One of Brussels' latest rather brutal infringements of member states' sovereignty is the proposal from European Commissioner for Development Andris Piebalgs to force the national governments to spend 0.7 percent of their Gross National Income (GNI) to development aid. If they fail to meet this imposed objective, the Commission will impose sanctions.
Forcing the member states to comply with this arbitrary norm, this '0.7 percent dogma' is not only the world upside down, it will also make problems in Africa and in other poor regions and countries even worse. Targets should be set according to demand rather than supply. Rather than imposing targets to increase aid, based on how well donor country economies are doing with no relation to Africa's economic circumstances, we should be setting targets to decrease aid, having analysed more profoundly its impact on recipient countries. The aid quantity argument - the assumption that more aid money would automatically lead to more development - is indeed a fallacy. The facts are crystal-clear. Over the past 60 years, at least one trillion in aid has been transferred from so-called rich countries to Africa. Yet real per-capita income today is lower than it was in the 1970s, and more than 50 percent of the population lives on less than a dollar a day, a figure that has nearly doubled in decades.
In his work The white man's burden (New York: Penguin Books, 2006, p. 46), the American developmental economist William Easterly showed by way of statistics that the connection between aid and economic growth in the period 1970-2000 was inversely proportional. Although aid increased dramatically in this period, economic growth continued to drop, resulting finally in negative growth figures. The more aid was poured into Africa, the more economic growth slowed down and the more poverty arose.
The reason for this paradox is perfectly summarized by James Shikwati, Kenyan economist and director of the Inter Region Economic Network, an organisation which promotes freedom of trade and economic and political freedom of Africans as the solution for the poverty problem in Africa.
"Huge bureaucracies are financed (with the aid money), corruption and complacency are promoted, Africans are taught to be beggars and not to be independent. In addition, development aid weakens the local markets everywhere and dampens the spirit of entrepreneurship that we so desperately need. As absurd as it may sound: development aid is one of the reasons for Africa's problems. If the West were to cancel these payments, normal Africans wouldn't even notice. Only the functionaries would be hard hit. Which is why they maintain that the world would stop turning without this development aid." ("For God's sake: please stop the aid!", Spiegelonline, 7 April 2005)
We could consider this Kenyan economist as a contemporary follower of the famous British-Hungarian developmental economist Peter Thomas Bauer.
Péter Tamas Bauer was born in Budapest in 1915. There he studied law before leaving for England in 1934 to study economics at Cambridge University. Most of his long career he was Professor of Economics at the London School of Economics. He died in London in 2002.
Nearly all of Lord Bauer's works concerned development economics, international development and foreign aid. His central thesis was that central planning, foreign aid, price control, and protectionism perpetuate poverty rather than eliminate it, and that the growth of government intervention politicizes economic life and reduces individual freedom. For him, the essence of development was the expansion of individual choices. The state's only role is to protect life, liberty, and property so that individuals can pursue their own goals and desires. Not surprisingly, Bauer was a close friend (and admirer) of both Friedrich Hayek and former British Prime Minister Margaret Thatcher.
In Bauer's view, development aid actually hinders development because it increases the power of government, leads to corruption, misallocates resources, and erodes civil society. In 1981 he summarized the case against development aid in his standard work Equality, the Third World and economic delusion (Cambridge, Massachusetts: Harvard University Press) in the following way:
"The argument that aid is indispensable for development runs into an inescapable dilemma. If the conditions for development other than capital are present, the capital required will either be generated locally or be available commercially from abroad to governments or to businesses. If the required conditions are not present, then aid will be ineffective and wasted." (p. 100).
Thirty years later, Lord Bauer's views are confirmed by the situation on the terrain. Africa is in a mess and the massive development aid is one of the major causes. Why?
First of all, massive and continuous flows of aid have created a culture of dependence and therefore constitute an obstacle for introducing structural changes. African government consider foreign aid as a permanent, reliable en consistent source of income and see no reason to adopt an alternative policy to foster and finance the economic development of their country. If the only thing you have to do is to cash your cheque, why should you elaborate an economic-financial policy or planning in the long term?
As publicist Irwin Stelzer puts it:
"An assured continued flow of aid infantilises and debilitates its recipients, and prevents the local economy from becoming self-sustaining. It diverts local politicians from the hard work of creating the institutions that make private-sector development possible and instead sets them wandering from one world capital to another, begging bowl in hand." (Irwin Stelzer, 'The Palestinians' real problem is aid', The Spectator, 25 March 2006).
Unconditional aid also incites governments to create a large and inefficient public sector. The friends of the regime have to be rewarded. In this regard, James Shikwati observes that development aid fosters the so-called 'political industry' and curbs the real economy (Quoted in: Patrick Welter, 'Wer Afrika helfen will, darf kein Geld geben', FAZ.NET, 4 April 2007). No wonder that in Africa the richest people are politicians, not entrepreneurs.
