Erwin Bulte: Aid and governance

Erwin Bulte | 10 January 2010

For those of us who try to stay informed about the state of world affairs via the Dutch media, it appears as if a new consensus has emerged: that development aid is bad for Africa. Aid is presented as a lose-lose proposition, kept intact by well-meaning but fuzzy-headed idealists.

As if it were a coordinated attack, this message was recently brought to us through several channels simultaneously. The television programme 'Tegenlicht' featured a one-hour episode during prime time, toying with the thought: what would happen if development aid stopped overnight?. Whipped up by eloquent critics of development aid, such as the Zambian economist Dambisa Moyo, the programme concluded that stopping aid could be a blessing for Africans. Shortly thereafter, there was a lot of media attention on a PhD thesis concluding that Dutch development aid has done more harm than good. Adding to the media frenzy, a former member of parliament, Arend Jan Boekestijn, launched a book arriving at the same dismal conclusion.

Where there is so much smoke, there must be fire. When television, newspapers, (former) politicians and academics converge towards one powerful message, then surely it must be founded on facts. Right?

Wrong. Of course, there is anecdotal evidence linking aid to sloth and corruption. But then there is anecdotal evidence for just about every proposition, including my own view that Feyenoord really are the strongest team in our national football league. There is also a lively economics literature that attempts to unravel the causal effect of aid on development. This is not a trivial undertaking, as development aid is supposed to flow towards economies that are poor and needy. A negative correlation between aid and economic growth therefore need not imply that aid slows growth – it could simply be the case that aid is targeted just right. Careful econometric studies paint a mixed and nuanced picture, and do not support the negative message that aid is bad.

Let us consider the eroding effect of aid on institutions and governance, one of the main mechanisms linking aid to disappointing economic outcomes, according to the critics. Aid invites sloth, corruption and rent seeking. Aid makes political leaders in developing countries accountable to international donors, but not to their domestic constituencies. Aid undermines institutions by poaching qualified local staff, or fragmenting recipient countries’ policy agendas. All of this may be true. Or not. In any event, these interesting hypotheses can be tested.

There is some, mixed, evidence – see references below. But because it is so scant, and because some of it is not about African countries or does not focus on short-term institutional change, I asked two of my PhD students to delve into this problem. I asked them to explain short-term changes in 'institutional quality' in African countries (proxied by various governance proxies made available via the ICRG) during the period 1985-2004, using a set of variables including the (lagged) inflow of aid.

The results are surprising, and challenge the new ‘consensus’ so forcefully brought to us by the various media. Across the board, a greater inflow of aid today implies better scores in terms of 'rule of law' next year, as well as reduced corruption. Interestingly, this 'positive effect' of aid increases over time – the institutions-boosting effect of aid is much greater in the current era of aid conditionality than during the last few years of the Cold War. The donors have learned how to get more bang for their buck. No matter how the PhD students tried to massage or torture their data, they failed to come up with any support for the view that aid undermines African governance.

There is no firm empirical basis for the new consensus that aid hurts Africa, and it is surprising that so many statements to the contrary go unchallenged. Last year’s economic recession implies that the Dutch development budget will be cut considerably. I believe this is unfortunate in light of the challenges and opportunities that Africans and we face when trying to, for example, intensify African agriculture to promote exports and feed a growing population. It would be even more unfortunate if misinformation about the impact of aid sets the stage for more dramatic measures – halving or halting all aid under the shameless cover that we are seeking to act in the interest of Africans.

More information...

These papers find support for the proposition that aid invites corruption:

These papers find the opposite: aid improves institutions.

Comments

Minder pretentie, meer ambitie

First of all I think the WRR report has fulfilled a useful objective: It gives a frank, detached and authoritative view of what our endeavour in the field of development co-operation has achieved and what improvements could be made for the future. Fortunately there seems to be quite a consensus among the key-players in the field on this observation. This is good news as the debate on development co-operation has so far been dominated by 'believers' and 'non-believers'. These zealous exchanges are not helpful and undermine the broad acceptance of the obligation of the wealthier countries to contribute to the development of the poorer nations. In conclusion: the report is a valuable document, not in the least because of its language and often fresh ideas to reconsider strategies and the means to achieve these.

Secondly, I would like to make a few comments on the number of countries our co-operation should embrace. It is very true that the span of control with respect to the number of countries for which our effort really would make a difference, is limited. But one should be aware of the inhibitions of our politicians. Every new minister would like to leave his or her imprint on the course of development aid during his reign, which is also true for the top of the administration
that undergoes changes as well from time to time. Consequently, the number and the choice of countries involved in the programme are always being modified after elections. And, alas, these shifts are not necessarily the result of thorough evaluations. Furthermore new ministers may be eager to start with a limited number of countries, but will in the course of their tenure not always be able to resist the pressure of certain countries to be included in the programme because of emergencies, or what have you. In addition ministers will be tempted, whenever the opportunity arises to buy their influence in a region or country by granting it a special status. These facts of life should be taken into account when contemplating a reduction of the number of countries with which to conclude a (structural) relationship. It may therefore be wise allow for the inclusion of some countries for a one-dimensional relationship in order to solve a particular problem for a limited period of time.

Thirdly the thought of devoting a (fixed) percentage of total aid to the establishment of a knowledge base sounds attractive. One should however not underestimate the difficulties involved in the establishment of such a base that truly corresponds with the felt needs of a particular country. There is no such thing as undisputable knowledge. The notion should be avoided that the donor country knows best. From an objective point of view that may well seem to be the case, but its relevance is determined by the acknowledgement of the actors in the recipient country what knowledge is lacking. I dare say that as someone who worked for a number of years closely with such officials (at the same side of the table so to speak) in a number of countries involved.

Fourthly a few remarks on the organisation of development aid. Of course the model of an agency such as DFID has its advantages as is true for the Dutch model. There is in my view one negative aspect of the 'outsourcing model' that should be thoroughly addressed. That involves the danger of too little knowledge and clout in the parent ministry to exercise sufficient control of the goals to be pursued, to (politically) account for the achievements of the agency and to evoke the necessary popular support for its activities.

As a fifth and last point, I would like to take issue with the criticism of maintaining such a symbolic aim as a fixed percentage for development aid. I believe in its value because it functions as a beacon that does not need to be defended and discussed every time new budgets have to be established. But these discussions are usually based upon emotions, values, rather than on an objective set of arguments. So, given the assumption we have our house in order, it would be appropriate to stick to our normative approach, as it also has been agreed to in the context of the UN. If we were to skip this norm, the commitment of other nations will definitely suffer.

Joop Koopman, a former chair of Hivos | October 07, 2011 | Respond

aid and governance

Why on earth sould I believe Prof. Bulte's conclusion that aid fosters good governance If he seems incapable of grasping the essence of my book? I do not recommend the abolition of aid. It is all about reform.
I don't think there is scant evidence that aid fuels corruption. Just read Djankov, Easterly and many other authors

Bulte | January 22, 2010 | Respond