Although economists and practitioners have questioned the theory behind foreign assistance to underdeveloped countries for more than four decades, the aid industry is bigger and stronger than ever today.

BY THOMAS DICHTER

Back in March 1974, British economist P.T. Bauer wrote a long essay in Encounter magazine questioning the ethics, effectiveness, unintended consequences and, more important, the theory behind foreign aid to underdeveloped countries. The essay’s title was “Foreign Aid, Forever? Critical Reflections on a Myth of Our Time.”

Bauer mustered evidence from history and economics, as well as foreign aid’s own record, to confront the growing aid establishment with its “sometimes brutal consequences, enormous costs, little success and virtually no adverse criticism.” He expressed amazement at “the only category of government spending which goes unquestioned,” and concluded that foreign aid was an act of faith, a myth.

Today, foreign aid is even more robust than it was in 1974. Official development assistance (ODA, in Organization for Economic Cooperation and Development parlance) provided by the advanced industrial countries to the developing countries has grown steadily since 2000, with a record high of $142 billion reached in 2016, and it involves scores of bilateral and multilateral agencies, hundreds of large international nongovernmental organizations, foundations old and new, and private contractors—all employing hundreds of thousands of professionals. Now, too, at the dawn of its eighth decade, with aid funding at historic highs, the likes of Tony Blair, Bono, Bill Clinton, Bill Gates, Jeff Sachs and others call for yet more aid money, convinced that the problem of world poverty can be solved if only we’ll direct more money toward it.

Yet the call for more aid is still based on an act of faith, a belief in defiance of the evidence, that it makes a significant difference in fostering development and sustainably reducing poverty. Those countries that have made real progress in reducing poverty (the Asian Tigers, China and others) have done so for myriad and complex reasons having to do with culture and changes in the political economy, but not with foreign aid. In fact, foreign aid, particularly the big ideas of prestige players like the World Bank, has often proved harmful. A long history of the rise and fall of the next new big idea, fad or buzzword (e.g., structural adjustment, community-based development, microfinance, participatory development, capacity building)—each of which amounted to saying “we were wrong before, but now we’ve figured it out”—has failed to produce even a sign of embarrassed self-consciousness.

Instead triumphal declarations of success, as we’ve recently seen with the United Nations’ millennium development goals (never mind that at least half of them failed to be achieved), mark the aid industry. And always, there is a call for more money. As Bauer pointed out in 1974, “either progress or lack of progress can be used to argue for more aid. Progress is evidence of success, and lack of progress is evidence that more must be done.”

Indeed, all of Bauer’s criticisms remain valid today except one: his claim that foreign aid has had “virtually no adverse criticism.” Since 1974, the criticism and questioning of foreign aid has steadily increased.

The Steady Growth of Questioning

A mix of semi-scholarly critiques of the aid system has appeared in the decades since Bauer. These included Judith Tendler’s Inside Foreign Aid (1976); Eugene Linden’s The Alms Race, (1976); Francis Moore Lappé, Joseph Collins and David Kinley’s Aid As Obstacle (1981); R.J. Parkinson’s edited volume, Poverty and Aid (1983) and Pascal Bruckner’s Tears of the White Man (1986). Then came a few bittersweet insider critiques, like Leonard Frank’s essay “The Development Game” in Granta (1988), Graham Hancock’s Lords of Poverty (1989) and Timothy Morris’ The Despairing Developer (1991).

During the 1990s, there were major feature articles like “The Twilight of Foreign Aid” in the Financial Times (1992) and “Why Aid Is an Empty Promise” in The Economist (1994), as well as book-length studies such as Compassion and Calculation: The Business of Private Foreign Aid by David Sogge, Kies Biekart and John Saxby (1996) and journalist-cum-insider Michael Maren’s The Road to Hell: The Ravaging Effects of Foreign Aid and International Charity (1997).

Despite the evident truth of contextual complexity, aid agencies continue to be wedded to preconceived recipes for how to “implement” development.

The new century saw the momentum pick up, with Ha-Joon Chang’s Kicking Away the Ladder (2002), my own Despite Good Intentions: Why Development Assistance to the Third World Has Failed (2003), William Easterly’s The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good (2006), Roger Riddell’s Does Foreign Aid Really Work? (2007), Dambisa Moyo’s Dead Aid (2009), Derek Fee’s How to Manage an AID Exit Strategy: The Future of Development Aid (2012) and Ben Ramalingam’s Aid on the Edge of Chaos: Rethinking International Cooperation in a Complex World (2015).

