Criticisms of Official Development Aid

Official Development Aid is aid from governments, which can take the form of either bilateral aid – direct from donor country to recipient country, or multilateral aid, which is channelled through institutions such as the World Bank.

The value of Official Development Aid is much greater than aid channelled through non-governmental organisations such as Oxfam, and so has the potential to have a much greater impact.

You might like to read this post first: arguments and evidence for official development aid before reading the eight criticisms below!

Aid hasn’t generated economic growth in many recipient countries

The most vociferous recent critiques of Official Development Aid comes in the form of Dambisa Moyo’s recent book (2009) Dead Aid: Why Aid is not Working And How there is another way for Africa. At root, her most basic criticism  is that Official Development Aid hasn’t actually generated significant economic growth in recipient countries. According to Moyo

‘Over the past thirty years, the most aid-dependent countries have exhibited growth rates of minus 0.2% per annum.  Looked at as a whole, Africa has had over $1 trillion dollars of aid money pumped into it over the last 60 years and not much good to show for it.’

Aid stifles the development of small businesses.

Moyo explains how this works as below…..

‘There’s a mosquito net maker in Africa. He manufactures around 500 nets a week. He employs 10 people, who each have to support upwards of 15 relatives. However hard they work, they cannot make enough nets to combat the malaria-carrying mosquito.

Enter vociferous Hollywood movie star who rallies the masses, and goads Western governments to collect and send 100, 000 mosquito nets to the affected region, at a cost of $1 million, The nets arrive, the nets are distributed and a good deed is done.

With the market flooded with foreign nets, however, our mosquito net maker is promptly out of business. His ten workers can no longer support their dependents.

Now think of what happens 5 years down the line when the mosquito nets are torn and beyond repair, we have now mosquito nets, and no local industry to build any more. The long term effect of the ‘aid injection’ has been to decimate the local economy and make the local population dependent on foreign aid from abroad.

Aid Encourages Corruption

In 2004 the British envoy to Kenya, Sir Edward Clay, complained about rampant corruption in the country, commenting that Kenya’s corrupt ministers were ‘eating like gluttons’ and vomiting on the shoes of foreign donors. In February 2005 (prodded to make a public apology), he apologised, saying he was sorry for the ‘moderation’ of his language, for underestimating the scale of the looting and for failing to speak out earlier

According to Dambisa Moyo – If the world has one image of African statesmen, it is one of rank corruption on a stupendous scale. One of the best examples of this is Mobutu, who is estimated to have looted Zaire to the tune of $5 billion. He is also famous for leasing Concorde to fly his daughter to her wedding in the Ivory Coast shortly after negotiating a lucrative aid deal with Ronald Regan in the 1980s.

Moyo further argues that at least 25% of World Bank Aid is misused. One of the worst examples is in Uganda in the 1990s – where it is estimated that only 20% of government spending on education actually made it to local primary schools.

Moyo argues that growth cannot occur in an environment where corruption is rife. There are any number of ways in which corruption can retard growth.

  • Corruption leads to worse development projects – corrupt government officials award contracts to those who collude in corruption rather than the best people for the job. This results in lower-quality infrastructure projects.
  • Foreign companies will not invest in countries where corrupt officials might siphon off investment money for themselves rather than actually investing that money in the country’s future.
  • Aid is corrosive in that it encourages exceptionally talented people to become unprincipled – putting their efforts into attracting and siphoning off aid rather than focussing on being good politicians or entrepreneurs.

Too much aid money is spent on salaries, admin fees and conferences

Not only are these often secretive and not open to account, but this also means reduced money spent on actual development. The aid industry employs hundreds of thousands of people worldwide. For example, in the UK DEFA spent £248 million on administration in 2007/08. This has led to some referring to aid agencies as the lords of poverty – ironically, it is actually in the interests of these bureacractic agencies for poverty to exist, or thousands of people would be out of work.

Dependency theory argues there is a political agenda to aid

The allocation of US and UK aid has often depended on whether the political ideology of the developing country has met with Western Approval. Dependency theorists argue that the main point of aid is to make the recipients dependent on the donors. Many neo-marixsts argue that along with aid packages comes western values, advice, culture, and aid merely ensures that the interests of west are maintained.

