(November 19, 2010) A speech given at the University of Waterloo by Probe International’s Executive Director, Patricia Adams, on the failure of foreign aid in Haiti.

Almost one year ago, on January 12, in Port au Prince, the capital city of our impoverished neighbour, Haiti, the earth roared and it shook. With uncompromising fury an earthquake registering magnitude 7 on the Richter scale brought down 250,000 buildings, destroyed roads, sewers, hospitals and prisons. Even the picture perfect Presidential Palace, the National Cathedral, parts of the parliament and the justice ministry were not spared destruction. Many of the city’s poorly constructed structures didn’t stand a chance and came tumbling down, leaving some 300,000 dead, buried and maimed and 1.5 million homeless.

Chaos reigned amid the screams for help. But few sirens squealed in what should have been a rush of first responders. There were none. Cabinet ministers were seen tearing out of the capital on motorcycles, while desperate relatives dug with their bare hands to free buried family members.

Within minutes of the news arriving in North America, an army of aid agencies began mobilizing—placing ads in newspapers and on TV screens calling for donations to rush relief and rescue operations to the poor souls of Haiti who were crushed by this cruel act of God.

Within no time, $1 billion dollars had been raised from ordinary citizens and governments in a display of what must be the finest human quality of all—the readiness to help strangers who are less fortunate and who, through no fault of their own, are subjected to unspeakably cruel events and living conditions.

You will remember the scenes, I am sure: Navy boats from the US and Canada steaming towards Haiti with, water, food, shelter and medicines; airlifts to deliver urgent supplies; and school children running charity fundraisers to help Haitian children orphaned by the disaster.

With lightening speed, 24 governments and international aid institutions such as the World Bank, gathered in Montreal to discuss how to rebuild Haiti. The first order of business was to organize a “Pledging” conference. That took place in New York, two months later when more than 100 countries pledged an extraordinary $10 billion for a modern day Marshall Plan to rebuild Haiti, in the same way that Europe had been rebuilt after the Second World War.

To manage the funds, US Secretary of State, Hillary Clinton, appointed her husband, former US President, Bill, to join Haitian President, René Préval, to manage the funds and help Haiti, to not only recover, but to thrive as it never had before.

This was a grand utopian experiment and the sense of hope that Haiti was on the brink of a new beginning inspired speechwriters and the foreign aid planners alike.

I am here today to tell you that it isn’t working. And it never will.

Ten months after the devastating earthquake hit, little of the $10 billion promised has been handed over by rich governments for fear that Haiti’s corrupt government will, well, steal the money (Transparency International ranks Haiti 146 out of 178 countries in its Corruption Perception Index).

One million people displaced by the earthquake still remain in tent cities—without jobs, without security and without proper sanitation. The surge of rescue and relief that followed the earthquake has waned. A cholera outbreak that has already killed 1000 people and hospitalized more than 12,000 is threatening to become a full-blown epidemic.

I use the term “hospitalized” loosely. The hospitals remain in a shambles and doctors are treating their patients on the streets, so unsanitary have the hospitals become.

Haiti’s chronic destitution has returned, and it is worse than ever. The euphoric hope that a new Haiti would emerge from the rubble of the earthquake—thanks to billions of dollars in foreign aid—has given way to reality.

And the reality is that Haiti is a failed state with failed institutions.  Its government exists only in name, not in substance. Though Haiti occupies a seat at the United Nations, it doesn’t deserve one. It is not a truly independent state.

It is a ward of aid agencies and UN troops which have kept peace there since coups and civil war wracked the county.  History shows that the more aid Haiti has received, the more Haiti has fallen. New foreign aid won’t fix the fundamental problems that plague the country; it will only make those problems worse.

Though Haiti proudly lays claim to being the second oldest republic in the Hemisphere, and the only nation whose slave population defeated a colonial power to become free, Haiti has never been a democracy.

It is diplomatically called a “fragile” and a “post-conflict” state. And while it is both, despite receiving $8.3 billion in foreign aid over four decades—and hundreds of millions specifically for governance and democratization programs—Haiti remains politically dysfunctional and impoverished. Its population is 25% poorer today than in 1945. The fact remains, that the government cannot, or will not, deliver core functions to the majority of its people, especially the poor.

