According to Cassen aid is important when it comes to relieving poverty in developing countries. He argues that by contributing to growth, it creates conditions for raising the incomes and consumption of the poor (Cassen 1994:45).However, as noted above aid does not lead to growth, but instead retards growth. Aid is then said to reduce poverty through specific sectoral programmes. The World Bank contends that through its funding of welfare programmes such as education, health, nutrition and housing, aid reduces poverty. (World Bank in Cassen 1994:46).Through the pattern and pace promoted by aid some of the fastest growing economies are said to have managed to reduce poverty ,for example South Korea and Taiwan. Even welfare indicators are used to show how aid has added life expectancy in China and halved infant mortality rate in India between 1965 and 1983 (Cassen 1994:50).Barro also supports the claim that aid relieves poverty. He argues that this can be done through fiscal policy (Barro in Boone 1996:291).Using economic theorems Barro presents an endogenous growth model where a government uses distortionary taxation to finance productive public expenditures that provide more public goods to benefit the poor (Barro in Boone 1996:291-292).
A close analysis of the relationship between aid and poverty shows that aid is a form of exploitation and its contribution to the well being of people in the Third World is negative.Petras and Veltmeyer who view aid as a form of neo-mercantilism, point out that the flow of aid has been having a regressive impact on the poor in Latin America (Petras and Veltmeyer 2002:284). From the perspective of developing countries, particularly the working classes and peasants, aid like other flow of international resources has caused poverty and declining income. Under the facilitating conditions such as structural adjustment programmes in Africa and Latin America aid has led to a drastic deterioration of the living conditions of the populations (Petras and Veltmeyer 2002:286).Riddell notes that this incidence in the increase in poverty as a result of aid and its associated policies is evident in the wide range of indicators of socio-economic development, such as a general decline in living conditions ,steep fall in the value of wages and a deepening of social inequalities in the distribution of income (Riddell 1997:172).Knor agrees by saying that, ‘Not even the World Bank’s efforts to reduce the incidence of poverty by statistical fiat; that is defining as poor only those with incomes of less that two dollars a day and one dollar for those in extreme poverty have succeeded in disguising the extent of the effects of structural adjustment and aid’ (Knor in Ruttan 1989:411).The fact that even aid which has been channelled through NGOs has not helped in reducing poverty shows how limited and flawed is Cassen’s perspective that aid reduces poverty. In a study in Bolivia, Arellano demonstrated how aid directed towards NGOs undermined the country’s successful rural development programmes resulting in widespread rural poverty (Arellano in Petras and Veltmeyer 2002:287).Therein and Lloyd noted that in Sub-Sahara Africa where aid has been concentrated over the last generation, both the relative and absolute numbers of poor appear to have increased between the mid 1970s to the mid 1990s.Carty and Smith in Riddell concluded that aid is not the solution but part of the problem of poverty(Carty and Smith in Riddell 1997:134).What the World Bank and IMF seem to have missed is that aid does not reduce poverty for one reason; Poverty is not caused by capital shortage.
In light of the crucial importance of economic policies in development, aid, it is argued, has helped developing countries make appropriate economic reforms (World Bank in Cassen 1994:156).The argument contends that aid has encouraged policy reforms through two primary means; policy dialogue, that is donors giving aid to create opportunities for policy discussions and interactions with the recipient country on key issues such as macroeconomic policy ,and conditionality, in which aid organisations and countries release aid if recipients meet certain economic criteria, such as reducing fiscal deficits below certain levels or reducing tariffs by a particular percentage within a specified time frame.Pronk clearly expresses his optimism with this notion, ‘Aid thus can become a catalyst not only for economic growth, but also in terms of furthering good policy making’(Pronk 2001:621-622).Policy reforms as Pronk argues led by aid agencies such as the IMF and the World Bank have stabilised the economies of Ghana, Uganda and Tanzania before they went on to register economic growth. Countries such as Taiwan, South Korea and India are reported to have benefited from aid conditionality as they registered phenomenal growth rates as a result of improved macro-economic policies.Pronk aptly concluded that aid ,‘help establish conditions under which development might eventually sustain itself’ (Pronk 2001:627).
