Development aid

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Development aid or development cooperation (also development assistance, technical assistance, international aid, overseas aid or foreign aid) is aid given by governmental and other agencies to support the economic, social, and political development of developing countries. It may be given by developed countries and/or developing countries. This form of aid is distinguished from humanitarian aid as being aimed at alleviating poverty in the long term, rather than alleviating suffering in the short term.

The Marshall Plan, in which the United States provided significant amounts of economic and technical assistance to support the recovery of European nations following World War II, is the primary example of success. Although many other substantial efforts have been made by developed countries to provide development aid to countries in need, most of these projects have been unsuccessful. A number of factors lead to such failures, such as inappropriate technology, corruption, and inefficiency. However, one major problem appears to be the difficulty, if not impossibility, of vastly different cultures being able to communicate effectively and work together towards a common goal.

Definitions

First, development aid must be distinguished from humanitarian aid. Humanitarian aid strives to alleviate suffering in the short term, while development aid is aimed at alleviating poverty, through economic development, in the long term.

Development aid comes from developed or developing country governments as well as from non-governmental organizations (NGOs).

Forms of development aid
  • Financial and technical assistance should be aimed exclusively at promoting the economic and social progress of developing countries and should not in any way be used by the developed countries to the detriment of the national sovereignty of recipient countries. (This, unfortunately, only holds in instances where the governments of the given developing countries are not corrupt and are not using the aid to improve their own well-being.)
  • Aid may be bilateral, given from one country directly to another; or it may be multilateral, given by the donor country to an international organization such as the World Bank or the United Nations Agencies (UNDP, UNICEF, UNAIDS, and so forth) which then distributes it among the developing countries.
  • It is largely unimportant whether the “development aid” has any political implication (apart from impeding the national sovereignty of recipients) attached to it. There are two reasons for this statement:
  1. Firstly, the non-governmental organizations (NGOs), such as the World Bank, European Bank for Reconstruction and Development (EBRD), African Development Bank (ADB), Aga Khan Foundation, Soros Foundation, and so forth, claim that they are (or theoretically should be) above politics and their only reason is to increase the well-being of the people in the world at large.
  2. Secondly, every short or long-term “development aid” politicizes the recipient country society anyway, simply because the distribution goes along (or it is directly controlled by) the indigenous political channels, and so only deepens the original political and social disparities there, directly fueling political uprisings. For example, a popular revolt sparked by allegations of government interference in parliamentary elections and fueled by poverty and corruption in Kyrgyzstan swept President Askar Akayev, who had led the country since independence in 1991, from power in 2005 (BBC News, 2013). In the largest instance of development aid, the Marshall Plan (1947 – 1950), the political dangers and clouds over the rest of Europe, not already in the Soviet influence sphere, were already clear. Although originally offered to all European countries devastated by World War II, inclusive of the USSR, Poland, Czechoslovakia, and others, the Cold War politics of the USSR pulled those countries under the Kremlin dictate out of the Plan (Davenport, 1967).

Important terms that should be recognized in any type of aid:

  • Donors denote any developed or developing country that will provide, to the greatest extent possible, an increased flow of, either, aid on a long-term and continuing basis which we termed “development aid” or any short term “humanitarian aid” aimed at immediate alleviation of natural or political catastrophes and consisting mainly of money, consumer goods, and skilled people who will organize the actual the remedial actions in the stricken country. A good example of short-term “humanitarian aid” evolved from a natural disaster is “Tsunami relief” to the countries devastated by the results of a Tsunami and post-Tsunami material and moral destruction.
  • Recipients are defined as any (developed or developing) country that becomes a final destination of any short (humanitarian) or long-term (development) aid. Development aid should come from a foreign country, sponsored and distributed either by their government or a non-governmental organization.
  • Society and Country are similar, but only as long as that country means the territory of a nation that represents a nation-state. In other words, country refers to the politically and territorially sovereign entity of a nation-state and society refers to the people and their political organization within that nation-state.
  • Development cooperation, a term used, for example, by the World Health Organization (WHO), is used to express the idea that a partnership should exist between donor and recipient, rather than the traditional situation in which the relationship was dominated by the wealth and specialized knowledge of one side.

