Author and Page information This page: https://www.globalissues.org/article/35/foreign-aid-development-assistance.

To print all information (e.g. expanded side notes, shows alternative links), use the print version: https://www.globalissues.org/print/article/35



Foreign aid or (development assistance) is often regarded as being too much, or wasted on corrupt recipient governments despite any good intentions from donor countries. In reality, both the quantity and quality of aid have been poor and donor nations have not been held to account.

There are numerous forms of aid, from humanitarian emergency assistance, to food aid, military assistance, etc. Development aid has long been recognized as crucial to help poor developing nations grow out of poverty.

In 1970, the world’s rich countries agreed to give 0.7% of their GNI (Gross National Income) as official international development aid, annually. Since that time, despite billions given each year, rich nations have rarely met their actual promised targets. For example, the US is often the largest donor in dollar terms, but ranks amongst the lowest in terms of meeting the stated 0.7% target.

Furthermore, aid has often come with a price of its own for the developing nations:

Aid is often wasted on conditions that the recipient must use overpriced goods and services from donor countries

Most aid does not actually go to the poorest who would need it the most

Aid amounts are dwarfed by rich country protectionism that denies market access for poor country products, while rich nations use aid as a lever to open poor country markets to their products

Large projects or massive grand strategies often fail to help the vulnerable as money can often be embezzled away.

This article explores who has benefited most from this aid, the recipients or the donors.

Are numbers the only issue? The above talks a lot about numbers and attempts to address common questions about who gives what, as for Americans and Europeans, there is indeed a fascination of this topic. Less mentioned in the media is that some aid money that is pledged often involves double accounting of sorts. Sometimes offers have even been reneged or just not delivered. This site’s section on the Asian tsunami disaster and on third world debt has more on these aspects. It is common to hear many Americans claim that the US is the most generous country on earth. While the numbers above may say otherwise in a technical sense, is who gives the most really the important discussion here? While important, concentrating on this one aspect diverts us from other pressing issues such as does the aid actually help the recipient, or does it actually help the donor. As we will see further below, some aid has indeed been quite damaging for the recipient, while at the same time being beneficial for the donor. The Changing Definition of Aid Reveals a much Deeper Decline than What Numbers Alone Can Show The South Centre , mentioned earlier, notes that when the 0.7% of GNI promise for development aid was made in 1970, official development assistance was to be understood as bilateral grants and loans on concessional terms, and official contributions to multilateral agencies. But, as they note, a number of factors have led to a large decline in aid, some that cannot be shown by numbers and graphs, alone. Factors include: Tighter budgetary constraints in richer countries during the 1980s;

More importantly, an ideology shift on governments and markets (see also primer on neoliberalism and structural adjustment on this site);

Increasing number of countries competing for development aid funds;

Donors putting a broader interpretation on what constitutes development assistance. On the last point above, South Centre notes that the broader interpretation include categories which bear little relationship to the need of the developing countries for long term development capital. (Emphasis Added.) Thus, those expanded categories for official development assistance include: Debt relief;

Subsidies on exports to developing countries;

Food aid which disposes of agricultural surpluses resulting from government subsidies (see also this site’s section on food dumping and how it increases hunger and poverty);

Provision of surplus commodities of little economic value;

Administrative costs;

Payments for care and education of refugees in donor countries;

Grants to NGOs and to domestic agencies to support emergency relief operations; and

Technical co-operation grants which pay for the services of nationals of the donor countries. An analysis of OECD data over time shows such increases in non-development aid: In effect, not only has aid been way below that promised, but what has been delivered has not always been for the original goal of development. The technical co-operation grants are also known as technical assistance. Action Aid , has been very critical about this and other forms of this broader interpretation which they have termed phantom aid : This year we estimate that $37 billion—roughly half of global aid—is phantom aid , that is, it is not genuinely available to poor countries to fight poverty. … Nowhere is the challenge of increasing real aid as a share of overall aid greater than in the case of technical assistance. At least one quarter of donor budgets—some $19 billion in 2004—is spent in this way: on consultants, research and training. This is despite a growing body of evidence—much of it produced by donors themselves and dating back to the 1960s—that technical assistance is often overpriced and ineffective, and in the worst cases destroys rather than builds the capacity of the poorest countries. … Although this ineffectiveness is an open secret within the development community, donors continue to insist on large technical assistance components in most projects and programmes they fund. They continue to use technical assistance as a soft lever to police and direct the policy agendas of developing country governments, or to create ownership of the kinds of reforms donors deem suitable. Donor funded advisers have even been brought in to draft supposedly country owned poverty reduction strategies. Real Aid: Making Technical Assistance Work , Action Aid, July 5, 2006, pp.5-6 (Emphasis Added) The above report by Action Aid uses OECD data, as I have done. Their figures are based on 2004 data, which at time of their publication was the latest available. However, they also went further than I have to show just how much phantom aid there is. For example, they note (p.11) that the $37 billion of phantom aid in 2004 included: $6.9 billion (9% of all aid) not targeted for poverty reduction

$5.7 billion (7%) double counted as debt relief

$11.8 billion (15%) on over-priced, ineffective technical assistance

$2.5 billion (3%) lost through aid tying

$8.1 billion (10%) lost through poor donor co-ordination

$2.1 billion (3%) on immigration related spending

at least $70 (0.1%) million on excessive administration costs. These figures are necessarily approximate, they note. If anything, they probably flatter donors. Lack of data means that other areas of phantom aid have been excluded from our analysis. These include conditional or unpredictable aid, technical assistance and administration spending through multilateral channels, security-related spending and emergency aid for reconstruction following conflicts in countries such as Iraq. Some of these forms of aid do little to fight poverty, and can even do more harm than good. Action Aid also provided a matrix (p.14) showing the volumes of real and phantom aid by donor countries: Real aid volumes and share of phantom aid High Real Aid Volume Medium Real Aid Volume Low Real Aid Volume Source: Action Aid, Real Aid: Making Technical Assistance Work , July 5, 2006, p.14; OECD Figures for 2004 (latest at time of publication) Low share of phantom aid Ireland

