Tuesday, 15 June 2010

Thoughts on why bilateral aid doesn't work


I have always tried to avoid writing about international aid – not because it’s a subject without importance but because, frankly, my neighbours in Cullingworth don’t put it in their top ten areas of concern. Indeed, there are plenty of folk out there who believe that charity starts at home. But I sense, in the debate about cuts, an imminent upwelling of righteous anger at the audacity of ordinary people who’d prefer their taxes spent on schools, hospitals and coppers rather than on buying 4X4s for ‘aid workers’ to drive around Africa.

Although to be honest, that’s not where the aid cash goes as the biggest (by far) recipient of UK aid is India (nearly £300 million in 2008). You know, that poor country that owns Jaguar and our steel industry (at least the bits it hasn’t closed down yet). Perhaps we should have sent some of that aid to Redcar instead?

OK, I hear you saying that all this can be fixed, a good government will shift the aid programme away from supporting Britain’s foreign policy to targeted support for the poorest countries. Somehow, I doubt this – the purpose of the aid budget is not to alleviate poverty but to purchase the continued support of the recipient countries (although how much this actually works remains moot). That and bilateral aid programmes continue to distort the development of poor country economies because they are not associated with requirements for policy changes.

It is in this last point that multilateral aid differs as the intervention of the World Bank and IMF is always associated with requirements to change economic policies, develop better legal enforcement structures and perhaps try to collect a few taxes. The aid is still market distorting but it provides the recipient nation with a pathway to better governance. That pathway includes things like ending arbitrary land seizure, repatriating overseas sovereign funds, collecting taxes and repaying (yes, repaying) some of that debt.

But when the donor nation doesn’t like the medicine prescribed it just sidles up to a giver of bilateral aid, reels out its sob story and lo, the aid is forthcoming. And nothing is done to give people property rights, no efforts are made to end graft and governments continue with market distorting programmes of urban food subsidy, price-fixing and nationalisation.

The changes that are beginning – slowly – to improve Africa are happening in spite of aid programmes. In truth aid programmes can actively discourage the development of a strong business culture – why bother developing the necessary infrastructure of a free economy when the aid fairy will drop some cash on you tomorrow? If we worried less about so-called fair trade, social justice and other such nonsense – and concerned ourselves with promoting free markets in Africa then we’d be doing a damn sight more for poor folk than all the billions of bilateral aid money.

But if we’re going to spend that money let’s use it to change things rather than prop up corruption, graft and the old third world disorder.


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