Measurements of Aid Effectiveness - Literature review Example

DOES AID WORK? The Determinant and Measurements of Aid Effectiveness: A Critical Viewpoint When we talk of aid, we may be referring to either of two distinct types: humanitarian aid and development aid. Aid may also be differentiated according to the source of funds – voluntarily made by the general public or from a certain percentage derived from wealthy nations. Aid may also differ in how it is provided – whether as a grant or as a soft loan. Humanitarian aid is by and large in response to severe climatic or environmental shock – a massive earthquake, an extensive drought, tsunamis, hurricanes, etc. (Hofmann, 2004). Catastrophic events such that we have seen of late are followed by an outpouring of emergency relief assistance in cash or in kind. If the event is especially destructive so as to threaten the very social, political, or economic structure of the affected state or country, longer term aid in the form of rehabilitation assistance is provided. In the discussion of whether aid is effective, it would be easy to see that humanitarian aid in the foregoing scenario would certainly seem to. This, however, excludes discourses and debates on whether the distribution of relief aid is effective; as to that, logistics would probably be the most determining factor (Thomas & Kopczak, 2005). The purpose of this report is to determine whether aid itself – measured against the purpose for which it is intended – is effective. Therefore, I would like to focus the discussion on the other kind of aid where the answer to such a question is somewhat blurred: development aid or what is more formally known as “overseas development assistance” (ODA). ODA is the official aid and according to the Organisation for Economic Co-operation and Development or OECD (1985), it specifically refers to loans and grants allotted to developing countries provided by the public sector (of mostly developed countries) with the aim of promoting economic development in the recipient country; to be rightfully classified as aid, the funds must be concessional and has a grant element of at least 25%. Aid in this context basically means the rich, developed countries providing the poor Third World with financial assistance so that the latter will have a much better economy. To extrapolate it from there, the ultimate goal of aid would then be greater global economic equality or at least that is what it is promoting (Therien, 2002). Such an aid as we know it has been around for the past 70 years – ever since the United Nations and the World Bank (the recognized forerunners in multilateral aid agency) were established after the World War II (Therien, 2002). Initially, the efforts were concentrated on rehabilitating European nations ravaged by the world wars; after that, ODA turned its altruistic attentions on helping poorer nations alleviate their economic standing (Payer, 1982). This latter object of aid may be a relatively new political innovation but it has changed contemporary world politics significantly (Therien, 2002). How significant the transformation is, is a matter of looking at how effectively aid is used – if it is indeed used effectively. This begs the question of what measures of effectiveness should we be looking at if we are to determine aid effectiveness. The assessment made by Burnside and Dollar (1997) is one of the most often quoted analyses regarding aid effectiveness. According to their report, where fiscal, monetary, and trade policies are considered good, aid has shown a positive impact on economic growth. Guillaumont and Chauvet (1999), on the other hand, contended that the translation of good policy to aid effectiveness is quite ambiguous. According to their study, the effectiveness of aid is more apparent where external shocks are more severe – that is, the more needful a particular state is of aid, the greater is aid’s contribution, thereby it is more effective. Guillamont and Chauvet (1999) further commented that these two assumptions regarding aid effectiveness can actually be reconciled. With regards good policy, aid may be seen as supporting good economic policies and reinforcing their effects; with regards external shocks, aid may be seen as buffering the recipient countries from much deleterious economic consequences and allowing them to recover from such shocks faster. Simply put, aid is both an insurance (against catastrophic events) and reward (for good policy). Perceiving aid as an insurance against external shocks and thereby providing us with more apparent measures of aid effectiveness is seen most glaringly in humanitarian aid as we have discussed earlier. Projecting it to cases where ODA is applicable, we could see that aid would definitely be most effective in the poorest nations where development is highly dependent on soft loans granted by development banks (Guillaumont & Chauvet, 1999). Perceiving aid as a reward for good policy, on the other hand, is more contentious because it is relative to economic growth