Luxemborg

Sweden

Denmark

Norway

Netherlands UK Medium share of phantom aid Switzerland Belgium

Finland

Germany

Canada

New Zealand Japan

Italy High share of phantom aid France

Portugal Australia

Spain

Austria

Greece

USA At the 2005 G8 Summit, much was made about historic debt write-offs and other huge amounts of aid. The problem, the media and government spin implied, was that rich country aid often gets wasted and will only be delivered to poor countries if they meet certain conditions and demands. Yet, hardly ever in the mainstream discourse is the quality of rich country aid an issue or problem that needs urgent addressing. The South Centre noted this many years ago: The situation outlined above indicates a significant erosion in ODA in comparison with its original intent and content, and in relation to the 0.7 per cent target. It will no longer suffice to merely repeat that ODA targets should be fulfilled. What is required, in view of the policy trends in the North and the mounting need for and importance of concessional flows to a large number of countries in the South, is a fundamental and comprehensive review of the approaches by the international community to the question of concessional financial flows for development, covering the estimated needs, the composition and sources of concessional flows, the quantity and terms on which they are available, and the destination and uses. Financial Flows to Developing Countries, Financing Development; Issues for a South Agenda, The South Centre, April 1999 Aid is Actually Hampering Development Professor William Easterly, a noted mainstream economics professor on development and aid issues has criticized foreign aid for not having achieved much, despite grand promises: [A tragedy of the world’s poor has been that] the West spent $2.3 trillion on foreign aid over the last five decades and still had not managed to get twelve-cent medicines to children to prevent half of all malaria deaths. The West spent $2.3 trillion and still had not managed to get four-dollar bed nets to poor families. The West spent $2.3 trillion and still had not managed to get three dollars to each new mother to prevent five million child deaths. … It is heart-breaking that global society has evolved a highly efficient way to get entertainment to rich adults and children, while it can’t get twelve-cent medicing to dying poor children. William Easterly, The White Man’s Burden; Why the West’s Efforts to Aid the Rest have Done So Much Ill and so Little Good, (Penguin Press, 2006), p. 4 The United Nations Economic and Social Council, when noting that effectiveness of aid to poor countries requires a focus on economic infrastructure, also noted that ODA was hampering aid. Jose Antonio Ocampo, Under-Secretary-General for the United Nations Economic and Social Affairs said that debt, commodities, official development assistance and, in some cases, the risk of conflict is hampering development in the least developed countries. See also, for example, the well-regarded Reality of Aid project for more on the reality and rhetoric of aid. This project looks at what various nations have donated, and how and where it has been spent, etc. Private flows often do not help the poorest While ODA’s prime purpose is to promote development, private flows are often substantially larger than ODA. During economic booms, more investment is observed in rapidly emerging economies, for example. But this does not necessarily mean the poorest nations get such investment. During the boom of the mid-2000s before the global financial crisis sub-Saharan Africa did not attract as much investment from the rich nations, for example (though when China decided to invest in Africa, rich nations looked on this suspiciously fearing exploitation, almost ignoring their own decades of exploitation of the continent. China’s interest is no-doubt motivated by self-interest, and time will have to tell whether there is indeed exploitation going on, or if African nations will be able to demand fair conditions or not). As private flows to developing countries from multinational companies and investment funds reflect the interests of investors, the importance of Overseas Development Assistance cannot be ignored. Furthermore, (and detailed below) these total flows are less than the subsidies many of the rich nations give to some of their industries, such as agriculture, which has a direct impact on the poor nations (due to flooding the market with—or dumping—excess products, protecting their own markets from the products of the poor countries, etc.) In addition, a lot of other inter-related issues, such as geopolitics, international economics, etc all tie into aid, its effectiveness and its purpose. Africa is often highlighted as an area receiving more aid, or in need of more of it, yet, in recent years, it has seen less aid and less investment etc, all the while being subjected to international policies and agreements that have been detrimental to many African people. For the June 2002 G8 summit, a briefing was prepared by Action for Southern Africa and the World Development Movement, looking at the wider issue of economic and political problems: It is undeniable that there has been poor governance, corruption and mismanagement in Africa. However, the briefing reveals the context—the legacy of colonialism, the support of the G8 for repressive regimes in the Cold War, the creation of the debt trap, the massive failure of Structural Adjustment Programmes imposed by the IMF and World Bank and the deeply unfair rules on international trade. The role of the G8 in creating the conditions for Africa’s crisis cannot be denied. Its overriding responsibility must be to put its own house in order, and to end the unjust policies that are inhibiting Africa’s development. It’s the 'Blame the Victim' Summit, Action for Southern Africa, June 25, 2002. You can also see the full briefing . As the above briefing is titled, a common theme on these issues (around the world) has been to blame the victim . The above briefing also highlights some common myths often used to highlight such aspects, including (and quoting): Africa has received increasing amounts of aid over the years—in fact, aid to Sub-Saharan Africa fell by 48% over the 1990s

Africa needs to integrate more into the global economy—in fact, trade accounts for larger proportion of Africa’s income than of the G8

Economic reform will generate new foreign investment—in fact, investment to Africa has fallen since they opened up their economies

Bad governance has caused Africa’s poverty—in fact, according to the UN Conference on Trade and Development (UNCTAD), economic conditions imposed by the IMF and the World Bank were the dominant influence on economic policy in the two decades to 2000, a period in which Africa’s income per head fell by 10% and income of the poorest 20% of people fell by 2% per year Christian Aid weighs in on this with a more recent report noting that sub-Saharan Africa is a massive $272 billion worse off because of free trade policies forced on them as a condition of receiving aid and debt relief. They also note that: The reforms that rich countries forced on Africa were supposed to boost economic growth. However, the reality is that imports increased massively while exports went up only slightly. The growth in exports only partially compensated African producers for the loss of local markets and they were left worse off. The economics of failure: The real cost of ‘free’ trade', Christian Aid, June 20, 2005 The quantity issue is an input into the aid process. The quality is about the output. We see from the above then, that the quantity of aid has not been as much as it should be. But what about the quality of the aid? Back to top

