The role of aid in development: Three perspectives

Since the establishment of the World Bank and the International Monetary Fund (IMF) and the international focus on development following World War II, aid has been employed as the major Northern approach to the development of the global South. However, even with the flux of $1 trillion in aid over the past 50 years, development in the South, specifically in Africa, has failed to be realized. In this post, I will examine three different perspectives on how aid can either facilitate or impede development.

Aid is not working

In her book, Dead aid: Why aid is not working and how there is another way for Africa, Dambisa Moyo argues not only that aid is an ineffective development tool, it impedes development and perpetuates poverty in Africa. Her argument focuses on the fact that aid is long-term and enforces little accountability, which facilitates corruption and bad governance. Thus, poor people within Africa see little (if any) aid as most of the revenue is spent abroad by elite government officials. Moyo’s solution is to bypass the corruption is to raise investment revenue by entering the global market and selling government bonds. The accountability forced on the government by private investors would force good governance and reduce corruption.

However, Moyo’s argument is severely hampered by her inability to produce substantial evidence as this approach has never been applied. Additionally, while on the surface Moyo might appear as representing the grassroots perspective as an underrepresented Zambian-born woman, her guiding economic paradigm still represents mainstream neoclassical thought most likely due to her education at Harvard and Oxford and her employment with the World Bank and Goldman Sachs. Thus, while her anti-aid agenda appears novel, she still supports economic growth as the primary means for development and advocates for African economies to enter the global market, which, historically, has put the primary-product producing continent at a disadvantage.

Aid is imperative

In contrast to Moyo’s anti-aid argument, Jeffrey Sachs, a prominent economist and special adviser on the Millennium Development Goals, argues that foreign aid is imperative to development, but the lack of development and poverty reduction thus far can be attributed to the insufficient amount of aid being given. He cites that Kenya can address all these issues with $1.5 billion per year (about $70/person), but current foreign aid only adds to $100 million. Sachs insists that aid is essential for developing countries to overcome poverty: “foreign assistance is not a welfare handout, but is actually an investment that breaks the poverty trap once and for all” (pp. 246).

With that said, Sachs also has a very Western perspective, and it is not surprising that his argument is paternalistic and calls for the North to ‘save’ the powerless South through aid investments. While Sachs argues that Northern aid intervention is “a matter of right and justice” (pp. 253), Moyo argues that North intervention has only created and perpetuated economic dependence. Other scholars go further and insist this dependence is deliberate and designed to benefit the North–but that won’t be discussed here and now.

Aid is effective for the individual

Joseph Hanlon, Armando Barrientos, and David Hulme present an alternate perspective: that aid is effective on an individual level rather than a national level. They argue for giving money directly to the poor who can utilize the income via cash transfers to meet their basic needs. This can break the poverty trap by allowing families to invest in small businesses or get their children educated to earn reliable income for future generations. One condition for cash transfers, however, must be met: aid must be long-term and reliable, which will enable poor people to invest their money in small ventures without the risk of failure resulting in extreme poverty.

While Hanlon et al. and Sachs contend that aid is imperative to development, the former acknowledges that the current system of aid is ineffective: “Aid has not failed; what has failed is an aid and anti-poverty industry that thrives on complexity and mystification… and continu[es] to impose policy conditions on poor countries” (pp. 8).

However, Hanlon et al. acknowledge that foreign aid is still necessary for developing social services and for the implementation/facilitation of the cash transfer system. Their argument seems conflicting as they advocate against the current system of aid while also expressing the necessity for it, which still provides room for neo-classical conditions.

Conclusion

Overall, all three perspectives have valid points but it is important to consider the background of the author and potential biases associated with their education and career history. While I have presented arguments for and against aid as a means for development and have highlighted the controversy surrounding the role of the North, a whole range of alternate grassroots approaches to development are not presented and are often overlooked due to the predominance of the neoclassical paradigm of aid.

 

Books referenced:

Hanlon, J., Hulme, D., and Barrientos, A. 2010. Just give money to the poor: The development revolution from the global South. Boulder: Lynne Rienner Publishers.  <https://www.rienner.com/uploads/553a9642e0c0a.pdf>.

Moyo, D. 2009. Dead aid: Why aid is not working and how there is another way for Africa. London: Penguin. <http://cms.medcol.mw/cms_uploaded_resources/4685_4.pdf>.

Sachs, J. 2005. The end of poverty: How we can make it happen in our lifetime. London: Penguin. <http://www.economia.unam.mx/cedrus/descargas/jeffrey_sachs_the_end_of_poverty_economic_possibilities_for_our_time__2006.pdf>.

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