Does foreign aid work?

Gilbert Rist (2007) quotes Leclerc, who claims: It is through the European that Civilization arrives... precisely because of their superiority, the civilized peoples are responsible for an evolving world. (Leclerc, G. in Rist: 1997). If this quote is anything to go by, foreign aid should then be an obligation for all of the western nations. The rest, who predominantly reside in the South and East on the world map, would rightly feel that it is their right to demand lessons of civilization. Only if it where that simple, whereby the well-off nations assist the not so well-off through a path that will eventually lead to a destination where foreign assistance is no longer required and self help and independence happily take over the reign. However, after delving into the available research regarding foreign aid my previous thoughts of an almost rosy and selfless act of charity had instead altered full circle whereby it was almost hard to believe the realities of foreign aid. This was down to the underlying layers that are at work in the foreign aid machine. This essay will attempt to argue that foreign aid does not necessarily work in all of its aspects. This is down to a number of reasons that will hopefully be discussed in detail. In addition, the paper will hope to dismiss the notion that foreign aid has been a complete failure and therefore highlight where it has achieved some things. The paper will first tackle the issue of corruption within aid recipient governments and how this form of theft has subsequently meant an increase in aid to poor nations. This part of the essay will highlight the intertwinement of civil wars and foreign aid and how foreign aid leads to a higher chance of civil wars.

The second part of this paper will attempt to highlight the covert interests of western nations when providing aid to poorer nations. There are growing suspicions on the realities of western interference ever since the past decade with the emergence of an anti war sentiment due the ongoing invasions of less developed regions with high natural recourses rates. This part of the essay will touch on the issue of indirect governance and how western donor countries have a pick and mix policy on who to assist. The third part of the essay will cover how foreign aid is dominated by materialistic quick needs help disregarding the deeper issues that have a bigger say on the future outcomes of these poor nations. This intertwines with the much talked about issue of the lack of investment within non developed countries by donor countries. Therefore it does not give much chance for non developed countries to stretch their potentially strong economic muscles. This will lead to the China investment scheme in different parts of Africa and how much it has achieved in its short stint in Africa in comparison to the Wests achievements. Finally the essay will highlight the importance of accountability when dealing with foreign aid and how people of high authority that influence foreign aid programmes must be kept to their promises. First of all, a brief definition of foreign aid needs to bet set down in order to get a clearer picture of the whole debate. There are mainly two views on what aid is. The first being an act of charity, whereby a rich donor country gives money out the pure goodness of their hearts. Others such as Paul Miller seem to think that rich countries give money to other countries to be popular and therefore cross the line of national bribery (2011). According to Dambisa Mayo the sum of $300 billion dollars is a well recognised sum when bringing up the topic of aid to Africa. That is because that sum in development aid has been received by African countries since the 1970s (2009). Yet the more shocking statistic is yet to follow. Between the year 1970 and 1998, when aid assistance to Africa was at its peak, the poverty rate rose from a mere eleven percent to a staggering sixty six percent (Mayo: 2009). If this statistic is anything to go by then it is simple to conclude that foreign 2

aid has been a failure. Furthermore, if anything, foreign aid has been a hindrance to Africas development rather than its expected outcome of development and prosperity. Dambisa Mayo sheds some light on the reality of corruption within these African states. She believes that the provision of loans and grants on relatively easy terms encourages corruption. Therefore, by not issuing hard guidelines on how the aid is spent, governments do not feel obliged to responsibly use the aid for the good of their country. Mayo continues by highlighting the correlation between civil wars and aid by implying that because of the direct payments to governments it makes control over government worth fighting for (Mayo: 2009). It has clear linkages to the fact that there is a lot civil unrest in Africa because the real source of cash is being in charge of the state. If someone captures the state they then have access to the capital that comes with it. So in other words it is no surprise that in Africa, for the past year, it has had four coups including Guinea, Guinea-Bissau, Mauritania and Madagascar. Or the fact that in the 1990s, Africa had more civil wars then the rest of the world put together. So what Mayo is basically saying is that coups have a large financial incentive to be carried out. An example of this occurred recently in the heavily aid dependent Mali where it receives more than $500 million in foreign aid (Bureau of African Affairs: 2012). Donors include the international monetary Fund, World Bank, African Development Bank and the European Union. Although various donor countries have since suspended aid to Mali, the reasons for such civil wars and coups are down to the easy financial gains it encompasses. With much of the money passing directly through governments coffers it is difficult to argue with some exposition of foreign aid when they warm to the notion of permanently ending foreign aid. Thomas DiLorenzo explains the perils of foreign aid in his work when he bluntly says, diverting recourses away from production and capital accumulation towards obtaining a seat on the foreign aid gravy train (2012). Furthermore, he considers that as a result of foreign aid being government controlled, it increases the scope of the government beneficiary, thus enabling it to repress its own people.

