Mind the Development Continuum Gap: From Aid to Self-Help

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Shrey Goyal's picture

‘International Development’ is a concept that has rapidly emerged over the past century due to the conspicuous economic and development continuum gap that divides our planet into two (or three) separate worlds. You could identify them as rich and poor or ‘developed’ and ‘developing’, but when Nobel Peace Prize laureate Willy Brandt (1980) chaired the Independent Commission on International Development Issues, their final report framed this divide in a novel way:

“The commission broadly groups the developing countries as those that occupy the southern hemisphere and developed countries as those that occupy the northern hemisphere, whilst acknowledging exceptions to this and emphasising the common global economy that they all must exist within.”

Note that “hemisphere” does not refer to a cartographic unit, although the divide can be visually depicted by a Brandt line encircling the world at about 30° N latitude, with a sharp kink to include Australia and New Zealand in the North.

The Global South contains about three quarters of the world populations, but just one fifth of the world income. It lacks appropriate technology, political stability, and has mainly been a source of raw material for the North (Mimiko, 2012). Poverty in the region has not just led to a poor standard of living, but is also a major cause of violence and conflict (J. D. Sachs, 2007).

Development of the Global South is thus imminent to securing well-being and peace for the planet, and the North has tried to address with a variety of approaches from providing aid to advancing different forms of globalisation, producing mixed results and a great deal of debate.

Much ado about ODA

International aid has been the most prominent response to the development gap by the Global North in the post-World War 2 period, and includes any voluntary transfer of public resources from a government to any other government or agency with an aim to “better the human condition in the country receiving the aid”(Lancaster, 2008). The term itself is rather broad, and includes ‘official development assistance’ or ODA, which refers to aid given at concessional financial terms by governments to support the economic development and welfare (with a long-term focus) of developing countries (IMF, 2003). As per the Organisation for Economic Co-operation and Development (OECD, 2014) Development Assistance Committee, donors provided a total of USD 134.8 billion in net ODA in 2013, reaching the highest level ever recorded.

There have been many instances of well-targeted uses of ODA which have resulted in successful interventions in the Global South. For example, notable improvements in public health in low-income countries, ranging from the scale-up of vaccine coverage to increased treatment coverage for HIV/AIDS and expanded tuberculosis control, have been funded mainly by aid (J. Sachs, 2014).

However, international aid has been severely criticised by practitioners and academicians world over for issues regarding effectiveness and accountability. Peter Singer (2010) argues that over the last three decades, “aid has added around one percentage point to the annual growth rate of the bottom billion.” Another study (Djankov, Montalvo, & Reynal-Querol, 2008) has compared provision of foreign aid to the "curse of natural resources" by saying that the windfall of resources to recipient countries may result in rent seeking behaviour, and has empirically found a negative impact on democracy, concluding that “aid is a bigger curse than oil.”

Exclusion of recipient actors and fragmentation is another issue. As The Economist (“A scramble in Africa,” 2008) reported a few years ago, donors were spending $350m annually in Mozambique on 3,500 technical consultants, enough to hire 400,000 local civil servants. Aid agencies construct inefficient parallel systems and insist on using their own experts to build, run and evaluate operations, instead of building local capacity.

Political instability often leads to foreign aid being ineffective with respect to economic performance, and evidence of a sizable causal effect of foreign aid on political instability in the 1980s and 1990s has been recorded (Oechslin, 2006).

The practice of mandating that aid be spent on goods and services from the donor country, called ‘tied aid’ also increases the cost of assistance by up to 30 per cent and can create distortions in the market (Roodman, 2006).

Bill Easterly (2002), a prominent aid critic, has posed that aid agencies form a “cartel of good intentions” that increase inefficiency and reduce effective supply of development services, thus leaving foreign aid to serve the interests of “everyone except for those whom it was intended to help.”

Promoting Self-Reliance: The Japanese Aid Experience

If we divert our attention from America and Europe and look eastwards, Japan come up as a significant giver in terms of ODA. In 1989, it superseded the United States as the world’s largest donor country (Sawamura, 2004), and even as the “lost decades” that followed caused it to fall back a bit, Japan remained the top donor country in terms of volume of ODA throughout the 90s.

However, the more important story behind these figures is that of Japan’s unconventional aid approach, one that emphasises non-intervention and supporting self-help efforts (Ministry of Foreign Affairs of Japan, 2003), a stance that has in the past been criticised for being too economically oriented, but has in fact resulted in rapid economic growth among its top aid recipients in East Asia.

