Does aid work?

williamgrogan

I think Sextusempiricus is absolutely right to question aid. Being a skeptic isn’t just about scientific things. Skeptics can and should question everything.

I do not know the answer and I suspect neither does anyone else, so examining the existing assumptions is essential. If the way aid is currently handled is ineffective, wasteful and even has a negative impact on those receiving it we must change the way it is administered.

Entities that distribute aid, charities and bureaucracies take on a life of their own, as anyone will testify who was ever involved in one. Parkinson’s Law; “an entity with more than 1,000 people will generate enough internal communication to exist without any outside input”. Only yesterday was I reminded about the pilferage that went on with the assistance of the UN workers in Iraq that enriched them, the gangsters and Sadam and meant little of the oil for aid went to the poor. Do I even have to mention the EU gravy train?

I remember reading about a year ago that in Ethiopia their small farmers were being bankrupted by aid.

Alternatives?

My own suggestion is that instead of the existing scattergun effect that donor countries (DC) should enter a partnership with a less developed country (LDC), on a one to one basis. A bit like “town twining”

All aid from the DC is then channelled to that country. Countries would be matched up on the basis of size, lack of (or maybe because of) previous colonial history and existing ties. The benefits are obvious; one to one special trade links, investment path for the DCs venture capitalists, stability and long term planning, development of industry and tourism in the LDC, university exchanges, the training of LDC citizens in the DC in the LDC institutions such as police, army, legal eagles etc. The DC supplies the expertise to develop the LDC and the LDC the investment opportunity, less skilled staff and hopefully if we play our cards right some sand & sun .

One of the major advantages of this approach is that there could be league tables showing year on year growth in the LDCs. This would enable those DCs that are not pulling their weight with their LDCs to be held up to international opprobrium. They can all duck and dive at present, including the Irish.

rde

I haven't read the thread to which you're obviously referring, so I may make a few assumptions that are already covered/refuted. But anyway...

I've a lot of respect for the work of many aid agencies; for the purposes of this discussion, I'll mention two...

sightsavers
You've all seen the ads, I'm sure. No-one would doubt that individual people - nay, villages - benefit tremendously without the burden of blind people to support. Would the country as a whole be better off if it were to deal with this problem itself? This, I suppose, has to be the point of any argument against aid. Personally, I can't see it (har!). In a developed country, there's no doubt that people going blind would be reason enough to act to clean up the water supply. But in a developing country (great euphamism, that), neither the will nor the ability - infrastructurally or otherwise - may exist.

oxfam
Not just an aid organisation, but a lobbying one too. These aims go hand in hand, aiming for a more (pardon my using this word here) holistic approach. Again, any argument must centre around the fact that while individuals may benefit, the country as a whole suffers. Given Oxfam's approach, I think they've got this covered.

Of course, if we're talking about a government's aid, things may be different. But aid doesn't always go to the government in question; it can be in the form of food aid that's sent directly to those who need it, or given to organisations such as Gorta who aim to manage it properly. Certainly any money flowing into the coffers of a corrupt government is destined for abuse, but this aid isn't given unconditionally; it must be accounted for (to some extent, anyway).

To encapsulate: what the hell are you talking about? Is the problem with aid itself, or with its method of distribution, or are we talking solely about aid given by one government to another?

williamgrogan

This post led to me setting up this thread ..

http://www.boards.ie/vbulletin/showthread.php?postid=1559178#post1559178

"what the hell are you talking about"

When I said I was setting up this thread I said the following, "Because some people will see even questioning this as sacrilegious I would ask that those posting stick strictly to the points made." So unless you want this discussion to deteriorate rapidly and have it terminated by the moderator I would ask that you skip any emotive language. If we can’t discuss contentious matters without these type of expressions we aren’t good skeptics.

Surely as this is a Skeptic’s forum we should question anything and everything and except nothing at face value? There are plenty of people out there who accept things without question. Skeptics don't.

My feeling at present is that Aid is not always a good solution. A friend used to say that the only reason we had a poxy social welfare system was to stop the poor revolting and maybe Aid is similar. Lets face it if Aid is a solution it certainly hasn’t worked.

There are good Aid schemes and bad ones. You know my opinion on the Chernobyl related ones. You mentioned two you say are good. I know of the Micro-Lending Agencies set up by an Indian (I think) that loan, that they must repay, just enough for a poor person to buy say a sewing machine and set up a small business. It requires little or no capital and apparently works brilliantly. I think Sex. and myself suspect that simply giving money to people and in particularly giving money to political entities is not necessarily a good solution.

No one is going to suggest that we don’t help people. It’s the way that they are being helped that needs looking into because it isn’t working.

Oxfam is as you say a campaigning entity. How many people know that when they donate that some of the money is used to fight political battles that they may not agree with?

see this...

http://www.mips1.net/MGGold.nsf/0/4225685F0043D1B242256B9000279906?OpenDocument

PS I am away for a few weeks so cannot contribute much until I return. (No doubt a relief to some. Many?)

rde

First of all, with regard to the lengthy tirade of righteous indignation: I'd assumed that my previous paragraphs indicated I was taking the question seriously. Believe me, you'll know when I start using emotive language. My question (a few words out of several hundred) was that your post contained little by way of fact; one uncited example does not an argument make.

Anyway...

I think Sex. and myself suspect that simply giving money to people and in particularly giving money to political entities is not necessarily a good solution.

I don't know anyone who does think that. But that's not a criticism of aid, it's a criticism of one aspect of aid; one that's generally accepted to be less effective than many others.

Oxfam is as you say a campaigning entity. How many people know that when they donate that some of the money is used to fight political battles that they may not agree with?

Well, I certainly do. I don't agree with everything Oxfam does, but I feel that their impact is sufficiently positive that I'm happy to give them money every month. So either I'm a superior being compared to the countless dolts out there, or (more likely) I'm a typical donor, one who generally believes Oxfam to be a worthy organisation.

Lets face it if Aid is a solution it certainly hasn’t worked.

If you're basing that on the fact that there are still hungry people out there, then you could argue that almost nothing works. Fan of space travel? Pah. Where's our base on Mars? Fan of social housing? Fie. There are still people in need of houses. I could go on, but I'm sure you get the point.
To put it another way: are you content that lives haven't been saved by aid? That villages or provinces haven't been made better by aid? That those countries in need would be no worse without aid?

If you're going to make blanket assertions that aid is bad (mmmmkay?), then you deserve to be flamed in a manner far more intemperate than I aimed for. If you're objecting to a specific type of aid, then let's hear about it.

Your suggestion isn't a bad one; however, it means that unless there are more doner countries than recipients, then some countries will have to make do with nothing. It also means that disasters will place a burden on a specific donor country, with other nations washing their hands on the grounds that it's not their problem. A better solution, seeing as we're trying to save the world from the comfort of our own homes, would be something akin to EU funding; all funds go into a big pot, and it's given to those who are in need. EU funding doesn't involve carte blanche; results must be forthcoming.

sextusempiricus

Originally posted by rde

Of course, if we're talking about a government's aid, things may be different. But aid doesn't always go to the government in question; it can be in the form of food aid that's sent directly to those who need it, or given to organisations such as Gorta who aim to manage it properly. Certainly any money flowing into the coffers of a corrupt government is destined for abuse, but this aid isn't given unconditionally; it must be accounted for (to some extent, anyway).

I can see that where there is threatened starvation food aid, if it is not grabbed by marauding armies and actually reaches those who need it, can save lives. The irony is that poor local farmers find that such aid depresses the price of their crop so that they become more impoverished. Most I imagine are only too keen to escape their aid dependency and make a living selling their produce in a world market where rich countries impose unsurmountable trade barriers to stop this happening. The answer isn't more and more aid. Its a matter of free trade and here we come up against the political clout of those vested interests in the developed world who really don't give too much concern for the impoverished of the Third World and wish to protect through tariffs their own considerably more comfortable way of life.
Anyone willing to explore the harmful effects of aid could read the late P.T.Bauer's book 'Equality, the Third World and Economic Delusion' (1981). His professional life was spent in what he described as "partial ostracism" but at least he is now gaining recognition for his work. See
http://www.economist.com/finance/PrinterFriendly.cfm?story_ID=1109786
and perhaps more importantly in aid recipient countries like Kenya
http://irenkenya.org/page.php?instructions=page&page_id=63&nav_id=19

rde

Quoth the Economist: "Above all, Lord Bauer argued, there would be no concept of the third world at all were it not for the invention of foreign aid"
Pah. So foreign aid is responsible for the wars in the Congo and elsewhere? This quote, I think, misrepresents his position; he's no more against aid than I am (according to Bauer's 1984 book "Reality and Rhetoric" (damn, can't paste; pardon any typos)

Aid would have to be carefully concentrated on governments whose domestic and external policies were most likely to promote the welfare of the people, noteably their economic progress.

In this, we agree; it isn't aid that's bad, it's how it's sometimes applied. I'd say that farm subsides from developed nations (ie US & EU) are far more pernicious than any aid (one of those political aims of Oxfam that has its detractors).

williamgrogan

Give Aid=Feel Good=Assume it does good=>Not proven

I remember reading some years back that most of the aid that went into Sicily after an earthquake was robbed by the mafia. The reason 50,000 people died in Iran recently was the poor quality of the houses and this is the case in most disasters in 3rd world countries. Earthquakes that kill a few dozen in western countries kill thousands in 3rd world countries. So what's the solution, do nothing until 50,000 get killed and they given them blankets & tents?

How many people who give aid consider that it may undermine the local economy?

How many people know when giving money to a particular charity how much is received by those targeted?

Maybe to keep charitable status they should be obliged to publish a simple % of their income that ends up with the targets for the previous year on every piece of their documentation and advertising. A bit like the salt content of cereals. There is a charity in Ireland that last year paid over €100,000 into the pension fund of its chairman not to mention 100’s of thousands in salary to himself and his family. When I was a student I collected money for a charity. We got 30%, the organiser got 20%, another percent went on prizes, another on printing costs and expenses. I do not know what the charity got and then with the small percent of what they got how much actually was paid to the “victims”?

If you're basing that on the fact that there are still hungry people out there, then you could argue that almost nothing works

No I am not, I’m basing it on the fact that many countries that have received billions in aid are poorer than they were. Not alone that but given normal expected economic growth that would occur over the last few decades if nothing was done, the aid must have had a negative effect.

A lot of charities are linked to religious organisations and other side effect of their activities has been an imposition of the values of those religions on those people’s cultures and identities.

