Foreign aid should focus on finding jobs for people in poor countries--and Britain can lead the wayby Paul Collier / November 12, 2015 / Leave a comment
Published in December 2015 issue of Prospect Magazine
Ahead of the general election in May, parliament passed the International Development (Official Development Assistance Target) Act. This enshrined in law the UK’s commitment to spend 0.7 per cent of national income on aid each year. What should that aid be used for over the next decade? The UN recently came up with an answer: the Sustainable Development Goals (SDGs), designed to “end poverty, protect the planet and ensure prosperity for all.”
Unfortunately, the SDGs are fatuous. By consulting widely the UN, perhaps inevitably, arrived at a vacuous compromise: 17 goals and 169 targets, in no discernible order of priority, which are supposed to apply to every country in the world. But saying that “everything matters everywhere” is merely another way of saying that “nothing in particular matters anywhere.” Troubled times demand a less frivolous response. In the future, those disbursing aid should be ruthlessly selective about what they are trying to do and where they are trying to do it.
The SDGs, however, are a licence for every development agency in the world to carry on doing what they want, since that will almost certainly be compatible with at least one of those 169 targets. Agencies that were once the flagships of international aid have given up trying to lead the rest of the world to anything more focused or coherent. The World Bank has spiralled into a vortex of demoralisation, while the United States Agency for International Development (USAID) has been hijacked by Congressional lobbies that tie every line of its budget to some special interest or other.
The one outstanding exception is Britain’s own development agency, the Department for International Development (DfID). Not only does it have a big budget, it has coherent objectives and is intelligently led. While the UK’s diplomatic and military influence has waned, its influence on development issues has grown. What DfID does matters for both its direct impact and for its indirect influence on policies elsewhere. So what should its agenda be? It should start by determining priorities. Aid agencies seldom do this because it is painful and requires vested interests to be confronted rather than accommodated. But the goal of ending poverty through economic growth is too important for indulgent, feel-good romanticism. Compassion has to be firmly chained to realism.
It cannot be a priority, therefore, for British aid to relieve poverty in those societies that are rich enough to do so themselves. There are many poor people in middle-income countries and the 34 member states of the Organisation for Economic Cooperation and Development (OECD)—they are sprawled on the sidewalks near the White House and crowded into the favelas of Brazil. It is a delusion to suppose that these people are Britain’s responsibility. Countries like the US and Brazil have large and affluent middle classes. How generous these societies are to their less fortunate citizens is a matter for them.
“The most dramatic expansion of hope in history took place in China after 1990. This was driven not by aid but by trade”
So what should DfID’s purpose be? In my view, there are three ethical foundations for development assistance: a duty of rescue; the pursuit of mutual benefit; and the provision of public goods. A duty of rescue sounds humanitarian, and conjures up images of refugees being fished out of the sea. But it shouldn’t apply just in situations of immediate despair. Development assistance ought primarily to be about rescuing societies from hopelessness. Snapshots of global poverty do not measure the psychological damage done by being in poverty, which depends upon how long people expect to remain poor. If there is a credible chance that their children will have a different, better life, most parents are willing to tolerate poverty in the here-and-now. That is the story of immigrants through the ages. And most societies now provide credible hope to the vast majority of their citizens.
The most dramatic expansion of hope in history took place in China after 1990. This was driven not by aid but by trade. But some poor societies are still not safely on the path towards economic convergence with the rest of mankind. There is a huge psychological difference between being poor in China and being poor in Chad. During the last decade many poor and stagnant societies at last appeared to be catching up. But we cannot be confident that this will continue—the last decade was exceptionally benign for them. It began with debt relief, continued with a historically unprecedented rise in the prices of their commodity exports, was amplified by new resource discoveries and closed with new international borrowing made possible by the equally unprecedented abundance of cheap global capital.
The prospects for the coming decade look far less benign for these countries. They are indebted once again, export prices have crashed, new projects are being put on hold and their access to credit markets is shrinking. In most of Africa, much of central Asia and elsewhere in countries such as Haiti and Laos, aid could help to generate economic growth. But aid alone will not enable these societies to catch up, however much is provided. Growth in a given country is driven predominantly by the response of the private sector to domestic policy choices.
Over the past two centuries, the genius of capitalism has been to generate organisations—firms—in which ordinary people become hugely more productive than they are in traditional or feudal economies. Firms do this by harnessing scale and specialisation while maintaining worker motivation. For entirely rational reasons, not enough of them want to operate in very poor societies. Policies adopted by the governments in such countries are often inadequate, and many firms are justifiably terrified of the reputational risk to which they are likely to be exposed if they operate in cultures of corruption. Aid cannot buy good policies. That was the assumption behind the failed practice of “donor conditionality” (attaching conditions to aid). If a government does not want to implement a policy it will find ways of undermining it. In the future, the core function of aid agencies should be to induce more firms to go to places that they would otherwise have avoided—either by financing the power and transport infrastructure (ludicrously not an SDG) without which modern firms cannot operate, or by partnering with them through global public bodies such as the CDC, a development finance institution that is a subsidiary of DfID, and the International Finance Corporation and the Multilateral Investment Guarantee Agency, both members of the World Bank Group.
