After the 2010 earthquake in Haiti that killed around 250,000 people and displaced 1.5 million others, the billion dollar state-led humanitarian relief effort failed to accomplish even the most basic tasks like rebuilding houses. The situation remains dire with 80,000 people still living in “temporary” tent camps.
In the new Learn Liberty video below, Professor Chris Coyne explains why humanitarian aid efforts so often go awry. Anytime the government allocates money for something, he says, there is intense rivalry among the groups trying to get a piece of it. This causes government agencies and NGOs (non-government organizations) to expend vast amounts of resources—which could be used for more productive projects—to lobby the government for funds. For instance, during the aftermath of the Haiti earthquake in 2010, more than 15,000 NGOs competed for $10 billion of US government relief funds. This concept is known to economists and political scientists as rent-seeking.
Humanitarian aid efforts also fail because bureaucrats have little incentive to use the money they receive in an efficient manner. Their goal is power not profit, so they use funds to maximize their responsibility rather than create value for those who need it. As a result money is wasted. It’s estimated that only 5 percent of the $9 billion spent in Haiti by January 2013 went directly to those affected by the earthquake.
Due to these misaligned incentives, governments and people would be better off just giving money directly to those in need.