World Savvy Monitor

"It is difficult to draw a line between what is important and almost important, between the root causes and the exacerbating factors of poverty.  As a result, aid programs have been stretched across too many countries and activities, watering weeds as well as flowers, giving false hope to some and inadequate support to others.”

Robert Calderisi, former World Bank Official

The most high profile tool in the toolbox, and also the most contentious, is aid – a simple term that requires a great deal of unpacking.  There is much confusion in the world about what aid is and what it is not.  Furthermore, there is much rancor within the development community about how much and what type of aid should be given, and from whom, to whom, and how effectiveness can be maximized to generate the most growth in LDCs.

Beyond the realm of technical economic definitions, and the many ways of parsing the term, aid can be thought about in terms of the deficits it is attempting to redress.  In a high functioning, developed country such as the United States, the government exists to provide for the common good and for each individual, whether rich or poor.  The list of goods and services provided is astounding: maintaining roads; running public schools; providing social welfare support and health care to the poor; regulating air traffic; monitoring banking and investment transactions; maintaining quality standards for food, water, drugs, and consumer goods; providing for public safety; operating the military and fighting wars; putting out fires; preserving natural spaces; and the list goes on and on. 

Some argue about the government’s effectiveness in handling these tasks or to what extent it should even be involved in such tasks, but the key point is that the government has the capacity to provide such services for its citizens.  It is able to do this because it collects tax revenue, makes investments, and/or borrows money to create a large pool of funds to cover both the routine and emergency costs of running the country.  It delivers public goods through a myriad of civil servants, government employees, consultants, and private-sector contractors. 

In addition, the private sector (for-profit and not-for-profit institutions) also provides goods and services in a high functioning developed country.  Such services include banking, insurance, legal services, medical care, telecommunications, construction, and the procurement and distribution/sale of goods and products of all kinds.  These are delivered through large corporations, small and medium businesses, independent contractors, and non-governmental institutions – often in coordination with, or under, some regulation by the state through licensing and other mechanisms.  The sheer complexity of how people get their needs met by the public and private sectors is astonishing.

By contrast, an extremely impoverished country that is a failed or failing state generally has neither the money, nor the capacity, to perform these functions.  The government cannot provide for the people, and the people cannot provide for themselves through a market system.  Put simply, aid is what is given by outsiders to replace these funds, create this capacity, and deliver these public and private goods.  It is designed to both meet people’s immediate needs and to provide the conditions for economic growth so that the country can develop the capacity to blend public and private mechanisms for meeting its needs on its own.  The overarching challenge is matching the supply of resources (money, expertise, projects, services) provided by the developed world to the demands on the ground in the developing world.

Where the Aid Comes From

Public Sources

Much aid is public, passing from government to government, and donated directly by an individual country (bilateral aid, also known as Official Development Assistance or ODA).  Traditional bilateral donors are the countries of the Organization for Economic Cooperation and Development (OECD), more specifically the 22 nations that make up the Development Assistance Committee (DAC).  (See the Commitment to Development Index section of this issue for a further breakdown on giving by these countries.)  The Brookings Institution estimates that, over the last few years, DAC member countries have donated a rough total of $100 billion annually to developing counties, up from $41 billion in 1974 and $63.8 billion in 2001.  No individual member of the DAC donates more than 1% of its Gross National Income (GNI), and in 2007, the levels of giving ranged from a high of .94% in Norway to a low of .15% in Japan.  The US is the largest traditional donor in absolute dollars, but ranks 19th in terms of percentage of giving ability.  Since 2001, DAC countries have repeatedly pledged to increase their ODA to .7% (seven-tenths of one percent), yet as a whole, they have not done so.

It is important to note that a good portion of public foreign aid doesn’t even go to LDCs, but rather to middle and even high-income countries considered strategically important for donor countries.  For example, Israel and Egypt are among the largest recipients of US foreign aid.

In recent years, the development community has been joined by new bilateral donors, some of which are former recipients of aid themselves.  These include China, Russia, Brazil, Turkey, India, and Saudi Arabia.  Brookings estimates that there are now 29 non-DAC countries in the game; collectively they gave a rough total of $8 billion in aid in 2005. 

Public aid is also given multilaterally, through pooled funds from many different donor countries facilitated by International Finance Institutions (IFIs), such as the World Bank, the International Monetary Fund (IMF), and through regional development banks.  The United Nations also runs an International Development Assistance program funded by member nations.  Some feel that multilateral channels are more effective and efficient in the delivery of public money because they reduce the number of bilateral players and agendas, and theoretically direct funds with more potential for impact.  Think of the class gift – it is generally better appreciated by the teacher if funds are pooled for a larger, more useful gift than disbursed individually in the form of coffee cups and candy.

