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Meaningful aid

“A helping hand, not a grabbing one”

by Eduardo Araral
In the past decades, many Asian countries have made spectacular progress. Their governments are becoming increasingly interested in Africa. D+C’s Hans Dembowski discussed whether there was a lesson donors should learn with Eduardo Araral of the Lee Kuan Yew School of Public Policy at the National University of Singapore. [ Interview with Eduardo Araral ]

What is wrong with Western aid?
Professor Kishore Mahbubani, the dean of the Lee Kuan Yew School of Public Policy has already presented the case of demystifying western aid in D+C in February 2008, so let me just highlight three main points of his.
– Western aid does not go to the poorest or neediest countries. It goes to those countries which support the foreign-policy agendas of the donor countries. Mahbubani pointed to Egypt and Israel getting more US aid than all of sub-Saharan Africa combined.
– Western countries do not hesitate to pull the plug if a recipient country fails to support their foreign ­policy agenda. His example was the USA threatening to withhold aid from African countries if they did not support the American position on the International Criminal Court.
– Much of the aid given is nullified by other, hugely damaging actions of donor countries. For instance, EU protectionism deprives developing countries of nearly $ 700 billion in export income every year, while the total of global ODA is below $ 100 billion per year.

Are there any circumstances in which aid can nonetheless promote a country’s development?
Aid can help promote a country’s development if you have good men and women in charge of government – when those in charge have good intentions, but lack the resources to improve governance. Rwanda, Liberia, Vietnam, Timor Leste and Indonesia come as examples. Aid should be used to support reformist leaders and strengthen the foundations of a developmental state. In contrast, aid will only exacerbate problems if given to countries with rapacious and kleptocratic leaders.

In the West, we tend to worry about democracy, but in Asia, there is ample evidence of authoritarian regimes bringing about economic dynamism and eventually political liberalisation – and, indeed, Western donors are quite keen on cooperation with Vietnam’s Communist leaders. Doesn’t authoritarianism most often go along with abuse of power, corruption and deprivation?
Most often yes, but there are exceptions. There is also a continuum and shades of authoritarianism ranging from absolutist and despotic types like North Korea to the developmental types like Vietnam and China. Authoritarian regimes, however, have no monopoly on the abuse of power, corruption and deprivation. Some self-proclaimed democratic regimes in South Asia and Southeast Asia are no better.

Vietnam and Burma both have unelected governments. Nonetheless, Vietnam is obviously faring much better. What are the underlying reasons?
Burma is run by a small group of military generals who continue to subscribe to an ideology of self-­reliance. Their inward looking mindset is deeply suspicious of the West. The generals are saddled with the question of legitimacy after they overturned the 1988 elections, and on top of that, they have to deal with various ethnic groups that want to break away from Myanmar. Indeed, the military leadership feels insecure. Moreover, they also have to contend with Western-imposed economic sanctions, which have only led to more hardship for the people and the hardening of the military’s ideology. It has been a vicious circle ever since. The situation is not entirely bleak, however. The country has a new constitution, elections have been promised for next year, and there are inklings of dialogue – with the Obama administration on the one hand and the Burmese opposition on the other hand. Burma could learn from other Southeast Asian countries – the Philippines, Thailand and Indonesia – how to make the transition from a military to a civilian rule.

But why is authoritarian rule so different in Vietnam?
Vietnam does not have any of Burma’s problems. The country is run by an enlightened Communist Party in which the military is only one component. There are various mechanisms of accountability including elections within the party and decentralisation. The CPV is pragmatic and confident. It has left its colonial baggage behind. About a decade after they defeated the US and after seeing the disastrous consequences of centralised planning and the collapse of their patron, the former Soviet Union, they made a U-turn and embraced a market economy. The mindset today is quite open. Vietnam has joined the WTO and is now the darling of foreign investors and donors. Vietnam is now reaping the benefits of a market economy which strengthens the legitimacy of the CPV as well as its reformist agenda – a virtuous cycle.