There is also scope for aid to help governments implement their policies by strengthening key state systems such as tax authorities and expenditure tracking. This would not be the tired old practice of “capacity building” which involved training individual officials in specific skills, but rather the building of motivated teams working to clear mandates, often through long-term twinning with counterpart institutions in the OECD. This is a practical agenda for rescuing societies from hopelessness. It is a far cry from the photogenic social agenda into which western aid was diverted by the UN’s Millennium Development Goals.
During the golden age of compassionate aid, any suggestion that some aid might be designed to benefit the donor as well as the recipient was unconscionable. But aid as a one-way-street of compassion turned sour. NGOs, to whom donor agencies became increasingly beholden, began to festoon compassion with conditions. The conditions might be environmental (no coal), social (no dams), political (hold elections) or else reflect western preoccupations with human rights (the treatment of gays, women or journalists). For example, the Sierra Club, a powerful western environmental lobby, has been able to veto the construction of dams. I recall the outrage of a Laotian hydro specialist at the prospect of a further decade without electricity. I also recall being invited by a former Shadow Secretary of State for Development to a meeting at which an aide proposed that at least 90 per cent of DfID projects should have gender equality as their first priority. The crusading participants in this meeting were oblivious to their re-enactment of imperialism. These objectives were, to western eyes, unexceptionable, but as conditions attached to a duty to rescue they were indefensible. It was like saying, “We’ll fish you out of the water as long as you promise to…” The only conceivably defensible condition for a duty of rescue is “as long as you promise not to jump back in,” but it would, of course, be unenforceable.
Recipient societies did not see such aid as reflecting a higher morality of compassion. They saw the rich imposing their values on the poor. Contrast this with growing Chinese engagement with Africa, which has been based explicitly on the notion of mutual benefit. This has often amounted to natural resources being exchanged for economic infrastructure investment on terms that were opaque and sometimes onerous. But the infrastructure was meeting an agenda set by the poor societies themselves, not the preferences of rich societies. Furthermore, because the Chinese were benefiting too, the deals were not demeaning.
Much of the legitimate criticism of the Chinese deals has had to do with the fact that they had a near-monopoly. It is time, therefore, for western agencies to compete with Chinese aid packages, commercial bank finance, construction companies and resource companies. The governments of poor countries seeking such packages could then consider tenders from rival consortia, rather than having to negotiate a deal with the Chinese alone.
The west could also partner with China. Indeed, the UK has already made a start. When China established the Asian Infrastructure Investment Bank in October 2014, Britain took the right decision and joined in March this year. The US, not even content to sulk on the sidelines (a stance now dignified as “leading from behind”), publicly criticised the British decision.
The term used to describe countries at serious risk of descending into mass violence is “fragile.” There are three lists of fragile countries maintained by global institutions, with around 40 states on them. Many of these societies are also covered by the duty to rescue from hopelessness, but others are technically “middle-income countries.” Societies that are in active conflict, like Syria currently, give rise to a duty of rescue from fear. But for those fragile states not in open conflict there is a clear global self-interest in reducing risks, as conflict creates major problems for other societies. To put it another way, addressing fragility is a global public good.
“In the refugee camps of Jordan, Turkey and Lebanon the World Bank is absent for a ludicrous reason”
Even in circumstances of active conflict, development assistance could play a vital role. In the Syrian crisis we urgently need development aid to reinforce humanitarian aid. The response of the international agencies to the Syrian refugee crisis has reflected policies unchanged since 1947. Refugees are housed and fed as if they were all children; as economic actors they have been left to rot, not allowed to work. Organised into silos, the UN classifies the treatment of refugees entirely as a humanitarian issue for which the UN High Commissioner for Refugees (UNHCR) is responsible. Economic interventions, which are the responsibility of the United Nations Development Programme (UNDP), have to await a post-conflict peace.
In the refugee camps of Jordan, Turkey and Lebanon the World Bank is absent for a similarly ludicrous reason. The refugees are in countries that are classified as “upper-middle-income.” Since there is no distinct funding window for refugees, they are deemed to be too rich to be eligible for significant funding. Subjected to enough pressure, these multilateral agencies will eventually change their approach, but it will take years to adjust their ossified bureaucracies. The bilateral development agencies have the ability to be more fleet-of-foot: DfID may well be in the lead. Development aid could and should partner with business to bring Syrian refugees jobs in these neighbouring countries where the displaced are overwhelmingly located. For example, the largest refugee camp in Jordan is just minutes away from a vast, empty industrial zone, fully equipped with infrastructure, that could house global businesses and be a safe haven for Syrian firms, too. The aid budgets for post-conflict economic recovery could usefully be spent right now on incubating a future Syrian economy-in-waiting.
