Cracking Open Foreign Aid

By Alex Linzmeier:

In 1946, the colonial government of Great Britain, faced with a shortage of
margarine and cooking oil, attempted to cultivate peanuts in Kongwa, Tanganyika. They
spent millions transporting tractors, bulldozers, water, fuel, and workers to the remote
site on single-track railroads and poorly equipped roads. They even sent a film crew to
document the progress. After realizing the land was unsuitable for cultivation and the
maintenance costs were too high, they abandoned the project in 1951. The bulldozers sat
broken and abandoned, the land remained arid, and the money was wasted. While not a
direct example of foreign aid, the Tanganyika Groundnut Scheme, a colonial
development project, illustrates policy makers’ failures to learn from the past when
implementing foreign aid with the intent of causing economic development. Despite the
reluctance of locals to settle on the land, the British government thought they knew best.
The groundnut scheme began with public fervor and ended in quiet failure.
Today’s aid projects suffer from the same problems: “vehicles and equipment
frequently lie idle for lack of spare parts, repairs, gasoline, or other necessities. Schools
lack operating funds for salaries and teaching materials…roads, public buildings, and
processing facilities suffer from lack of maintenance” (qtd. in Easterly 45). Thus far,
foreign aid has failed to promote economic development in the world’s poorest countries
because it suffers from issues of poor allocation and low accountability. Foreign aid will
only promote economic development once it is allocated directly to impoverished people
in the form of health care, education, and microloans through individually chartered
projects that can be evaluated quantitatively.
Foreign aid in general has failed to promote economic growth. In William
Easterly’s article entitled “The Cartel of Good Intentions,” he lays out quite clearly the
results: from 1970 to 1998, aid as a percentage of GDP for African countries increased
from around 6% to 17% while GDP growth per capita decreased from 1.75% to around
0% (45). And yet, good intentioned aid proponents continually call for more aid to fund
programs that don’t work. “World Bank President Robert McNamara called for a
doubling of aid in 1973. The call for doubling was repeated at the World Bank in its
1990 ‘World Development Report.’ Not to be outdone, current World Bank President
James Wolfensohn is now advocating a doubling of aid” (Easterly 44).
Economist Jeffrey Sachs states that in relation to other countries such as Norway,
which gives .92% of its gross national income to foreign aid, the U.S only gives .15%
(87). He argues that because the U.S. could give more, it should. He fails to mention that
the U.S has the highest GNI in the world (World Bank), roughly 35 times the size of
Norway’s. He also fails to mention that Norway benefits from the high tax rates of a
socialist economy and the ease of raising money on a smaller scale, but stats aside, the
Millennium Villages that Sachs raised funds for didn’t fare better than the rest of Africa
even though an initial study favored them over control villages. An evaluation of Jeffrey
Sachs’ Millennium Villages by The Economist found that “at roughly the same time as the
Lancet study appeared saying that child mortality had risen in the control villages, a big
study by the World Bank found huge falls in child mortality all over Africa. The World
Bank study implies that either the record of the control villages’ experience was wrong
(because it was distorted by peoples’ memories) or it was atypical” (J.P.). Why spend
more money on projects that don’t work?
Among many reasons for its failure, foreign aid attempts to accomplish too much:
the United Nations’ Monterrey Consensus lays out 73 different foreign aid
recommendations, and the Millennium Declaration adds 8 goals such as “eradicate
extreme poverty and hunger,” “achieve universal primary education,” “reduce child
mortality,” and “combat HIV/AIDS, malaria, and other diseases” (Easterly 47). In
addition to being overly ambitious, it conducts redundant operations. “A team from the
U.S. Agency for International Development produced a report on corruption in Uganda
in 2001, unaware that British analysts had produced a report on the same topic six
months earlier. The Tanzanian government churns out more than 2,400 reports annually
for its various donors, who send the poor country some 1,000 missions each year”
(Easterly 43). However, donor countries only represent half the problem; foreign aid
often fails because of government interference on the receiving end.
In Frederick Cooper’s book, The History of Africa Since 1940, he coins a phrase
that sums up African governments’ various combinations of patronage, clientelism, and
corruption: the gatekeeper state. Gatekeeper states channel customs revenue, foreign aid,
permits to do business, entry and exit visas, and currency, often taking a cut of the money
to pay political allies, distribute patronage jobs, or to spend personally on luxury items
(Cooper 156-190). In Jeffrey Herbst’ book, States and Power in Africa, he outlines the
conditions that created these African states: low population density, arbitrarily drawn
colonial boundaries, and inhospitable climates (1). As a result, gatekeeper states form
around densely populated port cities with access to natural resources or cash crops.
Cooper cites the example of Ghana in the 1960’s when Prime Minister Kwame Nkrumah
deposited 50% of the cocoa’s export profits into government accounts in addition to the
examples of Houphouet-Boigny dominating cocoa in Cote d’Ivoire, Leopold Senghor
controlling peanut exports in Senegal, or Joseph Mobutu looting his government’s
treasury in the Congo (163-168). Today, Nigeria’s “spigot economy” relies upon oil rents
after foreign drilling ruined the potential for an agriculturally based economy (Cooper
