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The inconvenient truth about foreign aid: The aid system colludes in redistributing wealth from poorer to richer. Under an aura of beneficence, aid is harnessed to self-interest. February 9, 2017

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Odaa OromooOromianEconomist

The inconvenient truth about foreign aid

For recipients aid has been a very mixed blessing, but for donors it’s been a bonanza.

Credit: Flickr/DFID. Some rights reserved.

It’s astonishing when you think about it. Why should an old and poorly-performing industry carry on, burdened with even more tasks, and provided with yet more money? I’m talking about foreign aid, whose mixed results have been reconfirmed countless times in the last 70 years.

For aid’s backers, such skepticism is unfair or at best premature. Successes, from combating diseases to promoting the ‘green revolution,’ are held as self-evident. With new, smarter policy formulas and management focused on results, failure is soon going to be minimized. Across most of the Left-Right spectrum, aid still enjoys political backing. Western spending continues largely upward. New aid donors from Turkey to Thailand are joining in. And tasks are expanding.To achieve the 169 targets of the world’s 17 Sustainable Development Goals by the year 2030, global leaders concur that foreign aid is vital.

For aid’s critics, however, ‘mixed results’ is a euphemism for badly designed, poorly-managed efforts guided by donor hobbies and flip-flopping policies that ignores the graveyards of failed programmes, the histories of waste, and the sometimes toxic outcomes of aid born of coercion and incoherence. China and Vietnam reduced poverty significantly with almost no Western aid, while aid-dependent countries like Malawi and Timor-Leste have fared badly—in which case why does the aid industry keep on prospering?

To answer that question we have to look at the drivers and navigation systems at work upstream in the system where the captains of the aid industry confer. These drivers get little serious probing, but the knowledge we do have points to an inconvenient truth: the main systems of development aid chiefly serve the donors. The aid system colludes in redistributing wealth from poorer to richer. Under an aura of beneficence, aid is harnessed to self-interest.

Here’s how.

To buy goodwill from others or coerce them, aid provides a classic tool of statecraft. For the biggest donors it can buy votes at the United Nations, keep client regimes ‘onside’, punish troublemakers and open doors to powerful people. As a former senior US aid official put it, “Foreign aid … is like political campaign contributions:  it can facilitate the access of those providing it to those receiving it.” Giving aid helps governments to look good in diplomatic forums while encouraging taxpayers to feel good about their generosity.

In addition, ‘our security’ is at stake. Since 9/11 development and humanitarian aid has increasingly been subordinated to hard power aims—that is ‘securitized.’ European aid, for example, is now supposed to help curb irregular migration from Africa.  Meanwhile, military doctrine and operations have become ‘developmentalized,’ complementing older practices in which aid lubricates access to strategic assets as in Kyrgyzstan, where western aid was exchanged for use of an airbase serving NATO operations in Central Asia.

Boosting exports and investments are major objectives of aid providers. A scholarly consensus, backed by many studies, holds that the mercantile interests of aid givers usually enjoy priority over the interests of aid recipients. For donors the pay-offs are many. For example, for every €10 the Dutch provide in bilateral aid to an average recipient country, Dutch exports to that country increase in the short run by €7 to €9. In the longer run, as goodwill and force of habit take hold, aid-induced sales then become even more lucrative. In the period 1988-2004, each dollar in Western bilateral aid yielded 2.15 dollars in additional exports of goods and services by Western businesses.

Donors use aid to gain footholds for their industries, like Japanese fishing fleets in the South Pacific, French uranium mining in Niger and oil and gas companies in emerging producers of hydrocarbons. Aid providers work assiduously to lower costs and risks for their business investors using subsidies like low-cost loans, insurance and market advice. In recipient countries they add to physical infrastructure and occasionally skilled-up workforces. But the aid system’s most powerful contributions involve the transmission and enforcement of ‘sound policy’, meaning policy that is suitable for investors.The formulas are well-rehearsed: sell-offs of public property; weaker protection of labour rights and environmental safeguards; and taxes shifted from foreign flows to domestic sources.

Under the World Bank’s ‘competitive cities’ approach, municipalities are pushed to compete for outside investment by offering tax ‘sweeteners’, land and other subsidies. With the rise of financial sector power, donors have facilitated the growth of stock markets and hot money flows. Key to these investor-friendly climates has been austerity—driving down public spending in recipient countries.

