The Riddle of Foreign Aid (Part 1)

7 months ago Ricardo Hylton 1

This is part one in a four part series on foreign aid and the charity sector to be published over the next four weeks.


Aesop’s fable on Hercules and the wagoner should interest anyone interested in the utility of foreign aid. A wagoner was driving a wagon along a country lane, when the wheels sank down deep into a rut. The rustic driver, stupefied and aghast, stood looking at the wagon, and did nothing but utter loud cries to Hercules to come and help him. Hercules, it is said, appeared and thus addressed him: “Put your shoulders to the wheels, my man. Goad on your bullocks, and never more pray to me for help, until you have done your best to help yourself…”

Depending on your ideology, the wagoner could be modern day Afghanistan, Cameroon, South Sudan or Jamaica with their hands out. Britain, Germany or the United States occupies Hercules’ magnificent boots. How and when should aid be given?


Down The Rat Hole

Ever since foreign aid to developing countries emerged in its modern form in the 1960s, there have been arguments about its effectiveness and controversy over how much of it was being stolen and wasted. Those ideologically inclined to doubt its usefulness have seized on evidence that, in the pungent American phrase, much of it ‘goes down the rat hole,’ while those committed to the idea of development have tended to overlook the evident problems.

Britain’s Department for International Development (DFID) plans to spend half its budget on fragile states and regions. The World Bank plans to double the $14bn it allocates to fragile states over the next three years. The war scorched Central African Republic will get as much as a third of its GDP in assistance from the World Bank over the next three years. Is it wise to give more money to rickety countries? Is it being done well?

The Trump administration is proposing to axe the budget of USAID, an agency meant to promote American interests in other nations through humanitarian development. But no tears will be shed in many capitals, considering the agency’s history of fomenting unrest abroad as opposed to helping the poor.


Is The Aid For Them Or Us?

There’s a frenzied debate over whether in these straitened times the UK or the United States should be continuing to fund foreign aid programmes. It’s quite right that this debate exists – taxpayers’ money should be spent only if this is achieving good results. The invisible aliens’ view is clear: aid works.

David Miliband argued that “the truth is, aid spending works out to be £290 per person (per annum) in the UK between the ages of 16 and 64 per year. That is less than the average citizen spends on food they never eat.”

The UK Independence Party, on the other hand, has called for an 80% cut in the foreign aid budget and for money to be spent instead on domestic services. It said much of the UK’s spend, £12.5bn in 2015, was ineffective in alleviating poverty and left recipients worse off by perpetuating bad government. It wants spending to be stripped back to humanitarian and emergency aid only and a law guaranteeing 0.7% of national income is spent repealed.

‘An increasing body of evidence suggests that more aid is not the best path to prosperity for developing countries but that more trade is,’ said the party’s foreign aid spokeswoman Lisa Duffy. ‘For too long, our government has prioritized ineffective aid spending over its basic obligations to British citizens.’


Aid That Destroys

USAID grew from the post-World War II Marshall Plan for Europe, which funded reconstruction of damaged infrastructure and ensured that Washington rather than Moscow directed the political course in the west of the continent. The agency mission, however, also stretches beyond giving food and medicine to the needy. For instance, in Cuba the agency funded a Twitter-like social media network, hoping it would help oust the government

It also reportedly sought other ways of destabilizing Cuba, like sponsoring rappers with political messages in Havana. USAID has a long history of funding groups that are opposed to governments Washington doesn’t like. Slobodan Milosovic in Serbia, Fernando Lugo in Paraguay, Viktor Yakunovic in Ukraine – all fell as the agency generously funded anti-government political groups and media outlets.

Spending choices, as anyone familiar with Washington knows, are made largely for political reasons. Despite the lack of technical earmarking, Congress directs funds to programs that benefit companies in their districts or that lobbyists, advocacy organizations, and constituents favor. Presidents and high-ranking officials make commitments to support governments, sectors, and activities whose efficacy is not backed by facts and evidence. Food aid, for instance, is grown on U.S. farms and shipped on U.S.-flagged vessels, even though it would be far cheaper, faster, and better for poor countries if it were purchased nearby. But U.S. agricultural and shipping interests, including the associated unions, want their ‘cut.’ Such alliances form the grease that allows the wheels of government to turn, and when push comes to shove, politically motivated spending always survives. Pity the fool that thought foreign aid was meant to ‘aid.’

A spokeswoman for the Department for International Development said: “The UK aid budget invests in our security and prosperity and is a key part of Global Britain’s international leadership as we leave the EU.” The invisible aliens find this to be quite a curious response. Is the aid provided to eliminate poverty or to improve Britain’s global soft power?


Soft Power, Baby

Take one statistic. Between 2011 and 2015, Britain helped vaccinate 67 million children, saving at least 1.2 million lives from diseases such as pneumonia and diarrhea. Such financial help doesn’t benefit just the countries that receive that aid: money spent on international development is an investment in Britain’s security. Because if the UK won’t tackle poverty abroad, the results are visited upon the UK at home. Mass migration, epidemics such as Ebola, climate change and pollution: none of these things respect national borders.

Here’s another statistic. In 1950 the population of the Middle East and Africa was equivalent to half of the population of Europe. By the end of this century, it will be eight times the size of Europe’s. If wealthy countries refuse to play a part in ensuring that everyone has an education and hope of a decent life, then the waves of migration we have seen in recent years will be nothing, compared with in decades to come.