This unique foreign aid strategy reflects important historical and cultural characteristics, echoing Japan’s “post-war economic miracle,” and a belief that true development can be achieved only when a recipient country promotes development strategies with economic independence.

Japan also has a unique policy of providing assistance only upon recipient request, and often obliges the recipient country to bear any local costs as may arise. Thus, Japan assumes that accepting the entire burden discourages self-help efforts and has an ultimately negative impact on sustainable development, and treats each such project as a “joint enterprise” with the recipient being an active participant (Gaimusho, 1991).

Japan’s ODA is also characterized by its non-political dimension, respecting the principle of non-intervention. While other donors have frequently used aid as a tool for arm-twisting, Japan has been praised for its efforts to respect the autonomy of recipient nations. Many see the Japanese way as reflecting the essential role of development assistance, and recipient nations place a high value on the fact that Japanese aid does not entail political or economic conditions (Sawamura, 2004).

It is not difficult to see a hint of neoliberalism here. As put forth in Japan’s ODA charter (Ministry of Foreign Affairs of Japan, 2003), aid should facilitate trade, as well as foreign (Japanese) direct investment in the recipient. However, it is remarkable that Japan had also contributed the most untied aid over 1984-2009, and its share of tied aid has been very small (Rydén, 2011). Japan contends that as countries develop, the composition of ODA should shift from grants to untied loans on preferential terms, calling for recipients to have their own, appropriate development strategies.

As a result, Japan is not only the largest official aid provider to Southeast Asia, but also a major foreign business player. While promoting the economic development of the region's economies, it has also managed to secure energy, mineral and other resource supplies that it lacks due to geographical limitations. Japan’s relationship with Southeast Asia is one that is strong, mutually profitable, and a source of political, cultural, and economic benefits to all parties.

Neo-neoliberalism?

It needs to be said that the self-help and non-interventionist approach may not necessarily work everywhere. For example, countries suffering from problems of governance and lacking institutional infrastructure, sometimes termed “failed states,” cannot rely wholly on self-help efforts, and donors may be inclined to examine internal issues first (Sunaga, 2004). Positive evidence has shown that well-designed aid has made a tremendous impact (J. Sachs, 2014), and efforts are needed to make aid more effective.

However, broader political and economic reforms are necessary for sustainability and economic justice to be permanently established. Even the aforementioned report by the Independent Commission on International Development Issues (Brandt, 1980), acknowledged as the most comprehensive and broad based analysis of the various issues of global development (Wolf, 2011), strongly suggested the same, saying:

“…the view that the rich nations’ main role in the struggle to end poverty is to supply aid, is strongly rejected by the commission, in favour of a restructuring of the global economy to allow developing countries to participate realistically in their own growth.”

Bill Easterly (2002) suggests experimenting with decentralized markets, while the World Bank's Comprehensive Development Framework and African leaders' New Partnership for Africa's Development both see increased global integration as the key to Africa's development, arguing that changes in the global political economy are making such “reformist ideas” more acceptable (Owusu, 2003).

Thus a global partnership between North and South, with greater integration, more local participation in development, and mitigation of exploitation and rent-seeking behaviour, is the need of the hour. Aid has a role to play, as does trade. Perhaps what the world needs is a more ethical and sustainable form of neoliberalism.

References: 