Aid as a foreign policy tool to aid the donor not the recipient Aid appears to have established as a priority the importance of influencing domestic policy in the recipient countries Benjamin F. Nelson, International Affairs Budget: Framework for Assessing Relevance, Priority and Efficiency, (Washington, DC: General Accounting Office, October 30, 1997) As shown throughout this web site (and hundreds of others) one of the root causes of poverty lies in the powerful nations that have formulated most of the trade and aid policies today, which are more to do with maintaining dependency on industrialized nations, providing sources of cheap labor and cheaper goods for populations back home and increasing personal wealth, and maintaining power over others in various ways. As mentioned in the structural adjustment section, so-called lending and development schemes have done little to help poorer nations progress. The US, for example, has also held back dues to the United Nations, which is the largest body trying to provide assistance in such a variety of ways to the developing countries. Former US President Jimmy Carter describes the US as stingy : While the US provided large amounts of military aid to countries deemed strategically important, others noted that the US ranked low among developed nations in the amount of humanitarian aid it provided poorer countries. We are the stingiest nation of all, former President Jimmy Carter said recently in an address at Principia College in Elsah, Ill. Who rules next?, Christian Science Monitor, December 29, 1999 Evan Osbourne, writing for the Cato Institute , also questioning the effectiveness of foreign aid and noted the interests of a number of other donor countries, as well as the U.S., in their aid strategies in past years. For example: The US has directed aid to regions where it has concerns related to its national security, e.g. Middle East, and in Cold War times in particular, Central America and the Caribbean;

Sweden has targetted aid to progressive societies ;

; France has sought to promote maintenance or preserve and spread of French culture, language, and influence, especially in West Africa, while disproportionately giving aid to those that have extensive commercial ties with France;

Japan has also heavily skewed aid towards those in East Asia with extensive commercial ties together with conditions of Japanese purchases; Osbourne also added that domestic pressure groups (corporate lobby groups, etc) have also proven quite adept at steering aid to their favored recipients. And so, If aid is not particularly given with the intention to foster economic growth, it is perhaps not surprising that it does not achieve it. Aid And Militarism IPS noted that recent US aid has taken on militaristic angles as well, following similar patterns to aid during the cold war. The war on terrorism is also having an effect as to what aid goes where and how much is spent. For example: Credits for foreign militaries to buy US weapons and equipment would increase by some 700 million dollars to nearly five billion dollars, the highest total in well over a decade. (This is also an example of aid benefiting the donor!)

(This is also an example of aid benefiting the donor!) The total foreign aid proposal … amounts to a mere five percent of what Bush is requesting for the Pentagon next year.

Bush’s foreign-aid plan [for 2005] actually marks an increase over 2004 levels, although much of the additional money is explained by greater spending on security for US embassies and personnel overseas.

As in previous years, Israel and Egypt are the biggest bilateral recipients under the request, accounting for nearly five billion dollars in aid between them. Of the nearly three billion dollars earmarked for Israel, most is for military credits.

This militaristic aid will come largely at the expense of humanitarian and development assistance. The European Union is linking aid to fighting terrorism as well, with European ministers warning countries that their relations with the economically powerful bloc will suffer if they fail to cooperate in the fight against terrorism. An EU official is quoted as saying, aid and trade could be affected if the fight against terrorism was considered insufficient , leading to accusations of compromising the neutrality, impartiality and independence of humanitarian assistance . Aid Money Often Tied to Various Restrictive Conditions As a condition for aid money, many donors apply conditions that tie the recipient to purchase products only from that donor. In a way this might seem fair and balanced , because the donor gets something out of the relationship as well, but on the other hand, for the poorer country, it can mean precious resources are used buying more expensive options, which could otherwise have been used in other situations. Furthermore, the recipient then has less control and decision-making on how aid money is spent. In addition the very nations that typically promote free-markets and less government involvement in trade, commerce, etc., ensure some notion of welfare for some of their industries. IPS noted that aid tied with conditions cut the value of aid to recipient countries by some 25-40 percent, because it obliges them to purchase uncompetitively priced imports from the richer nations. IPS was citing a UN Economic Council for Africa study which also noted that just four countries (Norway, Denmark, the Netherlands and the United Kingdom) were breaking away from the idea of tied aid with more than 90 percent of their aid untied . In addition, IPS noted the following, worth quoting at length: [Njoki Njoroge] Njehu [director of the 50 Years is Enough campaign] cited the example of Eritrea, which discovered it would be cheaper to build its network of railways with local expertise and resources rather than be forced to spend aid money on foreign consultants, experts, architects and engineers imposed on the country as a condition of development assistance. Strings attached to US aid for similar projects, she added, include the obligation to buy products such as Caterpillar and John Deere tractors. All this adds up to the cost of the project. Njehu also pointed out that money being doled out to Africa to fight HIV/AIDS is also a form of tied aid. She said Washington is insisting that the continent’s governments purchase anti-AIDS drugs from the United States instead of buying cheaper generic products from South Africa, India or Brazil. As a result, she said, US brand name drugs are costing up to 15,000 dollars a year compared with 350 dollars annually for generics. … AGOA [African Growth and Opportunity Act, signed into US law in 2000] is more sinister than tied aid, says Njehu. If a country is to be eligible for AGOA, it has to refrain from any actions that may conflict with the US’s strategic interests. The potential of this clause to influence our countries' foreign policies was hinted at during debates at the United Nations over the invasion of Iraq, she added. The war against Iraq was of strategic interest to the United States, Njehu said. As a result, she said, several African members of the UN Security Council, including Cameroon, Guinea and Angola, were virtually held to ransom when the United States was seeking council support for the war in 2003. They came under heavy pressure, she said. The message was clear: either you vote with us or you lose your trade privileges . Thalif Deen, Tied Aid Strangling Nations, Says U.N, Inter Press Service, July 6, 2004 As noted further above, almost half of all foreign aid can be considered phantom aid , aid which does not help fight poverty, and is based on a broader definition of foreign aid that allows double counting and other problems to occur. Furthermore, some 50% of all technical assistance is said to be wasted because of inappropriate usage on expensive consultants, their living expenses, and training (some $11.8 billion). In their 2000 report looking back at the previous year, the Reality of Aid 2000 (Earthscan Publications, 2000, p.81), reported in their US section that 71.6% of its bilateral aid commitments were tied to the purchase of goods and services from the US. That is, where the US did give aid, it was most often tied to foreign policy objectives that would help the US. Leading up to the UN Conference on Financing for Development in Monterrey, Mexico in March 2002, the Bush administration promised a nearly $10 billion fund over three years followed by a permanent increase of $5 billion a year thereafter. The EU also offered some $5 billion increase over a similar time period. While these increases have been welcome, these targets are still below the 0.7% promised at the Earth summit in Rio de Janeiro in 1992. The World Bank have also leveled some criticism of past policies: Commenting on the latest US pledge [of $10 billion], Julian Borger and Charlotte Denny of the Guardian (UK) say Washington is desperate to deflect attention in Monterrey from the size of its aid budget. But for more generous donors, says the story, Washington’s conversion to the cause of effective aid spending is hard to swallow. Among the big donors, the US has the worst record for spending its aid budget on itself—70 percent of its aid is spent on US goods and services. And more than half is spent in middle income countries in the Middle East. Only $3bn a year goes to South Asia and sub-Saharan Africa. Monterrey: US Will 'Seek Advice On Spending Aid', World Bank, March 21, 2002 In addition, promises of more money were tied to more conditions, which for many developing countries is another barrier to real development, as the conditions are sometimes favorable to the donor, not necessarily the recipient. Delhi-based Centre for Science and Environment commented on the US conditional pledge of more money that: Thus, status quo in world relations is maintained. Rich countries like the US continue to have a financial lever to dictate what good governance means and to pry open markets of developing countries for multinational corporations. Developing countries have no such handle for Northern markets, even in sectors like agriculture and textiles, where they have an advantage but continue to face trade barriers and subsidies. The estimated annual cost of Northern trade barriers to Southern economies is over US $100 billion, much more than what developing countries receive in aid. Puppets on purse strings, Down To Earth, (Centre for Science and Environment) Vol 10, No 23, April 30, 2002 As discussed further on this site’s section on water issues, the World Development Movement campaign organization reported in early 2005 that the British government has been using aid money to pay British companies to push privatization of water services to poor countries, even though it may not be in their best interests. The 2005 G8 Summit at Gleneagles in Scotland saw promises of lots of aid and debt relief, but these were accompanied with a lot of spin, and more conditions, often considered harmful in the past. Another aspect of aid tying into interests of donors is exemplified with climate change negotiations. Powerful nations such as the United States have been vocally against the Kyoto Protocol on climate change. Unlike smaller countries, they have been able to exert their influence on other countries to push for bilateral agreements conditioned with aid, in a way that some would describe as a bribe. Center for Science and Environment for example criticizes such politics: It is easy to be taken in with promises of bilateral aid, and make seemingly innocuous commitments in bilateral agreements. There is far too much at stake here [with climate change]. To further their interests, smaller, poorer countries don’t have aid to bribe and trade muscle to threaten countries. Pop of the world, Equity Watch, Center for Science and Environment, October 25, 2002. This use of strength in political and economic arenas is nothing new. Powerful nations have always managed to exert their influence in various arenas. During the Gulf War in 1991 for example, many that ended up in the allied coalition were promised various concessions behind the scenes (what the media described as diplomacy ). For example, Russia was offered massive IMF money. Even now, with the issue of the International Criminal Court, which the US is also opposed to, it has been pressuring other nations on an individual basis to not sign, or provide concessions. In that context, aid is often tied to political objectives and it can be difficult to sometimes see when it is not so. But some types of conditions attached to aid can also be ideologically driven. For example, quoted further above by the New York Times , James Wolfensohn, the World Bank president noted how European and American farm subsidies are crippling Africa’s chance to export its way out of poverty. While this criticism comes from many perspectives, Wolfensohn’s note on export also suggests that some forms of development assistance may be on the condition that nations reform their economies to certain ideological positions. Structural Adjustment has been one of these main policies as part of this neoliberal ideology, to promote export-oriented development in a rapidly opened economy. Yet, this has been one of the most disastrous policies in the past two decades, which has increased poverty. Even the IMF and World Bank have hinted from time to time that such policies are not working. People can understand how tying aid on condition of improving human rights, or democracy might be appealing, but when tied to economic ideology, which is not always proven, or not always following the one size fits all model, the ability (and accountability) of decisions that governments would have to pursue policies they believe will help their own people are reduced. More Money Is Transferred From Poor Countries to Rich, Than From Rich To Poor For the OECD countries to meet their obligations for aid to the poorer countries is not an economic problem. It is a political one. This can be seen in the context of other spending. For example, The US recently increased its military budget by some $100 billion dollars alone