The main cause of poverty is corrupt government & war. Aid does not seek to address those problems so cannot be addressing the main problem. Solving the wrong problem achieves nothing.

I do not want to drift into politics but I believe that much of the social welfare system bred poverty and dependence in Ireland and has left us with tens of thousands of people who have never worked and who never will. You can kill people with kindness.

If you're going to make blanket assertions that aid is bad

I didn’t, I am questioning it. Do you object to questioning assumptions? I do believe that much of aid is worse than useless and by focusing on it we are clearly not solving the real problems.

Your suggestion isn't a bad one; however, it means that unless there are more donor countries than recipients, then some countries will have to make do with nothing.

A donor country could “sponsor” more than one country, particularly a large one. A simple table could be drawn up DC v LDCs. The GDP of the poorest countries is a fraction of that of the richest. As well as that there are degrees of poverty. Countries in the middle ranges do not get linked.

It also means that disasters will place a burden on a specific donor country, with other nations washing their hands on the grounds that it's not their problem.

I disagree with your “disaster” point. If there was a disaster in Ireland others would help so disasters are a different case. BUT if Ireland was twinned with a poor country one of the benefits would be the imposition of building regulations, not obviously the same as Ireland’s, at least not initially, but enough to ensure some protection from natural disaster. Even the most basic precautions would save a large fraction of those dying in earthquakes. Better planning is better than reacting after the event. The Irish Minister for the environment and his department could be interwoven with their equivalent in the LDC.

I think we should concentrate on where we agree and focus on agreed solutions and not nit pick on exceptions. Would we not all agree that giving aid to countries that spend more than that on their armies is counter productive? If Ireland was twinned with a 3rd world country it could guarantee its sovereignty. Most 3rd world armies are there to suppress their own population. Aid should not be given to corrupt governments, look at the situation in Nigeria.

sextusempiricus

Originally posted by rde
Quoth the Economist: "Above all, Lord Bauer argued, there would be no concept of the third world at all were it not for the invention of foreign aid"
Pah. So foreign aid is responsible for the wars in the Congo and elsewhere? This quote, I think, misrepresents his position; he's no more against aid than I am (according to Bauer's 1984 book "Reality and Rhetoric" (damn, can't paste; pardon any typos)

Let me quote Lord Bauer from his 'Equality, the Third World and Economic Delusion' p87

The concept of the Third World or the South and the policy of official aid are inseperable. They are two sides of the same coin. The Third World is the creation of foreign aid: without foreign aid there is no Third World.

The Third World comprises roughly two thirds of the world's population but why lump widely varying societies such as aborigines at one end of the spectrum to advanced groups in South-East Asia, the Middle-East and Latin America at the other under this term. Simply because as Bauer says

To represent the world as if it included two sharply divided categories, namely a rich and developed West and a wretchedly poor Third World, makes it easier to advocate international wealth transfers.

The main arguements against aid are usefully summarised by James S. Shikwati who has called Bauer a 'Third World hero' although perhaps this is a trifle oxymoronic.
http://www.lse.ac.uk/clubs/hayek/5-1/shikwati.htm

Support for free-market ideas may sound too ideological and too simplistic. However Mr Shikwati, as a native of Kenya, is at the coal-face and his arguments should be closely studied.
A fair-minded assessment of the problem comes from David S. Landes in his monumental 'The Wealth and Poverty of Nations' (1998) p523

History tells us that the most successful cures for poverty come from within. Foreign aid can help,but like windfall wealth, can also hurt. It can discourage effort and plant a crippling sense of incapacity. As the African saying has it,"The hand that receives is always under the one that gives." No, what counts is work, thrift, honesty, patience, tenacity. To people haunted by misery and hunger, that may add up to selfish indifference. But at bottom, no empowerment is so effective as self empowerment.

If we really wish to help the poor in the less developed countries we should help not hinder their self empowerment.

rde

The concept of the Third World or the South and the policy of official aid are inseperable. They are two sides of the same coin. The Third World is the creation of foreign aid: without foreign aid there is no Third World.

"Foreign aid" is acompletely different thing to "food aid". Israel receives foreign aid. To what extent would you narrow that definition? WRT the concept of the third world: that's enormously simplistic; there may be a definition of the "third world" out there, but in the minds of most, the third world consists basically of those countries where significant parts of the population can't feed themselves. Obviously this entails major chunks of aid. But countries receive aid for other reasons; infrastructural aid, for example, cause great change in a country, but that country doesn't necessarily have to be a third-world nation. Bush's Millennium Challenge Account provides a (flawed) example of aid being given to countries in a way that encourages direction towards some of those objectives Shikwati mentioned.

Speaking of whom (quoting from the page to which you linked)

Donor agencies fueled with the incentive to justify their budgets fund regimes in poor countries whose policies impoverish their people. What the world’s poor need are governments that no longer strangle and loot their economies. Economic achievement depends mainly on peoples’ abilities and attitudes and also on their social, legal and political institutions.13 Wealthy countries should allow trade with poor countries andpoor countries should promote trade within and amongst themselves. Trade will lead to production that will lift the standards of living in poor countries. Trade is what spurs productivity, there can be no productivity if a conduit to facilitate consumption is sealed.

It sounds to me remarkaby like he's conflating many groups in the manner of which you accused the rest of us. A country in the midst of a massive famine needs to promote trade? Its government should be left on its own to increase its debt burden to feed its people in the hope that some day trade will flourish? That a country ravaged by AIDS should buck up, focus on being able to afford the price the markets demand?

As for the points he lists as to why aid is bad, most can be overcome by proper oversight of the funds, and making those funds conditional on reforms.

Governments use aid to buy arms instead of focusing on creating the legal structure and commercial code necessary for long term investment that can spur economic growth

.
More conflating. Ooh, those war-mongerin' Aborigines.

In most cases their governments focus on meeting donor set benchmarks instead of focusing on the productivity of their citizenry. An exit option seems nonexistent once a country gets hooked on aid.

That's a criticism of the benchmarks, not the aid itself. Properly-set targets on such subjects as transparency, human rights, defense spending limits will, if met, go a long way towards promoting trade.

watty

The problem is not "Aid" as such.

The problems are:
1) Fake Aid
2) Distribution
3) Appropriate Aid
4) Misappropriation

1) Fake Aid
Here's Aid, but you must use our shipping companies and buy the stuff off us.
Or
You can only spend it on our GM Produce / Fighters / Radar System

2) Distribution
Getting aid to area or people that need it most

3) Appropriate Aid
Digging wells and fitting plumbing is better than tanking water in. Sending live Cows may be better than intervention Beef.

4) Misappropriation
Government corruption etc, of *DONER* or recipient!


Aid is good and needed. But the wrong kind does make the situation worse and very often only benefits the donor.

The fact it often goes wrong or breeds dependance are not reasons to stop Aid, but reasons to re-evalute the kind of Aid, how it is delivered (and to who) and what conditions are attached.

Aid to Refugees is a big problem as often there those both sides that want them for political reasons to remain refugees. In such a case (1948, 1967, 1972) aid actually maintains the inequitable status quo and prolongs the problem instead of helping it.

sextusempiricus

Originally posted by rde
"Foreign aid" is acompletely different thing to "food aid".

I don't understand this. "Food aid" is still a form of "foreign aid". It still helps corrupt governments in LDCs avoid their responsibilities to their own ill-fed population. It still depresses the price a farmer in the LDC can charge for his crop aggravating his poverty and making him even more dependent on handouts from the developed countries. The bottom line to me is do the policies in rich countries enhance self-empowerment in poor countries? That's a question that goes well beyond aid. I regard removal of trade barriers more important than aid. Perhaps this is just a matter of where to place the emphasis. They are not of course mutually exclusive policies and may run in tandem. It seems to me that aid has to be carefully judged not to increase dependency. The only chance for the Third World is to have the opportunity to develop their economies without hindrance from us. And that means freer trade. Not always an easy choice. Liberalising trade so that people in the Third World have the opportunity to sell their produce in world markets and encouraging businesses in the richer nations to build factories and seek cheaper labour in the poorer ones risks making some workers in the developed world unemployed. Or does it? This isn't necessarily a zero-sum game.
The importance of trade and the critical evaluation of aid is beginning to be discussed by the politicians. Read the report of a meeting of the Sub-Committee on Development Cooperation at the Oireachtas on 8th October, 2003.

http://www.irlgov.ie/oireachtas/frame.htm
Click on the section 'Parliamentary Committees' and on the subsequent web-page 'Sub Committee on Development and Co-operation.' Choose the debate for the above date.

Senator Ryan asked the questions that we should be debating here,

Having spent 20 years examining ODA, will the speakers tell the sub-committee where ODA works? I ask them to spell this out fairly bluntly. There is a genuine issue about whether it works. By working I do not mean disaster relief. There is a limitless need for disaster relief to deal with floods and famine, for instance. Where are the models of success for overseas development aid either from this country or from other countries against which this committee could adjudicate on the general run of the mill operation of development cooperation. This is an issue about the quality and use of the aid. Like my colleague, deputy Higgins, I am increasingly fixated on trade because of the degree to which aid is being used simply to compensate for unjust trade practices. Vested interests are being protected at home and money is being paid under the general heading of development and to compensate people who are not allowed participate in our markets.

In response Mr Colin Roche from Dochas, an umbrella group of NGOs involved in aid, admitted that,

Certainly in the past number of years we have not seen the effectiveness of aid that we would like to have seen

OK aid has had some benefits that we can all applaud e.g. supporting programmes to combat the scourge of HIV/AIDS in Africa. But the results of aid are very mixed and statistics inconclusive. I suspect many in the Third world will echo the words of Sheik Muhammed Abduh, an Egyptian in London in 1884,

Do not attempt to do us any more good. Your good has done us too much harm already.

sextusempiricus

Robert Guest, Africa editor of the'Economist' , has written a very readable book on why African countries are mostly so poor. Its called 'The Shackled Continent' and is available this month. A brief article on what is in it can be found on
http://thescotsman.scotsman.com/index.cfm?id=378482004
Chapter 6 is entitled 'Fair Aid, Free Trade'. He is generally critical of aid as it seems so wasteful but recognises that with the right conditions it can be used wisely ( as in Botswana ). Zambia is rightly criticized (p150),

Perhaps because the country is......marvellously peaceful, or perhaps because Zambians are such nice people, donors have lavished more aid on Zambia, per head, than almost any other country in the world. The aid was supposed to make Zambians less poor. It failed. Between independence in 1964 and 2000, average incomes in Zambia actually fell from $540 to $300. The main difference between aid to Zambia and throwing a million dollars down a mine is the amount. By one estimate between 1980 and 1996, counting only grants, not loans, 5,944 million-dollar bundles were thrown into Zambia.