Is there any discernable pattern of what makes a developmental regime tick?
There are several factors. First of all, developmental regimes are about offering a helping hand rather than stretching out a grabbing one. In some Asian countries, this is evident in pro-business policies based on a dedicated, professional bureaucracy in Weber’s sense. Government agencies in countries like Taiwan, Japan, South Korea and Malaysia have nurtured industries, picked champions and prepared them for world-market competition. In that sense, the Weberian bureaucracy is embedded in the economy. On the other hand, it must also have the autonomy not to become captured by vested interests. This balance is not easily achieved, as case studies will prove. Moreover, political stability is fundamental in building a developmental state. Long-term vision is necessary, along with sustained efforts in a fiercely competitive world market.

Is there a lesson for donors?
The fundamental lesson for donor governments and their agencies is not new. In the short run, when institutions are weak, perverse or non-existent, you need to nurture a coalition of reformist leadership. Large-scale and sustained foreign scholarships for promising leaders who can rise to positions of influence are a good start. Young and foreign educated nationals are often the seeds of reform. Chile’s successful reforms are a good example. Colombo Plan Scholars in Singapore is another. But building coalitions of reformist leadership is not enough. In the medium term, donors should help these leaders strengthening basic institutions and enforcement mechanisms. This is important to help developing countries move from a vicious to a virtuous cycle, nurturing the helping hand and constraining the grabbing one. Effective constraints are important because we cannot presume that men and women are angels.

It seems like you are restating quite a bit of what is discussed as “good governance” in standard donor rhetoric.
The point is that institutional reform will take time and patience. It needs champions and coalitions to support reform. As Minister Mentor Lee Kuan Yew of Singapore likes to ask, “how can you have good government without good people in charge of government?” Donors will have to be creative in nurturing reform champions and coalitions over time and sustaining momentum for reform to bring it to a virtuous cycle.

Western governments have proven unable to make development happen in most of sub-Saharan Africa. Will Asian governments do better? There is, after all, a growing interest in Asian-African cooperation.
I doubt it. Only Africans can help themselves. After all, the incentives of Asian or Western governments to go to Africa are the same, although their approaches differ. Both Western and Asian governments are keen to sell goods, including weapons, and they want access to resources. The construction and aid lobbies in Japan, Korea and China are driven by the same motives as their counterparts in the West.

But Asian countries have no history of being colonial powers in Africa.
Indeed, they have neither colonial baggage nor aspirations. For the Chinese, their engagement in Africa is mainly commercial. It is their state owned enterprises – SOEs for short – which are doing business with African governments. Their relationship is commercial and thus their incentives and practices are also commercial. Another difference is that the Chinese government is sensitive to its reputation being tarnished by corrupt commercial practices. They officially forbid SOEs from engaging in corrupt practices. The Chinese government has one of the toughest anti-corruption measures in the world: death penalty for corrupt practices involving as little as $ 10,000. However, it is also in China’s interest that their SOEs win commercial or mining contracts in Africa so they also have strong incentives to look the other way around absent the spot light. Therein lies the Chinese dilemma in Africa, but China can address this dilemma. If the People’s Republic aspires to become a world leader, it could start by sanctioning corrupt practices of its SOEs abroad as it does at home. Double standards would only hurt China’s reputation.

In the past decades, a number of African intellectuals have begun to lambast Western aid, insisting that aid leads to a mind set of dependence, governance and national leaders’ neglect of people’s needs. How do you assess authors such as Dambisa Moyo now or Axelle Kabou some years back?
Moyo’s main argument is indeed a refrain of Kabou in 1991. She argues that limitless development assistance to African governments has fostered dependency, encouraged corruption and ultimately perpetuated poor governance and poverty. However, Moyo doesn't provide any credible empirical basis on the causal link between aid and Africa's problems. She also ignores numerous studies showing that development aid can work even in weak and vulnerable countries such as Cambodia. In that country, aid from the Asian Development Bank and a leadership that deserves praise for its integrity helped to build one of the world’s best run public water utilities. The successful rehabilitation of Indonesia’s Aceh Province after the 2004 tsunami is another good example of how aid can be part of the solution instead of being the problem. Again competent and incorruptible leadership was the key to success.