And the problem gets worse. Some economists predict that by 2015, twenty-seven of Africa's thirty-eight low income countries are likely to receive aid inflows equivalent to over 50 percent of total public expenditure, while for twelve that figure will be 75 percent (Jonathan Glennie, The trouble with aid. Why less could mean more for Africa., London/New York: Zed Books, 2008, p. 99). This means total dependence.
As Lord Bauer said, development aid also fosters corruption. Massive aid leads to massive corruption. The point is not that corruption exists in Africa. Corruption exists in every country in the world. The point is that corruption has become a way of life in Africa and that aid is one of its greatest aides. It is a well-known pattern that massive foreign flows of money not only feed the corruption in a country but also make it expand dramatically. This pattern applies even more for Africa where multilateral and bilateral donors only have minimal instruments and mechanisms of control. I could give you thousand examples but let us stick to one striking case, the Global Health Fund. This 21,7 billion dollar development fund was created in 2002 and hailed as an alternative to the bureaucracy of the United Nations. Recently, investigators discovered that much of the fund's grants were eaten up by corruption. 67 percent of money spent on an anti-AIDS program in Mauritania was misspent. So was 36 percent of the money spent on a program in Mali to fight tuberculosis and malaria, and 30 percent of grants to Djibouti. According to the Fund, the African ministries of public health are the ones to blame.
Widespread corruption is of course a killer of economic growth. In countries where governments, public institutions and courts of law are corrupt, both domestic and foreign investment is unattractive. Fewer investments reduce economic growth, which leads to fewer job opportunities and increasing poverty levels. As a response, donors give even more development aid, which further feeds corruption. This is the vicious cycle of aid.
Massive aid also erodes civil society and prevents the development of real democracy. We can consider democracy as a kind of social contract between the state and its civilians. The state levies taxes on its civilians and in turn has to guarantee their safety and provide them with public services. In a democracy, a government needs tax income and the support from its civilians and therefore has to pursue a sound policy. This accountability is the core of every democracy. In Africa, such a social contract is impossible because of the massive development aid. Because of these continuous financial flows, African governments do not depend on domestic tax income and therefore do no need to bother about the support from their populations. Public services like education, health service, infrastructure are ensured by the international community, not by the African governments. On the other hand, Africans see their governments simply as a (corrupt) continuation of foreign countries and international organisations.
In some cases development aid even directly supports and sustains dictatorial regimes. In October 2010, Human Rights Watch revealed that the Ethiopian government is massively and systematically using development aid to suppress political dissent by conditioning access to government programs on support for the ruling party (Human Rights Watch, 'Ethiopia: donor aid supports repression', 19 October 2010). Hilarious is that although the human rights situation in Ethiopia continued to deteriorate from 2005, donors have ramped up aid during the same period. Between 2004 and 2008, development aid doubled. Today the Ethiopian regime is one of the world's largest recipients of aid. In 2008, total aid was 3.3 billion dollar.
Aid also foments violent conflict. The prospect of seizing power and gaining access to aid wealth (and oil in oil-rich countries) is irresistible. Thus, aid not only undermines economic growth, but it is also a cause of unrest, and possibly even civil war (Dambisa Moyo, Dead aid., New York: Penguin Books, 2009, p. 59-60).
Decades of massive and unconditional development aid have brought Africa nothing but misery. It is time for a new strategy in line with the views of Lord Bauer and James Shikwati. Instead of overloading Africa with detrimental aid, the West has to support African countries in introducing far-reaching economic and political freedoms because these are the real structural conditions for stable economic growth.
As Robert Calderisi, author of the book The trouble with Africa. Why foreign aid isn't working (New York: Palgrave Macmillan, 2006) said:
"Africans need breathing space much more than they need money. Not a Marshall Plan, but real backing for the few governments that are fighting poverty, plus political support for the millions of Africans who are resisting oppression and violence in the rest of the continent." (Quoted by: Nicholas D. Kristof, 'Aid: can it work?', The New York Review of Books, 5 October 2006)
Lord Bauer would have said that Africa needs to move from victim to ownership. First and foremost, dictatorships and corrupt regimes have to be set aside. Only then Africans can build up states necessary to ensure the framework for functioning market economies like security, health service, an education system, infrastructure, property rights, an independent judicial system etc. Next to this, Africans also have to trade much more with each other. Trade barriers have to be eliminated.
Of course we have to help Africa in reaching these goals. It is not an easy job. It requires an enormous mentality change, both in Africa and in the West. But only a strategy modelled on Lord Bauer's views is a formula for success. It is time to revalue his legacy. To tackle poverty in Africa, British Prime Minister David Cameron should better take advice from James Shikwati than from Bob Geldof.