International aid today and its origins

International aid forms a constituent part of contemporary international relations.  Today, over 200 different official donor agencies provide aid and over 150 countries or territories receive aid. Practically every government either gives aid or receives it, and some do both, with China and India now both major donors and major recipients of aid.  Governments channel some of their aid funds to and through multilateral agencies, of which the United Nations and the Bretton Woods institutions are the most prominent: the World Bank’s International Development Association (IDA) being one the world’s largest providers of aid funds (in its case largely soft loans).  Latest figures, for 2008, put total ODA at a little less than $120 billion, in current prices, almost double the amount provided ten years ago - still far too little for aid’s strongest advocates, and far too much for its harshest critics.

The provision of official aid – or Official Development Assistance (ODA) - has its origins in the early 1940s when the International Labour Office (ILO) argued that aid funds were needed to raise living standards in poor countries.  Soon after it was established in 1943, the United Nations Relief and Rehabilitation Administration (UNRRA) - the predecessor of today’s Office of the United Nations High Commissioner for Refugees (UNHCR) - was providing food, medicines and agricultural and industrial goods to almost 50 countries. It was only from the late 1940s that  individual governments began to provide aid directly to different recipient countries.  Yet quite quickly this form of aid-giving – now termed bilateral assistance – dominated official aid-giving, as it still does today.

Humanitarian aid and development aid

Debates about the merits of giving aid usually distinguish that part of ODA which is used for promoting development and poverty reduction – “development aid” – from the aid used to respond to emergencies – “humanitarian aid”.  Almost all the major critics of aid – from Peter Bauer in the 1980s to Dambisa Moyo, today – focus their attacks on development aid, and maintain that they are not against the provision of  emergency aid.  Opinion polls suggest that the public believe that most aid is provided for emergencies. This is understandable both because of the media attention given, especially, to fast onset emergencies and because in recent decades, there has been a sharp rise in the number of emergencies, and humanitarian aid has increased rapidly: in the past 30 years rising 17 times in real terms. Yet, today, humanitarian aid still accounts for a little more than 15% of all ODA.

Should more emergency aid be given?  While the response to the emergencies given high-profile media attention  – like the Boxing Day Tsunami or the Ethiopian famine of the mid-1980s – are usually well supported, these mask a systemic funding gap.  Consistently over the past two decades, the aggregate amount of emergency aid has fallen well short of the amount required.  However, the numbers of people dying each year from diseases of poverty – poor nutrition, inadequate health service provision, unclean water, lack of shelter and urban pollution  - vastly exceeds the number dying each year in emergencies.  For every person who dies in an emergency, 200 die from diseases of poverty.  To express this differently, an estimated 230,000 people died in the Boxing Day Tsunami and its aftermath, yet the same numbers of people die from diseases of poverty across the world every five days, by far the largest number of such deaths occurring in the poorest countries.  

The discourse in historical perspective

The questions most commonly asked of development aid today are whether it works – the title of Phil Vernon’s recent piece in Open Democracy – and whether it reaches the poor. Therefore looking back, it seems surprising that for the first 30 of its almost 70 year history, neither of these questions was considered of any real interest or importance. Until the mid-1970s, the word “poverty” did not appear in discussions of the merits of providing aid, and no one would have thought to have asked whether the aid provided reached the poor. Then, the purpose of aid was to fill (resources, skills and financial) gaps and to build the infrastructure to enable recipient country economies to grow more quickly. It was assumed that growth would benefit the poor.  There was also little interest in the impact and effectiveness of aid: the (assumed) need for aid was seen as a sufficient basis for providing it.  As a result, aid advocacy efforts were focused on increasing aggregate aid levels and expanding the number of official agencies providing it – the more of both the better.  Interestingly, the first substantial critique of aid came not from the political right but from the left.  In her 1971 book, Aid as Imperialism, Teresa Hayter attacked official aid not because of its failures but because it was perceived to be working so well. 