In contrast Botswana was, at its independence in 1966, one of the poorest countries in the world. Aid was equivalent to a staggering 98% of state revenue. It received a windfall when diamonds were discovered. Unlike Zambia this fortune wasn't squandered but ploughed back into infrastructure, health and education. Foreign investment was welcomed and private businesses allowed to flourish. The result is that Botswana's economy has grown faster than any other in the world.
OK you may argue it was lucky to find diamonds to mine in the desert. But Zambia had some of the best copper mines in the world. President Kaunda nationalised them and copper output fell each year and pressure mounted to privatize them. Put up for auction in 1997 under pressure from donors the government rejected all offers. When eventually bought by Anglo American for $90m the delay was calculated to have cost Zambia $1.7 billion or half a year's GDP.
The question as to whether Botswana could have succeeded without aid is not really raised by Guest. As Lord Bauer has written,

The argument that aid is indispensable for development runs into an inescapable dilemma. If the conditions for development other than capital are present, the capital required will either be generated locally or be available commercially from abroad to governments or to businesses. If the required conditions are not present, then aid will be ineffective and wasted. Foreign alms do not enrich the personal, social and political factors which are decisive for economic development.

In the end democracy and economic reform can only succeed when governments want them to. That happened in Botswana. In Africa too many countries have been politicized and the path to riches is open to those few who enter politics and cream off the dollars misguidedly given by rich donors. Sani Abacha of Nigeria looted over $2 billion from his nation's coffers or, put another way, $1m for every day he was in office!

DadaKopf

Let's get a few terms straight here. Aid has a very specific meaning. The UN is quite instructive here:

Official Development Assistance (ODA) - Official Development Assistance is defined as those flows to developing countries and multilateral institutions provided by official agencies, including state and local governments, or by their executive agencies, each transaction of which meets the following tests:

a) ODA is administered with the promotion of the economic development and welfare of developing countries as its main objective;

b) ODA is concessional in character and conveys a grant element of at least 25 percent (calculated at a rate of discount of 10 percent).

In general, a loan will not convey a grant element of over 25 percent if its maturity is less than 10 years, unless its interest rate is well below 5 percent. If the face value of a loan is multiplied by its grant element, the result is referred to as the grant equivalent of that loan.

Source: http://www.undp.org.np/publications/dcr98/part3/key_def.htm

There is also:

Free-standing technical cooperation (FTC) - The provision of resources aimed at the transfer of technical and managerial skills and know-how or of technology for the purpose of building national capacity to undertake development activities, without reference to the implementation of any specific investment project(s). Free standing technical cooperation includes pre-investment activities such as feasibility studies, when the investment itself has not yet been approved or funding yet secured.

Investment-related technical cooperation (ITC) - The provision of resources, as a separately identifiable activity, directly aimed at strengthening the capacity to execute specific investment projects. Included under investment-related technical cooperation would be pre-investment type activities directly related to the implementation of an approved project.

Investment project assistance (IPA) - The provision of financing, in cash or in kind, for specific capital investment projects, i.e. projects that create productive capital which can generate new goods and services. Investment project assistance may have a technical cooperation component (in which case the code is IPT).

Programme/budgetary aid or balance-of-payments support (PBB) - The provision of assistance which is not cast in terms of specific investment or technical cooperation projects but which is provided instead in the context of broader development programmes and macro-economic objectives and/or which is provided for the specific purpose of supporting the recipient's balance-of-payments position and making available foreign exchange. This category includes non-food commodity input assistance in kind and financial grants and loans to pay for commodity inputs. It also includes resources ascribed to public debt forgiveness.

Food aid (FOA) - The provision of food for human consumption for development purposes, including grants and loans for the purchase of food. Associated cost such as transport, storage, distribution, etc., are also included in this category as well as donor-supplied, food related items such as animal food and agricultural inputs related to food growing when these are part of food aid programmes.

Emergency and relief assistance (ERA) - The provision of resources aimed at immediately relieving distress and improving the well-being of populations affected by natural or man-made disasters. Food aid for humanitarian and emergency purposes is included in this category. Emergency and relief assistance is usually not related to national development efforts nor enhancing national capacity. Although it is recorded as ODA, its focus is on humanitarian assistance and not on development cooperation as such.

Source: http://www.undp.org.np/publications/dcr98/part3/key_def.htm

Of course, the US likes to mix up 'Aid' (ODA) with military aid and bribery. The US spends less than 0.1% of GDP on ODA (the internationally agreed target is 0.7%) , but spends much more on 'military aid'. USAID often disburses what they call 'education credits' that are, more often than not, bribes. Some $6 million were dispensed last year from their African HQ in Djibouti.

My own suggestion is that instead of the existing scattergun effect that donor countries (DC) should enter a partnership with a less developed country (LDC), on a one to one basis. A bit like “town twining”

Eh, that already exists. It's called 'partnership', or bilateral ODA and is dispensed by donors to recipient governments via state aid agencies such as Development Co-Operation Ireland, DfID (in the UK), Finnida (Finland), USAID (guess where) etc. It's not really an equal partnetship, on account of trade flows and obstacles, the necessary power imbalance, the omnipresence of the World Bank etc. In many developing countries, especially the LDC's, significant amounts of their budgets are channelled into schemes to increase government accountability and transparency. 'Good governance' is considered a cross-cutting issue that affects all areas of development. Increasingly, good governance has become another 'conditionality' which developing countries must accept if they are to receive any assistance - in this way it's the new, more instrusive structural adjustment policies.

Anyway, I'm not knocking aid. Aid is vital. But dependence is bad.

I haven't time right now to get locked into this argument but I definitely will when my exams are over.

shotamoose

Originally posted by williamgrogan
My own suggestion is that instead of the existing scattergun effect that donor countries (DC) should enter a partnership with a less developed country (LDC), on a one to one basis. A bit like “town twining”

I don't see why countries should be matched in terms of size. I don't see why one country should give what amounts to special countries to only one other country chosen apparently at random. This seems a daft way to run aid policy. Wouldn't it make more sense to allocate aid on the basis of actual needs, rather than wasting it because of some 'special relationship'?

This would enable those DCs that are not pulling their weight with their LDCs to be held up to international opprobrium.

No it wouldn't, since aid from DCs is not the only cause of development. They could easily 'duck and dive'.

This post led to me setting up this thread ..

http://www.boards.ie/vbulletin/show...178#post1559178

Is the Cato Institute (linked to in that post) by any chance run by idiots? I ask because of the following quote: " Since World War II the United States has spent nearly $1 trillion (in 1997 dollars) on bilateral and multilateral foreign aid. The result is debt, dependency, and poverty throughout much of Third World."

Presumably the authors would argue that the result of the Marshall Plan was 'debt, dependency and poverty' in Europe? Or are they simply talking bollocks? Their statement linked to in the other thread is riddled with similarly inane statements, which can be easily taken apart if so required.

Perhaps their statement only makes sense if given a qualification they somehow left out: aid works in the right context. But why compromise on a flashy point, right?

I remember reading some years back that most of the aid that went into Sicily after an earthquake was robbed by the mafia.

So the mafia rob people – gee, you don’t say? All this says is that “when aid is stolen by people who are not the intended recipients, it does not have the desired effect”. Hardly a good argument.

How many people who give aid consider that it may undermine the local economy?

How many people who oppose aid consider that it may boost the local economy?

Seriously, have you considered that investing in health and education and infrastructure might, just might be good for the local economy in poor countries? Isn’t this just yet another example of a statement equivalent to “when aid is bad, it’s bad”? Why can’t you consider that we should seek to remove the conditions which lead to the misallocation and misuse of aid? Or do you think that these conditions – corruption, inefficiency, lack of transparency and so on – are immutable characteristics of the Third World? And if you do, isn’t any attempt to help pointless?

Not alone that but given normal expected economic growth that would occur over the last few decades if nothing was done, the aid must have had a negative effect.

You’re joking, right? Aid must be the only cause of lower than expected economic growth? Because that’s basically what you’re saying.

The alternative is that lower growth may have been caused by other factors, and that aid may have in fact lead to higher growth than would otherwise have been the case. I’m not claiming this as fact, I’m just saying that it is more plausible than your explanation since yours posits a mono-causal model of growth (aid means lower growth) and mine doesn’t (aid is one among very many factors in growth).

The main cause of poverty is corrupt government & war.

Firstly, that’s remarkably narrow view which most experts would disagree with. Secondly, I thought you said that aid caused lower growth? Thirdly, you ignore that poverty, corruption and war feed into each other in a non-linear fashion. To alleviate poverty is to reduce the potential for corruption and war.

Aid does not seek to address those problems so cannot be addressing the main problem.

Aid can alleviate poverty so it can reduce the potential for corruption and war, so it can further alleviate poverty, so it can address the main problem even in your own terms.

I believe that much of the social welfare system bred poverty

Poverty was higher in Ireland before the introduction of the social welfare system. The same goes for just about every other country with such a system.

You can kill people with kindness.

The lack of social welfare killed many more people than the presence of social welfare. Touting empty clichés is hardly an argument.

Would we not all agree that giving aid to countries that spend more than that on their armies is counter productive?

I would agree that supporting military expenditure in the Third World does not help reduce poverty. Would you agree that aid that is clearly spent on non-military, pro-poor sectors is not counter-productive? If not, what could you possibly mean by ‘counter-productive’?

As rde has pointed out, the fact that poverty persists is not an argument against aid, any more than the fact of persistent crime is an argument against policing. If anything, it is an argument for more aid.

shotamoose

Originally posted by sextusempiricus The answer isn't more and more aid. Its a matter of free trade and here we come up against the political clout of those vested interests in the developed world who really don't give too much concern for the impoverished of the Third World and wish to protect through tariffs their own considerably more comfortable way of life.

First world trade barriers and third world corruption are not good reasons why we should not give aid. But they are good reasons why we should not expect aid to magically solve the problems of the third world, and why we should be careful about how aid is spent. Put simply: 'free trade' alone will not solve Third World poverty. To pretend that it will is to substitute one simplistic mono-causal explanation for another.

If we really wish to help the poor in the less developed countries we should help not hinder their self empowerment.

Empty words. Your quotes imply that poor people are simply less hard working, less thrifty, less honest than us rich folks. Politely, this is Social Darwinism. Personally, I find it as repellent as it is wrong, but I take comfort from the fact that you assert it in the absence of any supporting evidence of any kind.