  • During the cold war developing countries were rewarded with aid if they aligned themselves with the Capitalist west and against the Socialist regimes of Eastern Europe and China. Both the UK and U.S. governments refused aid to the Ethiopian government in the early 80s on the grounds that the government was Socialist.
  • A similar focus is also found in US military aid. Much military aid was sent to South America where it was used by right wing governments to repress socialist movements that were opposed to the interests of US multinationals.
  • Even with the fall of the cold war, countries are still rewarded for promoting western interests. Kenya was rewarded in 1991 for providing the US with port facilities during the gulf war while Turkey was denied US aid for not allowing them to lease its air bases.
  • In 2005 developing nations were rewarded for assisting the Bush regime’s war on terror.

NB Tied aid is now illegal in the UK by virtue of the International Development Act, which came into force on 17 June 2002. Other countries, however, still only provide aid on the basis that a proportion of the aid money is spent on products produced by the donor country.

The World Bank aid has traditionally required countries to undertake ‘Structural Readjustment Policies’ (SAPs)

The World Bank and International Monetary Fund (IMF) are the largest and most influential of the International Financial Institutions (IFIs), and these have pursued a neoliberal development agenda since the 1980s. The damaging strings that the World Bank & IMF attach to aid, loans and debt relief often make it more difficult for poor countries to effectively tackle poverty. These strings often force poor countries to undertake Structural Adjustment Programmes – cut vital spending on health and education, or to privatise their public services, which provide opportunities for international companies to take these services over. Tanzania, Guyana and Bolivia have all been told that they must privatize their water supplies in order to get millions of pounds in aid from the world bank[1] [2]

Top down aid is often irrelevant to the countries receiving it!

Much Official Development aid has focused on monstrous projects such as the building of dams and roads which have sapped local initiative harmed the environment and lead to social injustices[3].

Focusing on aid for developing countries suggests that recipients are helpless.

Live Sid Yasmin Aibhai- Brown argues that concerts such as Live Aid perpetuate the idea of Africa as a helpless continent incapable of helping itself, whereas the opposite is actually true. [4]

[1] http://www.actionaid.org.uk/index.asp?page_id=1365 – extract about water privatization in Tanzania from Action Aid.

[2] See Chapter on Bolivia water privatisation, The Corporation DVD

[3]  See http://www.whirledbank.org/environment/dams.html for a critical look at the World Bank’s funding of dams in half a dozen developing countries.

[4] http://www.opendemocracy.net/globalization-G8/aid_2650.jsp – a critique of events such as Live Aid.

Arguments for Official Development Aid

Early modernisation theorists believed that it was essential to inject aid into countries to establish infrastructure and change attitudes. From the 1950s to 70s aid programs seemed to have a positive effect on many developing countries as both economic and social development increased, however this progress seamed to stall from the late 1970s.

Contemporary supporters of aid believe that aid is not necessarily a bad thing, but aid needs to be targeted, its effects monitored and accountability measures need to be in place, so that aid money doesn’t go astray, like the $10 billion lent to Indonesia during General Suharto’s rule between 1965-1995.

NB Official Development Aid is only one type of aid, for an overview of all types of development aid, please see this post: different types of development aid.

The advantages of Official Development Aid

In the ‘End of Poverty’ (2005) Sachs notes that large scale aid can work when it is practical, targeted, science based and measurable. He believes in aid as ‘one big push’ to sort out specific problems. He points to the following evidence  to support his view that aid works:

  • Firstly, aid aimed at improving health has been particularly successful. Aid money has led to mass immunisation of children against diseases such as smallpox and measles, polio, diphtheria. Smallpox was practically wiped out with $100 million of very targeted aid aimed at vaccinating those most at risk. Today, Barder (2011) points out that every year foreign aid pays for 80% of immunisations and saves 3 million lives a year.
malaria-graphic-008
Malaria Statistics

The recent sharp decline in Malaria deaths is largely due to targeted immunisation, paid for by international aid, a cause championed by the Bill and Melinda Gates foundation 

  • Secondly – The Green Revolution – In the 1960s, Western Aid assisted in the green revolution in China, India and South East Asia which saw rice yields increase by 2-3 times, leading to surplus rice being produced for export. Such countries were then able to use the income generated by these cash crops to diversify and grow their economies, transforming into Newly Industrialised Countries (The Asian Tiger Economies). The video below outlines the case for the Green Revolution.

