Saturday, January 9, 2010

Balance the Budget, Prune Development Aid

The Dutch Leftist flagship newspaper De Volkskrant recently published a series of proposals by writers considered experts in their fields, how to balance the budget. Here's development aid specialist Arend Jan Boekestijn's contribution (original article).

"Cutting Back on Development Aid"

Stop exporting good governance and nation building, and start supporting private enterprise!

It hurts having to make cut backs. Yet there are policy areas in which millions of people could benefit from it. Development aid is an example. Imagine these programs did not yet exist. As these aid programs really hurt poor countries, surely we wouldn't set them up like they are today. There are five problem areas.

- Caption: theme of Ending Poverty and Inequality

Aid addiction
First, there's aid addiction. If security is outsourced to the UN, and donor countries take care of education and health care, what do African governments have left to do for themselves? An average developing country is receiving hundreds of delegations each and every year offering money, and each making different demands in return.

How can recipient countries learn to accomplish anything by themselves? This problem can only be solved by extensive cut backs on development aid expenditure. The Netherlands, the Scandinavian countries and Luxembourg together spend twice the EU average. If we truly want to promote self reliance we shall have to make cut backs.

Secondly, donor money has the effect of appreciating the local currency; as a consequence it undercuts exports and trade - the last thing these countries need.

In the third place development aid has a negative effect on democratization. Third world countries are suffering from a Boston Tea Party in reverse. In 18th Century America the maxim was "no taxation without representation". Recipient countries get so much donor money that there's no incentive to raise taxes. As a consequence there's also no trigger for representation. Only if we make cut backs democracy stands a chance.

In the fourth place, there's an unclear corrolation between aid and development. Aid per se doesn't lead to growth. That's a very good reason to rethink how we organize these programs.

Good governance
Also we have not been able to establish good governance. Most third world countries are closed societies. According to Nobel Laureate Douglass North these governments are primarily occupied with violence control, not with their country's development (read also by this author "How To Put Development Aid to Work"). North posits that features of open societies, such as democracy, the rule of law and civic society cannot be exported one on one to closed societies.

Even worse, enforcing these elements may even be counter productive. For example, if elections are being held in Afghanistan, a country without strong institutions, this leads to vote rigging. Good governance just cannot be exported.

The present Dutch policy, as well as the EU's and the World Bank's, do not take these considerations into account. Budget assistance consolidates evil regimes and fosters aid addiction. Good governance fails. And the ballot box grows corruption.

So should we abolish development aid, as Dambisa Moyo proposes? No, it's an illusion to think that third world countries will be able to procure loans for their investments on the regular capital market. So what can we do?

The only way to foster growth is to concentrate on private enterprise. No one ever got rich off of charity. Stop funneling aid to dubious regimes, but invest in private citizens with knowledge and expertise so as to empower them to earn a living. Also in the field of agriculture much can be done. So let's  reorganize the Ministry. Stop exporting good governance and stop nation building - concentrate on private enterprise.

Market access
Reforming EU agricultural policy by bringing it back to the level of member countries will open up European markets. NGOs are often led by people with very little notion of private enterprise. Audits and evaluations are being side-stepped. So  force them to work more efficiently by dismantling the present edifice of subsidies. Fund some twenty procent on a case by case basis and let them fend for themselves in the charity market.

Enforce independent policy evaluation on all activities. See to it that climate change policies do not lead to a fresh multi billion dollar stream to developing countries they cannot absorb. Recognize that the top-down approach of the Millennium Development Goals project is bankrupt. Replace it with bottom-up, independently evaluated projects.

Be critical of plans such as Paul Collier's to militarize aid. From our own history we know that conflict constitutes nations. Nation building is precisely what Africa needs.

In short, private enterprise will foster sustainable growth which will eventually produce a middle class that will demand good governance.


- Arend Jan Boekestijn's page
- "How To Put Development Aid to Work"
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