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The Aid Trap
How Development Aid is Contributing to
Third World Poverty
Bachelor Thesis | Michiel van Schagen | 5871638
mvanschagen88@hotmail.com | Political Science
Luara Ferracioli & Enzo Rossi
01-08-2014
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Introduction 2
Part I: The Aid Trap 7
§1.1 Explaining poverty 7
The poverty trap
The natural resource trap The conflict trap
The bad governance trap The geography trap The historical trap
§1.2 Aiding Poverty 10
Aid and governance Aid and conflict Aid and the economy Aid and dependency Trapped with aid
Part II: Escaping the Aid Trap 16
§2.1 Grand plans 16
More development aid Democracy and intervention Free market capitalism
§2.2 Improvements 20
Empowerment of the poor Responsive assistance
Investments in the Third World Fair trade
Nonintervention
Conclusion 26
2 Introduction
We live in a world characterized by ‘radical inequality’, in which the poor are in direst need while the rich live in luxury, despite the fact that there are enough supplies for everyone and to alleviate the impoverished from their miseries (Nagel, 1977). This absurd situation is utterly unnecessary given the abundance of available resources (Shue, 1999: 540) and therefore morally unjustifiable. While the rich have succeeded to put a man on the moon; to pay their football players $50 million a year (Badenhausen, 2014) and to put together a very thoughtful official military plan to stop a zombie apocalypse, (Lubold, 2014); the poor are “trapped in a quagmire of poverty” (Moyo, 2009: 47) where every year 10 million children die from easily preventable diseases; where 2 billion people don’t have access to basic sanitation (Easterly, 2006: 7) and where HIV/AIDS is rampant, with deaths still rising to more than 20 million a year (UN, 2007: 18). It goes on. More than 40 percent of the world population lives in poverty (Sachs 2005: 19). Worldwide, 980 million extremely poor people live on less than $1 a day (UN, 2007: 6), making up the so called ‘bottom billion’ (Collier, 2008). In Southern Asia 46 percent of children under five is underweight; in sub-Saharan Africa 15 percent of the children die before they reach the age of five (UN, 2007: 8,14). According to U2 lead singer Bono, the celebrity pop star aid advocate leading the Western fight against Third World poverty, -who has become an official authority on development much to the chagrin of many aid scholars- “more than eight million people around the world die each year because they are too poor to stay alive” (in Sachs, 2005: 1). Meanwhile, although the contemporary Great Recession is throwing a spanner in the works, the rich are getting richer. During the 80s and 90s, the rich diverged from the poor at what Paul Collier (2008: 10) refers to as an astonishing rate of 4.4 and 5 percent a year. At the start of the new millennium, the richest 20 percent of the world accounted for 75 percent of the world’s income (UN, 2007b).
These numbers are overwhelming and tragic. The poignant and inhumane conditions that people continue to have to live in today, have been described as “the greatest tragedy of our time” (Sachs, 2005: 19). Former UK prime minister Tony Blair denounced the state of Africa as “a scar on the conscience of the world” (Blair, 2001). Everybody cares, everybody wants to help. Bob Geldof, another Western celebrity dedicated to eradicating poverty, exclaimed that “something must be done, anything must be done, whether it works or not” (Easterly, 2006: 15).
But why do we care, and why is it up to us, the rich, to save the poor? Some argue that we have an obligation to help. There are different moral grounds for such a Western duty to assist the Third World. First, we should help because we can. The affluent have the means to end poverty, the poor do not. We are in the position in which a donation of a mere 1 percent of our annual income would
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improve other people’s lives drastically and “put the world on track to eliminate global poverty” (Singer, 2002: 195), and that is why it is our duty to assist; this view is articulated in greater depth by Peter Singer. Second, we should help because we contribute. Through “the effects of shared social institutions, the uncompensated exclusion from the use of natural resources, and the effects of a common violent history” (Pogge, 2008: 205), we are contributing to poverty and failing to fulfill our stringent negative duty not to cause or uphold injustice, from which a duty to assist arises; this view is articulated by Thomas Pogge. Third, we should help because we benefit. Regardless of whether we have contributed, we benefit from poverty, for example through the poor people in collapsing Bangladeshi garment factories that sew our jeans; how benefitting from injustice gives rise to obligations to assist is explained by Daniel Butt (2007). It seems that all three moral grounds for assisting the poor have their appeal. It is true that the West has the resources to help the Rest, the argument that the West contributes to poverty in the Rest is convincing, and it is plausible if not obvious that the West benefits from this poverty. This means that we, the rich, indeed have an obligation towards the impoverished people in the developing countries. The epitome of such a Western moral duty to assist the poverty-stricken Third World is development aid. Or, in the words of former World Bank President James Wolfensohn, a world free of poverty “is not just our dream, it is our responsibility” (World Bank, 2000).
Although people have always helped -and killed, exploited and misled- each other, development aid originated after World War II, at the Bretton Woods Conference. Since then, every ten years or so the focus of aid has shifted. Aid started with the Marshall Plan in the 1950s and subsequently evolved into an investment in Third World infrastructure and industrialization in the 1960s; a solution to poverty in the 1970s; a policy tool for neoconservative stabilization and structural adjustment in the 1980s; a soft power carrot for democracy and good governance in the 1990s; and finally into a grand plan to end “Africa’s myriad of problems in the 2000s” (Moyo, 2009: 10). This latest trend in aid is embodied in the eight Millennium Development Goals. The fact that these MDGs are somewhere in between ambitious and audacious, and try to deal with a dizzying wide range of complex problems becomes evident on closer inspection, as they aim to 1. eradicate extreme poverty and hunger; 2. achieve universal primary education; 3. promote gender equality and empower women; 4. reduce child mortality; 5. improve maternal health; 6. combat HIV/AIDS and malaria; 7. ensure environmental sustainability; and 8. develop a global partnership for development; all by 2015 (UN, 2007). Aid has become pivotal in Third World politics and crucial to development. The aid industry has thrived. In total $2.3 trillion in Western development aid has been lent or donated to the developing countries (Easterly, 2006: 4), aid to Africa alone amounted to over $1 trillion in the last 50 years (Moyo, 2009: xviii). NGO charities have proliferated, politicians pledged
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their attention and their budgets, hot and happening celebrities joined the cause, and washed-up pop stars climbed the stage one more time to fight the war on poverty. According to some, we live in a pop culture of aid, where Africa has become the focus of world-wide pity (ibid.: 26).