‘Self-empowerment’ sounds like a fine thing in the abstract, and no doubt many people in the Third World would agree. Maybe you’d like to be the one to tell them that by withdrawing funding for their maternal health clinic or primary school you’re helping them towards ‘self-empowerment’? Maybe you’d have answers for their inevitable (self-empowered!) questions?

I notice nobody has mentioned the fact that world governments recently got together and agreed a set of Millennium Development Goals, among which are the targets of halving world poverty, significantly reducing infant mortality and increasing access to primary education and sanitation. Nobody believes that these will be achieved without, amongst other things, a massive increase in aid. Third World countries have drawn up clear, measurable, monitorable programmes that will move towards the goals and require only external finance. In this context, more aid will save lives and will promote development. The argument that they should be refused financing because it will somehow promote their moral fibre strikes me as the moralising of the comfortable.

To sum up: when aid is well targeted with reference to country, sector and locale, and when donors insists on transparency but not subservience, aid can be effective in combating poverty. It is not a magic solution: those looking for one should retreat to the bliss of their ignorance, because the real world will never satisfy them.

Egalitarian

I've browsed through all posts on this thread, and other than some basic definitions and concepts there is little sceptical merit to most.

As I have said on other threads, cynicism is the antithesis of scepticism.

There are many topics and themes which are worth exploring re aid effectiveness, but such a broad topic of the futility of development assistance only invites cynical replies. It's as useful as asking, is invasive surgery effective?

The specifics are all-important!

May I suggest limiting the question to: is there a difference between development assistance and emergency relief, and are these goals mutually reinforcing?

watty

Reading Shotamooses post I feel the original question is doomed as too general. His answers are better than mine have been, too.

Does aid work?
It can

Is most "so called aid" not actually aid at all?
Yes

Does aid work?
Often not, but NOT because the idea of Aid is wrong, but because implementation is wrong.

You might as well argue that because people get divorced we should aboliosh marriage.

If aid is found to be causing instead of solving problems, lets not use that as an excuse to do nothing and be selfish as some "think tanks" would like, but as a reason to change the system(s).

Too many seem to have an agenda to look for a reason to be "mean" or make it the poor or victims fault, rather than try and help better.

I'm remindedof the Dicken's Character who when asked for a donation for the poor said
"Have not the Poor, Workhouses to go to?"

shotamoose

Originally posted by watty
I feel the original question is doomed as too general.

Absolutely. The question can actually be re-phrased as "Does money work?". Answers on a postcard please.

sextusempiricus

Originally posted by shotamoose
Absolutely. The question can actually be re-phrased as "Does money work?". Answers on a postcard please.

Robert Mugabe thinks it does. Must be the reason his regime, to pay its bills, is printing so much of it! Pity about inflation. This was 526% by late 2003.

sextusempiricus

Originally posted by shotamoose



Is the Cato Institute (linked to in that post) by any chance run by idiots? I ask because of the following quote: " Since World War II the United States has spent nearly $1 trillion (in 1997 dollars) on bilateral and multilateral foreign aid. The result is debt, dependency, and poverty throughout much of Third World."

Presumably the authors would argue that the result of the Marshall Plan was 'debt, dependency and poverty' in Europe? Or are they simply talking bollocks? Their statement linked to in the other thread is riddled with similarly inane statements, which can be easily taken apart if so required.

Can Marshall Aid be equated with ODA? I quote Lord Bauer again'

...the success of the Marshall Plan is irrelevant to the case for Third World aid. The peoples of Western Europe had the faculties, motivations and institutions favourable to development for centuries before the Second World War: rebuilding, not development , was the task after the war. Hence the rapid return to prosperity in Western Europe and the termination of Marshall aid after four years, in contrast to the economic plight of many aid recipients after decades of aid, and their failure to repay loans obtained on favourable terms; and in contrast also to the proposals for indefinate continuation of official aid. ('Equality, The Third World and Economic Delusion' p110)

Bauer also notes that Western Europe would have recovered without Marshall aid though somewhat less rapidly.

Africa has received the equivalent of six Marshall Plans. Far from being able to terminate assistance, as Europe was able to do with the original Marshall Plan, the African continent remains largely in poverty (Botswana is a notable exception as I've already mentioned). As David Guest writes,

Few studies have found any robust link between aid and faster growth. Countries that received lots of foreign aid do no better, on average, than those that receive practically none.

Persistence of poverty is now made an argument for increasing aid. In contrast I stress that economic achievement depends not on the equivalent of giving alms but on 'attitudes, motivations, mores and political arrangements'. Aid is just being wasted in countries that don't have the right political and cultural climate for economic growth.
In my 2003 Britannica 'Book of the Year' Botswana has a GNP of $5,280,000,000 ($3,300 per capita) and Zambia a GNP of $3,026,000,000 ($300 per capita).

sextusempiricus

Originally posted by shotamoose
If we really wish to help the poor in the less developed counties we should help not hinder their self empowerment (Quote from David Landes)


Empty words. Your quotes imply that poor people are simply less hard working, less thrifty, less honest than us rich folks. Politely, this is Social Darwinism. Personally, I find it as repellent as it is wrong, but I take comfort from the fact that you assert it in the absence of any supporting evidence of any kind.

I think we can agree that subsidies to farmers in rich Western countries don't help poor farmers in the Third World make a living. Their reduction could significantly help him sell his goods on the world market and improve life for himself and his family. I mean nothing more by self-empowerment than the ability to improve one's life unhindered. I cannot agree that these words are empty. Certainly it has nothing to do with a nineteenth century doctrine associated with Herbert Spencer which argued that societies, like species, are subject to the law of natural selection. I don't wish extinction on that Third World farmer although I would happily see many of his political masters cast into oblivion. Isn't it being rather patronising to say that the farmer can only succeed by our beneficence. Perhaps it makes us feel morally good if we donate our hard-earned cash but the evidence of real benefit is mixed.

‘Self-empowerment’ sounds like a fine thing in the abstract, and no doubt many people in the Third World would agree. Maybe you’d like to be the one to tell them that by withdrawing funding for their maternal health clinic or primary school you’re helping them towards ‘self-empowerment’? Maybe you’d have answers for their inevitable (self-empowered!) questions?

With a per capita income in Botswana more than 10 times higher than in Zambia I expect they can begin to fund their own schools and health clinics. Self-empowerment again. OK they did get some aid too but I don't accept this was the necessary cause of their wealth. Diamonds helped of course but Hong Kong became rich without any natural resources at all and just the enterprise of its population. This latter was just as important in Botswana and probably what differentiates it from other Sub-Saharan African countries.

I notice nobody has mentioned the fact that world governments recently got together and agreed a set of Millennium Development Goals, among which are the targets of halving world poverty, significantly reducing infant mortality and increasing access to primary education and sanitation. Nobody believes that these will be achieved without, amongst other things, a massive increase in aid. Third World countries have drawn up clear, measurable, monitorable programmes that will move towards the goals and require only external finance. In this context, more aid will save lives and will promote development. The argument that they should be refused financing because it will somehow promote their moral fibre strikes me as the moralising of the comfortable.

There is an obsession with quantity. The UN aim is for rich nations to achieve aid donations of 0.7% GNP. Those that fail to get near this risk looking miserly (? another stick with which to hit the US) and those reaching this level no doubt congratulating themselves with their moral uprightness . More is seen as better. If poor countries fail to show growth it must mean they need even more aid to help them achieve it. This obsession has detracted from what parliaments should be discussing in their houses and explaining to their electorates, 'are these transfers of wealth value for the tax-payers' money?' I remain to be convinced.

shotamoose

Originally posted by sextusempiricus
Robert Mugabe thinks it does. Must be the reason his regime, to pay its bills, is printing so much of it! Pity about inflation. This was 526% by late 2003.

Your point being? I hope you're not going to suggest that aid causes such massive inflation, because it doesn't.

Can Marshall Aid be equated with ODA? I quote Lord Bauer again'
...the success of the Marshall Plan is irrelevant to the case for Third World aid. The peoples of Western Europe had the faculties, motivations and institutions favourable to development for centuries before the Second World War: rebuilding, not development , was the task after the war. Hence the rapid return to prosperity in Western Europe and the termination of Marshall aid after four years, in contrast to the economic plight of many aid recipients after decades of aid, and their failure to repay loans obtained on favourable terms; and in contrast also to the proposals for indefinate continuation of official aid. ('Equality, The Third World and Economic Delusion' p110)

Let's see: Institutions apart, Bauer is unable to point to any useful distinction between aid to Europe and aid to elsewhere apart from the inherent wonderfulness of the European people. Institutional quality is itself an outcome of development - to expect it to exist in severly underdeveloped countries is unrealistic, and to base aid allocations on its presence or absence is thus illogical. As aid can promote development, it can promote institutional quality.

He also implies that poor countries would be better off if they were ravaged by a few years of war before receiving aid. Just because he's a Lord doesn't mean he makes any sense.

Bauer also notes that Western Europe would have recovered without Marshall aid though somewhat less rapidly.

Unsupported assertion. The point is it didn't, and there is no way of knowing what would have happened. The fact that Bauer feels free to make this kind of imaginative statement shows that he is guided more by ideology than by evidence.

The Marshall Plan was unprecedented beforehand and unmatched since, and postwar Europe saw one of the fastest increase in living standards anywhere, anywhen. The Marshall Plan is a brilliant example of how aid can help development.

Africa has received the equivalent of six Marshall Plans.

Source, please? Per year figures? Are you counting military aid and the funds that were channelled straight into the pockets of dictators? Because they're obviously not the same thing. Even so, Africa was much poorer when its aid began (and totally different in terms of economic structure) than Europe was at the time Marshall aid began.

In my 2003 Britannica 'Book of the Year' Botswana has a GNP of $5,280,000,000 ($3,300 per capita) and Zambia a GNP of $3,026,000,000 ($300 per capita).

So what? Do you know anything about the two countries apart from their different levels of per capita income? The fact that you seem to assume one to be more hard working because it's wealthier simply shows how completely ass-backwards your understanding is.

I mean nothing more by self-empowerment than the ability to improve one's life unhindered.

Here the old libertarian emphasis on 'freedom from' rather than 'freedom to'. Perhaps your conscience would be eased by the knowledge that you are no longer actively contributing to the impoverishment of millions through farm subsidies. Fine. Personally, I would go further - I know that a relatively small amount of my pocket, transferred to a much poorer country, could make an enormous difference in terms of improved health care, education and infrastructure provision. I think it's worth it. That is the principle on which aid is based - your objection in principle is not an argument against the process.

