Download PED Essay Final-1 - TPP-PED

CAITLIN BURBRIDGE
CANDIDATE NUMBER: 311158
POLITICAL ECONOMY OF DEVELOPMENT
TUTOR: GIOVANNI COZZI
‘A perverse consequence of aid dependence is that maximizing aid becomes one of the
recipient government’s primary goals.’ Discuss
WORD COUNT: 2,997
‘A perverse consequence of aid dependence is that maximizing aid becomes one of the
recipient government’s primary goals.’ Discuss
‘There is broad agreement today that economic growth and wealth creation are essential to
development and poverty eradication, but few would now argue that they are sufficient’
(Riddell,2007;173). Riddell reveals the challenge at the core of aid dependency, how to
ensure recipient governments have vision to address the diverse and complex needs of their
citizens. In rejection of the assumption in the question posed at the start of this essay and
endorsed in extreme stances as those posed by Moyo (2009) and Auty (2008), it will be
argued that aid is not inherently bad, but needs to be perceived to go beyond the ‘fiscal gap’
posed by structuralism. This essay will reject Jennings’(2010) inability to engage with the
weak policy environment of much of Sub Saharan Africa, advocating from a Keynesian
perspective for the strengthening of the institutional environments in to which aid is injected
(Birdsall,2007). Using a Foucauldian conceptual framework, the argument will be presented
through the lens of ‘power’, exposing complex donor-recipient government relations (1982).
For Foucault, power is everywhere and constantly negotiated in complex political dynamics.
For the purposes of this essay, these shall be referred to as horizontal (recipient governments
and donors) and vertical (including civil society) power relations. A sequence of four stages
will progressively reveal the complexity of the negotiation of power within aid dependent
relationships. Firstly, the ways aid dependency prevents recipient governments from
assessing the specific needs of their own country; destabilising a national project. Secondly,
the power of donors to construct ‘ownership’ through processes of coercion and decision
making. Thirdly, how the pre-occupations of donors and recipient governments mask civil
society, often fuelling perverse economic activity in a self perpetuating cycle. Finally,
returning to the assumption addressed at the beginning of this essay, a proposal will be put
forward in support of Birdsall, advocating that aid can be effective if placed in the correct
institutional framework because this addresses the needs of the people to whom aid should in
fact be intended (Birdsall,2008;2007).
DETRACTING FROM THE NATIONAL PROJECT
As revealed by Oya, ‘some countries have...become practically aid dependent because very
large proportions of their imports, investment, income and government expenditures are
accounted for by aid’ (Oya,2006;4). Action Aid addresses the assumption posed in the title of
this essay by arguing that aid is in fact necessary because ‘real aid fosters independence’
(Action Aid,2005;11). If you ‘guarantee that the agent voluntarily commits to the policy
reforms...(in order that) to a degree the agent should become a principal in so far as its policy
preferences are similar to those of the original principal donor’ (Action Aid,2005;11). It is
from this perspective that I intend to address the role of recipient governments in negotiating
power relationships. Tarp provides a more reserved account of aid arguing that it works but
one should not hold ‘great expectations’ (Tarp,2007;10, in UNDP). However, Tarp’s analysis
is unhelpful because he fails to perceive the potential different ways in which aid could be
received. It is in the light of such optimism that the challenges of maximising aid as a
consequence of aid dependency must be addressed.
The aid machine destabilises the national project by reallocating resources into what Hanlon
and Smart describe as ‘the administrative burden’. Many donor officials arrive daily
expecting meetings and demanding time from recipient government officials (Hanlon and
Smart,2008;131) Detracting from the time governments should be investing in consolidating
national programmes, this administrative burden extends to removing civil servants from
working on local projects, and thus weakening contact between different levels of society
(Castel-Branco,2007). Oya suggests that China’s investment in Africa provides an alternative
solution to the neoliberal and bureaucratic trap of the ‘aid machine’ (Oya,2006). However,
there are three flaws in this proposition. Firstly, if China is as the west once was (2006) in
terms of aid delivery, there is little reason why China will not develop a similar bureaucratic
regime. Secondly, there is little reliable evidence from which to draw conclusions (2006).
