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The Failed Promises of International Aid

FrenchDoc's picture
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"Aid does not work" is a meme we often hear when it comes to development. Actually, it is a pronouncement made by people who would like foreign aid to stop and see it as "one of these failed government projects." Aid does work under proper conditions, but quite often, as Jeffrey Sachs has demonstrated, aid does not work because of the donor countries who either do not live up to their commitment or actually set up aid to benefit themselves without much consideration for the people that are supposed to be helped. Two stories in the news highlight these problems.

First, via Le Monde,

Plus d'un tiers de l'aide internationale promise à l'Afghanistan n'a pas été fournie
LEMONDE.FR | 25.03.08

© Le Monde.fr

More than one third of promised international aid to Afghanistan, roughly $10 billion, was never distributed. And via the Guardian, 40% of the mony that was disbursed was spent on corporate profits and consultancy fees. This all comes from a report from Agency Coordinating Body for Afghan Relief (Acbar) and its is statement is here. Acbar coordinates over 94 agencies including Oxfam, Christian Aid, Islamic Relief and Save the Children. All donor countries fell asleep at the switch:

"The US is the biggest donor to Afghanistan but is also responsible for one of the biggest shortfalls. The US delivered only half of the $10.4bn it committed between 2002 and 2008, according to the Afghan government, today's report says. Over the same period the European commission and Germany distributed less than two-thirds of their respective $1.7bn and $1.2bn commitments while the World Bank distributed just over half of the $1.6bn it committed. Britain pledged $1.45bn and distributed almost all, $1.3bn."

And when aid was distributed, it was, as mentioned, returned to the donor countries through their corporate contractors and consultants.

"The report estimated that 40% of the aid money spent in Afghanistan has found its way back to rich donor countries such as the US through corporate profits, consultants' salaries and other costs, significantly inflating the cost of projects. For example, a road between the centre of Kabul and the international airport cost over $2.3m per kilometre in US aid money, at least four times the average cost of building a road in Afghanistan, today's report says."

And the companies the contracts went to bear familiar names: KBR, the Louis Berger group, Chemonics International, Bearing Point, and Dyncorp International. And we know how much these consultants and contractors cost:

"Most full-time expatriate consultants working for private companies in Afghanistan cost between $250,000 and $500,000 a year, including salary, allowances and associated costs, the report adds. Some 90% of all public spending in Afghanistan comes from international aid. The huge shortfall hinders efforts to rebuild infrastructure damaged by over two decades of war, and the delivery of essential services such as education and health, the report says."

In other words, the donor countries are failing at foreign aid. It does not mean that there are not issues of corruption, pocketlining, etc. but we need to look first at what we are doing. Under these conditions, we are setting up Afghanistan to be a failed state while wasting resources and making KBR very wealthy. And here is where it becomes a vicious circle: donors are less likely to donate because of specific conditions in Afghanistan, as the report mentions:

"The report says some degree of donor under-spending could be expected because of the lack of government capacity, large-scale corruption, and difficult security conditions. But the size of the shortfall highlights the need for donors making better efforts to face up to the problem."

How is this country supposed to become better governed, less corrupt, with greater capacity if it does not receive the aid that was promised? It is a chicken and egg problem but we know Afghanistan will not improve unless it receives and properly allocates aid. Aid needs to be allocated to long-term development projects, not short-term shiny projects that we can use to showcase what a great job we are doing.

This get me to the general issue of aid, explored by Bartholomäus Grill in Der Spiegel, it starts with a story that is all too common:

"Northeastern Kenya was devastated. The country was hit by famine, drought, and death. But then white experts arrived to end the biblical plagues. They came from Norway and they had a brilliant idea: They would give the suffering nomads on Lake Turkana a fish factory to alleviate the impact of the periodic natural catastrophes and to create jobs. So they built their factory and only noticed afterward that the livestock-rearing Turkana scorned fish as well as wage labor; that the energy needed to deep-freeze the tilapia filets in the semi-desert region cost several times their market value; and that they had not taken into account the millions of dollars required to build new streets to get the merchandise to market. More experts came from Norway to evaluate these mistakes, and they exclaimed: "Oh my God, how could we have been so stupid!""

Ethnocentrism, lack of cultural awareness, blind application of recipes that might work elsewhere, lack of consultation with the local population, and general treatment of the poor as just in the way of the experts, and a general assumption that a wage economy is the universal solution to poverty are just a few of the common mistakes made by development managers from core countries I discussed that a bit yesterday in my review of Yunus's book). But it is stories like these that get people to demand the end of aid programs and to throw their hands in the air and declare global poverty an intractable problem.

As I have written elsewhere, Popular perception is that we spent billions of dollars on the poor every year with nothing to show for it. If giving money worked, we would know by now. However, Sachs shows that we actually spend very little money on the poor. In 2002, the entire world spent $30 per Sub-Saharan African, including $5 for rich countries consultants, $3 for food and emergency aid, $4 to service Africa’s debts, $5 for debt relief administrative costs, finally, $12 went to Africa. In that same year, the United States gave $3 per Sub-Saharan African, with a similar breakdown as the world figures, 6 cents went to Africans. Those are ridiculously low amounts of money that cannot hope to make a dent in the poverty problem.