What has the West achieved and what are the results of 60 years development aid? Although some are right to point out that aid “provides a lifeline to millions” (Baldry, 2012), the overall results are hardly satisfying. The infrastructure and industries from the 1960s are largely run-down and obsolete (Easterly, 2006: 145). During the development aid focus on poverty reduction in the 1970s, poverty in fact started to rise steadily from 11 percent to an astounding 66 percent in 1998 (Moyo, 2009: 47), leading to the farcical but tragic conclusion that “by the turn of the millennium the bottom billion were poorer than they had been in 1970” (Collier, 2008: 9). The neoliberal doctrine that dictated aid in the 1980s has become increasingly controversial, and its idea of structural adjustment has been described as “a simplistic, even simpleminded, view of the challenge of poverty” (Sachs, 2005: 81), which generally generated zero or negative growth (Easterly, 2006: 59), and rather than giving African economies the freedom to succeed, gave them the freedom to fail (Moyo, 2009: 21). Good governance, the magic words in aid practices throughout the 1990s, has not been achieved in much of the Third World, as aid conditionality “turned out to be a paper tiger” (Collier, 2008: 67) and 80 percent of development aid went to countries that are either classified as partly free or unfree by Freedom House (Easterly & Pfutze, 2008: 42). In line with this history of aid failure, the Millennium Development Goals of the 2000s will not be met, since the only donors that have lived up to their promise to the global poor in terms of donations are Denmark, Norway, Sweden, Luxembourg and The Netherlands (UN, 2007: 28).
Criticizing aid has become a scholarly fashion. Development aid has been renounced as “an inadequate response to social problems” by Nobel laureate Muhammad Yunus (2008: 20), as an “abysmal failure” by African scholars (Ayodele et al., 2005: 1), and even as “an unmitigated political, economic, and humanitarian disaster” by Zambian aid critic Dambisa Moyo (2009: xix). George Ayittety, a Ghanaian economist, argues that “helping Africa has turned into a theater of the absurd, it is like the blind leading the clueless” (Ayittey, 2007). Paul Kagame, the authoritarian president of Rwanda who received credit for maintaining peace in the ethnically divided country, believes that there is little to show for the billions of aid that have been disbursed to Africa (Kagame, 2007). Former president of Senegal Aboulaye Wade is similarly pessimistic and claims that he has “never seen a country develop itself through aid” (Ayodele et al., 2005: 1). Former aid-worker Thomas Dichter thinks it’s time to stop fooling ourselves, and claims that he doesn’t know a single aid industry colleague “who believes wholeheartedly that aid has been effective” (Dichter, 2005: 2). New York University professor and founder of the website Aid Watch William Easterly, finally, rejects aid
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as a self-pleasing fantasy, a contemporary version of Kipling’s White Man’s Burden, that morally glorifies the West (Easterly, 2006: 20).
But what about the poor, what do they think of aid? Unsurprisingly, they are skeptic. From a comprehensive effort to try to listen to the poor, something the aid industry is not well-known for, the conclusion was that “most say they were disappointed” (Anderson et al., 2012: 2). Despite the fact that the cumulative effects of aid are largely perceived as negative however, most people who received aid thought that development aid was a good thing, of which they were glad it exists and which they wanted to continue (ibid.: 20).
In this thesis I will follow these lines of argumentation and explain why development aid has not only failed to alleviate the poor from poverty, but has become a contribution to the problem it is supposed to solve. I will show that aid is not benign but malignant (Moyo, 2009: 47), and argue that development aid is contributing to Third World corruption, conflict and poverty. My claim is that aid has become a trap, a conclusion that has been reached before (Hubbard & Duggan, 2009), which is keeping the poor impoverished. However, I will not argue for an end to development aid, nor will I argue for a grand plan that magically solves all the problems of the poor. Both morality and the poor people themselves demand from us, the West, that we assist the Third World. Also, ending aid and leaving the faith of the poor in the hands of free markets will probably not improve their destitute conditions; free market capitalism has never proven to be an ideal device for protecting the vulnerable. Rather, I will argue that aid should and can become a part of the solution instead of the problem, if drastic changes are implemented in the aid industry. Only then, development aid combined with healthy free market mechanisms can incrementally start to turn the tide against poverty and slowly undo some damage that 60 years of aid have caused in the developing countries. It is useful to make a distinction between three types of development aid: disaster relief or emergency aid; NGO charity aid; and government-to-government systemic aid (Moyo, 2009: 7). In my critique of development aid I am mostly concerned with the latter two. Because even though in some emergencies we are sending T-shirts to starving people, as David Schmidtz (2000) cynically describes, some disasters ask for unconditional acute help. Furthermore, emergency aid is only a small part of the problem, as the bulk of development aid is distributed as systemic aid through governments, and NGO charity aid has a much more structural character.
A critic of aid is often “ridiculed for being inhumane and insensitive to the plight of the poor” (Shleifer, 2009: 380). Billionaire philanthropist Bill Gates for example thought Dambisa Moyo’s Dead
Aid was “promoting evil” (Provost, 2013). This fact was recognized by Peter Bauer, who argued that
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taxpayers to Third World governments” (Bauer, 1975: 396), disarms criticism, obscures realities, prejudges results, and enables aid supporters to claim a monopoly of compassion (Bauer, 1993: 2). However, if there are doubts about the effects of Western aid and we want to stop the aid industry from failing yet again, morality requires us to rethink our practices. This is the aim of my thesis. The thesis consists of two parts. In Part I: The Aid Trap, I will first offer alternative explanations of poverty, as development aid is not the only trap the poor find themselves in and many other factors contribute to the problems in the Third World. Second, I will explain the aid trap and how development aid contributes to poverty. In Part II: Escaping the Aid Trap, I will first elaborate on some utopian grand plans that offer an end to poverty, but are rather overconfident, one-sided and simplistic. Second I will propose six improvements that might have better results, and when implemented might incrementally start to alleviate the poor from their hardships.
7 Part I: The Aid Trap.
§ 1.1 Explaining poverty
Third World poverty is caused by a multitude of factors. “There is no single explanation for why certain parts of the world remain poor” (Sachs, 2005: 50), and bad development aid is far from the only problem confronting the global poor. They are simultaneously caught in several ‘traps’ that keep them from developing, or at least make development extremely difficult. The traps that receive most scientific attention are the poverty trap, the natural resource trap, the conflict trap, the bad governance trap, the geography trap and the historical trap.
The poverty trap
Some scholars, most notably aid advocate and adviser to the UN Secretary General on the Millennium Development Goals Jeffrey Sachs, argue that extreme poverty itself is a trap. The assumption is that the most impoverished people are in a position in which they are forced to use their scarce resources to stay alive, and have nothing left to seize opportunities to improve their living conditions. In the words of Sachs: “the poor are too poor to save for the future and thereby accumulate the capital that could pull them out their current misery” (ibid.: 57). Within this logic, aid is their only redemption.
However, the poverty trap is not undisputed, as statistical evidence points in another direction. Poor countries seem to be able to grow and develop on their own, contradicting the existence of an omnipresent poverty trap (Easterly, 2006: 35). According to Easterly, countries continuously rise and fall from and into poverty, which is exemplified by the fact that 11 out of the 28 poorest countries in 1985 were not among the poorest in 1950 (ibid.:36). Other scholars also found “little evidence of the existence of poverty traps” as low savings or low technology (Kraay & Raddatz, 2007: 315). Notwithstanding these statistics, one could easily imagine a situation in which a very poor farmer in a remote rural area in Kenya uses all his crops to feed his family and despairingly has no possibility to transcend his destitution; despite the fact that the Kenyan economy might be growing.