Certainly it has nothing to do with a nineteenth century doctrine associated with Herbert Spencer which argued that societies, like species, are subject to the law of natural selection.

You have explicitly linked outcomes - such as survival and development - with the personal characteristics of individuals and whole nations - their 'honesty', their capacity for 'hard work'. That is Social Darwinism, like it or not. If it makes you uncomfortable then change your opinions.

Isn't it being rather patronising to say that the farmer can only succeed by our beneficence.

Not 'only by our' but 'with the help of'. Understand the difference or you won't be able to have an argument on the subject.

With a per capita income in Botswana more than 10 times higher than in Zambia I expect they can begin to fund their own schools and health clinics. Self-empowerment again.

Relying on your factbook there again I see. You've yet to show how any particular policy in Botswana which didn't exist elsewhere enabled it to develop even to the level of £3k per capita per annum, which is still pretty paltry by western standards.

Wait, I spoke to soon. Looking at your earlier post, you said "with the right conditions it can be used wisely ( as in Botswana ) [as opposed to Zambia]".

So the only reasonable distinction (I exclue Social Darwinist claims such as Botswanians being more 'hard-working' than Zambians) you have been able to draw between wealthy Botswana and poor Zambia is that aid was used wisely in the right conditions in Botswana but not in Zambia.

It follows that we need to give more aid to poor countries and make every effort to ensure that it is used wisely and in the right conditions.

I'm not sure I need to argue my case anymore as you're doing a perfectly good job it it yourself. Keep up the good work.

This obsession has detracted from what parliaments should be discussing in their houses and explaining to their electorates, 'are these transfers of wealth value for the tax-payers' money?' I remain to be convinced.

I believe they are value for money IF governments and parliaments insist on transparency and targetting on pro-poor projects, ie if they are 'used wisely' in the 'right conditions'. But because poverty is so entrenched and multi-causal, we should not give up if the paltry amounts of aid we are presently spending fail to deliver prosperity in short order. If anything, we should spend more, as well as implementing the many other reforms that could promote development. That aid spending needs to increase is basically the position agreed by the world's governments in the Millennium Development pact - unfortunately, the rich countries have so far failed to back up their words with actions.

DadaKopf

Oh yeah, came across this in my travels a few months ago.

From the academic debate have emerged essentially three stories about the relationship between aid and growth, each of which primarily turns on the sta-tistical significance of a quadratic term: 1) aid works in a good policy environment (aid×policy is the key term, where policy is an index of several variables); 2) aid works best in countries with difficult eco-nomic environments, characterized by volatile terms of trade, low population, and/or other factors (the key term being aid×environment or ∆aid×shock); and 3) aid works on average in all environments, but with diminishing returns (aid 2 being a key term along with aid). ... Overall, the evidence is weakest for story 1 and strongest for story 3.

sextusempiricus

Originally posted by shotamoose
Your point being? I hope you're not going to suggest that aid causes such massive inflation, because it doesn't.

Perhaps I was being a little flippant with this quip against Robert Mugabe. It does however underline an important fact. This is that the social and institutional background of the receiving countries is important if aid is to produce economic growth. Inflation is hardly conducive to political stability. I didn't suggest that aid caused inflation. Printing ZIM$s is the problem. Historically hyperinflation has led to dictatorships (Hitler and Pinochet come to mind). On the importance of political stability see below.

Let's see: Institutions apart, Bauer is unable to point to any useful distinction between aid to Europe and aid to elsewhere apart from the inherent wonderfulness of the European people. Institutional quality is itself an outcome of development - to expect it to exist in severly underdeveloped countries is unrealistic, and to base aid allocations on its presence or absence is thus illogical. As aid can promote development, it can promote institutional quality.

OK. I've supported the notion that aid spent wisely can be useful. It is a rather banal truism that money received can be put to good use. Ravaged Europe could dispense with Marshall Aid after 4 years. Germany at the end of that period was a prosperous country despite having to absorb millions of refugees and pay reparations to the Soviet Union. Third World countries especially in Sub Saharan Africa have received massive amounts and are mired in debt and economic failure.
Botswana is a notable exception and surely if we are to decide whether aid is value for money we must ask why it is succeeding whereas others are failing.
Let me quote Niall Ferguson in his recent "Colossus...The Rise and Fall of the American Empire" p 181

Helpfully, controlled experiments were carried out in both Europe and Asia after 1945 to see how practically identical populations- in terms of environment, situation and culture-would fare economically under quite different institutional regimes. The widely divergent experiences of the two Germanys and the two Koreas confirm that institutions do indeed play the decisive role in development. So too did the experiment of keeping one Chinese city, Hong Kong, under Britain's liberal imperial system and one Chinese island Taiwan, under a not dissimilar American-sponsored system, while the rest of the country endured the miseries of Mao's Marxist tyranny.

Botswana is succeeding because it has developed functioning institutions of private property. Ferguson quotes Acemoglu et al from their "African Success Story". These institutions,

..protect the property rights of actual and potential investors, provide poltical stability, and ensure that the political elites are constrained by the political system and the participation of a broad cross-section of the society.

I think you are being somewhat ass-backwards in your arguments that aid comes before the institutions that are necessary for economic development. Aid without these institutions is likely to be wasted (or siphoned off to some foreign bank account for a Third World dictator's rainy day).

He also implies that poor countries would be better off if they were ravaged by a few years of war before receiving aid. Just because he's a Lord doesn't mean he makes any sense.

This is defamatory. Perhaps you could give the reference where Lord Bauer implies this.

The Marshall Plan is a brilliant example of how aid can help development.

I won't disagree with you here apart from changing the word development to reconstruction.

So what? Do you know anything about the two countries apart from their different levels of per capita income? The fact you seem to assume one to be more hard working because it's wealthier simply shows how completely ass-backwards your understanding is.

See aforementioned references.

Here the old libertarian emphasis on 'freedom from' rather than 'freedom to'. Perhaps your conscience would be eased by the knowledge that you are no longer actively contributing to the impoverishment of millions through farm subsidies. Fine. Personally, I would go further - I know that a relatively small amount of my pocket, transferred to a much poorer country, could make an enormous difference in terms of improved health care, education and infrastructure provision. I think it's worth it. That is the principle on which aid is based - your objection in principle is not an argument against the process.

I would be cautious about using the words 'enormous difference'. We still have to face those thorny problems of dependence and politicization of the societies of receiving countries. Lets live in the real world. Ferguson reports on p180 that,

Much of the money that has poured into poor countries has simply leaked back out-often to bank accounts in Switzerland-as corrupt rulers have stashed their ill-gotten gains abroad. One study of thirty sub-Saharan african countries calculated that the total capital flight for the period 1970 to 1996 was in the region of $187 billion, which, when accrued interest is added, implies that Africa's ruling elites had private overseas assets equivalent to 145 percent of the public debts their countries owed.

OK this is not an argument against aid as such but I really don't think, unlike yourself, this is value for money. I assert that in the absence of the right conditions aid is at most of marginal importance. It helps sometimes. On this point see Bauer "Equality, the Third World and Economic Delusion" p100-101.

You have explicitly linked outcomes - such as survival and development - with the personal characteristics of individuals and whole nations - their 'honesty', their capacity for 'hard work'. That is Social Darwinism, like it or not. If it makes you uncomfortable then change your opinions.

Atitudes and institutions are important. The important thing is that where these are not conducive to economic growth they can be changed . Social Darwinism implies a determinism that I don't accept

Not 'only by our' but 'with the help of'. Understand the difference or you won't be able to have an argument on the subject.

OK. Fair point. I've agreed above it helps sometimes. Perhaps where we disagree is on how important that help is. This is important in assessing aid's value for the tax-payers' money.

It follows that we need to give more aid to poor countries and make every effort to ensure that it is used wisely and in the right conditions.

OK. Its still of marginal importance. Bauer again.

Even though foreign aid can alleviate immediate shortages, it cannot appreciably promote growth of the national income. It is more likely to retard this growth.

I believe they are value for money IF governments and parliaments insist on transparency and targetting on pro-poor projects, ie if they are 'used wisely' in the 'right conditions'. But because poverty is so entrenched and multi-causal, we should not give up if the paltry amounts of aid we are presently spending fail to deliver prosperity in short order. If anything, we should spend more, as well as implementing the many other reforms that could promote development. That aid spending needs to increase is basically the position agreed by the world's governments in the Millennium Development pact - unfortunately, the rich countries have so far failed to back up their words with actions.

Here we disagree. Most people in this country support aid where it helps the poor but at best it can only be a small factor in encouraging growth, growth that enables these countries to improve the well-being of their people. The problem is the politicians they have and I'm sure we don't disagree here (Mobutu, Mugabe, Idi Amin and Nyerere to name just a few).
As to the original question aid works especially in filling Swiss Bank accounts but in helping poor countries develop their economies the effect is at best marginal. I agree that aid has definitely worked in assisting the relief of diseases such as AIDS, campaigns to remove cataracts and drilling wells. These are specific humanitarian measures that deserve hearty support but they are NOT the critical measures that give poor people real wealth.

sextusempiricus

Originally posted by shotamoose
The Marshall Plan is a brilliant example of how aid can help development.

My initial reply
I won't disagree with you here apart from changing the word development to reconstruction.

Now I come to think about it I feel your use of the word 'brilliant' inappropriate. OK it helped probably by speeding up the recovery of Europe after it's second civil war in the 20th century. It certainly had an important political motive for its implementation
i.e. to bolster up those western nations like Greece and Italy where communism was threatening to get a firm foothold. I won't complain that it was money wasted. The countries of Western Europe did subsequently have thriving economies. Of course they could develop them within the security offered by America's nuclear deterrent.

sextusempiricus

Further comments on the Marshall Plan can be found at
http://www.ccoyne.com/files/Marshall_Plan.pdf

shotamoose

OK. I've supported the notion that aid spent wisely can be useful. It is a rather banal truism that money received can be put to good use.

Yes it is. But it's a banal truism that many of the opponents of aid seek to avoid. For example:

Even though foreign aid can alleviate immediate shortages, it cannot appreciably promote growth of the national income. It is more likely to retard this growth.

See I just don't know where Lord Bauer is getting the second part. What's his basis for this comment, apart from ideological conviction?

This is defamatory. Perhaps you could give the reference where Lord Bauer implies this.

Fair enough, I got that one wrong. I thought he was implying that the experience of rebuilding after a war was a key element of the personal foundations of development in Europe.