That is not to say that aid has not brought about any positive upward trends such as electrification. The production of electricity increased by fifty percent from the year 1973 to 1990. However an area where effort is less visible and therefore more difficult to measure such as corruption does not have a flattering image. Therefore donors are less accountable for issues such as corruption than they are for issues that are more visible or easily measured such as education. According to the World Banks data regarding corruption in the African region it confirms an increase in the corruption rate between the years 1996 and 2004. Therefore a deeper debate on the ethical motives of aid is necessary. For instance is it ethical to continue providing aid whilst blindingly ignoring the negative impacts that come with it as long as it is not highly visible to the naked eye. According to one of the leading international organisations that has the fight against corruption at the forefront of its agenda, Transparency International, it argues that not only has corruption in the developing world increased significantly in the last decade or so, but it has also weaken(d) and distort(ed) many development initiatives (Martinussen and Pederson: 2003). In addition to the damaging effects corruption has on development, Martinussen and Pederson highlight the contributions corruption has in creating local aid elites (2003), whose method of financial income relies solely on foreign aid. The problem of corruption intertwines with the issue of proxy governance. Foreign aid had earlier in the cold war era been implemented as a means of proxy control. Whereby foreign aid was previously utilised as a cold war tool, as a means to gain ones support, it has now shifted into a more covert tool of proxy control. According to the statistics the Organisation for Economic Co-operation and Development and the Council for Mutual Economic Assistance, the former belonging to the United States and the latter to the Soviet Union, never provided aid to their ideological opposed countries. There is scarcely any overlap between recipients of aid from capitalist and communist countries (Moseley: 1987). Whereas now the distribution of aid is more evenly paid out as a result of the subsequent collapse of the Soviet Union, it can still be argued that the distribution of aid is yet to 4

divert from political or ideological preferences. An example of this trend is seen in the Scandinavian regions choices when it comes to prioritising foreign aid. For instance Sweden has chosen to provide aid to countries that hold similar socialist ideals to theirs as opposed to nations that hold an opposing ideology such as Cuba which wraps itself in a cloak of communism (Sweden Development Cooperation: 2008). Hence the idea of aid being distributed evenly without discriminating the nations based on their ideologies is not plausible. Therefore favouritism props up certain question marks on the moral and ethical intentions of those donor countries. Do developed countries favour a particular government instead of a government which holds an opposing ideological stance to theirs? Would a recipient country require a favoured government of the West in order to be helped? Does a developing country have to abide to foreign pressures in order to be assisted? Are developed governments more comfortable in providing aid to recipient governments that are willing to fetch a bone when told to do so? All of the above questions raise moral and ethical questions and how aid can sometimes be viewed as a continuation of the cold war tactics and therefore not acting in the best interest of developing countries and not acting on their promises of a morally correct intention to end poverty. Accordingly this raises doubts on whether foreign aid works. Some commentators such as Mayo have gone to the extent of declaring foreign aid as prolonging poverty and paralysing Africas potential economy and therefore becoming a deterrent as opposed to a cure to poverty. Her argument is based on the assumption that aid is sent directly to the coffers of the heads of state. Which leads to the presumption that because most of these heads of states have risen from army coups they instantly find themselves receiving vast amounts of foreign aid money and eventually becomes difficult to leave their position of power and thus a dictator is born. The problem that stifles Africa - corruption stems from the money thrown at African governments and minimal work being done on the ground. According to a Wikileak revelation, the Kenyan

