18 June 2020

Done well, aid spending is still a powerful force for good

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If you travel in sub-Saharan Africa, and talk especially to policymakers and NGOs, it won’t take long to get a sense of how greatly admired in the region is a former US president. I’m not talking about Barack Obama, despite his Kenyan heritage, or even JFK, for backing decolonisation. I mean George W Bush. 

In western retrospectives of Mr Bush’s administration, this is much less well known than the 9/11 attacks and the wars in Afghanistan and Iraq, but a policy he championed and implemented has saved millions of lives. It is called the President’s Emergency Plan for Aids Relief, and it is one of the most ambitious public health programmes ever devised and created.

According to the Financial Times last year, the programme has since 2003 involved the disbursement of around $80 billion across 50 countries, mainly in Africa, to provide antiretroviral drugs. It has demonstrably worked, in suppressing the HIV virus that causes Aids and dramatically cutting infection rates. It has also had to contend with a notorious strain of pseudoscientific thinking, espoused in office by Thabo Mbeki as president of South Africa from 1999 to 2008, that gives credence to outright Aids denialism, with terrible results.

I cite this example because it is an unambiguous case of how overseas aid spending by wealthy countries can improve and save scores of millions of lives. There is an overwhelming humanitarian reason for doing this, and thereby incidentally improving the diplomatic reputation of the Western democracies. And it should be a bipartisan cause, among reasonable people across the political spectrum. 

Yesterday on CapX, Sir Malcolm Rifkind, the former foreign secretary, argued in support of the Government’s merging the Department for International Development with the Foreign Office. He made clear that he is a strong supporter of overseas aid and scorned the notion that the closure of DFID was aimed at decimating the aid budget. I hope he is right.

Yet the government has not so far shown conspicuous concern for opinion overseas and there is a powerful strain of Conservative opinion that does indeed seek to reduce the aid budget. It was a central theme of the leadership campaign of Esther McVey last year to slash the aid budget and spend the money in the UK. This week, Penny Mordaunt, the Paymaster General, has called for – of all things – a successor to HMY Britannia to be paid for out of the aid budget.

There is a stubborn conviction in British public life that overseas aid is a bottomless pit in which taxpayers’ money is squandered in enriching local elites. It’s not true. Provided that the findings of economists and the experience of history are taken into account when forming policies, aid can do a substantial amount of good.

Here is the caution. Bad economic policy can have very damaging effects on welfare and some official development programmes have ensured that those policies aren’t easily reversed. A notorious example was aid to Tanzania under Julius Nyerere, once romanticised in the West as an exemplar of African socialism. His policies of collectivisation of agriculture were a catastrophe. Under his rule, income per head fell (yes, fell) by an average of 0.3 per cent a year from 1965 to 1985. Had the World Bank not funded his fantastical schemes and grandiose capital projects, it is a reasonable expectation that he would have had to reverse course. 

Economists such as Peter Bauer and William Easterly have argued that aid is ineffective in promoting development or countering poverty because it actually creates disincentives to invest and to enact reforms. Moreover, Angus Deaton, the Nobel laureate, has advanced a powerful case that wealth gained from foreign aid can be a corrupting influence on weak governments, “turning what should be beneficial institutions into toxic ones”. There are many examples of aid helping bad governments to continue either squandering wealth or implementing outright despotism, such as Zimbabwe under Robert Mugabe. 

Even so, as argued by Jeffrey Sachs and the Nobel laureate Joseph Stiglitz, the test of the effectiveness of aid is not necessarily economic growth, because aid for development and for humanitarian reasons may not coincide. There is a lot of empirical evidence that aid has improved welfare in financing public health programmes. I’ve pointed to one spectacular example. Others include programmes against smallpox and river blindness, and greatly reducing the incidence of diseases that cause diarrhoea. And at the level of development, sound macro policies will not on their own enable people to escape a poverty trap. They need capital in the first place to overcome entrenched disadvantage.

The empirical evidence across countries suggests that aid improves economic performance and reduces poverty if there is good governance in place pursuing sound economic policies. And good aid policy depends on evidence. The work of Esther Duflo and Abhijit Banerjee (Nobel laureates last year for their work on this subject) stresses that the aid debate cannot be solved in the abstract. Aid to improve poor people’s lives, by for example providing microcredit and other targeted interventions, has evidence on its side.

Aid cannot do this if the recipient country lacks effective mechanisms to distribute the money and prevent it being captured by local vested interests. And it cannot make a measurable difference in a country ravaged by civil war and despotism. The most tragic case I know was Cambodia after the fall of the Khmer Rouge in the 1970s. The occupying forces of Vietnam then used food aid provided by the West as a means of political control. John Pilger, the famed radical journalist, mounted a disgraceful campaign of abuse against Western aid agencies for pointing this out, but they were right and he was wrong.

Overseas aid has to make these judgments, discriminating between interventions that can work and those where bad governance will overwhelm them. But the evidence supporting an ambitious aid target is strong. I hope it won’t be lost on Boris Johnson’s government. 

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Oliver Kamm is a columnist and leader writer for The Times.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.