The Great Aid Debate

Part I: The Great Aid Debate: From radicals to reformers to radical-reformers

By Nilima Gulrajani

The debate over foreign aid is increasingly polarized between those who radically denounce aid as a vehicle for development and those who optimistically seek to reform it. This debate between “radicals” and “reformers” is one that I have addressed in more detail here. I’ll reproduce some of the argument in this post as relates to aid specifically, but for those who are interested in the nuances and my vision of radically-reformist development, probably best to refer to the article.

In a nutshell, I see the debates in the aid literature as pitting those who would love to shut down the aid business (“radicals”) against those who think there are possibilities to improve the industry (“reformers”). The popularity of aid skeptic literatures like William Easterly’s White Man’s Burden and Dambisa Moyo’s Dead Aid would have us think that radicals are all free marketers who see the aid industry as a cartel constituted by bloated public bureaucracies. The scope for improvement of the aid industry is limited for these radicals.  Easterly advocates dismantling aid agencies and replacing them with smaller networked organizations that rely on the nimble “searching” of bargain-hunting venture capitalists looking for their next investment opportunity. Moyo seeks to end the myth that aid to Africa is effective or can ever be made to be effective and calls for dismantling the industry altogether. For her, feeding aid bureaucracies is not only inefficient and ineffectual but harmful as it creates dependencies on foreign handouts.  Her substitute for aid to Africa?  A combination of free markets, micro-finance, commercial investment and the Chinese.

As such arguments increasingly make it onto the New York Times bestseller’s list and inform public opinion, there is a tendency to forget the radicals who criticize aid from a neo-Marxian perspective.  Critical sociology, management, anthropology and development studies have all spent the better part of the last two decades suggesting that aid, and the broader developmentalist project within which it is situated, is a neo-colonial endeavor that advances donors’ geopolitical and neo-liberal interests.  The business of aid represents poor citizens as powerless actors in need of Western assistance, advancement and modernity.  The mission of poverty reduction justifies the existence and perpetuation of this industry and the local elites who depend on it for their power.  Too often aid interventions are both ill conceived, oppressive and come at the expense of locally grounded solutions informed by indigenous knowledge. The business of aid defers opportunities for development rather than creating them, leaving radicals advocating the dissolution of aid architectures in favor of domestic social movements and embedded practical knowledge

These two schools of radical thought make strange bedfellows, and yet together they form a serious, perhaps nihilistic, challenge to a publicly financed foreign aid regime. Both right and left wing radical perspectives converge on the inadequacies of the planning processes within the aid industry and recommend a general end to the aid system as we know it.  Most contributors to this blog would likely argue that the critical school of radicalism articulates a deeper and more valid challenge to aid than the “neoliberal” school.  The question, however, remains whether and in what specific ways both variants of radical arguments can and should be merged with reformist thought and strategies.

Reformists assume that there is both theoretical and practical knowledge on how to improve aid to deliver higher performance.  The failure to reform derives from some combination of not trying hard enough and the universal/perennial presence of “unintended” consequences. The reformist agenda is shaped by an enthusiastic optimism regarding the possibilities of managerial improvement to aid’s goals, processes, technologies and values. Contemporary understandings of the aid effectiveness movement are inspired by an evolving consensus (rather than underpinned by robust evidence) that aid organizations have much to learn from management systems in the corporate sector.   For example, consider the Paris Declaration on Aid Effectiveness signed in 2005 by a number of donors, aid recipients and non-governmental organizations.  In this declaration, commitments are made to achieving cost effectiveness, achieving measurable goals of performance and accountability, formulating systematic auditing processes, achieving greater efficiency by exploiting comparative advantages to reduce duplication and strengthening incentives rather than civic commitments to collaborate.  The ideology of managerialism constructs the way reformers think about improvement in a manner that parallels the corporate world but remains silent and naïve about the politics endemic to all aid relations.

The contemporary debate on foreign aid features a lively, if somewhat unproductive, polemic that pits a motley crew of radicals who denounce foreign aid against those who advocate managerial reforms for improving the status quo. Radicals claim that the aid industry is part of the problem and offer limited solutions beyond “deadening aid” while reformists push for corporate-style solutions that ignore the very public and political contexts of aid itself.  The tendency is to either excessive pessimism or undue optimism, with very little engagement or consideration on how to achieve a radically-reformist centre. A radically reformist aid would take on board the lessons from radicals’ cautionary tales on the harmful effects of aid but still be informed by reformists’ convictions in the desirability of reform.  What is needed is serious discussion of ways to transcend simplistic managerial logics while still achieving concrete improvements to the aid system.  The Great Aid Debate both can and should be replaced by engagement and dialogue across the radical-reformist divide as this offers greater scope for advancing equality and justice in the global South.

