Can aid work?

The front gate of a school in Addis Ababa

Living in Ethiopia for the last three years, I saw aid working every day. I saw children going to school, health workers in rural villages, and food or cash preventing hunger for the poorest people.  The academic debates about aid effectiveness seem surreal when you are surrounded by tangible, visible evidence of the huge difference aid makes to people’s lives.

Schoolgirl on her way to school with books under her arm

Schoolgirl with books in Gojam

But on the whole the sceptics are not disputing that kids are going to school because of aid. They are asking what effect that has on the country as a whole. Does it lead to economic growth? Does it drive up the exchange rate and so damage competitiveness? Do governments become dependent on donors and so less accountable to their own citizens?  Does aid keep the bad guys in power?

It is possible that aid is effective in terms providing people with basic services, and at the same time that it is not effective at increasing economic growth.  It is even possible that aid simultaneously does short-run good (better services) and long-run harm (worse institutions).

It was this difference between perspectives which made me want to respond to the call for evidence in an investigation into aid by the Economic Affairs Select Committee of the British House of Lords. This committee, which includes some well-known economists and other public figures, is examining the ‘Economic Impact and Effectiveness of Development Aid’.

My written submission is here.  It is just six pages long. ( I’m very grateful to Stephanie Majerowicz for her help putting this together.)

The submission begins by trying to address the question of what aid is for, which seems to be the source of much of the confusion about whether aid works. Aid is often regarded as having two purposes: humanitarian aid to alleviate suffering usually in an emergency, and development aid to promote economic growth and sustained prosperity. But this is a false dichotomy: most aid falls into neither category. About two thirds of British bilateral aid is spent on improving services such as education, health, water and sanitation. This aid is not a temporary humanitarian response to an emergency, but a long-term contribution to the provision of key services and an investment in the institutions needed to provide them in the future.  The success of this aid is not best measured by whether it leads to growth in the short or medium term, but by the improvements it brings about in the quality of people’s lives.

The submission then reviews the evidence about whether aid leads to economic growth (answer: we don’t know) and whether aid improves people’s lives (answer: yes it often does).  The more interesting question is not whether aid works, but which aid works.

But there are also possible adverse effects of aid, and these are potentially serious. The submission suggests that these may be mainly a consequence of how aid is given and that they can largely be eliminated if donors give better aid. But that requires donors to overcome domestic political obstacles to reform of aid.

The evidence finishes with ten suggestions for how to make aid work better.  They are:

  1. Spend more through the multilateral system
  2. Make aid more predictable
  3. Make aid transparent, accountable and traceable
  4. Build the accountability of governments to their parliaments and citizens
  5. Focus on results and use this to simplify aid
  6. Invest more in global public goods, especially new technologies
  7. Focus aid on people in chronic poverty, and on women and girls
  8. Leverage the private sector
  9. Use innovative finance to increase the productivity of aid
  10. Learn more and fail safely

It is a good discipline to be concise, but it is not possible to do full justice in six pages to the nuances of these issues. I have tried address the big questions with what I hope are balanced and dispassionate judgments.  I hope you will let me know in the comments if you think I’ve got these right.

Read the full submission here.

This blog post was also published on CGD Views from the Center.

9 thoughts on “Can aid work?”

  1. Thanks for sharing your submission to the House of Lords.

    In your piece you focus on the question of “which aid is effective”. This is certainly a better question than “does aid work” or even the “can aid work?” title of your submission and this blog.

    But it’s not the question that I would have picked.

    I think I would have gone for: How can aid spark and support development in different sorts of governance contexts?

    This sort of question would open up exploration of whether and how aid that seeks – by strengthening transparency and supporting accountability in developing countries – to give citizens in developing countries greater control of how resources are spent, can spark development. Smart context-appropriate aid as catalyst for development.

    PS: I was particularly struck by the statement that “The UK Department for International Development estimates that each year British aid pays for 11 million children to go to school – more children than the UK government educates at home but at 2.5% of the cost”.

    Alan Hudson
    Senior Policy Manager, Governance (Transparency & Accountability), ONE

  2. Alan

    Thanks. I think it is a mistake to assume that the only or even the main purpose of aid is to spark and support development. As the paper shows, most aid is provided for the entirely legitimate purpose of improving people’s lives while that development does, or does not, happen in their country.

    We should be careful to give aid in ways which does not make that spark harder to ignite (and arguably we need to do a better job of that); and I am not saying that we should never use aid in ways which are intended help to foster those kinds of change. Certainly it is worth supporting the kinds of work on accountability and transparency which you are talking about. But we should not judge the success of aid overall on whether it achieves these objectives.


  3. There seems to be a lot of confirmation bias in the aid effectiveness debate. Many observers seem to start with a narrative (ie Dead Aid) and find information to support their argument. Narrative thrives on simplicity and clarity. Yet aid operates in a complex system that interacts with economics, geography, climate, culture and global politics. Many organizes operate at the micro level and see progress that is difficult to measure because of so many factors. This is not a closed system.

    Education aid might be effective and might be improving the economic development in Ethiopia, but other factors might be hiding this when using aggregate measurements. That’s why the aid transparency movement is so important: allow us to connect the dots to see what is working – even showing effects of local sectoral initiatives to region and country.

    Many in the aid ecosystem have told me that their aid is working. They have studies and reports – internal performance management. It all reminds me of the joke about the greatest invention be man – the thermos, keeps cold things cold, hot things hot – how does it know?