History

While the concept of development aid goes back to the colonial era, that origin of modern development aid is rooted in the context of Post-World War II and the Cold War: Launched as a large-scale aid program by the United States in 1948 the European Recovery Program, or Marshall Plan, was concerned with strengthening the ties to the West European states to contain the influence of the USSR. This political rationale is well summarized in the Truman Doctrine, in which United States president Harry Truman stated the anti-communist rationale for U.S. development aid in his inaugural address of 1949, which also announced the founding of NATO:

In addition, we will provide military advice and equipment to free nations which will cooperate with us in the maintenance of peace and security. Fourth, we must embark on a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas. More than half the people of the world are living in conditions approaching misery. Their food is inadequate. They are victims of disease. Their economic life is primitive and stagnant. Their poverty is a handicap and a threat both to them and to more prosperous areas. For the first time in history, humanity possesses the knowledge and skill to relieve the suffering of these people (Truman, 1949).

The Marshall Plan

Map of Cold-War era Europe showing countries that received Marshall Plan aid. The red columns show the relative amount of total aid per nation.

At the end of WWII, the United Nations (UN), whose founding Charter was signed in San Francisco in June 1945, provided aid in various ways to the European countries ruined by the war. Europe was faced with serious food shortages and had to maintain various rationing schemes. It was also short of dollars and therefore had to limit imports of civil and military equipment. The United Nations Relief and Rehabilitation Agency (UNRRA), founded in November 1943, brought emergency individual aid packages to the European countries, especially humanitarian aid. But this program was haphazard and would not have much impact on the economy of the entire region. Intra-European trade was hindered by a lack of foreign exchange and required an international authority capable of effectively organizing trade worldwide. The United States, whose interests lay in promoting such trade in order to increase its own exports, decided to help the European economy via a large-scale structural recovery program. However, the United States’ desire to give Europe massive economic aid was also politically motivated: The fear of Communist expansion in Western Europe during the Cold War was undoubtedly a decisive factor, as important as the conquest of new markets.

In 1947, then Secretary of State, George C. Marshall, called on America to "do whatever it is able to do to assist in the return of normal economic health in the world, without which there can be no political stability and no assured peace" (Marshall, 1947). The U.S. Congress approved Marshall's long-sighted proposal in 1948, and by 1952 the United States had channeled some $13 billion in economic aid and technical assistance to 16 European countries. During the program's four years, participating countries saw their aggregate gross national product rise more than 30 percent and industrial production increase by 40 percent over prewar levels.

The Marshall Plan, as it came to be known, was not just an American program. It was a joint European-American venture, one in which American resources were complemented with local resources, one in which the participants worked cooperatively toward the common goals of freedom and prosperity. Many have been generous in their praise of the Marshall Plan, but perhaps none more than Sir Winston Churchill, to whom it represented "the most unsordid act in history" (Jenkins, 2002).

OECD and UN Pledge

The nations of the Organisation for Economic Co-operation and Development (OECD), made up of the developed nations of the world, have committed to providing a certain level of development assistance to underdeveloped countries. This is called Official Development Assistance (ODA), and is given by governments on certain concessional terms, usually as simple donations. It is given by governments through individual countries' international aid agencies (bilateral aid), through multilateral institutions such as the World Bank, or through development charities such as Oxfam.

The donor governments promised to spend 0.7 percent of GNI (Gross National Income) on ODA (Official Development Assistance) at the UN General Assembly in 1970. The deadline for reaching that target was the mid-1970s. By 2015 (the year by when the Millennium Development Goals are hoped to be achieved) the target will be 45 years old. This target was codified in a United Nations General Assembly Resolution:

In recognition of the special importance of the role which can be fulfilled only by official development assistance, a major part of financial resource transfers to the developing countries should be provided in the form of official development assistance. Each economically advanced country will progressively increase its official development assistance to the developing countries and will exert its best efforts to reach a minimum net amount of 0.7 percent of its gross national product at market prices by the middle of the decade (UN, 1970).

Those limits seriously lagged behind the target—only Luxembourg, Netherlands, Norway, and Denmark hit the target with approximately 0.80 percent of GNI, while the rest of the 16 OECD countries' aid ranged from 0.53 percent to 0.16 percent of GNI. As a result, a new collective pledge was made in May 2005 by the European Union to spend 0.56 percent of GNI on poverty reduction by 2010, and 0.7 percent by 2015 (Hirvonen, 2005).

