Donors Helping Themselves

by David Sogge
Chapter for Handbook on the Economics of Foreign Aid, Mak Arvin
(Editor), Cheltenham: Edward Elgar Publishing, 2015, pp 280-304

It is a truth almost universally acknowledged that a donor with money to spend

will do so primarily in pursuit of its own interests. Virtually without exception,
two scholars have stated, the research so far has found that the political and
economic interests of donors outweigh the developmental needs or merits of the
recipients (Hoeffler and Outram 2011: 240). Yet while the fact of their primacy
has been acknowledged, those interests remain out-of-focus or discreetly offcamera. Which interests get what, when and how are seldom identified
systematically, assessed or put up for public discussion 1. Instead, attentions and
emotions concentrate overwhelmingly on aids downstream realms of policies
and projects. Even todays efforts to follow the money and promote aid
transparency largely ignore interests upstream. Given the primacy of those
interests, this structure of attention is bizarrely inverted. It creates deficits in
knowledge and obstacles to understanding. There is a challenge here for
scholars, and for those wishing to see public accountability required of all actors
along aid chains.
This chapter has no ambitions to remedy such deficiencies. Rather, it seeks to
probe what is known and unknown about aids deployment upstream, and
thereby to identify issues that merit deeper scholarly work and perhaps even
public investigation. It has been further motivated by a hope that better
knowledge of aid in the service of upstream interests can help explain why, even
in unfavourable times and places, the aid industry continues to flourish and to
reproduce itself even in countries that were once at its receiving end.
The chapter begins by placing donor self-help against a backdrop of other net
flows, and some of their geo-politics, during the foreign aid systems current
epoch, conceived at the outset of the Cold War. It then turns to research
correlating aid flows with changes at macro-economic levels in donor country
economies. It discusses mercantilist aims and outcomes, highlighting
correlations of donors development aid with their exports, imports and foreign
direct investment. Finally it reviews findings about returns to donor economies in
1

several specific fields, noting gaps in knowledge and potentially productive lines
of scholarly or activist inquiry. This chapter does not discuss the many selfregarding uses of foreign aid in diplomatic, political or military statecraft. That is
not to imply that those uses are irrelevant to the economics of foreign aid. But
the thematic focus of this Handbook, and limited space, dictated their omission
here.

References to aid data require a general word of caution, given the frequency of
their appearance in this chapter. Official aid statistics notoriously overstate what
donors actually provide to recipients. Re-jigged official definitions, such as
Country Programmable Aid data, offer only a little more realism. Such metrics
fall short of providing a true and comprehensive picture. A British NGO
specialising in aid information recently concluded:
The truth is that we do not know exactly how much aid is actually
transferred to developing countries in whatever form. The volume of aid
that donors reportedly disburse (recorded by the DAC) typically exceeds
the aid reported as received by recipient governments in their own records
and by some margin (Development Initiatives 2013: 77).
By the same token, then, we do not know exactly what parts of aid claimed as
allocated for poorer lands are in fact retained by or returned to entities and
persons domiciled in donor countries, or to the secrecy jurisdictions that donor
country tax laws make possible. Plausibly, some aid monies simply elude datagatherers altogether, becoming part of the dark matter of global wealth
(Hausmann and Sturzenegger 2007), a notion not unrelated to the historical
background sketched in the following section.

Counter-currents: Some history

Wherever aid is said to flow to the poor, a bit of probing will usually uncover
larger counter-flows to the rich. A major illustration is the movement of capital
across the Atlantic in the earliest years of the modern foreign aid system.
Massive capital flight from Europe at the outset of the Cold War provoked calls on
US officials to control and indeed to recoup fugitive monies needed for the
reconstruction of cash-strapped European countries. But those proposals met
forceful resistance from American bankers and some European elites. Marshall
2

