Does foreign aid really work?

24 April 2007 12:00 - 13:30 GMT+00
Public event

Speaker:
Roger C. Riddell, Author; Non-Executive Director, Oxford Policy Management; and a Principal, The Policy Practice

Discussants:
Sir Michael Aaronson
, former Director, Save the Children Fund
Simon Maxwell, Director, ODI

Chair:

David Goodhart, Editor, Prospect Magazine

Description

Foreign aid is now a $100bn business and is expanding more rapidly today than it has for a generation. But does it work? Indeed, is it needed at all?

Does Foreign Aid Really Work? sets out the evidence and exposes the instances where aid has failed and explains why. The book also examines the way that short-term political interests distort aid, and disentangles the moral and ethical assumptions that lie behind the belief that aid does good. The book concludes by detailing the practical ways that aid needs to change if it is to be the effective force for good that its providers claim it is.

At this ODI and Oxford University Press event, Roger Riddell presented his findings and Sir Michael Aaronson, former Director of the Save the Children Fund and Simon Maxwell, Director, ODI offering comment.

Roger Riddell

Roger Riddell started his presentation by stating that his book is rather long because it is trying to do something very challenging. He began by explaining that the aid debate is dominated by the issue of ‘impact’, i.e. whether or not it works. Over the last 25 years, humanitarian aid has also become important. It is important to examine the history of aid because the main donors give aid for different reasons. It is notable, for example, that 40% of bilateral aid donors give aid with no reference to the MDGs. The book therefore looks at the constraints of aid and offers some recommendations.

Cassen wrote ‘Does Aid Work?’ twenty years ago, which concluded that much aid does work, but much of it doesn’t, and more importantly most of the aid given to the poorest countries in the world doesn’t work. Is this an important question? Roger asserted yes, because all aid agencies need to show that they are effective and aid’s defence is that it does, in fact, work.

Evidence about the impact of aid examines the inputs to and outputs from aid. The quality of many aid evaluations however, is questionable. Broader development outcomes, such as health, education and growth are often not taken into account, although for some, they have now become crystallised in the MDGs. In addition, there are multiple problems with data – in many cases there is no data available, even if were possible to define poverty in a quantifiable way. Methods of comparing situations ‘before’ and ‘after’ aid has been delivered are still very inexact. There are a growing number of scholars who say it is fruitless to try to even do this, suggesting instead that in-depth country studies might be more useful. The impact (or not) of aid therefore remains at the heart of the debate.

Regarding NGOs and humanitarian aid, Roger asserted that although humanitarian aid is effective at saving lives, there is both a shortage of funds and a number of questions about the way it is allocated. There is also a lack of attention paid to disaster preparedness. Most humanitarian NGOs do achieve their objectives but still know very little about their actual impact. Under new charity legislation, to come in shortly, charities will have to prove that they make a difference to poverty.

Key factors acting to limit the impact of aid include the fact that there is no ‘aid system’ as such. Individual donors make individual decisions. Also, the fact that, by its very nature, aid giving is voluntary.

In conclusion, Roger asserted that improving the effectiveness of aid will involve a huge change, away from reform based on the lowest common denominator, and the pace of reform will only be at the speed of the slowest donor. Roger’s new international aid model involves a move from voluntary to compulsory giving; pooling aid funds; and divorcing aid from short-term political objectives by establishing an international aid commission to think through how aid can be provided more effectively. Roger explained that this model is not contained within the book itself because it is still very much a distant objective, and it is also the result of thinking by a large number of scholars.


Sir Mike Aaronson

Sir Mike Aaronson opened his presentation by congratulating Roger on his comprehensive, yet readable book. He stated that three areas in particular resonated with him:

There is no difference anymore between humanitarian and donor assistance. Human rights are as much at risk as ever.

Outsiders are limited in what they can achieve inside other countries. They are also capable of doing harm.

Donors’ responses to the shortcomings of aid which are often exposed in evaluations.

He went on to say that his commentary would explore three particular areas in more detail:

  1. The links between development and humanitarian assistance in a foreign policy context.

  2. Realism about the role of aid.

  3. How to engender a more appropriate form of understanding about aid, including how to separate it from political goals.

