Transparency in Foreign Aid Matters

It is important to be able to see how and where governments and nonprofits spend their international development funds.

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World Food Program workers in Sudan offload sacks of rice donated by the US Agency for International Development.

Robert Hahn is director of economics at the Smith School, University of Oxford, and a senior fellow at the Georgetown Center for Business and Public Policy. Peter Passell is a senior fellow at the Milken Institute and the economics editor of the Legatum Institute's Democracy Lab. They are cofounders of Regulation2point0.org, a web portal on regulatory policy.

Foreign economic aid is out of fashion, and for good reasons. A good chunk of the $5 trillion (!!!) delivered to poor countries since 1960 has been squandered on roads to nowhere and factories that make stuff nobody will buy, not to mention chateaux in France for kleptocrats. Worse yet, donors had a habit of rewarding ethically challenged bureaucrats, cementing the hammerlock of crony capitalists and undermining the bottom-up enterprises that offer hope for sustainable growth. Most economists, it's safe to say, consider it far more important to open markets to the exports of developing countries and to allow migrants to send home remittances than to write big checks.

That said, some aid has been immensely valuable—for example, wiping out dread diseases and leveraging private capital for vital infrastructure. And while there are no hard and fast rules for separating the noble metals from the fool's gold, one obvious lesson from a half-century of costly errors is that transparency pays. Which is why the work of Publish What You Fund, a nonprofit (largely underwritten by the Hewlett and Open Society foundations) is worth celebrating. It rates donors according to the difficulty of figuring out what they do with their money, are worth a gander.

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Check out the 2012 rankings of 70 government-sponsored donors and two private ones. The idea is straightforward: finding consistent data from a dozen countries and constructing a useful index with it is anything but. To their credit, though, Publish What You Fund posts every number used and even provides tools for creating alternative indexes from the raw materials.

Browsing the results, a bunch of things stand out. The single most transparent aid organization is the U.K. government's Department for International Development. Perhaps it should not be surprising that the DFID is also widely praised for its tech-savvy: The agency paid for software for wireless networks in Africa that, among other things, make it possible to provide banking services without branches and to monitor irrigation pumps in remote rural areas.

[Read the U.S. News Debate: Given The Current Deficit Crisis, Should Foreign Aid Be Cut?]

Second, most of the top-ranked donors—10 out of 15—are multilateral organizations. The World Bank's International Development Association is no. 2, while the huge Global Fund to fight AIDS Tuberculosis and Malaria is no. 4, and EuropeAid, the European Commission's main aid conduit, is no. 5. The multilaterals have always been vulnerable to criticism from politicians unhappy about delegating taxpayer money to super-national agencies, and have been smart enough in this era of tight budgets to avoid cause for complaint regarding transparency.

The rankings of bilateral (single-country) donors are all over the place. Sweden, Denmark, the Netherlands, Finland, New Zealand, Finland, and Australia—relatively small countries with reputations for competent, honest government—score very well. At the other end of the spectrum, China, Greece, Bulgaria, Romania, and Slovakia rank poorly. (For some reason, Malta is dead last; it apparently does give out foreign aid, but doesn't explain to whom or for what.)

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Interestingly, the two private foundation donors rated: Hewlett (which pays the bills for Publish What You Fund) and Gates—rank just 31st and 33rd on the charts, respectively. This may be related to their ambivalence about privacy. One could argue that they really don't owe us the sort of transparency expected from taxpayer-funded agencies. But we wouldn't: Foundations are indirectly subsidized by the public, since charitable donations are not taxed.

By the way, Publish What You Fund assigns numerical index scores as well as rankings to donors, which makes it possible to make year-to-year comparisons. Some of the news is disturbing: A number of big bilateral European donors—among them German, French, Italian, Polish, and Swiss agencies—aren't in any hurry to publish information. And Brazil, whose left-center government is heavily committed to helping Portuguese-speaking countries in Africa, doesn't disclose much. But the overall trend is positive: The multilaterals, led by the vaccine-focused GAVI Alliance and EuropeAid, are getting more transparent quite rapidly.

Development aid matters, albeit less than a generation of do-gooders hoped. And Publish What You Fund offers just the sort of clear-eyed effort needed to keep it that way.

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