Moral Hazard and International Aid

Approaches to global justice like Nussbaum’s are simply inadequate until they can seriously address the problems of moral hazard that seem to me to utterly swamp considerations in favor of large-scale global redistribution. This simply recapitulates the moral hazard argument against certain forms of welfare programs at the domestic level. The best work on this is David Schmidtz’s writings on “Guarantees.” Nussbaum is very cavalier in her talk about “entitlements.” She needs to address Schmidtz’s argument that we need to not be guaranteed all that we need in order to even begin to approach an answer to Peter Bauer.

Nussbaum is also facile about institutions:

The third of Nussbaum’s Ten Principles for the Global Structure is: “Prosperous Nations Have a Responsibility to Give a Substantial Portion of their GDP to Poorer Nations.”

Well, OK. Earlier, with regard to institutions, she says:

In the domestic case, we can easily say quite a lot about what institutions bear the burden of supporting the capabilities of the nation’s citizens: the structure of institutions laid out in the nation’s constitution, together with the set of entitlements prescribed in the constitution itself. This structure will include legislature, courts, administration and at least some administrative agencies, laws defining the institution of the family and allocating privileges to its members, the system of taxation and welfare, the overall structure of the economic system, the criminal justice system, etc.

The difficulty is that almost no amount of money does much good unless domestic institutions are robust enough to actually facilitate their citizens’ “entitlements.” Clearly, citizens of rich countries have reason to reject policies that throw their money down a hole. And how do you build minimally acceptable institutions? Well, that’s the problem folks like Mercatus’s Global Prosperity Initiative work on, and it’s hard. GPI isn’t very sanguine about the effectiveness of aid in the absence of certain institutional prerequisites. (Check out the critical public interest comment on the Millenium Challenge Account.)

So what is Nussbaum even saying? We already know that most aid is ineffective, and that there is no good reason to believe that more aid will be significantly more effective in the absence of deep institutional reform. And deep institutional reform cannot simply be bought or willed into existence, but, barring colonization, must generally emerge from within? So what is that bigger chunk of our GDP supposed to be doing?

It’s not at all clear to me that Nussbaum even has a positive argument for her prescriptions. She strikes me as offering little more than a set of normatively toothless utopian aspirations.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center