Joseph P. Luna is deputy managing editor for the student-copy sections. His interests include the political economy of development, Britain, East Asia, the rise of India and global economic history. He currently resides in Cambridge, MA.
The Case for Limiting Development Aid
Would development assistance be more effective if the UN recommended a maximum level of official development assistance rather than a minimum amount (0.7%)?
Many organizations and economists—most notably Jeffrey Sachs—have repeatedly chastised the developed world, in particular, the United States, for not contributing a large enough proportion of their GDP (in their eyes, 0.7%) to official development assistance. Lately, and this has become apparent in rhetoric ranging from the G8 to the Millennium Development Goals to youthful protesters, many have become obsessed with the fashionable idea of doubling aid to foster economic development.
I argue that the fault centers on the fact that there is too much monetary aid and that it is not being distributed according to “market” mechanisms. Why should an NGO streamline its operations if no one will hold it accountable, and it can always count on the EU or the UN to throw more money at some obscure facility or plan of action? Ironically, the development assistance “market” suffers from a curse not unlike the resource curse: with continuous monetary pledges, many NGOs (and developing governments, for that matter) are not constrained by perceived scarcity. Even if they have meager resources to begin with, agencies are still not accountable to donors, who care more about promises and public relations.
As economists like NYU’s William Easterly have argued, governments and aid agencies suffer from the principal-agent dilemma—governments can pledge all they want, but without an effective means to monitor the agents (NGOs), progress will not happen. Reducing the amount of aid can keep these NGOs accountable and force them to produce results to attract future aid. Both sides would certainly benefit. Donors would be better able to monitor agencies, and could provide financial assistance to agencies who have proven themselves well. Agencies, on the other hand, could better identify their ultimate, specific goals (as opposed to having broad goals like everyone else), and, should they prove efficient, receive funding in a more direct manner.
Streamlining operations is not the only major benefit of setting a maximum level of aid. Many argue that without a minimum amount of aid most development agencies would not have enough funding. But this assumes that only the public sector is capable of providing the necessary funding. Is it not possible that recent calls for increasing public-funded development assistance have crowded out private-funded development assistance? Why should private donors be discouraged from providing development assistance? For instance, religious organizations and private donors would have further incentive to provide aid if public development assistance were seen as scarce, and they could identify more specific programs that they identify with as opposed to relatively untargeted aid that often comes from governments.
However, the curtailing of development assistance should not become an excuse for Western complacency. In terms of foreign policy, international development, particularly in Africa, is of utmost importance to the West. Africa’s resources are both the key to and curse of development, and many factors, such as poor public health and governance, restrain potential growth. Reducing aid should be a way of producing results; as Easterly points out, governments and international organizations are often awarded for “setting goals” rather than actually meeting them. In the end, what matters is if the development agencies are helping the poor—rather than just themselves.
Here comes a candle to light you to bed,
Has the West been left in the dark? With Chinese affairs constantly in the spotlight, particularly with the forthcoming Beijing Olympiad, and with the ever-growing uncertainty over the state of China’s rapidly expanding export-based economy, it is easy to think that PR China’s rise is simply unstoppable. But it cannot, and will not, continue indefinitely. The House of Commons Foreign Affairs Committee report on East Asia (in actuality, it’s mostly about China), published July 2006, presents several recommendations to the British government over how to handle Chinese relations in the upcoming few years. At the same time, however, the report reveals the not-too-few key weaknesses in Chinese policy: a rather reprehensible human rights record, a non-existent civil society (a real, heterogeneous one, that is), a stubborn exchange-rate policy, its blatant repression of Tibet, increasing income inequality, regional inequality, demographic inequality and a dishonest, destabilizing stance towards defense and regional security.
Let’s start with economics. For a country to continue along the development process, it eventually needs to institute an adequate rule of law (with regards to business), not just by imposing new laws, but by actually enforcing and adhering to them. On the issue of China’s investment and trading future, the Commons report advocates ensuring that “China works within the spirit, and not just the letter, of its WTO obligations.” While China has made some progress on this front, it is not unlikely that investors will start to demand better transparency and copyright protection. And since China’s economy relies so heavily on foreign investors, upsetting them would be bad. Dr. Steven Tsang of St. Antony’s College, Oxford states: “[...] with so much of China’s growth being driven by foreign investments, it faces a grave danger that its growth momentum may collapse if, for example, a critical mass of the largest foreign investors no longer accepts that it is worthwhile to take substantial losses for many years before turning a profit.” I see two major derivatives coming from that statement. First I can’t help but notice the parallels with the Asian Financial Crisis almost a decade ago where a government that arbitrarily fixed its exchange rate all of a sudden experienced incredibly rapid capital flight due to the same reasons listed above. Secondly the important point about the statement above is made concerning the substantial initial losses. Some may counter that China’s innovation into the high-technology sector will continue to attract foreign investment, similar to the rises of Japan and South Korea a few decades ago. But, for China, this is a riskier endeavour. It must compete with already established East Asian technology firms: Toyota, Honda and Sony of Japan; Hyundai, Samsung and LG of South Korea. This could mean higher initial losses as Chinese companies try to work their way into Western markets. This also means higher investor uncertainty. We also cannot assume that the world economic order will be more stable in the future given the country’s highly inflexible exchange-rate policy. And so forth.
