North-South Foreign Aid: Is it doing more harm than good?

Submitted By: James Allan
Submitted To: Ross Gibbons
Date Submitted: Dec 29, 2013
Course: Political Economy – North - South 3365F

In a world in which nearly half the world’s population, 2.8 billion people, live on less than $2 a day, 1 the North has a moral obligation to help the South. Therefore it is not a matter of if but how best to assist the South’s development. This essay will answer this question by exploring official developmental assistance (ODA) under the North-South Framework. This author will first inject context into the discussion through outlining the history of foreign aid, its successes and failures, before determining that foreign aid is neither a panacea nor inhibitor of southern development. Rather, foreign aid is ultimately just one of many tools (a temporary one albeit) in the developmental toolkit, and often serves as a distraction (for both North and South) to the real barriers of development: economic and political institution-building, peacekeeping, security guarantees and asymmetrical trade privileges (especially northern agricultural subsidies).With that, it is also of utmost importance that this author clarifies the term itself, and what aspect of foreign aid will be analyzed. There are three different types of aid: Humanitarian aid, charity aid, and government aid (both bilateral and multilateral), the latter being the primary focus of this essay. The modern concept of foreign aid began after World War II. Then U.S Secretary of State, George Marshall, announced US $13 billion dollar transference in aid from the United States to Western Europe from 1948 to 1951. 2 The Marshall plan played an instrumental role in the post-war rebuilding and stabilization of a ravaged Western Europe, and remains “history’s most successful adjustment program”.3 Due to the success of the Marshall Plan, foreign aid became in-vogue as Northern governments transferred money, goods and services to the South through bilateral and multilateral (IMF & World Bank) channels. The historical evolution of foreign aid has been outlined by Dambiso Moyo in her book Dead Aid.4 She identifies several trends in the provision of ODA. In the 1950s, ODA was mostly invested into infrastructure projects.5 The developmental state model (development through high tarrifs and import substitution) ruled in the 1960s and 1970s 6 whilst the 1980s witnessed the rise of the Washington Concensus (neoliberalism, conditional lending).7 This meant that donors were able to force recipient countries to ‘roll back’ the state, in the belief that ‘market forces’ would lead to the creation of wealth which would ‘trickle down’ to the masses. Evidence tells us though that this was not the case, and “nowhere was the pain of structural adjustment felt worse than in Sub Saharan Africa.”8 At the same time, mounting evidence published by the World Bank and others in the late 1980’s showed a positive relationship between the provision of aid, growth and a good policy environment. 9 Against this backdrop, the Post-Washington Consensus developmental model of the 1990s placed greater importance on ‘getting institutions right. ’10 The 2000’s was marked by a big shift in how the international community conceptualized poverty and the poor beyond income indicators alone. These developments culminated in the creation of the Millennium Development Goals (MDGs), and the desire of donors to start seeing tangible results and reductions in poverty directly correlated to the aid they were providing.11 Since then, several schools of thought on foreign aid have emerged at opposing extremes. Amongst the pro-aid camp, many from Jeffrey Sachs to Bill Gates to Bono have argued that it has been a big success. As Gates states, “Aid money can and does work. It improves people’s lives and makes ...

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