2010 Development aid

Development aid: death watch or lifeline?

In early 2009, author Dambisa Moyo pronounced development aid dead. In her book Dead Aid (London: Allen Lane), she argued that rather than solving problems in Africa, development aid has actually made them worse. In short, that it should be stopped. Stop giving away money for free. Make African governments follow the rules of the financial market, and the results will happen by themselves. Only a little later, at the end of September 2009, the Netherlands was commemorating 60 years of development aid. Celebrities from home and abroad came together to celebrate all the good that had been achieved, and the many promising new initiatives in the pipeline, like more involvement by the corporate sector and young people with innovative ideas.

The debate surrounding development aid seems to be rapidly devolving into a shouting match with no one listening. Neither camp has any difficulty producing evidence for their position. At first glance, there would appear to be plenty to celebrate. Just look at the tens of millions of children who are now going to school, or the three million AIDS patients who, thanks to projects fighting AIDS, are no longer doomed to waste away in their remote villages, but have effectively been given a new lease on life. Just listen to the stories of the eighty million people (most of them women) profiting from microcredit. The number of private initiatives by people starting independent projects has exploded. Such impressive figures are clearly a reason to celebrate and a motivation to continue.

But Moyo has figures, too. The number of people in Africa living below the poverty line has increased, not decreased, in the past decades. The UN Food and Agriculture Organization has determined that every day, one billion people (more than ever before) are going hungry. And economic growth in Africa over the past thirty years has been remarkably low.

But this seemingly pointless back-and-forth can help us address the question of what development aid is and is not good for. When we do, a pattern quickly emerges. Development aid is good on the soft side of society: education, health care (including HIV/AIDS), women’s rights. And it is no coincidence that the successes celebrated on the development aid side are primarily on these areas. But on the hard side of society (political power relationships, military power, economic power), this policy has little to no effect. For twenty years, we have had to sit back and watch Omar Bashir and his followers first terrorise the southern Sudan and then move into Darfur, while in Zimbabwe, Robert Mugabe pursued his power-hungry machinations virtually without opposition.  And in 2009, despite the immediate presence of thousands of diplomats and some 100,000 western troops, the elections in Afghanistan were still what can be fairly called a disgrace. And the economic relationships seem to be little better off. The vast richness of Africa (oil, minerals, tropical hardwood, agriculture) has not led to any visible improvement of the poverty situation across the continent. Annual tax avoidance (or perhaps better said, evasion) is estimated at a hundred billion dollars or more. And likewise, in India and Central America, economic growth has primarily led to an even greater wealth gap. For over 300 million Indians, their country is anything but “bright and shining.” And these are the patterns of power that are the backbone of persistent poverty.

Limited tools
Of course, these underlying patterns of power and influence have always been on the development aid agenda. Without the actions of development aid groups, the crisis in Darfur would have been barely a blip on the radar. These same groups have lobbied tirelessly against world trade, and fought against investments by Shell and other oil companies in Africa, the palm oil plantations on Kalimantan and soy plantations in Brazil. And each successive minister of development cooperation in our country has undertaken initiatives to increase policy coherence: in agricultural policy, in trade and economics, in the international financial arena. So it would seem that it is not all about good intentions and good will.

More and more, I have the feeling that the set of tools that development aid offers is simply not up to the task of operating effectively on the hard side. In the first place, neither the current minister nor any of his predecessors has ever been held to account on this; only on questions like how many children have been sent to school, rather than how effectively tax evasion is being tackled. Or how many AIDS patients are getting drugs and how many women are profiting from microcredit, not whether and how much the agricultural subsidies have been reduced. The effective use of money, expressed according to these standards, is what a minister of development cooperation stands or falls on.

Meanwhile, agricultural questions go to Minister Verburg (Agriculture), the Minister of Economic Affairs (Van der Hoeven) handles economic issues, and international tax policy is the business of Minister Bos (Finance) and his junior minister Mr De Jager. Of course, the Minister for Development Cooperation has some input, but each respective minister makes his or her own decision. And even if the Netherlands manages to take a coherent position on the agriculture subsidies (as, at the beginning of this year, on 1 billion euro in export subsidies), our EU partners stand in the way. Our taking a hard line on governance in Uganda ruffles feathers in Great Britain because of the UK’s economic and geopolitical interests in that country. The political mandate of a minister of development cooperation is simply too limited to have a real impact on the hard side of development aid.  This is why Minister Koenders (when he was still a member of parliament), as chairperson of a PvdA party commission, called for a minister of International Cooperation with a broad mandate.

