New approach to aid & development

“In Development” (The Times, 13 January) demonstrates well that compassion towards the world’s poor cannot effectively be fulfilled through the vehicle of government-to-government foreign aid.

Facing huge budget deficits, the future government of this country must re-evaluate the premises under which aid is granted. They would do well to heed innovative thinkers around the world, ranging from Peruvian economist Hernando de Soto to Nobel laureate Elinor Ostrom, who have revealed the importance of decentralised institutions to empower individuals to forge their own destinies. Similarly, year after year the World Bank’s annual “Doing Business Index” reveals how economic prosperity is directly related to transparent, rules-based government.

Yet the political elite in poor countries, often fuelled by foreign aid from wealthy countries, have to date had little incentive to empower local entrepreneurs. To the contrary, they have used burdensome regulations and restrictions on property ownership as a means of reinforcing their power and wealth, promoting bribery and corruption, while perpetuating poverty among their citizens.

A new approach is needed desperately. One approach, pioneered by the US Millennium Challenge Accounts, would be to provide support to governments only when they undertake specific governance reforms. In many African countries, this would mean requiring governments to remove arbitrary restrictions on ownership of property and on doing business. Among the beneficiaries would be the hundreds of millions of people who currently obtain their water, healthcare, education and numerous other services from informal entrepreneurs. Legalising these businesses would drive competition, resulting in higher quality and lower costs.