Official Development Assistance and Underdevelopment - Research Paper Example

? Official Development Assistance and Underdevelopment What Gunder Frank and Wallerstein Would Say About Tied Aid This paper will look at the phenomenon of Official Development Assistance (ODA) using the insights of Andre Gunder Frank and the notion of “underdevelopment”, as well as the Dependency Theory, as lens of analysis. I will argue that ODA or “tied aid” keeps countries underdeveloped and exacerbates the gap between the global north and the global south. First, we begin by laying down the chosen theoretical framework. Frank’s main thesis is that contemporary underdevelopment is in large part the historical product of pas and continuing economic and other relations between the satellite underdeveloped and the now developed metropolitan countries. These relations are an essential part of the structure and development of the capitalist system. Underdevelopment was and still is generated by the development of capitalism. Frank talked a great deal about the metropolis-satellite relationship. He noted that this relationship is not limited to the imperial or international level, but also penetrates and structures the economic, political, and social life of (LA) colonies and countries. Thus, a whole chain of constellations of metropoles and satellites is created. Each of these satellites serves as an instrument to suck capital or economic surplus out of its own satellites, and channel a portion of the said surplus to the world metropoles (i.e. Europe and US). This notion was further developed by Wallerstein who proposed the idea of “unequal exchange” between the strong states and the weak ones and a view of capitalism that “involves not only appropriation of the surplus value by an owner from a labourer, but an appropriation of surplus of the whole world-economy by core areas.” (p. 401). Stemming from this premise, this paper interrogates the assumption that Official Development Assistance from the donor countries to recipient countries contributes to the development possibilities of the latter. While the dominant formulation would suggest that aid policies in the form of ODA are helpful, empirical evidence on the ground militate otherwise. Understanding Official Development Assistance and tied aid must begin by understanding that the world is undergoing a period of transformation. Public financing transactions are moving away from multilaterals, which had been found quite inept in resolving the world’s problems. The option which provides government less than market price loans (in terms of interest rates) is through bilateral arrangements. Commonly facilitated through state-to-state negotiations, bilateral lending’s advantage lies with the fact that it is easier to trace, clarify, and assert the advantages and interests of both donor and beneficiary states – making easier to resolve potential opposition. China has been the trumpeting its achievements in trading with Africa. In a document entitled, “China-Africa Economic Trade Cooperation” it was stated: China-Africa bilateral trade volume was only US$12.14 million in 1950, it rose to US$100 million in 1960, and exceeded US$1 billion in 1980. After reaching the US$10 billion mark in 2000, China-Africa trade has maintained a momentum of rapid growth ever since. In 2008, China-Africa bilateral trade volume exceeded US$100 billion, of which US$50.8 billion is China's exports to Africa and US$56 billion is imports from Africa. In the past, loans were used to help developing countries, particularly those in a post-conflict setting. Killick (1998: 4) states that: There has also been a powerful move to link aid with the promotion of “good governance” (accountability, transparency, the rule of law, the prevention of corruption, etc.) the observance of human rights and the promotion of multi-party democracy. There has been a growing use of conditionality in these areas, particularly by bilateral donors but also by the World Bank. But when it became clear that it was possible to expand the business interest of the donor country beyond the interest it gets from the loans, the notion of conditionality took on a decidedly less benign turn. This brings us to the persisting phenomenon of “Tied Loans/Tied Aid”. Now, the intent of tying loans is to protect the interest of the donor countries. (Pronk, 2004: 11). For example, a donor country can insist that the financing they will provide must go to a particular contractor and/or supplier they name. Because the tying up of loans usually dictate that contractors from the donor countries must be the one to implement the projects financed by bilateral loans, the intention is clearly shifted away from, and no longer justified solely in terms of, benefits of the beneficiary countries. This is accompanied by the shifting of Official Development Assistance (ODA) 1 framework away from international humanitarian concerns towards that which explicitly asserts the national interests of donor countries. Unfortunately, the promotion of the interests of the donor country prejudices the interests of the recipient country – and this is crucial in Frank’s underdevelopment theory. It is a relationship where one derives strength and growth by capitalizing on the weakness of the other. We look at the case of China as donor country. China has been emphasizing cooperation between developing states when engaging with Africa. To quote the World Bank: China’s approach to financial assistance is different from that of traditional donors, and forms part of a broader phenomenon of southsouth economic cooperation between developing nations. The principles underlying this support are therefore ones of mutual benefit, reciprocity, and complementarities and are grounded in bilateral agreements between states. Unlike traditional ODA, Chinese infrastructure finance is channeled not through a development agency but through the Ex-Im Bank, which has an explicit mission to promote trade. (World Bank, 2008: x). China’s rhetoric of South-South cooperation, and the “poor helping the poor” has gained it some ground in Africa, but its subsequent actions generously demonstrate that the structural impediments to development have nothing to do with latitude and everything to do with the ideologies of development that underpin them.” (Mohan, G. and Power, M., 2009: 4). It has been one of the primary and long-standing criticisms that Chinese lending generally lack in transparency and accountability – benefitting only the local elite in the recipient country and increasing the debts to be paid by the