Having reconsidered my views on the Marshall Plan, I think it was wrong to call it a brilliant example of how aid can work. The most salient difference between Post war Europe and Africa is that Europe had formerly been a very rich area, while Africa has never been a rich area. While it was immensely destructive, the war didn't actually harm Europe's industrial structure, in fact the militarisation and technological advance involved probably boosted it. The task of the post-war period was reconstruction, rather than development. By contrast, every single technological revolution bypassed Africa - it has never had a developed industrial structure to reconstruct.

I think you are being somewhat ass-backwards in your arguments that aid comes before the institutions that are necessary for economic development.

But these institutions don't come from nowhere. They develop. Aid, especially spending on education, can promote this development.

I would be cautious about using the words 'enormous difference'. We still have to face those thorny problems of dependence and politicization of the societies of receiving countries. Lets live in the real world.

Aid can make an enormous difference, most basically in terms of prolonging people's lives, and giving children an education. We can't expect these more personal benefits to translate into higher levels of development straight away, but over time they will make a difference. To put it another way, if you are asking aid by itself to make a poor country rich, you are asking too much. My concern is that some people who are well aware that aid cannot undo the effects of so many other factors (including our own unwillingness to reform the systems of trade and debt, etc) are hiding this fact and using the continuing poverty of the poor to argue against one of the few things that we actually do to help.

Much of the money that has poured into poor countries has simply leaked back out-often to bank accounts in Switzerland-as corrupt rulers have stashed their ill-gotten gains abroad. One study of thirty sub-Saharan african countries calculated that the total capital flight for the period 1970 to 1996 was in the region of $187 billion, which, when accrued interest is added, implies that Africa's ruling elites had private overseas assets equivalent to 145 percent of the public debts their countries owed.

Capital flight should not be used as an argument against aid alone, since people can smuggle the returns from trade and investment abroad too. Bear in mind that banks in the rich countries either actively encouraged or turned a blind eye to capital flight from Africa. If we're so bothered about it we should introduce more transparent controls, identify past flight capital and return it so it can be put to good use.

As to the original question aid works especially in filling Swiss Bank accounts but in helping poor countries develop their economies the effect is at best marginal. I agree that aid has definitely worked in assisting the relief of diseases such as AIDS, campaigns to remove cataracts and drilling wells. These are specific humanitarian measures that deserve hearty support but they are NOT the critical measures that give poor people real wealth.

Maybe we're just answering different questions? If the question is: "Does aid work, by which I mean does it by itself make whole countries considerably richer?", then I would say "No". If the question is: "Does aid work, by which I mean does it make a significant difference to a lot of people when used well?" I would say "Yes, absolutely". I think both can be true, but I don't draw the conclusion that we need less aid: I think we need to become better at giving aid and recipient countries need to become better at receiving it.

williamgrogan

Irish Times today

Is our overseas aid being used effectively?

In summary Ireland comes very near the last position on all measures of the effectivness of its aid and its policies that make poor countries poorer.

Some recent points being made about how general this thread's question is and the suggestion that even asking the question is an attempt to be "mean" are illogical. It's quite clear what the question is and was being properly debated. I for one have learned a great deal, which is one of the purposes of debate and the ISS.

The article in the Irish Times today helps to vindicate what I and others have been suggesting.

The concept behind Skepticism is to question everything, including aid. It's amazing that questioning sacred cows brings out so much venom. It's one of the most consistant factors in all threads.

shotamoose

Originally posted by williamgrogan
Irish Times today

Is our overseas aid being used effectively?

Could you post the article text so that those of us without Irish Times subscriptions can see what it actually says?

williamgrogan

I can't post the text as it would be a copyright violation. Here's a few limited quotes.

In 2004 Ireland will spend €479 million on overseas development assistance. This is a good sum, one we should take pride in, but there are worrying indications that our money is not being used as effectively as it should be.

Surprisingly, Ireland is 18th overall, fourth from the bottom, with only Japan, Spain and Switzerland performing worse

In assessing aid Ireland, with a ranking of three, comes out very low.

On trade Ireland scores 5.8, lower than it should because of EU tariffs and subsidies. The US came first and Norway last in the category, the latter because of its very heavy agricultural subsidies.

Finally, its technology score, at two, is by far the worst in the category. This is arguably the most important area with the most profound long-term effect on poorer countries

In my opinion the €70 or so subscription per year to the IT is well worth it.

shotamoose

Originally posted by williamgrogan
I can't post the text as it would be a copyright violation.

Well then in the absence of any corroboration I suggest that your earlier claim that Ireland's aid "policies ... make poor countries poorer" is not backed up by the article but is instead one of your own invention.

Since you're not going to tell people any more about the article, allow me. It refers to the 2004 Commitment to Development Index , an annual analysis of the development policies of 21 rich countries carried out by the Center for Global Development (CGD), an American think-tank. It compares the policies of these countries across 8 different categories, of which aid is one.

The Index explicitly gives countries who give a higher proportion of their income as aid (such as Denmark, Sweden and the Netherlands) a higher ranking than those who do not (for example, the US and Japan). So criticising Ireland for having a low aid ranking is among other things to criticise it for not giving enough aid. Which leaves you in contradiction with yourself.

What the CGD does say is that "some dollars and euros of foreign aid do more good than others". When totting up scores for aid policies, the Index

subtracts development assistance that comes right back to donors as debt payments. It penalizes donors for "tying" development assistance-requiring that it be spent only on goods and services from the donor country-or funding many small projects that can overload the staff of poor-country governments. It rewards selectivity-giving development assistance to countries that are particularly poor and particularly well governed ... Small donors such as New Zealand, Greece and Ireland are pulled low for spreading their development assistance thinly across many small projects.

These are all very useful points that can help distinguish aid that is effective from aid that is less effective or not at all effective. They are pretty much the points that Watty made earlier (in fact, I think he answered the question perfectly and the rest of the discussion has been pretty much redundant) and along the lines of what I have been saying: money that is well-spent will make a positive difference.

Nowhere does the CGD suggest that aid itself 'makes countries poorer'. So I repeat: if you can't supply a quote from the article to back up your suggestion that it does, you should withdraw it. If that is not what you were claiming, then you should try to be clearer.

Edited to change "CDG" to "CGD" (Center for Global Development)

williamgrogan

I think Shotamouse and maybe Watty are losing the plot.

I said this in my opening post, "...., so examining the existing assumptions is essential. If the way aid is currently handled is ineffective, wasteful and even has a negative impact on those receiving it we must change the way it is administered."

I am not suggesting that we simply stop the aid budget.

The article in the IT clearly supports my point. In fact the author says, "we should be pround of out €480 million contribution ... even though he then goes on to say that it is ineffective ... surprisingly...

Maybe surprising to him but it isn't to me.

Why would anyone be proud of wasting a large proportion of €480 million?

To the question, "Does aid work?", can we at least agree that it doesn't work very well and needs radical overhaul?

shotamoose

Originally posted by williamgrogan
I think Shotamouse and maybe Watty are losing the plot.

I think you're refusing to answer the question. Which was: Is your earlier claim that Ireland's aid "policies ... make poor countries poorer" backed up by the Irish Times article? If not, why did you imply that it was?

I am not suggesting that we simply stop the aid budget.

I'm glad you're making that clear. It begs another question, though: Do you support the principle underlying the research you approvingly cited, which is that a higher level of aid is (other things being equal) a good thing? Or are you just going to quote the bits you agree with and leave out the bits you don't?

To the question, "Does aid work?", can we at least agree that it doesn't work very well and needs radical overhaul? [/B]

I would say that in some countries it works better than others.

The CDG study argues that there are essential aspects to understanding the effectiveness of aid: quantity and quality. The countries which score highly on the aid index give lots of high-quality aid. The CDG believes this to be very effective.

Would you agree, then, that the aid policies of Sweden, Denmark and the Netherlands "work" and that if the policies of Ireland and the US (for example) are to "work" they should follow that model?

If you don't agree that the aid policies of the countries who score highly on the CDG's aid index "work" then I can't think of any aid policy which you could describe as "working", which would in turn lead me to think that you had a problem with aid per se.

shotamoose

Oh, and one more thing. I'd like you to go back and actually read Watty's post. If you can find one single thing he said that means he is 'losing the plot', I'd like to see it.

Otherwise you're just insulting people who have the temerity to disagree with you. And for someone who so self-righteously criticised the 'venom' of other posters that would be very hypocritical indeed.

williamgrogan

The full sentence I said was ... In summary Ireland comes very near the last position on all measures of the effectivness of its aid AND its policies that make poor countries poorer.

I was referring to the article and the policies in the article were ...

On trade Ireland scores 5.8, lower than it should because of EU tariffs and subsidies. The US came first and Norway last in the category, the latter because of its very heavy agricultural subsidies.

in particular the underlined one.

I was taking two points from the article

1/ The aid was ineffective - which I have claimed from the outset and the article "proves" this by referring to a measuring mechainsm that shows this.

2/ That our policies such as subsidising food and the bureacuracy were making the aid ineffective, see this paragraph.

In assessing aid Ireland, with a ranking of three, comes out very low. This is because it is one of those donors which is penalised for overloading governments of poor nations with onerous aid-reporting requirements and endless "mission visits" from foreign aid officials.

As Foreign Policy points out, last year Tanzania declared a four-month "mission holiday", during which the country received only the most urgent visits by donor officials.

I am not clear, have you read the article?

BTW, the author is not as "extreme" on this as I am. He was surprised, I wasn't. Maybe if he was surprised more often he would question other assumptions he has probably made.

No one is suggesting that we do not help poor countries. What is up for disccussion is the way we go about it. In fact I would go further in stating that the richer poor countries become the better it is for us.

I must go back to work.

shotamoose

I haven't read the article. I have read some of the research by the CGD (and published in Foreign Policy magazine) which it is based on.

I was taking two points from the article

1/ The aid was ineffective - which I have claimed from the outset and the article "proves" this by referring to a measuring mechainsm that shows this.

2/ That our policies such as subsidising food and the bureacuracy were making the aid ineffective, see this paragraph.

1/ The CDG research does not say that 'aid is ineffective'. In Ireland's case, it basically says that "the aid was less effective than it could have been had it been handled in a more effective way, such as the way Sweden, Denmark and the Netherlands handle their aid". 'Less effective than it could have been' is not the same as 'Ineffective', and there's no point pretending that it is.

2/ This is a rather bizarre point, since it implies that no matter how effective aid becomes, it will be ineffective as long as other policies 'cancel it out'. But this thread is not about every development policy under the sun, it is about aid. Please stick to the point.

In fact I would go further in stating that the richer poor countries become the better it is for us.

