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Terence
Joined: 23 Jan 2006
Posts: 21
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 Posted: Tue Nov 14, 2006 3:14 pm Post subject: Aid Doesn’t Work! Does It? |
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(This post was written by the DevNet coordinator in 2006. You're still welcome to have your say though...)
You could hardly blame the average New Zealand newspaper reader for being confused when it comes to overseas aid. One week they read Bob Geldof calling the New Zealand government pathetic for giving so little aid the next they read Martin Robinson and Helen Hughes claiming that, far from giving more aid, we should curtail it, as aid does more harm than good.
Both of these claims can’t be true can they? Surely Bob Geldof (who looks like a nice bloke) wouldn’t be advocating for more of something that actually makes things worse. Would he?
Welcome to the Great Aid Debate.
Almost as long as developed countries have been giving aid, there have been people claiming that aid harms more than it helps, and that money given as aid would be better spent domestically or left in the pockets of developed world taxpayers. Prominent nay-sayers include the late economist Peter Lord Bauer (Margaret Thatcher liked him so much she gave him a peerage), Martin Robinson, Wolfgang Kasper and Helen Hughes.
On the other side of the divide you have Geldof, Jeffrey Sachs, Joseph Stiglitz, lots of NGOs and our very own Point Seven Campaign.
As with all debates where the stakes are high, the aid debate can get pretty emotive and rhetoric-laden. So I thought it would be a good idea to peer past the emotion and have a look at the evidence, and see if aid really does help in the way we would hope.
My starting point in this peering is the broad cross-country regression analyses much loved by economists.
In these studies, the level of aid countries have received is compared against their GDP per capita over time to see if there are discernable positive or negative impacts from aid on GDP. This sounds like a simple task, but its not. For a start, it’s hard to separate cause and effect (just because the countries that receive the most aid are the poorest isn’t evidence, for example, that aid doesn’t work – you’d expect the poorest countries to be receiving the most aid, they need it most after all.) On top of this, it is often very hard to isolate the impact of aid from all the other things that might affect GDP (economic policy for example, or war, or climatic conditions).
One of the first people to try and study aid-effectiveness by comparing aid levels and GDP was Peter Bauer. The conclusions he drew were strongly negative (Bauer is the supposed source of the pithy aphorism “aid takes money from poor people in rich countries and gives it to rich people in poor countries”). Since Bauer, there has been a steady stream of aid-effectiveness studies that have drawn draw similar conclusions – most recently from William Easterly, a former World Bank economist turned aid critic.
It’s studies such as Easterly’s that Helen Hughes is referring to when she claims
| Quote: | | Aid appears to be inversely related to growth. Recent research shows that worldwide aid has not even been effective in countries that have adopted pro-growth policies. |
So Hughes is right then? The evidence appears to be on her side.
Wrong.
For the reasons that I outlined above, cross-country regression analyses are difficult things to run properly and different parameters can lead to different results. And for each study that purports to show that aid has no effect or is harmful, there are several studies that show that aid does have a positive impact. (Mark McGillivray of UNU WIDER has a good summary of many of these positive studies here [PDF file].)
To paint their bleak picture of aid-effectiveness Hughes and her fellow travelers have to ignore these positive studies as well as the fact that the balance of recent empirical evidence shows that aid does help. They have to focus exclusively on one side of the story. And they do.
A couple of recent studies that show the positive impact of aid are particularly interesting. This is because they attempt to address two much broader limitations of most aid-effectiveness studies: the fact that most studies use GDP as a measure of success; and the fact that most studies make no attempt to distinguish between aid quality and the different reasons for which aid is given.
The limitations of using GDP alone as a measure of success ought to be fairly apparent to anyone who has worked in or studied development; GDP is a measure of material wealth and, while material wealth is an important contributing factor to people’s well-being, its certainly not the only factor. Nor is increasing GDP the sole purpose of giving aid. For this reason, recent research by David Fielding – an academic now based at the university of Otago – Mark McGillivray and Sebastian Torres is particularly interesting. It shows (as well as these studies can show) that aid has a clear positive impact on indicators like health. It also shows that aid has significant benefits for the poorest members of a society. (Fielding et al’s research is here
(PDF), you can read Fielding’s inaugural professional lecture – where he explains his research – here (PDF) and there’s a very brief summary/interview with Fielding here).
