myopic efforts of medical workers to reduce the number of deaths from disease and other causes has begotten a dramatic increase in the population, which makes it even harder for these poor people to become self-sufficient. Moreover, their efforts have led to increased warfare and more frequent instances of famine, since these are two common consequences of overpopulation.

I will advance something that I will call the Golden Rule of Foreign Aid: in order to be effective, foreign aid, regardless of the form it takes, must produce a permanent and positive change in the behaviour of the people it seeks to help; otherwise it will be ineffective, produce only temporary benefits, make people dependent on receiving continual foreign aid, or, in some cases, do more harm than good by interfering with or destroying presently existing models of behaviour. Incidentally, this rule also applies to efforts to help the poor in rich countries.

It follows from this rule that, before one attempts to help others, one must first familiarize oneself with their culture and their way of life. This may seem like an obvious step, but it is routinely ignored by the many well-intentioned politicians, humanitarians, and other aid workers who seek or implement general, standard, or large-scale solutions to the pressing problems that afflict the poor of different countries, or who arrogantly assume that they do not first need to understand the people they want to help, as well as their customs and traditions. This patronizing attitude, which views the recipients of foreign, financial, or humanitarian aid as if they were identical and interchangeable children, is one of the primary reasons for the failure of much foreign aid.

The practice of what I will call “parachute aid” – the belief that you can go to a country and solve the problems of the people living there without taking the time to understand their customs and behaviour – is useless or harmful and generally a waste of time and money. It is, in fact, an extension of the same attitude that was prevalent among colonialists in bygone times who looked upon the native peoples they encountered in the foreign lands they desired to exploit and possess or rule for themselves as mere savages whose concerns they did not need to consider in their generally selfish calculations and schemes.

Until now, the importance of models of behaviour in the matter of foreign aid has usually not been recognized. But it is models of behaviour that enable people to survive – to find, hunt, collect, and grow food, make clothes, build shelters and maintain them, herd, raise, and employ animals for transportation, agriculture, and other tasks, use medicines to cure or prevent illnesses and other maladies, and maintain the social cohesion that enables a people to survive for generation after generation. Contrarily, the absence or breakdown of these traditional models is frequently the reason for poverty and other social problems. In wealthy countries, there are literally hundreds or thousands of different interconnected models of behaviour which are practiced by the inhabitants and which enable them to preserve the high standards of living that exist there. In many cases, it is simply not realistic to import just one or a few of these models into a poor country and expect them to produce a miraculous transformation in the lives of the poor, for these models usually form parts of a complex and interconnected web of behaviours that took a long time – decades or even centuries – to establish in wealthier countries.

One should also be very careful when introducing new products into the lives of the local people by considering how these products will affect their lives, something that can only be done if one has first taken the time to understand their way of life. For example, the introduction of alcohol by selfish or thoughtless traders in the past had a harmful effect on the lives of many native peoples around the world, an effect that continues to do much harm today.[1]

But though useful or beneficial models of behaviour take a long time to establish, they can unfortunately be lost in a relatively brief period of time. Sudden or disruptive events such as war, overpopulation, natural catastrophes like droughts and earthquakes, the loss of traditional sources of food, and diseases like AIDS can wreak havoc on a people’s traditional models of behaviour, thus forming the first step in a downward spiral that leads to violence, starvation, misery, and death. When this happens, one is confronted by the disheartening sight of a once-proud and self-sufficient people who are no longer able to fend for or take care of themselves. The same tragic outcome is visible in wealthy countries in the case of indigent people who, for a variety of reasons, end up living on the street.

The Theory of Imitation states that people’s behaviour is determined by the behaviour of those who are in their realm of influence. Hence, those who want to help the poor must first enter their realm of influence, an accomplishment that clearly takes time. But even if one is able to accomplish this time-consuming task, if one and one’s well-meaning colleagues are outnumbered by all the local inhabitants who behave in ways that one is attempting to change, then their greater number, which in some cases is overwhelming, is a significant obstacle to changing the dominant models of behaviour that exist among the poor people one is trying to help.

