The Dwindling Charms of Development Aid

comments 0

Comment

share

Share

4

Rate

Nikhil Joseph's picture

In early March of 2012, a California based non-profit organization, ‘Invisible Children,’ uploaded a video to raise awareness about the crimes of a Ugandan warlord, Joseph Kony, and make the case for the international community to do more to bring him to justice.[i] The skillfully made video, and its hash tag, #Kony2012, quickly went viral with millions, young Americans especially, signing on to the cause by purchasing bracelets and joining lobbying efforts to persuade leaders of their countries to intervene in Central Africa, where the Kony led guerilla group still operates. A couple of weeks later, in the pages of The Atlantic, Nigerian-American writer and 2012 PEN/Hemingway Award winner, Teju Cole, wrote a searing critique of the video and the rhetoric it employed, which also quickly went viral. [ii] Mr. Cole argued that the attitude this rhetoric stems from, which he saw as endemic in the West’s engagement with Africa and profoundly disconcerting, was one that said "we have to save them because they can't save themselves.” Dambisa Moyo, Zairian born economist who has previously worked for both the World Bank and Goldman Sachs, has a similar critique of the aid and charity dominated lens with which the West has viewed Africa for so long. In her op-ed for the New York Times in 2012, she argued that this approach has failed because it severs the link between African citizens and their governments, who respond to the needs of foreign donors rather than domestic taxpayers.[iii] The world renowned economist, former candidate for World Bank President and current Finance minister of Nigeria, Ngozi Okonjo-Iweala, had a simple piece of advice for those who wanted to help Africa: “do business here.”[iv]

After decades of being perceived as a perennial basket case of famine and conflict, forever dependent on Western aid and charity, the global conversation on Africa is at last being reframed by articulate African voices. This is undeniably a good thing, irrespective of one’s views on the effectiveness of international development aid. Africa deserves a more nuanced conversation, and now, finally, people are listening to voices from the continent making that demand.  Part of the reason this has been the tremendous economic growth that we have seen in Africa in the past decade. Sub-Saharan Africa, excluding South Africa, is the fastest growing region in the world.[v] Real GDP for the continent as a whole rose 4.9 percent every year between 2000 and 2008, more than double the pace of GDP growth in the 1980’s and 1990’s.[vi]

Does Aid Foster Growth?

Economic growth in sub-Saharan Africa has come at a time when aid flows worldwide have been falling. If one were to exclude Iraq and Afghanistan, net aid given by the OECD “was lower in 2005 than in 1985 in absolute terms.”[vii] This raises the question of what the value of each additional dollar spent on aid really is.

There are essentially three schools of thought in the debate on the link between aid and growth. On one side there are those who argue that the relationship between aid and growth across countries is a positive one if you allow for diminishing returns with increasing volume.[viii] Proponents of this view also point to the various micro successes of aid in areas beyond growth such as health, education and the environment. Aid supported initiatives has contributed to the eradication of small pox, the near eradication of polio, control of river blindness, increasing rates of immunization in developing countries and so on.[ix]

Secondly, there are those who argue that aid does stimulate growth, but only under certain conditions, namely when the ‘right’ policies and institutions are in place.[x] Others argue that once you disaggregate aid flows into investments that are directly aimed at increasing growth (such as infrastructure development) from those that aren’t (humanitarian and emergency aid, long term investments in education etc.), there is indeed a positive relationship between the former and economic growth.[xi]

The third school of thought, perhaps the one that has attracted the most attention of late, argues that there is no relationship at all between aid and economic growth, and that in some cases, this relationship may even be negative.[xii] The proponents of this view claim that foreign aid discourages domestic savings and investment in the recipient country thus increasing the ‘finance gap’.[xiii] Aid has also been found to be correlated with lower levels of democracy, rule of law and higher corruption.[xiv] Others have argued that aid reduces incentives to develop sustainable solutions to local problems:

Large aid flows can result in a reduction in governmental accountability because governing elites no longer need to ensure the support of their publics and the assent of their legislatures when they do not need to raise revenues from the local economy, as long as they keep the donors happy and willing to provide alternative sources of funding.[xv]