On the first point, Sir Mike stated that it was no less imperative to act in either case, except that humanitarian situations tend to require a more urgent response. In a list of humanitarian interventions he had examined, Sir Mike explained that no account had been taken in any of the programmes for education. This is an obvious example of why it is hard to draw distinctions between these two types of assistance, however there are obvious reasons for doing so, namely:

  • Humanitarian assistance tends to be underfunded.

  • Humanitarian aid is motivated by human goals.

  • There will always be political reasons for humanitarian assistance to be provided.

  • Humanitarian assistance actually delivers what people need.

  • The military can act as humanitarians.

Sir Mike explained that with regard to aid, he was more concerned with short-termism than with self-interest, as we all have a mutual self-interest: common humanity. The logical conclusion therefore would be to have one single external relations policy which links foreign affairs, development, humanitarianism, environmental policy, etc.

In this regard, Sir Mike posed the question of whether it was really necessary to have a separate DFID anymore. He asked whether DFID should take over the FCO and explained that the downsides of not having a joined-up approach, and of having two separate foreign ministries operating in much of the globe made this suggestion at least worthy of consideration, though he did state that the 2005 DAC Swedish Peer Review quoted by Riddell concluded that bringing Swedish aid under foreign policy control would not act to make it more effective.

On the second point, realism with regard to the role of aid, Sir Mike stated that it was ironic that the success of aid lies with the recipients but that only 20% of sub-Saharan African budgets include aid. There is therefore a need to be realistic in terms of what aid can achieve and to think more generally about external inputs as ‘venture capital’. There is also a need to stand alongside struggling recipient governments and to make sure that their voices are heard. As external agents in Southern economies, donors and governments should operate qualitatively differently to the ways that they might act with regard to their own economies.

On the final point, Sir Mike explained that Roger’s model for the future of international aid separates the purchaser from the provider, as is the case with the current NHS. The current aid model has donors acting in both roles, whereas recipients need to be enabled as purchasers. He also explained that it is essential to rethink the term ‘intervention’ and that the present approach fails to adequately take account of: how little can actually be achieved with aid; the lack of understanding/knowledge about aid that we currently have; and the misguided ideologies which inform aid, for example, about democracy.

In conclusion, Sir Mike reiterated his belief in a need for a single external relations framework, under which foreign policymakers understand development and take foreign policy decisions in that context.


Simon Maxwell

Simon Maxwell began his commentary by referring the audience to his book review.

He stated that Riddell’s examination of project and programme aid was both cautious and judicious and congratulated him on this. He set his comments in context by referring to the publication of an Africa Progress Panel report which claims that aid flows are not keeping up with the G8 aid commitments made at Gleneagles.

He posed the questions: Do we really need to do more in terms of aid? If so, how should the political dilemmas surrounding aid be resolved? And how should we organise ourselves better to deliver a bigger aid programme?

Simon asserted that Roger’s recommendations are not that different from Cassen’s. With 20 years between these two publications, why is aid still such a problem and why are we experiencing the same problems in delivering good aid?

In terms of substance, he observed that some ODI researchers working on aid are quite hostile to it, for reasons of: absorptive capacity; because it decapitates domestic politics; and because the Paris agenda is making only very slow progress.

Simon asserted that the MDGs paradigm of 1996 is now not enough – the issue is not just poverty reduction because the world has changed. There are big, new issues such as: the impact of China on aid and on the world economy; the fact that security now dominates any discussion of development; and the fact that attention is now shifting to global public goods, financial stability, etc. These all present very big challenges to the concept of aid, including to the commitment of the EU and the UN.

In conclusion, Simon observed that Riddell’s book can help us to make more informed decisions because of the evidence it provides us with, the mere compilation of which is, in itself, a huge achievement and a hugely valuable contribution to the aid debate.


Discussion
Questions and comments raised during the discussion included:

  • How would conditionality operate under Roger’s new international aid system?

