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Anthony Painter: Does aid work?

23 September 2010

Renowned Labour blogger Anthony Painter has been blogging from the UN Summit on the MDGs this week. We are pleased to carry his post here.

A blog on the UN Millennium Development Goal Summit should start with a call to arms. You know the type of thing. We are at a crossroads. It’s now or never. The world must act. We have a moral responsibility. Billions are in poverty and millions will die unnecessarily from preventable diseases. We can’t just stand by and watch. There is a once in a lifetime political opportunity to act. Leaders must show courage. Do we want future generations to look back and say ‘how could you stand by a do nothing?’ I could say all this and you will instantly switch off (confession: this type of rhetoric leaves me fairly cold as well.)

Here in New York, that sort of stuff flows through press conferences, briefings, tweets and rallies. It trips just as easily out of the mouths of UN/multilateral development agency officials as it does out of the mouths of politicians and campaigners. They are right of course. We can make a difference to lives of countless millions and even billions not least by giving them a chance of life in the first place. So we should. That’s it.

But actually there is something of importance going on here that lies beneath the rhetoric. When you peel away the recycled and fairly turgid verbiage, there is the real mission of development. (And as I write someone has announced that we are in a ‘truly historic week.’) Development is a process rather than an event. Actually, it’s a series of processes that interlink and intersect.

Achievement of the millennium development goals is uneven but significant progress is being made. Why? Well, it’s largely because of the goals themselves which have defined progress and focused minds. So aid budgets have increased and there has been an increasing focus on enabling poorer countries to help themselves. And this is a key point. Much of the growth in investment in development has actually come from the poorest nations themselves.

Domestic revenues in African nations grew from $129.1billion in 2002 to a peak of $472.2billion in 2008 before falling backwards again in the face of the economic crisis. At the same time, overseas development aid has increased by $22billion. So 16 times the amount has come from better revenue collection, taxation policy, and public investment than came from foreign aid. When you consider this huge scale difference, does aid matter?

In addition, when you consider the economic benefits that are to had from foreign direct investment in primary and secondary industry as well as in national infrastructure, is aid not an ineffective and expensive answer to the development question? Many are asking these questions. The argument goes that aid is necessarily inefficient, wasteful and induces corruption. Atlantic monthly had a good recent feature on China’s investment in Africa as an possible alternative approach to aid. Despite the fact that such a conclusion would be very tempting for Atlantic, it concludes by quoting a Congolese lawyer:

“The problem is not who is the latest buyer of our commodities,” he replied. “The problem is to determine what is Africa’s place in the future of the global economy, and up to now, we have seen very little that is new. China is taking the place of the West: they take our raw materials and they sell finished goods to the world What Africans are getting in exchange, whether it is roads or schools or finished goods, doesn’t really matter. We remain under the same old schema: our cobalt goes off to China in the form of dusty ore and returns here in the form of expensive batteries.”

When you scratch beneath the surface of the anti-aid arguments, there is not much to them as they pose a false either/or question of aid v foreign direct investment/private capital investment.

The potential drawbacks of FDI are obvious though with wise governance can be mitigated. The risk is that Africa’s national resources will be plundered, the benefits consumed or placed in tax havens, and once the resources are gone, all that could be left is debt and little development. Corruption follows money wherever that money comes from. Aid can be wasteful and can lead to corruption. Or it can be used as a lever to improve governance and put to the general public good rather than simply chasing commercial gain.

Moreover, aid is more steady and that matters- especially when times are hard. In the global financial crisis, private investment (FDI and other private flows) collapsed from $60billion to $28billion in 2 years. Aid stayed steady. Domestic revenues fell by over $100billion. The aid relationship between western governments and the poorest nations is important in determining the efficiency of aid investment, rooting out corruption, and developing governance that can put public investment on a surer footing. So aid, domestic revenue, and private investment all play their part.

So some may wish to paint aid as the international equivalent of welfare dependency. But it’s an essential part of the mix as long as it’s transparent and makes real and sustainable public investments. The UN 0.7% of GDP target for aid is an arbitrary figure but at least it focuses minds. The broader millennium development goals are as important if not more important (for example, gender equality and maternal health are critical to providing hope, stability and opportunity to Africa.) Without aid, development will be more unstable, unpredictable, and less geared towards universal rather than commercial good. We should continue to increase our aid investments because we can. And because it will make an enormous difference to millions of lives.

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