With the new administration coming to power in the US, there is a flurry of new proposals on how to reform the aid system. However, few of them propose real change. Instead, there are proposals to increase aid to such and such issue or country. Or to strengthen such and such agency – or to appoint a strong new leader.
None of these proposals gets at the root of the problem. As Bill Easterly has pointed out, we have spent more than $2 trillion in aid over the past fifty years with not enough to show for it.
The problem is the centrally planned, expert-driven, top-down nature of the current aid system. Just like under the Soviet regime, this approach does get things done. But the quality is bad, shortages are common, and the people have little say in what gets produced.
So let me propose the 2/3 : 1/3 rule. Henceforth, 2/3 of all aid resources will be allocated through an open-access, bottom-up, market mechanism, while 1/3 of the resources will be allocated through existing top-down approaches.
I will write more about how the marketplace system would work in coming posts and columns.
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