What future for Aid?

As countries revenue streams tumble and their debt obligations continue to rise, budgets are coming under increasing scrutiny. One facet of spending which is likely to meet with increasing opposition is aid commitments. This tendency will undoubtedly be widely decried as morally corrupt. However is this reaction justified, is aid really that vital? Should we urgently resist any attempt to cut aid, or as Dambisa Moyo declares, is aid is the problem rather than the solution?

Taking the case of bilateral aid (rather than emergency aid) to Africa there is a broad spectrum of opinions. Moyo, in her book Dead Aid, provides an avalanche of figures supporting her statement that aid has in fact constrained their ascent up the ladder of economic development by fostering a culture of dependency, encouraging corruption, and propping up repressive and autocratic regimes. She cites the case of Zimbabwe and the $300 million aid it received in 2003 as an example of providing a lifeline to a struggling dictator, while Professor Bill Easterly another prominent critic of aid cites western payouts to Mobutu Sese Seko of Zaire. The idea that aid could encourage corruption and lethargy on behalf of governments and state officials is one which seems plausible, because it is fungible aid may be easily stolen redirected or extracted and stories of Mugabe’s excesses in Zambia and that of other African leaders are well renowned. Indeed, in 1999, the Economist estimated that African leaders had stowed $20bn in Swiss bank accounts. What is more, the recent growth rates of several African countries heavily dependent on aid, when compared to the growth rate of other developing countries such as those of SE Asia do not act as a good advocate for increasing or even maintaining aid flows to these countries.

However, these figures taken in isolation can provide a somewhat misleading picture. Africa, suffers from what geographical determinists like Jared Diamond see as several natural disadvantages- a harsh climate, arbitrarily drawn borders, ethnic diversity etc. What is more, the fact that corrupt African countries receive a lot of aid is not proof of a causal link between aid and corruption. Paul Collier, an economist at Oxford, determined that aid flows are subject to less corruption than other revenue sources, such as those emanating from natural resources, a finding which suggests that aid is far from the absolute corrupter that critics make it out to be, but rather a result of a broader socio-economic context. Where there is significant disaccord is on the interpretation of statistical studies which attempt to establish a relationship between aid and economic growth. Where Moyo sees a hindrance, Burnside and Dollar, two economists at the World Bank found that aid is positively correlated with growth, albeit with a diminishing rate of return. While the studies on the impact of aid on economic growth may be somewhat open to contestation, aid has had other positive effects which are widely accepted even by its critics. Professor Easterly accepts that “foreign aid likely contributed to some notable successes on a global scale, such as dramatic improvement in health and education indicators in poor countries”, and a dramatic increase in life expectancy on the African continent. This equates to saving people’s lives, a fact that it would be difficult if not impossible to give a monetary value.

It is difficult to oppose the notion that large flows of bilateral aid provide a dangerous temptation to engage in corrupt practices. However, this can be countered by increased transparency and a more efficient monitoring of the spending of aid moneys. The idea of an international independent evaluation group made up of staff trained in the scientific method from the rich and poor countries, who will evaluate random samples of each aid agency's efforts seems particular noteworthy.

So what is the solution for Africa, a continent which remains firmly rooted at the bottom of league tables measuring economic performance, life expectancy and many others? Aid should not be viewed as a long term solution, nor should it be seen as disposable in the short term. Jeffrey Sachs, author of “The End of Poverty” is a proponent of the “big push” approach which advances the notion of a significant increase in aid in order to stimulate a rapid 'step' increase in Africa's underlying productivity, both rural and urban. Dambisa Moyo suggests a phone call to African governments telling them aid will stop in 5 years, in order to rouse them from their aid induced stupor and encourage them to seek help from international markets, in particular FDI and bond offerings. Robert Calderisi, who spent three decades working for the World Bank suggests cutting aid to African countries in half and focusing on supporting governments who are serious about pursuing reform.

Whatever approach is adopted it must keep at its forefront the welfare of the people of Africa, and favour their long term security and economic independence. However it is worth calling to mind the statement of President Kennedy that “to those peoples in the huts and villages across the globe struggling to break the bonds of mass misery, we pledge our best efforts to help them help themselves, for whatever period is required—not because the Communists may be doing it, not because we seek their votes, but because it is right. If a free society cannot help the many who are poor, it cannot save the few who are rich.”