I very much liked this article and the way you framed the micro-macro paradox, but I am also interested in the quote that Adam commented on above. I haven’t seen any convincing macro-level studies of the harmful effects of aid, but I think the micro-level definitely needs further testing. It is often hard to examine the effect of “aid versus no aid,” because even in most randomized controlled trials the treatment questions are more subtle or focused. Where I am working in returned communities in northern Uganda, I definitely see negative consequences of aid in terms of creating dependency. At times farmers are unwilling to plant unless seeds are provided for them, and there is an assumption that WFP provisions will continue indefinitely despite repeated assurances to the contrary. This is certainly a new attitude; as a marginalized region, Northern Uganda never received much assistance prior to the creation of IDP camps throughout the area.

I don’t think cutting aid is necessarily the solution, but as assistance shifts from relief to development there is a very strong need to consider sustainability and local ownership. Giving more money and providing more services, while undoubtedly helpful, could make long-term development even more difficult. While I agree with you that some areas will need to be subsidized by aid through at least our lifetimes (particularly health care and education), I think requiring greater citizen contributions (like taxes, which have been completely eliminated for rural residents in Uganda) could help ameliorate the dependency effects of aid.

In the meantime, do you know of any papers that look at aid and dependency at the micro level? It would be fascinating to read more!

Here’s a bit of recent evidence for industrial-level dutch disease that seems to be relatively sound evidence for a negative relationship of aid and industrialisation:

http://aidwatchers.com/2009/12/the-effects-of-foreign-aid-dutch-disease/

There are also papers showing that aid over 10% of GFP (I think this is the figure) has significantly negative effects on the quality of institutions (through some of the mechanisms Nick describes).

I totally buy your argument on welfare. I don’t buy the argument that more is necessarily better, as opposed to a better use of what we already have.

Owen replies:

1. Welfare systems are very hard to run even within national settings, why are you optimistic that we, being the very loose and dysfunctional international community that we are (as Copenhagen in showing), can do it well on a global scale?
2. Is this moral? Welfare systems typically take care of the bottom 15%, or perhaps 20%, of people in developed nations. Most of these people have problems that are clinical, temporary, or caused by bad luck (discrimination, etc.) Without being judgemental people in developed nations recognize (to varying degrees) that some (very few) people are simply not capable of making it within the usual economic system and so we help them by means of another system, namely welfare. This is fine. But should we treat most people in the developing world (40 to 70% of the world’s population dependeing on your standard) as if they were similiarly “handicapped”? Dumping them in a global welfare system rather than working towards improving the global economic system seems too easy and potentially dangerous given the dehumanizing effects that welfare systems, especially when applied on a grand scale, can have on people.
3. Finally it seems as if you have somewhat given up on Aid as economic stimulus, or at least would like to change its focus. Given Aid’s track record over the last 40 years this is not entirely unreasonable but I don’t like the idea of giving up, especially when the alternative is such a dismal thing as any global welfare system is bound to be. If developed nations are benevolent enough to keep the developing world on life support through some welfare system, why are they so unwilling to let the people of those nations compete with them by leveling trade relations, etc.?

Thank you so much for explaining your answer the way you did. It lays bare another layer/viewpoint on the whole aid effectiveness literature that I had not thought about.

Politics, Economics, and Ethics – very interesting.

I have 2 questions that I would like you feedback on.

a). Am I correct in thinking that Foreign Aid falls into 3 distinct type of categories and each category has its own aim(s):

1)humanitarian relief aid – given to victims of natural disasters such as earthquakes, cyclones and floods
2) military aid
and
3)economic development assistance

b) It is not important that we specify what type of aid(s) we are talking about when discussing its effectiveness/ineffectiveness?

Owen replies -

Owen

Empirical work on the link between autocratic tendencies and aid combined with other work on how dependency on local revenues creates an important de facto mechanism of accountability may not be conclusive, but I do think rather clearly shows that there is a good possibility that aid has serious negative effects on the political systems of recipient countries.

Owen replies:
Thanks for your comment, Nick. I deal with this issue a little in my longer article on openDemocracy, and at greater length in a 2006 Working Paper. The short answer is that I think that it is a theoretical possibility that aid can do more harm than good, but I do not believe that it is true in practice, nor is there any (macro or micro) evidence for it happening in the real world. I do think that some changes are needed to the way that aid is given – for example, by making it much more transparent and linking it more explicitly to results – which would make aid more effective and reduce this risk.