While we should do everything possible to help the people of Haiti in this hour of crisis, we should also think long term and ask a broader question which is "whether financial aid is the answer to the problem of eliminating poverty from the world".
It seems there are two schools of thoughts here. I will label one as Jeffrey Sachs school of thought. People in this camp believe more financial aid is the answer. There is another group, may be much smaller, which believes that providing more financial aid to poor countries does them no good and rather further damages their ability to come out of poverty. I belong to the later group.
Recently Bret Stephens made a strong case against financial aid, To help Haiti, end foreign aid, in the Opinion pages of WSJ.
Evidence is overwhelming that financial aid model has failed. Countries that have been the most intensive recipients of financial aid are in sub-saharan Africa and that region has seen the worst economic growth. In fact, in the last 50 years, around $568 billion have gone to Africa and over that period income of the average citizen of the average African nation has virtually not increased at all. In From Poverty to Prosperity, Arnold Kling and Nick Schulz argue for an approach that they describe as "Economics 2.0". They argue that countries ability to prosper is a function of "software" (meaning intangible assets and invisible liabilities) and is not dependent on "hardware" (meaning physical resources). Intangible assets will be the protocols or recipes of interaction among individuals, basically rules of the game. Invisible liabilities are social arrangements and political institutions that drag down the productivity.
The foreign aid approach is based on the "hardware" or "resource scarcity" approach. It assumes that countries can't grow because they lack necessary tangible "stuff". However if you compare Zimbabwe or North Korea with South Korea, Singapore, Israel, it becomes clear that it is not the "hardware" but the "software" that makes the difference.
Adopting this new paradigm will have massive consequences. For example we will have to reevaluate the role of agencies like The World Bank and IMF. This is an uphill task but one that policy makers should look into if we want to eradicate poverty from the face of the earth in near future.
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