The rubble left by the earthquake is minor compared to the rubble of the nation-state of Haiti.

Under a flawed Constitution, the President uses fraud, intimidation, corruption, patronage and influence peddling to get his way—that is, when he doesn’t ignore the legislature and the constitution altogether. There is no approved national budget and external audits have not been conducted for years. Parliament does not have access to or even approve budgets, and the Government uses sole sourced contracts and unadvertised bidding to award lucrative public contracts.

In the words of a World Bank report, “The hallmarks of patrimonialism—corruption, cronyism, and critically ineffective service delivery—remain embedded in the fabric of [the Haitian] government.”

To the extent that democratic institutions exist in Haiti, the country would be best described as a “predatory democracy” where those in power pillage the state and treat government positions as entrepreneurial opportunities. Corruption and cronyism is rampant. Thirty percent of civil service employees are “phantom,” meaning they collect paycheques without so much as showing up for work.

Haiti’s elections have so little credibility that few participate—in the last election, as few as 5% of voters are believed to have voted.  Apart from the suspect electoral system, when the U.S. dislikes the government that results it intervenes—as it did in 2004 when it ousted President Aristide, the leader it had installed in 1994. Yet the U.S. insists on elections, to provide a leader that gives a patina of legitimacy to its ultimate control over Haitian affairs. The Haitians are bystanders in their own land, extras in an electoral charade.

According to the National Academy of Public Administration in the U.S., problems with Haiti’s judicial system are “serious and legion.” The system relies on outdated legal codes; court buildings have no windows, running water, bathrooms or electricity or legal texts and telephones. Judges receive no training after law school, are not current in Haitian law and are frequently intimidated by gangs, the military, police and politicians. Many thrive on bribes in a corrupt system.  Kidnappings, homicides and reported crimes are down, but lynchings have increased, indicating that dysfunctional courts have caused frustrated citizens to take justice into their own hands.

There is a near total absence of capacity for law and order, allowing continued violent insurgencies and rioting, both of which are perpetrated by paramilitaries and gangs.  Hence 12,000 UN troops have been installed in Haiti since 2004 to keep the peace.

In the absence of domestic institutions, Haiti’s neighbours, especially Canada and the US, fear this dysfunctional island could descend into a narco-state or worse. So they intervene militarily, when necessary, but more often with soft power – billions in foreign aid.  But that foreign aid has been a recipe for more trouble, producing a vast dependency in which the Haitian Government is unconcerned with nation-building, institution-building or post-conflict reconstruction, and uninterested in governance. Haiti has become content to let outsiders dictate its future.

In the end, the 9 million citizens of Haiti abide under an absentee administration, but with no control, input, or responsibility over their own body politic, just the abject, grinding poverty that results.

Haiti is the poorest country in the Western Hemisphere. Life for millions of Haitians has barely improved over the decades. In terms of economic development, Haiti ranks 149th—just ahead of Sudan—out of 182 countries tracked by the U.N.

The average daily salary is 66 cents, unemployment hovers around 90%, and of those that work, 95% do so in the underground economy.

Even before the earthquake, Haiti’s misery was truly staggering: only 10% of people had electricity, 50% had potable water, 9 out of 10 couldn’t read or write, people ate dirt mixed with salt and vegetable shortening, there was virtually no medical care, only 27% of children finished primary school, and one in ten children lived in an orphanage.

It is also the most corrupt country. As I mentioned earlier, fearing that the Haitian government will use the aid money corruptly, donors have contracted out aid delivery to some 10,000 charities or non-governmental organizations, NGOs, as they are called, creating what people call a parallel state.

Because Haiti is believed to have more aid groups per capita than any nation on earth it has been dubbed “the Republic of NGOs.”  Indeed, an estimated 70% of aid that will flow into Haiti this year will go through these charities, ranging from the international giants such as Save the Children, Catholic Relief Services and Médecins Sans Frontièrs (or Doctors Without Borders) to a plethora of evangelical churches that help one school or one Haitian church at a time. Aid groups provide four-fifths of social services and may account for as much as a quarter of Haiti’s gross domestic product.

By building a parallel state that is more powerful than Haiti’s own government, aid groups have ensured that Haiti never develops and remains dependent on charities. “The system as it is guarantees its failure,” says Laura Zenotti, a political scientist at Virginia Tech University who has studied NGOs in Haiti.