The focus of the duty of rescue from fear should shift from the irresponsible (and apparently retractable) promises of Angela Merkel, the German Chancellor, who has paraded her conscience around Europe while fussing over thousands, to a practical jobs-focused agenda that would work for the displaced millions. As to fragile countries not in open conflict, while money cannot buy stability, growth does gradually help to make societies more secure. As part of a package of policies, well-designed aid can help. Learning how to operate effectively in fragile societies is a pressing priority for OECD governments. Huge mistakes have been made, in both aid and security policies.
The Sahel and Central Asia are both impoverished fragile regions where, to date, engagement has often been ill-conceived. Mali, Burkina Faso, Northern Nigeria and South Sudan in the Sahel have all recently teetered on the edge of major disorder. A new study by the French development expert Serge Michailof warns that this region could become the next Afghanistan. Since pre-empting such a catastrophe is much more feasible than responding to it, Europe urgently needs to act. Aid alone will be insufficient, but poverty is at the root of instability in the Sahel. In Afghanistan itself the west needs to learn from and rectify an aid disaster. Western intervention began with an absurdly overloaded agenda of nice-to-haves: the eradication of drug cultivation (a gift horse to Taliban recruitment); frequent multi-party elections (so destabilising that John Kerry, the US Secretary of State, finally flew in following the last election to ask them to delay releasing the results while he tried to negotiate a power-sharing deal); gender equality.
A 21st- century democracy was never likely to take root in Afghanistan. The insistence on trying to create one has saddled the Afghan government with a cost base that is simply unviable. In the process it has reduced the scope for an Afghan-led agenda which would most surely have prioritised using temporary western assistance to build secure domestic military control of territory. In September, the city of Kunduz, defended by 7,000 soldiers of the Afghan army, was overrun by the Taliban.
Reducing fragility is probably the only public good for which aid should be used. Currently, much aid is being used to reduce carbon emissions. I am doubtful that this is a legitimate use of aid. It is an example of our tendency to persuade ourselves that our agenda should be that of poor countries too. Reducing carbon emissions is indeed a global public good for which most nations should be cajoled into contributing. The poorest countries, however, should not be so cajoled. Sometimes it will be more cost-effective to reduce carbon emissions in poor countries than to make the equivalent reduction in rich countries. But paying for such reductions should not be conceived as aid to them. Unlike addressing fragility, the predominant beneficiary is not the poor country itself, but the rest of the world. The rationale for financing such projects is thus the self-interest of the rest of the world. They should be financed out of the large OECD budgets for climate change, not the more modest aid budgets.
For two decades, the British public has been fed a relentlessly humanitarian aid agenda. Aid, it has been said, is there to put a smile on a child’s face. In many poor societies, unlike two decades ago, that child now survives and goes to school—aid-financed social spending has helped. But once that child leaves school hopelessness sets in. The governments of poor countries, not donors, should be putting smiles on children’s faces. If they do not take responsibility for a rudimentary social agenda they have little hope of legitimacy. But in many poor countries it is beyond the capacity of their governments alone to offer credible hope of future prosperity, even if they do the right things.
An aid agenda of bringing productive jobs to poor people, leveraging private investment into their threadbare economies and pre-empting fragility in dangerous places may not be as photogenic as a child’s smile; but it is not beyond the comprehension of ordinary British citizens. It is time to tell them. Instead, they are fed a relentless drizzle of hostility from the anti-aid right and the anti-business left. Take a typical Daily Mail story from this year which asserted that £2m “may have been wasted” on helping Northern Nigeria to export leather. Yes, Northern Nigeria where the Islamist group Boko Haram is recruiting young men to kidnap schoolgirls. In other words, it is fragile. I do not know whether this project succeeded or failed, but it is surely the sort of project that is worth trying.
We have heard this kind of thing from the left as well. Margaret Hodge, the Labour MP who chairs the House of Commons Public Accounts Committee, has criticised DfID for funding the Private Infrastructure Development Group (PIDG). “Every pound that is lost to fraud and corruption,” Hodge said, “could have been spent on educating a child.” This word-perfect expression of the philosophy of the smiley face could not be more wrong-headed. PIDG is DfID at its best, and has already attracted funding from three other bilateral aid agencies. To demand a cast-iron assurance that a supported venture will be run successfully and honestly in a difficult environment would have the effect of closing all activity down. It would equally close down funding for governments to run schools: there is no easy choice between “clean” funding of education and “corrupt” funding of business.
Should we require public venture capital in such places to do what even private venture capital in easy places cannot achieve? Ordinary citizens will have to look beyond views such as these. Properly directed, aid is a sensible response to troubled times. While DfID is excoriated at home, it is admired abroad. We should be proud of it, and give it the political space to lead the global aid community towards a more focused agenda.