To give an example of the successful, although wholly unintended, application of the Golden Rule of Foreign Aid, let us consider how garment export manufacturing was introduced into Bangladesh by a Korean company named Daewoo.

[Noorul] Quader, a former [Bangladeshi] government official with a lot of international connections, had an ally in his quest to start a shirt factory in previously shirtless Bangladesh. The ally was the Daewoo Corporation of South Korea, a major world textile producer. Daewoo was looking for a new base to evade garment import quotas that the Americans and Europeans had imposed on the Koreans. These quotas did not cover Bangladesh, so a Daewoo-supported venture in Bangladesh would be a way to get shirts into forbidden markets.

Daewoo and Quader’s company, Desh Garment Ltd., signed a collaborative agreement in 1979. Its key feature was that Daewoo would bring 130 Desh workers to Korea for training at Daewoo’s Pusan plant. Desh would pay royalties and sales commissions to Daewoo in return, amounting to 8 percent of sales value.

The collaboration was a great success—too much of a success, from Daewoo’s point of view. Desh Ltd. managers and workers learned too fast. Quader canceled the collaborative agreement on June 30, 1982, after little more than a year of production and watched production soar from 43,000 shirts in 1980 to 2.3 million in 1987. Although Daewoo did not do badly from the collaboration, the benefits of its initial investment in knowledge had leaked well beyond what Daewoo intended.

But not even Desh Ltd. could control the shirt mania from leaking to others. Of the 130 Desh workers trained by Daewoo, 115 of them left Desh during the 1980s to set up their own garment export firms. They diversified into gloves, coats, and trousers. This explosion of garment companies started by ex-Desh workers brought Bangladesh its $2 billion in garment sales today [in 2001; today, the Bangladeshi garment industry is estimated to be worth approximately $34 billion annually].


Increasing returns seems to be what happened in the Bangladeshi garment industry. The Desh workers watched Daewoo and Noorul Quader create useful knowledge about making shirts, selling shirts abroad, using special bonded warehouse systems, and using back-to-back import letters of credit in Bangladesh. They took that knowledge with them when they left Desh and started their own garment firms. By 1985, there were over seven hundred Bangladeshi garment companies.[2]

In this case, there was indeed a permanent change in the behaviour of a small number of Bangladeshis, which enabled them to create a new industry that presently employs more than four million people.

In a sense, the Golden Rule of Foreign Aid is simply a restatement of the parable that if you give a man a fish, then you have fed him for one day, but if you teach him how to fish – that is, if you produce a permanent change in his behaviour by teaching him a useful skill – then you will have fed him for the rest of his life, assuming, of course, that the fish don’t run out because of overfishing or due to some other human cause, which is a real possibility in today’s overpopulated, highly polluted, and climate-changing world. We can see that the Golden Rule was satisfied in the case of Daewoo and Desh, although this was not Daewoo’s intention when it agreed to train some Bangladeshi workers by teaching them how to make garments and about other basic features of operating a garment-producing company for export, since the company was only trying to increase its own sales and profits.

The Daewoo model of helping the inhabitants of poor countries, by bringing them to wealthier or more successful countries and training them in some useful and specific skill, has other applications besides the economic sector. One of the biggest and most common problems in many poor countries today is corruption – the fact that those who are in government or occupy other positions of power use that power primarily to enrich themselves rather than to help their fellow citizens. The model of civic duty and honesty in administering public funds is weak or non-existent in those countries. Unfortunately, it seems that the poorer the country, the greater is this problem, as if the inhabitants were plagued by a perverse and mocking demon that delights in afflicting those who are most miserable and poor, and are therefore in greatest need of help.

When it becomes established, the model of stealing from the citizens of one’s country is extremely difficult to eradicate. Many are the examples of dictators who have not hesitated to use military force against the people they rule in order to preserve their power and thereby prolong their ability to enrich themselves at the expense of their fellow citizens. And the fact that a number of these dictators, many of whom were former army generals, met a bloody end or were ousted following another coup, does not deter others from seeking to supplant them. Similarly, in the Roman Empire, it was an all-too common fate for an emperor to be murdered by his successor or another aspirant to the throne.