Debt Relief

Public aid can also take the form of debt relief, or the cancellation of loan and interest payments owed by LDCs to developed countries, usually from loans made by the World Bank and IMF, and by bilateral donors as part of Structural Adjustment Programs (see the Economic Policy and Governance Reform section) in the latter part of the 20th Century.  Other types of loans are covered as well, including ill-conceived ones made for strategic reasons to Cold War allies in what was then called the Third World, and better-conceived loans for general development assistance made since.  Debt relief has been granted by much of the OECD, the World Bank, and the IMF to Heavily Indebted Poor Countries (HIPCs) in large sums, beginning in the 1980s; it is one of the least controversial types of aid. 

Unlike other types of aid, debt relief has little opposition – it sounds good, and has been embraced by many celebrities and the faith-based community.  There are few that, in good conscience, would argue that extremely impoverished countries should be paying interest on loans made to former despots who are no longer in power, or that they should be paying this debt to rich countries while their own populations starve.  It speaks to the goal of self-sufficiency by encouraging poor nations to use those funds to instead contribute to their own development.  Clearing the books also lowers the risk rating of HIPCs, qualifying them for new loans that can be used more effectively, and also making them more attractive to foreign investors.  In theory, the money that would have been used to service bad loans can be invested in the economy to, in turn, attract foreign investment, and create markets for goods from developed countries.  It is a win-win situation on the surface.

However, many experts point out that things are rarely so simple.  First, most forgiven debts were not actually being serviced, so there is little transfer of real resources to the HIPCs.  To the extent that some countries were servicing this debt, there is also no real guarantee that those newly freed up funds will, or can be, used effectively for domestic development purposes; in fact, there is no way for the international community to even track what happens with that money.  Furthermore, as William Easterly and others have pointed out, current HIPC debt relief programs are inherently unfair because not everyone qualifies.  Ironically, the worse the country did using the original loan (i.e. the poorer the country still is, despite the original loans), the generally better chance that the debt will be forgiven.  Countries such as Bangladesh and India, whom many agree put past loans to good use in producing growth, do not qualify for debt forgiveness and must continue to service their loans.  In addition, while it is true that HIPCs who have had debts forgiven are considered “cleaner” for the purpose of future loans, the prospects of these new loans being paid back are far from certain.  In fact, as Easterly has pointed out, for many HIPCs, debt forgiveness is a wash or worse.  The 41 nations of the HIPC community borrowed new money in the amount of $41 billion during the same period (1989-1997) in which they were forgiven past loans in the amount of $33 billion.  Many see this as a vicious cycle: bad debt is forgiven so that new bad debt can be taken on. 

Although it seems reasonable and morally correct to make debt relief a priority, sometimes lender countries obtain credit for canceling payments they were never going to receive anyway.  To make matters worse, in some experts’ eyes, debt relief is often counted as aid in ODA totals, inflating the generosity of a donor country’s bottom line without costing a cent.  That means there is less real money for new loans, and countries outside the HIPC community, who may well have put their original loans to better use, suffer under their own continuing debt service while the money available for new loans shrinks.  Debt relief is said, however, to have some value politically.  It is often easier to normalize relations between donor and debtor nations once the books have been cleared, and often this normalization can confer numerous benefits on the LDCs/HIPCs in the form of improved trade relations and/or political support in multilateral institutions such as the UN. 

Private Sources

Private sources of development assistance funds are significant as well, and are growing.  As Jane Nelson has noted, in 1970, 70% of resource flows from the US to developing countries came from public ODA.  Today, private funds from American citizens, residents, and companies comprise 80% of resource flows to LDCs.  Some of these are philanthropic funds provided by traditional foundations, high net-worth individuals, corporate giving programs, and individual donors.  Old guard donors, such as Ford and Rockefeller, have now been joined by names such as Gates, Skoll, Soros, and Case.  Philanthropists have become more prolific in the past decade, and more innovative with their generosity, partnering with the public sector and interacting with individual entrepreneurs in LDCs.  Much private aid is also channeled through donations to Non-Governmental Organizations (NGOs) – large and small charities that range from Oxfam and Save the Children to internet-based and faith-based charities.  Brookings estimates that private giving for development aid in the US alone reached $33 billion dollars in 2005.  This does not even fully account for funds and goods that are donated through corporate social responsibility programs such as (PRODUCT)RedTM and others, or remittances to LDCs from migrants working abroad.

