The false God of 0.7: understanding the Aid Business – By Richard Thomas
June 27, 2013
The debate about the UK aid programme has been heating up over the last few
months. There is general agreement that we should respond to humanitarian
disasters, such as famine or tsunamis, but the debate has now focused on
whether we, the UK, should give 0.7% of our GDP towards our aid programme
and whether this should be enshrined in law. The argument for an aid
programme is strong, for reasons of self interest as well as morality, but
the doubters are not short of powerful facts and difficult questions.
We will give £220m a year to the DRC in 2013-4, not a country with which we
have close links, and one which according to Richard Dowden, has a
government which is ‘unpopular, corrupt, rapacious and incapable of
establishing effective institutions’. Other governments are not much better
from the point of view of the poor. For example, why should we double our
aid to Pakistan in the next two years when they do not bother to collect tax
from the rich or give money to India when they have a space programme?
The best answer to these questions was given by Hilary Benn when Secretary
of State for International Development. He said ‘we should not punish the
people twice’, ie remove assistance because they have a bad government.
Nevertheless, the inexorable rise of the Aid budget from around £8billion in
2010-11 to £11b in 2014-5 in times of austerity is not just unsustainable in
terms of UK policy; it is developmentally unjustifiable. In short the God of
0.7% is a false God.
Origins
The key to understanding this is to be found in history. The UK Aid
programme developed out of the 1939 Colonial Development and Welfare Act
which led, in 1964, to the formation of the ODM, later ODA and DFID. DFID
and its precursors funded projects in agriculture, health, and education –
supporting up to 15,000 people on professional courses in the UK each year.
Meanwhile, in 1967, international leaders, headed by Lester Pearson of
Canada, were asked by the World Bank to review the widening gap between the
rich and poor countries, and to investigate the ’Crisis in Aid’. The Report,
‘Partners in Development’ was published in Sept 1969; many of its findings
resonate today. It made recommendations about the need to make trade freer
and more equitable; to promote flows of private direct investment; to
increase development aid and to make it more coherent, less tied and more of
a partnership. It assumed that the process of capacity building through
education and training would continue.
Of equal importance for today’s debate, was the discussion about the
troublesome 0.7%. Pearson felt that it would be acceptable and sustainable
to recommend that transfers from what is now called the ‘North’ to the
‘South’ should be around 1% of GDP of the richer (donor) countries. This was
not based on economic research but on what they believed ‘the market would
bear’. Some Scandinavian donors gave about this amount; the UK gave around
0.3% and the US rather less.
Pearson concluded that initially 0.7% should be official (government) aid
flows and that approximately 0.3% should come from the private sector. The
first part of this formula (0.7%) was adopted by the UN and later by the
major donor countries. Pearson expected that this ratio of 2:1 (government:
private) would, within two decades, be reversed. He felt that a more natural
relationship was 0.3% from government funded aid flows and approximately
0.7% or more from the private sector. Reducing poverty in Africa and Asia
depended on investment, trade, better health and education, adding value
locally to primary products etc. Not, in other words giving developing
countries fish (aid), but giving ‘them’ a fishing rod so that they could
develop themselves.
Private investment would flow, they believed, when internal capacity and
investment-friendly institutions had been developed – partly by aid. But it
was necessary to begin with a front loaded ‘Marshall plan’ approach, hence
the 0.7%. The long term need for 0.3% was to help build and sustain local
capacity.
Implications
The UK government’s commitment to enshrine the 0.7% into an Act of
Parliament is a misunderstanding of Pearson’s Report. Not least, because the
decision to spend 0.7% has led to strange policies. In Africa the instrument
which enables donors to meet their ever increasing spending targets is
Direct Budget Support; this involves giving funds directly to partner
countries’ sector ministries such as Education or Health or to the Ministry
of Finance to spend more or less as they wish. It is readily accepted that
DBS has contributed to an increase in the number of children in schools in
many African countries. Free bed net provision has reduced malaria deaths
and improved water supply has made the lives of many women less onerous.
The trouble is that all government income is fungible so that even if every
penny of aid money was accounted for (it is not) then government and
political elites can and do spend their ‘own’ money on buying elections,
buying armaments, and funding lavish lifestyles.
If Governments are offered more money than they have the capacity to
sensibly absorb this will almost certainly increase corruption, remove
rather than increase the need for reform and, over the medium term, will
increase dependency. More indirectly, it reduces the likelihood that
elections would be allowed to be ‘free and fair’ because the incumbents have
so much to lose. And, rather more cynically, it lessens the need for
‘northern’ governments to remove the bias in trade arrangements, to restrict
dumping, and to make it harder for European Banks to accept money clearly
stolen from developing countries.
Ironically, the pressure to spend has involved a DFID presence in relatively
well-off countries. The programme to India is £280m; miniscule (0.03%) in
terms of Indian national income. South Africa receives £19m; under 1% of
their development budget. DFID has, in the face of criticisms, decided to
end these programmes. This may be a mistake, since there are many millions
of poor people in both countries and it is often in middle income countries
that the reforms initiated by donors have the greatest chance of success.
Equally, cutting funding to these countries creates pressure to spend more
in other places, such as the DRC, where the likelihood of spending large
sums sensibly is vanishingly small. It is also true that the large and
welcome reductions in poverty in recent years in China and India have had
almost nothing to do with aid and everything to do with the reform of
economic policies and institutions by the governments concerned.
