A quiet debate on aid

Last night I went to a quiet debate at the Oxford University student union on the problems of foreign official and NGO aid. On the “against” side was former DFID economist Professor Adrian Wood. Arguing for increases in aid were Anna Thomas, the head of Economic and Social Development at ActionAid UKand Paul Mylrea, the communications director of DFID.

It was an excellent talk; adding to the selection of three interesting speakers was a very intimate setup: the speakers sat on comfy leather chairs with the rest of us just a few feet away in a semi-circle. It was a nice change from the removed setup of a panel discussion, and made the Q&A session. What made the discussion even better was the absence of hysteria that often crops up in this debate. This was not a Sachs vs Easterly-style slugfest – this was, for the most part , a nuanced discussion (although I can’t exactly say the same for the audience).

Here, in summary are the basic arguments of the three speakers:

Adrian Wood argued that aid is detrimental in a number of ways (in ascending order of importance:

  1. The location and type of aid is drive often by donor country interests (i.e. for foreign policy reasons, to former colonies, or for purely commercial interests, including tied aid).
  2. Donors and NGOs are rubbish at evaluation and tracking. Reported project success rates are unrealistically high, mostly as we define “success” over fairly limited parameters. We often ignore sustainability in the long run. He also criticized ineffective technical assistance, as donors often pay for expensive consultants whose outputs are not easily (and often not at all) measured.
  3. His third argument followed closely his points made on Development Drums: that donors fundamentally screw up governance and accountability in developing countries. On the operations side, governments must constantly cope with donor missions and requests, taking up valuable time that could be spent, y’know, governing. Aid flows are also very volatile and unpredictable (more so than domestic revenue by far), which makes them difficult to plan around. Most importantly (in my opinion), donors turn a government’s attention towards donors, not its own citizens. For countries that are highly dependent on aid, donors become the breadwinners. This undermines the natural accountability mechanism that develops in many countries, where a government needs to tax the population to sustain itself, and the population, irked at taxation, demand accountability and public goods in return. Finally, Wood noted that while a country-led model (where financing moves towards more fungible aid such as general budget support) is generally a good idea, it also makes it easier for donors to turn off support, and thus keep recipient countries on a tight leash.
  4. Finally, Wood argued that aid fundamentally reduces self-reliance and gives both people and governments less incentives to solve their own problems.

Anna Thomas started off asking three questions:

  1. Is development a good idea? She obviously didn’t spend long on this one: yes. She framed development within the context of one’s rights to certain levels of wellbeing, and that an international response might be required to help people realise those rights. She noted that global problems need global solutions.
  2. Does aid promote development? She agreed with Adrian Wood that tax revenue is extremely important, but that there are still examples of aid promoting development. Her examples included the Malawian fertiliser subsidy, which has raised maize production drastically in the country, the 4 million people currently receiving ARV treatment and successes getting millions of children into primary and secondary school. She also cited work by Actionaid to empower people to fight caste pressures. She agreed though that establishing causality in most other examples is extremely difficult, which is why the list of success stories is so short.
  3. Are there problems with aid? Thomas agreed that there are issues with corruption and evaluation. However she noted (and rightly so) that some results will never be easily measurable (such as work on governance), and we should be cautious not to divert resources away from potentially important things, just because they aren’t easily measurable. She gave a few more examples where Adrian Wood’s problems didn’t seem to hold: Tanzania’s tax-to-GDP ratio increased over the past 10 years despite also receiving a boost in ODA. She also noted that Botswana escape aid dependency.

Paul Mylrea made several defences of aid (or typically aid from DFID).

  • Aid has a bad press for the wrong reasons – that it wasn’t a question of aid being wrong, but about the quantity and quality of aid.
  • He cited some statistics about world poverty, and the number of children dying every day.
  • He noted that DFID had helped deliver bednets, used budget support to enhance accountability, and was working on a large infrastructure project to enhance trade routes between African countries.
  • He took issue with the conclusions in Dambisa Moyo’s Dead Aid (which Adrian Wood had brought up), noting that the recent financial crisis showed that financial instruments were not Africa’s answer out of poverty.
  • He spoke in length about the lack of knowledge in the British public about how much aid was spent and what it was being used for (estimates of foreign aid budgets are typically much higher than they really are!).
  • His counter to Adrian Wood about the issues of interdependence (and the possibility that aid benefits us more than them) was: so what? Interdependence makes aid more politically viable, as it’s easier to justify to a fickle electorate. He agreed that there needs to be more evaluation and much more discussion of development policy.

Questions were mixed. I asked Adrian Wood if there was any way to deliver aid without fundamentally eroding accountability, say by indexing aid to domestic revenue, or distributing it directly to the population and letting the government tax it back. All three speakers agreed that these ideas should be explored – that nothing should be left off the table. I asked Paul Mylrea if he thought the incentives for donors were too skewed towards “easy wins” to really explore alternative approaches. Both Paul and Adrian noted that it might be less easy to justify direct transfers, as they aren’t easily monitored, although Paul noted that the public has so little knowledge about their foreign aid that distorting incentives may not be a problem.

4 thoughts on “A quiet debate on aid

  1. Ranil Dissanayake

    December 4, 2009 at 5:27am

    Sounds great. Debates like these too rarely take place in developing countries for people in developing countries to sit in on. I tend to agree strongly with Adrian Wood (I think I heard him speak some time ago, but can’t remember where – perhaps I just read a paper?). I’ve raised all of the same issues in country as well.

    one point: indexing to tax revenues is not always a good idea. Most countries (including Tz) raise too much tax in the form of VAT and flat taxes, so the incentives could actually have negative distributive impact. First thing that needs to be done is to enumerate the “informal” sector by revising the legal rules governing property to reflect social norms and contracts. Most people will then accept direct taxation in return for Government recognition and reduced uncertainty in their economic transactions.

    Best Aid debate I attended *was* a tub thumping, but very skilfully moderated by Zainab Badawi, in Ghana. Their Minister of Finance wound up thumping his chest in response to Robert Zoellick (I think) so hard that his microphone fell off. Great theatre.

  2. Matt

    December 4, 2009 at 8:56am

    Yeah, when I suggest indexing tax revenues, I was thinking primarily income taxes. One could also design the index so it had diminishing marginal returns.

    Formalising the informal sector is a tricky bag. I’ll let you know more about what I think about it in a year.

  3. Ranil Dissanayake

    December 4, 2009 at 11:20am

    yeah, I agree it’s a tough one. It’s most convincing when we move beyond ‘bring the informal into what current laws exists’ which won’t work because the laws are unacceptable to the vast majority of the economy; better to reform the legal system to better reflect how the economy is structured. That’s what most countries have done, but again, we tend to look at the end result (most of the economy is legal) than the process of how that result came about.

  4. rovingbandit

    December 4, 2009 at 5:29pm

    So Adrian says “Donors and NGOs are rubbish at evaluation” but worries about cash-handouts because they’re difficult to monitor?

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