Examining Aid Success Using an Octopus, Classical Economics and a Blog

Aid, you say? Well, on the one hand...

"Aid, you say? Well, on the one hand..."

Owen Barder recently wrote an excellent, thought-provoking piece for Open Democracy about what aid does and how it should be judged. There seems to be an incipient groundswell around the idea that the ‘failing aid’ agenda is based on a misconception of what aid should be assessed against. Roger Ridell alluded to the same in his earlier piece that I wrote about here, and Chris Blattman floated the idea following conversations with Owen.

What Owen and Roger essentially argue is that the role of aid is more limited than that which it has been assessed on. Most critiques of aid are concerned with the stylized fact that aid is being poured into countries that remain resolutely poor. But what if aid isn’t meant to affect how rich or poor a country is? What if aid is just meant to make people healthier, give them a better education, and access to clean water? What if, in short, aid is simply about making conditions for individuals better without actually changing the economic structures within which they live? Owen doesn’t completely rule out the possibility that aid may make long term macroeconomic improvements, but he argues that if they do occur, there is little to suggest that they would become visible before many years pass.

The argument is enticing in that it allows a way out for those who argue that economic transformation is the standard against which development must be measured. Even if we believe this, it no longer follows that aid should be rejected, since its virtues are shorter term. This allows us to celebrate unreservedly the education that aid funds, the bednets it distributes, and the farmers it supports. None of us wants these things to be bad or useless: we all like to see individuals made better off. If we completely separate the arguments for economic growth and transformation from the arguments for education, health and farmer-support, we remove any need for us to choose what to support.

By my reading, there are three central components to this argument that we should examine a little further.

  1. Aid is aimed at improving lives of individuals and communities, without changing the structural aspects of the socio-economies in which they live. As such, aid can be successful without causing a transformation in the economy.
  2. Aid doesn’t harm the prospects of structural change in the economy. Owen argues that “aid can be used in ways that make such transformations more likely. It can pay for critical infrastructure – such as power, roads and ports – on which economic growth depends. It can finance new skills and capacity. It can provide access to financial services for entrepreneurs wanting to build their businesses.” He also cites South Korea and Taiwan as countries that grew with the support of aid.
  3. Though aid is working, according to the bounded criteria we should set for it, it could work better. Just because he thinks aid works doesn’t mean that there isn’t much we can do to make aid work even better; at the heart of this is a need for more transparency.

I believe in aid. This may come as a surprise to some of our readers, because I take a critical view of how it works and question much of our dominant thinking about development. At root, though, I believe that aid can contribute to deeper changes that are necessary, but to get there we need to change a great deal of our discourse about development. From this perspective, there are things I would challenge, and things I would wholeheartedly support from Owen’s argument.

The first point to contest is what aid is meant to achieve. Owen’s argument that aid has educated, prolonged and saved lives, and reduced the misery of living in abject poverty is indisputable. But aid is not a monolithic institution; there are many different kinds of aid with many different aims. One way of splitting aid is to consider what is commonly called ‘development’ aid on the one hand, humanitarian aid on another, military and explicitly political aid on a third hand and capacity building aid on the fourth hand. We may be left with an incomplete octopus, but it’s one with some analytical merit.

Assessing each of these forms of aid based on its explicit aims results in a mixed assessment. Humanitarian aid has undoubtedly averted or minimized several crises the world round in the last fifty years. Yet on some occasions it has exacerbated problems or failed to provide quick assistance through poor planning or unforeseen political implications. It’s hard to fault this form of aid because by its nature it is more prone to mistakes. When a famine, flood, drought or genocide occurs and food, shelter and relocation must be provided, we can’t say “wait! First we need an in depth political assessment of the likelihood of militias forming in the refugee camps” and so on. We should have this analysis done and on stand-by, but ultimately, humanitarian assistance is about rapidity and time-bound needs. I’d call it a by-and-large success.

Military and explicitly political aid is a totally mixed bag, which can only be assessed with after a long cooling off period and on a case-by-case basis. Ultimately, for consistency’s sake it must be assessed based on the limited political aims it had. Did we get rid of dictator number one, or support him against the ‘gawd-damned Commies’? Did we wind up with Frankenstein’s monster?