Mixed Funding Streams

It is important to note that many development initiatives are funded by a hybrid of all of the above donor sources.  In practice, it is extraordinarily difficult to disaggregate aid.  All three types of donors – bilateral, multilateral, and private – tend to combine and leverage their funds at some point along the way, whether it is intentionally conceived in a comprehensive public/private initiative, or whether this blurring lies in the reality of the paychecks, procurements, and activities on the ground.  Not surprisingly, this complexity is at the center of many of the debates over how aid is used and not used effectively to further economic development among the LDCs.  A key takeaway is that, while international development aid was once the purview of a small set of countries and major foundations, there are many more players today, disbursing up to $150 billion dollars a year.  The challenge, in the words of Lael Brainard and Vinca LaFleur, is seeing to it that all of these resources “add up to more than the sum of their parts” to achieve real economic growth for the poorest countries.

How Are Aid Funds Typically Used?

Just as the categories describing where aid comes from are typically blurred, so are the categories describing how aid is used.  These distinctions can be highly technocratic and vary depending on which categories are used and how they are combined.  Aid can be in the form of cash given directly to the government of an LDC; this is known as budget support.  Budget support generally is in the form of unrestricted funds that take the place of the tax and investment revenue the government does not have.  Budget support can also be in the form of restricted funds infused into the budget of the recipient country, but earmarked for specific goals.  Oftentimes, public and private aid is not in the form of cash, but rather in the form of special projects or the provision of services – the building of a bridge or airport, or the delivery of health or education services.  These programs can be in coordination with the recipient country government, or they can be delivered to the people directly.  While the services may be paid for by the donor country or institution, they are implemented by contracting with in-country residents, the staff of non-governmental organizations (NGOs), and private companies.  As stated above, most aid efforts utilize a hybrid of all these strategies and channels; again, this complexity often leads to unclear accountability channels. 

The budget for any given aid program inevitably includes things that donors and recipients don’t really consider aid in its truest form – these costs vary from administrative costs to the use of technical assistants, experts, and consultants in the donor country or institution as well as on the ground.  Brookings Institution scholar Homi Kharas has analyzed the expenditures of various official and private aid programs, and found that the actual amount of money, projects, and services for LDCs often amounts to less than half of the total figure given by donors.  It is important to note that Kharas excludes emergency and food aid from these figures, since these tend to be short-term humanitarian-oriented endeavors, not long-term development assistance.  He also removes debt relief from the calculation, because most foreign debt owed by LDCs is not being repaid anyway and thus represents no real transfer of resources.  His calculations, taken from OECD data, are sobering: $38.4 billion of $104 billion in ODA from DAC members went into money, projects, and services in 2005. 

The Center for Global Development’s (CGD) research reveals the same trend.  The CGD has reported that typical Western ODA figures should be discounted by 61% to reflect real aid to recipients (meaning that an average of 40 cents of each ODA dollar is seen as actually reaching those in need).  Jeffrey Sachs has reached similar conclusions.  Break-downs such as these are not available for private donor funds and would certainly vary among specific budgets and donors, but there are some who suspect that the proportions would be similar. 

Several notes of caution are important in digesting these and other statistics.  First, numbers are mutable and often political in the realm of development assistance.  Many other sets of figures and calculations exist; it is difficult to generalize over a wide variety of projects involving an ever-shifting array of public and private players in a wide variety of recipient countries.  The Brookings Institution numbers provide a sense of the complexity involved in evaluating the use of aid, but they are not necessarily representative of all initiatives.  Even within the DAC, some types of non-development aid are included in reporting, while in others they are not. 

Second, it is important to note that overhead is not always indicative of funds misspent.  If you believe that more aid should reach the people who need it on the ground, to fund things they need most in an efficient and cost-effective manner, then you must concede that what is needed are good planning mechanisms, monitoring, oversight, and accountability.  These require administrative overhead.  These factors add just one more complicating factor to the debate over how aid is administered. 

General Approaches to Distributing Aid

One way of distinguishing approaches to the delivery of aid is to consider the manner in which they are conceived.  Traditionally, macro or “top-down” approaches tend to be highly technocratic, designed by development economists based on what former World Bank economist Jeffrey Sachs has called a “clinical” diagnosis, not unlike that delivered by a physician.  Needs are identified and plans are developed; the LDC receives a comprehensive portfolio of aid in the form of funds, projects, and services delivered by an array of players in the development community.  The goal is to jumpstart economies and societies into productivity through structural and policy reforms in concert with massive infusions of budget support, projects, and services.  Evaluation, monitoring and mid-course adjustments tend to be the purview of the experts and planners; levels of input and participation from local beneficiaries vary.  The best example of macro approaches are Poverty Reductions Strategy Papers (PRSPs), which are developed for countries who receive aid.  The PRSPs of individual countries may be viewed on-line through the World Bank and other sites.

