An Alternative Approach to International Development

The Self-Serving Aid Environment

Although many nations have promised to commit 0.7% of GNI to relieve suffering and secure the enjoyment of basic human rights, no one is able to hold them accountable for not living up to their commitments.

When it comes to aid assistance, national governments and the global-community do not share incentives for action. The effort to alleviate poverty has mixed objectives, resulting in uncoordinated and inefficient approaches to international development.

National powers seek their own desired ends, delivering aid without much oversight, without genuine interest in evaluating developmental impact, and limited disclosure. Aid is employed as a political tool to enforce top-down reform by a ruling-class that is outside the promoted democracy.

The current aid environment is riddled with political corruption and costly bureaucracies. The two ideas (A & B) most prominently guide today’s approaches to aid assistance. Although they share the objective of democratization, neither one of the two have a persuasive track record.

I wish to introduce an alternative approach to aid assistance that would limit political influence on the utilization of donated funds and empower the private sector in a transparent aid market.


A: The Poverty Trap – UN/Sachs

Sachs et al (2004) argues in favor of a massive increase (a Big Push) in foreign aid so that poor countries may escape from the proposed poverty trap. A surge in aid funds will give poor countries the resources to invest, thereby enabling themselves to elevate from a state of chronic poverty.

Other studies based on the same models as Sachs et al used to justify their findings, concluded that the values of parameters used in the Sachs study were unreasonable, especially since the studies themselves contradict the existence of a poverty trap. (William Easterly)

A sudden windfall in resources, whether in the form of aid or natural resources, is likely to damage the political institutions of recipient nations by reducing the checks and balances in democratic governments. (Djankov, Montalvo and Reynal-Querol 2006)

Although the idea of a poverty trap may work better as a tool for fundraising, the proposed solution a ‘big push’ must not determine our approach to aid assistance.


B: The Conditionality Principle – WB/USAID

Donor nations have ineffectively been trying to enforce ‘good behavior’ and prevent rent-seeking by providing aid and loans under certain conditions. These conditions for reform or for tied purchase restraints are enforced by donor nations; they are top-down decisions from outsiders. The conditionality principle is an undemocratic approach to development that often promotes the interests of donor nations.

The practice of conditionality has also been criticized for taking up too much of the recipient’s time, thereby reducing the capacity of local politicians to focus on the people they represent.

The fact is that there is an overwhelming need for funds in impoverished nations. The small amount of aid that is provided does not come close to sufficiently accomplishing set objectives. Because of this desperate need for aid assistance, recipient governments are often giving into imposed conditions that may not serve their nation’s best interests.

Moreover, after donor nations began forgiving the dept of recipient nations, the threat of repercussions if the conditions are not met has lost all credibility. The practice of negative-reinforcement only works when the appropriate authority asserts it.


Positively Reinforcing Democratization – AidMarket

Commitments such as the 0.7% should be in the form of a tax. This tax revenue should be collected by multilateral agencies and used to support humanitarian projects, provide oversight and secure funds for emergency relief.

The International Finance Institutions should return to their role as primary risk-takers and seeders of new markets (CGAP & Role Reversal 2007). Economic development ought to focus on promoting the private sector and opportunities for investment.

Governments of impoverished nations that are no longer concerned with satisfying imposed conditions, extensive PRSPs, or allocating the high amounts of aid funds are better able to focus on institutional organization and strategic coordination so as to promote the work of development agents, non-profits as well as other socially responsible NGOs.

If governments were able to tax the recipients of aid, then the flow of funds to aid projects in their respective country would become a stream of revenue and the tax an incentive for governments to promote the work of non-profits and multilateral agencies.

This approach would positively reinforce democratic practices from bottom-up and within the border by supporting a myriad of benevolent agencies and empowering the private sector in international development. Carol Adelman, director of the Hudson Institute's Center for Global Prosperity says that “it is the private sector where the action is, where the future is.”