L7 - does aid do more harm than good? Flashcards
intro
what is likely to be the biggest impact of the USAID Spending Freeze in developing countries?
- shorter life expectancy if that aid agency focuses on healthcare and humanitarian relief (and that is what USAID did)
impact will be on places that get most of their aid from the US + countries that get a lot of aid (places with the weakest states: Somalia, South Sudan)
it is hard to find out exactly what happens with aid money, how much impact it has (bc multidimensional etc.)
aid has been increasing massively, now more than ever BUT as proportion of our income it is stable or declining
conclusion
impact of aid
- ODA has saved millions of lives
- but its impact on growth, “Good Governance” and democracy is limited
- aid as financing investment or a lever for good governance?
the political effects of aid
- aid creates coordination challenges and corruption
- dependency, and a lack of local political ownership
- strengthening or weakening institutions?
the political motives for aid
- preventing spillovers and geopolitics
- but perhaps necessary for domestic political support
donor dilemmas
- a political, not technical challenge
ODA definition
= Overseas Development Assistance
= government aid that promotes and specifically targets the economic development and welfare of developing countries… and is concessional
!concession is important: countries have to repay it, it is just a discount/bargain:
- grants
- loans with below-market interest rates
- debt relief
- direct supply of goods and services (free)
in comparison with FDI it is less volatile + remittances are way bigger than aid
ODA can be bilateral or multilateral (UN, WB, GAVI etc.)
- biggest component is bilateral: gov to gov
- multilateral: gov gives money to organization, which then gives it to gov in developing countries
- in-donor refugee costs increasing lately, doesn’t go anywhere outside of the country (it pays for refugees from a developing country in a developed country)
the OECD’s Developmental Assistance Committee lists eligible ODA countries, but new middle-income donors are setting their own rules
- OECD splits the world in 2: donor countries (the west) and developing countries (receive ODA)
- is inaccurate overview: new middle-income donors (that are themselves not that rich) are setting their own rules: give aid to countries poorer than them
(e.g. belt and roads initiative China) - we don’t have enough data/knowledge on these new donors
the impact of aid: use and conditionalities
aid resources can be used for:
- provide food
- build a specific bridge
- support a rural development program
- support the entire budget (“budget support”)
education, health and water ~18%
gov and civil society ~14%
ALWAYS involve conditionalities:
always ask something in return, always some conditions
-> restrains behavior of the recipients: do this, or no aid
- that a bridge must be built (aid says build a bridge, but maybe country needs a tunnel)
- where the bridge is built
- that the company building the bridge is based in the donor country (tied aid)
- reporting, monitoring and evaluation requirement
the impact of aid - how does aid promote development?
- 3 logics of aid
- saving lives
- primarily short-term humanitarian aid (food, medicine)
- doesn’t push people up on the developmental ladder
- aid as financing investment
- developing countries are too poor to finance their own development (breaking a poverty trap with a big push)
e.g. healthcare costs $50 per person per year, with average income ~$500 - private markets can’t finance risky investments in poor, low-productivity, places
- the costs to developed countries are small: target of 0.7% of developed country GDP
- aid as a lever for good governance reform
- developing countries don’t need more resources - they waste what they already have through the resource curse and corruption
- investment requires better institutions and ‘good governance’
- ‘buying’ good governance through conditionalities
if the aim of aid is to save lives, it is doing a good growth, good governance and eco growth not so much
the impact of aid on public health
- US President’s Emergency Plan for AIDS Relief (PEPFAR) has provided antiretroviral treatment to 19m people
- GAVI: 822m vaccines, saving 14m livesMalaria: 0.5m under-5 lives saved each year (Sachs 2014)
- Tuberculosis: 22m deaths averted
- Food: World Food Programme fed 152mpeople in ‘food crisis’ (WFP 2023)
the impact of aid on economic growth
The transfer of resources should directly boost growth
But the bulk of the evidence shows no effect (Rajan and Subramanian 2005)
Aid does benefit the poor more than the rich (Hirano and Otsubo 2014)
But aid boosts consumption, not investment (Jackson 2014)
the impact of aid - “white elephants” + unsustainable + unforeseen consequences
white elephants = aid projects have just failed completely
- lake Turkana fish-freezing factory, Kenya - didn’t fit with local skills, infrastructure or demand
- locals are farmers: “if you fish it means you are poor bc you have no livestock” = low social status job -> no one wants to work in factory
- electricity grid was not built properly -> didn’t work
- no one worked there -> didn’t make profit -> broke down
unsustainable: ‘PlayPumps’ were hard work, quickly broke down and could not be repaired by local people
- easy to bring water up from the ground
- didn’t work: bloody hard work (for kids to run around and spin the thing)
- not designed to be maintained by local people: have specialized parts (e.g. only sold in specific stores in the US) -> as soon as they break they are no longer useful
unforeseen consequences: good idea can go wrong, unforeseen consequences of our interventions
- iron supplements made children more vulnerable to malaria
outsiders tend to lead to bad results
the impact of aid on good governance
- formal institutional change: yes! (isomorphic mimicry)
- institutional strengthening: hard to measure
- a WB project in Tanzania building local government state capacity had zero impact
- some evidence that aid worsens governance
impact of aid on democracy
- probably incentivizes ongoing democratization (particularly in 1990s Africa)(once the end of the Cold War made conditional aid credible)
- supporting NGOs can help protect minority rights, e.g. Human Rights Watch
- but does not stop democratic backsliding, e.g. India, Nicaragua = countries with democratic backsliding still get aid
- and aid can also prop-up dictators (e.g. Zaire, Chad)
the political effects of aid
5
- aid creates problems of coordination
- aid causes corruption
- aid creates dependency
- aid prevents a social contract
- aid bypasses the state to NGOs
the political effects of aid
- coordination
aid creates problems of coordination
- too many donors
- too many projects
- each requiring separate project management, reporting and accountability structures (‘Project Implementation Units’)
- many countries have no idea what donors are doing in their country
the political effects of aid
- corruption
aid causes corruption
- large flows of rents -> propping up corrupt regimes (US$700m to President Mobutu’s regime in Zaire in a decade)
- resource curse: rents focus politicians on ‘accessing’ government
- 7.5% of aid is diverted to tax havens
- corrupt countries get just as much aid (corruption is not punished)
- the development ‘industry’ is judged by how much money they disburse, not its impact
why do we continue to donate?