Acting almost as bailiffs, donors also help to extract payments to big pharmaceutical and software firms who own patents, copyrights and other kinds of ‘intellectual property.’ In the years 2012-2015, sub-Saharan African countries together paid about $10 billion to these private interests, up from about $8.7 billion in the years 2007-2010. But because rich country tax laws allow firms to hide profits, these World Bank data may actually understate the true scale of extraction.

Under vigorous donor pressure, poorer countries have poured trillions of dollarsinto Western banks under a rationale of self-insurance. As the economist C. P. Chandrasekhar has pointed out “This reverse flow of capital essentially means that excess savings in emerging markets are being ‘recycled’ in ways that put the responsibility of allocating that capital in the hands of a few financial decision makers … sitting at the apex of a concentrated global financial system.”

Consistent with their promotion of rent-seeking from ‘intellectual property’, donors show almost no interest in curbing cartels and other anti-competitive practices by transnational firms. Research is scarce, but it points to massive losses for poorer countries. One study estimates that annual losses are equivalent to at least 50 percent, and could equal as much as 300 percent of aid disbursed.

Donors have also invested in knowledge, but gains can flow back disproportionately to themselves. Aid for the ‘Green Revolution’, for example, helped boost crop yields in poor countries, but major beneficiaries have been western agribusinesses. Up to the early 1990s, estimated returns to such firms were forty times the amount of aid paid out originally by the US for research and development of the ‘Revolution’s’ higher-yield technologies.

Contrary to the belief that aid-financed programmes target diseases that mainly affect people in the tropics, research shows that “development aid is intended to alleviate the threats to populations within the donor state.” And since the 1960s, foreign aid has brought hundreds of thousands of students from poorer countries to study at universities in Europe and North America. Today, student fees and expenses annually absorb more than $3 billion in aid—virtually all of it spent in donor countries.  Where the longer-term benefits from aid-funded scholarship programmes go isn’t known with much precision, but there is some evidence that former scholarship holders from Africa tend to stay in richer countries, or to work abroad in Western firms and other organisations.

In sum, poorer countries routinely put more resources at the disposal of donor country interests than they receive in foreign aid, yet it isn’t easy to demonstrate this inconvenient truth conclusively. Estimating the extent of the aid system’s collusion in ‘perverse’ aid is often guesswork because the system’s upper reaches lack transparency. Laws, rules, political agreements and sheer inattention shield many counter-flows from public view. Every year, thousands of evaluations of aid’s ‘downstream’ activities take place but I know of no formal evaluation of aid mechanisms ‘upstream’ that would indicate with precision who benefits and by how much.

Does it have to be this way?

In 1943, at a time of enormous human suffering, one of the 20th century’s greatest activist-philosophers, Simone Weil, wrote about the characteristics of practical compassion for others.  She insisted that help must be concrete and authentic: “All human beings are bound by identical obligations, although these are performed in different ways according to the circumstances…. The obligation is only performed if… expressed in a real, not a fictitious, way.” Today, in framing debates about obligations across borders, that plea has lost none of its relevance.  It calls for lucidity, and hence the rejection of pseudo-solutions promoted through the foreign aid system.

Activists, academics, journalists and NGOs in a number of fields are already focusing on counter-flows and the legal gimmicks and non-transparency that promote them.  Although based outside the mainstream aid system, these initiatives are getting respectful attention from some donors, notably in Norwaybut also in a few knowledge centres of the United Nations. A prime example is the movement for tax justice.These combined efforts have begun to pay off as better tax enforcement and new rules yield more revenues for public purposes. Meanwhile a bloc of non-Western governments at the United Nations led by Ecuador is pressing to create a global tax body.

A system of global taxation won’t be with us soon, but as this idea gains traction it may open up a pathway towards an authentic system of redistribution across national borders. In so doing it could help to replace today’s machinery of upward redistribution, re-build decent social contracts, and ultimately sideline foreign aid as we know it.

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When Aid Goes Wrong January 17, 2016

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Odaa OromooDounle digit Ethiopia

 

The World Bank accepted a rap on the knuckles for the massive flaws in the PBS programme but did not cancel it. DfID re-routed funds to other programmes in Ethiopia, the aid flowed to the authoritarian regime as before. In late 2015 and early 2016, famine threatened. No one asked the obvious question: how much has Ethiopia’s brutal, donor funded, economic experiment contributed to the collapse in livelihoods?

