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Aid, Debt & Development

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The Aid Debate
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When Zambian economist Dambisa Moyo published her controversial book, Dead Aid, her critique that development aid isn’t working struck a resonant chord. But does this mean that we should scrap aid altogether for the world’s poorest countries? By the New Internationalist.

Boon or Burden? - Vanessa Baird

The Case for Real Aid - Jonathan Glennie

Summing Up... - Vanessa Baird

The Purpose of Aid - Teresa Hayter

21st September 2009


Boon or Burden?

1st September 2009 - Vanessa Baird, New Internationalist

Who would have thought that the intricacies of ‘international development aid’ could provoke such an energetic and public war of words? But then who could have predicted Dambisa Moyo, the Zambian ex-World Bank and Goldman Sachs economist with a talent for stirring things up?

As she tours the world with her controversial book Dead Aid – a play on the star-studded efforts of ‘Live Aid’ – she says, ‘my voice can’t compete with a guitar’. Don’t count on it.

Her disarmingly simple message is getting heard – and at every level, it seems. Aid isn’t working, she says. In fact, it’s making the poor poorer. It fuels corruption, discourages enterprise, creates dependence and hinders economic growth. It undermines democracy and even, she claims, foments civil war.

Her solution is two pronged. One, cold turkey to get Africa off its aid addiction. Two, attract foreign direct investment to Africa and expand the free market.

There have been howls of protest. As you might expect, many have come from the aid community itself. One of the most vigorous ripostes came from leading economist and director of the UN Millennium Project, Jeffrey Sachs. After tearing into her analysis, Sachs reasserted that aid’s biggest problem is that there is not enough of it. And the rich world’s dismal failure at honouring its donation pledges is to blame.

The response to Moyo within her own continent has been mixed. Impressed by her rousing call for African independence, presidents Paul Kagame of Rwanda and Muammar Gaddafi of Libya both invited her to come and talk.

Liberian leader Ellen Johnson Sirleaf – coincidentally, also an ex-World Bank economist – takes the view that critics of aid like Moyo are ‘a decade out of date’ and that ‘Africa’s turnaround is real’. What is needed at this stage, she believes, is more, better targeted and fully accountable aid.

Moyo’s concerns have certainly struck a chord, not only with tight-fisted conservatives looking for excuses to cut aid, but with people right across the political spectrum. Several books, published just before hers, were already offering sharp critiques of aid. Ugandan activist-academic Yash Tandon makes a clear proposal in Ending Aid Dependence (Fahamu, 2008); Jonathan Glennie’s The Trouble with Aid (Zed, 2008) is more nuanced. While Glennie agrees with part of Moyo’s critique, he profoundly disagrees with her solutions. But he too is calling for radical – and urgent – change, as he explains in the following article.

Dambisa Moyo in Nutshell

Her diagnosis:  One trillion dollars of development aid to Africa in the past 50 years has made poor people poorer. Aid not only fosters corruption – it breeds it. Africa is not short of money. At least $10 billion – half of Africa’s 2003 aid receipts – leave the continent every year because aid reduces the incentive to save and invest at home. Aid chokes off the export sector and results in laziness on the part of African policy makers who see no need to pursue tax revenues. Public services that the State should provide are funded by aid instead. Over the years Africa has become addicted to aid. ‘Like any addict it needs and depends on its regular fix, finding it hard, if not impossible, to contemplate existence in an aid-less world. In Africa, the West has found its perfect client.’ The net result of aid dependency is that ‘instead of having a functioning Africa, managed by Africans, for Africans, what is left is one where outsiders attempt to map its destiny and call the shots’.

Her prescription: The aid tap should be turned off over a period of five to ten years. The governments of developing countries should raise the money they need by issuing bonds to international investors and they should access capital markets. ‘Capital markets are open, and open for Africa,’ she says. ‘Any assertions that these countries cannot tap international capital markers are simply wrong.’