Europe subsidizes its agriculture to the tune of some $35-40 billion per year, even while it demands other nations to liberalize their markets to foreign competition.

The US also introduced a $190 billion dollar subsidy to its farms through the US Farm Bill, also criticized as a protectionist measure.

While aid amounts to around $70 to 100 billion per year, the poor countries pay some $200 billion to the rich each year.

There are many more (some mentioned below too). In effect then, there is more aid to the rich than to the poor. While the amount of aid from some countries such as the US might look very generous in sheer dollar terms (ignoring the percentage issue for the moment), the World Bank also pointed out that at the World Economic Forum in New York, February 2002, [US Senator Patrick] Leahy noted that two-thirds of US government aid goes to only two countries: Israel and Egypt. Much of the remaining third is used to promote US exports or to fight a war against drugs that could only be won by tackling drug abuse in the United States. In October 2003, at a United Nations conference, UN Secretary General Kofi Annan noted that developing countries made the sixth consecutive and largest ever transfer of funds to other countries in 2002, a sum totalling almost $200 billion. Funds should be moving from developed countries to developing countries, but these numbers tell us the opposite is happening…. Funds that should be promoting investment and growth in developing countries, or building schools and hospitals, or supporting other steps towards the Millennium Development Goals, are, instead, being transferred abroad. Kofi Annan, Development funds moving from poor countries to rich ones, Annan says, United Nations News Centre, October 30, 2003 And as Saradha Lyer, of Malaysia-based Third World Network notes, instead of promoting investment in health, education, and infrastructure development in the third world, this money has been channelled to the North, either because of debt servicing arrangements, asymmetries and imbalances in the trade system or because of inappropriate liberalization and privatization measures imposed upon them by the international financial and trading system. This transfer from the poorer nations to the rich ones makes even the recent increase in ODA seem little in comparison. Back to top

