|
|
| The weak link between International Aid and International Development |
 PRINTABLE VERSION |
Analysing distribution by sector and type of aid is difficult because criteria vary from donor to donor. It is clear, however, that allocations from DAC members to the social sectors such as health and education increased from around 20% in the 1970s and 1980s to almost 30% at the end of the 1990s. Within this sector, education receives the largest share although only a relatively small amount of this is targeted at primary education. There has been a decrease in bilateral allocation to economic infrastructure and production, principally in areas such as energy supply and industrial production. As aid is highly fungible, distribution by sector may outline donors’ interests but it does not provide any information on how the resources are allocated by the recipients.
Aid –Effectiveness and Efficiency
For aid to be effective, it must meet its goals. For it to be efficient, it must meet its goals within certain financial limits. Currently, a large amount of aid is both ineffective at reaching goals and inefficient at keeping costs low. While the objectives of aid consist of vague and open-ended commitments, real success is determined by the policies, attitudes and conduct of the recipient states. In 1981, Bauer pointed out that aid continued to governments that had disastrous policies, which in fact ensured poverty continued to exist. Aid, he argued, has led to the politicisation of the third world in that it increases the relative power, resources and patronage of recipient governments. The great paradox is that the longer aid continues, the harder it is to question.
Peter Boone and Jean-Paul Faguet outline further efficiency and effectiveness problems. While industrialised countries gave annual grants equal to 8% of recipient countries’ GNP, absolute poverty continues unabated. Fifty years of aid work and investment has done little to reduce deprivation to anything close to acceptable levels. Long-term aid programs have broadly failed to achieve their objectives and indeed there have not been any persuasive theoretical or empirical evidence to indicate that international aid leads to international development.
At the Financing for Development Conference in March 2002, the USA representative spoke unfavourably about the effectiveness of aid. An NGO representative present reported that “unfortunately, they did not explore the reasons for that ineffectiveness, such as its political capture, funnelling to middle-income rather than low-income countries, distribution to client states and tying to donor country goods, in all of which the US is a leading culprit.” However, recipient countries may be more to blame than donors, as many have misused aid through redirection, predatory official behaviour and corruption.
Aid for Good Governance
If aid is so ineffective and inefficient, then there must be a problem. The difficulty cannot be capital scarcity, which previously justified loans and grants, as evidence shows that investing capital does not lead to growth. The problem is not ignorance or bad information, as the information is now readily available from multilateral institutions. The final possibility for this lack of achievement is bad incentives and problematic institutions, many of which may stem from poor institutional creation during colonisation. Development assistance is given to recipients on the understanding that they will use it to pursue positive net present value (+NPV) projects, however these recipient governments should be working on +NPV projects already. There are strong and continual incentives for recipients not to pursue these projects and the provision of a loan or grant, in a world with low sanctions, does little to reverse these incentives.
There are a number of perverse incentives in aid and development. Firstly, poorer countries get more aid. Countries are encouraged to stay poor in order to get more aid; by improving circumstances they cut off the hand that feeds them. Evidence to date has shown that bad policy also leads to more aid. Lots of aid leads to bad government officials, who either take advantage of aid indirectly or actively work to misuse it in cases of corruption. Governments want to be kept in power so it seems only natural that politicians will ensure that any aid flows to the general population reach government supporters first, indirectly causing more problems. Aid leads to more aid, it obscures the necessity for people in developing countries to develop their own resources and faculties required for sustained material progress.
Government failure can be blamed for the lack of improvement in human development indicators in many countries. Governments lack the political will, rather than financial capital. Aid needs to focus on improving the performance of recipient governments so that there are strong incentives for growth and reform. It is clear that institutions matter. Countries with better institutions, more secure property rights and less distortionary policies will invest more in physical and human capital, and will use these factors more efficiently to achieve a greater level of income.
|
Tags
You must be logged in to add tags.
|
Writer Profile
Fi McKenzie
This user has not written anything in his panorama profile yet.
|
Comments
Article Isabella | Feb 3rd, 2011
Concise, to the point and well informed.
You raise some very good arguments backed by stats.
The article is great
You must be a TakingITGlobal member to post a comment. Sign up for free or login.
|
|