Finally, China’s political allegiances expose the reality that aid is never given for altruistic
purposes. Progressive alternatives to the current challenges of aid dependency should not
adhere to the neoliberal ideology of the current World Bank policies, because of a failure to
engage with the specific needs of the people for whom the aid should be intended. Although
the administrative burden detracts attention from the real internal needs of governments,
Hanlon and Smart fail to acknowledge how this does at least provide a degree of
accountability, something which Oya’s China solution would not.
A second consequence of a government’s primary objective being to ‘maximise aid’ is the
fragmentation of policy. In the example of Mozambique, ‘issues are divided between 29
working groups’ (Hanlon and Smart,2008;133). Each of these groups feed into a budgeting
process which has been coined by Batley as ‘vertical solos’ (Hanlon and Smart,2008;133).
Each year’s aid budget is developed within these individuals ministries based upon the
previous year’s expenditure, leaving little room for setting broad policy objectives and
priorities for the next year (Hanlon and Smart, 2008). Browne appears to provide a suitable
alternative to such budgeting by arguing that it is important to target the ‘Millennium
Development Goals’ (MDGs) rather than aid. ‘If donors want to do more good for the world,
they need to review their broader development footprint: reducing the harmful effects of
conditioned aid and distorted trade, while creating a more propitious global environment’
(Browne,2007;6). Although the principle challenges the neoclassical hegemony of aid
relations and policy, Browne fails to perceive the narrow focus of the MDG’s. If the problem
we are seeking to address is that recipient governments focus all their attention on
‘maximising aid’, realigning government focus to meet another internationally set agenda, the
MDGs, does nothing to redress this, providing no incentive to identify challenges of specific
national importance. Although Browne’s alternative is progressive in diversifying the ‘aid
project (beyond such policy guidelines as those offered by UNCTAD (2006)) and re-focusing
government agendas, the reality of such a proposal would be only a reshaping of existing
ideology in both theory and practise.
In the example of Mozambique, Hanlon and Smart address how the principle of ‘putting
money directly into government budget enabling the government to decide how money is
spent’ should increase Mozambique’s ‘power and accountability’ (Hanlon and
Smart,2008;129). However, Oya furthers this argument by exposing the reality of a loss of
policy space in the ‘New Aid Agenda’ (Oya,2006). Oya clearly identifies five negative
implications which occur when ‘maximising aid becomes one of the recipient government’s
primary goals’; not targeting ‘the needy’, perverse macroeconomic effects, unreliability and
volatility, state capacity ‘de-building’, and tied aid, bureaucracy of aid and donor
accountability.
The impact of aid dependency on macroeconomic activity is of particular importance because
of the breadth of impact this can have on national policy. By primarily ‘maximising aid’,
governments fail to address the ways in which they could counter the possible negative
economic implications of aid dependence; for example, ‘the Dutch disease effect’. ‘Large
inflows of foreign grants and credits could keep foreign exchange rates above levels that
would prevail in the absence of foreign aid, resulting in an appreciation of the exchange rate,
with pernicious effects on the international competitiveness of the economy’ (Oya,2006;12).
The government decision to make maximising aid a primary concern has subsequent effects
on the entire economy.
THE POWER OF THE DONOR
Having addressed the practical implications for recipient governments in the negotiation of
power relations around aid, it is important to address, more explicitly, the role of donors.
Hanlon and Smart reveal how ‘being at the heart of decision making increases donor power’
(Hanlon and Smart,2008;129). When the national project is simply to ‘maximise aid’, as in
the case of Mozambique (2008), there is increasing pressure upon governments to predetermine what donors expect of them. Secondly, there is usually ‘a lead donor for each
sector’ (Hanlon and Smart,2008;129). Hanlon and Smart identify how it is increasingly
‘difficult for civil servants and donor staff to distinguish between national and donor
interests’ (2008;130) as a result of the erosion of a national project. Thirdly, owing to their
position as prominent donors, ‘donors wield immense levels of power at the heart of the
decision making process because they will not be challenged by governments who depend on
the revenue.