What these countries urgently need, then, even more than foreign aid, are individuals who have observed a different model, specifically the model of elected representatives and government officials who do not steal the public or other funds which are entrusted to them, and instead use these funds to benefit the people, as government revenues are in wealthy democratic countries. The existence of poverty, which often means that the elected representatives and civil servants are poorly paid, provides a strong motivation to embezzle these funds for one’s personal use or to give them to one’s family and friends.[3]

Just as the recognition of this common problem is obvious, the solution to it is also obvious: individuals from these countries must be allowed to observe these and other useful models of behaviour by going to countries where these models are established – where corruption is rare and integrity is the rule – and by spending time with, so they can observe, both elected representatives and civil servants who administer public funds without succumbing to the temptation to steal those funds, and instead employ them for their intended purpose, which is to benefit the members of the society in which they live.

We allow those who are young and bright from poor countries to study at our universities, but this is not enough. It is also necessary to let them observe our elected representatives and civil servants – something that is not presently being done – so that, hopefully, they will be able, if they assume comparable positions in their own country, to establish these essential models of behaviour there.[4] And it cannot be assumed that training a mere handful of these individuals will be sufficient to resolve the dire problem of corruption that exists in many poor countries today. Rather, this must be a continuous process that will take years and years to bear fruit, for, assuming that they are not corrupted themselves, those who seek to change a corrupt system, whether it is political or bureaucratic, will encounter great resistance, hostility, and perhaps danger to themselves from those who are presently in power or occupy positions of authority and control over public funds, and who want to continue doing what they and their corrupt predecessors have done, without interference, exposure, or punishment.

Together with this political or civic training, it is also necessary to train those who will become the military leaders of these countries. For the unfortunate reality is that many military leaders of poor countries have been unscrupulous thugs and criminals who have used their power to oppress, subjugate, terrorize, and even kill those whom they are supposed to serve and protect. Without this coordinated effort – if the military remains in the hands of officers who do not respect and obey the elected leaders of their country and instead seek to supplant them – then all this civic training will be for naught.

In many cases, we are asking or expecting too much of the often well-intentioned individuals who seek to improve conditions in their country. In essence, their task is to create an honest and efficient system of government when the people of their country lack the example of such a thing. This is like telling someone to pull oneself off the sticky ground of corruption by one’s shoelaces, for one needs help to accomplish this difficult task.

The abysmal failure of the application of economic theories to produce the expected results in the global effort to help the inhabitants of poor countries around the world demonstrates a very important but also generally unrecognized fact about economics: economics is the study of certain models of behaviour that exist only in certain countries. In other words, contrary to what economists mistakenly believe, these models are not innate in our behaviour, and therefore they are not globally applicable. This explains why, for example, lowering the interest rate, privatizing government services and companies, or liberalizing the economy does not have the same effects in these countries as when the same measures are implemented in industrialized countries.

When economic theories and models have been used to try to help the inhabitants of poor countries, often the results have been as disastrous as the efforts of doctors in the seventeenth and eighteenth centuries, who frequently killed their patients or did them more harm than good because of their ignorance and mistaken conceptions about the operations of the human body and the true causes of disease. But now, following the significant advances that have been made in medicine and the understanding of various diseases, doctors who go to poor countries are able to help the people who live there, which shows that their theories and understanding of the way the human body works are mostly correct. On the other hand, economists have failed to help these people, which shows that their theories are wrong, or they are not globally valid, as most economists mistakenly assume. But in spite of their innumerable failures, the great majority of economists refuse to draw the simple logical conclusion from these many failures about their cherished theories, namely that they are wrong, or they are limited in their applicability to the countries where they were developed and others like them.