Africa is an obvious client for foreign direct investment (FDI), though it needs to become far more ‘business-friendly’ to attract it. China, which invested $30 billion between 2000 and 2005, is the model development partner. ‘The mistake the West made was giving something for nothing. The secret of China’s success is that its foray into Africa is all business.’

Moyo’s solutions also include further trade liberalization and greater ‘innovation’ in Africa’s banking and financial sector. But the main thing is to get rid of aid dependency which, she says, has hindered good governance for so long.

Her conclusion: ‘To appreciate the economic prospects in a non-aid environment... requires a long term and selfless vision, and not the myopia that so many policy makers (at home and abroad) are afflicted with today.’

Link to original source


The Case for Real Aid

1st September 2009 - Jonathan Glennie, New Internationalist

I knew this would happen. The intellectual initiative on African development seized by a free-market ideologue, now listed by Time Magazine as one of the world’s 100 most influential people.

It is clear what side of the fence Dambisa Moyo is sitting on. The foreword to her book Dead Aid is written by leading conservative historian Niall Ferguson, and her write-up in Time was written by none other than (ex-President of the World Bank) Paul Wolfowitz. In her eight years with Goldman Sachs, I doubt she was a subscriber to the New Internationalist.

Some people think the danger of Dead Aid is that it will lead to reductions in aid. That isn’t the danger. As I argue in my book, we need to set out a plan to reduce aid in the medium term, rather than continue the traditional clamour for aid increases in the face of growing evidence of the harm it can do. No, the danger of Dead Aid is that just when the opportunity exists to fundamentally challenge the extreme form of capitalism that has held sway over Africa, and most of the world, for the last three decades, we lose the intellectual initiative by clinging to an outdated position on aid.

Despite the many flaws in her book, Moyo’s success is a good thing. We need to debate aid. I wrote my book because I was frustrated by the lack of intellectual rigour behind calls for huge aid increases to Africa. While most of my colleagues in the ‘aid industry’ have responded positively, some argued that it was ‘risky’ to question the unalloyed benefits more and more aid will offer to the African continent.

Now they have been hit with Dambisa Moyo, who is selling more books than Jeffrey Sachs could dream of and whose polemic – however far removed from the facts – is gaining ground in influential circles. The risk for those of us who realize the flaws in the neoliberal, market fundamentalist approach is that we stop being trusted by the public as we persist in the same tired defence of aid based not on the facts but on habit, self-interest (if you work in a charity, you are somewhat linked to aid increases) and a kind of ‘something must be done’ mentality.

Tempting Trap

The main technical criticism of Moyo’s book must be that it is very prone to exaggeration. Hers is not a serious analytical study but an anti-aid polemic of the kind common in the conservative media in the US, where the only facts used are ones that bolster a case, and exaggeration is considered par for the course – after all, the other side is doing it. Exaggeration is a very tempting trap for an author to fall into. A thoughtful assessment is rarely as blistering a read as a no-holds-barred romp through the evils of one thing or another. And publishers (and publicists) want to sell juicy rants. My book on aid to Africa has a plaster on the front in the shape of the African continent. As you can see if you look at my blog (www.thetroublewithaid.org), there were other, more positive, options for both title and cover. But my publisher insisted, and I agreed in the end, that if I wanted the book to sell I would have to bow to some of the pressures of a competitive market.

In the book itself, however, I was obsessive in my attempt to present a balanced approach to the subject of aid to Africa, because that is what I think both western and African publics deserve. In contrast to aid optimists (like Sachs) and aid pessimists (like Moyo), I emphasize that the impacts of aid are complex, some good, some bad. Only when we assess these impacts dispassionately and systematically can we have any real expectation of making a positive and sustained impact on human rights, development and poverty reduction in Africa. I call this approach aid realism. Aid realism means not getting swept away by the ethical clamour to ‘do something’ when a proper analysis shows that what is being done is ineffective or harmful. And it means not bowing to an ideological anti-aid position in the face of the rights and urgent needs of millions of people.