The Withering of the Washington Consensus 
Perhaps the most damning critique of the international development comes not from academic journals but from the example of countries like China, South Korea, Malaysia, Thailand and, to a lesser extent, India. South Korea, for instance, had a per-capita GDP lower than many sub-Saharan African countries in the aftermath of the Korean War.[xvi] Today it is one of the richest and most technologically advanced countries in the world. African leaders are looking to these countries and trying to understand how they, too, can emulate the success of their Asian counterparts. The success of these countries has been built on an export-led model, with governments taking a proactive role in developing ‘national champions’—domestic firms that are given incentives to become internationally competitive.

While it is true that the base conditions from which these Asian ‘tigers’ emerged differ substantially from many of the poorest African countries today—which tend to be landlocked and mired in internal conflict—one can see the powerful influence their model is exerting. On a visit to Beijing, China, in August of 2010, President Jacob Zuma of South Africa had this to say:

That the world is changing is not in dispute. It is an irrefutable fact that economic power is in a process of shifting from North to South, and West to East.[xvii]

The persuasiveness of the ‘Washington Consensus,’ long derided by critics as pernicious to the economic prospects of the poorest in the developing world, is indeed fading. However, many of its most powerful ideas, such as the liberalization of trade and the emphasis on attracting foreign direct investment, continue to be pursued. The difference now is that many developing countries are doing so in the fashion of the East Asia ‘Developmental State,’ a model that some have dubbed the ‘Beijing Consensus.’[xviii] The difference now is that states takes an unabashedly interventionist role in macroeconomic planning, with a single-minded focus on creating the conditions for export-led growth, even at the cost of political freedoms. Whether this model succeeds in the long-run in disparate places like Rwanda and Nigeria remains to be seen.

 

[ii] Cole, Teju (March 21, 2012)x “The White Savior Industrial Complex,” The Atlantic,. Retrieved from: http://www.theatlantic.com/international/archive/2012/03/the-white-savio...

[iii] Moyo, Dambisa (June 27, 2012)  “ Beijing, a Boon for Africa,” The New York Times. Retrieved from: http://www.nytimes.com/2012/06/28/opinion/beijing-a-boon-for-africa.html...

[iv] Okonjo-Iweala, Ngozi (March 2007)  Want to help Africa? Do business here (Monterey, California: TED Talk) Online video (20 min). Retrieved from: http://www.ted.com/talks/ngozi_okonjo_iweala_on_doing_business_in_africa...

[v] The Economist Intelligence Unit (EIU). 2012. Into Africa: Emerging opportunities for business. London, UK: The Economist. Retrieved from: https://www.eiu.com/public/topical_report.aspx?campaignid=IntoAfrica2012

[vi] McKinkey Global Institute. 2010. Lions on the Move: The progress and potential of African economies. Retrieved from: http://www.mckinsey.com/insights/africa/lions_on_the_move

[vii] Kharas, H. (2007). Trends and Issues in Development Aid. Wolfensohn Center for Development

Working Paper. Retrieved from: http://www.brookings.edu/~/media/research/files/papers/2007/11/developme...

[viii] Radelet, S. (2006). A Primer on Foreign Aid. Center for Global Development Working Paper 92. Retrieved form: http://www.cgdev.org/publication/primer-foreign-aid-working-paper-92

[ix] Levine, R. (2004). Millions Saved: Proven Success in Global Health. Washigton DC: Center for

Global Development.

[x] Burnside, C., & Dollar, D. (2000). Aid, Policies, and Growth. American Economic Review , 90 (4),

847-68

[xi] Clemens, M., Radelet, S., & Bhavnani, R. (2004). Counting Chickens When They Hatch: the Short-Term Effect of Aid on Growth. Center for Global Development Working Paper , No. 44 (November). Retrieved from: http://www.cgdev.org/files/2744_file_CountingChickensFINAL3.pdf

[xii] Rajan, R., & Subramanian, A. (2005). Aid and Growth, What Does the Cross-Country Evidence

Really Show? IMF Working Paper , 05/127.