171-174). These gatekeeper states prevent foreign aid from going directly to the
impoverished.
But Sachs disagrees with the stereotype that “corrupt officials there then fritter
away or stash [U.S. Aid] in offshore accounts” (83). He writes, “In fact, in 2003, the
United States gave $4.7 billion to sub-Saharan Africa in net bilateral ODA. Of that sum,
$0.2 billion went to a handful of middle-income countries, especially South Africa. Of
the remaining $4.5 billion, $1.5 billion was apportioned for emergency aid and $0.3
billion for non-emergency food aid. Another $1.3 billion was designated for debt
forgiveness grants, and $1.4 billion went to technical assistance” (Sachs 83). One, South
Africa has the largest AIDS population in the world with 4 million infected people
(Cooper 110), and it needs the money to pay for treatment facilities. Two, no side of the
debate criticizes the moral imperative of emergency aid for natural disasters. Three, the
need for debt forgiveness grants indicates either the failure of structural adjustment and or
the inefficient or corrupt allocation of aid by African leaders. In the recent example of
Sierra Leone’s healthcare system, “Government auditors have found tens of thousands of
dollars withdrawn from an internationally financed maternal and child health program,
with no records for how the money was spent…they have found no records to support the
dispensing of drugs worth thousands of dollars; and they could not find records for 23 of
the Health Ministry’s 55 bank accounts” (Nossiter). And four, technical assistance,
although a failure for its over-ambition and un-measurable results, is intended by the
IMF to promote economic development through macroeconomic policies. Sachs fails to
realize on all counts that an increase in foreign aid—all else equal—proportionately
increases its failures.
He continues his argument, writing, “The distribution left only $118 million for
U.S in-country operations and direct support for programs run by African governments
and communities—just 18 cents for each of the nearly 650 million people in low-income
sub-Saharan Africa” (Sachs 83), employing a strategy of subdividing aid infinitely until its
original billion dollar amount is reduced to cents while also ignoring the continual
failures of the organizations he supports—USAID, the IMF, and the World Bank.
Outside of Africa, Peronist politicians in Argentina rely upon clientelism to gain
votes at the expense of public goods and efficiency: in the slums 70% of people live below
the poverty line and 50% have unmet basic needs (Auyero 60). Yet, “From 1980 to 2001,
the Argentine government received 33 structural adjustment loans from the IMF and
World Bank, all under the watchful eye of the U.S. Treasury” (Easterly 43). When
structural adjustment failed, Argentinians began relying upon political clientelism to
receive bread and milk, but the clientelist system’s reach is limited by brokers’ personal
connections and excludes political dissidents. Because the OECD defines aid as “the
transfer of funds, services, or goods that are designed to promote development and
welfare,” aid must be allocated selectively but non-exclusively, targeting specific problems
with tangible solutions.
Aid must be distributed directly to the people of impoverished countries in the
form of healthcare and education, which will in turn lead to economic development by
helping the poor escape the poverty trap. As laid out by Banerjee and Duflo in their book
Poor Economics, many “low-hanging fruit” (cheap, simple, and tangible solutions) “from
vaccines to bed nets” exist to treat widespread problems (41). For example, “1.5 million
children are dying every year of diarrhea, [yet] only one-third of children under five who
had diarrhea were given ORS” (42), “a mixture of salt, sugar, potassium chloride, and an
antacid to be mixed with water and drunk by the child” (41). ORS treats diarrhea more
effectively than antibiotics, and chlorine bleach can be used to purify water preventing
diarrhea altogether. Another example: bed nets prevent malaria, and studies on malaria
suggest that a child who grew up malaria-free earns 50% more per year, for his entire
adult life, compared to a child who got the disease (Banerjee and Duflo 45).
Once basic health and education needs are met, microloans provide another direct
aid alternative. “BRAC (Bangladesh Rehabilitation Assistance Committee) invented the
idea of microcredit, that is, tiny loans to the destitute. Then another NGO, Grameen
Bank, made them work by targeting them on women and holding weekly meetings of
borrowers who would identify and support anyone who was falling behind on
repayments. Their growth since has been explosive. Grameen has 8.4m borrowers and
outstanding loans of over $1 billion; BRAC has 5m borrowers and loans of $725m”
(Dhaka and Shibaloy). Microloans enforce accountability, generate revenue for the lender
and borrower, and bypass inefficient government allocation on both sides. In India,
Banerjee and Duflo note that the drawbacks include high interest rates and the need for
oversight to ensure borrowers pay back their loans, but overall, microloans sustain
themselves.
The United States, IMF, and World Bank spend large sums of money on highly
publicized projects with the intent of solving global issues, but taxpayers rarely see the
results of these investments for their scope is too large. One must remember that foreign
aid is just that, aid. It is not a welfare state in itself. From Tanganyika to all of Africa,
South America, and Southeastern Asia, successful aid must plant small seeds before
attempting to cultivate an entire landscape. Banerjee and Duflo’s “improvements on the
margin” must come before marginal returns on Sachs’ billion dollar investments. When it
comes to helping the poorest countries develop economically, we must bypass the flawed
governments that Cooper and Herbst describe in between, and instead look first to the
needs of those who have peanuts.

