Alex Springer

Foreign Aid Hinders Development. Discuss.

It might be said that in the Kantian court of ethics, tried for the failures of foreign aid, the West
would be found innocent of all charges. For it is acknowledged that the politicians, celebrities and
donors of the richest nations have been determined for a long time to end poverty. Yet from 1970
to 1998 poverty in Africa, the destination of over $1 trillion of official development assistance (ODA)
in the last 50 years, rose from 11% to 66%. 1 The provision of aid to African governments in particular
has led to or propitiated despotism, corruption, disease and famine, but it continues to flow. As far
back as 1986 it was argued that “Foreign aid programs have been perpetuated and expanded not
because they have succeeded, but because giving foreign aid still seems like a good idea.” 2 And so
the West, despite its apparent good will, may be guilty of denying the extreme poor their right to the
economic development achieved by the rest of the world.

Aid makes recipient nations completely dependent on its continuous inflows of foreign currency or
goods. Rather than fostering development, assistance such as food aid can instead serve to crowd
out domestic producers. Even though rich nations use anti-dumping legislation to protect
themselves from other industrialised nations, they are guilty of overloading developing world
markets with free or underpriced goods. Under its Food for Peace program, which has operated
since 1954, America gave 59.2% of total food aid in 2005, 3 of which 80% was ‘program’, or non-
emergency aid.4 This food, normally sold on by the government at extremely low prices, undercuts
domestic farmers, potentially putting them out of business and making them reliant on further food
aid. If there is no such thing as a free lunch, the West should stop trying to give them away. In Haiti,
social services are mostly provided by some of the 10,000 or so non-governmental organisations
(NGOs) operating in the country. 5 The Haitian Government’s record of ineptitude means that donors
choose to give money to these charities, who set up hospitals and schools that the state would be
expected to provide, further cementing its reputation for inaction. Such extensive reliance on
outside organisations has made Haiti a so called ‘Republic of NGOs’, and it remains the Western
Hemisphere’s poorest country.

Foreign aid worldwide suffers from an unfocussed approach, with myriad organisations being loosely
held accountable for shared, global objectives. The grandest of these are the UN’s Millennium
Development Goals, a set of targets including the halving of extreme poverty, introduction of
universal primary education and reduction of infant and maternal mortality rates, to be achieved by
2015.6 The UN offers a utopian vision of a transformed world, but an outdated, Bretton Woods-
based plan for getting there, which has already been found lacking. According to former World Bank
economist William Easterly, the current system of top down development assistance - headed by
‘planners’ - has been ineffective in finding solutions for developing world problems. In The White
Man's Burden, he gives the example of Bolivia, where one can find:

1
Dambisa Moyo, quoted on www.guardian.co.uk
2
J. Bovard (1986), The Continuing Failure of Foreign Aid, Cato Policy Analysis No. 65
3
International Grains Council Food Aid Committee
4
Barrett, Mohapatra, Snyder (1999), The Dynamic Effects of U.S. Food Aid, Section II
5
The Economist, April 17th 2010, Dreaming Beyond the Rubble
6
J. Sachs (2005), The End of Poverty, pp. 211-213

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“The International Monetary Fund, the World Bank, the Inter-American Development Bank, USAID, the U.S. Drug
Enforcement Administration, the UK Department for International Development, just about every other rich
country's aid agency, multiple NGOs, and Bono." 7

Easterly argues that a target-obsessed and uncoordinated approach to helping poor nations leads to
a complete absence of genuine help. Instead, he champions the approach of ‘searchers’ - those who
operate on the ground in poor nations, understand the culture, economy and people of those
nations, and look for effective ways to tackle poverty. The examples given are as diverse as
Muhammad Yunus’ Grameen Bank and the Shell Foundation’s attempts to tackle respiratory disease.
Yet Easterly does not call for an end to government aid, rather that agencies should search for what
really works, and be accountable for, evaluative of and incentivised by their results.