- donor agencies are under pressure to spend the money (otherwise get less next year) = incentive to push money out of the door, even if it is a bit corrupt
the political effects of aid
- dependency
aid creates dependency
you get poorer and more needed -> more aid, there is no exit opportunity
paternalism/neo-colonialism: dependency on western ideas/experts
influxes of food aid push down prices, discouraging domestic agriculture
vicious circle: failure -> more aid
causing political instability, e.g. competition for food in Somalia, diversion to finance security forces, e.g. Uganda
avoiding crises that force political change, e.g. Zambia’s copper crisis was cushioned by aid
- sometimes maybe we need a crisis to get new political processes/change
- still, crisis comes with trust
- think of Rwanda: genocide -> conditions for more developmental state
- by cutting short crises we may be preventing opportunities for development
(definition dependency theory)
development is constrained by developed countries’ past and current economic and political power
the political effect of aid
- social contract
aid prevents a social contract
- another resource curse: less need to collect domestic taxation: the money/gov is not really your gov -> less ties
- reduces local political ownership and accountability
- no organic local debate to determine policy: isomorphic mimicry (best practice institutions, not strong institutions) + no adaptation to local needs + no local legitimacy
= particularly true when tied aid and conditionalities
- things are already being decided by donors -> no organic debates, political ideas
aid is an ‘anti-politics machine’: transforming development into a purely ‘technical’ challenge
- governments accountable to donors, not citizens: donors overly-concerned with corruption
- e.g. USAID support to Afghanistan’s health sector, saving 100.000 children per year, but suspended due to lack of receipts (local politicians/civil servants didn’t produce receipts -> can’t account for all money being spent)
- in some countries diff to not have corruption: e.g. to get into an area might have to bribe a militia
the political effects of aid
- bypasses the state
aid bypasses the state to NGOs
aid is often given to NGOs
- 20% of bilateral ODA went to NGOs in 2011
- providing humanitarian relief, social services, community mobilization and reducing corruption
but distracts from improving the state
- Another form of Neoliberalism
- ‘Brain drain’ from the state: NGO salaries in Ethiopia 2-10 times the civil service = widespread phenomenon, not just Ethiopia -> less people in civil service
- Prevents politicians from being held accountable for failures
- Undermining state legitimacy
- A safety net ‘allowing’ the state to fail
only the state can provide nationwide transformation
- monopoly on the use of force
- NGOs don’t have the tools to promote long-run investments, enforce rules, or build social contracts
- NGOs can become dependent, chasing grant opportunities, not development
the political motives for aid - why give aid to other countries?
- altruism
- aid goes to the most needy - preventing spillovers of poverty, refugees, pollution, terrorism
- aid goes to neighbouring/unstable countries - geopolitical
- aid goes to trading partners, ex-colonies, UNSC members
- ‘soft power’
- e.g. Nepal: China and India competing for influence, for soft power in the region -> both do projects in the same neighborhoods - domestic politics
- ‘America First’ = often voters against it
- branding of aid to boost soft power
- aid to ‘deserving’ or ‘needy’ countries -> racial discrimination OR racial paternalism (felt non-white recipients needed it more)
- voters demand zero corruption
- means the developing countries gov is left out again: it does not claim the progress, the donors take the credit
- but domestic support is necessary, not an afterthought: we need to build support, voters don’t like aid
!!people think they spend a lot on aid, which is not the case (average thought was 31% of US federal budget)
(where does aid go - why do we do it?)
countries receiving aid not necessarily the least developed countries:
- why is Turkey the second top recipient country? bc Europe pays it to take refugees
- Morocco same reason
donor dilemmas
- where to send aid?
- need vs ability to use aid
- countries in crisis (need today) vs rewarding progress (faster/more development) - what kind of aid? conditional or not
- financing investment vs incentivizing better government - what conditions to attach?
- limiting corruption vs maximizing local ownership vs maximizing donor’s domestic support for aid
- how much risk are we willing to take? - which organizations receive aid?
- building state capacity vs immediate impact through NGOs (!!reading!!!!!)
hard to decide: it’s only bad options
