In Ruhiira, Uganda, an international aid project once offered villagers $300,000 to grow maize instead of matoke, a banana-like starch. Maize, the aid experts reasoned, was better to farm because it is nutritious, drought-resistant, and produces high yields. The experts were right. At harvest time, the villagers found themselves with a bumper crop of 3,840 tons of maize.

What happened next, though, cut short any celebration. No one could figure out what to do with all the excess maize. Transport costs to distant markets were too high to be profitable, and the village lacked the kind of storage facilities needed to preserve the corn for future use.

So it rotted. As one widow and mother of nine explained, “Maize is everywhere! Under the beds, in the living rooms, in the kitchens—everywhere! And the rats are everywhere, too.” What began as a hopeful, well-funded effort by foreign experts with good intentions ended in disappointment and even resentment on the part of those it was meant to help.

The Foreign Aid Dilemma

The Ruhiira misadventure occurred in 2007, but the larger effort behind it—the Millennium Villages Project (MVP), a $300 million total investment, which was widely promoted as the recipe to end poverty for good—received its first independent evaluation in late 2018 by the UK’s Department for International Development.

In a blow to traditional aid strategy, the report concluded “there is no evidence people living in the MVP areas have escaped the poverty trap” and that “what has been achieved could have been attained at a lower cost.”

What’s more, 2018 also saw the release of the first-of-its-kind Project Performance Database (PPD). It was painstakingly assembled by aid scholar Dan Honig, who captured data on more than 14,000 scored aid projects from nine different international development agencies. The findings suggest the Ruhiira experience is less the exception and more the rule. Based on the agencies’ own self-assessments, which Honig points out are likely inflated, and using established thresholds by independent scholars, the PPD reveals that nearly 40 percent of all projects were deemed failures, and only 14 percent were given top marks.

For some, the persistent inefficacy of foreign aid is a stubborn mystery that is just one project away from being solved ("Next time, more money to cover transport costs and more money to build storage facilities!"). Such dogged do-gooders fall prey to the seductive but mistaken belief that outsiders can solve other people’s economic problems with just the right combination of financial resources and technical expertise. But for others, the time has come to propose more imaginative fixes to aid’s approach to international poverty.

Foreign Aid Fixes

For example, Honig also used the data to better understand the reasons for project failure, concluding that the complexity of the task meant that centralized control by outside agencies often made failure more likely. In his book, Navigation by Judgment: Why and When Top-Down Management of Foreign Aid Doesn’t Work, he explains how many of the projects would be less likely to fail if they gave more autonomy to local aid workers.

Honig wants central authorities to understand that many of the unpredictable decisions that need to be made throughout the course of an aid project require the kind of “soft” information that distant technocrats do not and cannot possess.

Similarly, Pablo Yanguas, in his 2018 book Why We Lie About Aid: Development and the Messy Politics of Change, stands on his ten years of work in international development to contend that the complexities of local context are underappreciated by aid agencies that lack the tacit knowledge needed to better predict the consequences of their interventions. Yanguas sums up successful economic development as institutional change, which he describes as a societal transition from old rules to new rules.

For Yanguas, aid agencies must then grapple more directly with politics and public perception, a task made unavoidably difficult because of what he calls the “thick substrate of social norms, cultural values, policy ideas, and popular expectations,” which can easily frustrate the plans of any outsider.

Both Honig and Yanguas want to see aid reformed, but since both are determined to keep government-led aid agencies at the center of any new strategy, neither takes their intellectual journey far enough.

If local aid workers are marginally better equipped than their central office counterparts to navigate decisions on the ground, how much better equipped are the local people themselves to discover a path to their own prosperity? And if institutional change is the key to development, and understanding local complexities is necessary for securing a successful transition to new rules that stick, why pin our hopes on foreign aid workers to figure that out?

Institutions and Knowledge

Writing for a 2018 volume honoring Douglass North, who won the Nobel prize in economics for his work on institutions, economists James Caton and Edward Lopez argue that the successful evolution of institutions depends on the trial and error emergence of the uniquely shared and interlocking mental models of a particular society, the whole of which cannot be understood by a single person.

