The false God of 0.7: understanding the Aid Business – By Richard Thomas

The debate about the UK aid programme has been heating up over the last few months. There is general agreement that we should respond to humanitarian disasters, such as famine or tsunamis, but the debate has now focused on whether we, the UK, should give 0.7% of our GDP towards our aid programme and whether this should be enshrined in law. The argument for an aid programme is strong, for reasons of self interest as well as morality, but the doubters are not short of powerful facts and difficult questions.

We will give £220m a year to the DRC in 2013-4, not a country with which we have close links, and one which according to Richard Dowden, has a government which is “˜unpopular, corrupt, rapacious and incapable of establishing effective institutions’. Other governments are not much better from the point of view of the poor.  For example, why should we double our aid to Pakistan in the next two years when they do not bother to collect tax from the rich or give money to India when they have a space programme?

The best answer to these questions was given by Hilary Benn when Secretary of State for International Development. He said “˜we should not punish the people twice’, ie remove assistance because they have a bad government.

Nevertheless, the inexorable rise of the Aid budget from around £8billion in 2010-11 to £11b in 2014-5 in times of austerity is not just unsustainable in terms of UK policy; it is developmentally unjustifiable. In short the God of 0.7% is a false God.

Origins

The key to understanding this is to be found in history. The UK Aid programme developed out of the 1939 Colonial Development and Welfare Act which led, in 1964, to the formation of the ODM, later ODA and DFID.  DFID and its precursors funded projects in agriculture, health, and education – supporting up to 15,000 people on professional courses in the UK each year.

Meanwhile, in 1967, international leaders, headed by Lester Pearson of Canada, were asked by the World Bank to review the widening gap between the rich and poor countries, and to investigate the ‘Crisis in Aid’. The Report, “˜Partners in Development’ was published in Sept 1969; many of its findings resonate today. It made recommendations about the need to make trade freer and more equitable; to promote flows of private direct investment; to increase development aid and to make it more coherent, less tied and more of a partnership. It assumed that the process of capacity building through education and training would continue.

Of equal importance for today’s debate, was the discussion about the troublesome 0.7%.  Pearson felt that it would be acceptable and sustainable to recommend that transfers from what is now called the “˜North’ to the “˜South’ should be around 1% of GDP of the richer (donor) countries. This was not based on economic research but on what they believed “˜the market would bear’. Some Scandinavian donors gave about this amount; the UK gave around 0.3% and the US rather less.

Pearson concluded that initially 0.7% should be official (government) aid flows and that approximately 0.3% should come from the private sector. The first part of this formula (0.7%) was adopted by the UN and later by the major donor countries.  Pearson expected that this ratio of 2:1 (government: private) would, within two decades, be reversed. He felt that a more natural relationship was 0.3% from government funded aid flows and approximately 0.7% or more from the private sector. Reducing poverty in Africa and Asia depended on investment, trade, better health and education, adding value locally to primary products etc. Not, in other words giving developing countries fish (aid), but giving “˜them’ a fishing rod so that they could develop themselves.

Private investment would flow, they believed, when internal capacity and investment-friendly institutions had been developed – partly by aid. But it was necessary to begin with a front loaded “˜Marshall plan’ approach, hence the 0.7%. The long term need for 0.3% was to help build and sustain local capacity.

Implications

The UK government’s commitment to enshrine the 0.7% into an Act of Parliament is a misunderstanding of Pearson’s Report.  Not least, because the decision to spend 0.7% has led to strange policies. In Africa the instrument which enables donors to meet their ever increasing spending targets is Direct Budget Support; this involves giving funds directly to partner countries’ sector ministries such as Education or Health or to the Ministry of Finance to spend more or less as they wish. It is readily accepted that DBS has contributed to an increase in the number of children in schools in many African countries. Free bed net provision has reduced malaria deaths and improved water supply has made the lives of many women less onerous.

The trouble is that all government income is fungible so that even if every penny of aid money was accounted for (it is not) then government and political elites can and do spend their “˜own’ money on buying elections, buying armaments, and funding lavish lifestyles.