Capacity building aid is largely a fail, in my book, and I say this as someone whose job title includes the phrase. It’s fiendishly difficult, and I think I’ve had some successes and some failures. But there are institutional problems relating to wages, incentives, performance assessment and job security that systematically make even capacity building successes vulnerable to reversal.

For development aid, we need to use more of our octopus arms to subdivide this. Some development aid focuses precisely on making economic transformations happen. We don’t have to go back too far to see the biggest example of this, Structural Adjustment. SAPs aimed to remake economies to stir their capacities for long term growth. These days, we have enormous Business Environment Strengthening Projects funded by aid. It is simply not correct to say that this aid should not be judged against economic growth and transformation. It aspires to it, and so far has mainly failed.

But Owen rightly claims that other aid looks much more to the improvement of broader standards of living. He’s surely right, and he’s focusing on a huge human success story. Yet, it is incomplete. No-one who works in development has missed the phrase ‘sustainable’ in the last five years. I’ve criticised it before but it’s there. Owen says he doesn’t believe that aid is necessarily temporary, but this certainly isn’t the understanding of aid recipients. Governments ask for handover plans, donors plan to achieve ‘sustainability’ for when they remove funding. Sustainability of aid programmes is the subject of much ad-hoc research, but not much cross-country survey research as far as I’ve seen. Unscientifically, I would suggest it mainly fails to materialise. Most (but by no means all) activities depend on more aid or fall apart. Judged on the grounds by which they were planned on contracted, these activities are failures. It might be almost a semantic point, but if we say we want it to be sustainable and the recipient country says wants to stand on its own feet, then we have to judge it on those grounds.

Now on to the second and vital point the argument: that aid does not hamper the prospects of economic development. Firstly, we have to acknowledge that different types of aid have different effects. The examples of South Korea and Taiwan are instructive in this sense. South Korea received huge volumes of politically motivated aid. I don’t know as much about Taiwan’s aid history but given their position as a non-Communist state just outside China, I’ll bet the same is true of them. Aid to Korea was diverse, but focused on economic reforms, not of the standard neo-classical type, but those designed to strengthen industry and the position of capitalist production of goods. This succeeded, and though the attribution of success to aid would be revisionist it certainly didn’t hurt.

But in defence of aid to Sub-Saharan Africa, the evidence presented addresses some of the issues and not the biggest ones. Firstly, the regression analysis on aid is dismissed as inconclusive. This is the only reasonable conclusion to make. Then the argument that aid distorts incentives and allow poor political systems with low accountability to maintain is rejected as unproven, which is largely correct. This does not make it untrue, however. In any case, it’s not the biggest issue for me. Poor systems of accountability have often been associated with great successes in development: Britain during and before the Industrial Revolution (no votes for women or the poor); China; early American development.

Far more important, though, is the unaddressed argument that aid prevents economic transformation by artificially supporting weak pre-capitalist forms of organisation. This argument is one for a full article or a book, but let me summarise it here. Most of Africa is pre-capitalist. In large part, agriculture in Africa takes the form of peasant labour or pre-capitalist forms of bonded labour including sharecropping and estate-bound labour (in practice if not necessarily by law). In the cities there is a huge potential wage-labour force but equal and opposing forces preventing the accumulation of capital (some practical, others legal, and some political). What obtains instead is a peculiar form of urban retail, productive and service-oriented piece work. I have not mentioned markets, free enterprise or private property. I have already explained why these are not the same as capitalism.

It is these peasants, bonded labourers and piece workers, together with the unemployed and underemployed who are on the margins or in the thick of poverty. They are the ones who are stuck in a twilight where they have extremely limited access to secure and productive wage-labour which reproduces value and is thus open to wage increases above the rate of inflation (secure labour as a private cleaner does not qualify. It does not produce surplus value that can be reinvested in the labour and production process).