NGOs have permanently “infantilized” the country and created a vicious cycle: The government lacks the money, and the interest, to provide social services. Those services, then, are provided by NGOs, which means the government, in turn, has no incentive, and no demands placed on it, to improve.

Even those who want to take back control of their country, and I will describe them in a minute, don’t stand a chance. Foreign aid in Haiti is big business, if you want to call it that. And the multitudinous aid agencies and NGOs act like modern day warlords. After the earthquake they scrambled to control sites to put up field hospitals and medical tents, “putting their logo over your logo,” said one aid worker, and then guarding their turf jealously.  Haitians have lost control over their country, with dreadful consequences.

If there is any hope for Haiti, the country must be returned to its people.

There are many who could make it work, if only “the soldiers of do-goodness,” as the Wall Street Journal calls them, would get out of the way.

One extraordinary proposal, in the works before the earthquake struck, is called the Strategic Plan for National Salvation [PDF]. It is drafted by some 60 Haitians, some living in Haiti, some abroad, including intellectuals, former officials and politicians, and business leaders. Considered the first independent alternative since the end of the Duvalier dictatorship in 1986, this comprehensive plan, which would overhaul the corrupt institutions now in place in favour of the rule of law, is based on the premise that “Haitians do not want to be dependent on humanitarian aid; they want to develop and stand on their own.” “The backbone of the economy cannot be built by charity, however well-meaning,” it says.

As best I can see, this group of Haitians, committed to rebuilding their nation and with a detailed and viable plan, have been completely sidelined by the tsunami of money and aid planners who now have a lock on all the decisions about where, how and when “development” will start.

Others are rightly hoping that Michaëlle Jean, who recently stepped down as Canada’s Governor General, and someone with unique experience being at the center of a very successful constitutional monarchy, might be able to inspire and guide the country of her birth in a national debate to build a functioning nation state out of the physical and governance rubble in Haiti today. (Jean was formally appointed and installed as Special Envoy for Haiti for the United Nations Educational, Scientific and Cultural Organization on November 8, 2010)

There are other models that could help give Haiti the breathing space to carry out the essential nation building that must be done.

For example, there is the UN’s Trusteeship Council, which has successfully guided former colonies to full country status, among them Ghana, Togo, Cameroon and Nigeria (the trusteeship council also produced Somalia and several other spectacular failures). If Haiti were to become a UN Trust Territory with the U.S., most likely, assuming the role of administering state they could work towards self-government. The powers of the U.S. would include full legislative, administrative, and judicial authority and, in certain cases, the right to treat the territory as if it were part of the U.S. But the U.S. would need to account to the Trusteeship Council each year on its progress in helping Haiti to achieve self-government.  Haitians would have recourse, too: They could petition the UN council with grievances.

A third model would see Haiti’s de facto status as a U.S. protectorate formally become a de jure U.S. protectorate, to make the U.S.’s role transparent and to clarify the rights and responsibilities of both the U.S. officials and Haitian citizens. In international law, a protectorate—a subordinate state—retains its overall sovereignty, remains a distinct territory and its citizens do not become nationals of the protector. But unlike trust territories under the United Nations Trusteeship system, protectorates are not being prepared for ultimate independence. Nor are they subject to scrutiny by the UN Trusteeship Council.

A fourth option would see Haiti become a territory of the U.S., much as Haiti’s neighbours in the Caribbean, the U.S. Virgin Islands and Puerto Rico. In this scenario, Haitians would not only import U.S.-style justice, the highest court of the land would ultimately rest in the U.S. Court of Appeals.

Haitians—large numbers of whom already flee the desperation of their country to be illegal immigrants in the U.S.—may well welcome some form of legal association with the U.S.  The U.S., too, might welcome overseeing Haiti in some unambiguous capacity—the cost might be comparable while the chances for Haiti’s development incomparably better.  And where there is now chaos and ambiguity in the rights and responsibilities of all parties in Haiti, at least these various options could introduce clarity and accountability standards.

Which of these or other options are best to pursue? Only the Haitian people can decide, and then only after a free and vigorous debate.