Problems

There have been many problems with development aid. In addition to the failure to produce the target in quantity of aid, there have been problems in quality as well as effectiveness:

Recent increases [in foreign aid] do not tell the whole truth about rich countries’ generosity, or the lack of it. Measured as a proportion of gross national income (GNI), aid lags far behind the 0.7 percent target the United Nations set 35 years ago. Moreover, development assistance is often of dubious quality. In many cases, aid is primarily designed to serve the strategic and economic interests of the donor countries or to benefit powerful domestic interest groups. Aid systems based on the interests of donors instead of the needs of recipients' make development assistance inefficient. Too little aid reaches countries that most desperately need it, and, all too often, aid is wasted on overpriced goods and services from donor countries (Hirvonen, 2005).

Quality

The 1968 Michenzani apartment blocks in Zanzibar were part of East German development assistance and brought a Soviet-style of living to rural Africa. The apartments were unpopular and only 1,102 out of the 9,992 planned buildings were built . Still used today, they stand as a failed relic of donor-driven (supply-driven) development aid.

Development aid is often provided by means of supporting local development aid projects. In these projects, sometimes no strict code of conduct is in force. In some projects, the development aid workers do not respect the local code of conduct, such as the local dress code as well as social interaction. In developing countries, these matters are regarded highly important and not respecting it may cause severe offense, and thus significant problems and delay of the projects.

There is also much debate about evaluating the quality of development aid, rather than simply the quantity. For instance, tied aid is often criticized as the aid given must be spent in the donor country or in a group of selected countries. Tied aid can increase development aid project costs by up to 20 or 30 percent (Jepma, 1991). There is also criticism because donors may give with one hand, through large amounts of development aid, yet take away with the other, through strict trade or migration policies.

Effectiveness

There is significant disagreement about the degree of effectiveness of development aid. Many econometric studies in recent years have supported the view that development aid has no effect on the speed with which countries develop. Negative side effects of aid can include an unbalanced appreciation of the recipient's currency (known as Dutch Disease), increasing corruption, and adverse political effects such as postponements of necessary economic and democratic reforms (Kaufmann, 2009).

Dissident economists such as Peter Bauer and Milton Friedman argued in the 1960s that aid is ineffective:

Aid is a phenomenon whereby poor people in rich countries are taxed to support the lifestyles of rich people in poor countries (Bauer, 1979).

It has been argued that a lot of government-to-government aid was ineffective because it was merely a way to support strategically important leaders. A good example of this is the former dictator of Zaire, Mobuto Sese Seko, who lost support from the West after the Cold War had ended. Mobuto, at the time of his death, had a sufficient personal fortune (particularly in Swiss banks) to pay off the entire external debt of Zaire (Kaufmann, 2009). In addition to instances in which only the president (and/or his close entourage) receives the money from development aid, the money obtained is often badly spent.

A common criticism in recent years is that rich countries have put so many conditions on aid that it has reduced aid effectiveness. In the example of tied aid, donor countries often require the recipient to purchase goods and services from the donor, even if these are cheaper elsewhere. Other conditions include opening up the country to foreign investment, even if it might not be ready to do so.

Another problem is that Western countries often project their own needs and solutions onto other societies and cultures. In many cases, Western governments placed orders with Western companies as a form of subsidizing them, and later shipped these goods to poor countries who often had no use for them. These projects are sometimes called 'white elephants'.

It has also been argued that aid based on direct donation creates dependency and corruption, and has an adverse effect on local production. As a result, a shift has taken place towards aid based on activation of local assets and stimulation measures such as microcredit.

Aid has also been ineffective in young recipient countries in which ethnic tensions are strong: sometimes ethnic conflicts have prevented efficient delivery of aid. Projects are often set-up designed to make several ethnic groups cooperate. While this is a noble goal, it is difficult to achieve and has led to the failure of many projects.

Often projects involve technology that is hard to understand and too difficult to repair, resulting in unavoidable failure over time. In some cases the local population is not very interested in seeing the project succeed and may revert to disassembling it to retain valuable source materials. Finally, villagers do not always maintain a project as they believe the original development workers or others in the surroundings will repair it when it fails (which is not always so).

In the medical arena, development aid tends to be put towards specific diseases with high death rates and simple treatments, rather than funding health basics and infrastructure. Despite significant funding, little in the way of sustainable outcomes have been achieved. This is due to the fact that money is given to specific diseases to show short-term results, reflecting the donor's best interests rather than the people's needs. Development aid could do more justice if used to generate general public health with infrastructure and trained personnel rather than pin-pointing specific diseases and reaching for quick fixes (Garrett, 2007).

