Foreign aid: treat or trap?

The modern history of foreign aid started after WWII when Europe sponsored aid for rebuilding post-War societies in the Western Hemisphere under Marshall Plan. The dynamics of aid changed when the Cold War started. The USSR and the US started to sponsor aid to newly emergent states to implant their respective economic doctrines — socialism and capitalism. The flow of aid proved the building of nascent states. With time, the aid flow became a problem because it removed the incentives of the state building which led to the creation of extractive economic institutions. The vicious cycle of aid with the alignments of the neoliberal economic model after the disintegration of the USSR started to destabilise the economies of the developing countries at the start of their creation. On the generic conditions, aid money helped reduce child mortality and increased the literacy measurements in the formulating states; but in particular, the aid created dependency syndromes and states descended into the trap.

Following the popular perspectives that aid caused progress among individuals and collective societies, it is argued that the aid money created incentives for education, and enrolment of primary school-going children increased. Charles Kenny in his book Getting Better: Why Global Development is Succeeding argues that foreign aid in Third World countries helped wipe out the cycle of absolute poverty. In the 20^th century, half the world’s population was downtrodden but in the 21^st century, absolute poverty declined to 10%. Overall Charles Kenny argues that the aid-based addition to the economies helped increase the quality of life and sustainable economies in the new states.

Moving forward towards proving how aid dependency is a trap rather than a treat. The aid removes the incentives for growth and causes continuous psychological dependence on the First World countries. It corrupts the civil society and fades the trust between the government and the civilians. The ruling elites are trapped in the self-driven benefits. The initiatives offered allow for growth of elite at the expense of the majority. Politicians pass such laws that benefit the ventures they are leading. The incentives for creating new ventures for inclusive growth and participation of the general population decline in an aid-based environment in states. Francis Fukuyama put this in his book Trust: The Social Virtues and The Creation of Prosperity that trust is the building block for aspiring states to consolidate the democratic process but the aid dependency caused the erosion of trust between the population and ruling elites leading to constant conflict and backsliding the democratic transition in the states. Many African regions are still struggling between democracies and dictatorships due to the fading trust of the people in democracies psychologically and passive acceptance of the Leviathan.

In the countries where constant aid flows, growth of economies and societies is weakened. Dambisa Moyo in her new book Dead Aid asserted that in the last 60 years, aid worth one trillion dollars has flown into Africa. When aid flow was high in Africa in 1970s, poverty exacerbated to 66%. It was the constant aid flow in Africa that retarded its growth and plunged it into an unending poverty because the aid money caused removal of the incentives for development and linear growth. Aid fosters corruption in state institutions as well as a vicious cycle of dependency. Short-term aid is not bad if it is with the purpose to build institutions but the continuous dependency syndrome is lethal.

In case of a majority of the countries in the developing world, foreign aid has caused destabilisation of the economies as well as the removal of impetus to grow independently. In the 21^st century, developing economies are being gradually entrapped in this aid syndrome. The aid flow has thus become a trap for developing states.

Published in The Express Tribune, October 5^th, 2022.

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