The natural resource trap:
Politics and economics are full of paradoxes. Deborah Stone’s observation that “[policy] paradoxes are nothing but trouble” (Stone, 2002: 1) is certainly true for the paradoxical natural resource trap many poor find themselves in. According to this theorem the abundance of natural resources, such as oil, something often perceived as a blessing, has strong negative consequences, causing poverty. The effect of the natural resource trap is twofold, the trap consists of the political ‘resource curse’
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and the economical Dutch disease. Through their “deleterious impact on institutional quality” (Sala-i-Martin & Subramanian, 2003: 1) natural resources foster corruption and bad politics; the impact of this resource curse is extremely visible and “very robust” in resource-rich Third World countries as Nigeria (ibid.: 23). Another side effect of a profusion of natural resources is that their exports cause the domestic currency to rise in value, which is to the detriment of other export sectors, such as agriculture, since they become uncompetitive; this effect is known as the Dutch disease (Collier, 2008: 39). Approximately 29 percent of the extremely poor live in a country where natural resources hamper the economy (ibid.).
The conflict trap:
Conflict is a heavy burden on any society. A typical civil war is devastating, it is estimated to cost $50 billion (Collier, 2004) and to leave a country around 15 percent poorer than it otherwise would have been (Collier, 2008: 21). Poor countries are prone to conflict. Since poverty causes conflict and conflict causes chronic poverty, the poor are trapped, leading to the situation in which “the chronically poor increasingly live in contexts of chronic insecurity” (Goodhand, 2001: 4). Around 73 percent of the people that live on less than $1 a day, have recently experienced the horrors of a civil war (Collier, 2008: 17).
The bad governance trap
The list of bad governments in the Third World is endless. The literary beauty and rhetorical strength of the enumeration is used to its full potential in the following selection of bizarre corruption by the ruthless dictators that oppressed and stole from the poor in developing countries: the coronation of Jean-Bédel Bokassa as president of the impoverished Central African Empire in 1977 cost $22 million; Mobutu Sese Seko is estimated to have embezzled $5 billion as president of Congo, the same amount as his Nigerian counterpart Sani Abacha; in Uganda during the 90s only 20 percent of government spending on education reached a school due to epidemic corruption (Moyo, 2009: 23,48,53); which was still better than Chad, where in 2004 “less than 1 percent of government money for rural health clinics reached it intended destination” (Collier, 2008: 66). Each year, Africa -the continent where the majority of the extreme poor live- loses the unbelievable amount of $148 billion to corruption (Goodspeed, 2005). African leaders have been characterized as “an assortment of military foofoo heads, Swiss bank socialists, crocodile liberators, vampire elites, and quack revolutionaries” (Ayittey, 2007). No less than 50 percent of the continent is under undemocratic rule (Polity IV); globally, more than 75 percent of the extreme poor live in failed states (Collier, 2008: 66). Bad governance causes poverty. According to Collier it “can destroy an economy with alarming speed” (ibid.: 64), and it has been calculated that the economies of countries with bad governments grow 1.3 percent slower than
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those of countries with good governments (Easterly, 2006: 38). The poor are trapped with self-aggrandizing authoritarian regimes and kleptocrats.
The geography trap.
Many scholars point to the fact that an increasingly disproportionate number of the extreme poor live in landlocked countries. That having no access to a sea is not necessarily an obstacle to development is exemplified by Switzerland. However, when elucidating the case of Uganda, that is surrounded by Kenya (which has had a stagnant economy for three decades), Sudan (which is ruined by civil war), Rwanda (which was torn apart by the Hutu-Tutsi genocide), Somalia (which completely collapsed), and Tanzania (which invaded Uganda), Paul Collier comes to the conclusion that “you could say that at least in recent decades Switzerland has been in the better neighborhood” (Collier, 2008: 55). This is relevant as neighbors seem to be incredibly important to domestic economic growth for landlocked countries: an increase of 1 percent in the economy of an adjoining country leads to a 0.7 percent growth domestically (ibid. 56). Even then, a landlocked country as Bolivia, high up in the Andes, faces excessive transport costs that make economic development very difficult (Sachs, 2005: 104). In Africa, 30 percent of the people are trapped in landlocked countries (Collier, 2008: 56).
The historical trap
Another explanation for Third World poverty is rooted in history. Two historical periods especially affect contemporary developing countries: the colonization and the Cold War. After the dust of the brutal colonial era settled, it became clear that especially Africa and the Middle East were left behind with arbitrarily drawn borders, and a lack of education, infrastructure and public health facilities (Sachs, 2005: 189). If that wasn’t enough, “as soon as the colonial period ended, [the Third World] became a pawn in the cold war” (ibid.). In the scramble for spheres of influence, both the East and West showed a remarkable and despicable “eagerness to support, bankroll and prop up a swathe of pathological and downright dangerous dictators” (Moyo, 2009: 23); as the people in North Korea and those who survived the horrific regime of Idi Amin will probably confirm. Today, many poor are still facing the consequences of those tragic historic periods of foreign meddling in Third World affairs. It has already become evident that the poor face many problems. Natural resources, conflicts, bad governance, geography and history all contribute to their poverty. Sadly, the Third World is confronted with yet another trap, the aid trap. In the next section I will elaborate on this addition to their hardships.
10 § 1.2 Aiding poverty
Development aid comes and fails in many ways. However, the claim of this thesis is not just that aid has failed, that it has not effectively responded to poverty; the claim is that development aid has become a contribution to the problem it is supposed to solve. Aid has become a trap, another trap that keeps the poor from developing. Some poor countries suffer from the resource curse or Dutch disease; many poor countries have recently gone through civil war; a lot of poor countries are badly governed by dictators; quite a few poor countries are landlocked with bad neighbors; and several have to face the consequences of colonial or Cold War imperialism. But “for the most part [the developing countries] have one thing in common: they all depend on aid” (Moyo, 2009: 35).
Aid contributes to Third World poverty through its perverse effect on governance, conflict and the economy. Besides, aid creates a mutual dependency between the aid industry and the poor. These are the four aspects of the aid trap.
Aid and governance
We have seen that bad governance is a big problem in the Third World. Development aid consolidates bad governments in poor countries. The wicked effect of aid on governance is twofold: aid stimulates corruption and aid takes away public responsibility.
