Lawrence Summers (1994): Foreign Aid: Why Do It? And What Works?: "When the history of the final twenty years of the twentieth century is written, there will be two big stories: the end of the cold war and the transformation of the developing nations...

...It is only a slight exaggeration to say that this is the era when 3 billion people got on a rapid escalator to modernity.

Our discussion of foreign aid should start with the recognition that what is happening in the world's emerging markets is probably more important for U.S. interests than it has been at any time in the past fifty years. The maintenance of and support for stable prosperity in those parts of the world where progress is under way is central to the American purpose in the world. Here are five observations on the process of foreign assistance and the promotion of those objectives.

  1. To have important effects, policy needs to be leveraged. Even the Marshall Plan financed less than 5 percent of the investment that took place in Western Europe during the late 1940s. Achieving maximum leverage today means transferring knowledge about such subjects as securities markets, bank supervision, and educational reform but also making assistance conditional on policy reforms in the recipient countries.

  2. There is a central role for administering multilateral assistance through international financial institutions. Last year's U.S. contribution to those institutions--about $2 billion--provided about $60 billion in program support, as well as a good deal of technical assistance and policy dialogue.

  3. Global problems represent an important item on the U.S. international agenda. Whether it is the security problem associated with extreme poverty, refugee relief, responses to environmental disasters, or even a cure for AIDS, we are moving toward increased assistance in these areas of global concern.

  4. U.S. foreign aid should adapt to changes in the private capital market. There still are too many countries for which de facto U.S. policy remains aid, not trade. That is surely wrong if one believes in promoting the private sector.

  5. Investments in people do matter. Increased education for girls, for example, would more than repay its costs purely as a family planning program, but since it is also a public health program and an investment in the next generation, it may well be the highest return investment that we and others can support.