which in turn is determined by several other factors. It is also made more controversial in light of the conditionality of giving aid (Killick, 1997). An example is World Bank’s economy-wide structural adjustment programmes and sectoral adjustment programmes; the concept of these programmes is basically that the Bank disbursed the funds in exchange for policy changes brought about by “considerable analytical support from the Bank” as a result of “policy dialogues” (World Bank [WB], 1987). In theory, World Bank supporters may argue that it is a virtuous aim, and that such policy changes are necessary in order to advance the poor country towards more economic stability and consistent growth. In practice, however, it is largely dependent on whom it was awarded to and some critics have viewed it as a bribe to powerful officials in the Third World so that those in the First World can have a central role to decision-making process of the former (Bovard, 1987). Since aid was administered with policy reform as target, the extent to which that target is met is a measure of the effectiveness of aid, specifically if the aid was tied contextually to the affected policies. However, according to the review made by Killick (1997), donors have often failed to establish a rewards and punishment system in order to overcome the conflict of interest between donor countries and recipient countries; thus non-implementation of policy stipulations is prevalent. In that light, aid – for the purpose which it was given – may be said to be ineffective. But surely, aid is not confined to the noble cause of helping the poor or the less noble cause of intervening in Third World politics. There are, of course, underlying reasons why developed countries go the extra mile in order to entrench their influence on the developing countries – and these reasons serve the interests of the donor countries. From the very start, and beyond the moral and humanitarian value of advocating aid, aid was a distinct benefit to the developed countries’ business – a tool for opening potential markets the developed countries can exploit in the near future (Hayter, 1982). Furthermore, aid was a means to inculcate dependence of developing countries on developed ones, and dependence precedes cooperation. As Kennedy put it, foreign aid allows the US to “maintain its position of influence and control around the world” (quoted in Hayter, 1982). A succinct summary is provided by President Nixon when he said that “the main purpose of aid is not to help other nations but to help ourselves” (quoted in Hayter, 1982). Nowadays, imperialist power is firmly established and the divide between the poor and rich is even greater. This has given the developed nations more reasons to justify aid, i.e., the North-South contagion. There is greater concern that dire issues in the Third World such as food security, pollution, disease, financial instability, terrorist cells, etc. could very well spread to the developed nations and it thus makes third world security problems the problem of the First World (Rogerson et al 2004). With this perception of aid, how then are we to measure its effectiveness? We can measure how aid has directly affected the economy of the developing countries by observing how fast they are accelerating towards steady state growth (Burnside & Dollar, 1997). Or as Guillaumont and Chauvet (1999) suggested, we can measure it against the severity of external shocks and infer the impact of aid from there. In either or both cases and with any similar measurements, it reveals to us only one side of the equation and that is the impact of aid on recipient countries. For a donor country – and especially from a taxpayers’ point of view – it is only practical that the question of how it affects the aid provider must also be answered. That is, the measure of its impacts on donor communities – according to the purposes for which aid was given whether it is influence, market or security – should also be considered in the discourse. Did aid work? It is a complex question. If we look at how effective aid was in promoting the interest of the donor community, I would say aid was effective. Third World countries are indebted to the First World to such an extent that many poor countries are dependent on aid. Looking at the market, aid itself is a channel: imported goods flow into recipient countries while aid money that was provided to pay for such goods flow out of the recipient countries’ hands and back into the donor countries coffers, if it ever got out at all (Hancock, 1989). The issue of security is becoming more serious these last years, and terrorism in particular has justified donor countries’ intervention in regions which have been suspected of providing havens for terrorist groups (Kanbur et al, 1999). In this regard, aid as a facilitator is still not too definite. Nevertheless, the control and influence of developed countries are already far-reaching and embedded as they are and to that end, aid has obviously been effective. But