 

Of all the academic economists working on Ethiopia, I could not find one who was willing to speak on the record for this article. Much of the professional field of development studies is dependent on DfID research grants, with many academics serving on multimillion-pound study teams.

“If you challenge the consensus and make headlines, it is going to make your life harder,” said one economist at a London university, speaking on condition of anonymity.

 

Evaluations of PBS relied on figures supplied by the Ethiopian government; there were huge, unexamined risks of corruption in funnelling the money through the Ethiopian treasury, and the metrics used to measure success were simply the things purchased by the programme, such as schools built, wells dug, pupils enrolled or teachers hired. The donors had, in fact, no way of measuring whether those things actually benefitted the populations concerned.

http://www.theguardian.com/world/2016/jan/12/ethiopian-refugee-who-took-on-the-british-government

 

Geography:Excel

ETHIOPIA-TRANSPORT-RAILWA-009 Development in Ethiopia’s capital city. But at what cost?

Most more economically developed countries give aid to those that are less developed and this is almost always seen as a positive thing. However there have been cases when the aid provided has done more harm than good.

This article looks at the situation in Ethiopia. This country has been a major recipient of western aid since the 1980s and much of it seems to have been successful in helping the country to develop and to fend off the worst of the famines that ravaged the country in the past. Currently though the development drive in Ethiopia has been implicated in forcing people off their land and in to less fertile areas.

It is a long read but full of information that could really develop your essay writing.

Consider the following points.

  1. Why are people being moved from their ancestral…

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Foreign aid largely helps the wealthy, not the poor November 1, 2015

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A failing project: International development aid November 24, 2014

Posted by OromianEconomist in Africa, Africa Rising, African Poor, Aid to Africa, Development & Change, Economics: Development Theory and Policy applications, Ethiopia's Colonizing Structure and the Development Problems of People of Oromia, Afar, Ogaden, Sidama, Southern Ethiopia and the Omo Valley, The extents and dimensions of poverty in Ethiopia, UK Aid Should Respect Rights, UN's New Sustainable Development Goals, Youth Unemployment.
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O

They tell us that poverty has been cut in half in the last fifteen years or so, but independent watchdogs have repeatedly shown that this claim rests on statistical sleight-of-hand. Moreover, it relies on a poverty line of $1.25 a day, which no longer has any credibility. A more realistic line of $2.50 – the absolute minimum for achieving normal human life expectancy – shows that 3.1bn people remain in poverty today, which is 352m more people than in 1981, according to a 2008 study. And all the while, the wealth ratio between the richest and poorest countries has grown from 44:1 in 1973 to nearly 80:1 today (according to my estimation). The richest 85 people in the world (Mr Gates being one of them) now have more wealth than the poorest 3.5 billion, or half the world’s population. The aid project is failing because it misses the point about poverty. It assumes that poverty is a natural phenomenon, disconnected from the rich world, and that poor people and countries just need a little bit of charity to help them out. People are smarter than that. They know that poverty is a feature of the global economic system that it is very often caused by people, including some of the people who run or profit from the aid agenda. People have become increasingly aware – particularly since the 2008 crash – that poverty is created by rules that rig the economy in the interests of the rich. –  http://www.aljazeera.com/indepth/opinion/2014/11/death-international-developmen-2014111991426652285.html

 

 

 

The death of international development

The development industry needs an overhaul of strategy, not a change of language.

By Jason Hickel*

International development is dying; people just don’t buy it anymore. The West has been engaged in the project for more than six decades now, but the number of poor people in the world is growing, not shrinking, and inequality between rich and poor continues to widen instead of narrow. People know this, and they are abandoning the official story of development in droves. They no longer believe that foreign aid is some kind of silver bullet, that donating to charities will solve anything, or that Bono and Bill Gates can save the world.

This crisis of confidence has become so acute that the development community is scrambling to respond. The Gates Foundation recently spearheaded a process called the Narrative Project with some of the world’s biggest NGOs – Oxfam, Save the Children, One, etc. – in a last-ditch attempt to turn the tide of defection. They commissioned research to figure out what people thought about development, and their findings revealed a sea change in public attitudes. People are no longer moved by depictions of the poor as pitiable, voiceless “others” who need to be rescued by heroic white people – a racist narrative that has lost all its former currency; rather, they have come to see poverty as a matter of injustice.

