“Civic and political struggle”

Does aid further or hinder development?
It depends. Overall, aid is an ineffective instrument of development policy.
– First, it is attracted to our poverty, not our wealth. So it comes to fix our weaknesses rather than leverage our strength. As a result, it tends to subsidise our failures instead of rewarding our innovations and accomplishments.
– Second it disarticulates the state from the citizens. When governments depend on donors for their fiscal survival, they find it in their self-interest to listen to the concerns of donors rather than their own citizens regarding public policies and political institutions for productivity growth.

This is not to say that donor policy and institutional recommendations are bad. Sometimes donors have good policy and institutional reform proposals. However, for policies and institutions to work, they need to grow organically from the society and be nourished by a country’s nutrient traditions and shared cultural understandings. All too often, good policies and institutions recommended by donors fail because they are not rooted in local knowledge, habits and norms. However, if the government’s source of revenue was the domestic economy, ruling elites would find it in their interest to listen to those whose wealth they desire to tax for revenues. This incentive structure would force governments to forge productive arrangements with their enterprising citizens and therefore launch the country on a growth path.

Nonetheless, the first sentence in your answer was “it depends”. So there are cases in which aid has indeed helped?
Yes, sometimes aid has been effective. However, the conditions that make aid successful are extremely rare to find and difficult to recreate. For aid to work, it needs a convergence of different but compatible interests between donors and recipients. In post genocide Rwanda, for example, the dominant influence in government are the Tutsi who only 15 years ago stared extermination in the eye during the genocide. The lesson they learned is that the price of failure is very high, so they cannot afford the luxury of incompetence. Facing such a group threat, they have a strong revenue imperative. They need money for an effective military and security system to protect themselves against a violent power-grab. They also need money to invest in roads, health and education in order to win legitimacy in the eyes of the majority Hutu citizens. So the government of Rwanda has strong structural imperatives to use aid productively. These structural imperatives cannot – in and of themselves – automatically produce aid effectiveness in the short term without the supply of the right leadership and organisations. Therefore, we can say that Rwanda has been able to have the right incentives and the supply of the right leadership to build effective state capacity.

Are donors aware of developing countries’ needs?
Of course donors cannot know the needs of developing countries better than developing countries do. Sometimes individual aid bureaucrats, diplomats and academics have good insights into the needs of a given country. However, this is exceptional, not the rule. It is the most productive, innovative and enterprising people in poor countries who know what is needed to transform these countries. The knowledge required to understand the challenges of an economy or a business cannot be centralised in the mind of the World Bank, Britain’s Department for International Development or any other European ministry. It is always dispersed among many anonymous producers in the marketplace.

But, to return to what you said before, donors are not listening to them?
All too often, donors are represented by politicians and civil servants who tend to listen to fellow politicians and civil servants in poor countries. Even in a democratic polity, politicians – leave alone civil servants – may and always do have interests at odds with the interests of their constituents. Donors should focus a lot more on those who create wealth in poor countries: innovative entrepreneurs.

To what extent does the multilateral debate on aid effectiveness in the terms of the Paris Declaration make a difference?
This debate is not new. Over the last 40 years, aid effectiveness has been discussed with great emphasis without producing an answer. All thinking is in the box of aid and government. Aid effectiveness would have better meaning if we looked beyond governments to the private sector, and if we started to talk of venture capital instead of aid. The small businesses that need to grow in poor countries need equity investments; yet today they depend on highly collateralised, high interest loans.

How do you assess the impact of growing trade with China, India and other emerging powers?
Increasing trade opportunities with China and India are good. But the source of Africa’s failure to grow has had little to do with the international trading system and a lot with poor policies and dysfunctional institutions on the continent. The external environment can present Africa an opportunity. Whether a country takes advantage of it to grow out of poverty depends on its internal organisation. Singapore, Taiwan, South Korea, Botswana and Mauritius sustained impressive rates of economic growth in the existing trade system while North Korea, Zaire, Philippines and Tanzania stagnated. Africans should not be looking too much to India and China for salvation. They need to look at their internal policies and institutions. The primary driver of development in poor countries will be their internal capacity. African countries need to have a politically weighted majority in favour of growth promoting policies, they need to build the right institutional capacities to take advantage of domestic resources and external opportunities, and the right human skills-set.

But that is pretty much what donors have been discussing in the context of the “good governance” paradigm.
To be honest, I do not understand what donors and commentators mean by good governance. I think the term is over-used, and it has now become a meaningless cliché. Is good governance democracy? Is it absence of corruption? Is it an independent judiciary? For one thing, there is little evidence that corruption per se impedes growth. Equally there is no evidence that either democracy or dictatorship is better suited for development. On the contrary, donors mistake the results/products/consequences of the development process to be the causes. A lot of what is considered good governance is by-products of development, not its causes.

How do you think that civil liberties relate to development?
I am interested in the state developing a vested interest in the productivity of its citizens and therefore establishing dialogue with those whose wealth it desires. That would not be an event but a process. Africans, for example, are involved in building accountability systems, in struggling for voice in the decision making process, in demanding government that is responsive to the demands of the people. One of the obstacles we encounter is foreign aid. It makes governments listen to donors rather than us. It mistakes accountable government as a product of administrative reforms financed by aid rather than considering it a product of civic and political struggle by citizens.