Micro or “bottom-up” approaches are traditionally more modest, incremental, and specialized.  They address distinct needs that are, according to development economist Amartya Sen, often seen as convertible to market demands to be met by local innovators who are given training and capacity-building to solve problems at the grass-roots level.  William Easterly, a former World Bank economist who embraces the micro approach, has deemed followers of this approach, “searchers,” and derides the proponents of the Jeffrey Sachs’ macro approach “planners.”  Among Easterly’s concerns with the macro approach is that it is patronizing to the recipient country.  First, it is patronizing to assume that external donors and experts can “fix” the very complicated myriad of structural and logistical “problems” plaguing an LDC; furthermore, it is patronizing to assume that this can be done in a culturally-sensitive and effective way on the ground by technocrats from developed countries.  Easterly generally believes that planners (or “utopianists”) overpromise and under-deliver, and, in the process, miss opportunities to empower local reformers and entrepreneurs to design home-grown solutions.  By contrast, he believes specialized micro approaches that usually seek to facilitate the workings of the market, not the good intentions of the donor community, are easier to implement, evaluate, and correct.  The debate between the Sachs and Easterly camps has long been an anchor of the international aid dialogue (see Sachs’ The End of Poverty:  Economic Possibilities for our Time and Easterly’s The White Man’s Burden:  Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good for a more detailed comparison).

The Reality: Beyond the Macro/Micro Debate

In reality, just as public/private sector blurring has become commonplace, most large scale aid projects today actually incorporate both macro and micro elements in their design and implementation.  An example of a comprehensive large scale, all-inclusive project with both “planner” and “searcher” components is Millennium Villages Project (supported, ironically, by Jeffrey Sachs), which is based on a saturation model in which resources are poured into a small community in an effort to transform its economy and society.  One such celebrated village is in Sauri, Kenya, where each year for five years, roughly $100 will be invested for each of the village’s 5000 inhabitants, for a total of $2.75 million, with the ultimate goal being the achievement of the Millennium Development Goals (MDGs).  Sauri is among 12 such villages, 10 of which are in Sub-Saharan Africa, and all of which are designed to be models of how development should work.

In writing about the concept of the Millennium Villages for the Wilson Quarterly, expert Sam Rich notes that this approach is unique in an important way: projects such as the one in Sauri are a combination of the two philosophical schools of development and essentially incorporate a range of micro (Easterly searcher-style) projects run by people from the macro (Sachs planners-style) camp.  How these islands of intense international focus fare in meeting the MDG benchmarks will be an important contribution to the field of developmental aid research.  If they succeed, whether this model can be replicated and brought to scale for the other roughly 900,000,000 in need is another question entirely.

Conditionality of Aid

Another way of thinking about the different types of aid refers to the conditionality with which it is offered.  Some aid is given without being connected to specific demands on recipient countries, while other aid is given contingent upon the LDC making certain reforms or achieving certain outcomes.  In “tied aid,” an LDC must meet certain conditions to qualify for aid, and/or aid is given with conditions for how it can be delivered or used, often in ways that confer benefits upon the donor.

A prime example of tied aid is US food assistance and anti-hunger programs.  Presently, despite attempts at reform, the majority of US-donated food must, by US law, be grown by US farmers, transported by US ships, and distributed by USAID personnel.  Many have decried this as a travesty, believing it would be more efficient to purchase food from farmers in regions close to famine-prone areas, thereby saving on shipping and storage costs (accounting for up to 50 cents on every US food dollar), and boosting the local agricultural community in the process.  Untied aid generally allows for the purchase and delivery of aid through more flexible channels and at the discretion of aid agencies on the ground.  Another example of “tied aid” was described in the Pakistan issue of the World Savvy Monitor: US ODA was given to this geo-strategically critical Central Asian country on the condition that it help the US pursue the Global War on Terror in neighboring Afghanistan.

Is conditionality good or bad?  This is the question at the heart of the issue, and the answer, as always, is that it depends.  Requiring that recipient LDCs adopt basic best (or even good) practices in governance, transparency, and accountability has been proven to dramatically increase these governments’ abilities to absorb and effectively use aid resources.  Numerous studies reveal what is not surprising: the better the infrastructure on the ground, the better the results.  The conundrum here, however, and it is one pointed out by many experts in the field, is that if all aid were premised on such conditions, no aid would be given to the countries that need it the most – those that are badly governed, corrupt, and lacking infrastructure. 

