Michelle Obama visited Haiti last week and told Haitians still digging out of devastation that “the world stands with you.” True, as the US military plans to end its disaster relief mission in Haiti at the beginning of June, the world will watch as Haiti transitions from emergency relief to reconstruction. But the country’s future hinges on the development strategy the international community chooses.
At the recent United Nations fundraising conference for Haiti, Secretary-General Ban Ki-moon spoke of a “sweeping exercise in nation-building on a scale and scope not seen in generations.” Donors pledged more than $5 billion for Haitian reconstruction efforts in coming years. The worldwide sentiment to help Haiti should be lauded, but the international community’s aid-based development strategy should not.
Haiti clearly faces immediate financial needs, but donors must realize that an approach that has failed for decades will continue to yield the same results. The international community’s aid strategy has not led to sustained economic growth in Haiti, or any other country. Aside from marginal growth last year, Haiti’s economy remained stagnant despite tens of billions of aid dollars during the past half century.
Countries worldwide have spent more than $2 trillion in aid over the past half century, and an estimated 3 billion people still live on less than $2.50 a day. A new approach is needed, one that supports the private sector and entrepreneurs, and empowers developing countries like Haiti. Unfortunately, the consensus still favors increasing aid funding, despite recent drastic improvements in standards of living typically attributed to gains from trade.
Secretary of State Hillary Rodham Clinton acknowledges that the new aid plan cannot rely on previous “failed strategies” and must be sustainable in order to wean Haiti off of its dependence on aid. But unfortunately, Secretary Clinton mistakenly supports the idea that all Haiti needs is better planning and more foreign aid.
The problem with this idea is that systematic foreign aid creates opportunities for corruption, cultures of dependency, and disincentives to develop. The aid faucet misaligns incentives between donors and recipients, making it extremely difficult to turn off the flow. For example, Zambian economist Dambisa Moyo often cites cases of government officials spending aid on private jets and shopping trips on the Champs-Élysées.
Similarly, in Haiti, the Duvalier dynasty stole millions in aid funds from 1957 to 1986. Government leaders stand to gain more by perpetually receiving donations from rich countries, rather than developing a healthy economy and ultimately ending funding. Aid distorts political institutions because country leaders do not have to rely on taxpayers to provide funds, so there’s no incentive to respond to citizens’ needs and requests. No taxation; no representation.
The developed world can and should promote growth by eliminating agricultural subsidies and tariffs so that poor farmers can exploit advantages in farming. Bill Clinton and George W. Bush have taken the first, small steps to do that by advocating relaxed trade restrictions on Haitian goods. The international community must heed these recommendations.
Foreign investment – not international donations – is a worthy development strategy that aligns long-term incentives between lenders and borrowers. The International Monetary Fund and World Bank should encourage sovereign countries to seek financing on international markets rather than provide grants and loans below market terms.
These reforms foster opportunities for local entrepreneurs to increase exports and meet local needs, which ultimately lead to economic and humanitarian improvement.
For years aid recipients have agreed that aid does not lead to growth and prosperity. Five years ago, Kenyan economist James Shikwati pleaded to aid planners, “For God’s sake, please just stop.” And nearly a decade ago, Senegalese President Abdoulaye Wade acknowledged, “I’ve never seen a country develop itself through aid or credit.”
More recently, Ms. Moyo argued for a gradual end of systematic aid claiming, “there is no country – anywhere in the world – that has meaningfully reduced poverty and spurred significant and sustainable levels of economic growth by relying on aid.”
Using international funding to meet Haiti’s short-term needs is one thing, but a forward-looking plan to reconstruct the nation – and properly construct much of it for the first time – is an entirely different one. Experts from rich Western countries craft “official development assistance” plans that sound promising in theory but have not worked in practice. There is no evidence that the newest round of donor spending and economic planning for Haiti will be any more effective than previous efforts.
Alternatives to foreign aid give developing countries long-term incentives to prosper and can unshackle local inventors, entrepreneurs, and innovators. These strategies – not foreign aid – will effect lasting positive economic and humanitarian change for Haitians.