From a political standpoint, things are not any less complicated. For instance, internet use in China is heavily circumscribed, and companies such as Microsoft, Google and Yahoo are complicit in these violations. The Commons Foreign Affairs Committee states: “The collaboration of Western internet companies in the censorship and policing of the internet for political purposes is morally unacceptable.” The MPs highlight the economic effects of this information distortion, but what the (Communist) Party really cares about is the political. And so long as Western companies (warning: loaded term forthcoming) continue to appease the Party, a true civil society will never form. China’s relations with its neighbors are also anything but cordial. In a recent BBC report, Pentagon planners in the US along with Donald Rumsfeld expressed concern about the concealed nature of China’s defense spending. To this, China’s ambassador to the UN, Sha Zukang, replies, “It’s much better for the US to shut up. Keep quiet. It’s much much better.” The ambassador also contends that if one reads China’s 5,000-year history, you will find that “China basically is a peace-loving nation.” Right. Just don’t ask about the defense budget. David Wall of the Centre of Chinese Studies, SOAS, University of London, states: “They talk about the peaceful development and that they are no threat to other countries of the world but they have 20 neighbors [...] and they have disputes with every single one of them. If you were one of the 14 fishermen killed by the Chinese Navy because you happened to slip over what the Chinese regard as their maritime border, you would not feel that the Chinese are that friendly across borders.” Much of this evidence seems to fly in the face of a recent article published on this blog concerning China. Also, how many of these neighbors are really planning on invading China anytime soon? Is the massive redeployment to the southeast some kind of defensive maneuver against the big, bad Taiwanese military? The Commons report further notes that “the Chinese army is the only one in the world being developed to fight the USA.”
The Commons report is filled with further examples. I could question China’s shadowy dealings with questionable regimes in Africa or in the Middle East. Or I could bring up Tibet. The point is, the West cannot be left in the dark. It is the West and its allies who must stand up. Because by the pricking of my thumbs …
Returning to Lagos: Africa and Development Aid
After several decades of development aid, structural adjustment programs and miracle formula after miracle formula, much of sub-Saharan Africa still appears to be behind the rest of the world in terms of economic development. But why does this continue to happen? Sure, every couple of years we see a new initiative targetting the usual suspects: halving poverty, building infrastructure, speeding up healthcare and scaling up development aid. Don’t get me wrong, all of these, in principle, are good things. But, in practice, facilitating these objectives becomes a whole different story.
In the past couple of years, the fashionable thing to do has been to support brave bold Sir Bob Geldof and UK Prime Minister Tony Blair’s scaling up aid to Africa campaign. Following the global public’s relatively positive reception to the Live 8 concerts and, to a lesser extent, the G8’s Gleneagles manifesto pledging to increase significantly economic aid to Africa, more and more have been calling for external assistance to Africa. But is this really the answer? I hate to inform readers, but I think it is not.
To the uninformed, development aid looks like a rather straightforward concept. However, as it usually goes with the “dismal science”, there are two sides to every idea. Recently, Sanjeev Gupta and others of the IMF have published a report entitled “Macroeconomic Challenges of Scaling Up Aid to Africa: A Checklist for Practitioners” to address the medium-term problems that could result from a significant influx of foreign reserves, namely in the form of aid. Surely many of the readers will have some animosity towards the IMF given that institution’s less-than-stellar track record with African economies and rightly so. In hindsight, the IMF and World Bank have done much to hinder Africa’s development process. But institutions change, and, with it, philosophies regarding its practices.
Given the IMF’s increasing convergence towards the more World-Bank-like development role, such a report may seem a bit out of its league. But the points raised concerning development aid are sound. For instance, did you know that increasing development aid could decrease incentive for the government to collect revenue (taxation) from its people? You may say, sure but doesn’t that development aid still fund the necessary public institutions that would have been funded by tax revenues (which may or may not have been properly collected previously)? Maybe but maybe not. Of course there is the corruption factor, but there is also a counter-intuitive basis to why this fails: if citizens do not have to pay taxes, they will not hold their governments accountable for failed institutions, which, at the same time, means that any corruption inherent in the system may only become worse.
