Tuesday, July 13, 2010

THE AID CIRCUS ROLLS ON

Beyond wallowing in the poverty of my country, my introduction to development issues came by way of the book “How the other half dies” by Susan George.

Long before it was fashionable to bash the aid industry George warned among other things, that the obsession with economic growth was clouding, even obliterating issues of what she called “appropriate development” or more simply put the improvements in people’s lives.

She lambasted the aid industry as a neo-imperialist machine that was creating more indebtedness, more poverty and even suggested the term (at least it was the first time I heard of it) the Never to be developed countries (NDCs).

George wrote that the aid industry only served to fatten the wallets of the elite in the west and the aid recipient capitals by promoting consumption over investment, propping up undemocratic government and dooming the rural poor to ever decreasing levels of sub-human existence.

Writing in the eighties she warned that the prevailing wisdom that increasing aid flows will lead to high investments leading to industrialization and eventual upliftment of whole third world populations out of poverty was irredeemably flawed, because after more than 30 years of aid it was not shown to work that way – the book was first published in 1976.

This last week I had a where-have-you-been-all-my-life moment in the way of the book “The elusive quest for aid” by William Easterly.

I am yet to finish reading it but writing almost 30 years after Susan George – the book was published in 2001, Easterly pushes much of the same argument but fortified with nearly three decades more of additional data.

He starts the book by affirming that economic growth is critical for development, but its how we have gone about growing economies that can not stand up to scrutiny.

Easterly then outlines a list of remedies that have been suggested will sort out the third world development issues once and for all nad how they have failed dismally.

In the beginning the theorists thought that if the bridge the financing gap – the difference between national savings and investment requirements that would do the trick. Here the thinking was that if a country needed $1b to invest in infrastructure but only was saving $100m by providing the needed $900m in aid to for infrastructure development, they would be on their way to development.

That did not work least of all because the investments were imposed from abroad with little input from local beneficiaries or awareness of cost to environment, culture or labour in the beneficiary countries.

Then they thought that more technology transfer and education for the locals would cause jumps in productivity, raise incomes and therefore lift every body out of poverty. However the context in which these prescriptions were being grafted among other things put paid to that line of thinking – if you increase technology in low skill areas or vice versa it is doomed to failure.

Then economists thought the issue has to do with population growth, if we could only bring populations under control, per capita incomes would grow and development achieved. But obviously they were unaware of their own history because population growth slow down happened only after development had been achieved in their countries

But they did not give up, they decided that for aid to work we need to have certain policies in place in the recipient countries eg low inflation, low budget deficits and liberalized economy, so they decided to grant conditional aid. But that too hit a dead end because the beneficiary countries learnt how to play the system getting ever increasing amounts of aid despite their rotten policy environments.

By logical extension because of the huge debt overhang it was decided that these countries needed debt relief so they can kick start their economies. But this panacea has had dismal results as the debt forgiven countries have just gone back and contracted more debt and are back to their original unsustainable levels.

That is as far as I got in the book, but can not wait to read his thoughts on corruption – potentially explosive stuff.

But one has got to wonder about the hit-or-miss style of the aid industry and our willingness to be part of the circus.

But as Easterly’s mantra throughout the book goes “people respond to incentives”!

Published February 2009, New Vision

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