CORE MODULE IR (summaries of all texts)
Deaton:
HOW TO HELP THOSE LEFT BEHIND?
• since WWII, rich countries have tried to close inequality gaps through foreign aid
o formerly flow of resources was opposite (conquest, colonial exploitation, investment
profits – raw materials exchanged for manufactured goods)
➔ legacy of foreign ownership and internal inequality
• foreign aid designed to benefit recipients, yet opposite effects through mixed
motives/politics/law
AID ILLUSION = erroneous belied that global poverty could be eliminated by rich states/people
donating more money to poor states/people
o the aid illusion is actually an obstacle to improving the lives of the poor
➔ Deaton argues that the moral imperative to help depends on the proposition that money will
make things better, YET giving more aid through the current model would make things
worse, not better
o total foreign aid from rich countries $133,5 billion = $0,37/day = enough to end poverty if
the aid was given directly to the poor states/people, YET this does not happen
▪ the issue requires more complex solution than mere increase of individual earning
▪ providing insecticide-treated bed-nets, oral hydration therapy, vaccinations
▪ investing in projects/programs/machinery/education can fire up economic growth,
which is the best cure for poverty
• YET Peter Bauer (1971):
o “If all conditions for development other than capital are present,
capital will soon be generated locally, or will be available to the
government or to private businesses on commercial terms from
abroad, the capital to be serviced out of higher tax revenues or
from the profits of enterprise. If, however, the conditions for
development are not present, then aid— which in these
circumstances will be the only source of external capital—will be
necessarily unproductive and therefore ineffective.”
• availability/size of international flows of capital is massive today, YET
results are not achieved in the expected way – this is a central dilemma of
foreign aid:
WHEN THE CONDITIONS FOR DEVELOPMENT ARE
PRESENT, AID IS NOT REQUIRED, WHEN LOCAL
CONDITIONS ARE HOSTILE TO DEVELOPMENT, AID
IS NOT USEFUL BUT INSTEAD WILL DO HARM BY
PERPETUATING PREVAILING CONDITIONS
• the dilemma is often ignored – aid is effective only when it is least
needed, but donors insist on effective aid for those who need it the most
• YET if poverty is not a result of lack of resources or opportunities, but of
poor institutions and government, and toxic politics, giving money to
poor countries—particularly to the governments of poor countries—is
likely to perpetuate and prolong poverty, not eliminate it
, • as a result, the hydraulic approach to aid (water pumped in at one end
must pour out at the other end) is wrong
FACTS ABOUT AID
• most aid is from one state to another, not through multilateral organisations such as World
Bank
o often aid is guided more by the donor state’s domestic and international interests
(democracies spending taxpayer money) than by the needs of recipients
o donors must balance between political alliances, relationships with ex-colonies,
humanitarian concerns and commercial interests (sale of goods, competition from
developing states) = aid includes both opportunities and threats
• components of foreign aid:
o official development assistance (ODA) – from rich states for development of poor
ones
▪ 80% of ODA is bilateral between states
▪ the remaining 20% comes from multinational organisations such as the
World Bank, the United Nations Development Programme or the Global
Fund to Fight AIDS, Tuberculosis and Malaria
• multilateral aid is held to be less subject to political considerations
and more transparent/efficient YET the World Bank cannot easily
oppose its largest donors + UNDP has been rated as non-transparent
and ineffective
▪ the multiplicity of donors and agencies for official aid makes it difficult to
track and coordinate aid and prevent agencies from undercutting each other’s
policies
▪ furthermore, aid is spread to many countries with preference to help as many
countries as possible, paying little attention to where poor people actually
live
➔ small states receive more aid, yet most poor people live in large states
• = aid fragmentation reduces effectiveness
• 2008: 48% of the world’s poor lived in India or China, but they
received only 2,6% of the total aid, YET as they both grow rapidly,
they may have been considered able to eliminate poverty on their
own
• in contrast, Samoa and Tonga received disproportionate amount of
aid while their growth rates were low, demonstrating the hydraulic
model’s ills
▪ distribution of aid reflects different policies of different donor states
• FRA – focus on supporting ex-colonies
• USA – aid reflets foreign policy - supporting allies, aiding
reconstruction
• some states tie the aid (require funds to be spent on donor goods etc.)