aid to Western Europe provided a shrewd way out of this dilemma. The political
economist Eric Helleiner makes the case that the chief significance of Marshall
aid was in offsetting the flight of private capital out of Europe. That public aid
benefited private US financial interests and wealthy Europeans by relieving them
of obligations to repatriate funds or submit to official controls over capital. At the
time, journalists calculated that the outflow from Europe exceeded total Marshall
aid (US$13,3 billion, or about US$103 billion in 2014 dollars) allocated for Europe
(Helleiner 1996:58-62). The economist Ragnar Nurkse and other senior figures
monitoring global finance at the time were aware of aids interplay with capital
flight. A senior economist of the Federal Reserve Bank of New York, writing in
1954, concluded that a significant part of the foreign aid of the U.S.
government has in effect gone to finance hot money movements from the
recipient countries to the United States and elsewhere (cited in Helleiner 1996:
58 fn18).
An equivalent but more lopsided pattern ensued after the collapse of the Soviet
Union. In the 15-year period up to 2005, according to World Bank and OECD-DAC
data, donors provided about US$21 billion for the Russian Federation. At the
same time, colossal amounts of capital departed Russia. In the eight-year period
up to 2002, an estimated US$148 billion about seven times what Russia was
allocated in official assistance left Russia as capital flight, overwhelmingly to
Western jurisdictions (Liuhto and Jumpponen 2003: 30).
Hence at the inception of the aid system, but also at later moments, a poorlyilluminated but detectable pattern has arisen: foreign aid operates in the
foreground, advertised as public largesse for the needy, while in the background
substantial counter-flows work discreetly in behalf of the wealthy.

The Giant Vacuum Cleaner

Counter-flows from lower-income lands gained momentum in the 1970s, when
the United States moved to cover its external trade and internal fiscal deficits,
both of which were constraining Americas geo-political autonomy. The strategy
was essentially predatory: to draw in resources, financial and otherwise, from
beyond its borders at little cost and risk. The strategy worked, and for a number
of reasons beyond sheer coercion: the depth and sophistication of the US
financial sector; the size of the American market; the US governments

exorbitant privilege of controlling the worlds reserve currency; and from its
power to shape the rules affecting the rest of the world.
Those rules constituted the post-war global financial architecture. US negotiators
had rejected Keynesian proposals (that would have curbed beggar-thy-neighbour
mercantilist competition) in favour of a system pivoting on the US dollar and on
freedom for capital to move in and especially out. Led by the IMF, whose rules
conformed chiefly to US interests, a coalition of aid-and-development agencies
sought full convertibility of currencies and openness, that is, policies permitting
Western transnational corporations to gain bigger market shares in non-Western
economies. Donors made their aid conditional on acceptance of those policies,
making major exceptions only in the cases of post-war Europe, Taiwan and South
Korea. As a result, the developing world has increasingly come to pursue
policies that resulted in current account surpluses and thus net capital exports
destined primarily for the capital-rich United States (Bibow 2008). In more
colourful terms, Americas external and fiscal deficits operated for decades like
a giant vacuum cleaner, absorbing other peoples surplus goods and capital
(Varoufakis 2011).
In net terms, therefore, poorer countries have become creditors to richer ones.
Total financial outflows from non-Western economies have surpassed inflows at
accelerating rates since 1999 (UN DESA, various years), to the benefit of public
and private asset-bearers, especially those headquartered in the United States
(Lane and Milesi-Ferretti 2009; Zucman 2013). As they are inconsistent with
neoclassical axioms that capital will move downhill toward places where it
would gain higher returns due to its scarcity, these dynamics pose challenges to
conventional economic theory, based on earlier epochs of global capitalism. In
the period 1880-1914, for example, substantial amounts of money flowed in net
terms from richer to poorer places. But a hundred years later, capital in net
terms has commonly flowed uphill, from poorer places to richer 2. In that
perspective, an unadvertised principle of contemporary aid has been in effect to
Go with the flow.

