# The Problems With Development Aid

## Disruptive influences

Of course, not all aid programmes are so selfishly motivated, at least not so explicitly. Some genuinely seek poverty alleviation and economic growth. And yet, many such initiatives can be equally as destructive. According to development economist Angus Deaton, the problem begins with the way the introduction of foreign money in a country affects the relationship between a government and its people. Essential to the functioning of this relationship is the payment of taxes. To run a country a government must collect taxes from its people, and since the people must agree to relinquish their money for this to work, they hold some power over the government. This dynamic creates accountability. Deaton argues that aid damages this relationship. It reduces government reliance on the people’s taxes, and, therefore, reduces governmental accountability. For weak governments, as the recipients of aid tend to be, the effects of this can be very corrosive, acting as the breeding ground for both corruption and despotism. Research conducted by Transparency International has shown that corruption significantly reduces a country’s productivity, increases inflation and puts off foreign investors. Ultimately it creates more poverty. And poverty, as we know, encourages aid. There are countless examples in the African continent of how the introduction and expansion of aid programmes has quickly been followed by increases in corruption. Nigeria, Congo, and Zambia, to name a few, all experienced terrible kleptocratic practices while their governments received enormous amounts of aid.

## Why continue?

The obvious next question is: once this process has begun, why does it continue? Why continue to provide aid for corrupt and despotic regimes? Beyond the economic incentives and political advantages cited above, Moyo posits two further, more practical reasons why this cycle of aid is left uninterrupted. First, there now exists an overwhelming pressure on donors to give. A whole industry has grown around aid, one that Moyo estimates employs – through the World Bank, IMF, countless NGOs, charities, and governmental aid agencies – around 500,000 people, or as she puts it the population of Swaziland. The livelihoods of these people depend on the ongoing distribution of aid. Moreover, within many of these organisations, successful lending is measured by the size and quantity of the loans given, rather than what the loans are actually spent on. Non-disbursed aid often increases the chances of aid programmes being slashed, putting jobs at risk. This has internalised the incentive to continuously lend, often, as history has shown, irrespective of the levels of corruption in the recipient country.

The decision to lend to less-than-reputable governments is also informed by the view that if aid was reduced, or even cancelled, the poor would suffer. Education and health budgets would not be met and the country in question would falter. This feeling, however worthy, ignores the reality that in the majority of African cases the poor aren’t receiving the money and the country is already faltering. In 2014, Deaton, along with many other economists, contended that of the \$135 billion spent on official aid, only a small portion ended up helping the poor.

In a similar vein, Economist Peter Bauer described aid as a ‘form of taxing the poor in the West to enrich the new elites in the former colonies’. Once in their hands, rather than saving it, economic studies have shown that most often aid is then spent on consumer goods. This, in turn, has a number of negative consequences. First, as savings decline, banks have less money to lend, leading to a fall in domestic investment. Meanwhile, higher consumption, as a result of the aid influx, means that more money is chasing fewer goods and the country experiences inflation. The typical response to inflation is to raise interest rates, making investment even more unlikely, meaning fewer jobs, which leads to more poverty. And what happens next?

## The system is broken

It’s clear aid is not working. The whole process is broken. From the disingenuous motivation behind its provision to the unintended and disruptive knock-on effects of its delivery, at every stage there exist problems. If the Western world is sincere in its desire to help end poverty, it needs to engage in some serious soul searching, put self-interest to one side, and think up some alternatives. Perhaps, too, it should entertain the idea that its participation in development, in any major way, might actually be unhelpful. Many of Africa’s biggest advances in recent years, like the widespread adoption of mobile phones, have come from within. And as Deaton has questioned: ‘who put us in charge anyway?’