Analysts such as Elbadawi have noted that in terms of promoting good policy aid seem not only to be idealistic but undesirable (Elbadawi 1999:579).Neo-liberal economists criticise aid as it takes pressure from developing countries and allows them to postpone rather than promote necessary but politically difficult reforms. Ernest Preeg, USAID Chief economist noted this problem in the Philippines after the collapse of the Marcos dictatorship; ‘Aid which flowed from US and other donor agencies meant that the urgency for reform dissipated. Economic aid became a cushion for postponing difficult internal decisions on reform.’( Preeg in Elbadawi 1999:581).Riddell notes a similar process in the Middle East which receive about a third of the US aid, most of which goes to Egypt and Israel. This region is ‘notorious’ for its lack of economic reform (Riddell 1997:56). Aid which goes to Egypt has resulted in the prevention of reform, and has increased inflation. The Institute for Advanced Strategic and Political Studies, an Israeli think tank has concluded that aid, ‘is the single greatest obstacle to economic reforms in the Middle East’ (Ram 2003:94). Far more effective at promoting market reforms is the suspension or elimination of aid. For instance when India faced Western sanctions in 1998 in response to nuclear tests, the International Herald Tribune reported that, ‘India approved 50 foreign investment projects to compensate for the loss of aid from Japan and the United States’. The World Bank even admitted that aiding reforming nations does not produce rapid and widespread policy reforms. The 1997 World Bank study noted that there ‘,is no systematic effect of aid on policy’ and it again rehearsed the same litany in a 2002 study that , ‘too often ,governments receiving aid were not truly committed to reforms’. (World Bank Reports 1997 and 2002 in Ram 2003:102).The left have been no less harsh on their criticism of the effects of aid on reform.Petras and Veltmeyer noted that aid has operated to dismantle public welfare programmes, undermining national markets and facilitating the Euro-American takeover of strategic sectors of the poor countries’ economies. Bounds argues that to prove that aid has not been instrumental in reform is the fact that no aid has ever financed a comprehensive land programme anywhere in the world (Bounds in Edgren 2002:265)In fact most aid has been used in modernising large scale commercial farms at the expense of landless farm workers and peasants. Aid meant for Brazil’s land reform program is a case in point. US aid during the 1990s led to reconcentration of land, displacement of more than one million peasant families and an increase in unemployment of landless rural workers. Considering the Brazilian case Edgren seems to have rightly concluded when he wrote that, ‘The aid industry is in fact a flawed instrument of promoting reform of any kind’ (Edgren 2002:262).
Aid in the long run has enabled recipient countries to build up their productive capacity, so that they can finance their investment and import requirements through normal commercial channels. This argument is upheld by neoliberal economists such as Pronk, Cassen and Martinussen, though they have failed to give systematic evidence to support it. Aid they argue, though it might have a negative effect on savings in the short run it does promote self reliance in the longrun.Cassen gives the example of South Korea. He contends that South Korea’s large amounts of aid which it received from the United States in the 1950s and 1960s declined sharply in the 1970s. It used the aid to increase productivity with its economy growing by 6.9 percent between 1953 and 1955 to 18.7percent in the 1974 to 1976 period. Its aid from the US in that same period is said to have fell from 60percent to 17percent of the GDP but because South Korea had built the productive capacity the government could now borrow from the private markets. India is also said to have followed the same pattern as South Korea in attaining self reliance. There was a high net inflow of foreign aid in the gross domestic savings rising from around 13percent of the GDP in the early 1960s to around 22percent in the late 1970s.Then there was a dramatic decrease in the net inflow of aid in the late 1970s.Cassen concluded that, ‘India’s ability to use aid effectively ensured that it could do without aid’ (Cassen 1994:30).
This automatic link between aid and self reliance is quickly dismissed by Edgren.He points out that in fact the aid industry is characterised by a host of features which promote dependency rather than self reliance (Edgren 2002:262).Evidence shows that after decades of ‘aid co-operation’ a syndrome of aid dependency has emerged as a development problem of its own. The majority of low-income countries have become heavily dependent on foreign aid in the sense that most of their public investments and a large share of the current expenditure are regularly financed by concessional resource transfers. The dependency syndrome in the developing countries has expressed itself through a pattern of behaviour which leaves all initiatives to the donor and where aid agencies are expected to pay for everything including salaries of civil servants (Edgren 2002:264).Walter Rodney a radical dependency theorist asserts that the aid relationship today between the donors and recipient countries explains the dependent status of the poor countries. Rodney points out that aid and its programmes has greater returns for the donor countries hence the continued pouring of aid finances by Western countries.Gounder in his study of Fiji noted that despite aid being a major source of income for Fiji most of the aid was used to purchase products from the donor country which in turn placed the country in a cyclical relationship of receiving aid to purchase products from Europe and America (Gounder 2001:1016).Kasper noted that aid by encouraging unnecessary imports result in dependency in which a country is now used to importing and cannot do without it (Kasper in Gounder 2001:1017)In fact ,Rodney does propose that the first measure in destroying the dependent nature of the economic and political relationship between donor and recipient countries is to ‘terminate aid’ (Rodney 1981:76).