Africa, Aid and China
Something has gone right in Africa over the last decade; the World Bank
found to its surprise that between 2000 – 10 six out of the ten fastest
growing economies in the world were in Africa. Similarly the (March 2013)
World Development Report shows encouraging trends in health, education and
wealth indicators for many African countries.
However, much of the development was caused not by donor policies but by the
growth of Chinese, and to a lesser extent, Indian, investment in Africa.
Whether we believe the role of the Chinese is essentially benign or
rapacious, there is no doubt that they have fundamentally changed the ‘rules
of the game’.
The Chinese ‘Scramble for Africa’ which focuses, like the European one in
the 1890s, on minerals and primary products has been called the Great
Chinese Takeaway. They are seeking both minerals and markets and the rapid
rise in Africa’s trade with China ($55b in 2005 to approximately $166b in
2011) is certainly significant. Perhaps only the South Africans have pushed
back, mainly because they have seen their small manufacturing sector
virtually wiped out by cheap Chinese imports.
The Chinese may have given $54b in grants to Africa over the last decade,
but they have also supported some of the nastier regimes, such as Zimbabwe,
Angola and Sudan. They have imported Chinese labour to do jobs which
Africans could easily do, and have made deals (such as over Angolan Oil)
which do not bear scrutiny.
The role of the Chinese in Africa has fundamentally changed the equation for
western donors. For many years more than 50% of the Budget of several
African countries (Uganda, Rwanda etc) came from the West but now this
assistance is less important than it was. The Chinese are an alternative
source of funds providing vast sums in both investments and grants. And
unlike the West they do not impose conditions.
The British Dilemma
DFID thus finds itself to be of marginal importance, not always effective,
reluctant to expose corruption and unable to withdraw. Why? Because of the
imperative to keep up the spend by ‘shovelling money out of the door’ so
that the 0.7% target can be achieved. The perverseness of this incentive
should be recognised. It has been suggested that part of DFID’s ‘hard to
spend’ budget should go to the FCO or even to the Military. If the extra
funding to the FCO and British Council is used for short and longer-term
scholarships, specialist training, academic and commercial exchanges and a
significant boost to the BBC World Service then it would be money well
spent. The old hostility between DFID and the FCO, engendered by Clare ‘I’m
not giving them any of my money’ Short is untenable but a closer
relationship between the two Departments will not happen when DFID’s budget
is rising and the FCO’s is shrinking.
The suggestion that DFID money be given to the MOD is even more complicated.
The MOD is just not good at re-construction and ‘hearts and minds’ work.
However, it is crucial to development work in post conflict situations—as
long as it accepts that it needs DFID experience and expertise, not just its
money.
What is to be done?
A new Paradigm for Aid and Development assistance is needed. The 0.7% model
encourages donors to focus on quantity rather than quality and discourages
the kinds of reforms which would engender sustainable growth. The Chinese
alternative, which is just as exploitative as the western neo-liberal model,
appeals to many African elites who are neither reformist nor pro-poor.
Pearson’s expectation that the educational and structural investments
achieved by aid would trigger increasing investment and trade has, thanks to
the Chinese, been realised (although probably not in ways he expected). But
bulk or wholesale aid, whether 0.7 or 0.3, is no longer the key to African
development. It could be argued that small scale initiatives which act as a
catalyst (adjusting the ‘rules of the game’, removing log-jams, increasing
the role and influence of civil society, improving the capacity to audit
flows of funds etc) are both cheaper and much more useful to developing
countries in the long run.
Successful but hard won initiatives such as the Extractive Industries
Transparency Initiative (EITI) and the Bribery Act (2010) are good examples
of the difficult but relatively cheap ways in which aid funding can be
spent. And, historically, the technical help given to Botswana in the 1960’s
enabled the income from diamonds to benefit their exchequer and the people;
not just De Beers.
Dropping the commitment to 0.7% is merely the first step. The UK needs a
Royal Commission, (or similar High Level body), to provide a platform for a
discussion of the widest possible range of ideas and to decide how much we
can and should spend on both Aid and Development. It needs to encourage the
articulation of ideas from developing countries (The World Bank’s Voices of
the Poor [1999] is a good model). It should review the lessons being
accumulated by independent researchers and should note how the Gates
Foundation, among others, achieve results.
Economists need to look at fundamental issues such as the terms of trade,
investment policy, international banking and capital flows. This year’s
Africa Progress Panel Report shows how Africa loses twice as much in illicit
financial outflows as it receives in international aid. Ha–Joon Chang of
Cambridge has reminded us that the USA and others were extremely
protectionist as their nascent industries grew and that the West’s
insistence on ‘kicking away the ladder’ will stop the poorer countries from
developing. A UK-centred discussion should also respond to the issues raised
in the May 2013 report, ‘A New Global Partnership’, about updating the
Millennium Development Goals. Their key ‘five big transformational shifts’
might easily have come from the Pearson Report.
The conclusions of a wide ranging and independent study might make
uncomfortable reading for grandstanding politicians and rock-stars, but
might result in an aid policy which costs less, accepts that is not the main
event, is more developmental, reduces dependency, adjusts the power
relationships and helps more poor people in developing countries.
Dr Richard Thomas is a Former Senior Governance Adviser, DFID. He was at the
Pearson Report Conference in Ottawa in 1969
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Received on Wed Jun 26 2013 - 23:37:58 EDT