David Sogge
Le Monde diplomatique
September
Foreign aid is a huge industry. Its annual turnover exceeds sixty billion Euros and its global workforce totals more than half a million. It generates a continual stream of ideas about how non-Western societies should develop. Rich and poor states use it to manage relations with each other. Both givers and receivers, at least in public utterance, applaud foreign aid as a good thing that should continue. Yet something is the matter with foreign aid. Where it dominates, pride and ambition have given way to dependence and deference, poverty and inequality have worsened, and insecurity prevails. The paradoxes can be grotesque. In recent decades the foreign aid industry has presided over societies toppling into criminal disorder and violence. Austerity conditions tied to aid loans after 1989 helped tear apart Yugoslavia. Aid helped polarize Rwanda, nudging it closer to abyss of genocide. Yet it rolls on, untroubled. For the captains of the aid industry are themselves never exposed to the risks their ideas impose on others; indeed as long as aid continues to fail, their jobs will be secure.
A Tale of Two Aid Initiatives
Foreign aid did not begin this way. Indeed its first major initiative, the Marshall Plan for post-war Western Europe, was hugely successful. It operated under recipient-friendly terms. Power over many things, from aid distribution to monitoring, was in European hands. Moreover, the Americans did not insist that Europe weaken protection of its industries, deregulate capital flows, and promptly repay debts. As a result, Europe's economies could grow and diversify. Both giver and receiver agreed that public oversight was a good thing, and indeed the Marshall Plan worked because it was a plan, inspired by Keynesian thinking, to revive and reform European capitalism through public regulation and social investment.
That success, and a few others such as South Korea, have yet to be repeated. On the contrary, foreign aid's recent history has been shadowed by failure. Consider the case of Eastern Europe and the ex-Soviet Union. Around 1989 those places began to get full attention from aid system's commanding heights in Washington DC - the US Treasury, the IMF, the World Bank and USAID. Their mission was not "development", let alone poverty reduction. Rather, according to the US economist Jeffrey Sachs, a chief architect of aid-driven "reforms", the purpose was to conclude the Cold War agenda and finish off the state socialism. The aid system's creed was Market Fundamentalism; its method was 'shock therapy': a coercive and intrusive set of austerity measures for ordinary citizens and generous promotion of so-called entrepreneurs. There was no recipient control, no public accountability, no support to socially valued institutions. Western consulting firms creamed off much of the aid. Some of the rest departed as capital flight. There were a few winners -- gangsters, rich oligarchs and technocrats -- and many losers, mostly wage-earning citizens. In the Balkans, Caucasus, and Central Asian republics there came spasms of bloodletting in civil wars. Today, in almost all countries in Eastern Europe and the former Soviet Union majorities now endure precarious lives.
Some observers hold that aid engineers and their fundamentalist orthodoxies were not to blame for this catastrophe. But for Nobel Prize economist Joseph Stiglitz, a senior policymaker in Washington throughout the 1990s, they were chief agents of change. Their approach was 'like using a flame-thrower to burn off an old coat of house paint, and then lamenting that you couldn't finish the new paint job because the house burned down.'
A Problem Posing as a Solution?
Big, dubious ideas have blanketed the aid system from its beginnings in the 1950s. For example, aid economists and managers have long portrayed social inequality as an inevitable, and probably even necessary condition of growth. Proposals to redistribute land and income could therefore be swept aside as not only unworkable, but stupid. Growth must begin from the top and trickle down from there. From Malawi to Mali, aid policy followed suit; if there was to be re-distribution, it would be upward and outward. Today, however, this old paradigm has been exposed as bogus. Indeed, research suggests that inequality is an obstacle to growth, and to the reduction of poverty . Broadly shared prosperity and public action against poverty therefore have both pragmatic and ethical arguments on their side.