ambassador to Beijing, Julius Ole Sunkuli, finds the Western insistence on capacity building, which in his eyes, translated into conferences and paperwork and reports frustrating (Olander: 2010).In a US embassy cable titled African embassies suspicious of US, China development cooperation in Africa published in the Guardian, Sunkali claimed to have said that, Africa was better off thanks to Chinas practical, bilateral approach to development assistance... Africans were frustrated by Western insistence on capacity building. They instead preferred Chinas focus on infrastructure and tangible projects (2010). The Kenyan ambassadors statement introduces a new element into the traditional equation of western provided aid. The emergence of China as a major donor to Africa has seen a major overhaul of how Aid in Africa is distributed. According to Moyo, China has begun an intensive investment scheme across the continent. As a result of Chinas phenomenal growth as a super power in the past decade, which has grown as much as ten percent a year over the last decade it urgently needs the recourses that Africa has the potential to provide. The evidence is overwhelming, within the last five years China has invested in billion dollar projects which include roads in Ethiopia, pipelines in Sudan, railways in Nigeria and power in Ghana (Moyo: 2009). Therefore the investments that Africa has been urging from the West have fallen on deaf ears but have instead been heard by an even bigger economic power that is China. There have been calls by many economists including Mayo that for African nations to prosper investment within the continent is required. There are of course some explanations for Africas poor Foreign Direct Investment (FDI). Despite Africas enormous profitable opportunities, the relatively high degree of uncertainly and instability in the region has played a part in foreign investors reluctance to invest in the continent. Africa figures high on the Regional susceptibility to War Index with 26.3 percent in contract to Asias lower percentage rating of 19.4 percent and the Wests even lower ratings of 9.9 percent (UNECA: 2005). Therefore it can be argued that Africas future depends on the developed nations reluctance to risk take. China seems to be dismissive of the potential dangers to their investments ventures. It may

come down to whether the risks outweigh the benefits of successful investments. Hence it can be disputed that investment in developing countries is needed in order for it prosper and provide opportunities, something China has recognised. The introduction of china as a competitor to Western donors may result in a change of attitude from the West and up their game or risk losing potential business partners. This may then lead to a luxury of choice for the developing countries when having the ability to pick and choose who to accept investment from. Planned markets can also be used to explain the failure of aid through the introduction of what the economist William Easterly describes as the top down method. This is where the long sequence of choices and institutions amongst other factors that have allowed free markets to prosper in Western nations has been ignored. Free markets, it is argued are an almost natural development, where reforms created by foreigners are not helpful but detrimental to its chances of success. Therefore in order for free markets to develop a bottom up method needs to nurture in which local traditions are taken into account in addition to various other factors concerning that particular country. These factors can include norms that are almost impossible for foreigners to take a grasp of. The following poem sums up the previous point perfectly: The nature of man is intricate; The objects of society are of the greatest complexity; And therefore no simple disposition Or direction of power can be suitable Either to mans nature Or to the quality of his affairs. (Burke: 1790)

Nonetheless the World Bank and International Monetary fund continued with their plans of structural adjustment loans, ignoring the previous failures of similar ventures they experimented with whilst aiding Russia following the collapse of the Soviet Union. The idea of these conditional 7

loans was that developing countries required them in order to kick start productive projects. Instead what actually occurred was the total opposite. After a decade of annually repeated loans most African countries recorded a negative growth rate. Yet the successful stories in Africa could not repay the zero percent interest loans. However, there have been some success stories in Asia. The success of Asian countries such as Japan, China, Turkey and India illustrates Easterlys belief that success comes from within. The Rest as he labels them would gradually develop itself. This, he points out, comes from the borrowing of ideas, institutions, and technology from the West when it suits the Rest to do so (2006). However, there is no blue print according to Easterly whereby nations can imitate the methods of others. Therefore it begs the question of whether Western nations are doing what is best for the Rest. After decades of overall failures, shallow promises and targets do the methods being used currently have to be updated in order to see development occur in these regions of under development? With the withering amount of focus on lifting these nations out of poverty due to the ongoing economic crisis in the western hemisphere it can be argued that these targets need to be scaled down. According to Millennium Goals only a handful of governments are standing by their promises of contributing 0.7 percent of their national income. Unsurprisingly all are Scandinavian countries. Having explored the various factors contributing to the overall failure of foreign aid, it is clear to state that foreign aid has a large part to play in explaining the poor economic situation in Africa and other parts of world where development is difficult to come by. The direct results of poor economic growth, civil war and conflicts and corruption are quite obviously foreign aid related. However, these events can no longer get any worse for some countries because they have already hit rock bottom (Mayo: 2009). For this reason alone, Mayo puts forward an intriguing case and asks what if all these African countries are told their aid taps would be shut off permanently in five years time?