If Governments are offered more money than they have the capacity to sensibly absorb this will almost certainly increase corruption, remove rather than increase the need for reform and, over the medium term, will increase dependency. More indirectly, it   reduces the likelihood that elections would be allowed to be “˜free and fair’ because the incumbents have so much to lose. And, rather more cynically, it lessens the need for “˜northern’ governments to remove the bias in trade arrangements, to restrict dumping, and to make it harder for European Banks to accept money clearly stolen from developing countries.

Ironically, the pressure to spend has involved a DFID presence in relatively well-off countries. The programme to India is £280m; miniscule (0.03%) in terms of Indian national income. South Africa receives £19m; under 1% of their development budget.  DFID has, in the face of criticisms, decided to end these programmes. This may be a mistake, since there are many millions of poor people in both countries and it is often in middle income countries that the reforms initiated by donors have the greatest chance of success.

Equally, cutting funding to these countries creates pressure to spend more in other places, such as the DRC, where the likelihood of spending large sums sensibly is vanishingly small.   It is also true that the large and welcome reductions in poverty in recent years in China and India have had almost nothing to do with aid and everything to do with the reform of economic policies and institutions by the governments concerned.

Africa, Aid and China

Something has gone right in Africa over the last decade; the World Bank found to its surprise that between 2000 – 10 six out of the ten fastest growing economies in the world were in Africa. Similarly the (March 2013) World Development Report shows encouraging trends in health, education and wealth indicators for many African countries.

However, much of the development was caused not by donor policies but by the growth of Chinese, and to a lesser extent, Indian, investment in Africa. Whether we believe the role of the Chinese is essentially benign or rapacious, there is no doubt that they have fundamentally changed the “˜rules of the game’.

The Chinese “˜Scramble for Africa’ which focuses, like the European one in the 1890s, on minerals and primary products has been called the Great Chinese Takeaway. They are seeking both minerals and markets and the rapid rise in Africa’s trade with China ($55b in 2005 to approximately $166b in 2011) is certainly significant. Perhaps only the South Africans have pushed back, mainly because they have seen their small manufacturing sector virtually wiped out by cheap Chinese imports.

The Chinese may have given $54b in grants to Africa over the last decade, but they have also supported some of the nastier regimes, such as Zimbabwe, Angola and Sudan. They have imported Chinese labour to do jobs which Africans could easily do, and have made deals (such as over Angolan Oil) which do not bear scrutiny.

The role of the Chinese in Africa has fundamentally changed the equation for western donors. For many years more than 50% of the Budget of several African countries (Uganda, Rwanda etc) came from the West but now this assistance is less important than it was. The Chinese are an alternative source of funds providing vast sums in both investments and grants. And unlike the West they do not impose conditions.

The British Dilemma

DFID thus finds itself to be of marginal importance, not always effective, reluctant to expose corruption and unable to withdraw. Why?  Because of the imperative to keep up the spend by “˜shovelling money out of the door’ so that the 0.7% target can be achieved. The perverseness of this incentive should be recognised. It has been suggested that part of DFID’s “˜hard to spend’ budget should go to the FCO or even to the Military. If the extra funding to the FCO and British Council is used for short and longer-term scholarships, specialist training, academic and commercial exchanges and a significant boost to the BBC World Service then it would be money well spent. The old hostility between DFID and the FCO, engendered by Clare “˜I’m not giving them any of my money’ Short is untenable but a closer relationship between the two Departments will not happen when DFID’s budget is rising and the FCO’s is shrinking.

The suggestion that DFID money be given to the MOD is even more complicated. The MOD is just not good at re-construction and “˜hearts and minds’ work. However, it is crucial to development work in post conflict situations””as long as it accepts that it needs DFID experience and expertise, not just its money.

What is to be done?

A new Paradigm for Aid and Development assistance is needed. The 0.7% model encourages donors to focus on quantity rather than quality and discourages the kinds of reforms which would engender sustainable growth. The Chinese alternative, which is just as exploitative as the western neo-liberal model, appeals to many African elites who are neither reformist nor pro-poor.

Pearson’s expectation that the educational and structural investments achieved by aid would trigger increasing investment and trade has, thanks to the Chinese, been realised (although probably not in ways he expected). But bulk or wholesale aid, whether 0.7 or 0.3, is no longer the key to African development. It could be argued that small scale initiatives which act as a catalyst (adjusting the “˜rules of the game’, removing log-jams, increasing the role and influence of civil society, improving the capacity to audit flows of funds etc) are both cheaper and much more useful to developing countries in the long run.