[xiii] Easterly, W. (1999). The Ghost of Financing Gap: Testing the Growth Model Used in the

International Financial Institutions. Journal of Development Economics , 60, 423–38.

[xiv] Djankov, S., Montalvo, J. G., & Reynal-Querol, M. (2006). The Curse of Aid. Retrieved February 25,

2011, from SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract id=893558

[xv] Moss, T., Pettersson, G., & van der Walle, N. (2008). An Aid-Institutions Paradox? A Review Essay

on Aid Dependency and State Building in Sub-Saharan Africa. In W. Easterly, Reinventing Foreign

Aid. Cambridge, MA: MIT Press.

[xvii] Excerpt from a speech delivered on 26 August, 2010, at Renmin University, Beijing, China. Retrieved from: http://allafrica.com/stories/201008260123.html

References: 

Cole, Teju (March 21, 2012)x “The White Savior Industrial Complex,” The Atlantic,. Retrieved from: http://www.theatlantic.com/international/archive/2012/03/the-white-savio...

Moyo, Dambisa (June 27, 2012) “ Beijing, a Boon for Africa,” The New York Times. Retrieved from: http://www.nytimes.com/2012/06/28/opinion/beijing-a-boon-for-africa.html...

Okonjo-Iweala, Ngozi (March 2007) Want to help Africa? Do business here (Monterey, California: TED Talk) Online video (20 min). Retrieved from: http://www.ted.com/talks/ngozi_okonjo_iweala_on_doing_business_in_africa...

The Economist Intelligence Unit (EIU). 2012. Into Africa: Emerging opportunities for business. London, UK: The Economist. Retrieved from: https://www.eiu.com/public/topical_report.aspx?campaignid=IntoAfrica2012

McKinkey Global Institute. 2010. Lions on the Move: The progress and potential of African economies. Retrieved from: http://www.mckinsey.com/insights/africa/lions_on_the_move Kharas, H. (2007). Trends and Issues in Development Aid. Wolfensohn Center for Development Working Paper. Retrieved from: http://www.brookings.edu/~/media/research/files/papers/2007/11/developme...

Radelet, S. (2006). A Primer on Foreign Aid. Center for Global Development Working Paper 92. Retrieved form: http://www.cgdev.org/publication/primer-foreign-aid-working-paper-92

Levine, R. (2004). Millions Saved: Proven Success in Global Health. Washigton DC: Center for Global Development. Burnside, C., & Dollar, D. (2000). Aid, Policies, and Growth. American Economic Review , 90 (4), 847-68

Clemens, M., Radelet, S., & Bhavnani, R. (2004). Counting Chickens When They Hatch: the Short-Term Effect of Aid on Growth. Center for Global Development Working Paper , No. 44 (November). Retrieved from: http://www.cgdev.org/files/2744_file_CountingChickensFINAL3.pdf

Rajan, R., & Subramanian, A. (2005). Aid and Growth, What Does the Cross-Country Evidence Really Show? IMF Working Paper , 05/127.

Easterly, W. (1999). The Ghost of Financing Gap: Testing the Growth Model Used in the International Financial Institutions. Journal of Development Economics , 60, 423–38.

Djankov, S., Montalvo, J. G., & Reynal-Querol, M. (2006). The Curse of Aid. Retrieved February 25, 2011, from SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract id=893558

Moss, T., Pettersson, G., & van der Walle, N. (2008). An Aid-Institutions Paradox? A Review Essay on Aid Dependency and State Building in Sub-Saharan Africa. In W. Easterly, Reinventing Foreign Aid. Cambridge, MA: MIT Press. Jared Diamond (2012) http://www.nybooks.com/articles/archives/2012/jun/07/what-makes-countrie...

Excerpt from a speech delivered on 26 August, 2010, at Renmin University, Beijing, China. Retrieved from: http://allafrica.com/stories/201008260123.html Katrin Bennhold (2011) http://dealbook.nytimes.com/2011/01/28/what-is-the-beijing-consensus/