The tragic result of this problem has been summarized by William Easterly, an American economist who specializes in economic growth and foreign aid:

A tragedy of the world’s poor has been that the West spent $2.3 trillion on foreign aid over the last five decades and still had not managed to get twelve-cent medicines to children to prevent half of all malaria deaths. The West spent $2.3 trillion and still had not managed to get four-dollar bed nets to poor families. The West spent $2.3 trillion and still had not managed to get three dollars to each new mother to prevent five million child deaths. ... It is heart-breaking that global society has evolved a highly efficient way to get entertainment to rich adults and children, while it can’t get twelve-cent medicine to dying poor children (Easterly, 2007).

Development aid is often uncoordinated and unsustainable. Developed nations are more likely to give aid to nations who have the worst economic situations. They give money to these nations so that they can become developed. In addition, the smaller a nation is, the more likely it is to receive funds from donor agencies. The harsh reality of this is that it is very unlikely that a developing nation with a lack of resources, policies, and good governance will be able to utilize incoming aid effectively and begin to create a healthy economy. It is more likely that a nation with good economic policies and good governance will be able to utilize aid money to help the country establish itself with an existing foundation and be able to rise from there with the help of the international community. However, it is the low-income nations that tend to receive aid, and the better off a nation is, the less aid money it will be granted.

An excerpt from Thomas Dichter's book Despite Good Intentions explains this problem:

This industry has become one in which the benefits of what is spent are increasingly in inverse proportion to the amount spent - a case of more gets you less. As donors are attracted on the basis of appeals emphasizing "product," results, and accountability ... the tendency to engage in project-based, direct-action development becomes inevitable. Because funding for development is increasingly finite, this situation is very much a zero-sum game. What gets lost in the shuffle is the far more challenging long-term process of development (Dichter, 2003).

Corruption

While development aid is an important source of investment for poor and often insecure societies, the complexity of aid and the ever expanding budgets leave it vulnerable to corruption, yet discussing it remains difficult (Bailey, 2008). Corruption is very hard to quantify as it is often hard to differentiate it from other problems, such as wastage, mismanagement and inefficiency.

However, there is little clear consensus on the trade-offs between speed and control, especially in emergency situations when the humanitarian imperative of saving lives and alleviating suffering may conflict with the time and resources required to minimize corruption risks.

Researchers at the Overseas Development Institute have highlighted the need to tackle corruption with, but not limited to, the following methods:

  1. Resist the pressure to spend aid rapidly.
  2. Continue to invest in audit capacity, beyond simple paper trails;
  3. Establish and verify the effectiveness of complaints mechanisms, paying close attention to local power structures, security and cultural factors hindering complaints;
  4. Clearly explain the processes during the targeting and registration stages, highlighting points such as the fact that people should not make payments to be included, photocopy and read aloud any lists prepared by leaders or committees (Bailey, 2008).

Analysis of the Problem

The problems incurred in the history of development aid have a number of sources, but the most significant may well be differences in culture. In recent times economists have been forced to recognize the importance of culture:

If we learn anything from the history of economic development, it is that culture makes almost all the difference (Pfaff, 2001).

An analysis of the problems, and a model suggesting a possible solution, has been developed by Karasek (Karasek, 2005; Karasek and Tanabe, 2014). The following definitions and assumptions are taken from Karasek and Tanabe (2014), where more detailed explanations can be found.

  • A qualitative socio-political model of every society can be allocated onto a quantitative ladder by using “conversion tables” (Karasek, 1885) The two clashing socio-political environments are: Legitimacy (of the democratic society) vs. Oligarchy. Societies can be mapped on a hyperbolic D-curve as shown in EXHIBIT 1, and compared quantitatively. For the sake of simplicity, the levels of these phenomena are on the interval of ordinal numerals < 1, 9 > ; i.e. 1, 2, 3, ... 9.
  • The causal chain: intra-society heterogeneity (among the political, legal, cultural, and ruling aspirations of elements of a society) —> inter-society heterogeneity, follows from these premises:
  1. The donor (with its long history of democracy, built-in ethical and legal conduct that is easily enforceable, a cultural tradition encompassing these traits) is, by definition, a society on the upper-left side of the D-curve.
  2. If in the corresponding recipient societies, there exists serious intra-society heterogeneity (social and political stratification, oligarchic cliques at helm, no rule of law, and so forth), then we can safely assume that the inter-society heterogeneity among the two societies puts the recipient society low and to the right on the D-curve.
  3. On this level, dissimilar (heterogeneous) political systems, ethics, legal codes of conduct, and enforcing systems might be very difficult to reconcile. This is also aggravated by the completely different level of political corruptibility in each of the interacting recipient society. This is crucial because fraud in the sphere of government hurts the society most, first because the money has been removed directly from the society's future expenditures, and secondly because part of the same money is used to perpetuate further corruption. It is therefore axiomatic that there is not much scope for successful exchange of ideas, learning and technology transfer among societies which differ in state ideologies, state philosophy of societal progress, or the philosophy towards the people’s well-being.
  4. The greater the inter-societal heterogeneity in the donor-recipient system, the greater the probability of complete socio-political disaster (and thus negation of any potential benefit of the development aid). The problem is even more serious because to change the society’s attitude based on its history, geography, policy, and culture is a problem with a time span of several generations.
  • Proposition: Suppose we have two societies: the donor, Si, and the recipient, Si+k, k = 1…m-2, on the D-curve. The risk of conflict and expected overall systems disutility, brought by their interaction in development aid between the two dissimilar countries' societies, is then represented by the number of intermediate points Sk in between Si and Si+k.