This calls more explicitly into question the subject of ownership. According to the 2007 IMF
report, Mozambique is ‘a success story in sub Saharan Africa, benefiting from sustained large
foreign aid inflows, strong and broad based growth and deep poverty reduction’ (Hanlon and
Smart,2008;119). As a ‘donor darling’, Killick reveals how, ‘donors will be anxious to
maintain active and substantial programmes of assistance to Mozambique’ (Killick et
al,2005;50), a fact which gives the government genuine bargaining strength. Similarly, as
Whitfield reveals in the case of Rwanda, ‘despite an economic crisis and financial
dependence on foreign aid with conditions attached, a recipient government can get away
with ignoring a large proportion of those conditions when it knows that for political and geostrategic reasons, a particular set of donors (usually the most important) will not remove aid’
(Whitfield,2009;341). However, the degree of bargaining strength must be questioned in the
context of ownership. For Castel-Branco, ‘the decision by the recipient government to
apparently give up ownership to maximise aid flows and minimise internal political friction
reflects some degree of ownership related to a strategy of survival in the context of limited
options’ (Castel-Branco in Hanlon and Smart,2008;119). However, in accordance with Sen’s
(1999) argument, this notion of ownership must be rejected. When there are limited options,
the choice made by the recipient government to become aid dependent is firstly, not one
taken in the context of ‘freedom to do something’ but merely freedom from poverty or
limited growth (Sen,1999), and secondly, not one necessarily taken on behalf of Mozambican
society as a whole. Although it might seem Mozambique have exploited their bargaining
position, the reality was one of limited option. Rejecting notions of ‘homogeneity’ is
fundamental to understanding this complex negotiation of power.
WHERE IS CIVIL SOCIETY?
The issue of ownership must be progressed further in relation to civil society. Having
assessed some of the practical consequences of donor-recipient relations from the
understanding of the donor as power holder, it is important to begin to address the ways in
which this power relation is not always so one dimensional, in this instance, masking the
‘powerless’. Using the term, the ‘aid-institutions paradox’ as coined by ‘Moss and Peterson’,
‘states that can raise a substantial proportion of their revenue from the international
community are less accountable to their citizens and under less pressure to maintain popular
legitimacy’ (Moss and Peterson,2005;3). According to Renzio and Hanlon, in the case of
Mozambique, donors and the recipient government exist in a symbiotic relationship (Renzio
and Hanlon,2007). However, as Hodges and Tibana identify, ‘accountability to donors is
much stronger than it is to Mozambican society’ (2004;8). The pursuit of administrative,
policy and market principles masks the needs of civilians.
The masking of the needs of civil society can be seen more explicitly in the perverse power
of a government engaged in rent seeking. Three distinct groups can be identified within the
dominant political party in Mozambique, Frelimo. The small elite who ‘brazenly kill and
steel’, the larger group who ‘self interestedly accept the trickle down view as justification for
taking money for cars and big houses’, and finally the biggest group who ‘sing donor praises
to get money for their project or agency’ (Renzio and Hanlon,2007;17). Although Hanlon and
Smart fail to adequately engage with the relative dominance of each of these groups, their
analysis exposes the reality of a government for whom the benefits of aid dependency are
unrelated to their responsibilities as leaders. Although governments may have some power in
their ability to secure rents for themselves, when ownership (Castel-Branco,2008) and power
are redefined according to a Marxian framework of analysis, it becomes clear that, by funding
governments, donors are often explicitly engaged in the process of disempowering those to
whom they ‘should’ be aiding. This further exposes the political nature of the aid industry, as
highlighted earlier in the example of China’s relationship to Africa.
Easterly addresses more explicitly this issue of ‘whose interests’ in the donor-recipient power
relationship. Proposing a theory of ‘incentives’, Easterly argues that the aid industry gives
governments a perverse incentive to remain poor because high national income results in the
retraction of donated aid (2008). This might seem odd in the light of the World Bank’s
‘Assessing Aid’ policy specification to only give money to low income countries with good
policies(1998). However, the reality is, as highlighted by Easterly among others, that donors
are under such pressure to spend money in order to secure their budget for the following year,
governments do not have to maintain good policies. This is endorsed by Lensink and White
who argue that although there is evidence that aid is effective with good policies, this is not
exclusive (Lensink and White,2000). This reveals both the inability of the World Bank to
engage with the reality of the administrative burden of the aid machine, as well as the
inability of aid dependency discourse to adequately address civil society. In both policy and
practise, the aid industry is pre-occupied with negotiating power between donors and
governments.