(NB – as a counter criticism you should check out ‘The Mythology of the Green Revolution, featuring Vandana Shiva – basically a ‘post-development perspective on the green revolution.)

  • Thirdly, Numerous countries, known as the International Development Association (IDA) graduates have gone on to ‘drive to maturity’ following large injections of aid money. Riddel (2014) argues that there is a substantial body of evidence that South Korea, Botswana and Indonesia have all benefited economically from Official Development Assistance.
indonesia-underdevelopment
Indonesia – seems to have benefited economically from a large amount of Official Development Aid over the years

Aid can support the Interests of Developed Countries (*)

According to Marren (2015), there is plenty of evidence that aid is shaped by the self-interest of the donor countries:

  1. Aid may be used as a ‘sweetener’ to gain access to resources and markets and foster better trade links. The USA has used aid to guarantee access to scarce resources such as oil, while the increased donor activity of China in recent years may be linked to its need for raw materials. This goes some way to explaining why more aid money goes to lower-middle income countries rather than low-income countries – put simply, donor countries stand to gain more from giving aid the slightly better off rather than the very poorest.
  2. Aid may be a way stimulating the donor economy. Some countries attach conditions to aid stipulating that a proportion of the funds must be spent on goods manufactured in the donor country. This is known as ‘tied aid’. The UK banned this kind of aid in 2001, although research conducted by The Guardian newspaper found that only 9 out of a total of 117 major DFID contracts (worth nearly £750 million) had gone to non-British companies.
  3. Aid may be a way of strengthening political links and securing strategic interests. Countries which are viewed by the Americans as allies in the ‘War against Terror’ are generously rewarded with aid. A recent study of U.S. Aid since the 2000s showed that the main destinations were Afghanistan, Iraq and Egypt. Similarly, UK aid is increasingly being spent on military objectives.

Statistics on the Benefits of UK Aid (*)

The majority of UK aid spent between 2015-2019 was spent in Africa, and you can get a detailed breakdown of expenditure by sector and region in the most recent DFID report linked below (NB DFID has now merged with the FCO, so whether future reporting will be the same remains to be seen!)

Combatting malnutrition – From 2015-2020 DFID reached 55.1 million children under 5, women of childbearing age and adolescent girls through our nutrition-relevant programmes.

Water, sanitation and hygiene – Between 2015 and 2020 DFID has supported 62.6 million people to gain access to clean water and/or better sanitation.

Education – Between 2015 and 2020 DFID supported at least 15.6 million children to gain a decent education.

Jobs and Income – From 2015/16 to 2019/20 DFID supported 5million people to raise their incomes or maintain/gain a better job or livelihood.

Family Planning – Between April 2015 and March 2020, DFID reached an average of 25.3 million total women and girls with modern methods of family planning per year

Health – Immunisations – From the start of 2015 until the end of 2018, DFID support immunised an estimated 74.3 million children, saving 1.4 million lives.

Access to Finance – Between 2015 and 2019 DFID supported 69.2 million people to gain access to finance, including 35.4 million women, representing 51% of the total

Energy – From 2015/16 to 2019/20 DFID installed 771 KW hours of clean energy capacity.

Related posts

Of course there is a question mark over how effective the aid spent in the above statistics has been, which is one of the many criticisms made of Official Development Aid, which you can read about in this post here.

Sources

DFID results estimates 2015 to 2020

Chapman et al (2016) – A Level Sociology Student Book Two [Fourth Edition] Collins.

For more posts on Global Development, please see my page of links on globalisation and global development.

Different Types of Aid in International Development

Aid refers to any flow of resources from developed countries to the developing world. Aid can come in the form of money, technology, gifts or training, and can either be provided in the form of a grant which does not have to pay back or a loan with interest which does have to be paid back.

There are different strengths and limitations of aid depending on where it comes from – and you need to be able to distinguish between Official Development Aid from large scale institutions such as the World Bank and Governments, aid organised through Non-Governmental Organisations – or Charities such as Oxfam and Private Aid – from organisations set up by wealthy individuals – such as the Bill and Melinda Gates Foundation.