The model of Western capitalism, which is an extremely complex norm with a very large number of interconnected models of behaviour, has been successfully imitated by some non-Western countries, notably in Asia.[5] But this fact should not mislead people into believing that it can easily be implemented in all countries where the inhabitants live in poverty and want. Well-intentioned individuals or groups have also made the common mistake of taking one or several parts of this norm – elements like education, factories, electricity, paved roads, basic health care, and a low birth rate – and assumed that if these elements are established in poor countries, then the other parts or features will inevitably follow, thus ensuring an increase in economic prosperity. But this piecemeal approach does not work, as has clearly been demonstrated by the many failed attempts by governments, whether national or foreign, and other organizations, to help the inhabitants of poor countries. Economists, imitating the successful method used in sciences like physics and chemistry, have isolated and identified various factors which contribute to economic success in the norm of Western capitalism, and then tried to implement these factors individually, not realizing that, although this approach may work in physics, chemistry, and to a lesser degree in medicine, it is much less successful when applied to human behaviour. This is like supposing that wearing a white lab coat will make a person a researcher or scientist, or using the same equipment or wearing the same clothes as one’s sporting heroes will transform one into a professional athlete. For example, factories are only one element in a very complex system that produces wealth. What is missing are the models of behaviour that are practised by the inhabitants of wealthy countries, which are harder to export and establish in poor countries where they do not exist. To single out this one or other element fails to consider the totality of interconnected models of behaviour that lead to economic success.

Following the collapse of communism, the attempt to introduce free-market capitalism in the former communist countries of Eastern Europe was like trying to make the inhabitants cease speaking their native language and instead speak a foreign language. The result was, predictably, chaotic, grossly incomplete, and not at all what the economists predicted or expected. Those who advocate such sudden and radical changes in the behaviour of the inhabitants of a country or region do not realize the great harm they may do to those people by their well-intentioned but erroneous assumptions and beliefs.

In poor or former communist countries, the application of capitalist economic models, far from producing prosperity, have in many cases produced the opposite, or led to foolish and expensive projects that have done little or no good for the inhabitants because the economists who implemented them did not understand that their theories were based on the study of models of behaviour that exist in capitalist countries but are not practised everywhere. They would have been more honest had they asked themselves, “How can we get these people to behave like wealthy Westerners?” – for then they would have realized the difficulty of their task and what they were actually trying to accomplish. Although their aims were no doubt salutary, it is the age-old story of the members of one culture trying to impose their ways on the members of a different culture.

Between 1978 and 1984, the Asian Development Bank spent $24 million to improve agriculture on the island of Bali. The target for improvement was an ancient agricultural system organized around 173 village cooperatives linked by a network of temples operated by “water priests” working in service to the water goddess, Dewi Danu, a deity seldom included in the heavenly pantheon of development economists. Not surprisingly, the new plan called for large capital investment to build dams and canals, and to purchase pesticides and fertilizers. The plan also included efforts to make idle resources, both the Balinese and their land, productive year-round. Old practices of fallowing were ended, along with community celebrations and rituals. The results were remarkable but inconvenient: yields declined, pests proliferated, and the village society began to unravel. On later examination, it turns out that the priests’ role in the religion of Agama Tirtha was that of ecological master planners whose task it was to keep a finely tuned system operating productively. Western development experts dismantled a system that had worked well for more than a millennium and replaced it with something that did not work at all. The priests have reportedly resumed control.[6]

In an integrated economy, building large-scale projects like an aluminum smelter or hydro-electric dam makes sense, for they are built as they are needed and therefore take their place in the economy and contribute to increasing total output. But doing so in poor countries, where the accompanying models and industries are lacking, doesn’t make sense, for this is no different from trying to imitate certain traits of individuals that we admire, such as the way they dress or talk, or the diet they eat, and supposing that this will result in our becoming like them in other respects.