Successful but hard won initiatives such as the Extractive Industries Transparency Initiative (EITI) and the Bribery Act (2010) are good examples of the difficult but relatively cheap ways in which aid funding can be spent. And, historically, the technical help given to Botswana in the 1960’s enabled the income from diamonds to benefit their exchequer and the people; not just De Beers.

Dropping the commitment to 0.7% is merely the first step.  The UK needs a Royal Commission, (or similar High Level body), to provide a platform for a discussion of the widest possible range of ideas and to decide how much we can and should spend on both Aid and Development.  It needs to encourage the articulation of ideas from developing countries (The World Bank’s Voices of the Poor [1999] is a good model). It should   review the lessons being accumulated by independent researchers and should note how the Gates Foundation, among others, achieve results.

Economists need to look at fundamental issues such as the terms of trade, investment policy, international banking and capital flows. This year’s Africa Progress Panel Report shows how Africa loses twice as much in illicit financial outflows as it receives in international aid. Ha–Joon Chang of Cambridge has reminded us that the USA and others were extremely protectionist as their nascent industries grew and that the West’s insistence on “˜kicking away the ladder’ will stop the poorer countries from developing. A UK-centred discussion should also respond to the issues raised in the May 2013 report, “˜A New Global Partnership’, about updating the Millennium Development Goals. Their key “˜five big transformational shifts’ might easily have come from the Pearson Report.

The conclusions of a wide ranging and independent study might make uncomfortable reading for grandstanding politicians and rock-stars, but might result in an aid policy which costs less, accepts that is  not the main event, is more developmental, reduces dependency, adjusts the power relationships and helps more poor people in developing countries.

Dr Richard Thomas is a Former Senior Governance Adviser, DFID. He was at the Pearson Report Conference in Ottawa in 1969

If you enjoyed this post, please consider leaving a comment or subscribing to the RSS feed to have future articles delivered to your feed reader.

12 thoughts on “The false God of 0.7: understanding the Aid Business – By Richard Thomas

  1. aid should not be law it should be heart felt. every one can not respond to every disaster and any response should be out of love and not by mandate. not every disaster warrants a response and many are self caused and often played up just to receive aid.

  2. Richard, a useful and accurate article I feel. International Alert has been saying similar for while, and we published a rather long essay along these lines in 2012 in case of interest: http://www.international-alert.org/sites/default/files/publications/MDG.pdf – still relevant I think. One thing which has changed for the better since 2010 is there are many more people – yourself included – trying to shine a forensic light on the issue without prejudice in either direction, so a more honest conversation is starting to be had.

  3. I doubt if many people have believed that 0.7% was an accurate figure for anything, but in states where the aid budget is less than that it seems a useful reference point for campaigners who want to prize open more space for international benevolence. Like many other scorecard indicators there was always a danger it would be one of those weakly-specified wishes which could be technically fulfilled – or progressed towards – without giving you what you really want. For campaigners it can be a starting point, though it needs a lot of accompanying work.

    In the 1980s there was something called the Campaign for Real Aid. It focussed mainly on the issue of tied aid. The UK technically outlawed tied aid in 2002, but in practice continues to do aid in ways which largely serve domestic interests. There is much awareness nowadays of how apparently well-intentioned aid can do harm. But this may be overplayed. There is still amazingly little hard evidence about the net harms and benefits.

    I believe there is still a lot of potential in demands for aid transparency and public accountability in the internet era, keeping the issue alive for progressive politics. DFID tried to institutionalize that agenda, and a Royal Commission might do the same, but the real pressure has to come through a broader changing of practices and attitudes. It is true that we still need much stronger tools for knowing and using aid, but if they improve then that 0.7% leverage point may still be useful. I’d say that now is not the time to abandon it.

  4. There seems to be some correlation between “bad” governance, lack of accountability and democracy, and the need for foreign (and humanitarian) aid. Unfortunately, the official aid agencies do not know how to change ‘bad’ governments into ‘good’ governments with the apparatus of foreign aid. ‘Bad’ government has far deeper roots than anything the West can affect. What is required is a total rethink and reform of foreign aid.

