Aid and Development

The relationship isn't quite so straightforward as development schemes tend to assume.

| Tue Feb. 22, 2005 4:00 AM EST

The United Nation's Millennium Project, headed by Jeffrey Sachs, recently released its much-anticipated development report laying out a strategy for meeting the UN's Millennium Development Goals, the first of which is to halve global poverty and hunger by 2015.

The proposal is the latest of a series "get-rid-of-poverty-quick" schemes, most of which have fallen short of the mark. In 2002 President Bush proposed a "Millennium Challenge Account" (MCA) which would send aid to developing countries that meet governance and economic benchmarks. For the past two years British Chancellor Gordon Brown and British Prime Minister Tony Blair have been pushing their International Finance Facility (IFF). As current leaders of both the G8 and EU this year, Blair and Brown will be pushing hard for the Facility, which calls for upfront aid to the tune of $50 billion dollars from developed countries in order to reach the 2015 UNMD goals. This "lump sum upfront" approach has the upside of making the money available right away, without requiring unanimous international approval first. But the approach does nothing to address the deeper structural problems at work in the distribution of aid.

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All of these projects, the UNMP’s included, seem to take it as axiomatic that more aid will spur more development, regardless of what sort of government is running the country. Only the most flagrantly inept or corrupt governments—Zimbabwe and North Korea—are cited as countries that, perhaps, cannot yet be trusted to handle a rapid influx of aid. The problem with this overall approach is that it fails in any new and meaningful way to address the structural reforms that need to happen before developmental aid can actually work. As the Sachs' report itself states, "Importantly, we are not advocating new development processes or policy vehicles. We are simply recommending that the current processes be truly MDG-oriented."

It’s worth doing a brief review of what money alone can and cannot achieve in developing countries. Despite $1 trillion dollars in loans since the 1960s, the per-capita growth rate in developing countries over the past 20 years has been negligible. A number of analyses have shown that aid has almost no systematic relationship to economic growth. Historically, governmental aid has functioned largely as a political bribe—particularly during the Cold War era. It may not have influenced development, but it can buy diplomatic favors. Unfortunately, poverty, hunger, and disease have not responded nearly as well to monetary handouts.

Aid from the International Monetary Fund (IMF) and the World Bank hasn't fared much better. Heaping aid on countries regardless of their economic promise rarely gets results, and according to the World Bank's own assessments, the strategy really hasn't produced results—particularly in Africa, where poverty is increasing. Nor did there seem to be much of a concern for how the money was being spent: between Ethiopia, China, and Romania, international aid institutions have helped fund many a human-rights violator.

Sachs' report acknowledges the need for agencies like the IMF and World Bank to incorporate the UN’s goals into their lending guidelines. But, as any good economist knows, incentives are the engine of growth. Perhaps the important question to ask is what incentive lending agencies have, in their current form, to eradicate poverty. After all, these are organizations that would be out of business in 2015 if the UNMGDs come true. William Easterly, a former World Bank employee, told Mother Jones that he thought it was doubtful any substantial restructuring in lending programs would occur.

"These organizations are driven by their internal bureaucratic incentives and incentives to please rich country governments. They endorse goals partly for PR reasons to enhance their image, as opposed to figuring out what works on the ground to help poor people. The Bank and Fund, and the UN goals take a top-down approach setting arbitrary goals, where they should be taking a more bottom-up approach of finding out what poor people most want and need."

If these organization are serious about ending poverty, they will have to restructure the current aid system before committing to new funding. Otherwise, the same futile patterns will prevail. Over the five years, for instance, the IMF and World Bank have been pumping money into Tanzania to build roads, even though the government has shown it cannot maintain them. Unless the Tanzanian government is given incentives to reallocate their funding priorities and commit to maintaining its infrastructure, no amount of external aid will keep those roads in shape. Without seeing a clear pathway for where the money will go, odds are it's not going to get there.

The same logic holds true for debt forgiveness. Governments need to take steps to reduce corruption and reallocate their own spending priorities—for instance, away from military spending and towards social welfare—before their debt can be written off. Not everyone, however, sees things this way. At this year's World Economic Forum, U2 rock star Bono drew attention to the fact that 6,000 people are dying daily of AIDS in Africa. South African President Thabo Mbeki followed up by saying he found it "very obscene" that developing countries are forced to service loans while obviously making such great efforts to provide solid governance. It's a good argument—until you look beyond the surface. This is Thabo Mbeki speaking, the president who refused to acknowledge that AIDS was even an issue in South Africa until very recently. Without good oversight, there's little reason to trust that Mbeki will even funnel the money freed up from debt relief to the right causes.

Nor do any of the strategies—from Sachs' report to Britain's IFF to President Bush's MCA—address the need to get the governments of developing countries to want to rid their countries of poverty. Developmental aid is inherently about power politics, and must be dealt with as such. As a recent editorial in The Nation, a Kenyan newspaper, remarked, "What is critical in realizing the MDG goals is political will—which is lacking in many countries, Kenya included."

Poverty has been around since man first learned how to exploit another man. Certainly, a rapid influx of monetary aid alone will not change this power structure within and between countries. Studies of the international development machinery have shown that for every dollar of international aid, only about 30 cents are invested in extreme poverty, hunger, and disease. The UN would do well to set more realistic goals that country's can feasibly reach. Overall, the IFF, the MCA, and the UN Millennium Project have made significant headway by drawing attention to the deplorable state of many developing regions. The demand for developed countries to do their part by investing a mere .7% of their GDP is also on target. But some of the urgent demands, particularly in Sachs' report, are vaguely disturbing:

Low-income countries and their development partners now plan around modest incremental expansions of social services and infrastructure. We recommend instead a bold, needs-based, goal-oriented investment framework over 10 years aimed at achieving the quantitative targets set out in the MDGs. Rather than strategies to 'accelerate progress towards the Goals,' we need strategies to 'achieve the Goals.'

The problem here is that many governments are in no state—being corrupt or unstable, or both—to absorb large sums of money all of the sudden and divert them to sustainable infrastructure and development programs within 10 years. In fact, this "fast-track" campaign could very well make the road to sustainable human development even longer and bumpier by taking precedent over a more measured campaign that builds up civil society structures in these countries—an important component if the development is to be sustainable. The lack of more specific goals catered to separate countries' current development statuses and potential for absorption of aid also works against the MDG goals. The Nation in Kenya remarked:

For Kenya and other developing countries, these targets remain mere statements of intent—and the Government has now openly admitted that. Two Cabinet ministers…categorically stated that most of the goals will remain a mirage given the prevailing economic conditions.

Or, as Easterly, succinctly put it, "It is a bad idea to increase aid faster than you increase the knowledge of how to spend it wisely."

So how might aid be distributed more wisely? Last year in the Washington Monthly, Nancy Birdsall and Brian Deese of the Center for Global Development argued that better coordination among donors would do much to improve the distribution of aid—eliminating much of the overlap in projects, waste and inefficiency that comes from having each donor country pursue its own preferred projects. Too often, they write, aid projects "reflect donors' preferences or bad habits more than the logic of recipients' needs."

Enforcing better coordination would certainly be one concrete step forward, though there is no simple solution here—a point glossed over by a recent New York Times editorial noting that "the beauty of his [Sachs’] ideas is in their simplicity." A more effective strategy would payer greater attention to the complexity of world poverty, and realize that a solution involves more realistic goals, a better understanding of the entrenched and often exploitative institutions that stand in the way of development, and an ear to the ground to find out what the people of developing countries actually need.

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