The impact of foreign aid has always been damaged because money ends up in the wrong hands, or
lost in a sea of bureaucracy. Transfers to governments allow the rulers of developing nations to
spend as they wish, rather than having to help the poor. The Reserve Bank of Zimbabwe was
accused in 2008 of wasting $7.3 million of a $12.3 million foreign currency transfer by the Global
Fund to Fight AIDS, Tuberculosis and Malaria, having used some of the donation to purchase vehicles
for the Information Ministry, satellite dishes, televisions and farm equipment. 8 When the
International Criminal Court issued an arrest warrant for Sudanese President Omar al-Bashir in 2009,
his response was to order 13 NGOs to leave the country immediately. Despite losing as much as
£5m, in the case of Oxfam GB, the charities and their donor governments did nothing, apart from
hoping to return soon.9 Aid agencies should not let humanitarian crises be cause for unjustifiable
trust in regimes with a proven record of neglecting the welfare of their citizens, such as Mugabe’s or
al-Bashir’s, when their actions might then cause the country to go backwards. They must take a
firmer line against kleptocratic, uncooperative leaders, rather than ignoring their history and
allowing them to condemn their people to further suffering.

As well as having harmed economic growth when offered with the best of intentions, development
assistance has been used as a geopolitical weapon, with disastrous results for the world’s poorest.
This approach was most prevalent during the Cold War, when the USA and USSR fought an aid-based
proxy war in Africa, pre-emptively intervening in various nations’ affairs when they feared the other
might do so first. The President of Zaire, Mobutu Sese Seko, stole roughly $5 billion of the $12
billion his country received from the IMF between 1965 and his overthrow in 1997. 10 Mobutu
continued to receive aid because of his status as a key anticommunist ally, despite rampant
corruption, torture and the arming of Rwandan Hutu insurgents. By 1996 Zaire, one of the most
mineral-rich countries in the world, had the lowest per capita income of 174 nations in the UN’s
Human Development Report. 11 Although Soviet aid was predominantly military, for example to
Ethiopia during the Ogaden War, the USSR sent technical assistance to countries including Ethiopia,
Angola and Mozambique. These nations remain among the poorest in Africa today. Bilateral aid
during this period did nothing to improve the lives of ordinary Africans, while helping to deepen
regional tensions, creating conflicts and barriers to trade that persist to this day.

7
W. Easterly (2006), The White Man’s Burden, pp. 150-151
8
C. Dugger, New York Times (2008), Aid Group Says Zimbabwe Misused $7.3 Million
9
L. Polman (2010), War Games, published in The Sunday Times News Review April 25 th 2010
10
C. Denny, The Guardian (2004), Suharto, Marcos and Mobutu Head Corruption Table
11
Foreign Policy in Focus (1997), Zaire/Democratic Republic of the Congo

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To try and circumvent the problem of aid helping authoritarian regimes, many commentators have
called for assistance to be given only with assurances that the recipient nation cleans up its electoral
system, state institutions or human rights. Supporters of this method include Paul Collier, who has
put forward the idea of ‘governance conditionality’, 12 and many point to the correlation between
democracy and prosperity evidenced in Europe and North America. They argue that enforcing a fair
system by encouraging reform alongside aid will allow developing countries to follow the same path
as the West. However, the relationship between democracy and economic growth has provoked a
chicken and egg type dispute. In Western European countries, as growth started to accelerate in the
early 19th century, only a small proportion of the population, or none at all, could vote. More
important for encouraging innovation and progress were effective protection of both the sanctity of
contracts and property rights – giving individuals the commercial and physical security to freely
invent, publish and manufacture. In contrast, the transformation of African nations such as Malawi,
Zambia and Benin into multiparty democracies has failed to ignite economic development, and they
remain poor and reliant on aid. The post-Cold War emphasis on encouraging liberal democracy,
dysfunctional at best when rapidly introduced, is an unhelpful Western obsession.

Many Western governments also try to count anything they can as ODA, in their efforts to meet
targets. Furthermore, much of their aid is even considered by NGOs as doing little to help with
tackling poverty. Action Aid estimates that only 53% of development assistance is ‘real aid’ which
can justifiably be included in Western nations’ aid figures. 13 The rest is described as ‘phantom’ – aid
which either does nothing to help alleviate poverty, or is being incorrectly counted as ODA. The
former includes overpriced technical assistance and tied aid, while the latter concerns spending in
areas like debt relief and on refugees. Even if we were to assume that all real aid has a positive
effect, it does not make up an acceptable proportion of total aid flows. The Commitment to
Development Index ranks countries based on their relative effectiveness in tackling developing world
poverty, using seven policy areas. This includes assessing the quality of aid from each country,
calculated by examining the amount of tied aid, where aid is sent and the size of projects. For
example, Sweden scores highly in the aid category because of its high volume of assistance, large
project sizes and non-use of tied aid. The number of countries still giving aid that is tied or sent to
corrupt governments makes it clear that a lot needs to be changed if foreign aid is ever to be
successful. This problem is magnified further upon considering that the 7 most populous countries
of the 22 listed (USA, Japan, Germany, France, Britain, Italy and South Korea) all score below the
median for their overall commitment to development. 14