Aid Amounts Dwarfed by Effects of First World Subsidies, Third World Debt, Unequal Trade, etc Combining the above mentioned reversal of flows with the subsidies and other distorting mechanisms, this all amounts to a lot of money being transferred to the richer countries (also known as the global North), compared to the total aid amounts that goes to the poor (or South). As well as having a direct impact on poorer nations, it also affects smaller farmers in rich nations. For example, Oxfam, criticizing EU double standards, highlights the following: Latin America is the worst-affected region, losing $4bn annually from EU farm policies. EU support to agriculture is equivalent to double the combined aid budgets of the European Commission and all 15 member states. Half the spending goes to the biggest 17 per cent of farm enterprises, belying the manufactured myth that the CAP [Common Agriculture Policy] is all about keeping small farmers in jobs. Europe’s Double Standards. How the EU should reform its trade policies with the developing world, Oxfam Policy Paper, April 2002, p.18 (Link is to the press release, which includes a link to the actual Microsoft Word document from which the above is cited.) And as Devinder Sharma adds, some of the largest benefactors of European agricultural subsidies include the Queen of England, and other royalties in Europe! The double standards that Oxfam mentions above, and that countless others have highlighted has a huge impact on poor countries, who are pressured to follow liberalization and reducing government interference while rich nations are able to subsidize some of their industries. Poor countries consequently have an even tougher time competing. IPS captures this well: On the one hand, OECD countries such as the US, Germany or France continue through the ECAs [export credit agencies] to subsidise exports with taxpayers' money, often in detriment to the competitiveness of the poorest countries of the world, says [NGO Environment Defence representative, Aaron] Goldzimmer. On the other hand, the official development assistance which is one way to support the countries of the South to find a sustainable path to development and progress is being reduced. … Government subsidies mean considerable cost reduction for major companies and amount to around 10 per cent of annual world trade. In the year 2000, subsidies through ECAs added up to 64 billion dollars of exports from industrialised countries, well above the official development assistance granted last year of 51.4 billion dollars. Julio Godoy, New Report Reveals Drop in Aid to Developing Countries, Inter Press Service, May 16, 2002 As well as agriculture, textiles and clothing is another mainstay of many poor countries. But, as with agriculture, the wealthier countries have long held up barriers to prevent being out-competed by poorer country products. This has been achieved through things like subsidies and various agreements . The impact to the poor has been far-reaching, as Friends of the Earth highlights: Despite the obvious importance of the textile and clothing sectors in terms of development opportunities, the North has consistently and systematically repressed developing country production to protect its own domestic clothing industries. Since the 1970s the textile and clothing trade has been controlled through the Multi-Fibre Arrangement (MFA) which sets bilateral quotas between importing and exporting countries. This was supposedly to protect the clothing industries of the industrialised world while they adapted to competition from developing countries. While there are cases where such protection may be warranted, especially for transitionary periods, the MFA has been in place since 1974 and has been extended five times. According to Oxfam, the MFA is, …the most significant..[non tariff barrier to trade]..which has faced the world’s poorest countries for over 20 years . Although the MFA has been replaced by the Agreement on Textiles and Clothing (ATC) which phases out support over a further ten year period—albeit through a process which in itself is highly inequitable—developing countries are still suffering the consequences. The total cost to developing countries of restrictions on textile imports into the developed world has been estimated to be some $50 billion a year. This is more or less equivalent to the total amount of annual development assistance provided by Northern governments to the Third World. Clothes, The Citizens' Guide to Trade, Environment and Sustainability, Friends of the Earth International, January 24, 2001 There is often much talk of trade rather than aid, of development, of opening markets etc. But, when at the same time some of the important markets of the US, EU and Japan appear to be no-go areas for the poorer nations, then such talk has been criticized by some as being hollow. The New York Times is worth quoting at length: Our compassion [at the 2002 G8 Summit talking of the desire to help Africa] may be well meant, but it is also hypocritical. The US, Europe and Japan spend $350 billion each year on agricultural subsidies (seven times as much as global aid to poor countries), and this money creates gluts that lower commodity prices and erode the living standard of the world’s poorest people. These subsidies are crippling Africa’s chance to export its way out of poverty, said James Wolfensohn, the World Bank president, in a speech last month. Mark Malloch Brown, the head of the United Nations Development Program, estimates that these farm subsidies cost poor countries about $50 billion a year in lost agricultural exports. By coincidence, that’s about the same as the total of rich countries' aid to poor countries, so we take back with our left hand every cent we give with our right. It’s holding down the prosperity of very poor people in Africa and elsewhere for very narrow, selfish interests of their own, Mr. Malloch Brown says of the rich world’s agricultural policy. It also seems a tad hypocritical of us to complain about governance in third-world countries when we allow tiny groups of farmers to hijack billion of dollars out of our taxes. Nicholas D. Kristof, Farm Subsidies That Kill, New York Times, 5 July 2002 In fact, J. Brian Atwood, stepped down in 1999 as head of the US foreign aid agency, USAID. He was very critical of US policies, and vented his frustration that despite many well-publicized trade missions, we saw virtually no increase of trade with the poorest nations. These nations could not engage in trade because they could not afford to buy anything. (Quoted from a speech that he delivered to the Overseas Development Council.) As Jean-Bertrand Arisitde also points out, there is also a boomerang effect of loans as large portions of aid money is tied to purchases of goods and trade with the donor: Many in the first world imagine the amount of money spent on aid to developing countries is massive. In fact, it amounts to only 0.3% of GNP of the industrialized nations. In 1995, the director of the US aid agency defended his agency by testifying to his congress that 84 cents of every dollar of aid goes back into the US economy in goods and services purchased. For every dollar the United States puts into the World Bank, an estimated $2 actually goes into the US economy in goods and services. Meanwhile, in 1995, severely indebted low-income countries paid one billion dollars more in debt and interest to the International Monetary Fund (IMF) than they received from it. For the 46 countries of Subsaharan Africa, foreign debt service was four times their combined governmental health and education budgets in 1996. So, we find that aid does not aid. Jean-Bertrand Aristide, Eyes of the Heart; Seeking a Path for the Poor in the Age of Globalization, (Common Courage Press, 2000), p. 13 In other words, often aid does not aid the recipient, it aids the donor. For the US in the above example, its aid agency has been a foreign policy tool to enhance its own interests, successfully. And then there has been the disastrous food aid policies, which is another example of providing aid but using that aid as an arm of foreign policy objectives. It has helped their corporations and large farmers at a huge cost to developing countries, and has seen an increase in hunger, not reduction. For more details, see the entire section on this site that discusses this, in the Poverty and Food Dumping part of this web site. For the world’s hungry, however, the problem isn’t the stinginess of our aid. When our levels of assistance last boomed, under Ronald Reagan in the mid-1980s, the emphasis was hardly on eliminating hunger. In 1985, Secretary of State George Shultz stated flatly that our foreign assistance programs are vital to the achievement of our foreign policy goals. But Shultz’s statement shouldn’t surprise us. Every country’s foreign aid is a tool of foreign policy. Whether that aid benefits the hungry is determined by the motives and goals of that policy—by how a government defines the national interest. Frances Moore Lappé, Joseph Collins and Peter Rosset, World Hunger: 12 Myths, 2nd Edition, (Grove/Atlantic and Food First Books, Oct. 1998), Chapter 10, p.130. The above quote from the book World Hunger is from Chapter 10, which is also reproduced in full on this web site. It also has more facts and stats on US aid and foreign policy objectives, etc. As an aside, it is interesting to note the disparities between what the world spends on military, compared to other international obligations and commitments. Most wealthy nations spend far more on military than development, for example. The United Nations, which gets its monies from member nations, spends about $10 billion—or about 3% of what just the US alone spends on its military. It is facing a financial crisis as countries such as the US want to reduce their burden of the costs—which comparatively is quite low anyway—and have tried to withhold payments or continued according to various additional conditions. And with the recent financial crisis, clearly the act of getting resources together is not the issue, as far more has been made available in just a few short months than an entire 4 decades of aid: But, as the quote above highlights as well, as well as the amount of aid, the quality of aid is important. (And the above highlights that the quality has not been good either.) Back to top

