Caution on foreign aid

Foreign aid has become an essential element of attempts to equalise the obscene level of global inequality. There is little doubt that foreign aid is needed for providing essential needs to the destitute. However, more caution is needed in understanding global aid flows and their impact and motivation. Zambian economist Dambisa Moyo has made a compelling case for dispensing with large development assistance altogether because of its poor record in Africa. While I disagree with this, I am sympathetic to her concern about the motivation and sincerity of aid programmes.

My concern was highlighted earlier this month when I attended a presentation by the new UK minister for international development, Alan Duncan, at the Carnegie Endowment for International Peace in Washington. Duncan laid out his plans by dismissing concerns about mismanagement of funds by saying that the final outcome mattered and that the process was secondary to the results achieved. This sounded the alarm for me. If one is not concerned about the process, then one is not concerned about efficiency. This is precisely the kind of development culture which leads to wastage of resources.

After introducing myself as a professor at the University of Vermont, I told Duncan that aid programmes do not focus on reducing inequality within a country and this can lead to civil conflict. His response (which is on record with the Carnegie endowment’s video recording of the event) was that he was “not sympathetic” to concerns about inequality. He then added with sarcasm: “perhaps I should head to Vermont to learn about such concerns, and I suppose Vermont is up there in rank with Oxford” (Duncan’s alma mater). His snobbery left me with no choice but to mention that I had received my doctorate from MIT. This left him with a faint blush and many sympathetic cheers to me from the audience afterwards.

Wounded pride perhaps for this author, but the issue at hand is far more consequential. This attitude of impunity and arrogance pervades the global aid culture and developing countries need to be more discerning and cautious about the terms of accepting aid. The lack of interest with dealing with inequality by stigmatising concerns as ‘socialism’ or ‘utopianism’ is a serious issue in the global aid community and also in domestic politics within rich countries.

I am a firm believer in capitalism when it comes to markets providing incentives for performance. However, the notion that this translates into a right for endless wealth accumulation is a betrayal of true capitalist ideology. US aid programmes should consider these issues with far greater sensitivity. Let us not forget that part of the reason for democratic capitalism to emerge in America was to provide an antidote to the hereditary aristocracy of Great Britain.

As for the new British government, they are naively calling for a return to ‘Victorian philanthropy’ from individuals rather than for an accountable government for their own social programmes. If you voluntarily rely on individual choice for aid, most of the wealth ends up being transferred to offspring, which perpetuates dynasties and often leads to little more than spoilt children and scavenging relatives. This is why sensible billionaires such as Bill Gates have argued for greater inheritance taxation which should then be funnelled into focused and efficient aid programmes. Relying on philanthropy for social services can also lead to undemocratic and idiosyncratic outcomes.

Pakistan, and other developing countries, shouldn’t salivate so easily when a bone of aid is thrown at them from the donors. Consider motives, mechanisms and accountability for how the money will meet your needs and ensure that it will not just be a source of patronising pride for the rich.

Published in The Express Tribune, January 3^rd, 2011.