Currently I manage a Christian Aid programme in Colombia. I have worked in the NGO sector for over 10 years but have never been as inspired as now, as I see the way donated money is being spent to bolster the movement for change in this country. Without the presence of our and similar international agencies, the organizations, communities and individuals that make up that movement would be far weaker, battered on all sides by the violence of the state and illegal armed groups, and many might simply have ceased to exist.

We are not giving charity, we are helping build a movement for human rights and justice. Justice for the four million women and men displaced from their homes by armed groups seeking wealth and power. Justice for the victims of violence and persecution. Justice for the 50 per cent living in poverty in an upper-middle income country. Moyo doesn’t get that at all. She seems to think that everything will be solved if we open a few banks and liberalize some more. But Latin America has shown that change comes when the movement for justice is strong. And when aid strengthens that movement, it is doing a vital job. Our programme in Colombia is part funded by the Irish and British governments and publics, and part by the EU. So, yes, aid can do good. We need more of that kind of aid. The big problem is with very large amounts of government-to-government aid.

Moyo’s critique of aid dependency is one of the areas where she and I are in agreement. The harm done by very high levels of government-to-government aid to the development of effective and accountable governance in Africa is one of the great silences in the aid debate. While politicians – from Tony Blair with his 2005 Africa Commission to Barack Obama in Ghana earlier this year – demonstrate an increased awareness of the importance of state institutions in development, they do not appear to understand the harm aid itself does to governments that rely on it too heavily. Moyo does – and the issue has seldom had so much coverage.

Radical Humility

The way to respond to Moyo, then, is not to reel off more misleading ‘millions of lives saved per billions of dollars spent’ scenarios. The western public has stopped believing them, while the African public knows they are unhelpful exaggerations. The aid community needs to publicly recognize the flaws in aid and the harm it can sometimes do. And then it needs to defend the good things about aid.

After which, it needs to move on to more important issues. The irony of this debate is that aid is not really the issue at all. Both aid optimists and aid pessimists exaggerate the importance of aid. No country has ever developed because of aid, and while relatively small amounts of private giving do lead to the kind of programme I am proud to run here in Colombia, they are not going to change the world. Countries develop when they get their policies right. We should be campaigning on tax havens, on climate change, on human rights, on trade justice, and on policy freedom. Although Moyo hardly mentions the issue, it is aid conditionality, more than aid itself that has caused so much damage to Africa. Under intense pressure from donors, the entire economic direction of the continent has changed since the early 1980s. For such a large and diverse group of countries, you would expect a range of responses to the various problems of poverty and development. Instead the response has fitted the Washington-designed blueprint of privatization and liberalization. That is no coincidence, and while lock-in trade deals have played their part, aid has probably been the main instrument used by rich countries to get what they want. Efforts have been made since the late 1970s to rein in aid conditionalities, but they are still just as harmful as ever.

I am not concerned about Moyo critiquing aid; she is right to. What concerns me is the certainty with which she states what African countries need to do to develop. Certainty is also a key part of marketing a book. You generate a scandal and then dive right in. But it is galling to see in this case, precisely because she utters with such certainty prescriptions that have been shown so utterly to have failed.

At a recent debate in London, hosted by the International Rescue Committee, Moyo repeatedly asserted that ‘we know what works’. We don’t know, and that kind of attitude, so common among the donor community for the last few decades, is exactly what we have to move away from.

Now is the time to demonstrate radical humility; not to compromise on principles, but to adopt an attitude of creativity and respect. Now is the time to trust people and their governments and parliaments, for all their many problems, more than blueprints flown in on a laptop.

So I make the following appeal. The pull of neoliberalism has been broken. Its failings scar Africa and shame the West. Development is more complicated than neoliberals (and neo-cons) would have us believe. It is time for a new era of intellectual openness. In contrast to 30 years of clamping down on choice, let the decades ahead be the decades of choice, of experimentation again, and of sovereignty.