Likewise, as anyone who has worked in development will tell you, not all aid is equal. This is why recent research by Steven Radelet, Michael Clemens, and Rikhil Bhavnani, which tries to differentiate between different types of aid, is particularly interesting. (They have an easy to read explanation of their research here and it’s well worth looking over as it provides a good summary of aid research in general. Their research in detail is available here).
Radelet et al’s research shows that, once the different expected impacts of different types of aid are accounted for, there is a clear positive relationship between aid and economic growth (up to a point, where the positive impact starts tapering off).
While Radelet, Clemens and Bhavnani’s differentiation is very blunt, I think they’re on to something. In the past cross-country analyses of aid-effectiveness have typically treated aid as a homogenous blob, without much concern for type or quality. But all aid is most definitely not equal: aid money given to Joseph Mobutu as part of cold war geopolitics is not the same thing as aid money given to fund a well-managed micro-finance programme. Yet almost all aid studies ignore this. In part because something as intangible as donor intentions is very hard to quantify in a manner that might be useful in a cross-country regression. Even Radelet et al’s study doesn’t delve into aid quality in any depth. This, in my opinion, is a major limitation of the type of aid-effectiveness studies that I’ve just been discussing.
So are there any alternative ways of measuring aid-effectiveness? One way is simply to look at individual aid projects and see if they have ‘worked’ (met their objectives) or not. When you do this, once again, there are ample examples of aid failures. Money misallocated, huge white elephant’s, money lavished on expensive consultants not needy locals. Graham Hancock’s book, Lords Of Poverty, is full of examples of this.
Not surprisingly, critics of aid are very keen to highlight these failures as further evidence of the ‘fact’ that aid doesn’t work. The trouble is, once again, aid’s critics are selectively mining the data. For every aid project that hasn’t worked there are numerous examples of aid successes. In countries such as Botswana, Korea, Tanzania and Mozambique aid has contributed to economic development, while aid played a central role in the Green Revolution, the campaign against river blindness, and the introduction of oral rehydration therapy – initiatives that have literally saved millions of lives. (A good summary of successful public health programmes in the developing world – many of which have been funded by aid is the book Millions Saved.)
The fact that aid has at least as many successes as failures to me gets to the heart of the problem with the Great Aid Debate: it’s an argument over the wrong question.
Despite what aid’s critics might tell you, aid can, and indeed does, work – there’s so much evidence of this that that particular argument is over. Or, at least, ought to be over. The fact that it lingers on is, in my opinion, testimony to the fact that aid’s loudest critics are often motivated by ideology rather than any real desire to help.
This is a pity because, if we were to put the great aid debate behind us we could move on to discussing something much more sensible: when aid works and why.
These are my thoughts on the matter (my own personal thoughts – they are in no way indicative of the opinions of DevNet or its steering committee). Surely you don’t all agree. If you don’t, tell me where I’m wrong, it’s as easy as pressing the “Post a Reply” button.
(Update: Another good summary of aid effectiveness studies is http://www.oecd.org/dataoecd/18/39/34353462.pdf )
Last edited by Terence on Sat Dec 06, 2008 9:20 am; edited 3 times in total |
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timod
Joined: 11 Oct 2005
Posts: 1
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| Posted: Wed Nov 15, 2006 8:36 am Post subject: |
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| Not only have we been asking the wrong question but we have neglected to ask ourselves whether the amount of aid given is enough to make a difference or have we simply been taking a "band aid" approach to what is a major wound. To use one example stolen from Jeffrey Sachs- he calculated that the money needed to combat malaria in Africa was $2-3 billion per year when we were giving tens of millions. He found the same situation when looking at the investment needed to combat HIV/AIDS. Unless there is recognition that our willingness to make a meaningful $$$ contribution is woefully lacking the great debates on the effectiveness of aid will continue. |
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Terence
Joined: 23 Jan 2006
Posts: 21
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| Posted: Sun Nov 19, 2006 12:46 pm Post subject: |
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Steve Radlet makes a similar point debating William Easterly in an online Cato Institute discussion.
| Quote: |
Let’s start with the claim that the West has spent $2.3 trillion in five decades with precious little to show for it. $2.3 trillion! Wow! What a huge number! Except…it’s not.