But aid could be beneficial Government aid, from the United States and others, as indicated above can often fall foul of political agendas and interests of donors. At the same time that is not the only aid going to poor countries. The US itself, for example, has a long tradition of encouraging charitable contributions. Indeed, tax laws in the US and various European countries are favorable to such giving as discussed further above. But private funding, philanthropy and other sources of aid can also fall foul of similar or other agendas, as well as issues of concentration on some areas over others, of accountability, and so on. (More on these aspects is introduced on this site’s NGO and Development section.) Trade and Aid Oxfam highlights the importance of trade and aid: Some Northern governments have stressed that trade not aid should be the dominant theme at the [March 2002 Monterrey] conference [on Financing for Development]. That approach is disingenuous on two counts. First, rich countries have failed to open their markets to poor countries. Second, increased aid is vital for the world’s poorest countries if they are to grasp the opportunities provided through trade. Meeting the Challenge of Poverty Reduction, Oxfam, March 2, 2002 In addition to trade not aid perspectives, the Bush Administration was keen to push for grants rather than loans from the World Bank. Grants being free money appears to be more welcome, though many European nations aren’t as pleased with this option. Furthermore, some commentators point out that the World Bank, being a Bank, shouldn’t give out grants, which would make it compete with other grant-offering institutions such as various other United Nations bodies. Also, there is concern that it may be easier to impose political conditions to the grants. John Taylor, US Undersecretary of the Treasury, in a recent speech in Washington also pointed out that Grants are not free. Grants can be easily be tied to measurable performance or results. Some comment that perhaps grants may lead to more dependencies as well as some nations may agree to even more conditions regardless of the consequences, in order to get the free money. (More about the issue of grants is discussed by the Bretton Woods Project.) In discussing trade policies of the US, and EU, in relation to its effects on poor countries, chief researcher of Oxfam, Kevin Watkins, has been very critical, even charging them with hypocrisy for preaching free trade but practicing mercantilism: Looking beyond agriculture, it is difficult to avoid being struck by the discrepancy between the picture of US trade policy painted by [US Trade Representative, Robert] Zoellick and the realities facing developing countries. To take one example, much has been made of America’s generosity towards Africa under the Africa Growth and Opportunity Act (AGOA). This provides what, on the surface, looks like free market access for a range of textile, garment and footwear products. Scratch the surface and you get a different picture. Under AGOA’s so-called rules-of-origin provisions, the yarn and fabric used to make apparel exports must be made either in the United States or an eligible African country. If they are made in Africa, there is a ceiling of 1.5 per cent on the share of the US market that the products in question can account for. Moreover, the AGOA’s coverage is less than comprehensive. There are some 900 tariff lines not covered, for which average tariffs exceed 11%. According to the International Monetary Fund (IMF), the benefits accruing to Africa from the AGOA would be some $420m, or five times, greater if the US removed the rules-of-origin restrictions. But these restrictions reflect the realities of mercantilist trade policy. The underlying principle is that you can export to America, provided that the export in question uses American products rather than those of competitors. For a country supposedly leading a crusade for open, non-discriminatory global markets, it’s a curiously anachronistic approach to trade policy. Kevin Watkins, Trade hypocrisy: the problem with Robert Zoellick, Open Democracy, December 12, 2002 Watkins lists a number of other areas, besides the AGOA that are beset with problems of hypocrisy, and concludes that nihilism and blind pursuit of US economic and corporate special interest represents an obstacle to the creation of an international trading system capable of extending the benefits of globalisation to the world’s poor. (See also this site’s section on free trade and globalization, where there is more criticism about northern countries exhibiting mercantilist, or monopoly capitalist principles, rather than free market capitalism, even though that is what is preached to the rest of the world.) In that context then, and given the problems mentioned further above about agricultural and textiles/clothing subsidies, etc. the current amount of aid given to poor countries doesn’t compare to aid given to wealthier countries’ corporations and industries and hardly compensates for what is lost. Both increasing and restructuring aid to truly provide developing countries the tools and means to develop for themselves, for example, would help recipients of aid, not just the donors. Aid is more than just charity and cannot be separated from other issues of politics and economics, which must also be considered. Improving Economic Infrastructure The United Nations notes that effectiveness of aid to poor countries requires a focus on economic infrastructure. Furthermore, to aid development requires, for example: Targeted investment

Productive development strategies to attract currency and sustaining economic growth.

