The Aid Dilemma

“Aid would be a great thing if it worked” William Easterly

It has taken a long time for me to get to this point of view and it’s is an unpopular one, but I feel that we should not continue to give aid in its current form. I firmly believe that aid is fundamentally flawed and that giving aid in its current form or simply increasing aid to the poorest nations is not the solution to economic development. Other credible alternatives should be looked at and engaged with. It’s a controversial and unpopular opinion I know, and I didn’t really form this opinion or look into aid much until I saw William Easterly’s debate on it. I would really recommend watching as he is able to summaries everything that I want to say below but in a far better way than I ever could.

First off the idea of aid is that in the earliest stages of development there is a shortage of capital.  There is a market failure, as both domestic and global markets do not wish to finance what is perceived to be “risky” investment in the poorest nations. Aid’s job is therefore to step in and finance these “risky projects” and foster economic development by “bridging the gap between the desired levels of investment and actual domestic savings”. However evidence suggests that “the bulk of aid tends to augment consumption rather than close the financing gap of productive investment”. (Abeaz 2005, p440). There is now increasing academic evidence that the current system of aid has not only failed to promote economic growth and poverty reduction, but can actually do more harm than good, with this failure most clearly seen in Sub-Saharan Africa. 

You could argue as Jeffery Sach’s does that we simply do not give enough, and that the problem lies in the amount of aid we give. And while I believe that he is right in some respects, I don’t think we give enough, Australia’s aid (Government’s budget) in 2012/13 was 40c in every $100 (I think this this has changed with the new budget and its sits around 20c now?) The USA gives 20c in every $100 of their budget. So yes, there is clearly more room for Australia’s on a government and individual level to give more. But I don’t think simply giving more money is the answer. As William Easterly says $600 billion in aid has been given to Africa over 45 years and standards of living and incomes have not risen, in some cases they have even gone backwards. I the idea that simply throwing more money at the situation does not sit well with me.  

The idea of aid is to help the poorest nations, and distribute it on a needs based allocation. However much of the research done on the distribution of aid finds “that the flow of foreign aid seems to have little apparent relationship to human needs in developing countries”(Akram, 2003, p1356).  Essentially the poorest nations aren’t even receiving the most amount of aid. In reality there are other factors that contribute to the way aid is given, that have less to do with a needs or poverty reduction, and more to do with the broader foreign policy goals of countries.

There are many problems associated with the current aid regime including; the asymmetrical relationship between countries, the huge fragmentation and proliferation of aid agencies, lack of coordination and the accountability of aid. You can just take a step back and think about if you hear about anyone losing their job when an aid project fails? When millions of dollars in aid fails who is held accountable? Most common answer is no one. There is no sense of responsibility for the outcomes of aid.  There is a lack of coordination, coherence and focus in aid. Looking at Africa “in a typical country there are 30-40 donors, in addition 75-125 foreign Non-Government Organisations that fund a thousand or so distinct projects, involving 800-1000 foreign experts” (Van de Walle 1999, p339). How could you possibly expect anything ever to get done?  As Abeaz (2005, p439) states “The ultimate stakeholders of the aid relationship may be poor people, but they rarely have an effective voice in the design or in the evaluation of aid-funded programs”.

A lot of people argue that aid is not the problem it is the corruption within these countries. There is now widespread support for ending practices of giving aid to governments with bad records of corruption, human rights abuses and incompetency that would render aid ineffective; in essence making sure aid is given in an informed manner. But how do you avoid punishing the poor in these countries when their governments perform badly? Dambisa Moyo in her book Dead Aid argues that in reality very little of the aid trickles down to those in abject poverty “Too many African countries have already hit rock bottom – ungoverned, poverty-stricken, and lagging further and further behind the rest of the world each day; there is nowhere further down to go”.  And therefore if you were to cut aid off it would have a very minimal effect on those in poverty and harm those most in power. This is still a hard pill to swallow and it will likely never be tested out. There is also emerging evidence that aid actually fosters corruption, the saying goes aid “makes good governments bad and bad governments worse”. Inhibiting democracy and entrenching the ruling elite. Also the standard diagnosis is that all countries within Africa are corrupt, with highly visible examples of terrible governments and widespread war and violence; however this is not the case for all and does not explain the disparity of living standards in equivalent levels of corruption South America or parts of Asia. I’m not arguing that governance has no impact but that its impact is used inappropriately as a single explanation, and a justification to continue to give aid in its current form.  

The issues that face the poorest nations, in particular Sub-Saharan Africa are multifaceted and there is no silver bullet. There is very little incentive to change the way aid is given. Because there is such little incentive, many ideas and alternatives to aid are dismissed and not researched fully. What is the point of all this? Essentially what I am trying to say is that people should stop giving aid, but that this is really hard to do and seems callous and simply horrific in a lot of cases, so instead I’m saying think about the money you are giving. Give to those aid agencies that specifically involve local communities in aid projects from the beginning and that embed projects in local institutions, instead of going around governments, fostering accountability within the community. Even though its hard to do and it’s easy to just give money; look up aid agencies, see how transparent they are when it comes to allocating funds and whether or not they acknowledge local views, what locals think is needed, not what foreigners think is needed.

.  -Mrouge-