Aid for development can be better

Development Policy14 Apr 2010Robert Went, Peter van Lieshout, Monique Kremer

In its report Less Pretension, More Ambition, the WRR recognizes that aid can make only a limited contribution to development. A shift of emphasis is needed towards development and growth, with more focus on global and regional issues.

There is no lack of sweeping statements about development aid. Some people claim that aid only helps bolster corrupt regimes, while others persistently believe that we can eliminate poverty from the world with just a few trillion dollars. Driven by an agitated media, development aid finds itself at the centre of a wide-ranging debate. And that is a good thing.

At least, it is a good thing that there is a debate – development aid has been a closed book for too long. The people of the Netherlands have trusted their government to ensure, in a civilized way, that the world’s poor share in our prosperity. Nearly half of them make private donations to help achieve this, on top of the money they have already contributed through their taxes. Yet the question of how best to promote development has been met with silence. The poignancy of alleviating need has always appealed much more to people’s imagination than the tough question of how aid can best be delivered.

It is time for the debate to move into a new phase: from sweeping statements to the question of what is and is not sensible, and how it should be organized. And that is what the WRR is aiming to achieve with its report Less Pretension, More Ambition: Development Aid that Makes a Difference. The title sums up the essence of the report in a nutshell. The importance of development aid is overestimated by both its supporters and its critics. Aid can make, at most, a limited contribution to development, and then only under specific conditions. That calls for modesty. Yet, in an increasingly interdependent world, helping countries that lag behind to catch up is both crucial and in our own interest. That calls for ambition.

Let it be clear from the start that there is no need for wholesale pessimism. Poverty has been halved in the past 30 years. In 1981, half of the world’s population lived below the poverty line, now that is a quarter. Life expectancy has increased by ten years in the same period. These are reasons to rejoice, but not especially about development aid, which only made a small contribution to these successes. Three-quarters of those lifted out of poverty live in China, and that has been achieved virtually without external aid. Most Asian countries have developed and become prosperous, but those in sub-Saharan Africa have fallen way behind. In 2010, as in 1981, half of the people living in the region still live below the poverty line but, because the population has grown, that means a lot more poor people in absolute terms.

Why has Africa not followed the path taken by Asia? There are several reasons. Unlike India or Indonesia, for example, Africa was divided up into largely artificial countries. The continent was robbed of its own social elites by the colonial powers, but the colonial era was too short for them to be built up again. African economies now rely heavily on natural resources, making them dependent on fluctuating prices on global markets. The continent is also thinly populated, so that constructing and maintaining infrastructure is relatively expensive. In many areas, soils are depleted. Finally, the emergence of Asian countries as producers of cheap, mass-produced goods only makes it more difficult for African countries to find a niche for themselves on the global stage. Together, all of these factors make development in Africa a difficult task for the countries concerned, and for donors.

What can be done about this? The WRR proposes a future-oriented development policy that to some extent mirrors recent plans for reform in the UK, Canada and the Scandinavian countries. US Secretary of State Hillary Clinton also called for similar changes in January 2010. The WRR’s proposals can be summarized under three headings: development, a country-specific approach, and a broader perspective. We look at each of these concepts in the following.

Development and self-reliance

First and foremost, we need to revisit the objective of aid. Since the 1990s, it has been narrowed down to poverty reduction, especially in the sense of caring for the poor. That is an understandable response to the hard, macroeconomic adjustment strategies of the 1980s, but has led in practice to aid primarily taking the form of social care. Like most other donors, the Netherlands spends more than three-quarters of its aid on social sectors such as education and healthcare, while agriculture, infrastructure and economic activity have been pushed into the background (see chart). The focus on the Millennium Development Goals (MDGs) has reinforced this process.

Offering care to people may be noble, but does not in itself lead to self-sufficient countries, or improve the prospects for future generations. Creating opportunities for development and economic growth should once again be the main objective of aid, rather than subsidizing social sectors by default. Development once again needs to adopt a broader perspective. Until the advent of neoliberalism in the late 1970s, there was a consensus – from W.W. Rostow on the right to the dependency theorists on the left – that transforming the productive sectors was crucial for development. In the 1950s and 1960s, other dimensions of development were added (by the UN and Amartya Sen, among others), and a lot more attention was devoted to institutions. But attempts to translate those insights into development practice have been woefully inadequate.

Development can be defined as a conscious acceleration of the process of modernization, involving synchronized transitions of economy, government, the political system and society. Modernization as it occurred in the West from the nineteenth century led to the creation of

  • a well-developed and productive economic system embedded in international trade relations;
  • a government apparatus capable of providing (or facilitating the provision of) essential services such as education, healthcare, shelter and security;
  • a political system that guarantees collective decision-making processes allowing citizens to feel connected to the outcomes of those processes and to each other; and
  • a society that is sufficiently open and offers the space to pursue diverse individual and collective development ambitions.