Whatever they choose, it is clear that the status quo, which the Wall Street Journal calls “the toxic circle of dependence and misrule that’s been the bane of countries like Haiti for generations,” must end.

Let Mr. and Mrs. Clinton and the aid agencies continue with their efforts to restore security and basic services. But rather than seizing the reins of power, the donor countries should instead put in place a process for an extended public debate, culminating in a plebiscite among the Haitians. Such a plebiscite, if it came at the end of an open process that truly gave Haitians a say over their future, would garner not 5% of the vote but 75% or 85%. And the decision that flowed from that vote would have some reasonable chance of legitimacy and success.

While Haiti is an extreme example of a dysfunctional country in which foreign aid has destroyed or thwarted the foundation of an independent nation state, foreign aid has had the same insidious effect in other countries, especially those in Africa.

Many African countries, like Haiti, are worse off today than they were 60 years ago when Africa began receiving what has amounted to $1 trillion in foreign aid. Real per capita income across the continent today is lower than it was in the 1970s. More than 50% of Africans (350 million) live on less than $1 a day (a figure that has doubled in 2 decades). In the African nations of Burkina Faso, Rwanda, Somalia, Mali, Chad, Mauritania, and Sierra Leone, from 1970 to 2002, over 70% of total government spending has come from foreign aid. In Ethiopia, it is as high as 90%.

Many of you will be familiar with the Zambian economist, Dambisa Moyo, author of the blockbuster book, Dead Aid: Why Aid in Not Working and How There Is a Better Way for Africa. In her book, Dr. Moyo concludes that “the evidence overwhelmingly demonstrates that aid to Africa has made the poor poorer, and growth slower.”

By relieving African governments—indeed all Third World governments—of the need to go to their people for revenues, foreign aid has freed them from the checks and balances on which democracy and development are based.

And it has taken us six decades to understand why this is so.

For 30 years, my organization has collected the records of more than a thousand aid-financed infrastructure projects like hydro dams, mining schemes, forestry projects, population resettlement programs and so on. And we have discovered that, without public oversight and market discipline, the benefits of these state-to-state financed projects have been systematically exaggerated and their costs underestimated with impunity. Economists say the world of foreign aid is built on moral hazard in which the aid givers and receivers are insulated from the risks they create, and so they take them to their own mutual benefit. The result is that foreign aid projects are uneconomic; they create odious debts and cause environmental harm; they also violate human rights and spawn corruption.

Let me take the example of corruption, because it helps me illustrate how foreign aid rots the development process.

With billions of dollars flowing, but doing so in the absence of public oversight and above the laws of any land, state to state foreign aid has provided the perfect environment for corruption to flourish. And flourish it has. By one estimate, at least $200 billion in loans extended by the World Bank and the regional development banks have ended up in private pockets. Of course, western leaders are fond of blaming the “culture of corruption” on Third World societies. But the now-famed Lesotho corruption trials show this to be a lie. Those trials show that it is foreign aid itself that created the corruption in the first place.

The Lesotho corruption trials produced evidence that a dozen of the world’s leading engineering firms from Canada, France, England, Germany, Italy, Switzerland and Sweden, set up elaborate banking procedures to bribe the CEO of a Lesotho state-owned company to award them contracts on a $12 billion foreign aid dam building scheme. They secretly hired three agents, including a man who was Canada’s Honorary Consul in Lesotho—a Canadian federal cabinet appointee!—to transfer the corporate bribes into the CEO’s Swiss bank account.

Lesotho, a tiny landlocked country in Southern Africa with a per capita income of $660, said enough is enough and first they indicted, tried and convicted the CEO: he got 15 years in jail.  Then, for the first time ever, and arguing that “it takes two to tango,” Lesotho tried the firms that gave the bribes.

Their first case was against the venerable old Canadian engineering firm, Acres International. Acres history stretches back to the early days when power was first generated at Niagara Falls. Then, in an astonishing show of contempt for the rule of law in Lesotho, the Canadian government secretly lobbied the Lesotho authorities to drop the charges against Acres.

The Lesotho government held its ground. Acres was tried, convicted and sentenced. But that still didn’t stop the Canadian government from trying to shelter Acres, one of its biggest foreign aid contract recipients. The Canadian government then lobbied the World Bank not to enforce its anti-corruption rules, which required that Acres, a convicted briber, be barred from receiving World Bank contracts.