DAC countries and many multilateral development bodies are moving increasingly toward such conditionality, while also trying to mitigate the effects of extreme selectivity by providing extra assistance that is directed at governance, economic policy, and transparency reforms in lower-performing states.  The challenge here is that many of the new bilateral donors (non-DAC, especially China) are moving in the other direction, offering aid with no conditions as an alternative to the reform-driven aid from traditional donors.  Many in the development community fear that China’s “no-strings” attached aid could undermine aid-linked reform efforts in failing or failed states, and that such LDCs will see “donor shopping” as a way around the reform agenda of OECD donors. 

The Chinese and others take issue with this viewpoint, in turn making charges of Western meddling and neo-colonialism, particularly in Africa where places like Sudan, Zimbabwe, and Angola receive Chinese aid to replace aid lost when they failed to accept the conditions of OECD aid.  Experts note that China tends to offer the most unconditional aid to resource-rich LDCs, especially those with energy resources so badly needed by the expanding Chinese economy; in this sense, China's aid is not entirely unconditional either, and accounts for its complementary trade relationships with countries laboring under Western sanctions. 

Conclusion: A Complicated Delivery System for Aid

In sum, it is important to note that few aid projects are of one variety only.  On the contrary, most aid packages comprise a hybrid of private and public, as well as macro and micro planning, infrastructure, personnel, funds, delivery systems, and oversight.  They usually involve a complicated mix of standards, regulations, people, and money from different sources, both in-country and from donor countries, in the private and in the public realms, combining traditional welfare mechanisms with market forces. 

Many agendas are usually in play, and different, even divergent goals are often being pursued simultaneously.  Most of the challenges surrounding the delivery of aid derive from this complexity.  Corruption and opportunism have been known to result amidst these multiple, moving pieces.  When it is unclear where each dollar is coming from and who is responsible for its use, efficiency is compromised and the door left open for embezzlement and leakage.  Recent news stories charging the Sudanese government with selling UN Food Programme supplies on the open market while their people starve is a case in point. 

In addition, it can be common for all the various development players to literally trip over each other in the field, duplicating services to some, while unwittingly under-serving others.  Reporting requirements and the sheer number of meetings required by multiple stakeholders in such an environment become a burden to already fragile governments and infrastructure.  Not everyone plays by the same rules; and an entire subculture of competition and intrigue often develops among those in the aid community whose intended purpose is to simplify, not complicate, the lives of the people they intend to help.

As Lael Brainard and Derek Chollett put it, the various players have yet to achieve a level of coordination that reaches “strategic complementarity,” or the best use of specialized resources for purposes that maximize their impact.  A numerical illustration of the vastness and complexity of this phenomenon can be taken from the OECD: it reports that its members launched 10,453 missions in 34 countries in 2005, which is an average of 300 per country or one every 1.2 days. 

The Debate Over the Effectiveness of Aid

Whether or not aid “works” is a highly charged question, and one that weighs heavily on the development community.  The answer lies in what the goals of the aid are in the first place.  Should it simply raise the minimum standard of living and improve the quality of life for the poorest or should it generate the preconditions necessary for the true economic growth of LDCs?  What one believes has everything to do with whether one thinks aid is “working.”

Modern foreign aid has its roots in the success of the Marshall Plan, a bold and generous effort on the part of the United States to reconstruct Western Europe after the devastation of WWII.  Encompassing 3.2% of US Gross National Product (GNP) in a society-wide endeavor, the US made large grants and loans on the assumption that putting war-torn countries back on their feet and stimulating their economic growth was the best hedge against the spread of Communism to these societies.  Similar efforts were made to reconstruct former enemy Japan for the same reasons.  Overall, the initiatives were a huge success, and today, most of the members of the OECD (the world’s developed nations) were recipients of Marshall Aid or other post-war US assistance.  Communism was kept at bay, markets were generated for US goods along the way, and prosperity returned to the West. 

The success of the Marshall Plan inspired the US and the newly recovered European nations to try to replicate this phenomenon among impoverished nations (many of them former colonies) in Africa, Asia, and Latin America.  What they found billions of dollars later, was that aid is much more effective at rebuilding an economy than it is at building one that does not have historically strong foundations.  Efficient markets had once existed in Europe; the population was largely healthy and educated; the climate was generally favorable; the post-war ethnic configurations were (tragically) more homogenous than before the war. There had been infrastructure, hard and soft, that could be resuscitated; there had been a tradition of public service that could be built upon; there was much potential gain to be had for the US in reviving the continent. 

