Recently Mari blogged about a review by Nicholas Kristof of several books on international development, including two by Jeff Sachs and Bill Easterly. If you are interested in the latest thinking on this topic, I highly recommend this review - and the books, if you want to go deeper.
Very briefly, Jeff Sachs points out that we already have the ideas and technologies to dramatically improve - at relatively low cost - the health and economic well being of hundreds of millions of people in developing countries. He is right about this. There is much reason for hope, and a few dollars can have an absolutely enormous impact on communities in developing countries.
But Bill Easterly argues that the way in which these ideas and technologies are surfaced and disseminated makes a huge difference in whether they have the intended impact. Over the past 50 years, official aid agencies have spent about $2 trillion (in today's dollars), and few would argue the results have been commensurate with the money spent. The problem is that current aid agencies operate in a manner very similar to central planners. This approach does not work in the aid business any better than it worked in the old Soviet Union. We need more market-based mechanisms for aid, where "searchers" can find solutions appropriate in specific places and times.
Some research I commissioned last year estimates that market-based economies allocate resources 2-3 times more efficiently than centrally planned economies. I believe the same will hold true in the aid business. It certainly is proving to be the case on GlobalGiving - projects posted on GlobalGiving can have an impact at 1/5th the price of an official top-down aid project.