    Some of the experts in the aid community are not excited about the mob of non- experts gaining access to this data – what will they use it for? Granted, many will use it for confirmation bias. Many will leverage the data to visualize what is working and how aid can be improved. I believe that there is a latent hunger to know this – to gain access to deeper data and visualize it much like gapminder

  4. Just to be clear, I think – as does Owen – that spending aid to improve peoples’ lives is legitimate, even if it doesn’t spark long term development.

    But delivering aid in ways that do spark long term development would mean that one day aid wouldn’t have to be provided to improve peoples’ lives. I think that that goal – helping people to move out of poverty and onto a sustainable path to development and prosperity in which investment and domestically generated resources take the place of aid – should be the primary goal of aid.

    I suspect that’s something that aid donors and recipients – and probably Owen? – would agree on?

  5. Thanks for sharing the submission – especially the references.
    I think everyone is on the same page if I say that some types of aid delivered under certain circumstances can be more efficient and effective than others. The trick then is to tease out the specifics, which will always be a challenge due to the ever-changing mix of confounding variables that comprise the real world. Be this as it may, I have some general points:
    1) If we expect countries to develop to the point that they can provide the public and quasi-public goods needed to underpin personal well-being and economic security, then a tax base to pay for those goods must be fostered and governance forms encouraged that protect that tax base. Since even developed countries have a mixed record on this point (try Lijphart, Arend. Patterns of Democracy. 1999 as a start), we should expect developing countries to demonstrate the same mixed results.
    2) Into this uncertain environment we have the aid industry which from experience and field observation I would describe as a continuum ranging from the very good to the very bad and outright predatory. If government is going to continue funding bilateral agencies and NGOs then it should insist upon both internal and external standards. We are presently focused upon external standards though M & E, but this is not enough to weed out the negative side of the continuum. Internal standards refer to HR practices applied to staff and volunteers which should at least follow public service measures in terms of qualifications, capacities and performance.
    3) Even good aid can over time become counter-productive if it overwhelms a market economy and thereby becomes a disincentive to government to make and protect public goods investments. In other words, rather than maintaining a healthy separation of political and economic livelihoods it can narrow the gap. The phrase is ‘resource trap’ as popularised by Sachs and Warner, but this is misleading since it focuses the argument upon natural resources as the sole source of an out-of-balance ratio between rents and earned income. The argument that aid should never marginalise host government institutions is a sound one, but too much aid channelled through local government institutions can become an economic rent and will marginalise government from its tax base just as surely as too many ad hoc development projects promoted by too many out-of-country agencies presently do within some domains.

  6. Africa has seen much of academic research that has been taking place for over 50 years and in the last 40 years , she been the recipient of AID that has systemically proven lethal and a curse to the people of Africa. The west has always looked at African with blind eyes and deafen ears to see and hear the true needs , it provide short-lived aid that find it’s way back to the west because of the people or experts who run these aid whose expenses are far beyond the amount spend on the projects. IMF and Wold Bank are just few institution who twist the arms of Africans so that they continue rather remain on the receiving end of crams. The west have never respected African people as partners in development instead they regard them as species deserving pity.
    The Conflicts in Africa boarders on the line of poverty encouraged by the west, they get our resource but they disrespect the honors by not considering as partners in uplifting the lives the poor. China today is proving to the west that it will not take their model instead it is investing in Africa greatly on the continent the west shun often times.

    Thanks for information you have shared, God Bless.

  7. Pingback: The Sphere Project: Minimum Standards in Humanitarian Response and the Poverty Line. | Osmosis

  8. Hi there,
    Great statement, I fully agree with the majority of what’s been said, it is a robust defense of aid. However I’m curious about the recommendation on “spending more aid through the multilateral system” and the evidence base for this.

    A number of multilateral organisations have come under flack for ineffectiveness of delivery and difficulties in showing results, the ineffectiveness of certain large institutions is the elephant in the room of most donor offices.

    Indeed it would seem strange that DFID with the new mandate of value for money and showing results would choose to ramp up support to these organisations. Is it not possible in these circumstances that through multilateralizing we’re removing the personal agency from aid and making it less accountable?

    Clearly, of course the paris declaration and harmonization arguments creates a mandate for harmonized provision of assistance, but is it not possible that these arguments have created an oligopoly within aid which makes reform of the large multilaterals unlikely, and therefore risks making aid, perversely – through the aid effectiveness debate – more ineffective?

    These multilaterals are of course essential in certain contexts but I’m just not sure they are fit for purpose in large scale aid delivery. Multilateral support is ideal, it just seems that the institutions (with certain notable exceptions e.g. ECHO) have not worked out how to administer aid effectively and with value for money (at the risk of generalizing hugely). Until they prove themselves, for me, the jury still seems out on multilaterals as the ideal choice of aid delivery.

    1. @John

      Large multilaterals differ (‘your mileage may vary’). My own view is that the World Bank is one of the best aid agencies in the world; and there are some multilaterals (some UN agencies) which are among the worst. I agree with you that ECHO is very impressive, and much more so than many bilateral aid agencies and NGOs.

      The Quality of Aid index (QuODA) compiled by CGD and Brookings finds that multilaterals do better than bilaterals on average. I interpret this as evidence that the intermediation of national governments in aid delivery is largely unhelpful, because they are tempted to pursue a range of strategic, commercial and security interests through foreign assistance which are in the interest neither of the intended beneficiaries of aid nor the interest of the taxpayers who provide aid primarily for humanitarian reasons. The governance structure of multilaterals makes it less likely that the quality of aid will be eroded in these ways.

      DFID’s mandate of value for money (not entirely new, by the way) has led it to conduct a review of multilateral aid which has led them to change aid allocations to more effective organisations. This is welcome. Unfortunately the same discipline about value for money does not yet drive the underlying split between bilateral and multilateral aid, which is arrived at separately.


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