These are the people whom the education programmes, healthcare, and smallholder support improves the lives of. The question we need to ask is whether aid entrenches their positions and the pre-capitalism which characterises their economies. I think in some part, it does. Historically, the movement towards agrarian capitalism has been in part powered by the precariousness and unsustainability of peasant and small holder agriculture. When the political circumstances that allowed the establishment of large capitalist farms occurred, they overcame resistance to movement away from ‘noble self-labour’. We all want to be our own bosses, but it makes much better economic sense for most of us to work under others. By backstopping what are inherently unsustainable agricultural practices, aid may well be preventing this kind of land accumulation and conversion into a dynamic agricultural sector. That it isn’t a pleasant process for the poor is an unfortunate, but real, aspect of development. In this sector, aid may well be a constraint to agricultural development.

In urban centres the relationship is much less well defined. The biggest constraints to the emergence of true capitalism lie in the ability of capitalists to accumulate and legally represent their capital. Reform may be slowed by support to the urban labour force, reducing the pressing need to address the issue of wage employment, but this is a much more nebulous argument. It’s not clear that aid is relevant for transition in urban capitalism except insofar as urban capitalism also relies on rural capitalism (as demonstrated by Kalecki). In this case, the argument that aid succeeds in reducing misery and improving lives holds much better.

I haven’t presented evidence of this; it’s largely theoretical at the moment, because I haven’t done formal research into it. I would love it if a great researcher took up this baton, but I don’t think it’s been done yet, at least not very well. If proven, it would mean that our entire conception of aid would need to change and we would need to ask some very tough questions about the balance between improve lives now and helping a more permanent change. It would be a trade-off that requires debate and decision-making in aid-recipient countries.

The third strain of the argument, that regardless of success or failure aid can improve, is where I agree entirely with Owen’s piece. Whatever balance between the short and long term we decide upon, if indeed the trade-off exists, we can do whatever work we are doing much better. Efficiency can be raised enormously; participation and coordination and be improved exponentially and results can be measured and attributed more precisely. Transparency is a major way forward for this, and in no small part thanks to the work of Owen’s aidinfo team and the Publish What You Fund campaign, these are improving and will improve further.

8 thoughts on “Examining Aid Success Using an Octopus, Classical Economics and a Blog

  1. Suvojit

    December 18, 2009 at 11:44pm

    What you refer to as an unpleasant process of transformation for the poor may well result in massive distress and loss of lives. The same peasant farmer is today being backstopped not only by subsidised farm inputs and minimum support prices, but also by free education for his children, free vaccines, an employment guarantee, subsidised food grains etc.

    In this article, if your hint is specifically towards livelihood support, then it is not only the poor countries who are to blame – agriculture the world over is subsidised to the extent each country can afford and nowhere is it more than in the richest countries that support agricultural capitalists without hesitation and to the detriment of farming systems in poor countries.

    As for the other forms of aid, your arguments seem to suggest that aid is hindering the process of natural selection that lead to survival of the fittest. While eliminating the laggards may be one way to achieve a sharp spike in per-capita GDP, for me, it defeats the basic values of humanity that I think we ought to seek to preserve. Economic growth can obviously not be the only indicator of progress. If saving lives and preserving livelihoods slow the rate of growth, so be it.

  2. Justin Kraus

    December 19, 2009 at 2:57am

    I too read Owen’s thoughtful article and am seeing that you pulled from it a similar interpretation to my own. Owen seems to be promoting a shift from “aid as temporary development assistance” to “aid as a global welfare system.”
    Although I sympathize I think this is a step in the wrong direction for a couple reasons.

    1. A global welfare system implies a global welfare provider, and even then welfare systems are extremely tricky to implement well. We don’t even have a provider however. The “international community” (as Copenhagen is showing) is a very divided and dysfunctional one. We should not have confidence that it can run such a system well.
    2. Somewhat counter-intuitively, I think such a global welfare system would be immoral. We cannot treat roughly 2/3rds of the world as if they were incapable of surviving in the global economy. This is dehumanizing and simply wrong. Welfare systems in developed countries typically take care of 10 to 20% of a population and even at this level we encounter all sorts of dependency issues.
    3. Such a welfare system would shift our focus away from fixing our horrid international economic system to simply taking care of those whom it excludes. This is also immoral. “Perserving livelihoods” while excluding people from competing, i.e. giving them a fish rather than teaching and allowing them to fish for themselves, is not a second-best approach which we should embrace.
    4. (And this a more pedantic concerning arising from my current doctoral studies in Korea) The idea that South Korea can be held up by aid supporters as an example of their success is laughable, and worse, offensive to the Koreans who have worked determinedly for the past 50 years to develop their country.

