Friday, April 18, 2014

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Foreign Aid: Means to Development or Political Strategy?

Neoliberal perspectives fail to recognise the political dynamics underlying aid distribution and how it is used by recipient governments.
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Central African Republic’s Jean Bedel Bokassa ceremony to become an emperor.

Anyone seeking to discuss why foreign aid hasn’t alleviated poverty in sub-Saharan Africa could reasonably look to the lavish instance in which the Central African Republic’s Jean Bedel Bokassa squandered $20 million on a royal ceremony to transform himself from president into an emperor, wearing a $2 million crown and $145,000 Guiselin robes. Alternatively, perhaps Mobutu Sese Seko of Zaire – with his billions of dollars’ worth of castles, hotels, mansions, and luxury apartments across the globe, and habit of commandeering 20 cents of every dollar of aid – is more exemplary of the prevalence of corruption.

Although the neoliberal discourse of the international financial institutions and leading aid donors was established partially in response to this kind of corruption, current strategies fail to appropriately recognise the ways in which aid forms an intricate part of regimes’ political strategies. Corruption is not just inefficiency – it can also provide a crucial dimension of leaders’ political tactics and systems of rule. And donors may not necessarily object to those uses of aid money if they also contribute to their own goals.

The justification for aid from donating and receiving governments

Over the past five decades, developed countries have allocated in excess of one trillion dollars in aid to less developed countries, with the belief that these funds will help alleviate poverty and stimulate economic development. Aid is allocated based on development economics models as well as donors’ geopolitical and economic interests and a moral sense that such action is better than inaction.

Rather than seeing foreign aid as a means to development, however, many rulers of recipient countries seem to see it as a tool for achieving highly personalist strategies of governance. This leads some political scientists to argue that foreign aid is intrinsic to the way political systems in many African countries operate; aid money often enables the continuation of patronage, allowing rulers to maximise the needs of themselves and certain specific groups of society over the wellbeing of the wider population. Aid money used in this way does little to boost development, but might help maintain short-term political stability.

Thus, while there may be disorder and institutional malleability, corruption can be part of a rational and intentional strategy; corruption is not merely dysfunctional, but calculated, and forms an important part of a particular system of governance.

Some theorists trying to understand why aid has not necessarily fostered development argue that large flows of aid may be associated with declines in the quality of government and lower tax efforts. If aid flows can be relied upon by elites to yield patronage that will maintain their positions of power, incentives for policy reform and development that would alter the status quo may be reduced. Given that the amount of resources received from donors has not generally been related to efficiency in how it is used, the relationship between government elites and citizens may be affected in turn, since corruption – in the minds of elites – becomes further politically justifiable.

Strategic planning

Aid supporters frequently argue that, despite its failures, there is no alternative at least in the medium term. And, in fact, while researchers and non-governmental organisations lament the extent to which aid fails to decrease poverty, those in both donor and recipient governments may not be quite so concerned.

In autumn 2011, amidst continuing drought and famine across the Horn of Africa, for example, Meles Zenawi of Ethiopia employed aid as a tool of repression against communities who failed to support him. In spite of knowledge of his actions, however, donors failed to speak out against them – perhaps because of the strategic importance of Ethiopia and Zenawi as an ally in the war on terror.

Donor governments have also continued to send money to the likes of Uganda where President Yoweri Museveni has used government funds for personal uses. A few months after the EU transferred direct budget support to the government of Uganda in the run up to the February 2011 elections, for instance, Museveni and his ruling NRM party travelled the country to buy votes (a strategy which ultimately caused the government to later admit its destitution). Months later, allegations surfaced that Museveni had used aid funds to purchase a private jet. Regardless of how donors aim for aid to be used, it is clearly fungible and can be shifted for other uses.

Adjusting the state to fight corruption

Against the perspectives of the 1960s, which saw the pervasiveness of market failure in developing economies as justification for state intervention, a series of articles in the 1970s and 1980s proposed a new model to encourage development and growth.

These arguments suggested that the way to deal with predatory, weak states was greater economic liberalisation, which would reduce the chance for elites to manipulate markets for personal gain or engage in corruption. Aiming to break the power relations which allowed corrupt practices, structural adjustment sought to liberalise prices, devalue currencies, deregulate markets, and essentially decrease the role of the state in production. This neoliberal perspective emphasised the market’s capabilities to efficiently allocate resources and, through freer trade, generate revenue for development.