    The West cannot design a comprehensive (external-imposed) reform for a poor country that creates benevolent laws and good institutions to make the economic markets work. Experience demonstrates that the rules that make markets work reflect a complex bottom-up search for social norms, networks of relationships, and formal laws and institutions that have the most payoffs. To make things worse, these norms, networks and institutions change in response to changed circumstances and their own past history. Political philosophers such as Burke, Popper and Hayek had the key insight that this social interplay was so complex that a top-down reform that tried to change all the rules at once could make things worse rather than better.

    Piecemeal reformers, foreign and domestic, can try to move toward better systems that are sensitive to local conditions and that unshackle the dynamism of individuals everywhere. The dynamism of the poor at the bottom has much more potential than planners at the top.

    “No one’s life, liberty, or property is safe while the legislature is in session.”

    The one gut instinct that many people have about the poverty of nations in Africa is probably close to the target: it is all politics!

    WHY DO COUNTRIES GIVE AID?

    A television set flickers with pictures of a very young emaciated brown skinned toddler with a bruised hunger ravaged dirt smudged face and enormous startled eyes with [perhaps] a vulture lurking directly behind—waiting—waiting—waiting. A disembodied voice and a telephone number appeal; pleading on her behalf for contributions to the NGO(s), hard at work responding to (yet) another natural/man-made disaster. In a US State Department or DFAIT/CIDA (Canada) office finance officials are coordinating developmental assistance with the Foreign Office, finalizing the tertiary touches to a supplementary appropriations request for a record level of aid to Haiti, Afghanistan, Liberia, Tunisia, Libya and so on. Intra finance dialogue is advanced between the World Bank and the IMF in coordination of funding resource deployment. With only minor changes, this scenario might also have been taken in Beijing China.

    Like the West, China gives aid for three reasons: strategic diplomacy, commercial benefit and as a reflection of society’s ideologies and values. The broad imprimatur of foreign aid policy are developed and benchmarked by political leaders, who shape aid as an elemental instrument of foreign policy. These political leaders can at times influence decades of aid practice through bold gestures or ideologies of the moment. Former President, Jimmy Carter, locked the US into large transfers of aid to Egypt and Israel after a handshake at Camp David. The ideas of former Prime Minister Margaret Thatcher and former President Ronald Reagan deeply influenced aid for many decades in helping to articulate a more conservative—market oriented aid agenda.

    However, even the wishes of strong political leaders such as the US President and Chinese Party Chairman are translated through a prism reflecting disparate kinds of pressures—state, societal, and international—in order to determine at the specifics of Aid Policy. The State influences are crucial and salient. The United States Agency for International Development (USAID) is subordinate to the State Department reflecting and refracting foreign aid’s social utility as an important diplomatic instrument in the advancement of social cohesive democratic choice. China’s two main aid instruments are housed in the Ministry of Commerce and the China Export Import Bank both of which are tasked with the building of China’s domestic economy.

    The international aid regime is also influenced by changing ideas as to what constitutes ‘good’ development which is entailing the mix of foreign and domestic inputs believed to produce growth, reduce poverty, and enhance equity and the broad-based sustainability of long term intra-generational growth.

    USAID which was created by President Kennedy as a specific particularized developmental assistance entity in 1961 was for all intents and purpose effectively absorbed by the State Department in 2006, resulting in having its expert class of employee ranks decimated. USAID at the end of the Bush presidency was regarded by many international aid experts as being little more than a “contract clearing house”.

    In this aspect, Chinese ideas provide a significant contrast to the ideas of the West distilled by the term “Beijing Consensus” as analyzed by Joshua Ramo, a former foreign editor at Time magazine. This insight offers the argument that China’s mix of pragmatism and idealism was an alternative model, rivaling the central tents of a “Washington Consensus” grounded in the ideas championed by Margaret Thatcher and Ronald Reagan.

    DEMOCRACY AND GOOD GOVERNANCE

    In the course of my work in developing countries, I have encountered outstanding government officials whom I admire greatly. These government officials with insight complain more knowledgeably about bad politics and corruption in their own countries than outsiders can ever hope to articulate.

    We must face reality—decades of research by social scientists, not to mention everyday observation, illustrate how dysfunctional government can get in many countries. We do not do the poor any favours by tenderly respecting the sensitivities of ‘bad’ rulers who oppress their own people.