Different Types of Assistance

Official Development Assistance – the majority of aid takes this form. Intended to help long-term growth and to reduce poverty, it often supports national budgets for healthcare, education and large infrastructure projects. Richer countries have pledged to donate the equivalent of 0.7 per cent of their GDP but few meet this target.

Emergency Humanitarian Aid – this is a short-term response to help a country afflicted by disasters such as flooding, famine, war, earthquakes. The fastest-growing kind of assistance, it accounts for 10 per cent of all aid. Moyo and her supporters are not saying that this type of aid should be stopped.

How aid is given – most aid is either bilateral or multilateral. A much smaller proportion comes from NGOs – charities or solidarity organizations – though these may also funnel some official development assistance money. NGOs are not the target of Moyo’s critique, though it has implications for them too.

Dependence and Independence

Mozambique, Tanzania and Uganda receive around 50 per cent of their budgets from foreign aid. South Africa and Botswana manage without this kind of assistance.

Source: Richard Dowden, BBC News, 26 June 2005.

Where the Money Goes

$500 billion – aid from richer countries to Africa since 1960.
$400 billion – left Africa as capital flight between 1970 and 2004 (add a further $200 billion for imputed interest earnings).
$148 billion – leaves Africa every year due to corruption, according to African Union estimates.

Source: Jonathan Glennie, The Trouble with Aid, Zed Books, 2008.

Link to original source


Summing Up...

1st September 2009 - Vanessa Baird, New Internationalist

The goal of ending aid dependence is a laudable one. But the idea suggested by Moyo’s thesis – that the free market can lead ‘the bottom billion’ out of poverty – is both fanciful and out-dated. Perhaps we should be shouting ‘make aid history’ but to assume that aid either causes or cures poverty is to fetishize it. This diverts attention away from other more important and achievable goals. For example, closing tax havens to lessen capital flight from Africa. Promoting trade justice to reduce poverty. Developing strategies for environmental justice. Having created global warming it is up to industrialized nations to pay the costs of its impacts on the developing world. This isn’t charity, it is justice and the benefits are global.

Moyo is rightly outraged that official development aid gives so much power to donors and so little to the electorates in receiving countries. But solidarity aid, to help grassroots and civil society organizations in the global South, is quite a different kettle of fish, as Glennie and others have pointed out. Such movements are the ones that can enable citizens to press for decent health and education; for human rights, good governance, and accountability. Big business won’t, that’s for sure.

Ultimately, as Yash Tandon says in his book, Ending Aid Dependence, development cannot be determined from outside. It must come from within – with the citizens of developing countries in the driving seat. But ending aid dependence is ‘not a one-day project’. It requires careful strategic thinking. And the place to start is ‘in the mind, with the psychology of aid dependence’.

That should include donors examining their own dependence on the power of bestowing development aid – and with it their own idea of how things should be.


The Purpose of Aid

22nd September 2009 - Teresa Hayter, New Internationalist Blog

The notion that official foreign aid is in reality intended to alleviate poverty in the Third World dies hard.

The actual function of aid from western governments and their agencies, the World Bank and the IMF, is to subsidize the operations of the private corporations and banks of the West. This is not conspiracy theory. It is a conclusion painfully and slowly, reached after many years of research.

My first proper job, from 1963 to 1968, was at the British Overseas Development Institute, a lobby for more and better aid. The ODI was funded by Unilever, Barclays Bank and the like. We were not allowed to criticize foreign private investment in the 'developing countries' - which surprised me a little.

But it was even more surprising that these corporations and banks wanted more government foreign aid. It gradually became clearer to me why this was so. They wanted to be able to continue their profitable operations in the Third World. Aid was, and is, used by governments and big multilateral aid agencies to ensure that the governments that receive it adopt policies that favour not just capitalism in general, but the interests of their private corporations and banks in particular.

From 1944 onwards, when the World Bank and the IMF were set up, these institutions have dominated aid policies. They are controlled by the US and other major western governments, through weighted voting and the fact that the World Bank raises most of its money on Wall Street. In turn, the World Bank and the IMF have a powerful influence on these governments' aid policies and, in particular, on which Third World governments they do and do not support. It is hard to determine whether lending decisions result from US pressures or from the overwhelmingly right-wing proclivities of these aid agencies' staff.