The increasing influence of China in the developing world has threatened to cause a renewed
conflict of interests in Africa, with Western media denouncing its considerable involvement in Sudan
throughout the Darfur conflict. Although the Chinese interest has primarily been in feeding its
appetite for metals and oil, its approach towards Africa has been praised by observers like Dambisa
Moyo, who favours Beijing’s commitment to foreign direct investment (FDI) over the traditional
Western method of ODA. As a potential source of cheap labour, Moyo argues that Africa should be
ripe for investment, but its poor infrastructure, high regulation and government opacity scares off
foreign companies.

12
P. Collier (2007), The Bottom Billion, p. 110
13
Action Aid (2006), Real Aid 2: Making Technical Assistance Work, p. 12
14
Centre for Global Development, Commitment to Development Index 2009

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Even the often ignored influence of private remittances can have a more positive effect on
development than aid to governments. Unlike foreign aid, these payments go straight to individuals,
who have a greater incentive than state organisations to use their income efficiently. Remittances to
India alone were $49 billion in 2009, compared to just $21 billion for Sub-Saharan Africa, with the
former growing at a faster rate.15 Remittances can even be used as collateral by developing world
banks if they need loans from the international credit markets, because they are regarded as stable
capital flows. In Dead Aid, Dambisa Moyo adds that governments can exploit their overseas
communities by issuing ‘Diaspora bonds’ to attract finance from expatriates – Israel has raised $25bn
in this way.16 At a more basic level, private remittances can make it possible for the recipients to
afford housing, health and education, all from a small proportion of the donors’ income.

The current system of aid is not helping to lift inhabitants of the poor world out of the ‘poverty trap’
that Sachs and other economists claim is holding them back from prosperity. In cases such as the
Democratic Republic of the Congo, foreign aid has led to long term economic decline, civil war and
regional conflict. In others it has simply failed to have a positive effect on growth. There is hope for
foreign aid if governments and agencies strive to be more accountable and unified, but ODA is no
substitute for strong government and stable peace, nor can it match the positive effects of free
trade, FDI and micro-finance. By pressing on with an aid agenda that is not working, Western
organisations are prolonging the misery of the world’s poor. Perhaps, then, it is wrong to applaud
good intentions, when aid has proved itself to be a misnomer.

15
World Bank data, reported in The Economist May 1 st 2010, p. 93
16
D. Moyo (2009), Dead Aid, p.134

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Bibliography

Guardian interview with Dambisa Moyo http://www.guardian.co.uk/society/2009/feb/19/dambisa-moyo-dead-aid-africa

J. Bovard (1986), The Continuing Failure of Foreign Aid, Cato Policy Analysis No. 65
http://www.cato.org/pubs/pas/pa065.html

International Grains Council Food Aid Committee data http://1.bp.blogspot.com/_P44dB_FDmgE/S-

Barrett, Mohapatra, Snyder (1999), The Dynamic Effects of U.S. Food Aid
http://findarticles.com/p/articles/mi_hb5814/is_4_37/ai_n28743520/?tag=content;col1

The Economist, April 17th 2010, Dreaming Beyond the Rubble

The End of Poverty, Jeffrey Sachs (2005)

The White Man’s Burden, William Easterly (2006)

New York Times: Aid Group Says Zimbabwe Misused $7.3 Million
http://www.nytimes.com/2008/11/03/world/africa/03zimbabwe.html?_r=1

War Games, Linda Polman (2010) - extract published in The Sunday Times News Review April 25 th 2010

The Guardian: Suharto, Marcos and Mobutu Head Corruption Table

Foreign Policy in Focus: Zaire/Democratic Republic of the Congo

The Bottom Billion, Paul Collier (2007)

Action Aid (2006), Real Aid 2: Making Technical Assistance Work http://www.actionaid.org.uk/doc_lib/real_aid2.pdf

Centre for Global Development, Commitment to Development Index 2009

Dead Aid, Dambisa Moyo (2009)