According to Moyo, “vast sums of aid not only foster corruption, they breed it” (Moyo, 2009: 52). The effect of aid on corruption is similar to the previously mentioned resource curse, therefore some scholars refer to this phenomenon as the ‘aid curse’ (Bhagwati, 2011; Djankov et al., 2008). The large influx of enormous amounts of easily embezzled cash provides Third World kleptocrats with “practically unlimited opportunities for personal wealth accumulation and self-aggrandizement” (Moyo, 2009: 48). In Haiti Papa and Baby Doc Duvalier, the paranoid voodoo dictator and his son who allegedly kept the severed head of a political opponent in his closet, received 20 IMF loans (Easterly, 2006: 130), later it turned out that Baby Doc stole up to $800 million from the Haitian treasury (Transparency International, 2004: 13). In Congo, president Mobutu requested president Reagan more time to pay back the country’s $5 billion aid-dept, as soon as the misled US president had left the country however, Mobutu “promptly leased Concorde to fly his daughter to her wedding in the Ivory Coast” (Moyo, 2009: 22). In 2005, Nigeria’s president Obasanjo attended the World Economic Forum at Davos to ask the global rich and powerful for more development aid; at the same time Nigerian Governor Joshua Dariye was on trial in London for embezzling $90 million, and Nigeria’s Commissioner of Police Tafa Balogun was forced into early retirement when it came to light that he had diverted $52 million into his 15 bank accounts, in two years (Ayodele et al., 2005: 2). In Zambia,
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president Chiluba enriched himself with approximately $80 million between 1991 and 2002; in the same period his government received more than $1.5 billion development aid, as part of the HIPC debt-relief programme, which “required its beneficiaries to be corruption-free” (Moyo, 2009: 53). Very similarly, Tanzania received $698 million ‘performance-based’ aid from the Millennium Challenge Account; yet when president Bush paid the country a visit in 2008, its cabinet was “dissolved over a corruption scandal involving the award of a $172.5 million” to a non-existing company (Ayittey, 2009: 38). The latter two examples are symptomatic for aid on condition of good governance. Aid with conditionality has rightly been characterized as “a pretty hopeless failure” (Collier, 2008: 108). In 2002, the 25 most corrupt countries in the world received $9 billion in development aid (Easterly, 2006: 117). Alarmed researchers found “no evidence that less corrupt governments receive more foreign aid. On the contrary, […] more corrupt governments receive more aid” (Alesina & Weder, 2002: 1126). This is the reason why aid-loans to the Third World are sometimes referred to as ‘odious debts’; the money is stolen by bad governments yet the poor bear the costs of repayment (Shleifer, 2009: 383).
Apart from breeding corruption, aid takes away responsibility from Third World governments. As foreign development aid assumes public responsibilities as providing infrastructure, education and healthcare, governments of poor countries elude the need to tax their people. Third World bureaucracies become somewhat redundant, so “aid engenders laziness on the part of [their] policymakers” (Moyo, 2009: 66). Furthermore, “aid often has the unintended consequence of subsidizing present institutions” (Erbeznik, 2011: 899), reducing the likelihood of success for often necessary rule of law reform (ibid.: 873). Finally, aid diminishes incentives for democratization, as it consolidates the oppressing power of the governments of developing countries (Easterly. 2006: 111), and distorts checks and balances between the poor and their leaders, who become less accountable to their own people (Moyo, 2009: 66). Combining corruption, bureaucratic quality and rule of law into one variable, good governance, Stephen Knack found that “higher aid levels erode the quality of governance” (Knack, 2001: 310)
It is clear that the dictatorial and kleptocratic ruling elites in the Third World, that kept the poor from developing, received much unwitting help from the West (Ayittey, 2009: 43). As bad governance causes poverty and aid fosters bad governance (Easterly, 2006: 116,120), aid contributes to poverty. That is the first perverse effect of development aid on Third World poverty.
Aid and conflict
As we have seen, the developing countries are conflict-ridden and conflicts can be devastating for poor societies. Development aid is conducive to conflict. Aid incites social tensions and sometimes
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even civil war in different ways. First, as aid undermines social capital and politicizes communities (Bauer, 1993: 14) it impairs the emergence of a civil society (Moyo, 2009: 58). Aid saps trust (ibid.: 59), which is bad for the economy since societies with less trust tend to have slow economic growth (Easterly, 2006: 70). The poor recognize this dynamic. According to a study by Anderson et al. “in all but one country, [recipients of development aid] said that international aid over time had introduced or reinforced tensions among groups and that, cumulatively, it had increased the potential for violence and/or fundamental divisions within their societies” (Anderson et al., 2012: 24-25). Apart from thwarting trust and emphasizing social schisms, aid contributes to Third World conflicts in another, much more direct way: it finances violence. It is estimated that 40 percent of Africa’s military spending is subsidized by aid (Collier, 2008: 103).
Two of the most tragic instances where development aid unintentionally fomented conflict occurred in Somalia and Ethiopia. Somalia was ravaged by multiple civil wars over the control of large scale food aid; the country’s president Siyaad Barre ensured that the incoming aid was managed by relatives to make sure that the profits could be retained with his political allies (Maren, 1997). During the Ethiopian famine 100.000 people died as a result of violent government resettlement, sponsored by Western aid, leading the French Secretary of State to claim that: “Western governments and humanitarian organisations unwittingly fuelled -and are continuing to fuel- an operation that will be described with hindsight as one of the greatest slaughters of our time” (Harris, 1987: 14).
As conflicts hamper development and aid fosters conflict, aid contributes to poverty. That is the second perverse effect of development aid on Third World poverty.
Aid and the economy:
The effect of aid on the economies of developing countries is controversial. Some scholars argue that the effect is negative, some maintain that the effect is positive and others claim there is no effect. Moyo labels development aid as the ‘silent killer of growth’ (Moyo, 2009: 48). She points to the fact that over the past decades the average growth rate of aid-dependent Third World countries was minus 0.2 percent (ibid.: 46). Tragic examples include Zimbabwe, Cote d’Ivoire and Tanzania. In 1994 Zimbabwe was a World Bank pupil; in 2008, after billions in development aid, the country had plunged into chaos with a record-breaking inflation of 11 million percent and, as Ayittey describes: “in Bulawayo, the High School now demands payment of school fees in cows” (Ayittey, 2009: 38). During the 1980s and 1990s the IMF and the World Bank gave Cote d’Ivoire no less than 26 structural adjustment loans, only to see its per capita income descend dramatically in what Easterly refers to as “one of the worst and longest depressions in economic history” (Easterly, 2006: 58). In Tanzania a
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similar aid-financed tragedy occurred, when Western donors poured approximately $10 billion in a socialist experiment that ended up ruining the country and causing average consumption to decline by 43 percent; “today, Tanzania’s largely agricultural economy remains devastated” Ayodele et al. (2005: 2) note. The economic logic behind these tragedies is that aid can be both inflationary, because it unevenly increases demand, and responsible for impeding exports, as it causes the domestic currency to rise in value, much like the previously mentioned Dutch disease that is associated with an abundance of natural resources (Moyo, 2009: 60-65).
Other scholars assert that development aid has a positive effect on economic growth. Collier estimates that aid has been responsible for around 1 percent of annual growth in extremely poor countries (Collier, 2008: 100). In a hallmark article, that was the underpinning of the aid industry’s good governance doctrine, Burnside and Dollar concluded that “aid has a positive impact on growth in developing countries with good fiscal, monetary and trade policies, but has little effect in the presence of poor policies” (Burnside & Dollar, 2000: 847). In other words: development aid tends to be effective in an environment of reasonable governance. This finding has afterwards been ridiculed as platitudinous (Collier, 2008: 102), because “quite why a country in working order would need aid […] remains a mystery” (Moyo, 2009: 35). Furthermore, in a contra-research other scholars found no evidence that aid increased growth, even in developing countries with sound policies and good governance (Easterly, Levine & Roodman, 2003: 6). This leads Easterly to conclude that aid has no effect on economic growth (Easterly, 2006: 45), explaining that “as aid increased, growth dramatically fell; or rather, as growth dramatically fell, aid increased and failed to sustain growth” (ibid.: 40; as shown in Fig. 1). This conclusion might be satisfactory as a happy medium, but not as an assessment of development aid. Apparently $2.3 trillion in aid has not made a significant difference in terms of growth, which is an outrage.
