Arch-critics of development aid posit a fundamental divide between trade on the one hand – shorthand for encouraging private investment, encouraging the rise of new businesses and job creation – with aid (characterised by these same critics as money that is wasted at best, opening avenues for corruption, mismanagement and dependence at worst).
The argument is compelling. For eighty years, since the world’s first ‘development’ act, the UK’s 1929 Colonial Development Act, aid has been used as an instrument for promoting development. Yet today the gaps between the richest and the poorest countries, and the richest and poorest within those countries, appear to be widening. Dambisa Moyo, the advocate-general of the ‘dead aid’ discourse, asks whether aid has helped improve people’s lives, and answers with a resounding ‘no’. It has, Dambisa suggests, actually exacerbated that poverty and slowed economic growth.
In truth, there are few on either side of the debate who believe that either aid or trade alone is the solution. But the advocates of aid have never suggested it is sufficient to pull nations out of poverty. Economic growth, combined with social and political action, at times supported by aid and at other times not, is the role most see for this form of development assistance.
And where it has been spent wisely, the results have in some cases been spectacular. Witness the rapid expansion of treatment with anti-retroviral drugs for people living with HIV and AIDS over the past half-decade paid for by donors such as Global Fund, the Clinton Foundation and the US Presidents Emergency Plan for AIDS Relief (PEPFAR). Incomplete as progress here is, aid has played a critical role, in conjunction with the private sector, including transnational pharmaceutical companies. Aid in health more generally has seen significant gains in improving mortality and reducing the incidence of disease.
Defenders of aid point out that it is not aid itself which is the problem, but how that aid has been delivered, the lack of coordination amongst donors, lack of ownership and accountability by recipients, failures in aid transparency – all questions being discussed by donors meeting at the Fourth High Forum on Aid Effectiveness currently underway in Busan, South Korea. Jeffrey Sachs, in his 2005 End of Poverty argued what was needed was not less, but more aid – but delivered better, targeted better, science-based and its impact carefully measured.
The current Eurozone crisis has highlighted another use of aid. Where trade is falling, aid can provide the vital investment to keep African economies functioning until trade picks up again. With Europe on course to see slower economic growth, certainly in the short-term, private investors and banks are likely to reduce their presence in Africa (as they did in 2007/08). Aid cannot replace trade, but it can help support it in times such as these.
Of course aid is not unproblematic. But neither is ‘trade’ without complications. Global trade rules can work to the disadvantage of developing countries. Foreign investment can see the emergence of industries that profit from lax health and safety or environmental regulations, or from paying poor salaries in return for longer hours. Trade in itself is not an unqualified good. The extent to which it contributes to poverty reduction depends on what kinds of businesses it creates, where they are situated, what kinds of jobs people can get from that investment, and so on.
The reality is that aid is not dead, and trade is not the only solution to address the needs of the more than 1 billion people living in absolute poverty. Only in combination, with smarter and better aid, and smarter and better trade, can their needs be met.