    Democracy can function, but imposing democracy from the outside does not. Democracy features feedback and accountability, while foreign aid does not. Government institutions such as courts, judges and police could solve some of the problems plaguing emerging market economies. Impartial courts and police help make the market function in affluent countries by enforcing contracts, protecting property rights, providing security against predators and punishing lawbreakers.

    The Achilles’ heel is that any government that is powerful enough to protect against predators is also powerful enough to be a predator itself. The other great invention of human society besides the free market economy is political freedom. According to the simplest view of democracy, an open society with a free press, free speech, freedom of assembly, and political rights for dissidents is a way to ensure good government. Free individuals will expose any predatory behaviour by ‘bad’ governments and vote them out of office. Voters will reward with longer terms of office those politicians who find ways to deliver more honest courts, judges and police. Political parties will compete to please the voters, just as capitalistic firms compete to please their customers.

    The next generation of politicians will do better at delivering these services. Of course, no real democracy functions close to this ideal. Democracy is not a quick prescriptive fix for poor countries. The path to a stable democracy is tortuous and fraught with peril. Democracy depends on the slow and bottom-up evolution of rules of fair play.

    Aside from numerous examples of electoral cheating/fraud, democracy is an intricate set of arrangements that is far more nuanced than just holding elections. Another problem with democracy is that of the tyranny of the majority. If a majority hates some minority viewpoint, they may vote to censor the dissidents. This would limit the free speech and debate that is one of the virtues of democracy. These points are far from hypothetical in poor-country democracies, which are often polarized along ethnic and class lines and where the winners sometimes abuse the losers. This is why a complete definition of democracy involves some protection for individual rights and freedom of dissent as well as majority rule.

    PROBLEMS OF ENDEMIC CORRUPTION

    Another problem with the ideal vision of democracy is corruption. Competitive elections are no guarantee against corruption. Politicians can buy votes instead of earning them with good government. They can steal from state coffers to fund payoffs for their supporters. Corrupt politics merge with ethnic politics as parties compete to win resources for their own ethnic group.

    This superficial sketch of democracy and its vulnerabilities has uncovered several reasons why good government may not take hold—elite manipulation of the rules of the political game, weak social norms, landed wealth, natural resources, high inequality, corruption and ethnic nationalism and hatreds.

    Unfortunately, the aid agencies have had little idea how to fix these problems from the outside when they have tried to change ‘bad’ governments into ‘good’ governments—the foreign aid Planners in the West have never figured out how to deal with ‘bad’ governments. ‘Bad’ governments can sabotage even the most well-intentioned aid programs. Another critical government input for development is good public services. Governments in poor countries often fail at delivering basic health and education services.

    Since donors understandably do not want to admit they are dealing with ‘bad’ governments, diplomatic language in aid agencies becomes an art form. A war is a “conflict-related reallocation of resources”. Aid efforts to deal with homicidal warlords are “difficult partnerships”. Countries whose presidents loot the treasury experience “governance issues”. When government officials want to steal while the aid agency wants development, there are “differences in priorities and approaches that need to be reconciled”. The “weak but improving” line is popular among aid agencies in Africa.

    Some blame the perception of ‘bad’ government in Africa on racism—an insult to the many courageous Africans who have resisted tyrannical rulers at risk of their lives and safety. It is a mistake to go to either extreme—overlooking ‘bad’ government in Africa or embracing a stereotype of African government as always bad or ineffective.

    To aid agencies, participation is an apolitical technical process of consulting the poor. As Daniel Patrick Moynihan said about a similar participation idea in the 1960’s: “The socially concerned intellectuals seemed repeatedly to assume that those who had power would let it be taken away a lot easier than could possibly be the case if what was involved was power”.

    Often society and politics fracture along regional or ethnic lines, and foreign aid maintains neutrality with difficulty.

    This is not to automatically canonize democratically elected governments. They, too, can make terrible choices—this reinforces the fact that it is awfully hard to get democracy to function in a prescriptively beneficial fashion. Outside interference does not have a great record on improving matters, on making governments do the “right” thing.

    PEER REVIEW OF GOOD GOVERNANCE

    Another device by which donors try to get “local ownership” of ‘good’ government reforms is “peer review” of some African rulers by others. This is part of what is called the New Partnership for African Development (NEPAD), which is supposed to have African rulers enforcing standards of ‘good’ governance on one another. It is a little mysterious why the donors embrace a mechanism of accountability for African governments that they would never apply to their own countries. Would the American government, for example, submit to peer-review by the Canadians?