  3. Ranil Dissanayake

    December 19, 2009 at 4:55am

    Savuojit – Thanks for your comment, and I want to address your concerns, but unfortunately, it’s a working weekend and I can’t do so in as much depth as I’d like (with another blogpost!) yet.

    Firstly: distressing – most certainly. Loss of life: not necessarily. The transition to capitalism is distressing; it results in the concentration of assets in a few hands. No-one likes to be made powerless, and we have great emotional attachment to our sense of economic self-determination.

    But the movement to a capitalist system will allow the payment of much more regular wages, which will be higher than the expected utility of subsistence farming. Subsistence farming has to go; but that’s not to say subsistence farmers have to die.

    Where there could be loss of life is in the reduction of aid support to people living on the margins; this is true. But what my points mean is that the challenge in aid changes from ‘how do we ‘save’ as many people as possible’ to ‘how do we support lives without entrenching the system that produces them’. I don’t have the answer yet (I will be applying for dphils when I think I do!) but it’s what we should be focusing on now.

    In addition, I’m a huge supporter of unionism, particularly in early-stage capitalism, to reduce the pain of the transition to wage-labour.

    Secondly, It’s false parallel you draw with European farming subsidies (which I also disagree with for similar reasons to yours). These are not to provide livelihoods, since farmers are part of a capitalist economy in which they can retrain and find new jobs or survive on welfare. It’s to make their farms more competitive in a globally capitalist market. African subsistence farming support is just to keep people just above a set line of standard of living and not much more.

    Thirdly, survival of the fittest is again a misleading analogy. We’re not trying to eliminate people, but static economic structures like subsistence farming.

    Ultimately, I appreciate that this is difficult argument because it means we increase suffering from the level we’ve kept it down to. But it’s necessary, economic development has been an awful process almost everywhere its happened. Read some history of economic transformation and you’ll be appalled at how the US or the UK developed.

    But the choice is not between slower growth with much less suffering and faster growth which much more suffering. It’s between trying for a system that can sustain a transformed economy and one that cannot. In other words, option one will never develop; option two will.

    Ultimately, you will see in the article that I say that if I’m right, the way forward has to be decided by aid recipient countries, by their nationals. I have lived in heavily aid dependent countries for the last 5-6 years; I see the good and the bad it does. It’s not up to me to choose, but I can help initiate the discussion that lets people here do that.

  4. Suvojit

    December 19, 2009 at 9:47am

    Hi Ranil,

    Distress, followed by death – not an imaginary scenario. It has been playing out in India over the last decade. Spiralling cotton and other subsidies in the US – through capitalist empires like Cargill and Monsanto – have driven farmers in India and West Africa to suicide.

    My point is – One, the arguments for non-subsistence aid and other forms of aid cannot be viewed in isolation from each other. If diminishing support for farming increases distress, it obviously will call for more investment in life-support systems.

    Second, when it comes to fixing structural issues in development, we need strong advocates for changes in untenable practices at both ends of the spectrum – the rich governments and their economies on one hand and in the farming systems of the poorest on the other.

    See http://www.rooseveltinstitution.org/blog/us-agricultural-subsidies-and-farmer-suicide-india

    and

    http://www.pbs.org/now/shows/310/cotton-trade.html

    The figures are appalling. If 70% of subsidies in the US go to 10% of the farmers, what is more painful – dismantling those subsidies, or taking millions of poor farmers off life-support systems? The politics of it is unlikely to allow this to happen though.

    Correct me if I am wrong, but in your arguments, I read an inherent assumption that capitalist systems should be left on their own to evolve. But recent experiences around the developing world with contract farming by corporates (multinationals as well as domestic companies) are still being watched – with fears that unroganised vulnerable farming systems might be unable to withstand the relentless corporate onslaught

    And sure, thousands were left starving in Britain even as ships sailed off with corn exports in the 19th century. Painful history. And look at where they are today. But just for argument, if we had not evolved from our 18-19th century ways, we would not condemn genocides in another country, rights violations or censorship would not be news and humanitarian foreign aid can just be dismantled right away. But thats not how we chose to grow, right?