These findings clearly demonstrate that people are beginning to reject the aid-centric approach to development. But instead of taking this as an opportunity to face up to their failures and change the way the industry works, the Gates Foundation and its partner NGOs have decided to stick with business as usual – but to cloak it with fresh language.

Leaked internal documents make it clear that the Narrative Project is nothing more than a PR campaign – a bid to “change public attitudes” by rolling out fresh language that will be more effective at securing public support and donations. The strategy goes like this: Talk about the poor as “equals” who share our values; emphasise that development is a “partnership”; stop casting rich people and celebrities as saviours of the poor; and above all, play up the idea of “self-reliance” and “independence”, with special attention to empowering women and girls. Progressive Westerners love this stuff.

This new framing amounts to little more than a propaganda strategy. Instead of changing their actual approach to development, the Narrative Project just wants to make people think they’re changing it. In the end, the existing aid paradigm remains intact, and the real problems remain unaddressed.

A failing project

Why do people no longer believe in the charity and aid-centric model of development? According to the Narrative Project, it’s because they’re all a bit stupid. They let their personal beliefs override the “facts”. They’re “old” and “conservative”. And they’re too calloused to care about social causes. It doesn’t occur to the development industry that people might have good reasons for their scepticism. And there are many.

For one, the aid project is in fact failing. There have been some achievements, to be sure, but the Gates Foundation and official sources like the UN want the public to believe that these piecemeal gains are tantamount to overall success. They tell us that poverty has been cut in half in the last fifteen years or so, but independent watchdogs have repeatedly shown that this claim rests on statistical sleight-of-hand. Moreover, it relies on a poverty line of $1.25 a day, which no longer has any credibility. A more realistic line of $2.50 – the absolute minimum for achieving normal human life expectancy – shows that 3.1bn people remain in poverty today, which is 352m more people than in 1981, according to a 2008 study.

And all the while, the wealth ratio between the richest and poorest countries has grown from 44:1 in 1973 to nearly 80:1 today (according to my estimation). The richest 85 people in the world (Mr Gates being one of them) now have more wealth than the poorest 3.5 billion, or half the world’s population.

The aid project is failing because it misses the point about poverty. It assumes that poverty is a natural phenomenon, disconnected from the rich world, and that poor people and countries just need a little bit of charity to help them out. People are smarter than that. They know that poverty is a feature of the global economic system that it is very often caused by people, including some of the people who run or profit from the aid agenda. People have become increasingly aware – particularly since the 2008 crash – that poverty is created by rules that rig the economy in the interests of the rich.

A system of plunder

We can trace this rigging process through history. The programmes that global South countries used successfully to build their economies and reduce poverty after the end of colonialism – trade tariffs, subsidies, social spending on healthcare and education – were in many cases actively destroyed by Western intervention in the name of “development”.  Western-backed coups in Iran in 1953, Guatemala in 1954, Congo in 1961, Brazil in 1964, Indonesia in 1965, Chile in 1973 – to name just a few – deposed democratically elected leaders with pro-poor platforms to install dictators friendly to multinational corporations. Most of these dictators received billions of dollars in “aid” from Western governments.

When coups fell out of favour with the voting public, the World Bank and the IMF stepped in instead. They leveraged debts to impose crushing “structural adjustment” programmes on poor countries, forcing them to privatise public assets, open their markets to Western goods, cut social spending and reduce wages, and give foreign companies access to extra cheap labour and raw materials. Structural adjustment was one of the greatest single causes of poverty in the global South in the 20th century, and it continues to this day under the guise of “austerity” .

These destructive policies only persist because voting power in the World Bank and the IMF is controlled by rich countries. High-income countries control more than 60 percent of the voting power at the World Bank, but are home to less than 15 percent of the world’s population.

Right now, developing countries lose as much as $900bn each year to tax evasion by multinational companies through trade mispricing, and almost the same sum again through transfer pricing. They lose another $600bn each year in debt service to mostly firslt world banks. These losses alone amount to nearly 20 times more than the total flow of aid, which is a paltry $135bn – and that’s not counting land grabs and other forms of resource theft.

All of this makes it clear that poverty is not a natural condition. It is a state of plunder. It is delusional to believe that charity and aid are meaningful solutions to this kind of problem.