-0,5 0 0,5 1 1,5 2 5 7 9 11 13 15 17 1970 1975 1980 1985 1990 1995 2000 Per cen ta ge g ro wt h p er c ap ita Ai d a s p er cen ta ge of GD P
Fig. 1. Aid and growth in Africa (Easterly, 2006: 40)
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Aid has not only failed to achieve growth because it can be inflationary or choke off the export sector. Ayittey points to another economic omission of development aid. According to him the vast majority of Africans -again, the people who make up the largest part of the extremely impoverished- engage in the traditional and informal economic sectors (Ayittey, 2009: 39). These sectors have been described as Africa’s flea market economy (Fafchamps, 2001: 118). However, development aid focuses mostly on the modern, mainly urban sector, the free market economy, which according to Ayittey is a crucial mistake. The Third World recipients of aid point to another aid problem, as they experience that development aid undermines economic initiative; in the words of a Karen hill tribe leader near the Thai-Burma border: “if you give it for free, you take away the sense of responsibility they had” (Anderson et al., 2012: 22). A person who receives free aid is bereft of any incentive to engage in healthy economic activity.
By failing to achieve sustained economic growth, aid contributes to poverty. That is the third perverse effect of development aid on Third World poverty.
Aid and dependency
Aside from development aid’s perverse effects that contribute to the poverty aid is supposed to solve, aid fosters mutual dependency between the aid industry and the poor. This phenomenon is referred to as ‘aid dependence’.
Many developing countries are dependent on aid: more than 50 percent the budgets of Ghana and Uganda consists of aid (Ayodele et al., 2005: 1), Cambodia receives 14 percent of its income from foreign donors, 23 percent of Lao’s GDP is aid (Godfrey et al., 2002: 360), and in Africa during the 1990s an average of 15 percent of countries’ income was aid (Easterly, 2006: 39). These countries depend on development aid to survive. As a result, they suffer from a “highly unequal” bargaining position vis-à-vis their Western benefactors (Killick et al., 2005: 50) in which the developing countries’ national sovereignty is undermined. However, as much as the poor depend on their donors, the donors similarly depend on the poor. First, the aid industry has an incentive to keep itself in business, it employs 500.000 people whose livelihoods depend on aid (Moyo, 2009: 55). Second, responding to poverty justifies the donors existence and work (Anderson et al., 2012: 3). Third, the developing countries need money to pay back the aid-debts that they owe to Western donors; they receive aid to repay aid, strengthening the mutual dependence (Moyo, 2009: 19). Easterly refers to this absurd circular flow of development aid as the aid industry “bailing itself out” (Easterly, 2006: 201), which keeps the “aid merry-go-round humming” (Moyo, 2009: 55) and ultimately weakens the West’s leverage over its beneficiaries (Easterly, 2006: 202). This ‘aid addiction’ is exemplified by Mozambique. On the one hand, Mozambique’s national income is 40 percent aid dependent, giving
15
donors the ability to impose domestic policy choices. On the other hand, the World Bank and the IMF depend on Mozambique as one of their few success stories in Africa -the country contracted an annual growth of 8 percent in the last decade- enabling Mozambique’s government to get away with corruption (de Renzio & Hanlon, 2007: 2-3).
The poor are well aware of this mutual aid dependence. According to Anderson et al., Third World recipients of aid are frustrated with the fact that assistance “becomes entrenched as an increasingly complicated system of reciprocated dependence” (Anderson et al., 2012: 3), even more so as “they do not want to depend on outsiders for help” (ibid.: 21).
Trapped with aid
We have seen that development aid contributes to Third World poverty. Poor countries receive aid, as a result their poverty increases, so they get more aid. Because both the aid industry and the poor depend on aid, there is no incentive to break this vicious cycle; this is the aid trap.
Dambisa Moyo claims that aid has “hampered, stifled and retarded […] development” (Moyo, 2009: 9); according to a Kenyan Member of Parliament, aid “has done more harm […] than we care to admit” (in Ayittey, 1998: 275). George Ayittey accuses the global development elite of being the “most innocently narcissistic group of otherwise intelligent people on the planet” (Ayittey, 2009: 38), given the fact that it is the only sector that has allowed such proven failure to “persist in the face of such stark and unassailable evidence” (Moyo, 2009: 47). Paul Collier comments wryly that there is “considerable scope for improvement” (Collier, 2008: 12).
The poor are confronted with several traps that keep them from developing; to make matters worse, they are trapped with aid. However, as Collier rightly mentions: “the traps are probabilistic, it is not impossible to escape from them” (Collier, 2008: 79). The developing countries might slowly transcend their poverty; in the next part I will explain how they could possibly escape the aid trap.
16 Part II: Escaping The Aid Trap.
§ 2.1 Grand plans
In their enthusiasm, some scholars offer grand plans to alleviate the poor from poverty. Echoing Easterly, I do not think that grand plans work (Easterly, 2006: 33). Poverty is an incredibly complex problem, for which it is more adequate to search a solution than plan one (ibid.: 5). The proposed plans are all somewhat overconfident, one-sided and simplistic. Or rather, they embody James Scott’s high-modernist ideology, a “muscle-bound version of self-confidence” in scientific knowledge and technocratic progress, that typifies many utopian schemes to improve the human condition (Scott, 1998: 4). The three grand plans that are commonly put forward as a panacea to the miseries of the global poor are: more development aid, democracy and intervention, and free market capitalism.
More development aid
One response to failing aid, is more aid. This idea follows the classic ‘escalation syndrome’ logic: when a remedy does not work, you try it again but apply more (ibid: 239). In development terms, the escalation of aid is known as the Big Push.
The main proponent of this big aid push is Jeffrey Sachs. He estimates that an end to extreme poverty is feasible when the rich donate 0.6 percent of their annual income, amounting to $124 billion, to the Third World continuously for twenty years (Sachs, 2005: 290). This increased amount in development aid is required to get the poor onto the rungs of the development ladder. The Millennium Development Goals have been drafted on the basis of this insight. Sadly, the US until very recently only donated a preposterous 0.05 percent of its GNP, $5 billion annually, to development aid (ibid.: 336), sabotaging Sachs’ plan. In reaction, Sachs proposes a progressive US income tax of 5 percent on high incomes of which the benefits should be “directed toward the US contribution to end global poverty” (ibid.). Sachs envisions a rise of ‘enlightened globalization’ of democracy, multilateralism, science and technology (Sachs, 2005: 358), which benefits the poor. This concept clearly resembles high-modernist thinking.