There is also the work of economists and historians who support the thesis that development is too complex to be engineered by outsiders. A prime example is David S. Landes’ The Wealth and Poverty of Nations (1999).

Virtually all critics point to the creation of dependency and suggest that in this way foreign aid works against its own long-term goal—the day when developing countries themselves take the lead and foreign aid won’t be necessary. Sogge et al., for example, put the issue of self-interest at the heart of this contradiction: “The hope of ending charity, of making the helpers answerable to the helped, and of establishing something like mutuality, remains an idea … an open question.”

Many critics also look in some detail at the bureaucratic imperatives of planning—the perverse relationship between the need for accountability and the consequent reliance on short-term projects, the games played in the business of aid contracting, the waste of money, the fact that much of the money stays home instead of going to the intended recipients—and show how these imperatives get in the way of effectiveness.

Sogge et al. put it this way: “Agencies must feed their official aid system funding authorities with an increasingly narrow diet of information according to indicators easily digested in bureaucracies and in public discourse. Water wells dug and babies jabbed continue to stand for improved child health; proportions of women in training workshops continue to stand for gender balance. Gradually, the production of indicators treating only the very short run pervades the activities themselves: a longer-run perspective, learning based on real impact, the innovative spark and other ‘comparative advantages’ of agencies gets crowded out.”

How Development Works

Some critiques point to the hubris of foreign aid, the sure sense that we know what’s good for others. Given that every society is a complex and tightly woven mosaic of political, cultural, social, structural and historically constructed pieces, the appropriate stance is humility. What MIT economist Everett Hagen said in 1962 in On the Theory of Social Change: How Economic Growth Begins, holds true: “In the countries in which the transition to economic growth has occurred, it has been concomitant with far-reaching change in political organization, social structure and attitudes toward life. The relationship is so striking and so universal that to assume that one of these aspects of basic social change is unrelated to the others is to strain the doctrine of coincidence beyond all warrant.”

Yet despite the evident truth of contextual complexity, aid agencies continue to be wedded to preconceived recipes for how to implement development. Speaking in 2003 about the belief in the magic of market economies, World Bank economist William Easterly pointed out that “no recipe exists, only a confusing welter of bottom-up social institutions and norms essential for markets. These evolve slowly on their own from the actions of many agents; the Western outsiders and planners don’t have a clue how to create these norms and institutions.” Easterly concluded: “It is a fantasy to think that the West can change complex societies with very different histories and cultures into some image of itself. The main hope for the poor is for them to be their own searchers, borrowing ideas and technology from the West when it suits them to do so.”

We need to face up to the fact that what got us to where we are is not what we tell the developing countries.

A few critics note the aid industry’s lack of emphasis on time—how much of it “developed” countries needed. The United States did not have a widespread middle class until after the Second World War; whole sections of the country lacked indoor plumbing and electricity well into the 1930s; we did not have a modern national highway system until the late 1950s. And in his Kicking Away the Ladder, Ha-Joon Chang reminds us, for example, that the road to democracy in the developed countries was a rocky one; in the United States, universal suffrage did not occur until 1965. He points out that what we today lament as developing-world corruption and bad governance existed relatively recently in our own developed world: public offices were sold, there was widespread nepotism, and professionalism was conspicuously lacking until at least the late 19th century. Chang’s broad conclusion is that we need to face up to the fact that what got us to where we are is not what we tell the developing countries.

Still, few of the aid critiques approach the fullness of Bauer’s in 1974. He, too, castigates the foreign aid establishment for ignoring history, for its arrogance and paternalism. But he goes on to address the deeper question of how aid relates to development in the first place. In a word, it doesn’t. “Promotion of development and relief of poverty are … altogether different,” Bauer reminds us. Significantly, USAID, the U.S. government’s aid agency, has blurred that distinction in the last few years by emphasizing saving lives and extreme poverty. Its latest mission statement (see www.usaid.gov) leaves out the word “development” altogether: “We partner to end extreme poverty and promote resilient, democratic societies while advancing our security and prosperity.”

Bauer’s blunt conclusion is this: “Foreign aid is patently not necessary to emerge from poverty.” And he reminds us that the key variables for development lie in the cultural, social and political realms: “If the personal and social conditions of progress (capacities, motivations, mores and institutions) are not present, aid will be ineffective. What holds back many poor countries is the people who live there, including their governments. A society which cannot develop without external gifts is altogether unlikely to do so with them.”