Investments in the soft sector
Does this mean that investments on the soft side of development aid can have no influence on the hard side? This influence is very limited when it comes to changing, and surmounting, the power relationships that perpetuate the patterns of poverty. Things like HIV/AIDS measures and primary education do not have a direct effect on these power relationships. Of course, the hard economic side does benefit from investments in health care and education. Measures to fight HIV/AIDS have helped ensure that experienced labour remains in the workforce. And women’s emancipation has led to a significant increase in female entrepreneurs, from which the economy benefits. Investments in education have a long earn-back period. Before the generation that has benefited from the investments in primary education made since the late 1990s will be contributing to the economy, another decade will have passed, even leaving aside the fact that due to lack of work, many very well-educated people are not in a position to benefit from the education costs invested in them. Likewise, the investments in microcredit, while they do clearly make a contribution to the economy, have a very limited impact on the macro-economy.

Conceivably, investments in the soft sectors of society could lead to a more aware population, which would ultimately generate changes in the economic, political and security sectors and the power relationships within them. As yet there are no theoretical models (nor, to my knowledge, are there any real world figures) to demonstrate the logic of investments in the soft sector and returns in terms of changed power relationships in the hard sector. I do not consider it likely that these investments in and of themselves would be sufficient to achieve such changes. The benefits can probably not be achieved without the necessary supplemental investments in the building of civil society, civilian education and proper administration. Moreover, these are very long-term effects, so that in the end, the causal relationship with the initial investments will be very difficult to demonstrate.

There are no poor countries
Moyo is correct when she observes that development cooperation has failed to address the underlying patterns of poverty. Her book reads something like a long indictment of bad governance in Africa. In the recent African Bishops Synod, the Archbishop of Kenya, John Njue, spoke out against corruption and bad governance on the continent, calling it the “cancer of Africa.” His fellow bishops argued that Africa has to get its own house in order, and that African countries should finally close the book on complaints about the continent’s colonial past. In my role as director of Cordaid, I have spoken to many Africans over the past two years, and I have noted a growing scepticism about development cooperation. Not just people like Moyo, a very highly-educated international economist, but also the “ordinary” Africans working in the NGO sector are feeling less and less at ease with the existing model. Well aware of the richness of their resources, their agricultural potential, and the human capital of their young populations, they wonder why it is that their own populations have profited so little from this richness. A few examples:

*    The director of Justice and Peace in Nigeria finds all the talk about development aid in Africa nonsense. He feels the discussion should be about how Africa can manage its own rich resources and how to force mining companies to produce cleanly and pay taxes.

*    A woman involved in setting up resident organisations in the shantytowns of Kisumu in Kenya has seen that in her town, the main effect of development aid is to strengthen the existing power structures.

*    A Caritas Malawi aid worker observes that it is difficult to get farmers to work for themselves because they know that when the next drought or flood comes, the food aid will follow.

None of this is nitpicking over the fine details of development aid, but comes from people working in the field and who see that what should be happening is not happening. They all see the rest of the world eying Africa’s natural richness with greedy glances. Nor has the rise of China and India on the continent gone unnoticed in the eyes of Africans: there are riches to be had. We should stop talking in terms of poor countries. Even in Africa, there are no poor countries. In Africa, there are many rich countries with vast numbers of poor people. And that contradiction is becoming ever more profound.

For Africa, the combination of globalisation and bad governance has had dramatic consequences. Every African country now has its own elite (economic, political, military) that has become an agent of globalisation. The interests of that elite lie with the banks, security exchanges and raw materials markets outside of Africa. They have become part of a world in which vast fortunes fly across the globe in a fraction of a second. The interests of these elites in their own countries have actually become rather small. Revenues from raw materials deals are farmed out at the global level, in search of the highest return on investment. Bad governance combined with corruption has meant that the richness of the continent is being siphoned away every day. And of course, this is not a uniquely African situation; the same patterns can be seen in large parts of Latin America and certain parts of Asia.

A new paradigm
Looking at the situation as I have outlined it above, we can envision a new paradigm for development aid: “the goal of development aid is to ensure that the people of the partner countries are the true owners of the natural, social and human resources of their own countries, and that they receive the full benefits of those resources.”

This formulation makes a clear break from the idea of aid as the focus of the interaction between North and South. Instead, it frames the development aid issue first and foremost as an internal issue within partner countries. It also places the issues of good governance and ownership (not only economic, but social) at the heart of the development aid question. Moreover, it makes the peoples of Africa themselves the most important actors: whether in the coming decades a way out of the impasse that development aid has reached can be found will depend on them.