It is important to see this description of development as a template or guideline, rather than an exact institutional blueprint. A productive economy, for example, does not necessarily mean large-scale industrial production, a responsive government does not have to be a representative democracy, and an open society does not always mean that freedom of expression takes precedence, or that group interests are not recognized. The exact manner in which these different dimensions take shape is determined by history and deliberation, and that can occur in any of a number of different ways. Nor does the above description say how the development process develops in detail. There is very little chance that development paths in the South will follow exactly the same course as the West did in the nineteenth century.

Approaching development in this way also places the donors’ task in a different light. Donors may, on the basis of humanitarian considerations, choose to spend all or part of their financial resources on improving the living standards of people in developing countries. But, where possible, the focus must lie on making countries and people self-reliant, even if that means devoting more attention to the middle classes, economic growth and other activities that are less easily captured in mediagenic pictures.

Specific and diagnostic approaches

At present, the Netherlands has adopted a ‘confetti’ strategy: it is active in many areas, but why, where and for what purpose often remain unclear, as do the possible long-term effects. For the future, we need well-reasoned country strategies. Ready-to-go recipes or ‘big answers’ – from import substitution through the Washington consensus to good governance and democracy – never fit exactly. Today’s development aid is insufficiently country-specific or focused on context. Institutional reforms instigated by donors are usually based on a ‘best practice’ model, which assumes that it is possible to derive in advance a unique set of suitable institutional arrangements from a practice that has been successful in one context, and then apply them elsewhere. This takes no account of the complex realities of specific countries, and soon results in a demoralizing list of adjustments, all of which are important. The development paths of the rich countries and six decades of development policy teach us that there are no replicable examples or generally applicable recipes for development. To assume that there are can all too easily have undesirable consequences.

A ‘diagnostic’ approach means determining as precisely as possible the greatest barriers to development. Whatever remedy is eventually chosen will be the result of a political process.

Professional assistance with development can be compared with the way good doctors help their patients. It starts with an expert diagnosis, with a trained eye, to establish where in a country or region the worst pain is being experienced, and what is causing it. The second step is to decide on the most effective means of alleviating it. A ‘diagnostic’ approach thus means determining as precisely as possible where the greatest barriers to development lie. They may be in the economic sphere (for example, too limited credit opportunities for companies, or inadequate infrastructure), in the government or state apparatus (e.g. a lack of security or ineffective rule of law), or within society as a whole (insufficient people with the right qualifications, or a lack of trust).

The next step is to determine which of these binding constraints is the most important and needs to be addressed first. This is not a purely technical exercise, since it will inevitably touch on established positions, power relations and conflicts of interest. Whatever remedy is eventually chosen will be the result of a political process. But this working method does make it possible to identify specific obstacles to development, and to tackle problems in the right order (sequencing), rather than to see everything as equally relevant or urgent and needing to be addressed in the same way.

To make a real difference, in-depth investments are required. Donors must know their business, be prepared for the long haul, and know how to play the game according to the local rules. They also need a broad perspective. If you want to improve agriculture you need to know not only about farming techniques, but also about buying fertilizer, European import conditions, opportunities for marketing a variety of crops, and how to organize local farmers into cooperatives that suit them.

It is also important to ensure that aid does not have an overly disruptive impact locally because everyone focuses on the donors. For too long, we have been so concerned with whether aid has been effective that we have forgotten that it can also be harmful or counterproductive. Each country requires a tailor-made, specific approach. In some countries, general budget support will be most appropriate, while elsewhere it may be more sensible to invest in local insurance systems or to build up middle classes. What is certainly not helpful is the annual pressure to spend aid funds. Money would be better provided in the form of funds that can be utilized according to need.

Promoting development means devoting more attention to managing cross-border interdependence and realizing global development opportunities.

Development aid that makes a difference calls for a professional organization. That implies, unlike the current situation in the Netherlands, having an organization in which expertise takes precedence over job rotation. That can best be achieved by establishing local implementing organizations in a limited number of developing countries, which we could give the collective name NLAID. Such a structure, with country branches forming an organizational unit, would make it possible to build up a thorough knowledge of the recipient country and establish long-term relationships, while leaving space to mobilize the right expertise from the Netherlands or elsewhere. This structure would also promote a programme-based method of working. A variety of actors would need to be involved in the process, including ministries, civil society organizations and companies. It would also entail the Netherlands concentrating on a limited number of countries (a maximum of ten) and profiling itself in themes or sectors where it has special expertise. Norway has agreed a ten-year ‘Oil for Development’ programme with a number of countries. The Netherlands could conclude cooperation agreements with a small group of countries on themes such as agriculture, water or civil society.