Easterly refutes what he refers to as ‘the legend of the Big Push’ of development aid as “a classic example of trying something that didn’t work before” (Easterly, 2006: 33). However, it is possible to criticize the call for more development aid more precisely. If it is indeed the case that aid contributes to bad governance and social conflict in the Third World; that it fails to achieve sustained growth; and that it creates aid dependence, than surely we must first reform development aid before we expand it. Only after we have identified aid-mechanisms that do not have these perverse effects and
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contribute to poverty, we can meaningfully focus on the necessary step of increasing Western donations. The recipients of aid seem to agree with that, as “very few [of them] call for more aid” (Anderson et al., 2012: 3).
Democracy and intervention
Since bad governance is one of the most urgent and destructive problems facing the Third World, some scholars argue for Western intervention to free the poor from their terrible leaders. According to Collier for instance, “military intervention has an important place in helping the societies of the bottom billion” as a means of restoring order, maintaining post-conflict peace and protecting against coups (Collier, 2008: 124-131). Collier puts forward the operation in Sierra Leone, where the English were asked to fight off the RUF rebel force, as an example of a justified and successful military intervention (ibid.: 125). However, if we stick to the official definition of humanitarian intervention as “military action taken by a state, group of states or non-state actor, in the territory of another state,
without that state’s consent, which is justified, to some significant extent, by a humanitarian concern
for the citizens of the host state” (Hehir, 2010: 20,italics added), the mission in Sierra Leone is not an intervention. Collier puts forward Rwanda, where the West deemed intervention too dangerous and did practically nothing to avert the butchering of 500.000 people, as an example of a situation where military intervention would have been justified (Collier, 2008: 126). Although this indeed seems to be true, fortunately a genocide is a rare occurrence; Rwanda sets the bar high for future justifications of intervention, which in practice means that the West would still rarely intervene, and the poor would still be stuck with their dictators. Therefore, Western scholars are often less nuanced, and assert that the aim of military interventions should be to bring the light of democracy to the parts of the world that are still not illuminated by this ultimate form of governance. Harvard historian Niall Ferguson for example argues that for the US “the proper role is imposing democracy on all the world’s rogue states, which would pay a long-run dividend as their trade revived and expanded” (Ferguson, 2004: 300). To impose democracy seems self-contradictory, it transforms ‘government of the people’ into a technocratic concept, a high-modernist policy tool.
Easterly refers to Ferguson’s neoconservative an neo-imperialist contemporary version of the manifest destiny as an extreme form of “utopian social engineering” (Easterly, 2006: 13), Sachs calls it a very dangerous fantasy (Sachs, 2005: 359). Military intervention as a response to poverty, with the aim of establishing good governance, is counterproductive as it undermines the sovereignty of the people of the developing countries, and has a high chance of sewing political and economic chaos. If aid has a dismal record of effectiveness (Dichter, 2005: 2), than the West’s Sisyphean efforts to impose democracy on the Third World and convert bad governments into good, its shift from
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aiding the poor to invading the poor, certainly has (Easterly, 2006: 102,114,245); Easterly claims its record “yields a cautionary lesson: don’t” (ibid.: 294). The question of justification of humanitarian intervention as a reaction to gross violations of human rights is too complex to elaborate on in this thesis, as a means to combat poverty however, military intervention must be rejected.
Free market capitalism
Another proposed grand plan to alleviate the poor from poverty is free market capitalism. Similar to ‘imposing democracy’, to call free markets a ‘plan’ might seems self-contradictory. Yet that is exactly what the West has been doing since structural adjustment became prominent in development aid: trying “to plan how to achieve a market” (Easterly, 2006: 54). The result was shock therapy, the top-down imposition of free markets, which Easterly classifies as a failed utopian scheme (ibid.), and which was the embodiment of a high-modernistic confidence in scientific neoliberal economic and political convictions.
However, shock therapy is not the only policy option to stimulate Third World engagement in free markets. Moyo suggests a considerably more nuanced application of free market instruments as a solution to Third World poverty, combined however with a 14 percent annually phasing out of all development aid (Moyo, 2009: 145). She argues that developing countries need to stop depending on aid, and rather divert their attention to issuing bonds, trading, and attracting FDI and microfinance to sustain economic growth and support their budgets. According to her, “there is nowhere further down to go” (Moyo, 2009: 144), and aid flows don’t reach the deeply impoverished anyway. She argues that free market incentives and Adam Smith’s invisible hand will be beneficial to the poor, and that the developing countries need to integrate into the global economic structure. Emerging market bonds not only give incentives for this integration to the Third World countries, they are also lucrative for investors as they tend to perform well (Moyo, 2009: 80). Although making money from poverty might seem immoral, George Ayittey reminds us that capitalism is “as African as the sunset on the savannah” (Aytittey, 2009: 41).
That the free markets are not always kind to developing countries is illustrated by the example of Argentina. According to journalist Paul Blustein, the country was bankrupted by private Wall Street bond investors desperate for high returns on their risky portfolios (Blustein, 2005: 210), who kept on lending money to Argentina like preying vultures, and by the incompetent World Bank and the IMF, who kept on lending to bail themselves out (ibid.: 135), a dynamic we have already come across. Collier points to the “depressing picture” of what the globalization of free markets has brought the poor (Collier, 2008: 95). Muhammad Yunus rightly concludes that “unfettered markets in their current form are not meant to solve social problems” (Yunus, 2008: 17). Free markets are not an
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adequate response to Third World poverty. Although they undoubtedly must play their part in development, they inadvertently produce inequalities, as Thomas Piketty proves with his simple formula r > g, pointing to the overlooked fact that the rent on wealth is usually higher than economic growth, causing the rich to get richer faster than the poor (Piketty, 2014); a watershed conclusion in economic thinking (Milanovic, 2013). Free market capitalism is not only said to increase inequalities, according to some it “may actually exacerbate poverty” (Yunus, 2008: 17).
Grand plans are not the right policy tools to mitigate poverty and help the poor escape the aid trap. Instead, incremental improvements and changes in the aid industry might have better results, and slowly start to lift the developing countries from poverty. In the next section I will propose a combination of reformed development aid and healthy, non-parasitic, market mechanisms, as I am convinced that such a mix between socialism and capitalism is “not only possible, but also necessary” (Moyo, 2009: 73), and that “Western assistance, suitably humbled an chastened by the experience of the past, can still play some role in alleviating the sufferings of the poor” (Easterly, 2006: 318).
20 § 2.2 Improvements
As Easterly remarks: “the right plan is to have no plan” (Easterly, 2006: 6). In the same vein, James Scott stresses the importance of mētis, knowledge derived from practical experience, and asserts that mētis-friendly institutions are better at problem solving (Scott, 1998: 6, 352). Following these lines of thought, I will propose five improvements, that might have better results than the previously explained grand plans when trying to enable the poverty-stricken Third World to escape the aid trap, and start developing. These improvements are not one-size-fits-all policy prescriptions. Rather, they indicate a direction in which we have to search for solutions. The five improvements are: empowerment, responsiveness, trade, investments, and nonintervention.
