Humanitarian aid is unable to promote society-wide economic development

From Doing Bad by Doing Good: Why Humanitarian Action Fails by Christopher J. Coyne. Page 23.

Since at least the post–World War II period, the humanitarian community has recognized the importance of economic development for alleviating and preventing suffering. The result is that the line between short-term relief efforts and long-term development efforts has become blurred, as many humanitarian agencies and organizations attempt to address root causes of underdevelopment in the hope of closing the “humanitariandevelopment gap.” Given this, a central issue addressed in my analysis is whether those involved in humanitarian efforts have the ability to effectively foster economic development through external assistance.

This leads to a third, and directly related, conclusion—humanitarian aid is unable to promote society-wide economic development. I provide three reasons why efforts to promote development fail. For one, those involved in humanitarian efforts are unable to promote economic progress because they suffer from the “planner’s problem,” which refers to the inability of nonmarket participants to access relevant knowledge regarding how to allocate resources in a welfare-maximizing way in the face of a variety of competing, feasible alternatives. The solution to this problem, which is necessary for societal economic development, can emerge only through the process of discovery that takes place in markets. Further, efforts to promote a society’s growth and development tend to create perverse incentives, which lead to negative unintended consequences and failure. In fact, in many cases, efforts to foster development result in a reinforcement of the very conditions that are responsible for continued underdevelopment. For example, foreign assistance often empowers corrupt political elites responsible for suffering and discourages reforms to already dysfunctional political and economic institutions. Finally, there is no known formula for promoting growth and development. In broad terms we know what is required for a society’s economic prosperity—private property, sound policy, and so on—but we know much less about how to achieve these precise conditions where they do not already exist. As one indication of the lack of a specific and general recipe for economic development, consider that empirical studies of the factors behind economic growth have identified at least 145 different variables that are statistically significant.