In the mid-1970s, as “redistribution with growth” and the “basic needs” approach became the dominant development paradigms, they also became the template for the role and purpose of giving aid, moving the poor and their immediate needs to centre-stage.  Later, these were replaced by the “human development” and “rights-based” approaches to development which, in turn, informed the shaping of the Millennium Development Goals (MDGs) – the achievement of which provides, today, the main reason for giving aid. However, the role of aid in helping to accelerate growth persisted, both to address those factors perceived to be responsible for low growth, and, more recently, to try to re-shape growth so that it is more “pro-poor”. In the 1980s, as growth rates faltered, attention was focused on structural problems and market distortions. More recently, growth has been perceived to be constrained by weak institutions, poor governance and inadequate infrastructure, resulting in aid funds being channelled into capacity development, good governance initiatives and infrastructural projects, initiatives that would have been very familiar to the donors and aid officials of the early1950s.

The changing ways that donors understood the development process and debated how best to deploy aid funds to further development and (now) poverty reduction provided probably the most important factor behind their directing their attention additionally to the impact of aid and its effectiveness.  The way they chose predominantly to do this was to have a profound effect on the ensuing discourse about the merits of aid and the core justification for providing it. 

Presenting the case for aid and its consequences

In approaching the issue of aid impact, donors could have focused their attention on trying to understand and analyse the different factors impeding aid’s greater impact, giving prominence to the main constraints and giving high priority to working, both individually and jointly, to address these problems. This sort of approach would not have shied away from highlighting aid’s failures. Indeed, it would have prioritised a profiling of aid’s weaknesses and failures, as this would have stimulated a culture of lesson-learning and a focus on the core problems of aid in order that the major constraints might be addressed and so that, over time, the effectiveness of aid would steadily improve.

From the early 1980s, many of the larger donor agencies began to establish first evaluation units and then evaluation departments, and academics began to undertake studies (often funded by donors) to assess the impact of aid. [The United States had begun this process, some ten year earlier.] However, the work and outputs on impact and aid effectiveness from these units and departments were never mainstreamed by the agencies.  From the early 1980s, when aid impact issues were first discussed, down to the present day, the information placed in the public domain by all aid agencies, both public and private, has been overwhelmingly, and almost exclusively, evidence of aid’s successes. Aid agencies have not only been unwilling to present to the public evidence of particular aid failures, but they have been reluctant to engage in high-profile debates about either failures or the problems involved in giving aid.  The assumption seems to have been then – as it remains today - that as public support for aid is dependent upon aid achieving its (poverty-reducing) objectives, the best way to maintain support for aid is simply to “feed the public the good news” - the more of it the better. 

Against this backdrop, there was in the past, as there remains today, an often uneasy tension between these upbeat messages of aid’s repeated successes and some of the downbeat messages and critical assessments of aid coming from agencies’ evaluation departments.  For example, the recent independent study published in September this year of the quality of aid evaluation in the United Kingdom’s Department for International Development (DFID) – considered to be among the best official aid agencies –  identified an “unduly defensive attitude to evaluation in the Department”, and called for a cultural change from Senior Management to address this problem. This echoed an earlier report from the National Audit Office (NAO) in June 2009 which spoke of “... organisational pressure to water down critical reports”.

Assuming this analysis is correct, does it matter?  What’s wrong with aid agencies putting in the public domain evidence of aid’s impact so heavily stacked with stories of its successes? Isn’t this what one would expect them to do: aren’t agencies right to assume that if they presented evidence of failure then this would undermine public support for aid? My own view is that it matters greatly. 

One cluster of reasons is to do with honesty and effective public debate.  The systemic and cumulative effect of (all) aid agencies placing in the public domain evidence so heavily weighted in favour of aid’s successes is to discourage serious public debate about aid and its merits, a situation fuelled by aid’s critics adopting a very similar approach.  Aid’s supporters cite cases of aid to press the general case that “aid works”, aid’s critics cite particular examples of aid’s failures to try to make the general case that “aid doesn’t work”.  The result is that public discussions of aid are characterised by a lack of effective debate and engagement, conducted more like ships passing in the night. 

One way into a more in-depth debate about aid might be to ask how much would need to “work” to justify continuing to provide it – should it be 5%, 10%, 30% or less?  Should aid be provided if less than half of it can only be shown to have worked?  But continuing to go down this route assumes – too quickly in my view – that the case for development aid, and the moral basis that underpins it, should be driven exclusively by performance-based management, the results culture and “value for money” starting-points that have come to dominate contemporary discourse on public expenditure, when for emergency aid such arguments are either not made or else not so readily deployed.  Why should the case for or against development aid be driven so centrally by evidence of past or present successes, or failures?  What room is there for providing aid to learn and to innovate?  