Take a closer look: $2.3 billion over 50 years is $46 billion a year, a modest amount for any global capital flow. And only about half went to low income countries, with the rest to middle-income countries like Israel that didn’t need it. So we have around $26 billion a year for all the low income countries. This works out to be a rip-roaring $14 per person per year in low-income countries. Much of that goes to consultant reports or is tied to purchases in donor countries where it gets much less bang for the buck. As a result the recipients actually get far less than these figures indicate. So let’s cut the grandstanding. It ain’t much. In Easterly’s judgment, based on his opening vignette, because poverty still exists in Ethiopia after it has received all of $14 per person in aid per year (Ethiopia happened to receive exactly the average amount), “aid doesn’t work.” Please!
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Terence
Joined: 23 Jan 2006
Posts: 21
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| Posted: Sun Nov 26, 2006 9:15 am Post subject: |
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A further Update: Development economist blogger Adam Smithee (not his real name I suspect) makes a similar point here.
Meanwhile, Jeffrey Sachs offers some stern words as part of an overall defence of his pro-aid stance and book:
| Quote: | We [the United States] are spending $550 billion per year on the military, against just $4 billion for Africa. Our African aid, incredibly, is less than three days of Pentagon spending, a mere $13 per American per year, and the equivalent of just 3 cents per $100 of US national income! The neglect has been bipartisan. The Clinton administration allowed aid to Africa to languish at less than $2 billion per year throughout the 1990s.
A second reason for the retreat is the widespread belief that aid is simply wasted, money down the rat hole. That has surely been true of some aid, such as the "reconstruction" funding for Iraq and the cold war–era payouts to thugs such as Mobutu Sese Seko of Zaire. But these notorious cases obscure the critical fact that development assistance based on proven technologies and directed at measurable and practical needs—increased food production, disease control, safe water and sanitation, schoolrooms and clinics, roads, power grids, Internet connectivity, and the like—has a distinguished record of success. |
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Terence
Joined: 23 Jan 2006
Posts: 21
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| Posted: Sun Dec 03, 2006 9:04 am Post subject: |
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A further update:
For anyone who's interested in meta-studies of aid effectiveness (that is, studies of studies of aid effectiveness). There's a great one, from David Roodman of CGDEV, here |
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Terence
Joined: 23 Jan 2006
Posts: 21
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Terence
Joined: 23 Jan 2006
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jo
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| Posted: Wed Jun 27, 2007 8:05 am Post subject: hamonising agndea slightly off-key? |
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Wow - this page is a wonderful resource around the debate. Thanks for all your work!
I got here because I knew you were talking about aid on the site and I wanted to make a comment about the harmonisation agenda. It relates to the question of how we give aid, rather than whether or not to give aid.
I have only really begun to think about this recently and I realise some of my arguements are a little unclear (some might say even a little confused!  ). So bear with me and please add your thoughts to help me work mine out.
I can see the benefits of harmonisation: reduction in duplication; coalescence (is that a word?) within the aid community around common goals - potentially having greater impact through working together; potential for diminished reporting burdens for recievers of aid; greater coordination amongst all the various players; and more benefits that I just can't think of at the moment!
But what is becoming apparent to me, is the potential for the harmonisation agenda to exclude. This seems particularly relevant for small or fledgeling civil society organisations. In relation to aid funds being channelled to governments via mechanisms such as SWAps in countries where governments and civil society have a troubled relationship, civil society can easily be ignored. It is not that hard for a government to agree to include civil society, sign the agreement and then just 'not get around to it' or find some other excuse.