Twenty years after Bauer’s seminal essay, John Kenneth Galbraith struck the same note in A Journey Through Economic Time (1994). “Assistance programs have done something to serve the conscience of the fortunate; they have done much less to lessen despair,” Galbraith wrote. “Those countries … that have flourished … have done so because of their own internal dynamic. This, not foreign assistance, has been the moving force.”

Some Striking Evidence

Now in 2017 we can look back not just at this corpus of rigorous criticism but at some striking evidence of the unimportance of aid for development. Take, for instance, the “Least Developed Countries” list agreed upon by the United Nations in 1971. Today there are 48 countries on the list, 21 of which have been on the list since it began 46 years ago. In all this time only three of the originally listed countries have “graduated” from it (Botswana in 1994, Cabo Verde in 2007 and the Maldives in 2011). More striking is how dependent on foreign aid these LDCs are. On the current list, there are eight countries where foreign aid is greater than their governments’ national budget (e.g., Haiti).

Many of the LDCs are not only not improving but are, in many ways, worse off than before. Malawi, Mali, Burundi, Sierra Leone, Guinea, Burkina Faso, the Central African Republic and others suffer from growing poverty rates, and unimaginably high unemployment among large populations of young people. The argument that more aid money will do more than merely keep them alive simply does not hold up.

Today there are 48 countries on the [U.N. Least Developed Countries] list, 21 of which have been on the list since it began 46 years ago.

How can a major industry like foreign aid ignore such a four-decade-long critique? Imagine the U.S. auto industry persisting decade after decade in ignoring those who, beginning in the 1960s, began pointing out its shoddy workmanship and managerial backwardness? The auto industry turned around, but not just because of the critics; it stopped making money. In short, it was self-interest that prompted change; the auto industry both heard its critics and saw its balance sheet. GM and Ford want to stay in business; indeed, that is their raison d’etre.

But foreign aid is fundamentally different. The only genuine metric of foreign aid’s success is the degree to which it becomes unnecessary; the goal is to go out of business. Yet because foreign aid has become a big business, a kind of aid-industrial complex, using “sales” as the core metric, self-interest does not enable change: indeed, it prevents it. Like President Dwight Eisenhower’s military-industrial complex, the aid-industrial complex marshals political support for increased government spending for its work, on the grounds that foreign aid is crucial for world peace and development. Were the aid establishment to take its critics to heart, this would mean a reduction of aid, if not its end in many countries.

The Stakes: Success vs. Self-Interest

Over the last 20 years the outsourcing of U.S.-funded development aid to contractors has grown to the point where they have much to lose. In Fiscal Year 2012, 28 of the top 40 USAID vendors were American for-profit or nonprofit firms whose total contracting business with USAID amounted to $5.37 billion, fully 25 percent of the agency’s budget. In FY 2014, 33 of the top 40 vendors were American firms and their total business with USAID was $5.53 billion (the latest data available on www.usaid.gov is from November 2014). And these are only the top vendors.

There are scores of other U.S. organizations that get a piece of the American aid pie. The cohort is a surprisingly mixed group, from mission-driven (and venerable) nonprofit organizations like Catholic Relief Services ($179 million in USAID business in FY 2012; $206.3 million in 2014) and Save the Children ($128 million in FY 2012, and $125.9 million in 2014) to for-profit firms like Chemonics, founded in 1975 ($501.7 million in USAID business) or huge newcomers to aid like Tetratech, which started in the 1960s as an engineering and construction firm and now, with 35,000 employees, has expanded into many fields including international development ($360 million in USAID business in 2015 alone). Like the other dozen or so “Beltway bandits,” these firms pull names from consultant databases to put together teams to implement projects they bid on, and can be counted on to follow the fine print of USAID rules and provide the “deliverables” in the contract, whether they make developmental sense or not. But whether for-profit or nonprofit, the scramble for position and gain in the aid marketplace marks all these organizations.

With negotiated overhead cost rates in the 30 percent to 45 percent range for the more established firms, aid money can be easy money. While the aid industry is accountable in the strict legal sense, it is certainly wasteful. In the interest of responsible oversight, a contracted project might easily charge two to 20 days a month for supervisors at different levels of the firm to look at what is happening “on the ground.” So people find reasons to fly out to Senegal or Timor-Leste or Haiti to “monitor” a project. And when a capacity-building training program is launched in, say, Bangkok, the heads of the training module design unit will fly out to introduce themselves.