  • There are actually aid 2 models: pooling aid into one basket or the bilateral model. The first is not viable – see chapter 6 of Riddell’s book. Even if this was possible, would it be desirable? Developing countries would have to deal with a huge monolith of an aid fund.

  • Does budget support work better than project funding?

  • What effect does the process of decentralisation have on aid?

  • Coffee growers earn just £5bn of the £65bn coffee market – who is aiding who?

  • Governments cannot be accountable to their own people when so much of their funding comes from bilateral donors.

  • The 2 models represent 2 different perspectives – donor and bureaucratic. Looking at this from the recipient’s point of view would give a different model, as would taking a business point of view, which would encourage the buying-in of professional advice. Why don’t countries lay claim to the rules of the system themselves?

  • Donors can be seen as venture capitalists. This is demonstrated by the donor discourse on corruption and regarding unrealistic public perceptions about what aid can achieve.

  • There is an inevitable overlap between the issues raised by Cassen and by Riddell, but Riddell has definitely moved the debate forward. There definitely does need to be more and effective aid.

  • It is easy to identify what is wrong with aid, but not so easy to know how to fix it. The first problem that has been identified is that there are many, often political, reasons for aid to be given. To overcome this, a separate source of funding for development could be established in order to keep the political goals of donors separate. There are also many more donors than before. The solution could be to consolidate the aid system but that would entail huge issues of political visibility. How can we empower recipient countries to do that and how can external actors work with countries to enable them to do it themselves? Doubling aid will also affect aid dependency.

  • Riddell’s model is driven by the paradigm of poverty reduction. Isn’t this part of the problem? Are there any other relevant paradigms which are more progressive and take account of more factors than just wealth creation?

  • Less than 10% of aid is currently provided via budget support. DFID sees fragile states as ones where the quickest gains can be made. How best can donors operate in such situations?

  • Critics of aid are not necessarily anti-aid. The public debate centres mostly around corrupt dictators – more public awareness is needed about donor problems.


Responses

Roger Riddell
replied that:
Cassen’s recommendations do remain highly relevant today.

Many issues around aid relate to ownership. There are huge problems with the current way of giving aid. Most recipients have to deal with multiple donors which is very inefficient and incorporates huge costs relating to donor management by recipients. Recipients need to own their own development programmes.

On conditionality, there are a whole series of conditionalities which recipients have to deal with.

On the aid ‘blip’, Roger said that aid has revived and survived before. A few years ago, much of the literature argued that it wouldn’t survive, and yet it is set to expand much faster over the next 10 years than in much of its 60 year history.

On R2P, Roger stated that there are huge problems and yet a public opinion survey a few weeks ago found that the majority of voters believe that countries should intervene.

On budget support vs. projects, the World Bank’s Global Monitoring Report 2007 found that the amount given for budget support was less than 10% of aid. But the dominant mode remains project aid. Budget support (if there is the capacity to use it well), is the direction we should be moving in, but DFID seems to be moving away from this.

There are a number of opportunities for the continuation of OECD DAC work on aid, and pleas for a debate outside the DAC too, which is both influential and visible.

The bulk of development aid is used for the purpose which it was intended and corruption is probably not restricted to developing countries.

The 0.7% campaign is important because it does offer a clear end-point, but it may have meant that other issues have been lost. But campaigning is important and politicians who are prepared to do things want solutions.

Donors have realised that trying to understand, enhance and monitor aid and all government expenditure is important.

Policy coherence is absolutely essential – i.e. on development, aid, trade, exchange rates, etc. A recent Irish government paper on policy coherence is to be recommended. Also Thomas Pogge’s paper and ‘Development and the Law’ by Philip Alston which explores ideas of international obligation with regard to aid.

The political leverage of aid (as with oil) is also addressed in the book and donors have just started to address these issues.


Sir Mike Aaronson
replied that:
He agreed that the impact of 9/11 on the world has meant that aid has been framed very differently in the wake of the war on terror.

He agreed that local capacity-building was important. There are many local NGOs in the South who see their role as helping local authorities to occupy the driving seat and to set the right policy framework. There is real merit to the system Roger has proposed but we must find a way of forcing more multilaterals to let the recipients occupy the driving seat.

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