Thus, the invisible aliens’ view is that the debate shouldn’t be whether money is spent on aid: it should be how that money is spent. The answer is to shift our focus to address the failure of states to govern effectively, which is increasingly responsible for the suffering we see around the world.

It used to be said that geography is destiny. It’s not anymore. More than climate, culture or history, it is the strength of the global politico-economic structures and a country’s political and economic system that determines whether its people live in poverty. As it has been put before, bad governance, both global and local, is among the main reason poor countries are poor. Governance is destiny.


More Bread for Basket Cases

Who should get the aid: countries on the upswing or basket cases? There are so many countries where the governments lack legitimacy or authority, and where corruption, conflict and violence are rife. These governments are frequently unable to provide the most basic services, such as healthcare, education, security or infrastructure. The building blocks of democracy, such as a fair judiciary and the rule of law, are often completely absent. Crucially, there is no prospect of the creation of an effective private sector – and, with it, jobs. From Sudan to Afghanistan: gilded presidential palaces sit next to slums.

At the same time, there are huge gaps in our understanding of what makes states fragile, and keeps them that way. And much of the work that has been done has yet to be translated into workable policies.

It is true, that as developmental economists have argued for years, the ideal recipients of foreign largesse are poor, well governed countries. Places like Bangladesh and Senegal still need help, and are not so atrociously mismanaged that the aid is bound to be stolen or wasted. These days though, there are not so many countries. China, India, Indonesia and others are pulling their people out of deep poverty. The most acute need is now in fragile states, where government barely functions. Such places are home to over half the world’s very poor people, up from a third in 2010, on the OECD’s rather broad definition of fragile. It seems sensible to hunt where the ducks are. Most aid should flow to the worst places.

Moreover, fragile states are a regional menace. The calamity that is the Democratic Republic of Congo is a threat to its neighbours, many of which are themselves fragile. If basket cases can be stabilised, many will benefit.

It will not be easy. Corruption and mismanagement are rife. In many of these countries Big Men are above the law and the police are little more than bandits. Money spent on rebuilding bridges or schools may be wasted if fighting resumes.

Donors can undermine fragile states by setting up parallel welfare systems and pinching their best bureaucrats. Rich countries tend to hold back until things are really bad and then rush in with bags of food – as Britain is now doing in South Sudan and Somalia.

Food aid looks good on television bit is immensely wasteful. It costs a lot of money to get food to warring regions, and the recipients frequently sell it to raise money for whatever they really need. Far better to just give people the cash.


The Privatisation of AID

The Adam Smith Institute (ASI) has been criticized for using DFID money to pursue a free-market agenda in developing countries. A report found that electricity consumers in Nigeria faced price increases of up to 45% because of “a controversial energy privatization Programme supported by UK aid through a multimillion-pound project implemented by ASI”. And in Afghanistan local civil society organizations reported that the country’s new minerals drafted by the ASI had done little to improve their lot.


Can a sclerotic, half-century-old foreign aid system change? Its primary clients—the people of developing countries, are now asking that question.

Roughly half of the countries now receiving development aid have been receiving it for at least 50 years—such steady clients as Kenya, the Philippines, Haiti and Nepal. The legacy of that long record of assistance is not only the multi-layered archaeology of projects (a water system installed by one donor in the 1980s lies beneath a newer one installed by another in the 1990s, for example), but also the sad phenomenon of dependency, or more accurately “co-dependency.” For both sides—the development industry and the development aid recipients—need each other.

In this co-dependent world, supply and demand are not as clear-cut as they seem. Kenya’s need for water system assistance on the demand side also provides the supply side by giving the donors what they want—reasons to keep their hand in the game. And this co-dependency is institutionalized via the industry that has grown up over the decades: the thousands of international and local jobs and NGOs and other organizations that are regular “partners” in the implementation of donor-funded projects. A ride down a dusty road in any of these countries will reveal project billboards on which the logos of as many as 20 organizations appear: “The XYZ Project is brought to you by donors Q and R, in partnership with the ministry of A, B and C, along with the NGOs D, E and F…” This increasingly long chain of participants has evolved over decades into an arrangement that involves a great many stakeholders, their principal collective stake being the continuation of the system itself.

This co-dependency is also reinforced by a set of attitudes and beliefs that are more aligned with myth than reality. While foreign aid donors may be sincere about the work they are doing, there are residual beliefs that serve the status quo: the belief that “the locals” are not quite ready to do the job themselves. “Capacity” is the term of art used by all and so “we,” the donors, must continue to “build” “their” capacity (this involves lots of foreign consultants and firms). At the same time, even among many of those local people who cry out for a new, more collegial donor approach and attitude, under the surface they harbor a parallel doubt—are we really ready? Perhaps we are not; perhaps we need some capacity building.

In reality, several studies suggest that in most countries there is huge local capacity of all kinds. But the system goes on, as if on autopilot. USAID, for example, after a season of much rhetoric about “local solutions” and country ownership, announced yet another five-year grant mechanism worth over $600m (£350m) involving the services of over 50 American firms and contractors, all of it aimed at local “human and institutional capacity development.”

If there is to be real change, besides the need to examine themselves more humbly and self-critically than they are used to doing, foreign aid donors and recipients should take a number of new, experimental approaches. To believe we know exactly what to do and how to do it is to repeat the arrogance of the past.