For least developed countries (LDCs) to minimize their disadvantages—such as the small size of their economies—regional integration would help. Countries giving aid could help by providing: Greater investment

Greater debt relief

Actually practice free and fair trade Trade not Aid sounds like decent rhetoric. As the economist Amartya Sen for example says, a lot that can be done at a relatively little cost. Unfortunately, so far, it seems that rhetoric is mostly what it has turned out to be. In addition, as J.W. Smith further qualifies, rather than giving money that can be squandered away, perhaps the best form of aid would be industry, directly: Do Not Give the Needy Money: Build Them Industries Instead With the record of corruption within impoverished countries, people will question giving them money. That can be handled by giving them the industry directly, not the money. To build a balanced economy, provide consumer buying power, and develop arteries of commerce that will absorb the production of these industries, contractors and labor in those countries should be used. Legitimacy and security of contracts is the basis of any sound economy. Engineers know what those costs should be and, if cost overruns start coming in, the contractor who has proven incapable should be replaced—just as any good contract would require…. When provided the industry, as opposed to the money to build industry, those people will have physical capital. The only profits to be made then are in production; there is no development money to intercept and send to a Swiss bank account. J.W. Smith, Economic Democracy; The Political Struggle for the 21st Century, Second Edition, (1st Books, 2002), pp. 300-301 (also available in full online) Use aid to Empower, not to Prescribe The approach which J.W. Smith hints to—and which has often been argued by progressive and developing world activists and experts—is that aid needs to empower local people. There may be some form of aid that is best delivered to (and via) governments, but there are many types of assistance that can be given directly to the people who need it, thus also avoiding the risk of governments withholding, diverting or delaying those funds. Professor William Easterly, mentioned earlier, tries to provide a simplified view of these two general approaches, using the following definitions: Planners Those who go for a top-down, prescriptive, imposing approach Searchers Those who try to look for alternative approaches, often working at the grass-roots, or from the bottom up A Planner believes outsiders know enough to impose solutions. A Searcher believes only insiders have enough knowledge to find solutions, and that most solutions must be homegrown. William Easterly, The White Man’s Burden; Why the West’s Efforts to Aid the Rest have Done So Much Ill and so Little Good, (Penguin Press, 2006), p. 4 Easterly also notes that Searchers have had little chance to deliver in the area of global poverty because foreign aid has been dominated by the Planners (p.7), which is also detailed further above in the rest of this page. Rich donor countries and aid bureaucracies are not accountable Furthermore, a fundamental issue Easterly also notes is that the Planners are rarely accountable for all the grand promises they make. For example, at the G8 Summit in July, 2005, there was much promised, such as over $40 billion in apparent debt write-off, plus further aid promises. While much of this and previous promises have included spin and fancy accounting, these promises have rarely been delivered upon, or if they have and subsequently failed, no-one has been held accountable. (It could be added that Searchers too have thus far largely been unaccountable, too.) A major problem Easterly also sees is that the Planners have a modern version of the paternalistic attitude prevalent during colonial times; that the powerful know what is best for the rest, and should try to shape them in their image: The new military interventions are similar to the military interventions of the cold war, while the neo-imperialist fantasies are similar to old-time colonial fantasies. Military intervention and occuptation show a classic Planner’s mentality: applying a simplistic answer from the West to a complex internal problem in the Rest. … But if rich people want to help the poor, they must face an unpleasant reality: If it’s so easy to end the poverty trap, why haven’t the Planners already made it history? William Easterly, The White Man’s Burden; Why the West’s Efforts to Aid the Rest have Done So Much Ill and so Little Good, (Penguin Press, 2006), pp. 10-11 Donors therefore, are not neutral actors as a review of NGOs questions: Also problematic is the donors’ image of themselves as neutral actors, brokering relations between the state, business, and civil society, and indeed separate and hidden from the triadic unity.… Yet this begs the question from where international agencies derive their authority to act as broker and to pose as neutral observers. Indeed, the prior assumption of a broker role—unnegotiated, uncontested, and unlegitimate—in itself is revealing about the balance of power. The notion of brokering suggests that the broker has no interest of its own, no ideological preferences, no intrinsic values and goals. Apart from the question of neutrality, which services to mask the distribution of power, there is also the larger question of the morality of interventionism. Is donor support to civil society another manifestation of neocolonialism in the post-Cold War era, aimed at controlling the nature of political regimes and extending global markets? Do donors have the right, let alone the capacity, to shape other civil societies? By projecting their own visions and understandings of civil society, do they not undermine the ability of local organizations to set their own priorities and agendas, to vocalize their own imaginations of social and political change? Jude Howell and Jenny Pearce (David Lewis and Tina Wallace, Editors), New Roles and Relevance; Development NGOs and the Challenge of Change, (Kumarian Press, 2000), p. 83 Interestingly, Easterly notes that politicians are often Searchers at home but Planners abroad because at home they have constituencies to whom they are usually accountable; they are not accountable to people in other countries. There is therefore no way for a feedback mechanism to have clout. Without accountability and feedback, there is little chance for success Easterly feels. Feedback guides democratic governments towards supplying services that the market cannot supply, and toward providing institutions for the markets to work , while, at a higher level, accountability is necessary to motivate a whole organization or government to use Searchers. (P. 16) Democracy-building is fundamental, but harder in many developing countries Another aspect of accountability (especially when it comes to providing public services that free markets are not intended to provide for) is democracy. Politically, democracy is supposed to provide a feedback mechanism so that politicians are held accountable and react to needs. If a road needs repairing, water systems need improving etc, we should be able to demand that our local politicians act, for example. As Easterly and many other writers have acknowledged, however, the struggle for democracy in the developing world is much harder because of the legacy of colonialism—the artificial borders, unnatural movement and displacement of people, etc—which means that either powerful minorities (e.g. European settlers), or powerful majorities may not always represent the interests of everyone in that nation. There may have been historic tension amongst people who are now confined to the same borders, for example, making positive democratic changes extremely difficult, further compounded by poverty and other related problems. Failed foreign aid and continued poverty: well-intentioned mistakes, calculated geopolitics, or a mix? These, and so many other factors all interplay, making foreign aid less useful than it should have been. Certainly trillions have been spent with little to show for it. To oversimplify … the needs of the rich get met because the rich give feedback to political and economic Searchers, and they can hold the Searchers accountable for following through with specific actions. The needs of the poor don’t get met because the poor have little money or political power with which to make their needs known and they cannot hold anyone accountable to meet those needs. They are stuck with Planners. The … tragedy [of failed foreign aid] continues. … To make things even worse, aid bureaucrats [from rich donor countries] have incentives to satisfy the rich countries doing the funding as well as (or instead of) the poor. One oversight in the quest to help the poor was the failure to study the incentives of its appointed helpers. The bureaucratic managers have the incentive to