There are three main types of aid you need to know about:

Official Development Aid

Official Development Aid (ODA) is aid from public or official sources such as national governments or international agencies of development. Official Development Aid accounts for 80% aid.

There are two main types of ODA (which are not distinguished in the table above)

  • Bilateral Aid involves countries in the developed world giving money directly to governments, local communities or businesses in the developing world. In the UK this is knowns as ‘Official Development Assistance’ and in is delivered through the Department for International Development (DFID). 70% of ODA is bilateral.
  • Multilateral Aid involves the UK (and other countries) donating money to international agencies such as the World Bank and the European Commission. There are over 200 international agencies which provide aid to developing countries. 30% of ODA flows through such international agencies.

Related posts:

Arguments for Official Development Aid

Criticisms of Official Development Aid

Non-Governmental Aid

Non-Governmental Organisation (NGO) Aid – NGOs are independent charities such as OXFAM which raise donations from the general public. There are thousands of NGOs ranging from the very large and well-known such as OXFAM, which focus on a range of development projects, to the very localised and specific, which may consist of just a few individuals focussing on one development issue in one area of one country. NGO aid makes up the other 20% of aid.

Related posts:

The role of NGOs in development

The strengths and limitations of NGO Aid.

Private Aid

This is aid from international foundations which are set up by wealthy individuals or Corporations such as the Bill and Melinda Gates Foundation. This accounts for a relatively small proportion of aid flows.

Sources

Chapman et al (2016) – A Level Sociology Student Book Two [Fourth Edition] Collins.

Four reasons why free trade doesn’t promote development

Dependency theorists argue poor countries are often dependent on low value primary products for export, which the West then adds value to!

Andre Gunder Frank (1971) argues that the reason trade doesn’t work for poor countries is a legacy of colonialism – before independence, the colonising power simply took these commodities. After independence, developing societies are often still over-dependent on exporting these primary commodities, which typically have a very low market-value, and rich countries are happy to keep things this way because this enables them to stay rich.

Four reasons why free trade doesn’t always promote development

Dependency Theorists point to at least the following reasons why trade doesn’t help poor countries develop:

  • Poor countries are often dependent on low value, primary products for their export-earnings.
  • Value is added to primary commodities by rich countries.
  • The terms of trade are often biased against poor countries
  • Poor countries have been pressurized into exporting to clear their debts.

Poor countries export low value, primary products

According to Elwood (2004) three commodities accounted for 75% of total exports in the poorest 50 countries, but because of the declining value of such commodities, the developing nations need to export more and more every year just to stay in the same place. One developing nation leader described it as ‘running up the downward escalator’. For example, in 1960, the earnings from 25 tons of natural rubber would buy four tractors, today it would only buy one.

One example of a country which appears to be still dependent on the export of low value primary products is Malawi:

Tree map showing exports from Malawi.
Malawi – dependent for most of its income on one primary agricultural product – Tobacco. (Source.)

However this may not apply to that many African countries today. According to data from Statista, while there is still a colonial legacy which affects African exports, more African countries have moved towards exporting oil and gas which are more profitable than the more traditional agricultural commodities.

map showing African exports in 2020.

Value is added to primary commodities by rich countries

Primary products such as cocoa, tea and coffee, sell for relatively low prices, so the farmers growing and selling such products make relatively little. However, once these products have been processed, branded and turned into the goods you see on the supermarket shelves, they can sell several times the original price. The problem (for developing countries) is that most of this processing and branding is done in the West. Thus, poor countries stay poor, and rich countries get rich.

With some commodities, there are several links in the chain of trade – take coffee for example – it goes from grower (in Ethiopia for example), to the local buyer, to the exporter, to the roaster (in Germany for example), to the supermarket and then to the consumer – 6 links in the chain. A bag of coffee might cost the consumer £2.50 in the supermarket, but the grower is lucky (very lucky) if they receive even 10% of this.