TOWARDS A SOLUTION: AID, DONORS, GOVERNMENTS AND CIVIL
SOCIETY
The question that must be asked therefore is how can the uneven power dynamics that exist
within the aid project be redressed? Keynesian economics provides an important window into
this analysis. Although Keynesian economics is still predicated upon neoclassical ideology,
the reality is that a balance must be found between the extremes of right and left wing
ideology, because we exist within a neoliberal system. This is not a question about what the
aid industry is, but how the aid industry works. Whitfield’s analysis of Botswana and
Ethiopia provide an important starting point for analysis. ‘BDP has an established strategy for
negotiating aid with donors. The government approaches donors with a programme agenda
and projects in its development plan, which is determined through its domestic planning
system established after independence’ (Whitfield,2010;6). Whitfield (2009)reveals how the
Botswanan government managed to retain control over their policy agenda and implemented
policies by coordinating aid to support their own development strategies and establishing an
aid management structure firmly within their own domestic institutions. It appears that within
the context of effective institutions it is possible for a country to be aid dependent and still
retain a national project.
Birdsall proposes that it is the middle income group in LEDCs which provide the key to
strengthening national institutions as a means for holistic development beyond the scope of
merely ‘maximising aid’. In rejection of Rostow’s structuralist ideology that poor countries
fail to grow because of they are poor (Fischer, 2009), Birdsall, among others argues that ‘the
challenge in sub-Saharan Africa seems not to be how to ignite a period of growth but how to
sustain it’ (Birdsall,2007;578). Firstly, ‘the share of households in the middle of the income
distribution is sufficient to provide an effective check on the potential abuse of economic and
political power by the ‘rich’-a function which the (‘voiceless’) poor cannot perform’
(Birdsall,2007;588). Secondly, it is in the interests of this middle income group to create and
sustain a political system, including property rights and institutions that support a market
economy, in which ‘rewards accrue in the size of the economic pie, and not from rent
seeking’ (Birdsall,2007;588). What Birdsall fails to satisfactorily deal with is how to
encourage donor reform when such strong political incentives are at stake. However, the
argument does at least begin to challenge neoliberal hegemony from a Keynesian perspective.
The analysis addresses power relations beyond the horizontal ‘donor to recipient government’
relationship, opening up the debate to acknowledge the significance of the vertical ‘recipient
government to civil society’ axis also.
A perverse consequence of aid dependence is that maximizing aid becomes one of the
recipient government’s primary goals. This can be seen in the way the negotiation of power
relations both shifts between donors and governments, masking civil society. Although far
more complex than this essay has scope to address, the issue on which this essay has focused,
civil society, is pertinently absent both from much of the ‘dependency’ literature (Chenery
and Stout,1966; Oya,2006; Dollar and Burnside,2006), as well as in the practise of large scale
aid provision. As exemplified in Mozambique, the balance of power between the government
and donors is complex. On one level, Mozambique’s government can avoid donor conditions
in their unique position as a ‘donor darling’. However, the evidence in this essay only seeks
to further expose the reality of the aid machine-a top down project which fails to engage with
civil society. Although donors appear to give power to Mozambique, by investing in the
government, the aid often does not reach civilians. In this sense, power remains at the level of
bureaucracy. Aid dependency encourages rent seeking governments to participate in
bureaucratic activity at the expense of the people for whom aid should be intended (Hanlon
and Smart,2008). Despite the ‘assessing aid’ policy description to fund low income countries
with good policies, the World Bank (1998;2007) has failed to acknowledge the people who
should be recipients of aid, regardless of their governments ‘poor’ activity (Lensink and
White,2000). In the eyes of the World Bank, civil society and their governments are a
homogenous group. This essay has sought to redress this stereotype, exposing the complex
ways in which aid dependency can often widen the gap between the leaders of a country and
its citizens. Adopting a Keynesian perspective, emphasis must be placed upon strengthening
the middle income group in African societies, encouraging innovation, mobilising civil
society and strengthening democracy. Only then can the opportunities of being an aid
recipient be truly understood.
REFERENCES
Action Aid (2005) Real Aid: An Agenda for Making Aid Work. Johannesburg.
Auty R. (2008). Aid and Rent-Driven Growth: Mauritania, Kenya and Mozambique
Compared, Research Paper n. 2007/35, UNU-WIDER, Helsinki.