satisfy rich-country vanity with promises of transforming the Rest rather than simply helping poor individuals. Internal bureaucratic incentives also favor grand global schemes over getting the little guy what he wants. … A big part of the problem originates with the rich-country governments who set the mandates of the aid agencies. Dear rich-country funders, please give up your utopian fantasies of transforming the Rest. Don’t reward aid agencies for setting goals that are impossible as they are politically appealing. Please just ask aid agencies to focus on narrow, solvable problems. For example, let them focus on the health, education, electrification, water problems, and piecemeal policy reforms to promote the private sector—where they already had some success—and fix some remaining problems such as the refusal of donors to finance operations and maintenance. Collective responsibility for the Millennium Development Goals or any other goals does not work. Hold aid agencies individually responsible for what they own program achieve, not for global goals. Letting different agencies specialize in different areas would also lessen the coordination problem. William Easterly, The White Man’s Burden; Why the West’s Efforts to Aid the Rest have Done So Much Ill and so Little Good, (Penguin Press, 2006), pp. 17, 167, 204-205 Easterly’s call to promote the private sector is not as much about foreign private corporation going into a country (as the problems of foreign private sector involvement has been well known in developing countries, e.g. privatizing water services where the poor often can no longer get access to water). Instead, Easterly, like others such as J.W. Smith, Joseph Stiglitz, etc feel that a local, home-grown private sector would be more responsive to local needs. Searchers are not just of the private sector variety, but also politicians and NGOs who are responsive to local needs. (Easterly, for example, provides numerous examples of this.) Easterly feels that Planners are generally well-intentioned, but fundamentally miss the point and are nonetheless popular perhaps because of a Western fascination of heroes and heroic stories that stars the rich West in the leading role, that of the chosen people to save the Rest (p.18). Side NoteI would suggest that this idea in the West can be linked to the story of Christ and how Christianity has helped shape culture and thought in the West. Similarly, one will find other hero figures in other parts of the world, such that stories of individuals saving the day will appeal to many around the world. Others, especially from developing countries, are more cynical than Easterly (perhaps understandably, given that they are the ones who have suffered the long history for centuries at the hands of the Planners’ ancestors), that perhaps today’s Planners are continuing a time-tested strategy, to keep the developing world in poverty so the Planners may continue to dominate. Yet others may argue that it is not necessarily these Planners actively seek to do this; they may be well-intentioned, but their education, culture, society, whatever, is geared towards perpetuating the existing system, so they cannot think outside of that framework of orientation (a term coined by J.W. Smith). The pressures of globalization affect both rich and poor nations, and so can (understandably) drive people that are in a position of power to follow the bad policies that we actually do see them pursue in foreign affairs. The authoritative Assistant Director of Development Studies at the University of Cambridge, Professor Ha-Joon Chang, for example, looks at the historical context, and just as J.W. Smith and others have noted, finds that today’s rich countries developed using different policies than those typically prescribed to today’s poor countries: ‘How did the rich countries really become rich?’ The short answer to this question is that the developed countries did not get to where they are now through the policies and the institutions that they recommend to developing countries today. Most of them actively used ‘bad’ trade and industrial policies, such as infant industry protection and export subsidies—practices that these days are frowned upon, if not actively banned, by the WTO. Until they were quite developed (that is, until the late nineteenth to early twentieth century), they had very few of the institutions deemed essential by developing countries today, including such ‘basic’ institution as central banks and limited liability companies. If this is the case, aren’t the developed countries, under the guise of recommending ‘good’ policies and institutions, actually making it difficult for the developing countries to use policies and institutions they themselves had used in order to develop economically in earlier times? Ha-Joon Chang, Kicking Away The Ladder, (London: Anthem Press, 2002), pp.2–3. (Emphasis is original) Chang also notes that German economist Friedrich List had analyzed the political system in his classic work, The National System of Political Economy (1841), and observed that even the rise of Britain, the hero of free trade and the free-market economy, was actually characterized by protecting infant industries. Chang comments that, List [argued] that free trade is beneficial among countries at similar levels of industrial development … but not between those at different levels of development. Like many of his contemporaries in countries that were trying to catch up with Britain, he argues that free trade benefits Britain but not the less developed economies…. To [List]…, the preachings on the virtues of free trade by British politicians and economist of his time were done for nationalistic purposes, even though they were cast in the generalistic languages…. He is worth quoting… It is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him. In this lies the secret of the cosmopolitical doctrine of Adam Smith, and of the cosmopolitical tendencies of his great contemporary William Pitt, and of all his successors in the British Government administrations. Ha-Joon Chang, Kicking Away The Ladder, (London: Anthem Press, 2002), pp.4–5. (Emphasis is Chang’s) Chang is looking at development from the perspective of international trade while Easterly is focused on development from the perspective of internal market development. Chang is therefore implying that for the kind of developments needed locally, international actions do have an impact. Easterly feels that international actions are misguided, though well-intentioned, while Chang sees historical calculation and power acting to conspire against development. It is likely we will never know which views are correct, and there is perhaps a mixture of reasons; a mixture of bumbling mistakes, calculated statecraft, poor execution by some developing countries, and lack of opportunities for the poor, etc. Easterly does acknowledge limitations to this oversimplification of Planners and Searchers and that there are reformers and dissidents working at all levels, grass-roots and macroeconomic. For example, many believe macro-economic changes are needed to the global system (perhaps in order to enable Searchers to work more effectively, or just to allow for a more just system where Planners from the rich world do not dictate) and this may indeed require people working at the global level, though this may not necessarily require a prescriptive we know best approach which ultimately Easterly is criticizing. Turning this debate of foreign aid from an issue of amount given (input and quantity) into one about aid effectiveness (outcome and quality) raises some different questions. For example, Would filling the $3.6 trillion shortfall help if aid comes with all the above-criticized strings still attached?

Could far more be achieved with far less aid dollars if there was a change in approach with less top-down and more bottom-up?

And if so, how much more could be achieved if the shortfall was filled at the same time?

Although we keep hearing that the fault is of corrupt people in the developing world, should first world countries also be held to account for both the massive aid shortfall and the failed prescriptive, we know best approach to development? The OECD is also rethinking how to measure development aid to reflect some of the newer realities as noted in a short video: Rethinking development aid , OECD, April 24, 2014 Whether the hope for effective foreign aid will actually turn into reality is harder to know, because of power politics, which has characterized and shaped the world for centuries. A risk for developing countries that look to aid, at least in their short-term plans to kick-start development (for becoming dependent on aid over the long run seems a dangerous path to follow), is that people of the rich world will see the failures of aid without seeing the detailed reasons why, creating a backlash of donor fatigue, reluctance and cynicism. Back to top