This was simply not the case among the impoverished nations of what was then called the Third World.  Much to the dismay of development economists, by the 1990s, there was little evidence that aid had made any statistically significant difference in sparking growth among the poorest countries.  Some had even experienced negative growth while receiving large amounts of aid.  Numerous studies went on to demonstrate this lack of correlation between levels of aid and levels of growth, and the result was a general waning of enthusiasm for the potential of aid to bring LDCs into the functioning world community. 

It was, however, acknowledged that some good had been done in ameliorating certain conditions.  Foremost among these successes was the vaccination of children in LDCs and the dramatic decrease in morbidity and mortality from smallpox, measles, polio, and other diseases that had long disappeared from the developed world.  Despite this, by the turn of the 21st Century, it could be said that, although aid had improved the lives of some people in some places, its overall impact on growth among LDCs was disappointing. 

But Why, and What Now?

Why was there an overall lack of return on development investments in the post-Marshall Plan era?  It should first be stated that there are many experts who would take issue with the very notion that aid has been ineffective for LDCs.  As many note, it is important to consider what the overall objectives of past aid to LDCs were.  As some claim that aid was not truly given for development purposes, it is hard to claim that it has not “worked” to produce development goals.  Many experts have made this key point in current research.  Mark Sundberg’s and Alan Gelb’s work for the World Bank is particularly instructive:  by analyzing different amounts and types of aid given over the past three decades they were able to conclude that only 38% of all ODA was given, in fact, in forms specifically designed to produce growth.  Remaining dollars went to technical cooperation (consultants and advisors who did not leave the developed world), the administrative costs of donors, debt relief, emergency and food aid, and tied aid. 

They also looked at to whom the money was given, assuming that for aid to be called truly pro-growth, it needed to be given to countries needing the most growth and to those who could best use it to grow.  By various analyses, they concluded that much aid had been given to countries without good potential for growth, or to recipients chosen on the basis of the “postcolonial” or “strategic” interests of the donors.  In this view, much of the aid that is said to have been ineffective in producing growth was actually given in forms that don’t generally produce growth and/or to recipients either unable to use it for growth purposes or not chosen for their growth profiles.

Even if it is accepted that aid as a whole has been less than a success, is it a result of “sins of omission” or “sins of commission,” as Michael Clemens questioned in a recent issue of Foreign Affairs?  Again, former World Bank economists Jeffrey Sachs and William Easterly are at the forefront of this debate.  Sachs generally believes that levels of aid have been insufficient, and that this is why it hasn’t “worked.”  He points to the failure of OECD countries to donate adequate funds for international development, for reneging on their promises over the years to achieve what has become the suggested standard of giving: .7% (this is seven-tenths of one percent) of GNP.  For Sachs, and many of those who support his work, including the singer Bono, the issue is the magnitude and consistency of the aid.  In this view, more funds and less volatility in funding levels over time will provide the resources necessary for both the amelioration of poverty and the transformation of societies.  Sachs and others of this perspective advocate pooling these resources along with other development tools and marshaling them according to comprehensive protocols (Poverty Reduction Strategy Papers), drawn up with local input and buy-in, targeting specific goals, and involving stakeholders from a wide variety of public and private institutions and organizations in the donor and recipient countries.  His crusade is one of putting lessons learned to good use, in replicable models taken to scale in the developing world.

In contrast, Easterly generally believes that aid has been poorly used and, along the way has even created debilitating incentives that produce dependency, economic stagnation, corruption, and regression (sins of commission, not omission).  The world’s attention, in his view, should be turned toward other tools in the development toolbox (see Foreign Direct Investment, Microfinance).  He points to the fact that many countries have pulled themselves out of the lowest rankings without large infusions of aid, citing China as a prime example.   

As a Communist country, China received very little traditional Western aid – what it did manage to attract with the opening of its economy to trade and capitalism was the foreign direct investment (FDI) that was critical in creating export diversification and drew on its inexpensive labor force.  The reason the ranks of impoverished are not greater than one billion is because China and, to a lesser extent, India, managed to grow their economies out of widespread abject poverty and stagnation over the last 30 years.  In Easterly’s view, aid has not only been largely ineffective in addressing the needs of the LDCs, but it has also been wasted because experience has shown that it is possible to achieve growth and poverty-reduction without it.  His key point is that development experts have no way of truly knowing what will make a difference, despite best practice lessons.  In his view, the only ones who can know this are local residents of LDCs themselves, and they should be given the tools to put this information and incentive to good use.  Despite this, Easterly concedes that aid can be a short-term bridge until the tools to grow the market can be utilized.

Ultimately, the overall impression one gets from reading both Sachs’ and Easterly’s prolific works is that they are perhaps not as far from each other as the debates would suggest.  With differing degrees of emphasis, both camps, and most experts along the spectrum, generally agree that certain amounts of aid are more effective than others, that aid is more effective in some places than in others, and aid is necessary, but not sufficient for economic growth.