Birdsall N. (2008). ‘Seven Deadly Sins: Reflections on Donor Failings’. In Easterly (ed.)
Reinventing Foreign Aid, chapter 20. Cambridge, Mass.: MIT Press.
Birdsall N. (2007). ‘Do No Harm: Aid, Weak Institutions and the Missing Middle in Africa’
Development Policy Review, 25 (5): 575-598. Wiley-Blackwell
Browne, (2007) Target the MDG’s-not aid amounts, in International Poverty Centre (2007).
‘Does Aid Work? – for the MDGs’, Poverty in Focus, pp. 1-28, October. UNDP
Castel-Branco C (2008). ‘Aid Dependency and Development: a Question of Ownership? A
Critical View’ IESE Working Paper n. 1/2008, Maputo, Mozambique.
De Renzio, P. and J. Hanlon (2007). Contested Sovereignty in Mozambique: The Dilemmas of
Development. Global Economic Governance Programme Working Paper 2007/25.
Easterly W. (ed.) (2008). Reinventing Foreign Aid. Especially chapters 1, 2, 4, 10, 11,
Cambridge, Mass.: MIT Press.
Estava and Prakash (2007) in Rahnema and Bawtree, The PostDevelopment Reader, Zed
Books Limited.
Foucault (1982) The Subject and Power, in Michel Foucault: Beyond Structuralism and
Hermeneutics University of Chicago
Fischer, A. (2009), ‘Putting Aid in Its Place: Insights from Early Structuralists on Aid and
Balance of Payments and Lessons for Contemporary Aid Debates’ Journal of International
Development, 21: 856–867. Wiley.
Hanlon, J. and T. Smart (2008). Do Bicycles Equal Development in Mozambique? London:
James Currey.
Heller P.S. (2005). ‘“Pity the Finance Minister”: Issues in Managing a Substantial Scaling
Up of Aid Flows’, IMF Working Paper WP/05/180.
International Poverty Centre (2007). ‘Does Aid Work? – for the MDGs’, Poverty in Focus,
pp. 1-28, October.
Jennings (2010) Africa: The World’s Most Exciting Investment Story. Global Economic
Governance Programme Special Address. Oxford.
Lensink R. and H. White (2000) ‘Assessing Aid: A Manifesto for Aid in the 21st Century’,
Oxford Development Studies 28 (1), pp.5-17. Oxford.
McGillivray et al. (2006), ‘Controversies over the Impact of Aid: It Works; It Doesn’t; It Can
but That Depends…’, Journal of International Development, 18, 1031–1050
Moss T., G. Pettersson and N. van de Walle (2005). ‘An Aid-Institutions Paradox? A Review
on Aid Dependency and State Building in Sub-Saharan Africa’, Mario Einaudi Centre for
International Studies, Working Paper n. 11-05. Wiley.
Moyo, D. (2009). Dead Aid: Why Aid Is Not Working and How There Is a Better Way for
Africa. London: Allen Lane.
Oya, C. (2006). ‘The political economy of development aid as main source of foreign
finance for African countries: loss of policy space and possible alternatives from East Asia’
Paper presented at the Second Annual Conference of the International Forum on the
Comparative Political Economy of Globalization conference, 1-3 September 2006, Renmin
University of China, Beijing, China.
Oya C. (2008). ‘Greater Africa-China Economic Cooperation: Will This Widen ‘Policy
Space’?’, Development Viewpoint n. 4, Centre for Development Policy and Research, SOAS,
London.
Riddell R. (2007). Does Foreign Aid Really Work? Oxford: Oxford University Press.
Sen (2009) Development as Freedom. Oxford University Press. New York.
Tarp, (2007) Aid does work-just beware of great expectations, in International Poverty Centre
(2007). ‘Does Aid Work? – for the MDGs’, Poverty in Focus, pp. 1-28, October.
UNCTAD (2006), Economic Development in Africa. Doubling Aid: Making the “Big Push”
Work. New York and Geneva: UN.
Whitfield, L. (2010). The Politics of Aid: African Strategies for Dealing with Donors.
Oxford: OUP.
World Bank (1998) Assessing Aid – What Works, What Doesn't, and Why. World Bank.
World Bank-IDA 15 (2007), Aid Architecture: an Overview of the Main Trends in Official
Development Assistance Flows, Washington D. C., the World Bank