The Problem with Aid

The aid establishment has grown on the basis of 2 assumptions
1. That there is a capital shortage in poor countries and
2.  That these countries lack the ability to make policy either because of knowledge or information shortfalls.

The world has changed and these 2 assumptions are now untenable. Capital markets are flush with cash and they are eager to push it on to poor countries. The internet and globalization has made knowledge easily accessible to all. Most countries now have all manner of expertise. They are all exporting experts to the west.

Despite these developments aid continues to grow. Financial flows are small. Now aid establishment is retailing policy advice, capacity building and technical assistance.

While reports and consultants are surrounding poor country policymakers making them feel good, talent from those countries is being released to do outstanding work in the west. Yet their governments would rather have aid than bring back talent. And aid seems to be set to facilitate flight of human capital.

The aid establishment is now huge. Bilaterals and multilaterals included we are talking of about 30 offices in Islamabad. All of them have officials who need to justify their presence. For that they have to show an agenda and work. They are playing to their bosses out there and have only a limited interest in the welfare of Pakistan. They have large sums at their disposal and agendas.

Meanwhile, our government’s human resource policies are such that no competent well-educated Pakistani can find gainful, responsible and respectable employment at home. The only option for such talented people is to leave the country. Those who for personal reasons are compelled to stay in the country, they have to be employed by the aid establishment, reporting to junior aid officials and following their agendas.
We all agree that governance is one of our biggest problems in Pakistan. Yet this system of aid perpetuates poor governance. Ministers are treated like royalty by the aid establishment. They are addressed as “Excellency” and given a lot of courtly ceremony. They are wined and dined on international trips that can hardly stand the test of scrutiny. They are invited as chief guests to conference/ceremonies. They are given the pulpit at various events to make empty repetitive speeches. In short, ministers are distracted from their real work and rewarded for keeping the status quo.
The many donor bureaucracies now dwarf country administrations. The latter in any case have been stripped off their human capital and live with outmoded systems and technology, thanks to continued postponement of reform. Consequently, ministries have no ability to develop policy and other initiatives or to react to the various demands that face them. This suits donors who have agendas that need to be served. The less the opposition the better!

The various aid offices and consultants ply ministers with more reports and proposals than the ministry has capability to understand. Serves both parties well but it does postpone reform and hence keeps our administration on a perpetual decline in terms of their capacity. It is not surprising to see all our governance systems are deteriorating.

The continuous supply of consultants, technical assistance, training and conferences puts donors fully in charge of the agenda. When they say we need to measure poverty, everyone turns to it. They spend millions of dollars measuring poverty and arranging conferences for discussing poverty. They pivot to Trade with India, the whole country starts discussing that.

Quite unintendedly, the aid enterprise operates as if it were “dumping” on our intellectual enterprise. Donor advice to cut the deficit while demanding increases in several heads from environment to social safety nets, the government has no money for research in any area. Only donors have liberal funds for research which they use for their agenda. In this environment, the entire intellectual effort of the country works for the donors.

No money is available for local problem solving. For example, in Pakistan there is a consensus that civil service reform is critical for improving governance. Yet because the donors opposed this, the subject has never had any funding for research or conferences or ministerial presentation. The entrenched civil service resists discussion on this reform and donors wittingly or unwittingly oppose the reform.

Our think tanks and universities are depleted of serious research and public intellectuals as the aid enterprise only funds low quality agenda based consulting. Such consulting also is stratified where the meaty contracts go to firms overseas that have symbiotic (often questionable) relationship with aid. Local intellectuals and firms are virtually hired as research assistants by the contracting firms sitting in distant capitals collecting huge overheads and fees.

Perhaps the biggest unintended consequence of the aid enterprise is that the current arrangements are killing the intellectual enterprise in all countries. In this regime, chances of developing a Brookings or a McKinseys in a poor country are minimal. The best option for talent is to migrate.

Angus Deaton has rightly noted that state capacity which is so critical to development suffers the most with aid. Add to that the rapid deterioration in intellect and problem solving capacity of the country and continuing failure to develop becomes somewhat clearer.  

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