Aiding Counterflows
It is commonly supposed that foreign aid leverages additional resources from
abroad or domestic savings within recipient countries. Yet research reveals a
quite different role for aid, namely that of facilitating net transfers from
4

recipients. Current account deficits of low-productivity developing countries

have been driven by government debt/aid. Once aid flows are subtracted, there
is capital flight out of these countries. The failure to consider official flows as
the main driver of uphill flows and global imbalances is an important
shortcoming of the recent literature (Alfaro and others 2011:1). In a study of
aids failure to boost savings rates in sub-Saharan Africa, two economists
concluded: We found that, at the margin, 35 per cent of ODA simply financed
capital outflow. And only 24 per cent financed domestic investment. The
remaining 41 per cent financed domestic consumption (Serieux and McKinley
2009: 1). During the period 1974-1994, when aid flows were generally rising, the
proportion of ODA used to finance capital outflows jumped to 48 per cent
(Serieux and McKinley 2009: 1).
Consistent with those findings is the story of petro-aid granted after 1973 by
OPEC donors. Much of that oil-backed windfall went to recipient government
treasuries only to depart rapidly to pay for consumer imports and to fill private
accounts offshore. For every one percent of their GDP received as aid from OPEC
governments, recipient countries saw monies equivalent to about 0,35 percent of
their GDPs take flight (Werker and others 2009). Such studies may be read as
more indicative than definitive, as their authors refer to gaps in knowledge.
Especially scarce is systematic information about the destinations or beneficial
owners of the outflows; that is probably due to secrecy rules shielding assets of
corporations and wealthy individuals.
In facilitating counter-flows, foreign aid has also played roles as a supporting
actor. An example is the case of The Netherlands Antilles, one of many of the
Wests offshore jurisdictions. Successive Dutch governments, using aid as a
crucial instrument, have closely supervised those Caribbean possessions for
generations. In the 1950s Dutch authorities began working with local elites to
develop financial laws and services to serve wealthy interests abroad. That
strategy emerged in an ambiguous context: the Antilles operated as a freewheeling semi-sovereign jurisdiction, yet its commercial law was at the same
time reassuringly anchored in the Dutch legal system. An especially potent
invention was the notorious Antilles Sandwich, later to become the Dutch
Sandwich, a legal gimmick under tax treaties with the USA. Official aid from the
Netherlands, later supplemented by EU monies, provided for the physical and
institutional setting in which the strategy could develop. These investments paid
off well, benefitting interests in The Netherlands and its Caribbean dependency.
5

But the major beneficiaries were elsewhere. In a detailed review, two American
professors of law conclude: An important lesson of the Antilles saga is that for
nearly two decades financial intermediation in the Antilles benefitted the United
States economy by lowering the cost of capital for U.S. firms and channeling
foreign investment into the U.S. real estate market. (Boise and Morriss 2009:
455). As in the cases of other island jurisdictions serving as tax havens, foreign
aid to the Antilles helped make possible that redistributive financial role.
Such cases underscore needs to look beyond the conventional dyad of donors
and sovereign recipients. Often there is at least a triadic relationship. In todays
evolving contexts of networked enterprise and policy captive to wealthy
interests, those interests can make use of the aid system to advance their
agendas and operate autonomously from national authorities and national
politics. Those interests may thus sometimes be taken as de-nationalised,
responsive less to national public institutions and more to global assemblages
(Sassen 2006) that transcend national boundaries.

Trade and Investment

That economic self-interest helps drive foreign aid has long been acknowledged,
but routinely downplayed in public discussion. Yet there is little doubt that aid
has served as a camouflaged weapon in trade wars. Since at least the 1950s,
donors have deployed aid on economic battlefields, sparking rivalry, reciprocal
accusations of unfair commercial practice and successive negotiations and renegotiations. Yet tied aid/mixed credits (discussed below) have been merely one
of many vehicles for donors to pursue their own interests. Within a global
regimes of interlocking financial and trade rules, aid serves as a collective lever
to shift policies of recipient countries. As two senior insiders have written,
Developing countries were told they must reduce their own tariffs if they
were to reap the benefits of engagement in the global economy.
Influenced by advice from the international financial institutions and
cajoled by aid conditionality, whereby aid was extended on the condition
of trade liberalisation, many developing countries shifted their strategy to
participate more actively with the WTO (Stiglitz and Charlton 2013: 6).
With trade liberalisation as a main requirement imposed on recipients, aid has
helped promote transnational counter-flows favourable to jobs and output in
6