From the beginning, they intervened heavily in the policies of the governments receiving aid. The IMF sees its role as attaching conditions to its lending, designed to secure financial stability through orthodox, monetarist policy - especially by cutting public spending.

The World Bank was, in theory, supposed to promote long-term development through funding projects. But, although at first secretively - officials, when they tried to suppress my research, told me they favoured 'secret diplomacy' - the Bank too tried to determine the general economic  policies of the governments it lent to, and did so in a classic, monetarist direction. In other words it attached, and attaches, conditions not merely to the projects it funds, but on government economic policies in general. This policy became public in the 1980s, when it became known as structural adjustment lending.

The demands the Bank makes are no less restrictionist and orthodox than those of the IMF, and sometimes more so. Both institutions demand not - as I had expected when I was sent to study the Bank in Latin America in 1967 - more spending on health and education  for example, but cuts in such spending. At first this was to secure 'stability' and then, in the 1980s, to extract servicing on foreign debt. For similar purposes these institutions demand privatization, which has meant selling off public assets - in practice, cheaply, to foreigners.

They demand the removal of controls on imports and on the export of capital, and devaluation. They demand, supposedly in the interests of 'capitalist efficiency', that projects be put out to tender in ways which favour foreign rather than local contractors. The Bank requires 'full cost recovery' on any projects it finances in, say, water or housing. In other words, the poor have to pay. It demands cuts in wages and jobs in the public sector. It opposes land reform, at least land reform which involves transfers from the rich to the poor. It prefers the abolition of collectives or co-operatives. And so on.

All of this has meant that the aid agencies support only right-wing, pro-Western and often repressive governments, some of them the product of US-supported military coups; the Pinochet government in Chile was one of their most favoured. The converse, of course, is that they deny aid to elected governments which attempt to introduce reforms, such as redistribution to the poor and of course nationalization of foreign assets, let alone socialism. In 1985 I recorded a list of some of the governments which had had aid cut during periods when they were pursuing left-wing reforms: Chile, Vietnam, Nicaragua, Grenada, Algeria, Peru, Brazil, Egypt, Jamaica. Virtually no right-wing government has been penalized by the withholding of aid.

The threat to cut aid, or the promise of more for governments that do what they are told, sometimes works.

The decision by the South African ANC to apply for loans from the World Bank (which are classed as 'aid') explains to a great extent its abandonment of some promised reforms, including redistribution to the poor and land reform, and contributed to the creation of a, now, notoriously corrupt governing élite. Other factors may be more important, of course.

Third World élites know which side their bread is buttered on. For example the fact that Latin American governments did not default on their foreign debts when interest rates rocketed at the beginning of the 1980s, and cut domestic spending instead, is incomprehensible unless one accepts that there was not just a lenders' cartel, but collusion from high up Latin American politicians and officials who did not want to lose their access to Wall Street jobs, and other privileges derived from membership of the international financial elite. The financial effects of losing aid would have been small compared to the gains from default. And if the threats and promises of aid fail to have their effect, the West of course may resort to other means, including military intervention, directly or by proxy. But aid is a first line of defense against socialism and against other reforms which might undermine the ability of the West and its corporations and banks to extract wealth from the Third World.

Some aid projects may in themselves be useful. Others may be problematic: foreign so-called experts, however well-meaning, often get it wrong. But, above all, the policies which governments have to adopt to get the money are deeply damaging to the interests of the poor. I believe, therefore, that official government aid, on balance, does more harm than good to the poor of the Third World.

Link to original source


Vanessa Baird is co-editor for the New Internationalist. Jonathan Glennie has worked as a policy analyst in several international development charities. He played a key role in Make Poverty History in 2005.

Teresa Hayter is an Oxford-based writer and activist.

Link to original source