Smiles, Miracles and Markets
New Thinking in Political Economy series
Chapter 2: Hostages to a fortune? – Schooling and international aid
The giving of aid is a relatively recent phenomenon. Stimulated by the success of the Marshall Plan in 1948, when the USA provided around $13 billion for the reconstruction of Europe after World War II, it was argued by economists such as John Maynard Keynes that similar outcomes could be achieved in developing countries. The Marshall Plan became ‘the model for future foreign aid programmes’. The USA kick-started economic recovery in Europe. It was claimed therefore that this demonstrated the possibility of developed countries stimulating growth in poor ones by providing them with aid. Economic, moral and political validations are typically presented to justify the giving of aid. In economic terms providing poor countries with financial aid, the hypothesis goes, will stimulate investment, thus encouraging economic growth. Poverty traps can be broken by investments which generate greater productivity and growth; hence the eventual eradication of poverty. Thus foreign aid will promote growth and development by filling a financing gap that exists in poor developing countries. Poverty traps cause illiteracy, poor health, low savings, population growth and poor infrastructure.
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