After a letter writing campaign organized by my organization, in which hundreds of Canadian citizens condemned the Canadian government for fuelling this corruption of foreign aid, the Bank finally debarred Acres. Without the promise of World Bank contracts, Acres was unable to meet its operating expenses and was soon taken over by another engineering firm.

One of my favourite political cartoons from the National Post shows Prime Minister Jean Chretien lecturing an African leader at the Kananaskis G8 meeting of 2002 saying “Just end corruption and bad management” The African leader listens patiently and then responds, “You first.”

With some $120 billion of foreign aid contracts to be awarded every year to massive state-owned infrastructure projects, foreign aid is probably the single largest cause of Third World corruption against which so many sanctimonious rich country governments now rail. How dare they.

Not only does foreign aid provide the perfect conditions for corruption, it undermines the rights of Third World citizens to stop development projects that violate their property rights, and that destroy their means of subsistence by taking their land, redirecting their rivers, and destroying their ability to provide for their own families and communities.

By giving Third World governments the power to wield big foreign aid budgets, Third World citizens are robbed of their power to establish, maintain and refine their countries’ laws and regulations to exercise oversight and control of government expenditures.

When a government is obliged to go to its people for cash to run government operations, the balance of power shifts to the citizenry who can and will start to ask questions, such as “what are you going to do with the funds,” and, “first, publish your budget so we can see how you intend to spend the money,” and then “we’ll appoint an independent auditor to regularly audit your performance.”

“The breakdown of the tax system,” says Dambisa Moyo, can have serious political ramifications, as “the absence of taxation leads to a breakdown in natural checks and balances between the government and its people.”

Tesfaye Habisso, a former Ethiopian politician agrees. He says that when aid becomes the biggest component of the annual budget of a country’s recurrent expenditure and almost all of its capital expenditure it undermines democracy and accountability to citizens.

“If our governments are not in power due to our taxes, why should we expect them to be accountable to us?” he asks.

You’ve all heard the famous American revolutionary rallying call of “no taxation without representation.” Well, the inverse applies too—there will be no representation without taxation.

Foreign aid has had unintended consequences. Dr. Alemayehu Mariam, an Ethiopian professor of political science at California State University, and an attorney, accuses Western donors of “democricide.” Western aid donors, he says, have aided and abetted some of the most brutal and tyrannical regimes on the African continent by nurturing, coddling, and sustaining them with foreign aid.

It is a paradox that foreign aid, though so well motivated, has actually undermined its original intent.

You won’t hear this assessment from aid agencies, the NGOs, or the army of consultants, whose jobs depend on foreign aid budgets. Though, with their front row seats they know the institution is deeply troubled, they still have a conceit that they can “reform” and “reinvent” the aid relationship, that they have the key to the development process, with enough practice and planners, they will get it right. I know, I used to work for them.

But they don’t understand that development is an organic process that emerges from countless, unpredictable individual decisions made in an environment in which the rule of law and democratic institutions lay out the rights, responsibilities and rules on which human economic activity will take place. They don’t accept that, in such an environment, markets work well to satisfy the needs and values of ordinary citizens, to create real wealth, and to transmit risks and benefits to ensure sound investments that serve long lasting development.

They also don’t understand that citizens need to be in charge of their governments, and not the other way around.

And though you are unlikely to hear it from the vast special interests in the Third World who compete for the irresistible spoils of aid, more and more Third World opinion leaders are saying aid should be replaced by tax revenues and bond issues, both of which demand accountable governance to succeed in raising funds for public services.

So the writing is on the wall. Foreign aid is not working. It is undermining the development process in the most fundamental of ways and needs, not to be reformed, but to be carefully and systematically ratcheted back. It won’t be easy.

But once it starts, we will begin to see the necessary conditions for development rise— the rule of law, sound judicial and electoral systems, transparent government, constitutional democracies, public security, and freedom of speech. And if there is ever another earthquake in Haiti, god-forbid, Haitians and their government will be able to rush to the defence and rescue of their fellow citizens and to tell us if there is any way we can help, or not.

Patricia Adams
Executive Director
Probe International
Institute for Liberal Studies
Economics & Development – University of Waterloo