This overall disutility for the donor – recipient system’s transaction depends on the level of inter-societal heterogeneity:

  1. Disutility increases with choosing the recipient partner, say Si+k, that drops further down and to the right Si+k+j, j = 1…n, n≠m, from the originally assessed point on the D-curve.
  2. Disutility decreases when the partners are closer to each other on the D-curve, either
When the recipient society moves up and to the left from their original position because of greater democratization of the society, or
The recipient country chooses a donor that is closer to its position on the D-curve in Exhibit 1.

Examples

The Marshall Plan is the primary example of success in development aid. It was an incredible success in all the countries west of the Iron Curtain. Although it would have been equally successful in some of the East and Central European states that had similar political, social, and legal systems before World War II—Czechoslovakia, Poland, Romania, East Germany, and Yugoslavia—Russian military-based influence pulled them out of the Plan (Davenport, 1967).

According to the above model, it would be predicted that the countries of Western Europe would find it easy to accommodate and use the Marshall Plan development aid was that every single society-state was basically on the same spot on the D-curve, as far as social, democratic history, legal (the conversion of Nazi law in West Germany was not difficult at all, given the history of German society during the previous 500 years), and cognitive traits (German and/or Austrian academics had supplied the world with new ideas for 200 years). Indeed, the aid was successful in those countries.

On the opposite side, the model predicts that aid given to former COMECON countries from Western European countries will be unsuccessful due to their large separation on the D-curve. Many of these countries, for example the Czech Republic still retain a Communist constitution, while in others, particularly Central Asian republics, the government alleviates political opposition by: (1) conversion of former Soviet Communists into the tight oligarchy, and (2) use of nationalism-enhanced traits as a reason to build strong military and police states that are supposed to defend them against their neighboring foes.

Without recognizing that the recipient country is far distant not just economically but also in terms of political and cultural reality from the donor—large separation on the D-curve—development aid cannot be effective:

Much of the blame for the collapse in FDI [foreign direct investment] lies with the investors themselves, who chose to overlook the political and economic realities of the place (The Economist, 2000).

Conclusion

From the above analysis, it can be understood that in order for aid to be effective, the recipient country should choose a donor that is close to its position on the D-curve from which to receive aid. Or, the donor country should choose to give aid to a recipient close to its position on the D-curve. This point is also expressed by economist Paul Samuelson:

In theory, once the legal and cognitive disparities between the would-be trading nations are done away the unimpeded trade would bring fast economic growth to developing societies and their trading partners alike (Samuelson and Nordhaus, 2009).

In practice, some countries simply cannot afford to open the door to a democratic and free-market environment. There are, however, many more developing and/or transitional countries that–their ruling classes’ political position and affiliation notwithstanding–might become donors to these countries. Due to their historical affiliation (language and cultural similarities), such countries can open up the door to international trade for them, with all the resulting free-market consequences.

If a Central Asian example could serve as a “generic” solution, then it can be said that the only chance for these societies to successfully receive development aid is to deal with somebody closer to them on the D-curve, such as another Asian society. South Korea is one possibility, and, in fact, Daewoo has a monopoly in the auto industry in Uzbekistan. An even better option is Russia where, for each Central Asian republic, historical, cultural, language, and cognitive similarity has been made similar (sometimes by force) during the seven decades of the Soviet empire.

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External links

All links retrieved January 29, 2024.


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