These visits are a burden on the host country. In Tanzania in 2006, there were 541 “donor monitoring missions”—visits by foreigners to check on things. The Tanzanian government responded by declaring a “mission-free period” every year so that civil servants could get some work done. Yet no one asks if the many donor missions are really necessary, and one of the reasons for that is that the visiting supervisor’s time generates overhead. In a sense, waste in the foreign aid world contributes to “profit” rather than reducing it. And of course the constant presence of foreign personnel—from the chiefs of party to the project evaluators to the training consultants—sends the message to the developing countries that “we” are important and needed.

Because foreign aid has become a big business, a kind of aid-industrial complex, using “sales” as the core metric, self-interest does not enable change: indeed, it prevents it.

In 2015 there were 524 American nongovernmental organizations registered to do business with USAID (see www.usaid.gov, VOLAG 2015). Interestingly, up until the early 1980s, most of these NGOs saw themselves as outside the aid industry; to them, the World Bank and USAID were adversaries, not partners. But Save the Children, CARE, Catholic Relief Services, Mercy Corps, World Vision and many others evolved, in grow-or-die fashion, to become multisector entities that today resemble nothing as much as big corporations.

World Vision, which topped $1 billion in operating expenses in 2015, has 31,000 employees, and is involved in everything from health to water supply, agriculture and education; its CEO makes more than $500,000 annually. CARE, founded in 1945, claims on its website to be working in 90 countries in 880 “poverty-fighting” and humanitarian aid projects, and reaching more than 72 million people. Its operations topped $533 million in 2014. Save the Children U.S. had an operating budget of $678 million in 2015, working in “Emergencies, Health & Nutrition, Education, Hunger & Livelihoods, HIV/AIDS, Child Protection, Child Rights and Governance.” Its CEO makes about $500,000 a year.

In the case of the large NGOs mentioned above, 40 percent or more of their income derives from government contracts, grants and agreements. And for the 524 NGOs registered to do business with USAID, on average 12.5 percent of their operations are tied to U.S. government money. In addition, they depend on a steady stream of contributions from individuals, people who believe that their gifts do a great deal of lasting good.

What Is to Be Done?

In short, there has been no contraction of the aid industry footprint in the developing countries, no sign of any movement toward “working ourselves out of a job.” Moreover, the pipeline for new “development professionals” to work in the industry remains robust. There are thousands of American young people getting degrees in any one of 45 master’s programs offering development aid–related degrees (from American University to Yale). One such program claims that it “educates young professionals to play increasingly responsible roles in the health and well-being of the world’s poorest citizens.” The idea that such roles ought to be played by the people of the poor countries themselves seems to be ignored.

Can anything be done to reform this system? There are some steps to take, but they all require political will—on the part of the aid establishment, the will to face up to working itself out of a job; and on the part of the recipient countries, the courage to say, help us, but only on our terms, and that, too, with a light hand. We want your goodwill, your ideas, your advice; but we want a clear exit strategy from you up front. The OECD donor countries need to make the concept of country ownership meaningful by beginning a gradual but steady decrease in aid for development.

A first step in this direction is to decouple humanitarian assistance and development assistance; the important distinction between relief and economic development needs to be reasserted. And all assistance, both humanitarian and development-oriented, must shift to a “tough love” approach, where for example, no aid is given unless a significant contribution is made by the recipient country—and not just bricks or labor, but real money in large enough amounts to go beyond tokenism.

As for the cohort of contractors, the message needs to go out that the days of outsourcing large development aid projects are coming to an end, and these firms need to look for work elsewhere. Finally, the international NGOs need to come clean with their supporters about what contributes to economic development and what merely takes the edge off extreme poverty.

Thomas Dichter has worked in international development for 50 years in 60 different developing countries. A Peace Corps Volunteer in Morocco in the early 1960s and, much later, a Peace Corps country director in Yemen, he was vice president of TechnoServe, a program officer at the Aga Khan Foundation in Geneva, a researcher on development issues for the Hudson Institute and a consultant for many international agencies, including the United Nations Development Program, the International Fund for Agricultural Development, USAID, the Asian Development Bank and the World Bank, as well as for the Austrian and Philippine governments. He is the author of Despite Good Intentions: Why Development Assistance to the Third World Has Failed (University of Massachusetts Press, 2003) and co-editor of What’s Wrong with Microfinance? (Practical Action Press, 2007). His Speaking Out column, “Why USAID’s New Approach to Development Is Stalled,” appeared in the December 2016 FSJ. The views in this article are the author’s own and do not represent the views of the U.S. government.

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