01 Mar 2014

Faculty Q&A: The Future of Foreign Aid

BGIE associate professor Eric Werker says the private sector is the key to an emerging country's development. But that can't happen without an efficient public sector.
by Garry Emmons


You spent much of 2009 to 2011 in Liberia advising President Ellen Johnson Sirleaf while on leave from HBS. What did you learn from that experience?

Good ideas and great strategies are cheap and easy; what's expensive and difficult is implementing change. Among young government technocrats, I found plenty of talent and resolve to do things better. But the status quo has many allies, and the culture of management is inherently conservative. Liberia is making enormous progress, but it will need two generations of this kind of uphill progress before it's in the clear.

You previously worked for the Millennium Challenge Corporation. Is the MCC development model an effective one?

The MCC, a US agency established in 2004, is viewed by many as a success, in part because it aims to depoliticize aid. To be eligible for MCC assistance, countries must meet a variety of performance and governance benchmarks based on objective, third-party assessments. Once eligible, countries put forward their own proposals showing what they need money for and how they will use it.

Overall, of the Western donor countries, I'd say the British have the most effective model: a Cabinet-level position dedicated solely to international development. This has given them the breathing room to devise their own allocation strategy and be more creative with the programs they fund. Not coincidentally, my current work in Liberia is funded by the British!

Is the private sector ultimately the most effective promoter of development?

Foreign investment will play a small part, possibly a catalytic one, but at the end of the day, countries will get richer due to the activity of their domestic private sector. That said, to a large extent, countries are poor because they lack an effective public sector to provide an environment in which the private sector can do what it does best. That's why many donors focus on strengthening governance and developing the public sector's capabilities.

How is the development community doing, in your view?

I see recognition by donors that they don't need to be in many of the places they used to be. In Brazil and India, for example, even though there may be a lot of poverty, there's a decently functioning democracy and enough wealth such that it's mostly being left to those countries to deal with their own challenges. I think that's a terrific change.

Now you see donors focusing on the countries where there are low levels of state effectiveness, where donors think their aid can truly make a difference. In those places, a full generation of development assistance, however clunky and encumbered, will be needed. Once there's enough wealth in the country so that the government can actually tax and spend and build things, while lowering the cost to business of doing its work, then you've achieved a good equilibrium. At that point, a country can begin to use its own institutions to look after itself.  —Garry Emmons


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