January 18, 2006

Talk on aid

Yesterday evening’s One World Week discussion was on aid effectiveness. The list of participants can be found here.

Two interesting points mentioned were –

a) The complicity of donors in perpetuating corruption: Aid has not always been conditional on quality of governance. Withholding aid on the basis of corruption may increase willingness of states to reform, but people will die as a result. Perhaps the moral imperative to assist outweighs concerns of value for money. Additionally, the optimal level of corruption is not zero. Eliminating corruption is prohibitively costly, which is why it exists in the developing world too. Donors decide on an acceptable level of money misuse.

b) Progress in the Doha trade round: David Loyn (BBC Developing World Correspondent) and a member of the audience criticised Economics professor Kent Jones for saying developed nations should make concessions too. They said that given the wealth of OECD nations and their historical misuse of power, responsibility for progress fell on their shoulders and poorer nations should liberalise at a rate of their choosing. Jones said that one-way liberalisation would be better than nothing, but it’s just not feasible politically. In the real world, countries won’t give things up for free. Poor nations should thus compromise if discussions are not to be a complete waste; they have the most to loose. Underlying this point was the probably erroneous assumption that protection is a necessary condition for progress. Chomsky has aired this view before

Furthermore that's true of every single developed society. That's one of the best known truths of economic history. The only countries that developed are the ones that pursued these techniques. The ones that weren't able… There were countries that were forced to adopt "free trade" and "liberalization": the colonies, and they got destroyed. And the divide between the first and the third world is really since the 18th century. It wasn't very much in the 18th century, and it's very sharply along these lines.

The fact that we’re trying to persuade the richest nations in the world to eliminate barriers is a testament to the persistence of trade distortions. It’s thus odd to see people encouraging the poor to hold onto theirs.

The panel were pretty positive towards aid, so a more vocal opponent would have been interesting. In defence of aid, David Loyn and Sam Sharpe (DFID) mentioned many projects that had proved beneficial to different groups. However in itself, that means little unless contrasted with the number of failed initiatives. Additionally, they correctly reconciled any observed decline in performance by saying that aid limited the extent of the decline. Still, I said here, that it'd take incompetence on an immense scale for billions of dollars in aid not to have some positive impact.

I know lives are at stake, but the issue of value for money deserved a mention. Other issues not mentioned were micro-credit, convergence towards ‘quality’ governance or the relative importance of the different issues aid is directed towards.

In all, it was a good discussion which highlighted the very real effect beneficial effect aid can have on its recipients.

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