The harmonisation agenda is also a great rationale (or excuse) for donors to spend a good deal of money in a hurry, with decreased administrative burdens for them. It is much easier to channel a large sum of money through a consortium, a regional organisation or a multilateral, than it is to support a number of smaller, localised civil society organisations. Regional coordination mechanisms managed by regional organisations, while they have merits, can also become dictatorial. Donors putting all their funds into a regional coordinating body for one sector can then pass on responsibility for supporting smaller organisations to the organisation managing these funds. These sorts of organisations can become so caught up in their work that it becomes easy to exclude others.
Harmonisation and coordination requires building good relationships with a vast range of people and constantly reaching out to others. There needs to be a mechanism built-in to regularly scope for, and address, the potential to exclude and create inequities.
There also needs to be a recognition that harmonisation is not the be-all and end-all, simply yet another mechanism that has its place and its time. I think there are some real dangers looming ahead for the converts to the harmonisation agenda.
What do you think? |
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| Posted: Fri Jan 16, 2009 3:46 pm Post subject: harmonisation |
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| Firstly, i think there is no need to rush any debate on the implications of effective harmonisation of donor aid because it is in no danger happening any time soon. In fact, I reckon there'll be very few places, if any, that an hermetically-sealed coordinated - centralised funneled system of funding to governments will actually happen. This is largely because a number of donors, including rising donors, like China and Malaysia, havn't and won't sign the agreement and secondly, those donors that have signed the agreement are almost always too incompetent and/or recalcitrant about the harmonisation agenda itself to make it work effectively. As I understand it, donors havn't even reached first base on acting on this agreement. talk talk talk and no action, as usual. |
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Kathleen
Joined: 23 Jun 2008
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| Posted: Fri Jan 16, 2009 9:20 pm Post subject: lack of official oversight of aid administration |
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One thing that strikes me about government aid is that there doesnt' appear to be enough effective official oversight of government aid, even when you compare it to other public service Departments.
Firstly, one of the only forms of independent, transparent and detailed aid administration performance accountability is via government oversight agencies, in particular, Audit offices. It is my understanding that in Australia and New Zealand, at least, aid money is technically treated by the Audit Office as money that they have no control over. This is despite the fact that aid money is directed by policy, programme development and delivered via contract management. Unlike Departmental/Agency money which is scrutinised by the usual performance efficiency and effectiveness standards on policy and programme processes, aid money is treated as though it were money delivered like welfare payments - ie all the Agency is responsible for is delivering the money in an effective, efficient and legal way and not for whether they delivered results (at all), let alone whether it was in an efficient and effective manner. Isn't that odd?
I think this could be one small part of the puzzle as to why aid administration appears so disappointing in improving in some areas. And I also wonder whether the connection between aid and foreign affairs, as a handy bribery and diplomatic tool, may explain the reluctance to subject aid to the standard accounting treatment and its imperviousness to neoliberal performance accountability, especially since it is accused by the same pundits of being populated by woolly-minded, lefty, do-gooders or complacent bureaucrats.
Treasuries and Finance Departments of course often have more interest in the matters of aid results but its not as if they have the same resources (or inclination) to do the fine-detailed, in-house oversight of aid practices that Audit offices are good at. You also might find some paltry 'results' type information in an Annual Report to parliament but its hardly enlightening and certainly not the stuff for detailed scrutiny. In Australia parliament sometimes gives aid administrators a hard time, but not very often, and here I don't know that parliament ever asks hard questions or takes much of an interest at all. The State Services Commission doesn't seem to leave traces of how they work with departments so its hard to know if they're being proactive or effective. After the immigration debacle, I think its reasonable to be skeptical.
Aid is also usually given very limited attention by Ministers [unless of course aid is being used for 'security' matters]. I think this is largely because aid is usually attached umbilically to Foreign Affairs which of course is considered far more important, sexy and time-consuming than aid administration. Moreover, Ministers, like the public, very often have very little interest or knowledge about aid (nor do they care to learn) - so sometimes their attention just means having to respond to old chestnuts or general tenets of whatever good administration ideology is thought to be (the latter is at least better than nothing but no deep thinking or informed critique can be expected here). |
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