27 April 2009

Dead Aid, a review

by Lawrence Haddad - 27 April 2009

Dambisa Moyo’s book is a readable and provocative call to action, but oversimplifies the issues and ignores the fact that in some contexts aid can be useful – and sometimes even necessary.

Dead Aid by Dambisa Moyo should have been called ‘No End to Aid?’ That is because it does several important things. Firstly it has opened the debate about the need for an African exit strategy from aid. Secondly it has outlined some plausible alternatives to aid. Thirdly it hammers home on aid’s Achilles heel – weak accountability to citizens in recipient countries. Fourth it talks about how difficult it will be for the aid industry to work itself out of business. Will it ever receive a phone call, much like the one the General Motors CEO recently received from President Obama, to say ‘time’s up’? These are all extremely important points and are eloquently made in Moyo’s readable and provocative book.

Unfortunately the book also trashes aid. Aid is ‘malignant’. It is the problem and is not even allowed to be a part of the solution. I suppose titles like ‘aid is never sufficient for development, but is often useful and sometimes even necessary in certain countries at key times, in key sectors, for a limited duration’ would not ‘sell the t-shirts’ (to coin one of Moyo’s phrases).

Too many people will latch onto this book and say aid=bad. I know too many people say aid=good, many because they mistakenly think aid=development. But even Moyo points out that many of the countries that have achieved sustainable growth benefitted from aid at critical junctures. We need to be much more nuanced about when aid is good or not. Her cursory examination of the data and her sparse selection of the evidence does not inspire confidence in her assertions. But the need to be more nuanced applies to all of us.

A single set of Dollar and Burnside’s cross-country regressions should never have been used as a launch pad for a massive aid propaganda machine. Neither should a few horror stories launch a counter campaign. Aid has saved millions of lives – both outside and within humanitarian contexts – and there are many documented and credible success stories. But the development community has been too squeamish about documenting aid failures, allowing others to do so – typically in an imbalanced way, drowning out other messages. For example, Time magazine’s review of Dead Aid (which I read before reading Moyo’s book) focuses almost entirely on the ‘aid is bad’ story and relegates Moyo’s important alternatives to aid primarily to ‘microfinance’.

The real contributions of the book relate to the four points outlined above. On the aid exit strategy I agree with Moyo – until we start talking about it, we (and others) won’t begin thinking about it. There is an African proverb at the end of the book which states ‘The best time to plant a tree is 20 years ago. The second best time is now.’ The time to start discussing exit is not in 20 years time, but today. But exit to what? At this point Moyo’s years as a ‘global economist and strategist’ at Goldman Sachs come to the foreground. The book describes several alternatives including: the issuance of bonds in the international capital markets; attracting investment from China and promoting trade with both China and others; and reducing the costs and charges associating with receiving remittances (strangely domestic taxes are not mentioned much). Moyo is rather sanguine about the ease of generating these flows, their predictability and their corrupting influence and is correspondingly disparaging about aid’s performance in these dimensions. At least aid (unlike international credit) looks like it is holding firm in the current crisis – can aid’s stickiness be helpful in some circumstances?

Critically, being market based, these non-aid sources of finance have the advantage of demanding some performance in return. This is difficult for the aid industry. Specifying what is to be returned from aid and when and why is almost impossible for distant and outsider bureaucrats. Moreover, enforcement is time consuming and politically unpopular. Moyo does not dwell much on how to improve aid accountability, preferring to ditch the whole ‘unmitigated disaster’. That is too bad – aid will be around for a while and it needs to be made more accountable. Why not a citizen-led global ‘Aid Transparency Initiative’ inspired by the Extractive Industries Transparency Initiative?

The aid industry is indeed a machine as Moyo describes it and my own organisation, IDS – like most others working on development – is wrapped up in it. So when are we going to join Moyo in envisaging a ‘world without aid’? As the quoted proverb notes, the time is indeed now.

The flux of the global economic turndown of 2008-2010 (I hope) provides an opportunity for aid to demonstrate its virtues in helping many through the crisis. It is also an opportunity for its proponents to demonstrate their lack of self interest and to re-imagine a development where aid has a diminished role. A development where responsibly governed market, diplomatic and defence forces provide the platform for sustainable improvements in wellbeing. It must be seized.