In this way, they write, “a theory of institutions requires a theory of knowledge.” Those insights suggest that the kind of “soft” information Honig values and the kind of “tacit” knowledge Yanguas prizes are really endogenous to local people, leaving outsiders least qualified to intervene for fear of clumsily substituting for and obscuring that local knowledge.

Whether to plant maize or matoke is a decision individual Ugandans should make, and the value of those types of choices is materially influenced by the degree to which local institutions respect and facilitate the full expression of those economic decisions.

What does this mean, then, about the role of outsiders and philanthropy in addressing poverty?

Oxford economist Eric Beinhocker in his book, The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics, explains an important truth about the process of economic development every outsider should bear in mind:

"We use our brains as best we can in economic decision-making but then we experiment and tinker our way into an unpredictable future, keeping and building on what works and discarding what does not. Our intentionality, rationality, and creativity do matter as a driving force in the economy, but they matter as part of a larger evolutionary process."

In this way, according to Beinhocker, “markets are an evolutionary search mechanism” with no designer at the helm. Therefore, any successful philanthropic strategy for economic development must prize individual economic freedom as its ultimate goal.

That’s not all. Beinhocker also explains:

"Economies rely on the existence of two factors: physical technologies to enable people to create products and services that are worth trading, and social technologies that smooth the way for cooperation in creating and trading those products and services."

Equating social technologies terminologically with institutions, Beinhocker cites development economist William Easterly’s research findings when he writes, “The most significant factor [explaining why some countries are richer than others] the state of a nation’s Social Technologies.”

Put another way, institutions, such as those relating to rule of law, property rights, free markets, financial regulation, business licensing, and others, are key to economic development. Beinhocker concludes, “Patiently building the institutions and culture required to support economic evolution is the only path for…countries out of poverty.

So, a philanthropic strategy for outsiders must honor both of those truths. It should focus on achieving institutional change aimed at strengthening economic freedom in order to expand economic choices for the poor and, importantly, it should be led by local reformers, not outsiders.

Who Are These Local Reformers?

Over the last twenty years, a new player has emerged that is proving uniquely positioned to resolve the dilemma outsiders face. This player is as sophisticated in its strategic relevance as it is banal in its description: the local, independent think tank.

The quantity and quality of local, independent think tanks committed to strengthening economic institutions have grown considerably in the last two decades. Of the 486 such organizations working today in 95 countries, only 151 of them existed 20 years ago, and they covered only 40 countries. More importantly, they are achieving tangible, institutional victories throughout the world on a monthly basis, according to monitoring performed by my organization, Atlas Network.

In Côte d'Ivoire, for example, it was a local think tank, Audace Institut Afrique, that figured out how to work with village leadership to transition oral land-ownership customs to secured titles in the formal market. In Argentina, Libertad y Progreso rallied public opinion around their research explaining the injustice of a tariff on laptops and tablets, leading to its elimination and a drop in prices. In Honduras, low-income would-be entrepreneurs faced steep government licensing fees until a think tank, Fundación Eléutera, made the case for their considerable reduction.

Each of those improvements represents a milestone on the institutional path to economic development. The identification, prioritization, sequencing, and design of such pathways cannot be led by outsiders, no matter how technically savvy or well-intentioned, because the underlying norms, culture, and customs are substantially influenced by a local, tacit knowledge that is both integral to institutional development and at the same time non-transmittable to foreign minds.

In the conclusion of Honig’s book, he details some of the ways foreign agencies have been trying to take the “local knowledge” mantra seriously by cooperating more closely with recipient countries, paying more attention to local politics, and even establishing more field offices on the ground.

Honig is skeptical that any of those tactics truly get to the heart of the problem. He quotes one government official in Liberia who complained, “USAID consults [us] on strategy, but it’s their strategy.”

Of course it is. This existential dilemma is perhaps too intractable for those philosophically and professionally committed to the foreign aid infrastructure we’ve inherited. For the rest of us, it is our opportunity to acknowledge the full breadth of the outsider’s role in aid’s inefficacy to date and to adopt a new strategy that puts us in our proper place and local think tanks in theirs.