A scramble in Africa. (2008, September 4). The Economist. Retrieved from http://www.economist.com/node/12060397 Brandt, W. (1980). North-South: a programme for survival: report of the Independent Commission on International Development Issues. Retrieved from http://www.popline.org/node/446780 Djankov, S., Montalvo, J. G., & Reynal-Querol, M. (2008). The curse of aid. Journal of Economic Growth, 13(3), 169–194. Easterly, W. (2002). The Cartel of Good Intentions: Bureaucracy vs. Markets in Foreign Aid. doi:10.2139/ssrn.999981 Gaimusho, J. (1991). Japan’s ODA. Ministry of Foreign Affairs. IMF. (2003). External Debt Statistics: Guide for Compilers and Users. International Monetary Fund. Lancaster, C. (2008). Foreign aid: Diplomacy, development, domestic politics. University of Chicago Press. Mimiko, N. O. (2012). Globalization: The Politics of Global Economic Relations and International Business. Durham, N.C: Carolina Academic Press. Ministry of Foreign Affairs of Japan. (2003). Japan’s Official Development Assistance White Paper 2003. Ministry of Foreign Affairs of Japan. Retrieved from http://www.mofa.go.jp/policy/oda/white/2003/index03.html OECD. (2014, April 8). Aid to developing countries rebounds in 2013 to reach an all-time high. Newsroom - OECD. Retrieved from http://www.oecd.org/newsroom/aid-to-developing-countries-rebounds-in-201... Oechslin, M. (2006). Foreign Aid, Political Instability, and Economic Growth. Inst. for Empirical Research in Economics. Retrieved from http://www.iew.uzh.ch/wp/iewwp310.pdf Owusu, F. (2003). Pragmatism and the gradual shift from dependency to neoliberalism: The World Bank, African leaders and development policy in Africa. World Development, 31(10), 1655–1672. Roodman, D. (2006). An index of donor performance. Center for Global Development Working Paper, (67). Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=982950 Rydén, H. (2011). The extent and effects of tied aid. Retrieved from http://www.hannes.se/files/The_extent_and_effects_of_tied_aid_by_Hannes_... Sachs, J. (2014, January 21). The Case for Aid. Foreign Policy. Retrieved from http://www.foreignpolicy.com/articles/2014/01/21/the_case_for_aid Sachs, J. D. (2007, July 20). No Development, No Peace. Project Syndicate. Retrieved April 27, 2014, from http://www.project-syndicate.org/commentary/no-development--no-peace/eng... Sawamura, N. (2004). Japan’s Philosophy of Self-Help Efforts in International Development Cooperation: Does It Work in Africa. Journal of International Cooperation in Education, 7(1), 27–40. Singer, P. (2010). The life you can save: How to do your part to end world poverty. Random House LLC. Sunaga, K. (2004). The Reshaping of Japan’s official development assistance (ODA) Charter. Tokyo: Foundation for Advanced Studies on International Development (FASID). Retrieved from http://www.fasid.or.jp/_files/publication/DP_3_E.pdf Wikimedia Commons. (2007). North South divide. Retrieved from http://commons.wikimedia.org/wiki/File:North_South_divide.svg Wolf, J. (2011, December). NEW WORLD ORDER: Of Willy Brandt, Development and Peace. Global Perspectives, International Edition.

Comments

Aid comes with a paradox: As soon as the recipient gets autonomous and independent the aide (donor, executing agency) looses his/her livelihood.
During the last two decades the world has changed dramatically and we seem to move into a real globalized world with former poor countries now being part of the global knowledge society. These countries seem to increasingly dislike donors and foreign consultants, generally with good reason. Thus big parts of the aid industry are struggling to survive.
A more business-like approach is the next logical step, good deals in the interest of both sides. Chinese businessmen have for instance contributed crucially to the the boom in many African countries.
But is a sole business approach enough? I don't think so. We need people, politicians, NGOs, interest groups to strive for a better world. Thus, let's continue to change the world for the better - e.g. more individual rights, improve the environment, energy efficiency, eradicate poverty - but let's not do it in the way that we "help" someone. We do it for the sake of improving "our" world. - A small difference but a big change in the approach.

Completely agree with you, Hans. In fact, India has been wrestling with the idea of declining British aid, while UK's DFID (Department for International Development) insists that foreign aid to India should continue.

And not every problem can be tackled with a trade/business-based approach too. This is especially true of sectors which may not give short-term financial dividends such as preventive healthcare or sanitation, and depend on the work of non-profit and public actors.

Better coordination is needed, and along with grant-based support, mechanisms to integrate the south into the global trade zone should also be encouraged a la the Japanese approach.

The article is a great read, Shrey. The article clearly draws one conclusion: even though aid works, it does not work to its full potential because there is a clear disconnect between the purpose of the aid and the way it is utilized. Making aid effective ultimately rests mostly on the aid recipient. However, an Achilles’ heels of aid or “self-help” is that a significant portion of the aid is given to the recipient country just so that it can recycle its existing “debt”. Japan is taking a similar approach with Myanmar, with around US$ 4 billion given in past couple of years just so that Myanmar could repay some of its existing debt. Given that the much needed aid could have been channeled into sectors that were more likely to fuel development, do you think there is room for even Japan to reshape its “self-help” strategy?

True. Development and aid itself are concepts that need to be updated and upgraded regularly. There are many critics of Japanese aid, and the point you raise of loan-based aid leading to a vicious circle of debt is a frequent cause of concern. It is especially a challenge in non-democratic countries where aid may be rerouted to private accounts of dictators while the nation spends decades trying to repay. Greater (and better) evaluation and accountability can be a good starting point for reform.