Foreign Aid

International aid: Help or handout?

Guardian Editorial
May 30, 2009

If international aid worked then Africa, South America and Asia would be rich and Bob Geldof could retire. When a Zambian-born economist like Dambisa Moyo, in a much-debated new book, says aid is part of the problem, and gets a round of applause from many Africans, it is time to listen, although not to agree. Ms Moyo does not dispute the south’s need of the north’s cash for economic development, but she wants it to come in the form of commercial loans for wealth-creating investment. That way, she believes, its use will be effectively policed by the lender. The transparency and accountability that she rightly accuses aid of lacking would – she claims – be delivered by the market. So really her point is about how to transfer resources most effectively. And that is the question that everyone involved in development – including the Guardian, through its engagement in the Katine project with Amref and Barclays – would dearly like to be able to answer.

Outside expert circles, the aid debate tends to appear only in headline terms. So India and Bangladesh, for example, are held to have experienced a homemade revolution in agricultural and economic productivity through improved crops, technological innovation and the use of microfinance loans that allow people with little or no capital to borrow small amounts for commercial purposes. There is some truth in both assertions but, like Dr Moyo’s analysis, neither is the whole truth. The New Delhi-based economist Jayati Ghosh reckons there was actually a net transfer of resources from south to north during the boom years at the start of this century. The developed world fuelled its growth by hoovering up natural resources from the south, while at the same time attracting the south’s savings. Four-fifths of Indians still live in extreme poverty. Meanwhile the returns on the use of fertiliser and GM crops are tending to decline as soil becomes exhausted and unintended consequences ensue. Nor is microfinance a panacea. It has produced some great success stories, but it ends poverty only at a glacial pace, while overambitious commercial microfinance in some regions has left people in irrecoverable debt. Growth does not travel along a smooth trajectory, and what works in one place does not necessarily succeed in another.

Dr Moyo argues that aid has become just another resource and says that turning it off would force governments to listen both to the global market and to the needs of their people. It could hardly be any worse, she claims. But commercial funding is unlikely to go to countries where contracts cannot be enforced. Freeing global trade, the other arm of the Moyo approach, remains a distant ambition. The immediate trade barriers in sub-Saharan Africa, for example, are not global but between individual countries.

The purpose of development is to create the circumstances in which individuals can prosper. The debate is about how to get there. The claim that aid acts as a barrier nags at many of those who work in the field. It lies behind the growing recognition that people need to do development for themselves. That is partly what the Katine project is about: enabling the people of the community to get the education and healthcare and build the livelihoods they need. But there are other approaches. The Department for International Development supports governments’ budgets as a way of improving governance itself. The former World Bank economist Paul Collier believes his Natural Resource Charter will help countries maximise the benefit of their mineral and oil reserves. The danger of Dr Moyo’s charge is not that it is not a valuable and provocative contribution to the debate but that it will make it easier for hard-pressed governments to renege on earlier commitments. She is right that aid does not always work. But looking around the global economy, the free market has weaknesses too.

Read the original editorial at [PDFver here]

Categories: Foreign Aid

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