There has always been significant controversy surrounding foreign aid. So far global aid has failed to effectively fight poverty, which clearly indicates a need to rethink current approaches.
The image above shows what Official Development Assistance (ODA) looks like for 2011 and 2012 (includes government-to-government aid and government donations to multilateral institutions from 29 member countries of the OECD’s Development Assistance Committee, or DAC).
Total ODA in 2012 was over $120 million dollars. “Education, Health and Population” was the most popular category for donor governments, followed by “Other Social Infrastructure” (includes social welfare services, employment policy, housing policy, culture and recreation, among others) and “Economic Infrastructure” (things like transport, communications and energy provision).
Critics point out that many of the receiving countries are plagued with corruption, and the aid they receive is used to support corrosive institutions. Since the expansion of foreign aid in the 1960s, assessments of the impact of these funds on their recipients have been mixed: there are success stories, but also dramatic failures. In general, foreign aid has been shown to have a definite impact on education and health in some countries. However, the effect on poverty is less clear.
Angus Deaton is a Princeton professor and leading microeconomist. In his book The Great Escape, he argues that aid has played a detrimental role in the democratic and economic development of poor nations. When aid is targeted towards the governments of poor countries—particularly small ones—instead of directly to communities in need, funds are often directed to special interests and not social objectives. This leads to unintended negative consequences, e.g. subsidizing corrupt or violent regimes. Along the same lines, Deaton argues against the provision of arms to corrupt governments. Instead, foreign aid should target gun reduction and create incentives for governments to act in the best interests of their populations.
To address these problems it is important to change the way donor countries think about, and target, the aid they award. This requires in-depth changes in the way donor countries structure their aid programs, and a more hands-on approach to aid provision, driven by long-term considerations. Deaton recommends changing the type of aid offered. He suggests that instead of directly financing projects which are then managed by foreign governments, donor countries should offer technical knowledge and capacity building tools to both individuals and governments.
A big problem with rethinking aid this way is that indicators get messy. It becomes harder to measure success because success no longer takes the form of dollars producing a tangible good or service. Under this new approach, funds are directed towards improvement of institutions, which take longer to develop. Yet to create lasting effects on quality of life and access to resources, local governments will eventually have to pick up the slack and guarantee sustainable service provision. Future aid should focus on building institutional capacity over time, rather than providing services or resources in the short-term.
Another criticism made by Deaton refers to the pressure constituencies of high-income countries place on their representatives to donate resources to developing countries. This pressure encourages short term, ineffective projects that provide representatives with easy ways to satisfy their constituencies. Society as a whole, and donors in particular, would be deeply misguided in continuing to fund this cycle, inattentive of the consequences discussed here. Governments report on the amount of aid money meant to alleviate poverty, but there is little evidence on the actual effect of those resources on the quality of life of poor populations. That is why Deaton states that in order to improve the effectiveness of aid, donors and donor governments need to increase their knowledge of what’s really happening to the resources offered to developing countries. If donors are better informed, then they will demand more accountability about the type of projects being funded, and how much is being spent on what.
However, changing perceptions will take time. The pressure from constituencies, the aversion to long term projects and the ease of implementation under current practices continue to encourage project-based giving with few restrictions. Changing the nature of aid as proposed by Deaton requires greater involvement on the part of both donor governments and aid recipients. Because of these challenges, I don’t anticipate radical change in this approach in the next decade.
If that is the case, and aid continues to be directed toward projects rather than institutional development, I think the provision of clean water and basic sanitation is one area with big potential for significant long term benefits, combined with tangible and immediate results. Clean water and sanitation improve health and nutrition, and are strongly correlated with disease prevention. In developing countries, diseases such as cholera, dengue and malaria are linked directly to water quality. Lasting infrastructure investments for clean water and sanitation would improve the wellbeing of both the young and adult poor.
So far, however, water aid projects are underrepresented among foreign assistance initiatives. According to wateraid.org, 748 million people in the world don’t have access to safe water, and 2.5 billion don’t have access to adequate sanitation. This is an incredibly large number. According to Deaton there were 800 million poor in 2010. And yet out of the $133.5 million official aid dollars in 2011, the average yearly donation of water and sanitation related aid reported by the OECD was only $12,000.
Catarina de Albuquerque, the first UN Special Rapporteur on the right to safe drinking water and sanitation, recently published On the Right Track. She identifies 10 criteria for assessing best practices in relation to water rights and sanitation in developing countries. De Albuquerque outlines the challenges faced by developing countries when addressing water and sanitation issues, and divides the solutions into four categories: legislative and regulatory frameworks, financing and budgeting, planning, and monitoring. Donor governments might provide aid for all four components, or focus on one according to their preferences.
The best thing that can happen for recipient countries is for donor governments to rethink the ways they provide assistance to the world’s least developed economies. While they’re working toward that change, redirecting aid toward the provision of clean water and basic sanitation will improve health outcomes and create lasting infrastructure investments that benefit several generations, without inadvertently financing additional ills.