  5. Suvojit

    December 19, 2009 at 10:21am

    To continue the discussion – Distress, followed by death – not an imaginary scenario. It has been playing out in India over the last decade. Spiralling cotton and other subsidies in the US – through capitalist empires like Cargill and Monsanto – have driven farmers in India and West Africa to suicide.

    My point is – One, the arguments for non-subsistence aid and other forms of aid cannot be viewed in isolation from each other. If diminishing support for farming increases distress, it obviously will call for more investment in life-support systems in consumption, health, education etc.

    Second, when it comes to fixing structural issues in development, we need strong advocates for changes in untenable practices at both ends of the spectrum – the rich governments and their economies on one hand and in the farming systems of the poorest on the other.

    See this and this that lays out the impact of continuing farm subsidies in developed countries. The figures are appalling. If 70% of subsidies in the US go to 10% of the farmers, what is more painful – dismantling those subsidies, or taking millions of poor farmers off life-support systems? The politics of it is unlikely to allow this to happen though.

    I worry that I read an inherent assumption in Ranil’s arguments that in the fragmented farms of the poor peasant in developing countries, capitalist systems should be left on their own to evolve. But recent experiences around the developing world with contract farming by corporates (multinationals as well as domestic companies) are still being watched – with fears that unroganised vulnerable farming systems might be unable to withstand the relentless corporate onslaught. P Sainath has written volumes on this and much more – blaming much of the spiraling farm suicides on the juggernaut of commercialisation of farming systems in India.

    And sure, thousands were left starving in Britain even as ships sailed off with corn exports in the 19th century. Painful history. And look at where they are today. But just for argument, if we had not evolved from our 18-19th century ways, we would not condemn genocides in another country, rights violations or censorship would not be news and humanitarian foreign aid can just be dismantled right away. But thats not how we chose to grow, right?

  6. Ranil Dissanayake

    December 19, 2009 at 10:50am

    Suvojit – The inherent assumption you read simply isn’t there. I do not at all advocate letting capitalism take it’s own road: rather, I suggest that capitalism is crucial for development. These are different statements. As I said before vis-a-vis unionism, I support mechanisms to restrain the worst excesses of capitalism.

    Note as well that I am speaking about domestic capitalism that needs to be grown. I do not believe that the developing world can grow on the back of major multinationals, because their set up is different to what is needed to sustain a real economy at home: we need both rich capitalists and workers from a given country for it to have the diversity and vitality an economy needs.

    I also completely agree with your statements about the economic policies of the global ‘North’. We do surely need advocates for change in Western economic policies, and I would *love* it if they were forced to practice what they preach insofar as protectionism and export-subsidisation is concerned.

    However, none of this negates the basic point that a domestic capitalism has to emerge. At what cost is a question for local discussion. I’m not being hard hearted here, but here’s it put in stark language: if we go with what has worked in the past for currently developed countries, people will suffer but the country will develop a capitalism that powers future generations.

    If we go the way we’re going now, we’ll create dependent entities where people die a little less than they would without any support and suffer a bit less than abject misery. But they won’t, at least won’t by design, become dynamic economies with prosperous futures.

    this is a discussion that is important to introduce to the discourse in development, but because it’s not going to make people particularly popular, it doesn’t seem to get much airing.

  7. D. Watson

    December 31, 2009 at 8:49pm

    It strikes me that there is a cyclical tragicomic drama here.

    Act 1 – Specific problems are identified and specific proposals are developed to combat them.
    Act 2 – In an attempt to drum up support for the proposals, more is promised than could ever be delivered.
    Act 3 – Failure on the new terms results in disillusionment and a new play that’s just the old one with new characters.

    This happens for ‘capitalism’ and ‘get the policies right’ and ‘aid’ and will happen for ‘governance structures’ and anything else we throw in there. While ‘The Media’ exacerbate it, political structures in government and NGO bureaucracies require it, with poor coordination aiding and abetting.

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