If Martinussen’s definition of development is anything to go by, aid, on a less quantifiable but no less important level, has been said to have helped promote democracy and human rights in the developing world through the channelling of resources towards election monitoring, institution building and capacity development.Therien and Lloyd have outlined the three broad roles of aid in governance and institutional development. Firstly aid is said to be important for enhancing state capacity for, ‘reaching down the citizens and providing services in support of human development’. Focus areas in which aid maybe used include improved public administration, resource mobilization, better utilization and management of public resources, decentralisation and strengthening of local self governance. Secondly aid can be used to strengthen state society linkage institutions and procedures, especially those that provide for broader popular participation and dialogue between the authorities and organisations representing civil society. Lastly aid has been used in the empowerment of civil society organisations that give people a voice and provide them with instruments of collective action (Therien and Lloyd 2000:24).Blackie in Martinussen attributes the democratisation of Israel’s institutions to the US aid. Also by keeping with most donors’ requirements and policies most developing countries have been able to contribute to making their public and private institutions more open to citizen involvement in decision making, more transparent and accountable, more responsive to the needs of the poor and more attentive to the needs of women (Lensink and White 2002:420).
However most analysts do not agree with Martinussen and the World Bank’s argument that aid does improve the democratisation of a developing country’s institutions. Paradoxically, the specific demands concerning recipient government policies and their administrative set-up interfere with the processes of democratisation. Because developing countries are weak they are forced to pay more attention to accommodating donor demands than to demands from their own citizens and often their weak organisations. When aid accounts for a substantial proportion of government income, often more than half accountability may easily shift from citizens to donors (Teboul and Moustier 2001:189). A clear illustration of this was a letter published by Ari Musandawanga the then editor of the New Africa Magazine. In letter instead of seeking approval for an increase on military expenditure from the Ugandan parliament in 2000 budget, the Ugandan President sought approval from the British Foreign Office, where most of Uganda’s aid comes from (Laplagne et al 2001:381).Petras and Veltmeyer noted that in order to avoid public debate and popular consultations which would reject the neo-liberal package of aid, regimes in Argentina, Ecuador and Bolivia have resorted to ruling or legislating by decree (Petras and Veltmeyer 2002:289). ‘Threats of and psychological intimidation accompany the implementation of harsh economic reforms and accompanying aid. In most cases there is a growth of neo-authoritarianism in which non-elected foreign functionaries assume executive roles to govern’ (Petras and Veltmeyer 2002:289).In short aid strengthens authoritarian tendencies in the executive branches of government, undermining popular support for the electoral process and representative government, and thus democracy. (Boone in Petras and Veltmeyer 2002:289).Besides stifling democracy aid greases, ‘the wheels of corruption’. For example aid ostensibly directed to curtail the growth of coca in Bolivia, Colombia and Peru to encourage alternative crops is pocketed by corrupt military and civilian elites (Riddell 1997:167).In their paper; Age of Reverse Aid: Neo-Liberalism as Catalyst of Regression, Petras and Veltmeyer argue that instead of aid being a catalyst of development aid serves as a catalyst for policies that almost inevitably have been accompanied by corruption and authoritarianism (Petras and Veltmeyer 2002:290).
Conclusion
As has been seen in the preceding paragraphs the issue of aid as a development tool is no longer an argument between right and left since it has increasingly become unpopular with critics from both sides. In Ovalov Stokke’s words, ‘the pendulum has swung against development aid. Right and Left, Free Marketers and Socialists have thus met in condemning aid’ (Stokke in Philippe Therein 2000:457). This can seen by some conservative neoclassical economists such as Martinussen who have begun to soften their unqualified support for aid, by saying ‘…its contribution to development in general has fallen short of expectations’ (Martinussen 2002:274).Faced with harsh criticism neo-liberal economists and the pro aid camp now tend to admit, as Martinussen, that indeed aid does have problems but they quickly point out that the problem is not aid but the recipient countries. For example Mosley in his work Overseas Aid: Its Defence and Reform argues that aid should be taken as a ‘two edged sword’ which should be retained then wound down. Such arguments are apologetic. Also as seen above most analysts from the pro-aid camp seem to be referring to the same examples, to prove their case South Korea and Taiwan, yet the architects of growth in these countries during the last 30years, for example government officials, economists and the industry have on numerous occasions pointed that South East Asia owe its development to well orchestrated government and market reforms. Friedman concluded that the case for economic aid that it can promote development is a misleading half truth (Friedman 1997:56).Aid should be viewed within the ‘realist view; that is within a historical-structural context in which it should be understood as a process of pillage and exploitation’ (Petras and Veltmeyer 2002;282). The sophisticated rhetoric and absolutist positions by the World Bank that aid is an engine for growth are at best wrong as they are based on the wrong doctrine that Third World problems are as a result of lack of money
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