Angus Deaton’s The Great Escape – Part II

This is the second of two posts on The great escape, a book on development for the general public written a few years ago by Angus Deaton. In the first post I gave a general overview of the work. Here I will give an overview of an interesting debate that took place in the months after the publication on Duncan Green’s blog, and over a long interview to Deaton made by Owen Barder.

In a guest post in Green’s blog, Ricardo Fuentes emphasizes how possible negative effects of aid do not justify the elimination of any form of aid whatsoever,  as much as it would be nonsensical not to exploit natural resources, rather than trying to put them to good use:

He writes that those in favor of foreign aid argue it needs to be improved, and goes on to dismiss it as an easy answer, but to me, it’s the most complicated, and relevant, one. The resources available through foreign aid can and should be used to promote that Great Escape that Deaton celebrates.

An example of how this can happen is provided in another guest post by Jon Lomøy, the then Director of OECD Development Co-operation, who mentions examples of smart aid that, as an example, managed to improve the capacity of tax agencies in mid-income countries, with a significant improvement of revenue collection, at the cost of a few thousands of dollars. He concludes that “part of the “aid illusion” is thinking that aid can’t change”.

Deaton could object that, although also in the past there have been examples of effective aid (in particular in the health sector, as for smallpox eradication, the polio eradication program, antiretroviral drugs diffusion), the aggregate record is such to conclude that aid has been a disaster for low income countries.

Around this assumption both Green and Barder debate with Deaton, sharing a rather common argument, pointing out that

  1. Evidence of negative effect of aid is overall scant, as there are only inquiries on aggregate effects, with contradictory results, and that there is a lack of updated studies (Green), and that is not really possible to get evidence of the negative effects of aid on (mal)functioning of governments (Barder);
  2. At the same time, there is evidence that international aid, despite its failures, has in fact achieved significant goals, as in the case of smallpox eradication, fight against polio, and so forth (Barder), or in the case of many individual projects whose good results are proven (Green), while it is still to be proven that the same results could have been achieved without international aid.

Deaton answers back pointing out how the effect of aid should be judged on an aggregate level, rather than single project, and that based on aid flux and economic performance, there is historically a negative correlation between aid and economic growth, and that there is relevant evidence on how aid hinders the social contract between governed and governments. With regard to positive examples, Deaton reckons their existence, but do not consider them enough to compensate or justify the negative ones, and that it is not possible to cherry pick what worked and ignore what didn’t work.

In the absence of a counterfactual, is probably impossible to really draw a final conclusion to the debate, and it is hard – and perhaps of limited use – to conclude if aid has done more harm than good – although from a purely historical perspective, especially considering the years of the Cold War, Deaton’s argument looks solid.

More interesting and relevant would be to reason about future directions. I believe that from the debate we can draw two, still actual, practical conclusions:

  1. It is likely that in terms of development cooperation, the most interesting developments can be in the domain of empowerment and in general in political approaches (as an example in terms of LGBT issues, women empowerment, minority issues, government accountability and effectiveness). Future success for the sector will probably depend on how well it will manage to operate in this domain, considering that governments of receiving countries have limited or no interest in supporting it (and since 2014 the trend seems to be not that encouraging).
  2. A more general conclusion can be drawn with regard to how international aid and the debate surrounding it are communicated to the general public. Broadly speaking, a good deal of the debate rotates around two themes: on one hand, general remarks on how the sector is inefficient and corrupt, on the other hand, grievances on insufficient funds, usually focusing on the ratio between ODA and GDP. I will focus here on the second aspect, insisting on the need to shift the focus on the how rather to the how much. Among practitioners and commentors internal to the sector this shift has already happened a few years ago, but it seems that in the public debate this hasn’t happened yet. In this regard, aid organizations are probably equally responsible in not being able to effectively communicate the results of their work, emphasizing their efficiency (more often than not, understood as the weight that overhead costs have on the overall budget of an organization), rather than the effectiveness of their interventions. The final result is that the attention is often focused on how much it is spent, rather than on how it is spent – think about the proliferation of budget piecharts in NGOs websites. Let’s make a concrete example: one of the interventions mentioned by Lomøy costed about 15,000 USD, spent via ODA to finance two technical missions in Colombia, aimed to improve the revenue collection capacity of local authorities. It is a fair assumption to guess that most of these funds ended up to the consultants that had been employed. 15,000 USD is an infinitesimal percentage of ODA, and none of it “ends up to the small child”, so to say. As an intervention whereby nothing ends up to direct beneficiaries, it seems to be condemned. As a cheap intervention, it would confirm the tendency to spend less and less on aid. And still, “tax revenues collected by local authorities jumped from US$3.3million to US$5.83million in just one year”, which can lead to the conclusion that such an intervention was possibly more helpful than other, more expensive projects, with direct beneficiaries more easily identifiable. To sum up: more sophisticated techniques like SROI, impact assessments, or even randomized control trials exist. Focus on the sheer quantity of money spent, whereas this is not accompanied by an analysis on how this money have been spent, is simply misleading. Or, as Deaton points out

We also need to help citizens of the rich world understand that aid can be harmful as well as helpful, and that it is nonsense to set targets such as giving 1 percent or 0.75 percent of our GDP irrespective of wheter the money is helping or harming them.

(Deaton, The Great Escape, p. 291)

 

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