o tying helps build constituency for aid in the donor states
BUT reduces the usefulness of the aid to the recipient
▪ much of ODA does not go to low-income/poor states, but to middle-income
states, YET Bauer’s dilemma applies
o charities and NGOs – independent, but also agents for national/international
agencies
▪ they vary in their transparency and effectiveness
, • aid from both ODAs and NGOs is often given to regimes that have little interest helping their
own populations – donors may do this to meet political aims
o US support for Mobutu Sese Seko in Zaire or more recent support for Egypt and
Ethiopia
o FRA support of ex-colonies, many of which have autocratic/corrupt governments
o almost 50% of ODA goes to autocratic regimes
▪ 2010 Robert Mugabe’s Zimbabwe received ODA for over 10% of national
income
➔ donors face acute Bauer’s dilemma:
o If aid were targeted to places where people are in need, Zimbabwe = good candidate,
BUT due to the autocratic governance, aid is unlikely to do much good, and it may
actually help the autocrats remain in power, or enrich them
o aid can be directed through NGOs that are independent of the government, YET
fungible—so that schools and clinics operated by NGOs may free up funds for the
government—and governments find ways of taxing or diverting the NGOs’ resources
or require expensive operating licences
➔ constant tension between directing aid to well-run countries, where the aid can do some
good but where it is less urgently needed, and directing aid to countries where there is great
distress but where it can do little good and even risks doing harm
However, aid is only one way in which rich states affect poor ones for good or ill
o providing capital through private investment more readily than World Bank
o private remittances from rich to poor states are twice as large as ODA
o scientific discoveries of new drugs, vaccines, technology etc. often come from rich
states but also help poor ones YET trade and patent restrictions may hinder poor
states access to wealthy markets or important treatments
HOW EFFECTIVE IS AID?
• aid illusion relying on the hydraulic system remains powerful
• YET aid is not given person to person BUT from government to government
AMOUNT OF AID + EFFECTIVENESS
o some get more aid than others YET do they grow and reduce poverty more
rapidly too?
o poverty reduction and growth are different things YET economic growth is the surest
and most lasting solution to poverty
o smaller states get more aid than larger countries, so if aid is important for growth,
smaller states should grow more rapidly – however this is not the case = by such test
aid is a failure
FAVOURING + EFFECTIVENESS
o strong colonialities + political reasons + resisting Communism during the Cold War
o as aid not used for economic development but for other aims = poor records of
poverty reduction – e.g. helping an externally favoured regime to stay in power
despite causing harm to the population
o aid to corrupt/oppressive regimes ➔ giving aid unconditionally is problematic
, o Africa is the home of the poor countries, even if it is not the home of the poor people.
African countries have received a lot of aid—enough to make a difference to their
rates of growth had the aid been used for that purpose.
▪ growth decreased steadily while aid increased steadily
▪ when aid fell post-Cold War, growth picked up
o claim that recent aid for development, not for anti-communist dictators, so aid =
growth
o YET Ethiopia received $3 billion of aid in 2010 from US, UK, WB, while Meles is a
repressive, autocratic dictator whose people live on less than $1,25 a day
▪ Meles opposed Muslim fundamentalism ➔ US favoured him
▪ YET if aid is motivated by combination of domestic security concerns and
constituencies seeing the act of giving more important than what it
accomplishes, we are giving aid to ‘us’ not for ‘them’
COMMODITY PRICES + EFFECTIVENESS
o most African states have been dependent on exports of primary commodities such as
raw minerals (diamonds, gold, oil, uranium) or agricultural crops (coffee, cocoa, nuts)
▪ the world prices of such commodities are volatile (rising in 60s, crash -75)
▪ many African governments own the mines and plantations or tax their
exports, so that booms and busts in commodity prices cause dramatic and
hard-to-handle swings in government revenues - incomes grow in response to
price booms
BETTER FISCAL/MONETARY POLICIES + EFFECTIVENESS
o African states have improved their policies - legacy of 1980s structural adjustment
policies
o better trained African finance ministers and central bankers
• the increase in aid during the commodity boom years, that aid came in response to distress
o when aid follows poor economic outcomes, a negative relation between growth and
aid is exactly what is hoped for - aid is being sent where it is needed
• correlation between aid and growth remains negative even when other growth factors are
included – aid may have an effect on growth but it’s offset by episodes in which aid responds
to disaster
• IF we can find states where aid is NOT given in response to poor performance, we can study
it’s effects uncontaminated by the effects of distress – getting a clear reading of aid’s effect on
growth
o large countries getting less aid than smaller states
o politically favoured allies receive more aid
o YET neither has a positive reading for aid – neither actually grow faster
