TCS Daily

'For God's Sake, Please Just Stop Aid'

By Hans H.J. Labohm - March 6, 2006 12:00 AM

The United Nations Millennium Development Goals (MDGs), adopted at a summit in 2000, are extremely ambitious, especially for least developed countries. They include halving the proportion of people living in extreme poverty (i.e., on less than a dollar a day) between 1990 and 2015; achieving universal primary education by 2015; and reducing the under-five mortality rate by two-thirds.

At the request of the UN, Columbia University professor Jeffrey Sachs, backed by contributions from more than 250 experts, delivered a follow-up report in 2005: "Investing in Development: A Practical Plan to Achieve the Millennium Development Goals", encompassing 8 goals and 10 recommendations.

Designing these mega-programs is a special art. They have to offer sufficient appeal in order to rally broad-based political support and to mobilize the necessary funds. In that respect the UN (and Sachs) seem to have been very successful so far, because the Millennium initiative has undoubtedly played a major role in triggering increased commitments of aid by major donor countries.

At the G8 Summit in Gleneagles (July 2005) world leaders pledged or reconfirmed a substantial increase in their ODA (Official Development Aid). The EU has promised to reach 0.7 percent ODA/GNI by 2015 with a new interim collective target of 0.56 percent ODA/GNI by 2010. The EU will nearly double its effort between 2004 and 2010 from €34.5 billion to €67 billion. At least 50 percent of this increase should go to sub-Saharan Africa. Also the US, Canada, Japan and Russia committed themselves to increases in their aid volume, though not to the same extent.

However, cynics might argue that 0.7 ODA/GNI target has already been with us for a very long time. It was adopted by the UN General Assembly as early as 1970. But most donor countries have never even come close to it. Why should it be different this time?

My guess is that the cynics will be right. Keep in mind that in a couple of years, many of the governments which have made these commitments, will not be in power any more. Their successors will be facing different challenges, which may force them to adjust public spending priorities accordingly. In many donor countries public finance is out of control, with persistent budget deficits and rising public debt. Although they might profess to be still in favor of honoring the commitments of their predecessors, their quandary will be like that of Saint Augustine: "Give me 0.7 percent, oh Lord, but not yet!"

However, more important than the likely shortfalls in disbursements are the flaws of the Millennium program itself. It clearly fits within the prevailing development orthodoxy, which features a top-down, government-centered approach, requiring huge and intrusive national and international bureaucracies. Many question such an approach. William Easterly, author of The Elusive Quest for Growth and a leading authority on development, is skeptical. He believes that the proliferation of goals and recommendations in the report is over-ambitious. He chides the mindset of the aid community, which is awash in plans, strategies, and frameworks to meet the very real needs of the world's poor. These exercises make sense only in a central planning mentality in which the answer to the tragedies of poverty is a large bureaucratic apparatus to dictate quantities of different development goods and services by administrative fiat. Top-down planning didn't make the Soviet bloc rich, and it isn't going to make poor countries rich.

Easterly's views are in line with those of the late Peter Bauer, who already in the 1970s warned that "aid" is typically not a transfer to the needy but to governments. Thus, the predominant effect of "foreign aid" has always been to enlarge the size and scope of the state, which always ends up impairing prosperity and diminishing liberty. Worse yet, it leads to the centralization of governmental power, since the transfers are always to the recipient country's government. According to Bauer foreign aid inevitably diverts resources from the activity of production to the activity of "rent seeking" or attempts to acquire governmental funds. It creates a giant patronage machine with all the attendant corruption that such things have always entailed. Such corruption often leads to armed conflict over the control of the patronage in many Third World countries. And, as more and more resources are devoted to rent-seeking instead of production and entrepreneurship, the recipient countries become poorer and poorer. If anything, it is foreign aid that causes a "vicious circle of poverty."

Like all forms of welfare, foreign aid also enforces an attitude among aid recipients that circumstances are beyond their own control, and therefore they must depend on begging from foreigners rather than on entrepreneurship. In doing so, foreign aid creates a giant moral hazard.

In the same vein the Kenyan economist James Shikwati, who is an avid proponent of globalization, complains about the perverse effects of aid. In an interview with the German weekly Der Spiegel he declares that aid to Africa does more harm than good. Asked about his opinion on the increased aid commitments at Gleneagles, his reaction was:

For God's sake, please just stop aid. ... With the aid money huge bureaucracies are being financed. In the meantime it promotes corruption and complacency. Africans are taught to be beggars and not to be independent. In addition, development aid depresses local markets everywhere and dampens the spirit of entrepreneur-ship that we so desperately need. As absurd as it may sound, development aid is one of the reasons for Africa's problems. If the West were to cancel these payments, ordinary Africans wouldn't even notice. Only the politicians and bureaucrats would be hard hit. Which is why they maintain that the world would stop turning without this development aid. ... Africa must take the first steps into modernity on its own. There must be a change in mentality. We have to stop perceiving ourselves as beggars. These days, Africans only perceive themselves as victims. ... In order to change the current situation, it would be helpful if the aid organizations were to pull out. Currently, Africa is like a child that immediately cries for its babysitter when something goes wrong. Africa should stand on its own feet.

What do we make of all this?

The notion of self-reliance, which occupied such a prominent place in development thinking in the '70s, has subsequently faded into the background. That is regrettable. Because it should not be forgotten that the ultimate ratio of development aid is that it creates the conditions for its own superfluous-ness. Although it will undoubtedly be anathema to the multitude of vested interests in the field, the setting of some deadline for the phasing out of aid might help concentrate minds on the steps required to achieve that end.

The author is a TCS contributing writer.


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