Reducing poverty became the aid industry's formal raison d'íªtre only in the late 1990s. Is it up to the job? After fifty years of serving other purposes with noticeable effect, namely anti-communism and the opening tropical markets for Western goods and investors, there are reasons to query its qualifications. It is true that, when combined with other measures, aid has sometimes had emancipatory effects: vaccination programmes combined with reinforced public health systems, as in south Asia and parts of Africa; breaking the power of landlords combined with inward investment and education for all, as in Taiwan. Aid from Scandinavia, and later from the EU, helped an anti-apartheid movement triumph in South Africa. As a catalyst of reconstruction or stimulus to fresh ideas it can help foster growth with equity. But when guided by what might be termed Market Leninism - coercive imposition of a polarizing experiment under a fog of Orwellian propaganda - foreign aid becomes a problem posing as a solution.
Contexts and Contradictions
Aid has roots in colonialism. The British justified their rule in Africa according to a Dual Mandate. They assigned themselves two tasks: political trusteeship, to protect, guide and discipline subject peoples; and economic development, to draw surpluses from countries subordinated in a world division of labour. Something like that dual mandate has guided foreign aid up to today. The result is towering paradoxes: external control of economic policy in the name of "local ownership", outwardly-oriented economies in the name of internal development; active encouragement to go into debt in the name of self-sustaining growth; dependence in the name of self-reliance: loss of sovereignty in the name of national self-determination.
The aid industry itself is a place of paradoxes and illusions. Transfers from rich to poor are in fact far smaller than official data would suggest. Most aid money is spent in, or flows back to, donor/lender countries. Terms attached to many "soft" loans are in fact harder than those of commercial banks. At no risk to themselves, aid lenders have made healthy profits from cash-strapped countries like Turkey, Peru, Romania and Argentina. Moreover, aid is dwarfed by flows in the other direction: debt repayment, capital flight, legal and illicit transfers of profits and fees, and the drain of educated people to the West and its institutions. In 2001, the aid system allocated US$ 29 billion in grants for developing countries; in the same year, the net flow of debt furnished creditors with US $ 138 billion from developing countries . Defectors from the mainstream such as Stiglitz and financier-philanthropist George Soros today acknowledge that it is the poor who aid the rich. What the rich take from poorer regions far surpasses what they give. This contributes to levels of consumption in the United States -- the stingiest provider of aid - that are far higher than its domestic production would otherwise permit. The aid industry distracts attention from such sobering realities.
Power and Incoherence
Today's aid system is a quasi-monopoly that admits no competitors. Despite ritual hand-wringing about lack of donor coordination, most agencies march in step to the beat of Washington DC's drums. The parade masters, the IMF and World Bank, answer formally to Western ministries of finance, chiefly to the US Treasury, backed by Wall Street. In the 1970s a caucus of Scandinavian, Canadian and Dutch aid ministries argued that aid should go mainly to states showing respect for human rights, especially social and economic rights. But these dissenters were soon quashed. By the late 1980s all national and United Nations aid agencies had fallen into the mainstream, whose motto was that the laws of economics are like the laws of engineering, and that there is no alternative to the Washington Consensus. Dissent within the industry was, and still is punished - as demonstrated by Stiglitz's exit from the World Bank at the behest of the U.S. Treasury.
Mercantile and geo-political interests have never been far from the surface of humanitarian and development discourse in which aid is packaged. But the mix of motives is also complex at receiving ends, where elites have learned how to join the parade. Most will jump, shrewdly and never unconditionally, onto whatever aid policy bandwagon is passing at the moment: "balanced growth", basic needs, "getting prices right", good governance, anti-poverty … As the band plays these different tunes, African leaders from Mobutu to Moi have shown particular sure-footed in their ritual dances with donors. They make sure that the donors' latest nostrum appear in national policy papers and public utterances. They agree to, but then often fail to carry out, hundreds of policy conditions secure in the knowledge that threats to cut off aid are about as credible as threats in geo-politics to use an atomic bomb.
But "passive resistance" to aid system diktats does not explain failure. Aid is commonly a side show, and a distraction from more important forces. Proxy wars against left-nationalist regimes or opium and coca growers have laid waste to places that aid was at the same time supposed to be helping. The dumping of Western grain, meat, textiles and used clothing has eroded if not destroyed producer incentives, thus voiding aid efforts to promote such production. Low-income countries are supposed to gain 'human capital' via scholarship programs funded by Western aid; yet the same Western governments actively help recruit health workers, engineers, and computer technicians away from such countries. And the mother of all incoherencies stems from the aid system's complicity in imposing market fundamentalism - a school of economics that has been likened to voodoo and astrology. In Latin America, Africa and the ex-Soviet Union its effects include slow growth, impoverished public goods and services, social exclusion and political instability - conditions that leave most aid projects shipwrecked.
