Friday, June 08, 2007

What is to be done?

The gaps are getting shorter. Pretty soon the Ramble will be worthy of it’s name again!

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Regular readers of the Ramble (assuming, that is, that there still exists such a thing these days) will have noted that I’ve become increasingly critical in the standard approach to aid. This approach is the one which takes the path of least political resistance with regards to the Western nations, focusing on the easy sells of education, health and water supply. Now, only a fool would dispute the importance of these issues, but as I’ve said again and again, the real issue in development is the development of capitalism. Once it’s established and functioning, these issues can be resolved from within the domestic resources of the country, through Government taxation and expenditure. I’m not saying in the mean time that we should ignore these issues; each can have an impact on the formulation of a capitalism, and they are goods in their own rights.

What we do need to do, however, is look very carefully at the means through which we seek to improve health, education and the like, and consider fully how these methods are likely to impact on the development of capitalism. This is a test most donors fail. For most, it’s simple enough to argue that a healthy and educated workforce is good for the economy and leave it at that. This is not in dispute. Even where the economic structure is not conducive to or harmful to the development of capitalism, a healthy and educated workforce will most likely make whatever form of economic structure that does exist more efficient. Even where donors do contribute directly to

But there’s a fundamental question that is often left unasked. What impact does the structure of aid delivery itself have on the economic forms in the country? There are two elements to this. Firstly, we have to consider how the aid itself changes the way in which the economy and Government functions, and secondly, how the organizations set up to administer the aid change the economic landscape.

Both have enough impact to fill several Rambles, but let me give a flavour of what their impact is here. First let’s briefly consider the impact of the aid organizations themselves. The most obvious way in which the organizations have an impact is in attracting many of the best and most able professionals away from Government, with the lure of better salaries, and away from the private sector, with the lure of a stable and regular income. This is obviously a problem, and most donors recognise it and are doing their best to mitigate it, in their own ways.

However, there is much less engagement with the impact of the aid itself. The money available entices Government to change its spending plans and behaviours to unlock the resources available. This is normally borne of a short-termist mindset. Poor countries’ governments are usually extremely resource constrained, so the feeling is that any additional resources are worth pursuing. This is not the case. When the effort taken to unlock the resources available take one away from the economic policies most likely to deliver long term dividends in terms of the self-sustaining dynamism they generate, it’s not worth chasing the short term gain of greater resources. Development assistance should be sought and unlocked where it coincides with the policy direction required for the generation and sustenance of a true capitalism – not wherever it is available.

(Of course, all of this presupposes that in the absence of any distortions caused by aid, governments would be pursuing those socio-economic policies most likely to bring about capitalism. I don’t believe this is the case, a problem to do with the way mainstream economics treats the process of development).

So, what is to be done? I don’t believe that the answer is to abandon all aid. There is already a tendency to move towards ways of delivering aid that remove the problems mentioned above. Direct budget support, lump sums which are paid to developing country Governments, is a big step in the right direction. In too many cases, the volume and timing of this support is still determined by the donors concerns, the ones which they want to report back to their home Governments. But it’s undeniable that the modalities of aid delivery are gradually improving.

What remains now is for the agenda on aid to be reoriented. There needs to be a conscious decision to make economic transformation, capitalism and wealth creation the ultimate central goal of the development process, and to orient the way aid is organised and targeted around this. Not all donors will be expected to fund this directly (indeed, it’s very difficult to fund at all; this will be the subject of a future post). But all, whether focused on private sector development or HIV, need to pay attention to this in planning their activities. Aid can be delivered in a way that doesn’t cause as many problems as benefits. It just takes honesty in assessing how aid is and can be delivered, and the courage to focus on a long term goal that is far harder to sell than social development that most donors currently place at the centre of their plans.