FIFTY YEARS OF FAILURE

Peter Bauer and Cranley Onslow mark

the anniversary of a policy wrongly regarded as above criticism

NEXT YEAR will mark the 50th anniver- sary of the inception of development aid, which began with President Truman's Point Four programme of 1949. In those early days advocates of aid suggested that the expenditure of a few hundred million dollars a year over a decade or two would give rise to 'self-sustaining growth' in the underdeveloped world. The elimination of world poverty (the title of a recent White Paper) was feasible and in sight. Thereafter aid would no longer be required.

Half a century and many billions of dol- lars later the need to continue develop- ment aid indefinitely is taken for granted. This attitude was evident among the G8 leaders at the meeting in Birmingham. Their overriding concern was with the question of cancellation of the debt of several Third World countries. Even the Church's 'Jubilee 2000' campaign is for 'a new start for the world's poor'. In the changing aid scene, the only constant has been the well-orchestrated demand for more aid.

The failures and excesses of aid pro- grammes are notorious. Of course there have been examples of gross incompe- tence, not to say corruption. But these are irrelevant or insignificant in comparison with other flaws in the system. The anomalies that have attended official aid include the subsidy to governments which have pursued such policies as brutally enforced collectivisation (Tanzania), pro- motion of mass sterilisation (India) and the persecution, eviction and even geno- cide of ethnic minorities in both Asia and Africa (of which Uganda provided a con- spicuous example).

Western aid has also gone to govern- ments explicitly hostile to the West, such as those in Ethiopia and Cuba, to govern- ments at war with one another (India and Pakistan) and to regimes that have perse- cuted the most productive groups in their society.

Topical examples of countries that have derived little or no benefit from the aid they have received include Sudan, Mozambique, Angola and Rwanda, all of which have been ravaged by civil war, with the resulting breakdown in the economy leading to disease and famine.

Aid goes to rulers; it does not go to their subjects. Quite often these rulers are at war with large groups of their poor- est countrymen. Examples include the Sinhalese-dominated government and its Tamil subjects and the Muslim Khartoum government and its Christian or animist subjects in the south.

Nevertheless, the case for aid is still regarded as axiomatic. Parliamentary debates on the subject are hardly debates in the accepted sense of the term. They are more like conclaves of like-minded enthusiasts, and the criticism most fre- quently heard is that not enough aid is being given, and that more is better. The current obsession with debt cancellation is the most recent example of this attitude.

A fresh assessment of what has gone wrong and what might be done to put it right is in order. Debt cancellation, which of course is not new, is no solution. It is subject to all the objections to aid and exhibits anomalies of its own. Cancellation specifically favours the incompetent and dishonest over those willing to honour their obligations. It also undermines the credibility of Third World countries and makes it more difficult to raise capital.

These government-to-government hand- outs should be ended. This is impractica- ble because of the powerful emotional, political and commercial interests behind this policy. The development aid lobby is probably the most effective and powerful in the world. It includes the aid depart- ments in all Western countries, the World Bank, the International Monetary Fund and other international organisations. What could be done to remove the worst anomalies and bring development aid closer to its declared objective?

To begin with, the criteria of allocation should be radically modified. Instead of being linked to the per capita incomes in the countries of the recipients, aid should be geared to the policies of their govern- ments. It should be given only to govern- ments whose domestic and external policies are most likely to promote the economic progress and general welfare of their peoples. It should be concentrated on countries where humane leadership, effective administration and personal freedom can foster economic advance. The practice of focusing on per capita incomes as a criterion is a major anomaly itself. To give money to rulers on the basis of the poverty of their subjects rewards policies of impoverishment. If a government discourages women from seeking employment, or persecutes the most productive groups, it qualifies for more aid because incomes in that country are now lower.

The trend towards more multilateral aid needs to be reversed. Under bilateral aid there remains a vestige of control by the taxpayers of the donor countries to stop subsidies going to governments pur- suing inhuman and barbarous policies. Under multilateral aid they have no con- trol whatever.

Aid should consist of grants rather than soft loans with long maturity and sub- sidised interest rates. These loans set up tensions between donors and recipients. Donors see them as gifts or subsidies, and the recipients feel them to be a burden. Much or most of the indebtedness of Third World countries is, in reality, the result of soft loans under aid agreements. The limiting case is that of the loans granted by the International Develop- ment Association, a World Bank affiliate. This gives out loans of 50 years' maturity at no interest. The grant element is over 95 per cent, but these loans nevertheless count as part of Third World indebted- ness.

Radical revision of the criteria of allo- cation, replacement of multilateral by bilateral aid, and substitution of soft loans by grants could help to bring develop- ment aid closer to its declared objectives. But even these reforms are likely to be resisted by the immensely powerful aid establishment, since they would clarify the process and remove some of the mystique surrounding aid policy. However, they may be within the realm of practical poli- tics, whereas termination is out of the question. In these circumstances, pro- tracted argument about the ways and means of debt cancellation will only serve the interests of national and international bureaucracies. What the world's poor need is limited government. Unless they have this there can be no hope of eradi- cating poverty.

Lord Bauer is emeritus professor of eco- nomics at the London School of Eco- nomics. Sir Cranley Onslow was chairman of the Conservative backbenchers' 1922 Committee, 1984-92, and editor of Asian Economic Development (1965)