Beware the aid sceptics?

In a Personal View in yesterday’s Daily Telegraph, Ruth Lea puts forward a series of arguments which will sound very familiar to people following the debates for and against foreign aid and its role in tackling global poverty and underdevelopment. What poor countries need, argues Lea, is less aid and a more business-friendly environment that will unleash their dormant entrepreneurship and economic potential. She claims that aid has failed to deliver, and in many cases does ‘more harm than good by propping up corrupt regimes, engendering aid dependency and, crucially, holding back the necessary internal reforms needed for businesses to thrive’.

Many of her remarks are, in my view, somewhat misplaced. While I would never claim that all aid is good, and I am often skeptical about the call for scaling it up substantially (see my Briefing Paper on scaling up and absorptive capacity), I think that the crucial point of the aid debate should not be about whether it has worked or not, but about how the way in which aid is given can be improved, along with our understanding of the ways in which it influences (or not) reform opportunities in poor countries.

First of all, we need to recognize that aid has changed dramatically since the end of the Cold War. While twenty years ago Mobutu and other African leaders could count on Western aid no matter how corrupt their regimes were, nowadays not only Zimbabwe, but also Chad, Uganda and Ethiopia see their aid cut as soon as the donor community has clear proof that the government is not serious about reducing poverty and respecting some basic rules of democracy.

Certainly the aid system can still improve a lot, as inefficiency and wastage abound, but blaming aid dependency for all of Africa’s woes is not correct. Are we sure that poor countries would be better off today had they received no aid flows in the past? In a paper reviewing 50 econometric studies, Mark McGillivray of WIDER shows that this is not the case, especially when recent aid flows are taken into account.

Moreover, the ‘business-friendly environment’ that Ruth Lea would like to see taking root is that same one that was being promoted by the World Bank and the IMF in the structural adjustment programmes that are partly blamed for Africa’s lagging economic growth. In this case, the failure of aid is not that of holding back the necessary internal reforms, but that of promoting the wrong kind of reforms, not adequate to the contexts in which they were being introduced (Bill Easterly, in his new book, has some interesting views on this). In my opinion, one of the reasons why aid has not been as effective as one would hope lies in the lack of sufficient appreciation, in the aid world, of the social and political dynamics that underpin developmental reforms in poor countries. Aid can, when soundly designed, support progressive reforms, but it cannot substitute for the lack of sufficient pressure from within society for the kinds of reforms that can allow for ‘people's entrepreneurial initiative to flourish and decent jobs to be created’.

Authors

Research Associate
Paolo is Senior Research Fellow at the International Budget Partnership (IBP) in Washington, DC, [...]