Development aid: Getting it right

When is too much not enough? When it is development aid, of course. Here is why. Foreign aid, in the doldrums for years after the Cold War ended, is back with a splash. We need more aid, everyone is saying, to fight poverty and disease, and in particular to help us meet the Millennium Development Goals whose 2015 deadline looms.

“Killer app” solutions, like Tobin taxes on capital, are being floated about with abandon, all in the name of aid. Forums, commissions, declarations, book launches, field trips to Africa, tsunami relief: it is all quite heady stuff, as leading politicians, lead singers and lead actors band together, or outgun each other, to show how they champion the cause of the world’s poor. Twenty years ago, Dubliner Sir Bob Geldof launched Live Aid to raise money for famine relief. Today, the emphasis is on Big Aid. One could almost say, with all this attention, aid has never had it so good.

But it could be so much better. To explain, let’s look first at how aid can be too much. In the main, proponents of aid ask for hugely enhanced aid flows. UN Secretary-General Kofi Annan has echoed and endorsed the longstanding proposal that each OECD country spend 0.7% of gross national income (GNI) on foreign aid. Many have gone on to suggest that the bulk of it be spent in Africa.

There are real reasons to worry about all this. Indeed, there are several skeptics who argue that such targets, while well-meaning to be sure, are overambitious. These are not indifferent, morally defective folks who wine and dine while Africans starve. Rather, they include distinguished developmental economists familiar with the history of aid and even some Africanists with experience of the continent. Their main worry is that the absorptive capacity in many (but by no means all) of the countries, where the substantially increased aid funds will be spent, is limited. Yes, we can certainly increase aid flows, as the Blair Commission and some others persuasively argue, but should aid be raised for every country by the same amount and at the same speed?

Surely, greatly expanded aid will often result in waste. When one reads about enormous shortages of doctors and nurses in nearly all countries of Africa, and also recognises that training local professionals often adds to the “brain drain”, one must ask how realistic are the projections of substantially augmented aid flows when one cannot be sure of effective distribution and necessary follow-through and monitoring.

Take malaria nets, which are supposed to be quite cheap and easy to get hold of, assuming the funds are there to obtain and distribute them, of course. Yet, remember: most nets also require beds, which are not easy to come by. As Prime Minister Indira Gandhi famously said, when asked to raise India by its own bootstraps, Indians often cannot afford boots!

But the worst is not that aid might be wasted. It may even lead to harm. For those who believe (as my colleague Jeffrey Sachs appears to believe) in the so-called “oil curse”–i.e. that sudden increases in wealth wind up hurting a country through profligacy and corruption–it seems probable that corruption will overwhelm the aid recipients as bureaucrats and politicians in these countries become awash in funds.

It is often suggested that plurilateral monitoring within Africa, to which nearly 25 countries have agreed as part of the African Peer Review Mechanism under NEPAD (New Partnership for African Development), and to which the OECD is contributing its expertise, will mitigate such outcomes. But surely that is a trifle too optimistic when, for instance, one sees the understandable inability of President Mbeki to condemn President Mugabe and the predictable difficulty that Nigeria faces in rooting out long-festering corruption. A danger is that the support for even modest aid could disappear as much larger sums are squandered, undermining the credibility of foreign aid as a policy. Big aid targets then become the next big mistake.

If only we could think of assistance to developing countries differently, and indeed more appropriately, as aid funds spent not just in Africa but for Africa, big targets such as aid at 0.7% of national

income from the rich OECD countries could be seen as not ambitious enough. For, while there are limits to what we can spend directly in Africa for Africa, the ability to spend money productively here in our own backyards, on Africa’s behalf, is far greater.

So, while the foes of enhanced developmental spending at 0.7% of gross national income are right if we focus only on what we can spend in Africa, the Big Aid advocates are wrong at the same time; because, if they expanded their notion of foreign aid to include a variety of productive spending that can assist African development, they would see the 0.7% target is an unambitious cop-out. Bigger targets would become possible.

Targets and morals

In practice, aid flows have reflected two principles: that aid must be a moral obligation that takes the form of a commitment commensurate with a donor’s resources; and that, in turn, the resulting flows must be used efficiently. When the aid is to be used simply to provide consumption, as in a famine or flood, the requirement of efficient use is easier to fulfil than when investments are to be undertaken, though in some countries even the ability to distribute food and medical supplies has been hobbled by lack of local infrastructure and reasonable governance.

Because aid has been thought of as a moral obligation, the aid community has always gravitated towards targets for donors. The original 1% of GNP was promoted by Sir Arthur Lewis–later a nobel laureate in economics and adviser to Hugh Gaitskell–who wanted a target for the Labour Party platform. Many over the years have called for much larger aid flows to address world poverty. Among them was Andrei Sakharov who proposed a “tax on the developed countries equal to 20% of the national income”! In practice, however, even the 1% target was quickly reduced to 0.7% for official aid and 0.3% for private capital flows–providing comfort to the donors but violating common sense because aid, which should be an unrequited flow of assistance, should not be confused with a commercial transaction with mutual gains, such as private capital flows.