The proposed formulation is not entirely new. From the beginning, the goal of development aid has been formulated in terms of self-sufficiency, in a variety of ways:  consider popular slogans like “help people to help themselves,” or the familiar adage “give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.” But all these are still based on the aid principle, the fundamental understanding of the distinction between rich and poor countries and the unquestioned assumption of transfer of financial resources and knowledge to address that discrepancy. The formulation I propose abandons the assumption that there are rich countries and poor countries, and so eliminates the assumption of income transfer as the essence of the solution. This is not to say that money is not important, or that transfer of knowledge and technology is not necessary, but these are no longer elements of a North-South or Rich-Poor equation.

Of course, this shift of the central axis to the internal relationships does not mean that these relationships can be seen independently from the international relationships at work in who owns and benefits from the country’s resources. Because globalisation has internationalised these relationships as never before, development aid (if that term is even still appropriate in this paradigm) must be a factor in creating the conditions required to guarantee that the nation owns and benefits from its resources. The coherence agenda of recent years and the perspectives gained from discussions on globalisation (including, for example, the WTO’s Doha round) offer more than enough places to start:

*    Decades of work on agricultural governance has left little doubt as to how to create the conditions for local ownership and profit: the disruptive effect of agricultural subsidies are well-documented.

*    The practice of funnelling taxes revenues from developing countries to rich countries through letterbox companies in familiar and not-so-familiar tax haven countries (this latter type including, as it turns out, the Netherlands) has been clearly identified by the World Bank and NGOs.

*    The lack of opportunity that development countries have to develop their economies through the WTO, which Hoo Yung Chan has aptly described as “kicking away the ladder,” is an impediment to ownership and the benefits of ownership.

*    The externalisation of social and ecological costs in relation to developing countries means that the required investments in technology and knowledge stay away, while costs are passed on to these countries.

As these few examples show, it is not hard to produce an agenda that would make a substantial contribution to ownership of and benefit from a developing country’s wealth by the people of that country.

This does not have to mean the end of our efforts in health care, education, combating HIV/AIDS and fighting for women’s rights. The objective I formulate is not something that can be achieved overnight. It is difficult to see what kind of time frame is realistic, but it is clear that in the meantime, investments in health care, education, microcredit and fighting HIV/AIDS will remain necessary and vital. But they cannot remain so indefinitely, i.e., only until ownership of and benefit from the resources of the countries enable the people of those countries to handle these things themselves.

Development aid does what it can, and does it well. It is unwise to discount the results achieved in areas such as education, health care and microcredit, as Moyo does. In this respect, I believe she is wrong. But development aid cannot achieve what it must. There is no point in denying that in decades of trying, we have not managed to succeed in changing the underlying patterns that perpetuate poverty. On this, Moyo is right. Perhaps we do not even wish to do so, because it is not in our own political and economic interests, it threatens our own geopolitical position, and it would upset our alliances in the EU and NATO.  But let’s stop arguing that development aid is not doing its job. Within the mandate and resources available, it is. The millions of children going to school, the AIDS patients, and the women living from microcredit are all living proof.

Will, outrage, interest
For the time being, I must assume that there is still a political will to change the underlying patterns of poverty. The age of slavery and colonialism, and the years of mass poverty of labourers in the nineteenth century, were surmounted through a combination of political will, moral outrage and adequate self-interest. A future agenda for international cooperation should be based on the premise that the current model will play itself out within twenty years. In concrete terms, this means that in twenty years developing countries must be capable of offering their people basic human dignity without development aid. This time frame is arbitrary, but ten years is too short and longer than twenty years means putting the agenda on the “back burner” until it is ultimately forgotten.  In fact, I myself am optimistic about this time frame, because I foresee a tipping-point effect: as the process of self-financing continues, things can start moving fast; improvements will breed improvements until a self-perpetuating and accelerating process emerges. This is not an unrealistic scenario. We know that it is possible, in view of the available wealth of the vast majority of the developing countries, and because we know the processes on which we can base the channelling of that wealth to the countries themselves.