 

Works Cited
Auyero, Javier. “The Logic of Clientelism in Argentina: An Ethnographic Account.”
Latin American Research Review 35 (2000): 55-81.
Banerjee, Abhijit, and Esther Duflo. Poor Economics: A Radical Rethinking of the Way to
Fight Global Poverty. New York: PublicAffairs, 2011. Print.
Cooper, Frederick. Africa Since 1940: The Past of the Present (New Approaches to African
History). New York: Cambridge University Press, 2002. Print.
Dhaka, and Shibaloy. “Bangladesh and Development: The path though the fields.” The
Economist. 3 Nov. 2012. Print.
Easterly, William. “The Cartel of Good Intentions.” Foreign Policy 131 (2002): 40-49.
Print.
Herbst, Jeffrey. States and Power in Africa. Princeton University Press, 2000. Print.
J.P. “Millennium Bugs: Jeffrey Sachs and the Millennium Villages.” The Economist. 14
May. 2012. Web.
Nossiter, Adam. “Sierra Leone’s Health Care System Becomes a Cautionary Tale for
Donors.” New York Times. 13 Apr. 2013. Web.
Sachs, Jeffrey. “The Development Challenge.” Foreign Policy 84 (2005): 78-90. Print.
“GNI, Atlas Method (current $US).” World Bank. 2011. Web. Accessed 15 Apr. 2013.

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