Nilima Gulrajani is an Assistant Professor in the Department of Government and the Development Studies Institute at the London School of Economics and Political Science.

Part II: Book Review: Microfinance, the State and Dambisa Moyo’s Dead Aid

By Crystal Murphy Morgan

In Dead Aid: Why Aid is Not Working and How There is a Better Way for Africa, Dambisa Moyo has Westerners imagine what will happen in a fictional African country, “Dongo,” upon dropping all aid ties. After a thorough and valuable explanation of the failure of each aid paradigm since WWII, arguing that they worsened governance and quality of life for the average resident of a recipient country, she proposes a case of tough love—Dongo will eventually figure out its way. One interesting contribution of the text is her operational definition of aid itself, one that includes humanitarian/emergency aid, charity-based aid, and government aid. She focuses on the last of these, explaining that the former types of aid are “small beer when compared with the billions transferred each year directly to poor countries’ governments” (8). I applaud Moyo for suggesting some cut-and-dried policy recommendations, including increasing trade (especially with China). Like Cilas Kemedjio’s review posted earlier, however, my reading of some specific prescriptions for Dongo left me ill at ease.

Taken in context of the book, Moyo fails to reckon with the face of the state as a real “thing.” Assuming African states cut off from aid will gracefully transfer that energy to buttressing privatized corporations is too optimistic. Her arguments that advocate circumventing the state are based on assumptions (and justified ones at that) about elite capture and corruption of those receiving state finance before it makes it to the neediest. But, while her arguments resemble William Easterly’s anti-bad-state dogma and reject Jeffrey Sachs’ “if you can’t beat ‘em join ‘em” approach, she does not explain satisfactorily the relationships among corrupt governments, neoliberal reforms, and aid. At the end of her text, it is still unclear how certain African countries have put neoliberal reforms into place. Her text similarly overlooks whether and how such reforms shape the ways states could cope with the additional jolt she advocates to foster capitalist solutions.

One paradox regarding the role of the state that I noticed is illustrated by her chapter on microfinance, a development mechanism with which I am most familiar, having conducted research with microfinance institutions in East Africa over the past five years.

Moyo unduly champions microfinance as an alternative to ineffective aid, and her endorsement is already highlighted on microfinance institutions websites such as Kiva.org. First, she is an economist who begins from the assumption that the effectiveness of a program or policy can be measured by how many people participate in it and how cost-effective its operations are. The microfinance industry, for example, keeps going and growing through success claims based on repayment rates. But microfinance and mainstream economics miss the boat when it comes to understanding how programs really work for participants in improving the quality of their lives. How much water do assumptions about overcoming dependence (as she writes the tale of aid) hold when individuals are taken as variables whose outputs are measured only by repayment success?

Moyo notes that microfinance naysayers decry what she refers to as Ponzi schemes: when one client takes out multiple loans from multiple creditors to pay off others. Microfinance scholars have learned not to take such schemes lightly. We have ample data showing that these schemes are extremely commonplace, and must be examined by anybody who is interested in enhancing quality of life for the world’s poor. This is because we know that such practices (among many other makeshift ways of making credit ends meet) in fact worsen clients’ economic statuses and oftentimes seriously jeopardize social statuses as well. (See, for example, Schuler, Hashemi and Badal 1998 and Isserles 2003 for analyses of how such schemes can exacerbate women’s vulnerability and domestic violence).

For Moyo, the objection to Ponzi schemes “merely points to the need for more information concerning borrowers” (130). There is nothing “merely” about this need for information, however. The technological infrastructures in the African contexts she identifies as target markets for microfinance do not have the capacity to provide more information about borrowers, and people in many of these localities, such as South Sudan where I have worked, seldom have identity documentation or permanent addresses, let alone FICO scores. Who, then, does Moyo think has responsibility for gathering information about people’s mobility, employment history, and credit scores – or more importantly – their quality of life, given her staunch rejection of the state’s role in aid disbursal? If the information is not possible to obtain, or the ICT infrastructure is not privately developed, unfettered microfinance institutions also have little incentive to probe more deeply into the results of their programs. Can we not surmise, then, that the “Grameen model” which Moyo so enthusiastically endorses can continue to worsen the plight of microfinance recipients?

I am left to wonder what the impact of this book will have. It is a good read for someone unfamiliar with the paradoxes of aid to Africa. I imagine a novice reader might brush up on his or her debate factoids on how governmental administrations ought to cut wasteful aid expenditures. It might also encourage people on an individual basis to divert charitable giving (if they were doing it in the first place) to microfinance instead. This is perhaps a comforting idea if you believe that the market will step in and save the world. Unfortunately, those of us interviewing microfinance recipients on-the-ground have very different results to report.

Crystal Murphy Morgan is a doctoral candidate in the department of Planning, Policy and Design at UC Irvine.