Lecture 16:Development assistance

The beginnings of DA

• Modern DA begins after World War II, following the creation of the Bretton Wood institutions

• The International Bank for Reconstruction and Development (World Bank) had the initial task of raising capital for the reconstruction of Europe and Japan after WW2

• Its main aim was to avoid the painfully slow recovery that poisoned international political and economic life after 1918

The Marshall Plan• The first major example of

DA came in 1947, with the setting up of the Marshall Plan (the European Recovery Program) to assist European recovery

• Although offered to the whole of Europe and the Soviet Union, Stalin refused to accept it

Marshall Aid

• Between 1948 and 1953, Marshall Aid worth $13bn speeded up the economic recovery of Western Europe

• Marshall Aid was seen as a resounding success and a potential model for future programmes

The beginnings of wider DA

• In 1949 US President Truman announced the long-term goals of US aid:

• “We must embark on a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas. The old imperialism — exploitation for foreign profit — has no place in our plans.”

Decolonisation

• The case for DA became all the more urgent with the beginning of decolonisation, the break up of the former European empires

• By the late 1960s, most of Africa and South Asia had gained independence

Cold War priorities

• With the Cold War intensifying, much DA reflected political priorities

• Marshall Aid and the Truman speech reflected US fears that the USSR would dominate a weakened Europe

Cold War competition

• The Soviet Union provided DA to its satellites and the PRC after the victory of the Chinese Communists in 1949

• The Soviet bloc then gave DA to newly independent countries where it was competing for influence with the West

China and Africa:beginnings under Mao

• The PRC also launched many agricultural initiatives in Africa in the 1960s

• Under the ‘One China’ policy, recipients of Chinese aid had to break off relations with Taiwan

• African votes in the General Assembly proved crucial in giving the PRC a seat on the Security Council in 1971 (Resolution 2758)

Who gives now?

• The picture of DA is now more complex

• The biggest donors are the richer countries in the Organisation for Economic Cooperation and Development (OECD)

DA donors by GNP• It was originally agreed

that donors needed to provide 0.7% of GNP

• However, very few donors achieved this: only the Scandinavian countries such as Norway, Sweden and Denmark, but not the USA and the UK

• Since the 1980s aid levels have been falling from around an average of 0.36% GNP to 0.22%

How aid flows

• Around 70% of all DA is bilateral aid (government-to-government)

• The other main source of assistance is through international organisations, including the WHO, WFP, UNDP and UNICEF, IMF, World Bank, and regional development banks such as the Asian Development Bank

The World Bank approach

• At first, the World Bank lent money only for specific projects

• With each project needing evaluation, the process was laborious and time consuming

• Under the leadership of Robert McNamara from 1968, the World Bank moved to a broader approach of funding wider programmes (health, education and agriculture) and promoting good governance

The Washington Consensus

• The World Bank approach changed radically in the 1980s, with the triumph of neoliberal economics

• Much DA became dependent on structural adjustment programmes aimed to reduce obstacles to the proper functioning of markets

• The package became known as the ‘Washington Consensus’, and involved the reduction of the role of the state and the freeing of markets

Controversies

• The structural adjustment programmes were controversial

• In many countries, the reforms brought disruption, increased poverty and a reduction of public services

• Trade liberalisation often damaged local economies

The softer approach

• Many regard the 1980s as the ‘lost era’ of development, thanks to the rigid adoption of neoliberal economic policies

• The approach softened in the 1990s, when donors realised a broader approach was necessary, while still insisting on ideas of good governance

• This approach led to the formulation of the Millennium Development Goals

MDGs: the background

• The MDGs were approved at the Millennium Summit, a UN-sponsored meeting of heads of state held in 2000

• The goals all derived from earlier international development targets

• The eight goals – to be achieved by 2015 – aim to reduce poverty through sustainable development

• Each goal has several quantifiable targets to allow the measuring of progress

• To assist the achievement of the goals, the developed countries were to provide 0.7% of their GNI as Official Development Assistance

The eight goals

Monitoring progress

• Progress has been monitored on a regular basis, with annual reports gathering data collected by more than 20 UN and international agencies

• Individual countries also provide national assessments of progress towards the goals

Progress to date

• Much of the quantifiable progress in reducing poverty – especially with the key Indicator 1.1 – has been achieved in China and India, thanks to sustained economic growth in those countries

• Progress elsewhere, especially in Sub-Saharan Africa, has been very uneven, with many countries unlikely to achieve most of the goals

Significance of the MDGs

• The MDGs are an important step in formalising and strengthening the developed countries’ commitment to helping the developing world

• They serve as a concrete action plan for improving the lives of the poorest

• The goals provide clear targets allowing the measurement of progress

Criticisms of the MDGs

• The choice of MDGs• The lack of a focus on local participation• Insufficient focus on the sustainability of

development• Problems with reliable data collection, especially

in the poorest countries, make it difficult to assess progress

• Many developed countries have failed to meet their commitment to donate 0.7% of GNI to fund Official Development Assistance

Controversies: Dead Aid

• In 2009, Dambisa Moyo’s Dead Aid was published

• This claimed that DA had only fuelled dependency and corruption in Africa, and had done little to promote development

Dead Aid (2)• Moyo claimed that aid had made African leaders

unaccountable to their citizens• She claimed that donors needed to ‘turn off the

tap’• Liberated from dependency, Africa would turn to

its own resources• Africa could develop by borrowing on the

international bond markets• Africa should also promote development also by

encouraging micro-finance• She also stressed that Africans would benefit from

Chinese investment

Criticisms of Dead Aid

• Critics have noted many weaknesses in Moyo’s work

• Her use of statistics and evidence is very selective

• She fails to highlight any positive achievements of DA

• She fails to highlight the link between the poor performance of DA and the political motives behind much DA

Is DA effective?

• Like any other form of expenditure, DA needs to be evaluated properly

• Many of the criticisms of DA have proved misguided, but several have some validity

• To assess the importance of DA, we have to identify what factors can reduce its effectiveness

• Some of these factors are connected to the donors, while others reflect problems in the recipient countries

Factors reducing the effectiveness of DA

• On the donor side:• DA given for political rather than developmental

purposes• Tied aid and other forms favouring the donor

• On the recipient side:• Corruption• A lack of expertise to use the funds

‘Political’ DA

• Much DA awarded during the Cold War was politically motivated

• Donors rewarded allies or sought to buy the support of recipient states

• During the Cold War, donors rarely asked too many questions about governance in recipient countries

• Donors still prefer to reward their allies or those who support they valued

Examples of ‘political’ DA

• In 1991, the biggest recipients of American DA were Egypt and Israel

• In 1991, the USA discontinued DA for Yemen after Yemen voted against the Gulf War in the Security Council

• Much Japanese DA goes to states that support Japan’s stance on whaling

• In 2009, Russia gave Nauru – the UN’s smallest member state – DA worth $50m after Nauru recognised South Ossetia and Abkhazia

Consequences of political DA

• With large sums of DA being awarded for political purposes, the likelihood that the funds will be used for genuine development purposes is much reduced

• Recipients of political DA were rarely those who needed DA the most – the 48 least developed countries received only 18.2% of US DA in 1996 (less than Egypt)

Tied aid

• Tied aid – when a donor’s DA has to spent on goods and services from the donor country – is another factor reducing the effectiveness of DA

• Such aid often reflects the donor’s priorities and can be used to subsidise industries or companies in the donor country

• For some donors, a considerable percentage of DA is tied, though this has been reduced in recent years