The Cartel of Good Intentions: Bureaucracy vs. Markets in Foreign Aid

Abstract

The tragedy of foreign aid is not that it didn't work; it was never really tried. A group of well-meaning national and international bureaucracies dispensed foreign aid under conditions in which bureaucracy does not work well. The hostile environment under which such aid agencies functioned induced them to organize a cartel that increased inefficiency and reduced effective supply of development services, frustrating the good intentions and dedication of development professionals. The cartel of good intentions allows rich country politicians to feel that they are doing all in their power to help the world's poor, supports rich nations' foreign policy goals, preserves a panoply of large national and international institutions, and provides resources to poor country politicians with which to buy political support; in short, foreign aid works for everyone except for those whom it was intended to help. Now rich countries are using their past lack of effort at assuring effective aid as an excuse to reduce aid. Instead, to change this unhappy equilibrium, policymakers in rich and poor countries should experiment with decentralized markets to match those who want to help the poor with the poor themselves freely expressing their needs and aspirations.