But instead, Grill argues that the donor model itself is at fault and contains elements of what he calls giving colonialism that followed the taking colonialism that preceded it (although Grill gets it wrong on dependency theory). Then came the debt crisis:

"In the beginning "import substitution" was presented as the panacea -- backward states were urged to reduce imports by diversifying domestic production. Talked into massive loans, they soon had both feet in the debt trap. In the end, the amount of money that went to servicing debt exceeded development aid -- and more funds were flowing from South to North than vice versa. The structural adjustment programs of the World Bank and the IMF prescribed neo-liberal therapies for the sick patients: Privatize! Deregulate! Liberalize! The "invisible hand of the market" was supposed to take care of everything. In the majority of developing countries market mechanisms were in place, but the reform therapy often led to lethal results. Today many in the South regard unfettered capitalism as the last phase in a 500-year history of exploitation. They talk about "global apartheid" and a "global class society." The gurus of the "Washington Consensus" have since watered down their doctrines in secret, even revoking a few of them. "The policy framework that we pushed abroad was the one that would help our companies do well abroad," says economics Nobel laureate Joseph Stiglitz, who was chief economist at the World Bank."

The gist of Grill's argument is anti-imperialist and the Washington consensus certainly fit the neo-colonial model. But Grill also highlights a problems that has been picked up before:

"There is no universally applicable modernization model. Development cannot be grafted onto a country from the outside. It cannot be implemented like a vaccination program. It is an extremely complex process in which uncontrollable parameters are constantly changing. (...) Thanks to foreign support, Ghana managed to build a workable health system -- then the brain drain set in, and its doctors and nurses set off to Britain, where pastures appeared greener."

Actually, Yunus did underline such issues as well, including the problem of incentives. Multilateral institutions and charities get rewarded when their money is spent roughly the way it is supposed to be spent. Success or failure of particular projects is an afterthought. The point is to keep the financial flows going. The World Bank measures success in terms of the number of loans allocated. And NGOs need to spend ALL their money otherwise, they run the risk of cut budgets. These issues are well known as they are common issues to all bureaucratic organizations, where self-perpetuation is an essential mechanism. Moreover, as Jeffrey Sachs also underlined, poverty and aid create a lot of jobs in core countries. There are crowds of consultants and coordinators who wait for the next windfall to offer their development expertise.

And finally, aid provided in such a fashion promotes dependency where local populations and NGOs and government spend time waiting for the next charity windfall. Yunus was very right to highlight how this is paralyzing. So, what should be done? Well, Grill offers an initial assessment very comparable to that of Yunus:

"There is no master plan, but it is high time we regarded development policy as a global structural policy that goes beyond humanitarian commitments. The obscene inequality in the world is the cause of war and terrorism. It increases refugee flows and destroys the basis of life. Only a just world can be a safe world. Ever since the terrorist attacks on September 11, 2001, the centers of power in the North have at least recognized the relevance of development issues to security policy."

The treatment though, is slightly different. Grill blames the rich and powerful across the world-system.

"The first goal must be to radically reform the obsolete institutions, instruments, and methods of cooperation in the field of economic development. Only then should aid be increased. We must start in the North, with our criminal economic and trade policy, our alms industry, and the money-burning machine that goes by the name of the United Nations. But this new orientation would be useless if elitist groups in the South, with their victim mentality, refused to accept that they themselves are responsible for the well-being of their nations. Greater pressure must be applied on the powerful, for they are not victims, but accomplices, and they are by no means poor. In Africa alone, 75,000 millionaires have accumulated a collective fortune of over 700 billion dollars, and an additional 400 billion dollars is controlled by Africans outside the continent."

Grill is much angrier and less optimistic than Yunus, but he reaches the same conclusions, blasting Jeffrey Sachs and praising Hernando De Soto (I wish he had developed more on that):

"Despite all the criticism, we must not forget that there are thousands of committed aid workers and sensible projects. Without these, many crisis regions would be a lot worse off today. We could learn as much from them as, say, from the creativity that poverty engenders and from the entrepreneurial spirit found in the informal economy of the slums. We could broaden the foundations of the successful system of small loans or strengthen the Extractive Industries Transparency Initiative for effective resource management. As in the world of soccer, we could introduce a "transfer fee" for top talent that is recruited from the South. All of this would be possible if we had the will, if we were only prepared to expend the same amount of creative energy as was needed to invent and develop the Mars probe."

Cross-posted at The Global Sociology Blog

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godammitkitty's picture
Submitted by godammitkitty on

for this post and for the discussion on microcredit, yesterday.

Sachs got quite the dressing down in Naomi Klein's "Shock Doctrine," particularly viz his work pushing shock therapy on Poland in 1989 and, later, on Yeltsin's Russia.

I get the impression that Sachs has adjusted his views on the Washington Consensus, which is all for the good.

His recent focus on small but inexpensive approaches to severe poverty and world health are often impressive. The mosquito net thing, for e.g.

I struggle with this subject, because I feel it's so...um...massive. My gut feeling is that the best solutions are 'home grown,' but even those require that "rich" countries stop putting their thumbs on the scales (bogus tariffs and the like).

And no more corporate colonialism: Canadian, US, and European corporations setting up shop in other countries w/o regard to the impact on local environmental, health or labour. Some of our mining corpses are truly ugly in this regard (e.g. Canadian gold and copper mining companies in Latin America). Ugh.

Anyway, I really appreciate your posts. Thank you!
GDK