Should we expect most aid to work?

The central paradox of giving aid is that those countries which need aid the most are precisely the countries where aid is least likely to work well.  Poor countries with little wealth and low growth rates need aid the most, but many of the causes and manifestations of their poverty are in their turn likely to lower the effectiveness of the aid provided – lack of skills, weak institutions, underdeveloped and distorted markets, an inadequate regulatory framework, poor public accountabilities and a lack of transparency of government expenditures due to fragile democratic systems and weak civil societies. Against this backdrop, the more likely expectation is that aid often might work not will rather than it always will.

My own recent review of the impact of aid, Does Foreign Aid Really Work?, suggests most official aid works in the short term especially to fill immediate skills and resources gaps and to help expand coverage of and access to basic services (health and education etc.).  Yet around 15% of official aid projects fail to achieve their immediate objectives and at least 30% are unlikely to be sustainable.  The success rate is likely to be somewhat worse for NGO aid projects attempting to reach poorer and more isolated communities. The aggregate contribution of all aid at the country level produces a mixed picture.  Aid seems to have had a positive effect in most countries but not in all time periods. In many (possibly most) poor countries, there have been specific periods of time when aid does not seem to have made a significant contribution to development and poverty reduction.  This conclusion resonates with those who have worked for any length of time on aid projects, and with those working on or closely linked to aid agencies, who are well aware that the picture portrayed of aid’s impact by the aid agencies is a false one. 

Aid in context

Aid agencies have not only strongly suggested that aid (always) works but the manner in which they have engaged the public has provided a distorted view of the role of aid and the role of donors.  By focussing so much on aid’s merits, the strong impression conveyed to the public has been that aid is the “answer” to development – that it is aid which “drives” the development process, that it is what donors do in developing countries which makes the crucial difference to the poor, and that without aid, and aid agencies, there would be little to no development. 

In contrast, the evidence indicates that development occurs without aid, and that the process of development is influenced predominantly by what happens within recipient countries, shaped by the commitment and capability of aid-recipient country governments and by dynamic changes to the respective power and voice of different interest groups within the national political economy.  Especially when supportive of recipient-led policies and processes, aid can certainly help to accelerate the process of development and poverty-reduction.  Likewise, aid funds can be used to strengthen the power and voice of different interest groups. 

However, the evidence suggests that choices made by donors of who to support and for how long, and the policy conditions they require recipients to adopt have often been inappropriate, or wrong.  This has often been because they have been based on an inadequate or superficial understanding of the complexities of the political economy of aid-recipient countries, and, at times, because they have been based on trying to import and impose alien and inappropriate state, governance and institutional models.  As Alex de Waal has recently suggested, we can’t make states work from the inside with our outside templates. While, as Phil Vernon, rightly points out, the prospects for rapid poverty reduction are usually critically linked to what happens in the political sphere. The notion that donors have sufficient understanding of the complexities of aid-recipient countries to engineer a desirable social, political and cultural transformation often in a complex ethnic setting, and that they have the “right” to engage in such engineering needs far more debate.

“Does aid work” isn’t the right question

However, the most important reason for calling for more honesty in debating the merits of aid is that it is only when aid’s current weaknesses are more clearly understood and publicly acknowledged, especially by those giving aid, will there be sufficient public understanding of the weaknesses of the current way of giving aid to put the political pressure on donors to initiate fundamental reform.  To ask whether aid works and to defend the provision of aid on the assumption that it does - feeding good news stories of what it has done – breeds and perpetuates complacency: for if aid is working there is little need to “fix it”.  And this brings us to what I consider the central issue for aid and the discourse about aid.

The most fundamental problem with aid is not so much that it isn’t working, but that the gap between what it is achieving and what it could achieve is enormous and it can be narrowed significantly - not least because a major cause of aid’s potential not being realised lies at the donor end of the aid relationship. Debating and discussing how to narrow the gap, especially by addressing the systemic problems at the donor end, ought, in my view, to be the central focus of the discourse on aid.