But this adaptation didn’t work as planned. Structural adjustment not only failed to tackle corruption, but also failed to diminish poverty. This led to another shift and to the emergence of the “good governance” agenda, which did not reject the sanctity of the market, but rather altered its conception of the state. This new paradigm asserted that, by bolstering rule of law and property rights, the once predatory state was necessary to enable the market. Democratisation and decentralisation were thus valued for their ability to introduce political competition that would improve accountability and aid has increasingly been made conditional upon shifts toward them.

The effectiveness of this logic, however, is also beginning to be questioned outside of the international financial institutions. A recent study suggests that aid has little ability to influence democracy one way or the other – it can neither make dictatorial governments more democratic nor corrode political institutions to decrease accountability. Rather, aid has an “amplification effect” that enhances the trajectory already present.

Adjusting neoliberalism?

Aid agencies need to pay closer attention to politics and political strategies. Neoliberal discourses have blinded international organisations to the strategic rationality behind governance strategies and the politics of (dis)order. Conceiving of governance as an economic construction fails to acknowledge the power relations which define states’ decision-making processes and institutional arrangements, and indeed that the market itself is an institution constructed and legitimated through politics. And even though things such as the rule of law and stable property rights are essential to sustain growth, critics rightly counter that the sequence anticipated by neoliberals is backwards – after all, establishing the institutions that will apparently facilitate growth requires the kinds of significant expenditures and capacities that shrunken adjusted states may not have to begin with.

One might consider structural adjustment a necessary evil because of the inability of many governments to secure their fiscal bases. But the fact remains that structural adjustment never managed to alter the underlying political motivations that created the economic inefficiency – leaders simply undermined reforms by protecting state structures and elites from the austerity they considered to be a price for maintaining political relations.

Instead of asking why foreign aid seems to lend itself so easily to the financing of “kleptocracies” therefore, it is perhaps better to consider why the aid industry continues to advocate neoliberalism in spite of its failure to break political strategies. I suspect that the answer is related to the economic interests of donor countries.

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Interesting read, but:1) pretty much all the IFI/World Bank literature of the last decade has acknowledged that aid only helps growth conditional on good policy; I don't think they're unaware of the experience of Bokassa etc, and I don't think any donor country has allocated aid according to the Harrod-Domar model (a la Easterly) for 30 years.2) good point regarding the failure of SAPs to alter incentives of leaders, but having presented this, you present your conclusion without a particular argument for it. to me it's unclear why wasteful corruption, a priori,  would be in donor interests.3) also isn't the "aid industry" worth breaking down a bit? Dollar is a stalwart of IFI publications on aid, and he's the one who suggests that aid is allocated according to UN voting patterns, when it shouldn't be... isn't a global conspiracy a bit less plausible when IFIs and donor governments disagree so often?

alistair:  Thanks for reading. With regards to your comments:1. Yes, this is what the IFIs wish to report, but this is not the only conclusion present in the literature. Some (e.g., Hansen & Tarp, 2000a; 2000b) suggest that aid will be effective regardles of the policy environment it enters. I couldn't possibly suggest that they are unaware of what Bokassa, Mobutu, etc. did, as a primary reason the neoliberal paradigm was developed was to "break" the political institutional arrangements that enabled this. And to be sure, donor models for aid allocation no longer strictly follow Harrod-Domar, but agencies' current calculation formulas are often reminscent of it; SIDA and the World Bank's RMSM are case in point.2. I'm unclear what you aim to suggest I should or shouldn't be arguing for (presumably a solution on how to alter said incentives?), but regardless, I think we can agree that understanding and altering the dynamics of corruption are more complicated than simply trying to break down formal political institutions like the SAPs did. And it isn't that I feel that donors have an interest in wasteful corruption, but that sometimes they are willing to accept it to gain other outcomes that are more important to them. 3. While I can understand why you might read it that way, I'm not at all suggesting a "global conspiracy" exists. Only to make the argument more accessible did I group IFIs and donors together, but bilateral donors are more subject to following certain motivations than multilateral donors. Furthermore, since these motivations weren't a primary objective of my piece, I felt that this simplicity wasn't problematic, because it doesn't change the fact that many donors (e.g., US, UK) tend to subscribe to neoliberal prescriptions and allocate their aid along the paradigm.