A truism which I haven't seen anyone argue with. Let's get back to specifics, such as my unanswered questions:

Do you support the principle underlying the research you approvingly cited, which is that a higher level of aid is (other things being equal) a good thing?

Would you agree that the aid policies of Sweden, Denmark and the Netherlands "work" and that if the policies of Ireland and the US (for example) are to "work" they should follow that model?

sextusempiricus

Originally posted by shotamoose


Maybe we're just answering different questions? If the question is: "Does aid work, by which I mean does it by itself make whole countries considerably richer?", then I would say "No". If the question is: "Does aid work, by which I mean does it make a significant difference to a lot of people when used well?" I would say "Yes, absolutely". I think both can be true, but I don't draw the conclusion that we need less aid: I think we need to become better at giving aid and recipient countries need to become better at receiving it.

Apologies for such a delayed reply. You are right. My concentration has been on whether aid encourages growth rather than your concern about its benefits for the welfare of the poor in the Third World. Of course growth and welfare are interdependent. For example HIV/AIDS can affect all but particularly those young adults who form the entrepreneurs and workforce that will help create wealth. Education on safe sex etc funded by aid has been helpful in countries like Uganda. Vaccination programmes too are a success and have been paid for with aid. Healthier people, one would think, should promote growth but let's not kid ourselves that such measures are the most important. Botswana has one of the highest rates of HIV/AIDS in Africa ( 39% of adult population) but can still show economic growth. How does it achieve this? In two words good governance.
Growth must remain our primary concern. Aid hasn't helped. Africa is the only continent in the past 25 years to become poorer despite the huge amount of ODA.
I note you have now changed your mind about the importance of Marshall Aid for economic growth in Europe post WW2. If that was unimportant in countries with traditions and laws favourable to enterprise and wealth production what hope can anyone have that giving alms to those counties in the Third World which lack good governance will help them on the road to economic advance. I suspect you agree that its unlikely to be very helpful although you only go so far as to claim that aid will not make countries considerably richer. I certainly wouldn't have used that word considerably. But perhaps we can agree on a modest benefit from a healthier population. The main problem is, as I've previously written, the rotten politicians people in the Third World have making decisions for them and usually enriching themselves with aid money. This especially applies to sub-Saharan Africa. Aid has certainly encouraged the politicisation of these counties and those with the drive to enrich themselves find that politics not manufacturing things they can sell is the best option. Perhaps you can enlighten me how they can become better at receiving economic assistance? Would you agree perhaps with the tying aid with good governance? This would appear to be the direction the World Bank is going.
Interestingly economists Burnside and Dollar have evidence that the impact of aid depends on the quality of state institutions and policies.
http://econ.worldbank.org/view.php?type=5&id=34209
Dollar has also written an important article giving evidence that globalization leads to the reduction of poverty in poor countries.
http://econ.worldbank.org/view.php?type=5&id=33773

Economist Professor Kym Anderson has estimated that if all trade barriers and agricultural barriers were removed the benefits resulting would range from $254 billion per year from 2005 (with $108 billion accruing to developing countries) to $2080 billion (with $431 billion to developing countries). Aid just doesn't compare with the benefits free trade is likely to bring the world's poor.
http://www.Copenhagenconsensus.com

williamgrogan

TOM KITT, TD, Minister of State for Development Co-operation and Human Rights, has a longish letter in today's Irish Times in reply to Richard Whelan's article.

Here

some excerpts

The Commitment to Development Index is not a measurement of aid effectiveness, as the headline implied. It is, in the words of the authors of the report in Foreign Policy magazine, an index which seeks "to rank rich nations according to how their policies help or hinder economic and social development in poor countries".

Development Cooperation Ireland uses the regular reviews of donor agencies conducted by the OECD's Development Assistance Committee (DAC) as the external benchmark of its performance. The most recent such review, published in November 2003, endorsed our policy approach and made clear that our national aid programme is in line with best international practice.

In the meantime, I hope these clarifications serve to underline that the Government's aid programme is effective, that it is contributing strongly to the fight against HIV/AIDS in Africa, to the development of health systems and to providing basic education.

I think the last paragraph is interesting as it doesn't say anything about Irish Aid assisting the economy. The omission is strange considering the sentence in the opening paragraph I have underlined above.

Incidentally aid for HIV/AIDS is good for helping cure those suffering from the disease but is not all that relevant to prevention or tackling the underlying cause. As far as I can tell, from general reading on the subject, the major cause of AIDS in Africa is the totally irresponsible attitude of the men and in particular the married men. Sex outside marriage with many different partners and with prostitutes is rampant. If I am right in my previous statement then this is an example of why aid often tackles the wrong problem. It sounds great that Ireland sends money to Africa to try and solve the AIDS problem. It makes us feel better and if we sent more we would feel even better still, BUT the problem is the attitude of the men. How does one tackle that problem? The real problem. We are solving the wrong problem. (Of course its not PC to say that African men are just downright immoral.)

shotamoose

Aid hasn't helped. Africa is the only continent in the past 25 years to become poorer despite the huge amount of ODA.

Can you be so sure that Africa would not have been worse off without aid? If not, then you cannot say that "Aid hasn't helped". In fact, if Africa would have been worse off, then aid did help.

Botswana has one of the highest rates of HIV/AIDS in Africa ( 39% of adult population) but can still show economic growth. How does it achieve this? In two words good governance.

I hope you can (a) define 'good governance',
(b) show that Botswana and other economically succesful countries (such as China, India and Vietnam) have policies which fit the definition of 'good governance' and
(c) show that economically unsuccesful countries do not have such policies.

Because until you do so, your statement is effectively empty.

In my experience, 'good governance' is a highly contested and poorly-defined term. Just like 'globalizers', which I discuss below.

I note you have now changed your mind about the importance of Marshall Aid for economic growth in Europe post WW2. If that was unimportant in countries with traditions and laws favourable to enterprise and wealth production what hope can anyone have that giving alms to those counties in the Third World which lack good governance will help them on the road to economic advance.

Hold on. The point I was making is that the post-war performances of Europe and Africa have been influenced much more by their pre-existing economic structures and ongoing international relationships, then by the relatively small amount of international aid they have each received. While aid has been a large proportion of GDP in some very poor African countries, it has still been low in comparison to the kinds of capital investment that are needed to significantly reduce poverty and kickstart growth.

The main problem is, as I've previously written, the rotten politicians people in the Third World have making decisions for them and usually enriching themselves with aid money.

Corruption is a problem, but do you really think it has been the main problem in Africa? As opposed to, say:
-disease (historically a very high incidence of malaria, more recently the AIDS pandemic);
-geography (African countries are more likely to be land-locked and sparsely populated);
-crippling debt burdens;
-capital flight (money smuggled out of Africa and lodged in rich countries);
-the enormous decline in the prices of almost every commodity Africa specialises in;
-the trade barriers erected by rich countries?

Aid has certainly encouraged the politicisation of these counties and those with the drive to enrich themselves find that politics not manufacturing things they can sell is the best option.

So it follows that reducing corruption - which some African countries are doing - will increase the effectiveness of aid?

Perhaps you can enlighten me how they can become better at receiving economic assistance? Would you agree perhaps with the tying aid with good governance?

By reducing corruption; by targetting spending on where it can be most effective; by improved monitoring and reporting. See above for my views on good governance.

Interestingly economists Burnside and Dollar have evidence that the impact of aid depends on the quality of state institutions and policies.

A few points: firstly, I've said already that the impact of aid will depend in part on the context. This is not an argument against aid - it is an argument for better context. Secondly, I've seen other papers arguing against B&D's conclusions, so it's still an open debate. Thirdly, we should not conclude (even if we accept their findings) that countries with poor institutional quality should be shut out. The people who live there may be in even more need of aid than those elsewhere even if the aid won't be spent quite as effectively.

Dollar has also written an important article giving evidence that globalization leads to the reduction of poverty in poor countries.
http://econ.worldbank.org/view.php?type=5&id=33773

Have you actually read this paper? Even a vaguely sceptical mind can see that it's mostly junk.

According to Dollar and Kraay, 'Globalizers' actually had higher average tariffs than 'non-Globalizers' in both the 1980s and the 1990s. Yes, you read that right - their 'Globalizers' are actually more protectionist than 'Non-Globalizers'. (Figure 2)

Also, and despite steadily increasing the protection of its economy, Zimbabwe is apparently a 'Globalizer' (Table 1), which will come as news to everyone. Curiously, Dollar and Kraay omit to mention this interesting result.

Finally, there is no relationship between tariff cuts and increase in trade volumes. In fact, weighted average trade volumes doubled in 'non-globalizing' countries defined in terms of tariff changes (Table 3).

Dollar and Kraay even admit that "changes in average tariff rates are not very strongly correlated with changes in trade volumes". Translated, that means that liberalisation is not strongly correlated with higher trade, which is strongly correlated with higher growth. In fact, the most striking result of Dollar and Kraay's research is that it is countries who started out the most protectionist (e.g. India, China, Vietnam) who are growing fastest now. Which is interesting to say the least, and in no way supports your contention that trade liberalisation is the path to greater riches.

I haven't read Kym Anderson's work, but it is based on a 'computable general equilibrium' model of the type used to produce eye-catching but extremely contestable headlines of this sort. For a discussion of the serious draw-backs of this kind of model, see here , here, and here.

Some CGE models have even shown that Africa will actually lose out under a typical round of multilateral trade liberalisation. So the statement that "Aid just doesn't compare with the benefits free trade is likely to bring the world's poor" is at best an unhelpful generalisation.

sextusempiricus

Originally posted by shotamoose
Can you be so sure that Africa would not have been worse off without aid? If not, then you cannot say that "Aid hasn't helped". In fact, if Africa would have been worse off, then aid did help.