Democratic Deficits
Aid-speak is saturated with terms like 'citizen participation' and 'local ownership of policies'. Yet most aid thinking, planning and managing continue to be the prerogatives of outsiders. And even where foreign agencies are not calling the shots, their western-educated counterparts - the "Chicago Boys" in Latin America, the "Berkeley Mafia" in Indonesia - will enthusiastically promote the same policies, working from strategic positions inside finance ministries and central banks.
For much of the past two decades, aid systems have not only helped shatter sovereignty, but also helped shrink and de-legitimize the state and its services. This is evident in the ways aid is commonly managed. Donors prefer to channel aid through chains of consulting firms, nonprofits, and special project units. These usually by-pass national governments (though recruiting some of the best staff away from public service) and avoid public oversight. National authorities account upward to donors/lenders rather than downward to citizens. In the end this hollows out both the state and politics.
Depoliticised and disempowered, the public in many aid-affected countries has seen basic services -- schooling, health care, policing -- deteriorate. The non-transparent transfer of public assets to domestic and foreign interests has created new monied strata and fuelled public cynicism. From Chad to Bolivia, such measures have driven wedges between citizens and government. Tax effort collapses and public order has become fragile. Liberia and Somalia were once big aid recipients; they are now states of disorder.
However, by the mid-1990s, faced with risks of collapse, non-compliance with aid conditions and non-repayment of debt, aid industry policy toward the state took a u-turn. Aid began to be conditioned on "good governance" -- to repair crumbling state institutions, stem corruption, increase tax effort, make public revenue management more transparent and allow critical voices to be heard in the press and in civil society. Such reforms are valid and needed. Yet many see the aid system's new-found concern for "democratization" as a gimmick to continue the pursuit of unpopular austerity measures. And what will motivate those charged with promoting 'good governance'? Aid's legacy includes privileged technocrats, political classes and institutions like finance ministries schooled in beliefs that greed is good and that politics is, as an ironist once remarked, the art of preventing people from taking part in affairs which properly concern them. Democratic deficits may no longer be shrugged off as unfortunate side effects of aid practice, but they remain deep and wide.
Yet pressures for change are mounting. Some policy activist NGOs, academics, and research units under United Nations auspices have refused to be over-awed by claims intellectual invincibility, and the massive power of institutions like the World Bank to bankroll and disseminate its ideas. Indeed insurgent outsiders who've done their homework have exposed World Bank and IMF claims to know 'good policy' and 'good practice' as largely humbug. In aid-targeted countries like India and Brazil, public protest about aid projects that destroy eco-systems or loans that bleed public treasuries have since the late 1990s led to a few modest reforms, such as internal inspection panels and prior study of aid impacts on the poor. Pressure on international bodies is anything but radical or punitive; they are merely being asked to behave as any national public authority would be expected to behave in a democracy.
Prospects
Will regulatory reforms democratise the aid encounter, making it accountable and responsive to the public? Some hold that today's aid system is beyond repair and should be scrapped, with the exception of aid for emergency relief of suffering. Yet there may be other ways forward, drawing on principles of public action. Aid could be replaced by a much larger, regular system of statutory bloc entitlements, paid out to reduce polarized growth and improve social cohesion. Such "equalization" or "solidarity" transfers are routine among countries of the European Union and between richer and poorer regions in countries like Canada and Spain. Responsive to recipients rather than funding authorities, they have helped build national and international public goods and have helped reduce pockets of poverty. The EU's neighbors in Eastern Europe are already negotiating something like bloc funding. Such systems work better where the political space is wide enough for citizens and media to follow the money and results, and call the authorities to account if things go wrong. Public action aid can reinforce that public space. If, as we should, set out to dismantle and replace today's long, wasteful and undemocratic chains of aid, we might begin by looking at models of public redistribution already at work.
