Development Aid - an Exercise in Hypocracy

03/03/2011

Intro

The new coalition government of the United Kingdom is committed to shrinking the budget deficit. Only two areas are ring-fenced against spending cuts. One is the National Health Service . It is an icon of British social responsibility and arguably reflects national humanitarian solidarity. Aid to developing countries is the other ring-fenced area. Obviously it is meant to reflect an analogous solidarity with all the wretched of the world.

The iconic quality of development aid is typical of rich countries, especially in Europe. The increasing evidence of serious side effects, not to speak of scandalous waste, is shrugged off by the entrenched aid establishment. No matter that field workers are demoralized. Occasional outcries are falling on deaf ears. Political correctness will probably prevail in Finland, too, despite the dire straits of public finances.

To put it bluntly: If a country is in bad shape, aid is to no avail and usually makes matters worse. If a country is on the right track it will attract abundant foreign investment and no aid is needed. Good governance is the key. Unperturbed Britain, among others, continues to splash out money on corrupt regimes. The donors want to get rid of their money at any price!
 

National hang-ups

The British penchant for development aid can be understood as the aftertaste of a worldwide empire. Commonwealth nostalgia plays its part along with a mixed bag of commercial interests, spiced with points of principle. The newly-wed political partners needed a highly visible point of unanimity to court public opinion. The aid pact was a well-rehearsed exercise in high-level, political hypocrisy.

In general, countries weighed down by past glory and colonial contrition exhibit similar behavior. Outright political calculation comes into play when a substantial part of the electorate has its roots in the former colonies. There is a lot to lose but little to gain politically in attacking development aid. Even populist parties tend to steer clear of this issue.

The Nordics are the prime examples of non-colonial European countries with a remarkable aid commitment. The principles of the welfare state legitimize foolhardy extrapolation beyond the national borders. Enjoying a high standard of living, Lutherans are inclined to suffer from bad conscience. For certain, we have not fully deserved our good fortune. The taxpayer-financed development aid serves as indulgence money and ameliorates the latent feelings of guilt.

The United States presents a different picture. Official development aid is only about 0.2 % of GNP, far below the 0.7% of GNP recommended by the United Nations. The deficit is more than made up by Non-governmental Organizations (NGOs). They may be more efficient on the ground, but collecting the money often consumes the major part of the contributions. Overall, only a minor part of all development aid actually reaches a needy recipient. The major part is eaten up not only by fundraising costs (NGOs), public administration (governments) and at the receiving end by more or less corrupted intermediaries, politicians and local strongmen.

Most other countries could not care less about the humanitarian aspect. Government aid is just an integral part of a pragmatic foreign policy. Perhaps that is the wisest course.
 

Testimony

The government aid operatives Iíve met are, without exception, tainted by the experience. They reflect frustration, disillusion and increasing cynicism due to the lack of meaningful change on the ground. This anecdotal evidence is confirmed by a bundle of books. As a rule, the good intentions of the donors are not converted into improved conditions on the ground; often they make things worse. The bewildering multitude of competing aid agencies can produce acute confusion in the receiving country. Nobody is in charge of coordination, supervision and ultimate efficiency.

The following books have crossed my table and are worthwhile reading:

de Soto, H et al. (1989) The Other Path: The invisible revolution in the third world
Maren, M. (1997) The Road to Hell: The Ravaging Effects of Foreign Aid and International Charity
de Soto, H. (2000) The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else
Easterly, W. (2006) The White Manís Burden: Why the Westís Efforts to Aid the Rest Have Done So Much Ill and So Little Good
Collier, P. (2007) The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It
Wrong, Michela (2009) Itís Our Turn to Eat: The Story of a Kenyan Whistleblower
Verdict

The financial support of developing countries makes little sense. It destroys value all around. Furthermore, helping by diving into ever deeper debt is reckless housekeeping. Anyway, the really deserving poor reside in failed states. These basket cases need some kind of decisive, neo-colonist intervention. But nobody seems to have the stomach to shoulder such responsibility. Whatever the stakes, development aid should be integrated into a European foreign policy. Competition between members of the EU is pure folly.

Development aid flows from the taxpaying middle class of the rich nations to the corrupt elite in the recipient countries. For these people, solidarity with their compatriots does not stretch to the payment of taxes even if the length of the limousines holds its own in international competition; capital flight often exceeds the development aid.

On the other hand, the solidarity of the poor emigrants to their kin is impressive. During 2005, approximately 250 billion dollars were transferred to relatives in the developing countries which exceeds the official development aid with a substantial margin.

Development aid has become an end in itself, an excellent business for a highly paid and often tax-exempt establishment, which acts in symbiosis with uncritical media and with the mostly corrupt politicians in the target countries.

The futility of increased spending should eventually be dawning. Not even the hundreds of billions of Nigerian oil money have produced a basis for sustainable development. Removing trade barriers would be much preferable.

Commerce requires reciprocity, but for that very reason it creates mutual respect and self-respect. Trade depends on trust and generates trust; it needs peace and strengthens the peace. Finally, trade is a plus-sum game. It creates wealth and is the best development aid.
 

For a broader view see The Samaritans Dilemma, and Failed States.