There is a sense of great promise brewing, with the infusion of new innovation and funds from new types of development players (many of them from the private sector who are able to act with more spontaneity and flexibility, and less political maneuvering).  The sections that follow will describe what is being done beyond aid to promote growth in the LDCs.  Another glimmer of hope can be seen in the increased awareness of the public for the need for aid and development.  Celebrities such as Mia Farrow, Bono, and Angelina Jolie have had an impact on the profile of the LDCs, and when they have linked with traditional players in the development community, their participation has largely been an accelerant.  The danger, as acknowledged by Darrell M. West and others, is that development aid risks becoming a fad, or that, in other words, recognizing its complexity will be sacrificed for sound bites.  Most, however, embrace the new infusion of energy and search for ways to sustain it as an avenue for increasing the effectiveness of aid.

Inescapable Facts About the Potential Effectiveness of Aid

The same factors that contribute to a country’s poverty also impact its ability to make good use of aid.  Geography, demography, international and regional relations, internal conflict, poor hard and soft infrastructure, predatory or ineffective governance, human and capital migration, and internal inequality all exist in various combinations in different places and make effective and efficient use of aid immensely difficult.  The traps and cycles associated with poverty are ever-present; just because a country can mitigate or escape one trap doesn’t mean it is not at risk for being pulled back into that same trap or another one at any time.  Adding to these intractable difficulties are operational and logistical difficulties brought to the table by aid donors, organizations, and practitioners themselves.

Another overarching consideration about aid effectiveness is that dollars are generally worth more in preventing or containing problems than in addressing them once they have spread.  For example, a recent statistic released by CARE, an international relief and humanitarian organization, via the BBC estimates that $1 in hunger prevention has the same net effect as $80 dollars in humanitarian relief after a famine has occurred.  As many in the field have pointed out, however, aid dollars tend to flow where there is dramatic, observable impact (such as after a natural disaster).  Easterly has called this SIBD – “Something is Being Done Syndrome,” and points to the high profile controversy over the provision of AIDS drug cocktails to AIDS patients in LDCs versus less dramatic, less observable, yet more widely-efficient AIDS prevention programs, such as condom distribution, public education, and the prevention of viral transmission between mother and child.

Finally, it is vital to issue another warning about the numbers and statistics used within the development community.  Aid effectiveness cannot really be measured using scientific control groups.  Like much social science research, it is never wholly objective – the effects of prevention cannot easily be measured and the effects of interventions can often be attributed to other factors.  For example, “skimming,” or taking on those clients that are the most easily helped, skews the reliability and applicability of data that is collected on outcomes.  With so many different levels of decision-making and actors involved, isolating weak links in comprehensive projects is often impossible.  In addition, as we have seen, much aid that is factored into studies was of the type that was never actually intended to produce growth and consequently its low levels of effectiveness are a debated conclusion.  In sum, evaluating aid is generally political and problematic – it is the hope of many experts that this area is where innovation will occur as new players enter the field. 

Aid as a Negative: Unintended Consequences

An important caveat to consider in regard to aid is its potential to do harm – a point raised by Easterly and other experts.  The spectrum of the unintended consequences resulting from aid given with good intentions is broad.  At one end, experts frequently raise concerns about perverse incentives.  If receiving aid (free money) is predicated on a country’s inability to provide for its citizens, it has been said that the incentive therefore exists for the government to remain needy.  Most would agree that the connection is not quite this direct, and that given the choice, most societies would choose self-sufficiency and economic sovereignty.  But the point remains – unless aid is conditioned on some measure of indigenous efforts to ultimately eliminate the need for such aid (see above), the aid itself can become a barrier to reform.  Aid here subverts the laws of natural consequences and is haunted by a legacy that includes the propping up of unsavory leaders when their own wrongdoings and ineptitude would have otherwise spelled their demise. 

Writing in the Foreign Policy, Michael Cohen, Maria Figueroa Kupcu, and Parag Khanna of the New America Foundation recently offered another argument against aid in their article, “The New Colonialists.”  In their view, development aid has served a perverse function in LDCs that appear to be “transitioning,” or making progress.  They argue that these countries are in fact locked in an extreme form of dependency on the development community to perform basic state functions.  The new philanthropists and the proliferation of NGOs (the new colonialists) have, according to the authors, literally displaced the government in countries like Botswana, Cambodia, Georgia, and Kenya, “eroding” state responsibilities as well as the community’s faith in its government’s functionality. 