She argues that it is more likely for African livelihoods to improve and that all the factors of aid that have been listed would fall and instead Africas growth machine would start chugging (Mayo: 2009). However, for some, this might be too optimistic or even utopian wishful thinking. So there must be a more nuanced proposition of how to alleviate suffering. For instance the high amounts of military aid to developed nations can be cut and instead spent on more humane causes. This type of aid (military) counts for nearly two thirds of the United States aid distribution. For instance Israel receives the highest amount of aid from the United States government even though it is obviously a fully fledged developed country (Sharp: 2010). This is in contrast to the Gaza case in Palestine who receives no aid from western governments due to an ongoing economic embargo. Therefore as previously highlighted political affiliation need not be a contributing factor when providing aid if there is to be an alleviation of poverty around the world. In terms of seeing poorer countries develop and becoming stable there is an ethical benefit. However there still stands an economic benefit in countries where there are high levels of poverty because they are untapped economies that could turn out to be very lucrative markets in the future. Hence one only need to take note of Chinas rapid impact in Africa and how it has invested in a highly risky region to believe that investment is the way forward for these poorer countries. Having highlighted various problems and a few solutions to the issue of foreign aid I believe that aid has so far been an overall general failure, especially in Africa. However, China has illustrated perfectly that it is possible to invest in developing countries. As a result I believe foreign aid is being pumped into the wrong channels and the Western donors need to take notice of China and what it has achieved in such a short space of time.

Bibliography
Bureau of African Affairs. (2012), US Department of State, < http://www.state.gov/r/pa/ei/bgn/2828.htm> accessed 21 March 2012 Burke, E. (1814) Reflections of the Revolution of France, Apollo Press, London DiLorenzo, T. (2012) Eleven reasons to end all foreign aid, Institute of Canada, < http://www.mises.ca/posts/blog/eleven-reasons-to-end-all-foreign-aid/> accessed on 21 March 2012 Dupasquier, C and Osakwe, P. (2005) Foreign Direct Investment in Africa, African Trade Policy Centre, < http://www.uneca.org/atpc/Work%20in%20progress/21.pdf> accessed 25 March 2012 Easterely, W. (2006) The White Mans Burden, Penguin Group, New York Martinussen, J and Pederson, P. (2003) Aid, Zed Books, New York Mayo, D. (2009) Dead Aid, Penguin Group, London Miller, P. (2011) What is foreign aid for?, Foreign Policy, < http://shadow.foreignpolicy.com/posts/2011/01/27/what_is_foreign_aid_for> accessed 30 March 2010 Ministry of Foreign Affairs. (2009) Sweden Development Cooperation, < http://www.sweden.gov.se/sb/d/574/a/137054> accessed on 9 Match 2012 Moseley, P. (1987) Overseas Aid: Its defence and Reform, Kentucky University Press, Kentucky Olander, E. (2010) Wikileaks reveals failures of Western aid in Africa, China Talking Point, < http://www.chinatalkingpoints.com/wikileaks-reveals-what-we-have-known-all-along/> accessed on 21 March 2012 Rist, G. (1997) The History of Development, Zed Books, London Sharp, J. (2010) US Foreign Aid to Israel, Congressional Research Service < http://www.fas.org/sgp/crs/mideast/RL33222.pdf> accessed 2 April 2012 US Embassy Cables, (2010) African countries prefer Chinese aid to US-China cooperation, Guardian, < http://www.guardian.co.uk/world/us-embassy-cables-documents/248299> accessed on 25 Match 2012

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