Some people in the NGO community know this all too well, and they are calling for genuine political change: The democratisation of the World Bank and the IMF, fairer trade rules, and an end to tax evasion. But because the leadership at the Gates Foundation and some NGOs find these issues inconvenient  such alternative voices are being side-lined in favour of a disingenuous attempt to “fix” public attitudes by pushing ever harder on the same old charity and aid story.

If the Gates Foundation and NGO leadership want to get serious about tackling poverty, they might start by talking to the public about the importance of releasing developing countries from the siphons of rich countries and their corporations. They might help put the final nails in the coffin of the paternalistic story of charity and aid, white saviours and poor brown victims, and tell the real story about how the rich get richer off the backs of the poor. That would be a true starting point for development in the 21st century.

*Dr Jason Hickel lectures at the London School of Economics and serves as an adviser to /The Rules.

Martin Kirk, Global Campaigns Director of /The Rules, contributed to the analysis for this article.

 

Read more @ http://www.aljazeera.com/indepth/opinion/2014/11/death-international-developmen-2014111991426652285.html

African presidents ‘use China aid for patronage politics’

Most of the $80bn of development funds sent to Africa went to areas where national leaders were born rather than the most needy, says AidData report

http://www.theguardian.com/global-development/2014/nov/19/african-presidents-china-aid-patronage-politics

African leaders are almost three times more likely to spend Chinese development aid in areas where they have ethnic ties, casting doubt on the humanitarian effectiveness of Beijing’s strict “hands-off” policy in the continent.

China says it spends more than half of its foreign aid in 51 African countries, and AidData, an open-source data centre, says Beijing sent more than $80bn in “pledged, initiated, and completed projects” between 2000 and 2012. Most of that aid went to areas where national leaders were born, indicating a strong political bias, AidData said.

“As soon as [a region] becomes the birthplace of an African president this region gets 270% more development assistance (from China) than it would get if it were not the birth region of the president,” said Roland Hodler, professor of economics at the University of St Gallen in Switzerland and co-author of a report, Aid on Demand: African Leaders and the Geography of China’s Foreign Assistance, published in conjunction with the database.

Ghana, the Democratic Republic of the Congo and Ethiopia received the most Chinese development assistance over the reporting period, the study showed.

China is sending development funds to African governments with the aim of buying long-term political alliances, Hodler said. Sierra Leone’s president, Ernest Bai Koroma, recently used Chinese aid to build a school in Yoni, his hometown, according to the report.

“To us, this suggests that the Chinese principle of non-interference in domestic affairs allows African presidents to use Chinese aid for patronage politics. I am sure the Chinese are aware of this, and I would argue that they accept it because they care more about having a president who is sympathetic to them than about the poor,” said Hodler.

But the study also noted that, contrary to popular belief, Chinese aid to Africa is not strongly tied to countries that host Beijing’s oil and mining operations. “We do not find a strong pattern that Chinese aid only goes to regions where there’s a lot of natural resources. The picture that they only go after natural resources is not really confirmed by our sub-national level analysis,” Hodler said.

Deborah Brautigam, director of the China Africa Research Initiative at John Hopkins University, said: “Most Chinese finance in Africa is not official aid, but business-related export credits borrowed by governments to finance infrastructure projects of various kinds. If these governments want to channel projects to their home town, Chinese banks would have no objection.

“For official aid, which is heavily diplomatic, the Chinese government looks beyond any sitting African leader to all the leaders to come, and to public opinion more generally. This is why they use their official aid for big, visible projects like stadiums, ministry buildings, and airports that can be seen and used by many people – in the capital city – and not tucked away in a rural hamlet.”

Researchers took data that China published on its foreign assistance and mapped where development projects were located. “The Chinese tend to send more aid to countries that are somewhat poorer but within these countries they go for the relatively rich regions,” said Hodler.

China maintains that it sends aid to African governments with the aim of furthering their development agendas.

The Chinese government said in July: “When providing foreign assistance, China adheres to the principles of not imposing any political conditions, not interfering in the internal affairs of the recipient countries and fully respecting their right to independently choosing their own paths and models of development. The basic principles China upholds in providing foreign assistance are mutual respect, equality, keeping promise[s], mutual benefits and win-win.”

• This article was amended on 21 November 2014 to clarify that the $80bn figure for aid to Africa between 2000 and 2012 was an estimate by AidData, not an official Chinese government figure, and that the estimate includes “pledged, initiated, and completed projects”.

Read more @ http://www.theguardian.com/global-development/2014/nov/19/african-presidents-china-aid-patronage-politics