But the targets have always posed this problem: how are they to be translated into political obligation? Of course, if the resulting aid flows are wasted or squandered, it will be impossible to sell them politically. The problem has always been; even if absorptive capacity is assured, would rich nations be able to get politicians to accept the aid commitment?

When the earliest aid proponents, such as the Swedish economist and intellectual Gunnar Myrdal and the pioneering development economist Paul Rosenstein-Rodan, proposed in the 1950s that aid be given out of altruistic motives, this was considered to be a pie in the sky. Ever since, the practical aid proponents have always sold aid as being in the enlightened self-interest of the donors. The Cold War helped for many years: if we did not help, the Soviets would take over. But then this argument was played out and the aid proponents turned to other, less compelling arguments. The Brandt Commission argued aid spending would promote employment, ignoring the fact that there was no Keynesian unemployment at the time, and the obvious retort that domestic spending would do this even better and at lower cost; no wonder they were ignored. Then, in the US, the case was made that if we did not help Mexico, the “peso refugees” would stream in, though the argument ignored the fact that a slight improvement in Mexican prosperity would only finance more bids to cross the Rio Grande, where the lifetime improvement for a poor Mexican worker is estimated at a quarter million US dollars! Today, the war against terror has been invoked, in face of repeated evidence that the terrorists are not afflicted by poverty and illiteracy but come typically from the educated middle class.

This ceaseless attempt to convert altruism into self-interest is illustrated beautifully by the story where a rich man and a poor man are praying side by side in church. The rich man says: “Dear Lord, I pray that you give me a million dollars since my loan is coming due”. The poor man takes his turn and says: “Dear Lord, please give me a dollar so I can buy some bread or I will starve”. So, the rich man pulls out of his wallet a hundred-dollar note, shoves it into the pauper’s hand, and says: “Take the hundred dollars and buy as much bread as you need. But get out of here as I need the Lord’s undivided attention”!

Communications and empathy

Dramatic change is needed. Moral obligation is easy for cosmopolitan elites to assert. But it will simply not work if there is no strong empathy that bonds nations or communities across borders.

Adam Smith, writing over two centuries ago, put the matter beautifully when he wrote how “a man of humanity in Europe” would react to disaster in China: “If he was to lose his little finger tomorrow, he would not sleep tonight; but provided he never saw them, he would snore with the most profound security over the ruin of a hundred million of his brethren [abroad].”

But today, thanks to Internet and the revolution in communications, we can no longer snore our way through pestilence. The aid proponents sense there is spring in the air. We are now poised politically to leap forward into Big Aid.

Yet, unless the anxiety over absorptive capacity is resolved, this changed sentiment will end in frustration. And it is that conventional focus of aid–what is spent in the recipient countries–which must be abandoned. The phrase “foreign aid” encourages this notion; it is time to revert to the older phrase: “development assistance”, with aid to be spent for, as well as in, recipient countries.

Consider, for instance, the development of vaccines and cures for yellow fever, malaria and other diseases. Just as the British established the Institute for Tropical Medicine, the same approach could absorb far more substantial public monies today to win the war on disease in Africa.

One could compensate cotton producers who are opposing the removal of US subsidies that undermine the cotton exports of the four cotton-exporting African nations. Innovative research for African crops could be financed on an ample scale, with the same results that Norman Borlaug achieved through the invention of the new seeds that led to the Green Revolution in developing countries. A Gray Peace Corps could be

established that systematically, and with careful logistics and planning, deploys the senior citizens in our ageing society to spend periods in Africa to alleviate the enormous shortages of African skills that are crippling development. The possibilities are limitless. So, too, or so, then, are the possible expenditures by the rich countries for development assistance.

The certain consequence of this re-think on development assistance would be that a target of 0.7% of gross national income, which the “Big Aid” proponents seem to embrace, is not ambitious enough. With empathy for development now strong, and with our ability to devise and implement programmes at home that would assist the poor nations, we should aim higher. Let us return to the original 1% target, for a start.

Professor Bhagwati is also the author of In Defense of Globalization (Oxford, 2004), and has written extensively on foreign aid. He is a member of the UN secretary general’s Advisory Committee on NEPAD/Africa.

See also “A Chance to Lift the ‘Aid Curse’” by the same author, the Wall Street Journal, 22 March 2005, New York.


Bhagwati, Jagdish (2002), “Wanted: Jubilee 2010”, OECD Observer No 231/232, May 2002. Please click here

©OECD Observer No 249, May 2005

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