The Aid Curse
More of a bad thing is nothing to celebrate.
By Roger Bate
As the world’s AIDS activists debate policy at the 16th International AIDS conference in Toronto, the vast majority will be pleased at their lobbying efforts for more aid funding to combat this deadly scourge. But like the Indian government, which has recently entered the aid business by giving over $650 million to Afghanistan to help stabilize this breeding ground for fanaticism, it is as well that they consider an increasingly alarming phenomenon “” the curse of aid. A combination of the urge to combat both AIDS and terrorism has driven the resurgence of aid in the past five years, but aid seekers seem to be ignorant of the long-run harm they may be causing.
It is well known, and increasingly accepted, even by the officials of affected governments, that without the institutions of a free society, being endowed with natural resources can be as much hindrance as help, at least for the majority of the population. The curse is worse with oil “” Nigeria, Venezuela, Angola, Congo, Iraq, Iran, and even G8 member Russia, all have significant problems that are exacerbated by being well-endowed with oil, such an immediately valuable commodity with negligible substitutes.
The wealthy and powerful cabals of those countries do extremely well with their oil sales (as do international elites everywhere “” who can forget Iraq’s Oil-for-Food scandal?), but the rest of the population is often disregarded. As so much of the revenue of those countries comes from single sources that are simple to extract, their governments can afford to patronize enough followers “” consider, for example, President Chavez in Venezuela “” to keep political opposition at bay, while silencing (sometimes permanently) dissenting voices.
There is a similar, if slightly less dramatic, effect when it comes to aid; since aid is much like oil revenue by another means. After all, few people are employed in the extraction of mineral wealth, and even fewer are required to extract funds from wealthy countries just gagging to release the funds. And if anything, aid is even more divorced from the population. Local groups can dramatically oppose the politically powerful at the site of resource extraction “” the protest against foreign oil firms in the Niger Delta in Nigeria led to international focus on that country’s environmental and human-rights record. But since aid money comes from overseas, protesters have no local focus, especially if aid funds flow straight into the treasury of the recipient country. Of course donors do demand things in return for their taxpayer’s largesse (democratic reform, agricultural reform, health programs, etc.), but historically they have not often refused further loans or grants if improvements or policy changes are not made “” recall that Kenya took money for the same World Bank agricultural-reform package four times in a decade while doing nothing it agreed to. And Western donors were as guilty as the Kenyan government in going along with this farce. Today, donors write off debts almost as new funds are being negotiated.
Take other parts of East Africa. In addition to the Kenyan agricultural debacle just mentioned, Uganda is one of the world’s largest aid recipients, and a remarkable 50 percent of its GDP comes from foreign assistance. Its president, Yoweri Museveni, is therefore in a position to dispense patronage to favored groups without having to worry that such dispensation comes at an obvious cost to the electorate. At the same time, aid means that, when it comes to Uganda’s finances, he is as worried about international opinion (at least at aid agencies, if not in the rest of the world) as he is about the entire economically productive proportion of his population. And he knows that aid is secure, not vulnerable to the vagaries of domestic activities (made even more volatile by some of his irrational policies). Take the hideous and barbaric activities (murder, rape, dismemberment) of those opposing his rule in the north of Uganda, brilliantly exposed in the most recent issue of Foreign Policy “” yet Museveni is still courted by Western leaders.
In addition to aid, he can rely on even more foreign revenue in the form of tariffs, which breed corruption and prevent medicines from reaching the sick (especially when tariffs are applied to donated or discounted essential medical products), making his reliance on the domestic economy and people weaker still. And when courageous local journalists like Andrew Mwenda point this out they are harried, and their press freedoms are curtailed, by routine imprisonment.
Then there is Ethiopia. Meles Zenawi, seen by the Pentagon as something of an ally in the war on terror, has been more successful at terrorizing his own people, especially in the opposition party, than in routing out extremists bent on wreaking destruction in the West. He has also continued to follow Marxist economic policies; there is virtually no private property in the country, making it very difficult for any development to occur, and making development aid rather pointless. This doesn’t seem to bother Zenawi, as he prevents all significant legitimate opposition and probably stole the last election “” at the same time as the U.S. and U.K. decided to write-off his bad debts. And the more aid Zenawi’s government receives, the less he needs actually to encourage the causes of wealth creation. This not only has obvious economic implications, but also moral ones; to rely on handouts breeds an ethos in an entire country not unlike that found in the most aid-dependent parts of Western society. And while the welfare state works well in Scandinavia, it has partially or totally failed in most other locations, requiring high degrees of political honesty and hence low corruption “” unheard of in the entire African continent, along with much of the rest of the world.
It is not that individual aid programs cannot work; they can, but before more funding is allocated, either privately (by Gates etc.), or by governments, much more thought should go into the destabilizing and undemocratic outcomes it can cause. AIDS activists cheered when $8 million was raised in 2004 for HIV work in Sierra Leone, but these funds dwarfed the rest of the health budget (of $6 million), drawing staff from more valuable work (e.g. child immunization) and making the health department more concerned about its donors than its patients.
Similarly, as Afghanistan emerges as a democracy, it indeed needs to be encouraged, and Indian aid may help, but it would be tragic if its future politicians were more worried about keeping its donors, notably the United States, happy than about pleasing its electorate.
“” Roger Bate is a resident fellow at the American Enterprise Institute.