At the same time, an increase in foreign reserves in the form of development aid gives rise to the Dutch disease argument. Dutch disease is the rapid appreciation in the value of the domestic currency resulting from a large influx in foreign currency (for instance, increased investment after a major resources discovery) that leads to, in the medium- to long-term, closure of exporting industries not positively affected by the new foreign revenues. Nigeria, for instance, felt the effects of Dutch disease in the 1970s and 1980s as oil (one of Nigeria’s major exports) prices rose, leading to vast increases in foreign investment. Of course, the government and private sector spent much of this new money instead of saving it, a bad long-term decision. The appreciated domestic currency made it difficult of Nigerian industries to export, effectively shutting many of them down. Thus, when oil prices returned to normal levels, the economy was wrecked, an effect still felt today.
The same thing can happen with development aid. It is no different from other foreign reserve influxes except that it is not targetted like investment is—a condition which, due to corruption, can make it more dangerous. Thus, the first strategy for African development is not to increase aid, but to increase accountability and institutional efficacy. You are probably thinking, well, then democratic institutions must be the answer. That is not necessarily the case. Many previously non-democratic countries in East Asia (i.e. South Korea and Taiwan) eventually built up the industrial capacity to become East Asian tigers in the 1990s. The People’s Republic of China (despite their political ideology which I do not subscribe to) has maintained amazing stability, growth and investment since 1979. On the other hand, democratic nations such as the Philippines have been less successful with development. The common denominator with non-democratic nations that developed: stability. Many observers were disappointed when the African Union (AU) failed to reach an agreement regarding a democracy charter, but democracy is not really the answer for African development. If developing African nations continue to receive large amounts of untargeted development aid, corruption will not be addressed, and stability, not achieved (not to mention armed conflicts).
So what would I recommend instead of development aid to Africa? A renewed form of the AU’S 1980 Lagos Plan of Action. This plan of action called for self-sustainable African development that did not exclusively rely on heavy amounts of external assistance. Under this plan, domestic governments had much more control over their “development paradigms”, but could still seek assistance and advice from the developed world. East Asia was able to develop without a great deal of Western intervention (compared to Africa), and many countries followed national strategies before turning to democratic ways. Today’s world can still take the advice of Lagos, and confine its role to that of assistance: ensuring that there is transparency and targetting moderate amounts of aid to where it is most needed (i.e. infrastructure, education, healthcare). Then, African countries, the different regional blocs within the continent and the AU itself must pick it up from there. Development aid is not the solution for Africa. Development self-reliance is.
The Drawing Board
A popular expression states that “[a] picture is worth a thousand words.” To Muslims, the Danish-drawn cartoons creating such terrible – though not necessarily unwarranted – mayhem throughout the globe speak volumes. While I do not endorse the increasingly-violent actions of protestors, I simply cannot accept the fact that European journalists feel that they can abuse the ideals of “freedom of press” and “freedom of speech” to justify these offensive cartoons.
Philippe Val, editor of French satire newspaper Charlie-Hebdo, has asserted that, “[c]riticising [sic] religion is legitimate in a state of law and must remain so.” But let’s look at the facts. Some of the cartoons portray the Prophet Muhammad with a bomb in his turban. I do not claim to be a scholar of religions, but something about this cartoon strikes me as a little off-color. Perhaps it’s the rampant lack of discretion? I can’t quite put my finger on it.
What Mr Val fails to realize is that this cartoon is not a critique of Islam. It implicates the entire Islamic community, a community that is inherently peaceful and charitable, with the acts of a few extremists. A famous Frenchman once stated (I paraphrase): “I may not agree with what you are talking about, but I will defend to my death your right to say it.” Mr Val’s (and his fellow editors linked with the cartoon) fallacy is precisely that these cartoons are not saying anything. Satire has a message that society should heed; if Mr Val considers these cartoons “satire”, then what is he trying to tell society? He is merely mocking the Islamic faith, and his actions, sadly, may have been motivated moreso by religious discrimination and the profit motive.
Freedom of press does not mean the freedom to deride. The journalistic community has the responsibility to use discretion when dealing with such sensitive issues as religion and culture. The press exists to report on global uprisings – not to incite them. If the Continental journalism community wishes to do some homework on freedom of speech, they should look first at the demonstrators in Pakistan, Nigeria and Niger.