A focused, professional organization would enable us to design development aid as a learning system. If we invest seriously in a limited number of countries and sectors, we can set up a knowledge infrastructure around that in which the staff involved and Dutch and international knowledge institutes can participate. The Netherlands currently spends only a fraction of its development budget on knowledge development, especially when compared to other countries (e.g. the UK) or sectors (like healthcare and education). A significant portion – 6% of the development budget is not a high figure – of the total budget should therefore also be made available for systematic research and development.

In line with this, it would be the task of the Netherlands to promote the decentralization of knowledge development, i.e. developing countries should be enabled to create their own knowledge infrastructure. The West currently has a quasi-monopoly in this respect. That might be justifiable if knowledge on development were carved in stone, but that is not the case. Global variation and selection are required. The best way to do this would be to set up three or four knowledge banks around the world, which gather knowledge on development and introduce ideas for policy that both learn from and compete with one another. At least one of these should be based in Africa, another in Asia. It would also seem logical to work towards a type of European ‘World Bank’, bringing together European tools for knowledge, loans, subsidies and policy.

A broader perspective

In a limited number of countries such a concentrated approach may have added value, but the greatest development benefit can be achieved by adopting a broader perspective. Development is increasingly interconnected with broader global and regional issues. That means that we must ask what impact the extensive areas of national and European policy that do not belong to the classical domain of development are having on developing countries. Stability and security, terms of trade that facilitate development, an honest fiscal system that does not tempt companies to evade paying taxes in developing countries, less strict intellectual property rights for poor countries, more opportunities to exchange knowledge, and a more properly thought-out migration policy can all ultimately be of greater significance to a country’s development than classical aid provided in situ. Promoting development therefore means, in addition to more focus and professionalization, devoting more attention to managing cross-border interdependencies and realizing global development opportunities.

This new world calls for innovative ways of ensuring coherence between different policy instruments. Current coordination mechanisms, global or national, are inadequate. In the Netherlands, the coordination mechanisms of the existing administrative model for addressing trade, migration, financial stability, climate, food, energy, knowledge, security and development issues from a coherent perspective are lodged too much at the operational and not enough at the political-strategic level.

At the global level, more intensive attention to coherence policy and international public goods calls for investment in innovative forms of funding and regulation, as well as new forms of global governance. The UN offers many worthwhile ideas, but is weak organizationally and in implementation. All manner of associated structures and consultation mechanisms have emerged – the latest being the G20 which, since the financial crisis, has replaced the G7 as the global coordinating body. In fields like climate, fisheries, trade and healthcare there are often separate mechanisms which are only loosely affiliated to the UN system, and for migration and financial stability they exist only to a limited extent or are not very effective. New forms and structures will have to be developed, with roles not only for existing international organizations and national states, but also for companies and civil society organizations.

It is not easy to give shape to a broad, development-oriented policy. The Netherlands lacks a globalization agenda, an analysis of Dutch interests at the global level, and a strategy to safeguard global public goods. Other Western countries are also still in the dark in these areas. One thing, however, is clear: we have to think beyond the Millennium Development Goals. It would show suitable ambition also to take the next step and question the importance of the 0.7% of national income set aside for development aid. Such a standard suits an isolated system of aid, but development in an increasingly interdependent world depends more and more on other flows (FDI, remittances, migration) and issues. It will be more interesting and more appropriate in this new reality to attempt to formulate a new measure that includes not only aid, but also efforts with regard to international regulations and public goods relevant to development policy. That would also lead to a much more fruitful debate than the eternal question of whether our budget for development aid should be more or less than 0.7 or 0.8%. Furthermore, the portfolio of the current Minister for Development Cooperation should be upgraded to managing NLAID and formulating a Dutch globalization agenda that considers a number of global problems in context and develops a Dutch perspective on them.

Giving priority to development, creating real added value by providing targeted and professional aid in those countries where it is still necessary and possible, and meanwhile bringing about a shift of emphasis by reasoning less from a country perspective and more from global and regional tasks – and all in the awareness that the Netherlands can only make a small difference – that means exchanging our pretensions for ambitions.

Continue reading: the four sections of the Special report in issue 19 of The Broker Magazine

  1. Getting the basics right – General principlesfor a new development policy
  2. Going global – Alternative political projects
  3. Identifying obstacles – Strategic choices through context analyisis
  4. Building a new structure – Institutional architecture for global development