Although the following excerpts are anecdotal, they illustrate my point that the dominant models of behaviour that exist in poor countries are usually very different from the models that exist in wealthy industrialized countries:

My father [who had travelled to many foreign countries] introduced the concept of competition to the retail business in Port Harcourt [in Nigeria in the 1970s]. Up until then, customer loyalty was taken for granted: you named your price and haggled for it if you couldn’t reach an agreement. And unlike most of the shop owners on the street, my father also worked long hours and stayed open late. The business took off.[7]

Only two of the 200 farmers at the meeting [in a poor Kenyan village] used fertilizer. […] How many farmers had used fertilizers in the past? Every hand in the room shot up. Farmer after farmer described how the fertilizer became too expensive.[8]

Whoever decided to introduce chemical fertilizer to these farmers obviously was influenced by the industrial model of farming that is practised in wealthier countries, where chemicals are added to the soil to increase crop yields. I am sure that yields increased significantly during the time that the farmers were able to use fertilizers. But this well-intentioned person or persons failed to make some rather simple observations: most farming in poor countries is labour intensive, and much of it is subsistence farming, meaning that most or all of the crop goes towards feeding the farmer’s family, leaving little or no surplus that the farmer can sell to purchase things like fertilizer, which must be added to the soil every year to work its technological magic. And because this kind of farming is labour intensive, the farmer has no time to perform other labour with which one can earn income to pay for the fertilizer. But even if the farmer has free time, often the economy is not sufficiently developed so as to offer other kinds of employment that one can perform to earn money with which to buy fertilizer. These important observations can only be made by someone who has taken the time to observe and understand these people’s way of life, as well as the differences between it and the way of life of farmers in industrialized countries, where the practice of adding chemical fertilizers to the soil to increase crop yields originated.

In addition, fertilizers encourage farming practices that are not sustainable. Traditional methods that have been used for many generations by the local people generally do not exhaust the soil, and they also protect it from erosion, things that are not true of industrial farming methods. The increased yields produced by fertilizers may lead farmers to abandon their traditional methods, which can have harmful effects later on when the soil is depleted and a significant part of it is lost to erosion.

Fertilizer farming impoverishes the soil in the long term, in contrast to adding manure or other organic materials like compost or dead vegetable matter, which enrich the soil and build it up. But often there is little or no manure or vegetable matter to add to the soil because the people are so poor that animal dung is used as fuel, and because of overpopulation and the desertification due to climate change, there is little naturally-growing vegetation. Because fertilizers are water-soluble, they are easily leached out by heavy rains, meaning they do not remain in the soil where plant roots can reach them, and so must be added every year to be effective. Moreover, when fertilizers collect and become concentrated in local bodies of water, they often cause pollution by encouraging the growth of unwanted plant species like algae, which in turn can deplete the water of oxygen when they die and decay, thereby killing the fish and other organisms that live in the water.

Thus, one should be wary of introducing such simple and seemingly miraculous solutions like chemical fertilizers into the lives of poor people, which may do them more harm than good in the long run. Ultimately, what is needed are changes that are sustainable, given the particular conditions, as well as the economic and other limitations, of the people one is trying to help. In other words, the proposed solutions must fit, in a permanent and beneficial manner, into the particular models of behaviour that are practised by the people. This can be as simple as taking the time to ask the people one is trying to help what they would like or think should be done, something that very often is not done by those who seek to help those in need.

In New York’s East Harlem there is a housing project with a conspicuous rectangular lawn which became an object of hatred to the project tenants. A social worker frequently at the project was astonished by how often the subject of the lawn came up, usually gratuitously as far as she could see, and how much the tenants despised it and urged that it be done away with. When she asked why, the usual answer was, “What good is it?” or “Who wants it?” Finally one day a tenant more articulate than the others made this pronouncement: “Nobody cared what we wanted when they built this place. They threw our houses down and pushed us here and pushed our friends somewhere else. We don’t have a place around here to get a cup of coffee or a newspaper even, or borrow fifty cents. Nobody cared what we need. But the big men come and look at that grass and say, ‘Isn’t it wonderful! Now the poor have everything!’ ”[9]

The statistical approach that is commonly employed by economists is often another barrier to understanding what needs to be done and how foreign aid can be best employed because it ignores the particular circumstances of the lives of the people one is trying to help. By paying attention primarily to numbers like GDP growth, annual per capita income, the infant mortality rate, incidences of diseases like malaria and AIDS, the rate of illiteracy and unemployment, and so on, aid workers and their economic advisers fail to take the particular and specific approach that is needed to help people. For example, there is little point in providing condoms to stop the spread of AIDS if there are strong religious or societal taboos against their use or the open discussion of such subjects. Foreign aid workers need to wean themselves off the idea that there exist simple, globally-valid solutions to the multifaceted problems posed by poverty.