For the first 50 years of official aid giving, donors focused their efforts predominantly on what they were doing individually to aid those countries to which they chose to give aid. Then, in 2003, and after some eight years of intra-donor agency discussions initiated by the donors’ club, the Development Assistance Committee (DAC) of the Organisation for Economic Cooperation and Development (OECD), the main donor countries together with a small, though significant, number of aid-recipient countries, signed an agreement to work more closely together to seek to improve the impact and effectiveness of aid in what has become known as the Paris Declaration on Aid Effectiveness. The commitment of donors to harmonise their individual efforts, to align their different approaches and to encourage recipient governments to coordinate the overall aid effort was a significant step forward.  However,  when historians look back they are likely to view the Declaration less in term of what it says and more as the initial acknowledgement by donor governments of the systemic problems of official aid-giving. The Paris Declaration is but the first step in the more fundamental reform of the aid system which is so urgently needed.   Indeed, the failure of the donor community to implement the Paris commitments, as acknowledged in the Accra Agenda for Action in September 2008, is due in part to the reluctance of many donors even to view aid within the framework of this new, but still deficient template.

Aid’s systemic problems and their consequences

What are the main systemic problems of official development aid?  There are two key ones.  The first is that official aid is given voluntarily by individual donor governments, each of which chooses how much aid to give and to whom that aid will be given.  The second is that the choices about recipients and volumes of aid are informed and shaped not only by the development/poverty needs of the recipients but also by the short-term political and commercial interests of the donor country.  Neither of these are explicitly mentioned in the Paris Declaration. 

The following lists some of the main outcomes for the impact of aid which flow directly from these problems:

The consequences of voluntary aid-giving There is no system of raising aid funds or ensuring that the amounts given equate to those needed,  The aggregate amount of development aid provided is based on the cumulative decisions of what individual donors decide to give, not on the cumulative amounts of aid that recipient countries need and are able to absorb.  As a share of their total wealth, rich country governments give less today than they did 40 years ago – the ratio of total ODA to Gross National Income (GNI) stood at 0.51% in late 1960s, today it is around 0.3%. For more than 35 years, individual donors have pledged to provide more aid (pledges to double aid in the next five year were first made in the late 1970s).  When donors fail to honour their pledges no penalties are imposed by the international community.  When one donor defaults, others donors do not step in to make up the shortfall – in truth the issue is rarely, if ever, discussed.

Aid allocations are not clearly linked to country needs; they are still shaped profoundly by donors’ short-run political interests. The total amount of aid an individual country receives is dependent upon the individual choices which each donor makes concerning which country they will give aid to and the amounts they choose to give.  In practice, less than 50% of all ODA is channelled directly to the 65 poorest countries of the world.  In the year 2000, between them, Afghanistan, Iraq and Pakistan received less than 2% of all ODA.  Five years later, they accounted for 26% of all ODA (including debt relief), nearly a 30-fold increase. UK aid to these three countries increased 50-fold.  Today, one in every five dollars of American ODA is spent by the Pentagon.

Aid giving is volatile and unpredictable Donors are reluctant to provide long-term commitments to provide aid so recipients have little idea of how much aid they will receive year-by-year.  Only one third of aid is disbursed on schedule. Over the past four years in Uganda, annual official aid inflows varied by some 30% a year.  This creates uncertainty for recipients who are reluctant to use the funds for recurrent expenditures fearing they will not be able to fund ongoing projects. A recent study for the Brookings Institution estimated that volatility alone reduces the effectiveness of aid by between 15 and 20%, a loss of the equivalent of $16 billion of aid, one and a half times the total UK aid budget, and, as Professor Picciotto points out, the problem of aid volatility is getting worse not better, rising by 16 percent from 1980-89 to 2000-06.

Short-term commercial interests reduce effectiveness In spite of pledges made by donors, a significant share of official aid is still tied to the purchase of goods and services from donor countries.  Less than half of all aid is completely untied.  Tied aid raises the costs of aid to recipients by between 20% and 30%, equivalent in aggregate to a further loss of about $8 billion a year.

The multiplicity of donors and donor control of aid funds The number of individual donors providing aid to particular recipient countries has risen markedly in recent years: in the 1960s, each recipient country had to deal, on average with 12 donors; by 2005 the average number had almost tripled to 33 donors; at least 30 countries now have to deal with more than 40 separate donors. As Professor Picciotto says, one consequence is that recipient countries have to host scores of different donor visits: a sample of 33 countries reported an average of over 300 aid missions a year in 2007, almost one a day. Furthermore, the majority of aid given is not “received”. Each donor in each country draws up an agreement with the recipient government for how the funds will be spent. Less than half the aid given goes through government systems, and figures for 2006 revealed that there were, on average, over 50 separate (donor-run) Project Implementation Units in each recipient country.

