University of Botswana Law Journal - PULP

FOREIGN AID, THE RULE OF LAW AND ECONOMIC DEVELOPMENT IN AFRICA 5
the scope of this investigation, which deals with the effectiveness of foreign
aid in bringing about economic growth and prosperity for those countries
which receive it. 9 The elimination of poverty requires the higher levels of
income that come with economic growth and development, and the best hope
for the impoverished masses in the third world to improve their well being lies
in economic growth. The reason is that economic development is essential to
human welfare.
Although well-being is a subjective concept that cannot itself be
measured, proxies such as income, life expectancy, educational opportunities,
literacy, and nutrition can serve as reasonable estimates. Statistical studies
show that economic development is a very significant factor in determining
many desirable well-being indicators. 10 A productive economy is necessary
for creating an environment in which individuals are capable of developing
their faculties and can peacefully pursue meaningful and fulfilling lives. One
should ultimately ask, then, does foreign aid “work?” Is foreign aid capable of
lifting poor countries up out of a cycle of poverty, onto a higher plain of
economic development? Economic reasoning and historical evidence suggest
that the answer to this question is a resounding “no.”
A. Foreign Aid is Not Necessary for Development
The original economic argument for foreign aid was that third world
development would be impossible without it. 11 This line of thinking holds that
people in under-developed countries are simply too poor to save any money, so
they never have a pool of funds available for creating the capital formation that
is necessary for economic development. According to this view, foreign aid
can help them break out of this trap and get on the path to sustainable long-term
economic growth by providing the funds necessary for capital investment.
The facts of history, however, strongly refute the notion that poor
countries need foreign aid to break out of poverty. For starters, the first
nations to develop, such as England, achieved economic growth and
development without foreign aid. If foreign aid were really necessary for
9 It should be noted, however, that although humanitarian assistance programs are usually defended on the
grounds that they have intrinsic humanitarian value, in the long run they often create more problems than
they solve. Even a program as seemingly unobjectionable as food aid has had many unintended but
harmful consequences in Africa, including disrupting local markets and putting local producers out of
business. See J. Bovard, The Continuing Failure of Foreign Aid, Cato Policy Analysis No. 65 (1986); D.
Osterfeld, Prosperity Versus Planning (Oxford University Press 1992) p. 142. More importantly, even
when successful, humanitarian assistance programs are only temporary alleviations for those in extreme
need. They do nothing to fix the underlying problem, which is the human suffering associated with
extreme poverty.
10 See P. J. Boettke & J. R. Subrick, Rule of Law, Development and Human Capabilities, 10 Supreme Court
Economic Review 109 (2002).
11 This theory, known as the “vicious cycle of poverty,” is still the leading justification for foreign aid today.
Economist Jeffrey Sachs is now its leading proponent; see J. D. Sachs, The End of Poverty: How We Can
Make it Happen in Our Lifetime (Penguin Books, 2005). For a refutation of this poverty trap theory see P.
T. Bauer, Dissent on Development (Harvard University Press, 1972) pp. 31-38.