taxpaying poor.. This is important to consider because by the very nature of state-backed goods, these projects tend to have very high social consequences, and positive or negative externalities. In among many countries, the mere lack of transparency may erode public support for such projects and may impede the effective use of existing loaned resources. China’s relationship with Africa is indicative of this. Says Mohan (2010: 31): … most African leaders share an uncritical openness to China for the good that it will bring. In all cases, there is very little internal debate, either in China or African countries, about the efficacy and impacts of China’s Africa policy. For example, apart from South Africa, there is very sparse civil society debate about the pros and cons of China’s involvement. Martine Dahle Huse and Stephen Muyakwa [2008: 12] reports that China does not want to reveal the package deal agreements made with African countries. These agreements, according to Chinese officials at the Embassy in Lusaka, are only provided on a “need to know basis”. Another grave effect of the lack of transparency is the shutting off the other stakeholders in the processes. The fact that only the highest levels of government and technocracy have access to the Chinese loans leads to a “personalization of politics”. This necessitates that only the highest political actors, those with real political power, get to decide on the real issues. Let us turn to a darker example of how China used its aid power to forward its own geo-political interests and took advantage of a weaker state. We must always remember the fact that while China is on its way (or arguably, already there) towards being an economic superpower, China is still beset by the internal problem of rising domestic demand on commodities, the production of which is heavily dependent on hydrocarbon-based industrial activity. It was already mentioned that this is a problem which leads to economic overheating and inflation, and, to some degree, exacerbates intra-urban inequality. It is therefore an imperative for the PRC leadership, the CCP, to satiate the public demand for energy with more supply of energy resources. China’s search eventually brought it somewhere near home, or at least what it claims to be part of its home – the South China Sea. There is where you will find an agglomeration of more or less 148 seamounts, coral reefs, and islets between Philippines and Vietnam called as the Spratly islands. While the whole land area of the region is less than 5 km.2 (with a coastline of 946 km.), the whole region comprises of nearly 410,000 km.2 – a region contested by at least seven countries – China, Philippines, Vietnam, Malaysia, Indonesia, Taiwan and Brunei. In 1968, the PRC’s Geology and Mineral Resources Ministry estimated that the Spratly area holds oil and natural gas reserves of 17.7 billion tons (1.60 x 1010 kg.) – a few billion tons more than Kuwait’s 13 billion tons (1.17 x 1010 kg.) – which makes it the fourth largest reserve bed in the world. It was a few years after that, March 11, 1976, that the Philippines in turn had its first major oil discovery off the coast of Palawan, which is part of the Spratlys territory. These discoveries led to more efforts to tap hydrocarbons in the area. Here comes the rub. In September 1, 2004, China and the Philippines signed in Beijing “An Agreement for Joint Marine Seismic Undertaking [JMSU] by and between CNOOC and PNOC“ which will be in effect for three years and shall cover a total of 142,886 km.2 area in the Spratlys region. The agreement was condemned and opposed by the other nation-states contesting Spratlys. What the Philippine-China JMSU accomplished was to compromise this united bloc, thereby undermining ASEAN’s collective success when negotiating with China on the South China Sea conflict. It had raised many eyebrows – both in the Philippines and outside -- that China granted the Philippine President 65 bilateral agreements in a short period of time, of which “only 18 were signed before or around the same time as the seismic survey agreement on September 1, 2004”2. This means that post-JMSU bilateral agreements totaled a whopping 47. (Go, 2008: online). The Philippines was forced to compromise regional geo-political interests and waive its claim to land that could have given the country oil to boost its economy – all because China dangled a fat aid package that the Philippines could not refuse in the condition that it was in. Conclusion As we have seen, the predatory relationship between the “satellite” and the “metropolis”, if we are to use the terminology of Gunder Frank, persists to this day and has found new mechanisms to perpetuate itself, in the form of tied aid. If before, we have lending tied to supposedly multilaterally agreed upon standards and policy prescriptions, now, lending is only tied to the business interests of the parties involved. (Riddel;, 2007: 2). As we have elaborated, the Chinese model has already followed this pattern, and we can expect others to follow suit and increase policy conditionalities attached to loans. It is therefore inclumbent upon countries in the global south to resist this trend and not succumb to the allure of cheap loans with expensive consequences. Frank, Andre Gunder (1969). “The Development of Underdevelopment” in Roberts, J. And Hite, A. (eds). The Globalization and Development Reader: Perspectives on Development and Global Change. Wiley-Blackwell, 2007. Go, M. A. (2008). A Newsbreak Exclusive: Exploring the Spratlys, The Philippines set aside territorial claims to look for oil deposits with China and Vietnam. Newsbreak. Huse, M. And Muyakwa, S. (2008). China in Africa. Norwegian Council for Africa. Available at http://www.eurodad.org/uploadedFiles/Whats_New/Reports/China_in_Africa.pdf Killick, T., Gunatilaka, R. and Marr, A. (1998). Aid and the political economy of policy change. London: Routledge. Mohan, G. and Power, M. (2008). “New African Choices: The Politics of Chinese Engagement”. Review of African Political Economy. 35: 115. 23-42. Pronk, J. (2004) 'Aid as Catalyst', in Catalysing Development? A Debate on Aid (pp. 1-19). Oxford:Blackwell Publishing.  Roberts, J. And Hite, A. (2007). The Globalization and Development Reader: Perspectives on Development and Global Change. Wiley-Blackwell. Riddell, R. (2007) Does Foreign Aid Really Work? New York: Oxford University Press. Wallerstein I. (1974). “The Rise and Future Demise of the World Capitalist System: Concepts for Comparative Analysis.” Comparative Studies in Society and History. Vol. 16(4). 387-415. Read More