paring aid down to what is predominantly believed to be its most essential definition – that is, assistance for economic development to developing or underdeveloped countries – how effective has aid been in fulfilling its purpose? From a personal point of view, I would say it has not been. One only needs to see how aid agencies are thriving nowadays; for indeed, if aid was successful and it has fostered the economic growths of those poor countries, aid agencies should have been obsolete by now. Instead, what we are seeing are an increasing number of aid agencies despite shrinking aid agency funds (Rogerson et al, 2004) and lucrative careers for aid professionals (Hancock, 1989). This dissenting view to what is largely believed to be a humanitarian cause and thereby a moral virtue is borne out of the observation that there is – to me at least – a disturbing anomaly in international aid: the paradox of lavish conferences held among development professionals with exorbitant pay checks in intercontinental first class hotels discussing the plight of the poor in the pretence of looking for solutions to end such poverty (Hancock, 1989). Indeed, it would make it the height of hypocrisy. Of course, this paradoxical aspect of aid is but one side of it and is, admittedly, the rather extreme side; on the other extreme end meanwhile, aid and its objectives borders on utopia. For the idealist, this almost-utopian end is what ought to be the ultimate measure of aid effectiveness and must be the end towards which aid should direct itself in the future (Kanbur et al, 1999). It must be noted that such an end subscribes to the humanitarian and moral vision of aid. Between both extremes is the complexity of aid itself – and thereby the complexity of achieving its goals and measuring the extent of its direct and indirect impacts – riddled by bureaucratic, political, and mercantile realities. A straightforward answer to the question of whether aid has worked or is working (or not) is thereby impossible but it doesn’t make it any less imperative. The question of effectiveness is not merely about accountability or even transparency; the urgency in answering the question is in order to address the urgency of ensuring that aid is indeed effective. For one, international cooperation and equality as envisioned has fallen short of expectations; for another, continuing failure of development assistance would result to the further corrosion of the protective wall the developed nations has enveloped itself with (Kanbur et al, 1999). We are no longer grappling with localized or regional problems; the world faces global problems that transcend the divide between rich and poor – global warming, economic meltdown, and disease outbreaks to name a few. A global solution is called for and overseas development assistance, even though it is considerably still at its nascent stages with regards the ideally desired impacts, already has its foot in the door. To ensure aid’s effectiveness in accomplishing its mission is to ensure that the world, as we know it, survives well into the future. REFERENCES Bovard, J. (1987). The World Bank vs. the World’s Poor, Washington DC, USA: Cato Institute Policy Analysis No. 92. Burnside, C. and Dollar, D. (1997). Aid, Policies and Growth, World Bank Policy Research Paper, n°1777. Guillaumont, P. and Chauvet, L. (1999). Aid and performance: a reassessment, Journal of Development Studies, 37(6): 66-92. Hancock, G. (1989). Lords of poverty: the power, prestige, and corruption of the international aid business. New York, USA: The Atlantic Monthly Press. Hayter, T. (1982). The Creation of World Poverty , Selectbook Service Syndicate New Delhi Hofmann, C.A., Roberts, L., Shoham, J., and Harvey, P. (2004). Measuring the impact of humanitarian aid: A review of current practice. HPG Report 17, London, UK: Overseas Development Institute. Kanbur, R., Sandler, T., and Morrison, K.M. (1999). The Future of Development Assistance: Common Pools and International Public Goods. ODC Policy Essay No. 25. Washington DC, USA: Overseas Development Council. Killick, T. (1997). Principals, Agents and the Failings of Conditionality, Journal of International Development, 9(4): 483-495. Murphy, C.N. (2000). Global governance: poorly done and poorly understood. International Affairs, 76 (4): 789–803. OECD, Twenty-five Years of Development Co-operation: A Review, Paris, France: OECD, 1985, pp 171–173 Payer, C. (1982). The World Bank: A critical analysis, New York and London: Monthly Review Press. Rogerson, A., Hewitt A., and Waldenberg, D. (2004). The International Aid System 2005–2010 Forces For and Against Change. Working Paper 235, London, UK: Overseas Development Institute. Therien, J.P. (2002). Debating foreign aid: right versus left, Third World Quarterly 23(3): 449-66. Thomas, A.S., and Kopczak, L.R. (2005). From logistics to supply chain management: The path forward in the humanitarian sector, California, USA: The Fritz Institute. World Bank Annual Report (1987). Washington DC, USA: World Bank. Read More