This infographic on the economics of coffee from Visualcapitalist shows shows how little poor farmers make from coffee compared to the end retailers. The breakdown is as follows:

  • growing – $0.07
  • exporting coffee – $0.16
  • Roasting – $0.35
  • distribution – $0.04
  • retail $2.17
  • total = $2.80

So the farmers growing the coffee get around 2% of the end price!

The terms of trade are often biased against poor countries

Western nations impose tariffs (import taxes) or quotas (simply limits on how much a country can import) on goods from the developing world, which seriously impairs the ability of poor countries to make money from exports.

At the same time as restricting imports from poorer countries, Western governments subsidize some of their own industries. This results in over-production in some sectors, which can result in cheap, subsidized Western goods being dumped on poor countries, which undermines local industries in poorer countries. This happened in Haiti in the early 1990s, when cheap, subsidized American rice was dumped on the Haitian market, forcing local rice farmers out of business (because the American rice was cheaper.

This 2015 video from Al Jazeera focuses on this issue in Kenya – Kenyan cotton farmers are finding it very difficult to compete with subsidized American cotton farmers. You get to see the large scale U.S. operation which is subsidized by the American government, who exports their cotton: the US is the largest cotton exporter in the world. And you also get to see how American cotton production contrasts with the much smaller scale nature of Kenyan cotton production, cotton which they cannot export because they cannot compete with the subsidized US cotton.

More recently, OXFAM has been concerned with the recent increase in bilateral ‘free trade’ agreements (FTAs). For example, in 2007, the EU singed FTAs with India which opened up Indian markets to the import of poultry and dairy products, despite the fact that 85% of demand is met locally by Indian farmers, and the introduction of big supermarket chains into the Indian marketplace.

In 2020 War on Want argued that aggressive new post-Brexit trade deals between the UK and Ghana hit Banana exporters in Ghana with £20 000 worth of tariffs a week, putting the livelihoods at risk.

Exporting to clear debts

The World Bank sees loans and debt as a ‘normal’ part of development, and poor countries are required to maintain repayments on (often low-interest) development loans to be eligible for more loans, thus keeping up repayments on loans is a crucial part of development for many countries.

Ellwood (2004) argued that this has resulted in the ‘social violence of the market’ – the constantly escalating pressure on farmers and workers in the developing world to produce more for less, which results in a problem called ‘immiserating trade’ – the more a developing country trades, the poorer it gets.

Conclusions

Marxists conclude that the terms of world trade are far from equal. Developing countries are very much junior partners in global trading relationships and are consequently exploited by more powerful countries, TNCs and their agents.

Signposting and Sources

This material is relevant to the Global Development module. This is an option in the second year of A-level sociology,

References 

Chapman et al (2016) – A Level Sociology Student Book Two [Fourth Edition] Collins. ISBN-10: 0007597495

Arguments for Trade as a Strategy for Development

‘Free’ trade* refers to the relative absence of government interference in the affairs of private businesses and the consumers who buy their products. Free trade depends on free trade agreements.

Free Trade agreements are policies established between countries and private businesses which make it relatively easy for companies to produce and sell goods in more than one country, so the ‘free’ in free trade means the freedom of businesses from the restrictive power of government.

Free trade.jpg
Free Trade – It’s about keeping goods circulating, and services of course!

Governments can restrict free trade across international boarders by doing the following:

  1. Imposing tariffs – which are taxes that nations impose on imports. Tariffs increase the cost of goods, and make it harder for companies to sell their goods abroad. (Quotas are similar but blunter instrument than tariffs, they are simply a limit which governments put on the number or value of imports they will accept from certain countries in any given time period)
  2. Subsidizing domestic industries – which are government hand-outs or tax breaks on domestic companies – if a government does this, then it makes domestic goods cheaper and foreign goods relatively more expensive – it’s effectively the opposite of tariffs.
  3. Imposing high taxes on profits – which reduces incentives for private companies to invest and produce goods.
  4. Having too many regulations – which require that companies pay workers minimum wages, do health and safety assessments, and take care of the environment.

It follows that Free trade agreements tend to focus on:

  1. Eliminating tariffs and quotas
  2. Eliminating government subsidies
  3. lowering taxes on profits
  4. Reducing regulation and protection.

Free trade opens up foreign markets and lowers barriers for foreign companies that otherwise might not be able to compete against local businesses. Without free trade agreements, there would probably be less trading between countries.

