Less is more

All that glitters is not gold. The same is true of development aid – it is not always what it claims to be. The notion that many successful projects together translate into healthy support for a country is simply wrong: All summed up, they are sometimes bad. Foreign aid has often had negative impacts on the politics, administration, society and economy of recipient countries. The most important examples are:
– Aid policies have often contributed to the deterioration of governance, and prevented reforms in many countries. For example, less development-oriented governments usually do not lay off redundant civil servants as long as they can pay them with aid money.
– In many places, donors have promoted cronyism and self-enrichment of the elite. It is often impossible to prevent misappropriation by applying controls.
– When donors fund projects which recipient governments would have paid for themselves, authorities save money which they can then spend on dubious matters, arms procurement, for instance.
– With diverging aid modalities, donor agencies tend to overburden the admi­nistrations of developing countries.
– Colonial governments typically introduced rules and institutions that did not match the traditional values of society, and these rules and institutions still lack legitimacy today. Most sub-Saharan cultures, for example, believe that decisions should be made in consent. This does not fit western political systems with winners getting all the power and losers being marginalised.
– In order to get access to aid money, many people in developing countries try to gain influence in politics or the civil service, rather than producing anything themselves. False incentives of this sort have resulted in the growth of the “political industry” – at the expense of the productive sector.
– Foreign funding has an impact on exchange rates and price levels. Typically, it makes exports more expensive and imports cheaper, so local businesses and the national economy suffer. Moreover, aid flows vary considerably over the years, so it becomes difficult to manage economies.
– Foreign aid has often undermined beneficiaries’ incentives for self-help, taking little account of their capabilities. Such influence can cause enormous harm.

All these negative consequences of ­development aid have been discussed for decades. Numerous studies have proven hypotheses that were mere presumptions in the past. Indeed, the negative impact of aid has often thwarted positive individual projects, or even over-compensated them.

The reasons for failure included, among others, the self-interests of donor countries and aid agencies. The donors often selected beneficiary countries according to foreign policy considerations or export interests. For a very long time, nobody asked whether the government of a recip­ient country was reform oriented at all. What mattered to the aid agencies was high turnover. For this reason, they withdrew only reluctantly even from countries where a government was increasingly
losing its commitment to development.

Progress without any solution

In the past 10 to 15 years, many new approaches have been taken. They include the Millennium Development Goals, the Poverty Reduction Strategy Papers, improved donor cooperation and a stronger focus on democracy and “good governance”. There has been some progress: policymakers focus more on poverty reduction; the people in developing countries are more involved in development affairs, and their ownership is taken more into account. In addition, donors link aid more to the extent of a government’s reform orientation.

Nonetheless, many fundamental problems remain unresolved: cronyism and self-enrichment have hardly decreased, in many places governance is still very poor, conflicts between traditional values and imported political systems persist, and donors continue to pursue their own interests. Foreign aid still consists mainly of many individual projects, and the number of aid agencies has even grown. The average costs are rising, but the selection of beneficiaries has hardly become any better.

Budget support, with donors subsidising the budget of a developing country or one of its ministries, was specifically introduced to promote good governance. However, the new approach brought no more than minor improvements. Perhaps adverse events played a role. Budget support contributes to improving public finance management, but it also opens up new opportunities for corruption. Though the donor procedures have been standardised through budgetary support, the intensive political dialogue that goes along with it over-burdens governments in developing countries even further.

More to be done

Donors should therefore take several mea­sures:
– For a certain period, they should reduce development aid significantly. Doing so would put citizens and governments in developing countries under pressure to take affairs into their own hands. At the same time, it would give them more space for self-improvement, which would help to stem the problems discussed above.
– More than ever before, donors should only fund truly reform oriented governments. For this purpose, they have to analyse politics in each respective country in detail and therefore invest in country-specific knowledge.
– Developed countries must not allow
other decisions in other fields of policymaking to undermine their aid efforts, as it is currently happening, with EU fisheries policy being a case in point.

In Africa, political institutions must be adapted to the traditional values. Consequently, decisions should generally be taken by consensus, and voting should only occur if no consensus can be reached. Political power would be distributed according to the share of votes, with some protection for minorities.