New funds and new facilities In recent years, donors have created a succession of new mechanisms and funds to channel aid to recipient countries to help address specific needs.  Recent funds have been the Education for All Fast Track Initiative, the Global Environmental Facility, and the Global Alliance for Vaccination and Immunisation, the Global Fund to Fight AIDS, TB and Malaria and the (US), the International Finance Facility, the International Finance Facility for Immunisation, the Millennium Challenge Account and the (US) President’s Emergency Plan for AIDS.  The use to which the monies from these funds is to be put are largely determined by donors, and there is no effective link between and coordination of the administration of these specific funds with the general system operating at the country level. While the establishment of these new funds and facilities is individually understandable, the overall effect is to add further strain to an already dysfunctional aid system. The Paris Declaration is silent on a coordination framework for these different funds.

From changing the discourse about aid to changing the system of aid-giving

Laying bare and drawing together some of the main systemic problems of the current way of giving official aid is clearly only the first step on the way to creating a system that is more fit-for-purpose.  What a new and different system might look like is difficult to say at this stage, as it will need to be based on further discussion and international agreement.  However, politicians active in the international aid arena and successive international commissions have provided some pointers for the way ahead and flagged the sorts of changes needed.  Yet these views and ideas have been eclipsed by a focus on other far less fundamental matters, despite their (relative) importance. The time is long overdue for their ideas to be re-inserted into contemporary debates about the aid system.

• For instance (in 1980), 25 five years ago the Brandt Commission judged that the time had already passed when the world ought to be raising aid funds through some sort of automatic mechanism.
• Four decades ago (in 1969), the Pearson Commission argued that the international aid system with its profusion of agencies lacked direction and coherence, and that aid giving should be separated from short-term political considerations, and the interest of governments should be “carefully limited and institutionalised.
• And when in his Inaugural Address in 1949, President Harry Truman appealed to other nations to join the United States in providing aid to poor countries, he outlined how it ought to be provided:
  • by donors pooling their resources together rather than acting on their own;
  • by coordinating their activities together; and
  • by giving aid in a way that enabled the recipients to be able to use it as they thought fit.

There are some signs that in contemporary international discourse the world could be more receptive to addressing some of the fundamental problems of our aid system.  For instance:

• In the 2006 spring meetings of the IMF and World Bank, the British Prime minister Gordon Brown made a plea for the operational work of the IMF to be made “independent of political influence and wholly transparent”. If the IMF, then why not the broader aid system?
• At the September 2009 G20 meeting of finance ministers, a background paper was presented which tabled a proposal for nearly all countries, except the very poorest, to pay into a global climate fund and for the money to be disbursed to the countries needing it most. Why not extend this idea to the broader aid system?
• Recent international discussion on the obligations of state parties has placed firmly on the agenda the issue of binding international agreements in relation to climate change.  Why can’t this discussion be extended to the system of raising official aid funds, especially as, in 1986, both Finland and Portugal expressed the view that the provision of international aid funds constitute an essential element in the implementation of the UN Covenant on Economic, Social and Cultural Rights, implying an obligation to provide aid to ensure the fulfilment of those rights?

However, a growing momentum for change in this direction and the “push” necessary to ensure engagement of today’s political leaders are unlikely to come about until those centrally involved in giving aid and leading the public discourse about aid play their role in placing before the public and their politicians the fundamental systemic problems of the current aid system.  And this is unlikely to happen until those running aid agencies agree among themselves to devote far less energy and far fewer resources to defending aid by providing evidence of their own agencies’ successes and instead channel far more energy into highlighting aid’s systemic failures and weaknesses and into urging that they be addressed. If such leaders believe there is a moral reason to provide aid, they should be leading the campaign to address aid’s systemic problems. This, in my view, is where the discourse on aid should be focused.

Roger Riddell is a board member of Oxford Policy Management, a Principal of The Policy Practice and a member of DFID’s the Independent Advisory Committee on Development Impact (IACDI). This piece is written in his personal capacity.