    “Peer review” misses the whole point of democracy, which is government accountability to its own citizens—not to some other government.

    In his book The End of Poverty, Jeffrey Sachs emphasizes that many African countries do not have unusually ‘bad’ governments compared with other countries at their level of income. Unfortunately, what counts for the population’s well-being is not how good the government is for its level of income; it is just how good the government is, period. Aid agencies have to face reality: Is money given to a ‘bad’ government going to reach those in need – the poor? Perhaps the reason the country is poor has something to do with ‘bad’ government?

    Paul Collier in two of his books The Bottom Billion and The Plundered Planet suggests that all aid is not necessarily pernicious or biased in terms of social homogenization which, is the argument advanced by Dambisa Moyo in her book Dead Aid. Moyo’s book “Dead Aid” can be considered as the exemplar of what I consider as being ‘vulgar economics’ in that her prescriptions are iron clad in that all external aid is bad. In the video clip below, she presented her key arguments during a debate.

    Aid is complex, multi-textual and requires a high degree of sophisticated nuance unique to each specific region in order to be prescriptively successful and success can only be measured in decades rather than short term benchmarks.

    International aid assistance rendered with the advisory active direct ‘hands on participation’ of the national local recipients can prove to be a most effective crucial instrument in social policy advancement notionally unencumbered by external values; as this kind and type of aid which is not externally entailed can actually provide the essential requisite ‘hand up’ which is so desperately required in many regions of post conflict strife and stress.

    Unfortunately, the official aid agencies do not know how to change ‘bad’ governments into ‘good’ governments with the apparatus of foreign aid. ‘Bad’ government has far deeper roots than anything the West can affect. What is required is a new novel paradigm of Aid Assistance Development reflecting our now existent interconnected global leadership leitmotiv, which as a result of the current world economic roiling is in requirement of exceptional imagination.

  5. Pingback: UpLook | Unpicking The 0.7% Aid Target

  6. The UK’s Direct Budget Support to the Government of Ethiopia has contributed to the expansion of schooling into rural areas; primary school enrollment has risen from three to almost 16 millions students in the last 20 years, and this is a good use of public money.

  7. Education is equivalent to giving a man a rod and teaching him how to fish instead of giving him a fish for the day.
    Investment in education pays the highest dividents with the education made possible by the information super highway being the best example because knowledge is power and the knowledge on how to spread helth messages, money transfers and other relevant community activities is so vital and will continue to play an even bigger role as more and more people become literate and mobile devices become more affordable.
    On the flip side, these same devices are used to spread hatred, tribalism and the attendant detrimental chest thumping by some members and therefore spreading disharmony between different tribes and even within them.Civic education, properly guided, can be used through the same media to spread goodwill messages and to counter negative perceptions and stereotypes. The West can pitch in, but no amount of money can make a difference where the citizentry does not accept collectve responsibility alongside its demands, and expectations of equitable distribution of available resources. They should strongly reject political leaders who show openly their interest in entering politics is not to help the masses but to bleed them to death. Most populations have at least five years between elections to learn about the people who represent them, especially in this information age. As always, they get the leaders they deserve and no amount of money from outside will make any difference until they themselves decide to make that all important paradigm shift and becone their brothers’ keepers.

  8. I wonder if Richard and/or the British have considered the way the Millennium Challenge Corporation makes funding decisions–trying to provide incentives for good governance…

  9. Pingback: The false God of 0.7: understanding the Aid Business – By Richard Thomas | African Arguments | peter singhatey

  10. Aid effectiveness certainly needs to be improved. But there is no reason why we cannot do so while also holding ourselves to 0.7% goals. The idea that governments can’t ‘absorb’ all that aid is totally flawed. There are many many different ways of giving aid… it doesn’t all have to go through the recipient government and it doesn’t all have to be in the form of cash.

    We should stop finding excuses for lowering our commitments to the world’s extreme poor and start thinking more ambitiously and smartly about how we can increase it.

Leave a Reply

Your email address will not be published. Required fields are marked *

Time limit is exhausted. Please reload CAPTCHA.