The idea of free trade goes back a long way

One of the most well- known historic proponents of free trade was Adam Smith. In his 1776 book The Wealth of Nations Smith argued that the ‘invisible hand’ of the free-market would ensure that producers produced what consumers wanted as efficiently as possible.

David Ricardo expanded on Smith’s ideas arguing that countries tended to have a comparative advantage in providing different goods and services and should do what they do better and cheaper than other countries, and in this way everyone benefits. For example, the U.K. climate is well-suited to growing apples, but not sugar-cane, and vie-versa for Jamaica, so it makes sense that two countries specialize in each crop and trade, rather than trying to grow everything themselves.

Modernisation Theory and Neoliberalism both argue that developing countries need to increase their share of world trade (export and import more) in order to develop, and both recognize that most developing countries have enormous potential to increase exports, given that they have a two important ‘competitive advantages’ over the West –an abundance of natural resources, which the West no longer has, and abundance of cheap labour.

However, the two theories have very different ideas about how poor countries should increase trade – modernization theory prefers aid to encourage trade, whereas neoliberalism is suspicious of aid, believing that poor countries should move straight to opening up the markets to attract TNC investment.

Modernisation Theory

Modernisation theory argues that increasing trade with other countries is a crucial part of ‘climbing the ladder of development’.

Initially, in phase two, or ‘the pre-conditions for take-off’, developing countries themselves have very low levels of capital and expertise, and so they require aid from the West, in the form of capital investment and western advice, which could help countries establish an industrial base, for example.

In the ‘take off’ phase (phase three) of Rostow’s model, countries will start to manufacture goods for export to other countries, and the ‘drive to maturity’ phase (phase four) sees earnings from exports reinvested in public infrastructure such as education, which results in a higher skilled workforce and further integration into the global economy.

After 60 years, the ‘age of high mass consumption’ should have been attained which means that countries are equal trading partners in the global market place.

Neoliberalism

Reid-Henry (2012) argues that neoliberalists see global free-trade markets as both the means and desired end for development.

Neoliberal development policy argues that developing countries need to create a ‘business-friendly’ environment in order to encourage inward investment from wealthy individuals and Transnational Corporations.

Reid-Henry suggests there are four key organizing principles of neoliberal policy:

  1. The governments of developing countries are expected to pull down all barriers to Western investment
  2. Workers in the developing world are expected to work hard and cheaply for Transnational Corporations
  3. Public services need to be privatized
  4. Social life should be organized around the profit motive.

Many developing countries have actually set up huge Export Processing Zones, or Free Trade Zones In order to attract TNCs developing countries have set up. These are special areas in that country, typically close to ports, which offer incentives for Transnational Corporations to invest, including tax breaks, low wages, and lax health and safety legislation.

In Neoliberal theory, corporations will help a country develop by providing jobs and training. The money earned will be spent on goods and services at home and abroad creating more money to invest and (limited) tax revenue for further development.

Evaluations 

It is true that there is an obvious relationship between trade and economic growth. The world’s top five countries, ranked by GDP, export (and thus profit from) 40% of the world’s goods. Meanwhile, the bottom 50 GDP countries export less than 1% of the world’s goods.

However, dependency theorists argue that ‘free-trade’ has historically brought more benefits to wealthy countries and corporations compared to developing countries.

Further Reading:

What is Free Trade? – quite a useful intro blurb from study.com

The case for free trade is as strong as ever – Bloomberg View, March 2016

IMF study warns free trade seen as benefiting only a fortunate few – Guardian article, 2016.

The impact of free trade agreements on the economies of developing countries – DFID 2015 – based on a ‘rapid assessment’ of 144 studies of FTAs between developed and developing countries, this recent report concludes that (a) in most cases the evidence isn’t strong enough to say what the effects of free trade are and (b) where the evidence is strong enough, it’s mixed.

*The reason I typically parenthesize the ‘free’ in ‘free trade’ is that for free trade to happen effectively it actually requires a substantial legal framework, which requires government and a legal system to which all parties agree – the most obvious aspect of which is the protection of private property – which basically says that if you make a profit, you can keep it, rather than having someone come and simply take it off you.