This means we are not talking about new commitments to the Millennium Development Goals after 2015. Not because there is no interest in further reducing poverty or improving maternal health, but because these things have to be done by national governments on the basis of their own revenues, instead of using donor funds. New MDG commitments after 2015 would lock us for the coming fifteen years into an existing donor model that is at the end of its life cycle. The understanding of the real wealth of developing countries, the growing aversion in those countries to this model and the rise of new countries like China and India, which are not signing on to the present model, are the most important indications that this model is reaching its end. This systemic transformation is something that requires careful handling. With over a billion people living below the poverty line, there is every reason to fight to keep them from becoming the victims of policy changes, however necessary those changes may be. By way of comparison, consider that in our own country, we are setting a time period of 15 years for the increase of the retirement age for fear of the excessive social shockwaves a shorter period would create.

A new agenda
It would be irresponsible to simply dump the existing agenda completely out of hand. For the coming years, that means the following:

*    An agenda that will ensure the continuity of the present facilities dedicated to the soft sector. On the one hand, that would appear to be counter-productive in view of what I have set out above, but the results in education, health care, women’s rights and fighting AIDS cannot simply be thrown away. Doing so would not be understood in either the developing countries or in the donor countries. It would lead to a disastrous “impoverishment scenario” that would reduce human beings to pawns in the endgame of a changing power relationship. Aid cannot exist without compassion. For these investments in the soft sector, a sort of “communicating vessels” scenario must be developed: as internal national financing accrues, external financing will be gradually phased out.

*    An agenda focused on work and income. In a country in which half the population is under the age of 25, employment is an absolutely critical issue in the fight against poverty. As such, the local small and medium-sized business sector is a key factor. It is a fantasy to imagine that western industry will create hundreds of millions of jobs. Even capital and technology-driven multinationals have only limited capacity to absorb such a vast labour force. Work and income and a strong small and medium-sized business sector mean more checks and balances, and by extension, a changed economic balance of power, and this will be the decisive factor in increasing the local authorities’ own financing capacity (taxation). This will have considerable positive effects on good governance (“no taxation without representation”).

*    International regulation on trading relationships, corporate social responsibility, tax avoidance and financial transactions to enable developing countries to own and benefit from their own rich natural, social and human resources.

*    As an overriding theme in each of these three areas, the issue of good governance. Properly functioning national institutions (administration of justice, land registry, tax authorities) and new or improved regional cooperation (Sadecc, ECOWAS) are indispensible for creating a functioning commercial sector, for an acceptable standard of lawmaking and law enforcement, and, just as importantly, for good health care, education, and a stronger position for women.

For now, our debate on the future of development aid will continue, certainly in light of the Dutch government’s impending budget cuts. But that debate does not merely come down to either results or no results. Otherwise, it would just be words falling on deaf ears. What it comes down to is the political mandate and the tools that come with it. The existing model of development cooperation is at the end of its life cycle, and I do not give it much longer than twenty years. Not because it is not producing results, but because the gap between what it can do and what it actually should be doing is too wide. But more than that, because Moyo, the African Bishops Synod, and so many others in Africa, Asia and Latin America recognise the wealth of their own countries and see that things can and must be different.

Bringing about an agenda focused on financing by the developing countries themselves requires at least four indispensable instruments:

*    Strengthening of the social organisations in developing countries that focus on good governance and on emancipation of the poorest. This cannot be done without strong trade unions and farmer organisations standing up for their right to be recognised as an economic factor and, as such, to demand a fair existence with human dignity; without active women’s and youth organisations that stake a claim to the position of these groups in society; without churches that hold leaders to moral standards. Without strengthening these social actors, it won’t work.

*    Investment in strengthening the institutions in developing countries that guarantee ownership and control. The lack of fundamental institutions, such as a land registry service documenting land ownership, makes investments for farmers and entrepreneurs in the small and medium-sized business sector an uncertain prospect. Investments in the quality (both technical-procedural and social) of tax authorities are also indispensable for allowing governments to provide for their own self-financing.

*    Work must be done towards international standards in the area of corporate social responsibility. A need for ecological and social standards has arisen to counteract the virtually unfettered free trade of the last 15 years. These standards have to ensure that developing countries profit from their natural resources and social capital. International standardisation must stop the large-scale pollution resulting from oil exploitation and mining, and must ensure that a basic health insurance becomes part of the standard package of employment benefits.

*    In the Netherlands (and other donor countries), development objectives must become an integral component of the line ministries. Minister Koenders’ engagement on reforms in agriculture and tax evasion is a good start, but real movement on both of these issues can only happen if the Ministries of Agriculture and Finance number these points among the hard objectives of their policies.

This kind of agenda is designed to put focus on what has to happen both in developing countries and in donor countries. With this tool kit, development cooperation can move from being a sector focusing primarily on mitigating the consequences of poverty to being a sector that addresses the underlying causes that perpetuate the patterns of poverty.