OK perhaps aid can help welfare but only marginally. Where's the evidence it can help economic growth? In 2002 development aid from all sources to the developing world amounted to $57 billion. Contrast this with remittances from immigrant workers of nearly $80 billion, foreign direct investment of $115 billion and developing world trade in excess of $2 trillion. This suggests that economic growth through trade is the best route to help poor countries. The beneficial effects of aid are stymied by corruption, bad management and dependence. How important is corruption? Bokassa, president of the Central African Republic (1966-77)and then its self-styled emperor and renamed the Central African Empire (1979-79) extracted about $38 million per annum from the French government for its former colony. As he admitted himself, "Everything around here is financed by the French government." "We ask the French for money get it and waste it." In 1977 he wasted $20 million on his coronation complete with a $2 million crown. I have mentioned other abuses already but getting up to date I read in the 'London Times' (June 1, 2004) that Mr Mugabe of Zimbabwe has just awarded himself a 2,500 percent pay increase and offered tribal chiefs £2.7 million and free cars in return for their loyalty in the parliamentary elections next March. At the same time it can barely pay its 109,000 teachers and cannot maintain or develop its schools. Primary school enrolment which was 93% in 2000 was only 65% last year. Literacy rates are plummeting and more and more kids are dropping out. Mr Mugabe, it should be noted, was a former teacher.
Countries with a weak rule of law are likely to suffer from corruption. The rule of law is the only way countries have to punish crime, protect private property, enforce contracts and maintain reforms. Hume realised this in the eighteenth century when he saw the advance of society occurred with the 'government of laws not people.'
Here is one indicator of 'good governance.' Before I expand on this concept perhaps you can clarify for me how dependence can be avoided. It does seem that when aid is given to help a crisis it undermines the incentive for the recipient to help solve that crisis.

I hope you can (a) define 'good governance',
(b) show that Botswana and other economically succesful countries (such as China, India and Vietnam) have policies which fit the definition of 'good governance' and
(c) show that economically unsuccesful countries do not have such policies.

Because until you do so, your statement is effectively empty.

In my experience, 'good governance' is a highly contested and poorly-defined term.

Even if the term is contested it is becoming increasingly important in the aid debate. The current argument is that aid does help provided it goes to those countries with a record of sound government and market-oriented policies (Zedillo Reort for the UN, UN monterret Declaration and President Mbeki's initiative on aid-and-development for Africa). I have found the following definitions pertaining to good governance.

"Governance is the manner in which power is exercised in the management of a country's economic and social resources for development. good governance... is synonymous with sound development." World Bank & Asian Development Bank

"The term governance, as generally used, encompasses all aspects of the way a country is governed, including its economic policies and regulatory framework. Corruption is a narrower concept, which is often defined as the abuse of public authority or trust for private benefit. The two concepts are closely linked: an environment characterized by poor governance offers greater incentives and more scope for corruption. many of the causes of corruption are economic in nature, and so are its consequences-poor governance clearly is detrimental to economic activity and welfare." IMF

"Good governance means ruling justly, enforcing laws and contracts fairly, respecting human rights and property rights, and fighting corruption. Encouraging economic freedom means removing barriers to trade with neighbours and the world, opening the economy to foreign and domestic investment and competition, pursuing sound fiscal and monetary policies, and divesting government from business operations. Economic freedom also means recognizing that it is the private sector that creates prosperity, not central planning or bureaucracies."Paul O'Neill, former US Treasury Secretary

Contested but not, I feel, poorly defined. The concept as defined certainly underpins President Bush's Millenium Challenge Account (MCA). Bush has pledged that the US will increase its core development assistance by 50% over the next three years. The funds will go into a new MCA and " because sound policies are an essntial condition of development.... the Millenium Challenge Account will be devoted to projects in nations that govern justly, invest in their people and encourage economic freedom." Countries would be assessed by how much they measure up to 16 criteria. See http://www.whitehouse.gov/infocus/developingnations/millennium.html

Hold on. The point I was making is that the post-war performances of Europe and Africa have been influenced much more by their pre-existing economic structures and ongoing international relationships, then by the relatively small amount of international aid they have each received. While aid has been a large proportion of GDP in some very poor African countries, it has still been low in comparison to the kinds of capital investment that are needed to significantly reduce poverty and kickstart growth.

Money can come from private investment as well as foreign aid (see the figures for direct foreign investment given above) but it seems poor countries often like to shoot themselves in the foot.
Bauer has written that
"...aid recipient governments generally restrict the inflow of private capital, and also the way it may be deployed. Since a low level of capital is the ostensible rationale of aid, such policies are evidently anomalous." (p 94, 'Equality, the Third World and Economic Delusion')

Would you like to invest in Zimbabwe even if you could? This brings us back to good governance. Without it we could be just wasting money. All countries incidentally if they are to receive aid through the MCA must have inflation rates less than 20%. Zimbabwe's rate is about 500%.

Corruption is a problem, but do you really think it has been the main problem in Africa? As opposed to, say:
-disease (historically a very high incidence of malaria, more recently the AIDS pandemic);
-geography (African countries are more likely to be land-locked and sparsely populated);
-crippling debt burdens;
-capital flight (money smuggled out of Africa and lodged in rich countries);
-the enormous decline in the prices of almost every commodity Africa specialises in;
-the trade barriers erected by rich countries?

These are all problems but aid will only help marginally. I've already given support for aid used to help those suffering from AIDS. My views on reducing trade barriers have been consistently emphasised in this thread.

So it follows that reducing corruption - which some African countries are doing - will increase the effectiveness of aid?

Sure. But in a small way.

A few points: firstly, I've said already that the impact of aid will depend in part on the context. This is not an argument against aid - it is an argument for better context. Secondly, I've seen other papers arguing against B&D's conclusions, so it's still an open debate. Thirdly, we should not conclude (even if we accept their findings) that countries with poor institutional quality should be shut out. The people who live there may be in even more need of aid than those elsewhere even if the aid won't be spent quite as effectively.

OK. Tying aid to good governance is unjust to recpients led by corrupt politicians. Either these politicians see sense and improve (the MCA is a carrot here) or the people get rid of them. I just don't see why taxpayers, many of them not well off, should see their money wasted.

I'll try and make a few points re China, India and protectionism when I've thought about them more.

sextusempiricus

The huge economic growth that has occurred in China might seem to undermine my

emphasis on good governance. Under Deng however it did move in the right

direction to favour growth by allowing rural families to set aside some of their

produce to sell at market prices & by letting farmers lease land from the

government. Whereas Mao's policies had caused widespread famine, under Deng

crop yields rose by an amazing 7.7% between 1978 and 1984 and the country had a

food surplus. Subsequently economic free zones were set up free from socialist

controls and Chinese entrepreneurs could engage in foreign trade.

China however is not a 'rules- based economy' like most of those in the West and in

Hong Kong and Singapore. Business is not conducted in a verifiable manner using

contracts and under laws that are widely known and enforced. Agreements are

made on the strengths of relationships and connections rather than legally

enforceable contracts (guanxi). This does tend to encourage the development

of splintered local markets rather than regional, national or international ones. I

suspect Chinese growth might be even more impressive if it switched from a

relations-based to a rule-based governance.

Its true that communist oppression persists ( we cannot forget Tiananmen Square

and the labour camps ) but Chinese people do have more freedoms than they had

under Mao. They can travel more freely and choose their employment and even have

more power to pick their local representatives. Increased local democracy is

probably incompatible in the long run with dictatorship.

There is also a problem, encouraged I suppose by guanxi, of local protectionism

which dulls competition. In the 'Economist' of April 6th 2000 I read that

....last year the city of Wuhan, which produces cars in a venture with France's Citroen, slapped duties of nearly 100% on Shanghai-produced cars. Shanghai had started the war by taxing cars not made locally.

Its obvious that growth occurs with widely varying types of governance but studies

do show that annual Gross National Income/capita is likely to be improved in those

counties that allow political liberalization.

Richard Roll and John Talbot have a most interesting paper entitled 'Why Many

Developing Countries Just Aren't' (Nov 20th,2001)

I quote from their abstract,

Past literature has often associated country wealth with culture, geography, history and religion, but nothing can be done about such influences over a short horizen, and probably little can be done over generations. we seek instead to uncover the "deep" determinants of wealth; i.e. those macroeconomic, structural, political and institutional conditions realistically amenable to change. We found surprisingly good news, more than 80% of the internal variation in GNI/capita can be explined by mutable determinants. Fourteen candidate determinants are examined over five recent years (1995-99 inclusive). Property rights (+) and black market activity (-) have the highest levels of significance. Also contributing to the explanation are regulation (-), inflation (-), civil liberties (+), political rights (+), press freedom (+), government expenditures (+) and trade barriers (-) (but not trade levels). To check that these variables represent causes and not the effects of high income, we trace the trajectories of GNI/capita before and after political liberalizations or dictatorial retrenchments over the past half-century. Liberalizations are, on average, followed by dramatic improvement in country income, while substantial reductions in growth typically follow anti-democratic events. We conclude that counties can develop faster by enforcing strong property rights, fostering an independent judiciary, attacking corruption, dismantling burdensome regulation, allowing press freedom and protecting political rights and civil liberties. These features define a healthy environment for economic activity.

In sub-Saharan Africa some counties are edging their way to better governance and

evidence like this suggests that their efforts will be matched with economic growth

that will be far more beneficial than aid. Shotamoose states that aid might help to

kick-start their economies into growth but of course Europe 3 or 4 centuries ago was

as poor as many African countries today and still managed to develop without it. It

can alleviate immediate shortages but is more likely to retard growth. As Bauer

states (Equality, the Third World and Economic Delusion p101),

Even if aid is used productively, the maximum benefit to development cannot exceed the avoided cost of obtaining capital by borrowing. And aid is most unlikely to be productive.

Globalisation is certainly a very hot topic and I must admit to becoming quite dizzy

trying to evaluate the claims of different economists. Sachs and Warner advise

developing contries to liberalise their economies but their fellow Harvard economist

disagrees. Most confusing. There's plenty of literature thats both for and against. I'm

not an economist and found Johan Norberg's In Defence of Global Capitalism

one of the best for defending globalisation.

Shotamoose writes

...the most striking result of Dollar and Kraay's research is that it is countries who started out the most protectionist (e.g. India, China, Vietnam) who are growing fastest now. Which is interesting to say the least, and in no way supports your contention that trade liberalisation is the path to greater riches.

The situation is much more complex. I've described the situation in China already

(and its local protectionism which owes more to guanxi where in the absence of

law and defendable property rights people do business with those they know and

trust. India presents a different problem. Its growth indeed started to accelerate in

the 1980s when the Congress Party had bureaucratic protectionist policies. This

growth was fuelled with borrowed money leading to a severe crisis in the early

1990s. Dr Singh restored order to the goverment finances by cutbacks in wasteful

public spending and freeing private businesses from bureaucratic restrictions and

import controls known as the 'Licence Raj'. Tariff levels which had averaged 87%

were reduced to 27%. Since then India has received a steady stream of investment

from abroad and growth has been running at a healthy 5-7% annually. The

proportion of inhabitants below the Indian poverty linehas fallen to about 32% ( it

was 62% in 1966). I think this rather supports my case. Unless you can come up

with more convincing evidence I'm going to concentrate on encouraging more trade

rather than more aid to help the world's poor.