Empowerment of the poor
A terrible mistake of the aid industry is its condescending attitude towards the poor, embodied in the confidence that we will solve their problems, and that it is up to us to end poverty (Bono in Sachs, 2005: xviii). The development debate has been “usurped by pop stars and Western politicians” (Moyo, 2009: 66) who decide for the poor what’s best for them. This patronizing aspect of aid is “most infuriating” according to Easterly (2006: 23). The consequences are disastrous; in Tanzania for example the West spent $2 billion in 20 years to build new roads, but as no Tanzanians were educated how to maintain these roads, they deteriorated faster than the donors could build new ones (ibid.: 145,166). The West reacts out of pity and perceives the people of the developing countries as begging for its help, something a food aid recipient in Zimbabwe acknowledged when he said: “they dump aid on us, […] we are beggars” (Anderson et al., 2012: 43). In Ecuador, an Afro-Ecuadorian community leader expressed that a feeling that “we are worth less than those who come from outside” was penetrating his community (ibid.: 31). According to a Cambodian founder of a Phnom Penh human rights organization, Western “pity is a most dangerous emotion” which has driven developing countries towards a beggar mentality (Fuller, 2014). The omnipresent impression that “they disempower us”, as a refugee near the Thai-Burma border explained, takes away the self-respect of the poor and their self-confidence in the ability to solve their own problems (Anderson et al., 2012: 23).
This dynamic needs to be reversed. Instead of contributing to a sense of being dependent on aid, development aid needs to empower and enable the poor. The aid industry needs to discard its patronizing confidence that it knows how to solve other people’s problems better than they do (Easterly, 2006: 22). As a frustrated lawyer from Cameroon explains: “Africans know what the problem is, and no one else should speak in [their] name” (Tonme, 2005). Solutions to Third World poverty must be increasingly internally generated (Ayittey, 2009: 44), as ‘homegrown development’
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is much more valuable than failing assistance from abroad (Easterly, 2006: 24). A local government official in Zimbabwe politely asked “international agencies to build capacity, so that people can begin solving their problems on their own” (Anderson et al., 2012: 49). Unplanned Third World inventions exist, homegrown development exists, and the flea market economy works. Nollywood, Nigeria’s movie industry, is producing thousands of films annually that are being watched by people all over Africa (Easterly, 2006: 90-91); the telecompany Vodacom in Congo, that started with antenna’s made from scrap metal, was recently adding 1000 subscriptions a day (LaFraniere, 2005).
What the aid industry can do to empower the poor, is educate. Especially crucial is the education of women, a huge largely unused part of the potential professional workforce in the Third World, not in the least because emancipation of women decreases the high fertility rates in developing countries (Sachs, 2005: 65). Education is also important because a high proportion of educated people is a precondition for turning around destructive bad governance (Collier, 2008: 70-71). Another advantage of education is that it pays off. Easterly finds that the return on spending of providing instruction materials is 14 times higher compared with providing physical facilities (Easterly, 2006: 167). Furthermore, in the words of one aid recipient, “skill training is better than receiving goods; the help we are getting now is for today only” (Anderson et al., 2012: 19). With reliance comes self-respect. Muhammad Yunus explains that he wants the impoverished clients of his Grameen Bank to feel important (Yunus, 2008: 23); this is something the aid industry also needs to consider, as it is evident that empowerment enables the poor to escape aid dependence and contribute to the effectiveness of development aid.
Responsive assistance
One of the most critical flaws in existing aid is the lack of feedback (Easterly, 2006: 14). According to Easterly, the aid industry gets little to no feedback from the poor (ibid.: 148). As a result, the poor have no power to hold donors accountable, and the donors have no idea what the poor actually want (ibid.: 180). Multiple scholars describe the current situation as one in which the allocation of development aid is responsive to media and constituencies within Western donor countries rather than the intended beneficiaries in the Third World (ibid: 149; Anderson et al., 2012: 57). Anderson et al. coin the term ‘proceduralization’ of aid, to refer to the increasingly bureaucratic, rigid and unresponsive character of development aid (ibid.: 67). This dynamic contributes to the sense among the poor that they are trapped with aid.
The poor need responsive assistance. The people of the developing countries must be empowered to monitor development aid, and enabled to “instigate reform from within” the aid industry (Ayittey, 2009: 45). Donors need to be accountable to the poor. The poor, not the donors should decide on
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the way aid money is spent; only then we can break the vicious cycle of failing aid, and only then the poor can escape the aid trap. Easterly proposes an Aid Evaluation Survey (Easterly, 2006: 332), these are the kind of policies the aid industry needs to search for in order to increase the responsiveness of Western assistance to the global poor, and to maximize the efficiency of development aid.
Investments in the Third World
Local businesses and companies in the Third World are crucial to development. They provide jobs, pay employees the salaries necessary to support their families, and deliver the products that contribute to Third World GDPs. They are the catalysts of economic growth in the developing countries. However, Western development aid often overlooks, surpasses or even competes with local businesses. In Zambia, the aid industry, in a failed attempt to improve the lives of the poor, dumped planeloads of second hand clothing, causing the local textile industry, which was a lifeline in the fragile economy, to collapse completely (Schmidtz, 2000: 3). In Tanzania, very similarly, $1 million worth of free Western mosquito nets threatened the frail local supply chains and small businesses that already manufactured these nets themselves, after celebrity Sharon Stone raised the funds at a meeting of the World Economic Forum in 2005. Tragically, most of the nets did not even reach the Tanzanians they were intended for, as “neither celebrities nor aid administrators have many ideas for how to get bed nets to the poor” (Easterly, 2006: 11-12).
The free markets are not helping the poor either. Foreign Direct Investment (FDI), the free market mechanism of investing in local businesses, has not reached the extreme poor in sufficient amounts. In 2006, Africa received more than twice as much aid as FDI; it attracted less than 1 percent of global capital flows; and FDI to China, which totaled $80 billion, was more than five times the amount of foreign investments in the whole African continent (Moyo, 2009: 99). This is catastrophic, as FDI has many advantages, such as providing cash for development, creating jobs, transferring technology, and opening up domestic markets (ibid.: 101-102; Naughton, 2007: 405). This leads Collier to argue that “what the bottom billion really lack is private investment” (Collier, 2008: 87).
There are multiple reasons for a lack of FDI in the extreme poor countries. Most importantly, doing business in these countries is a nightmare (Moyo, 2009: 100). Where it takes 40 days to obtain a business license in the US, it takes 426 days in Cameroon; Where you can start a business in South Korea in 17 days, it takes 119 days in Angola (ibid.). Corruption adds to the perceived risks of starting a business in the developing world, which remains high (Collier, 2008: 88). According to some scholars, “improving regulations for business could lift GDP by 2.3 percent a year” (Djankov et al., 2006: 395). Aid has failed to sustain economic growth in the Third World, investments would not.