As an example, it is noted that 80% of all Afghan services are delivered by NGOs – on the whole, there no longer exists much expectation that the Karzai government will be able to receive and distribute aid itself, much less provide for the welfare of its citizens without aid.  In this view, the large NGOs have become too effective; their largesse often erodes the government’s ability to stand up on its own.  Once this happens, there is very little incentive to hand off the responsibility – if things stabilize and donors continue to donate, the world generally breathes a sigh of relief that some progress is being made without asking where that progress is originating.  Moreover, once an operation has been declared a success, or even promising, the aid community itself has an interest in staying in-country because there are too few such successes in the developing world. 

This result has been described elsewhere by former World Bank Official Robert Calderisi as “the weakening of governments by creating islands of well-paid specialists in seas of mediocrity.”  In his view, “neo-colonialism” veers into “neo-imperialism,” a phenomenon in which external powers not only control the economy of LDCs, but use aid arrangements to their own financial benefit.  Some experts suggest that, 100 years from now, it is possible that aid may be seen as having worked to the benefit of LDCs to the same extent as colonialism and imperialism did.

Finally, taking the idea of aid as an agent of negative consequences to its extreme, Peter Uvin, in his book Aiding Violence:  The Development Enterprise in Rwanda, has posited that the aid community in Rwanda in the 1970s, 1980s, and 1990s hastened the 1994 genocide by its willful ignorance and/or failure to address the growing crisis.  His argument is that the numerous aid organizations on the ground chose to lead their own “well-intentioned separate life,” and to “conduct business as usual” in the face of escalating Hutu-Tutsi tensions, growing violence, and rampant militarism in the lead-up to 1994.  Rwanda in 1990-1993 was a darling of the development community, receiving increasing amounts of aid and foreign experts, almost until the date of its implosion.  In fact, Uvin says the fact that the aid community, whom people assumed had the best knowledge of the situation, did not raise the alarm, but rather increased aid levels, sent a faulty “signal” to the international community about the seriousness of the situation.  Uvin uses this example to conclude that aid can never be apolitical, because it inevitably becomes intertwined and even complicit in the actions of both benign and malicious states alike, “providing the fuel that allows the government machinery to exist, to expand, to control, and to implement” what, in the case of Rwanda, were horrific agendas.  His argument is that the aid community should have used conditionality (carefully, so as to not back aggressors into the corner), and that it should have implemented conflict-prevention/community-building mechanisms as the crisis became ever more apparent.

Prospects for the Future

Even though experts have pointed out the number of challenges and obstacles to effective aid, the continuing existence of aid is not in question.  What John Cassidy wrote in the New Yorker in 2004 is even truer today: anti-poverty programs are increasingly being elevated to the level of counterterrorism strategy.  Cassidy’s historical perspective is remarkably prescient.  He quotes a line from John F. Kennedy’s famous 1961 speech advocating increased foreign aid – “Widespread poverty and chaos lead to a collapse of existing political and social structures, which would inevitably invite the advance of totalitarianism into every weak and unstable area.”  Read in the context of contemporary international relations, this quotation invites the reader to substitute “terrorism” for “totalitarianism” to create the message of today.  How aid is to translate into nation-building (as in the example of Pakistan) is another matter; in this vein, aid is likely to continue to find advocates in the realm of national security strategy, especially given what is increasingly being realized about the proclivities of radical youth bulges in poor Islamic countries.  

While most believe the OECD as a whole (and the US in particular) will not soon increase their giving levels to the suggested .7% of GNP, neither do they believe a major decrease is likely.  How the growing US financial crisis and potential global recession in fall 2008 will affect this remains to be seen.  Ironically, there is a surprising lack of knowledge among the American public about how much aid the country already gives.  Surveys over the last decades show a fairly consistent misperception – Americans tend to over-estimate the US foreign aid budget by 30 times (most guess around 20% of GNP when it is less than one-quarter of one percent).  This clearly complicates efforts to assemble a constituency for increasing or improving aid, yet this is what celebrities and philanthropists such as Bono, Bill Gates, and Warren Buffett are attempting to do.  Theirs and others’ advocacy efforts are expected to at least forestall a decrease in ODA, while also encouraging others to raise overall levels of private giving. 

Beyond overall levels of aid, more conversations about who gets what and to what end are expected to transpire: what populations and programs should have priority; how can aid be made more effective; how should new players and other tools in the toolbox be factored into the aid equation.  The trend is towards a more holistic conceptualization of development assistance, bringing the power of the market to bear alongside traditional aid practices to promote economic growth and welfare among the poorest countries.  Paul Collier writes that the developed world (particularly the G-8, or group of most industrialized nations) needs to “narrow the focus, and broaden the instruments."

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