December 6, 2010
By Riaz K. Tayob
At an 11 November lecture at Tallinn University EU Development Commissioner Andris Piebalgs very candidly highlighted the need for the EU to have “a more determined system” for its aid to address the fragmentation in European delivery. What does this mean in terms of development cooperation, and what should cooperation include?
Since member states manage their own aid, Piebalgs' frankness in the discussion was important, not least, because it offers the possibility both of reducing transaction costs (cited as more than half of all aid, due in part to monitoring and evaluation) but also of centralising control at the EU level. As Piebalgs stated, this would not only mean more work for his department but offers the possibility of enhancing the EU's voice in the global aid debate as one of the largest donors.
Since aid dependency can breed ostensible civility if not servility, being critical of EU aid runs the risk of seeming ungrateful. But this is necessary, if good outcomes are the intention. And while there is lots to be commended in the EU's new development aid architecture, there are some concerns about the prescriptions that flow from Piebalgs' diagnosis.
Part of the prescription involves tying EU aid procedurally with EU external/foreign relations. Piebalg's explained that EU aid, under his control, to particular countries would essentially have to be vetted first by Baroness Ashton (EU High Representative for Foreign Affairs and Security Policy). This may be seen as promoting greater coherence of EU policies, but it is also competent to see it as a more explicit formalisation of aid as an instrument for enhancing EU foreign policy objectives. However, countries like the United Kingdom for instance maintain (at least in principle) a separation between foreign affairs and development cooperation.
This brings to the fore the substance of what the EU hopes to achieve from its aid, aside from Piebalg's explicitly mentioned concerns about “competition” with China in resource rich developing countries, in particular on the African continent.
Recently, there has been a great deal of debate on the efficacy and effectiveness of Aid which has become more mainstream. At a time of budgetary crisis in the rich world this is hardly surprising. However many of these arguments were made before or just at the beginning of the Global Economic Crisis which saw an unprecedented stash of cash made available for a reckless financial sector – cash that was somehow not available for binding international obligations on aid.
Dead Aid (by a former Goldman Sachs economist Dambisa Moyo of Zimbabwe) and Ending Aid Dependence (by Prof. Yash Tandon former director at the South Centre, Geneva) raise substantive diagnostic issues beyond fragmentation.
Moyo states that aid is often misappropriated, unproductive and most importantly leads to indebtedness. Moyo also argues that aid crowds out investment and local initiatives. Tandon argues against “aid dependence”, aid ought to be on a solidarity basis. He is firmly against aid that has compulsory “ideological” conditionalities. He adds that certain types of aid, like concessional financing, are included in the OECD definition of aid but are questionable as aid per sé and lead to significant outflows from poor countries. That is, not all aid was in the form of grants, lots of it was in fact lower cost loans, which have to be paid back!
Competing national development needs within Europe has put the spotlight on aid and its outcomes. And much of the discussion misses some important elements. A dalliance on aid statistics sheds light on the lack of development outcomes despite generosity.
Rich countries often “pledge” large amounts of aid (usually when the media is present) but actually pay out significantly lower amounts, which is called the “commitment”. This practice is unashamedly formalised in OECD statistics. So one could almost forgive EU taxpayers for feeling aggrieved that so much is spent without denting persistent poverty – they see the announcements in the media spotlight but not the follow up “commitment” (which is rarely if ever given coverage).
However these feelings need to be contextualised. There is an international legal obligation on the developed countries to provide a certain amount of aid (0.7% of their gross national product) that has been disregarded by most rich countries, even in the good years, with the notable exception of the Nordic countries. Piebalg's contrition for Europe not honouring its international legal obligations was, therefore, welcome.
Issues of distribution of aid between poorer countries also needs to be considered, particularly so if there is a link to foreign relations. For instance aid and foreign relations make strange bedfellows. In the poorest country in the world, Afghanistan, from the perspective of a villager, the rich world policy was to throw bombs first, followed by food. With these types of contradictions 'winning hearts and minds' of Afghans is undoubtedly made more complicated where simple folk could easily view foreign powers as more incoherent than local elites!
In the discussion with Piebalg's, another substantive critique was made by Prof. Rainer Kattel of Tallinn University of Technology. Kattel said that EU aid did not really focus on building up of technological and productive capacity. It also lacked a focus on developing much needed state capacity, which many developing countries lacked. He added that the main international aid agenda, that of meeting the the Millennium Development Goals (MDGs), dealt with the symptoms of poverty rather than its causes.
While Piebalgs was clear that under the Lisbon Treaty the objectives were to alleviate and eradicate poverty, it is reasonable to deduce that Kattel's critique implies that poverty alleviation is emphasised over poverty eradication. If as Piebalgs said, aid cannot be provided indefinitely, then more weight needed to be given to poverty eradication. Poverty alleviation, while needed, may not on its own reduce aid dependency. Poverty eradication offers a solution and would mean developing and distributing productive capacity in poorer countries so that they can take care of themselves.
Building productive capacity is about wealth creation, or what Prof. Erik Reinert's work refers to as increasing the size of the economic pie, rather than redistribution of what is already there.
The contrast between the current strategies of poverty alleviation (MDGs) and its successful eradication (e.g. the Marshall Plan in post-World War II Europe) is stark – what is measured tells this tale in a compelling way. MDGs indicators include measures like increased access to water, reduced mortality, etc. The Marshall Plan focused on what and how much was produced in a country, prices, employment levels, etc. While it is tempting to think that the world is too much changed from the post-war time, the failure of the adopted strategies based on MDG-type welfare clearly indicate otherwise (unless of course blame is cast exclusively on the recipients themselves).Poverty eradication, and the need for ending aid dependency, demands a focus on building up the capabilities of poor countries to increasingly provide for their own needs while the symptoms of poverty are dealt with. This points to the need for a fine balance, and this directionality certainly matters for the EU's aid strategy. As Prof Erik Reinert points out, productive capacity is what needs to be distributed around the world as a wealth generating machine. But this is precisely where coherence is lacking between Piebalgs and the EU's DG of Trade. But that is another story...