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FDI is not the only possibility to invest in local businesses in the developing countries. A very promising alternative is microfinance. Microfinance -“efforts to improve poor people’s access to loans and savings services”- has been described as “the fastest growing and most widely recognized anti-poverty tool” (Schreiner, 2003: 357). Muhammad Yunus’ Grameen Bank in Bangladesh, the biggest microfinance institution in the world, grew astonishingly from providing S3.1 million in microloans to 36.000 people in 1983, to a portfolio of $230 million and 2.3 million members in 1997 (ibid.). In doing so, the bank has not needed any donor money since 1995 (Moyo, 2009: 128). The Grameen Bank’s model is incredibly inventive. The bank provides small but significant loans to one or two members of impoverished Third World communities; only when they repay their debts, other members of the community become eligible for loans. Thus, the bank uses “social capital and community interdependence and trust as a collateral for loans to the poor”, giving a priority to women and focusing on group solidarity (Grameen Bank, 2013). As a result, the repayment rate is unusually high, more than 95% (ibid.). This system has proved that “lending to the poor is not an impossible proposition” (ibid.) and has given the extreme poor a chance to escape their poverty. As a result of this resounding success of “banking the unbankable” (Moyo, 2009: 128), and the ingenuity of the Grameen Bank (Sachs, 2005: 14), the previously excluded impoverished are now part of a functioning financial system, and Bangladesh has finally achieved economic growth; now, 43 countries have adopted the Grameen Bank’s model (Moyo, 2009: 127-128).
Development aid can very meaningfully contribute to investments in the Third World. Aid needs to start incorporating local Third World businesses in its search for solutions to poverty. In 2005, at the Food Aid Conference in Kansas City, it was decided that 25 percent of the US Food for Peace budget would be used to buy food in developing countries, “instead of flooding foreign markets with American food” (Moyo, 2009: 45). This is the direction in which the aid industry has to go.
Fair trade
Protectionism is a disastrous impediment to economic growth in the Third World. The numbers are extreme and unsettling. In 2005, OECD countries approximately spent $300 billion on agricultural subsidies, three times the amount of money these countries spent on development aid; in the EU, subsidies are estimated to make up 35 percent of farmer’s salaries; each cow in the EU receives $2.50 of government assistance every day, more money than the bottom billion have to stay alive (Moyo, 2009: 115). According to an Oxfam report, “America’s cotton farmers receive more in subsidies than the entire GDP of Burkina Faso, [and] three times more in subsidies than the entire US aid budget for Africa’s 500 million people” (Watkins, 2002: 2). Africa loses $500 billion each year, due to these immense barriers to free trade (Moyo, 2009: 115). Burkina Faso annually loses 1 percent of
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its GDP and 12 percent of export earnings due to Western trade embargo’s (Watkins, 2002: 3); since 2001, sugar subsidies have deprived Ethopia, Mozambique and Malawi of $238 million, the costs for Mozambique were as much as 30 percent of its EU development aid (Moyo, 2009: 117). Collier rightly classifies these Western trade policies as indefensible, and sometimes even too shaming to accept (Collier, 2008: 87). According to Sachs, they prevent the Third World from developing (Sachs, 2005: 25).
The West can supply the Rest with as much development aid as it wants, as long as its protectionist trade barriers remain intact, even good aid has little chance to achieve sustained economic growth in the Third World. The idea that economic development is a zero-sum game needs to be abandoned, as free trade provides us with a “positive-sum opportunity in which improving technologies and skills can raise living standards around the world” (Sachs, 2005: 16). Big bang, shock therapy-style trade liberalization is probably not a good idea (Collier, 2008: 161). However, incrementally removing harmful trade barriers could be a meaningful step in the fight against poverty. Another possible policy option is the establishment of Special Economic Zones (SEZs) in developing countries, where international trade is stimulated. In China, the country that successfully developed from a completely impoverished, failed agricultural totalitarian state to one of the biggest economies in the world, SEZs have had great importance to economic reform (Naughton, 2007: 407). They allow a developing country to gradually open up its fragile economy to the global markets. In Madagascar, a SEZ successfully contributed to the overnight creation of 300.000 jobs (Collier, 2008: 83), illustrating the fact that SEZs can be rewarding in the Third World. The aid industry can contribute to prosperous fair trade by advocating the reform of trade barriers and searching for meaningful opportunities to promote SEZ-initiatives; then, perhaps, development aid, can finally become a contribution to economic growth in the developing countries.
Nonintervention
Contemporary aid fosters corruption and “coddles and […] worsens bad government” (Easterly, 2006: 137). The aid industry needs to start helping the poor and stop helping their leaders. Peter Bauer’s (1975: 396) definition of development aid needs to be rephrased to a transfer of wealth from First World taxpayers to the Third World population, instead of their governments. Because, “fighting poverty is fruitless if dictatorships remain in place”, and the West is mourning a corpse “while forgetting to denounce the murderer” (Tonme, 2005).
The principle of aid needs to be ‘nonintervention’ (Easterly, 2006: 138). The aid industry does not need to overthrow bad Third World governments, nor reward them with aid. But we, the rich, need to be tough on despots, and only assist their impoverished people. Ayyitey refers to this as the
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principle of ‘tough love’ (Ayittey, 2009: 44), the aid industry needs to shed political correctness and divert its attention to searching solutions to poverty that work around bad governments. According to Easterly, “once the West is willing to aid individuals rather than governments, some conundrums that tie foreign aid up in knots are resolved” (Easterly, 2006: 322). In Chad, the aid industry tried such an approach. To oversee oil expenditures, an organization in which NGO’s, local civil society and the government collaborated was established, empowering the impoverished communities of Chad to control its government. The organization was so successful, that the government of Chad dismantled it, as it wanted to use its oil money for military funding (Collier, 2008: 118-119). Collier refers to these types of organizations as ‘independent service authorities’ (ibid.). These types of initiatives provide the aid industry with a practical opportunity to aid the poor and not their leaders, and to minimize aid’s contribution to bad governance in the Third World.
These five improvements are not a grand plan to end global poverty. But if development aid starts to focus on empowerment of the poor; becomes responsive to the needs of the poor; finds ways to invest in the developing economies; increases the possibilities of fair trade; and respects the principle of nonintervention, it could reverse the aid trap and actually start contributing to incremental development in the Third World. Only then, the poor can cease to depend on aid. This should be the goal of development aid: to make aid redundant. The aid industry needs to start “working to grow smaller -that is, working to go out of business” (Anderson et al., 2012: 47-48).
26 Conclusion
The global poor are confronted with an overwhelming multitude of problems. Several traps obstruct their development and keep them from transcending their destitution. The West’s response to Third World poverty is development aid. However, aid has become a contribution to the problem it is supposed to solve. Through its perverse effect on governance, conflict and the economies in the developing countries, aid contributes to poverty. As a result, a vicious cycle of poverty, aid, increasing poverty, and more aid, has emerged. To make matters worse, aid has fostered a mutual dependency between the aid industry and the poor, making it extremely difficult to break the vicious cycle of aid. This is the aid trap. Escaping this aid trap is not impossible. Although utopian grand plans will not alleviate the poor from poverty, incremental improvements might. The improvements should focus on empowerment, responsiveness, investments, fair trade, and nonintervention. Through this combination of reformed development aid and healthy free market mechanisms, the Third World might be enabled to start to develop. Only then, the developing countries can stop depending on aid.
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