08 April 2009

Foreign Aid ≠ Reduction in Poverty

According to this article by the Journal's Mary Anastasia O'Grady, foreign aid has not been an effective means of alleviating poverty in Latin America.

The following excerpt is helpful:

In a recent book titled "Lessons From the Poor" about successful entrepreneurs in the developing world, researcher Alvaro Vargas Llosa echoes these insights. "The decisive element" in bringing a society out of poverty is "the development of the entrepreneurial reserves that exist in its men and women," Mr. Vargas Llosa writes. "The institutions that grant more freedom to their citizens and more security to their citizens' possessions are those that best facilitate the accumulation of wealth."
It is obvious that economic liberty and property rights are the key drivers of development, and that there is no correlation between the volume of foreign aid a country receives and its respect for these values. Yet what is more troubling is the IDB's reputation for working against liberalization in the region, most notoriously, against the flat tax. With its institutional checkbook it easily overpowers civic groups that try to limit the power of government. In doing so it promotes neither development nor just societies.
Freer economic systems are critical to alleviating poverty in developing nations, IF that freedom is accompanied by enshrined respect for property rights.

When will we be able to demand the kind of results from our intergovernmental organizations that Washington is demanding from the management of public companies.

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