Although this may sound obvious, statistics should be used only as a rough guide both to what needs to be changed in a country and whether the proposed solutions have succeeded in accomplishing their goals, since there are many things that are important that are not or cannot be measured by statistics. But instead, many economists and aid workers make changing certain statistics their primary goal or measure of success.

The explorers and colonialists who came to foreign lands often scorned the customs of the native peoples they encountered, who had been living and surviving in these lands for millennia. The same was true of missionaries, who regarded these people as unenlightened savages who needed to be taught the One True Religion for the welfare of their immortal souls.[10] All of these different groups, whether explorers, soldiers, colonists, traders, or missionaries, often did much harm to the native people by their disregard for the native people’s traditional ways of life. The same criticism can be made of a great deal of foreign aid, which likewise is dispensed by individuals who believe they are superior, whether morally or intellectually, to the people they are trying to help. Foreign aid can be made more effective, but only if it is based on a proper understanding of human behaviour, in particular the behaviour of the people one wants to help – something that has, regrettably, generally not been the case until now.

[1] One reason why some native peoples may have consumed alcohol excessively is because altered states of mind, which are experienced by individuals who are prone to visions, are highly valued in their culture. Since alcohol is a quick way to achieve these states, it may have led them to abuse this substance before they understood its addictive and harmful nature.

[2] The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics by William Easterly, pp. 147-148, 151. MIT Press, Cambridge, Massachusetts, 2001.

[3] In this context, an example of the need to understand the social relations that exist in poor countries is the fact that, in many African societies, extended families are still very important, unlike in the more individualistic West, and so someone who has achieved financial or material prosperity is expected to help one’s relations, including employing measures that in other countries would be considered illegal or improper, such as giving jobs to relatives who may not be qualified to perform those jobs.

[4] This should also be done in wealthy countries, where presently young people are not permitted to observe politicians and civil servants performing their occupations. This training is vital if we want to prepare and motivate some of them to perform these important public functions later in their lives. Instead, many young people today aspire to become athletes, models, actors, or musicians, because they often observe these individuals on television, movies, and the Internet, a situation that, in my opinion, is extremely foolish and wasteful, since very few of them will be able to attain their unrealistic dreams.

[5] Interestingly, those formerly poor nations, primarily in East Asia, such as Taiwan, Singapore, South Korea, and presently China and India, that have successfully transformed or are transforming themselves into wealthy industrialized nations have done so, for the most part, without massive injections of foreign aid.

[6] Hope is an Imperative: The Essential David Orr by David W. Orr, pp. 13-14. Island Press, Washington, DC, 2011.

[7] In the Shadow of a Saint by Ken Wiwa, p. 41. Alfred A. Knopf Canada, Toronto, 2000.

[8] What Matters: The world’s preeminent photojournalists and thinkers depict essential issues of our time, p. 164. Created by David Elliot Cohen. Sterling Publishing, New York, 2008.

[9] The Death and Life of Great American Cities by Jane Jacobs, pp. 20-21. Modern Library, New York, 1993.

[10] I read about an Eskimo hunter who asked the local missionary priest, ‘If I did not know about God and sin, would I go to hell?’ ‘No,’ said the priest, ‘not if you did not know.’ ‘Then why,’ asked the Eskimo, ‘did you tell me about it? (Quoted from Annie Dillard in Advanced Banter: The QI Book of Quotations by John Lloyd and John Mitchinson. Faber and Faber Limited, London, 2008.)