donor economies. However, systematic knowledge about returns benefitting

donor countries or rather, certain interests in them -- is not widespread. One of
the few economists regularly gauging aids upstream benefits explains the
knowledge gap as follows: The paucity of research on the economic return to
foreign aid may be due to the difficulty to get hold of the relevant data. But it
also reflects the political sensitivity of the issue in donor countries: both low and
high return rates may weaken the domestic coalition in favour of foreign aid
(Carbonnier 2013: 1). That author has headed a number of Swiss studies begun
in 1994, which have shown a consistent pattern of net gains for Switzerlands
recorded domestic output. The fifth and most recent of these studies, geared to
outcomes in the year 2010, shows that for every 100 francs in aid disbursed in
the past, the Swiss GDP gained between 129 and 151 Francs. The study
attributes about 20 800 full-time jobs in Switzerland to Swiss official aid. It
further notes some multiplier effects beyond aids payoffs for Swiss exporters of
goods and services. Among these is spending in Switzerland by aid-based
employees (for example, an estimated 65 percent of salaries of those working
overseas in aid-based jobs are eventually spent in Switzerland) and by
international agencies. Swiss aid helps non-profits grow and spend more; for
every 100 francs of official aid allocated to them, Swiss NGOs gain another 50
francs in revenue from other sources (Carbonnier and others 2012).

Procurement and Tying

Donors most notorious strategies for helping themselves are in procurement of
goods and services from their own countries firms, and making such
procurement obligatory for recipients. However information about those matters
is in short supply and may suffer deliberate distortion. As one researcher into aid
procurement put it, donor countries continue to mislead their own citizens and
those of developing countries, by passing off what is essentially state aid to
donor country firms, as a genuine contribution to poor countries effective
development (Ellmers 2011: 14). Nevertheless veils over domestic returns to
foreign aid are sometimes lifted, such as when officials publicly defend aid as a
profitable use of taxpayer money. A United States Treasury Secretary left no
doubt that multilateral development banks (MDBs) are important for American
businesses when he told a US Senate sub-committee,

The MDBs support policy changes, such as reduced tariffs in Mexico and
opening up the Indian economy, which enormously benefit U.S. producers.
There are also more direct benefits for US companies: in 1998 alone, US
firms received $ 4.8 billion from contracts arising from MDB investment
and adjustment programs (US Dept. of Treasury 2000) 3.
Such moments of public candour are exceptional, however; details of domestic
benefits and beneficiaries are usually kept out of public view. Despite pledges in
the post-Busan period to promote transparency in the aid system, private sector
wishes not to disclose commercially sensitive information continue to receive
great respect, and official statements suggest little appetite for openness about
aids upstream realms (OECD-DAC 2012: 4 and 7). Nevertheless, some scattered
clues emerge from data on aid reported as tied or partially tied, or simply
uncategorized either way. In the year 2007, aid identified within those categories
made up between 20 and 30 percent of all commitments in each of the following
sectors (in order of magnitude): Economic Infrastructure, Government & Civil
Society; Social Infrastructure & Services; and Commodity, Emergency & Food.
Unsurprisingly, nearly 80 percent of donor administrative costs were tied,
partially tied or unreported (Clay and others 2009: 14). Discussion of two
varieties of aid system procurement of services and of food appears later in
this chapter.

Promoting Donor Country Exports

Aid promotes a donors exports. Econometric studies show that greater bilateral
aid disbursed for a given country will increase the donors earnings from exports
to that country, especially in the longer run. Based on a study of OECD/DAC aid
payouts and changes in exports over the period 1988-2004, a research group
based at Gttingen concludes that the long run average return on aid for
donors exports is around $ 2.15 US-dollar increase in exports for every aid dollar
spent. (Martnez-Zarzoso and others 2010: 23). The same research group finds
that aid causes exports and not vice-versa (Nowak-Lehmann and others 2009:
1), a conclusion echoed by others (e.g. Silva and Nelson 2012). The Dutch
foreign ministrys evaluation unit, in cooperation with the Gttingen research
group, estimates conservatively that for the period 1999-2009, the total value of
Dutch exports to the average recipient country grew in the range of 0,70 to
0,90 for every Euro the Netherlands paid out for that recipient (IOB 2014). Aid
8

spending by certain donors, notably France, UK, Japan, US and Australia, shows
exceptionally strong causal associations with growth of exports to their
respective aid recipients (Berthlemy 2006).
These kinds of studies are based on aggregate data. Probing the specific,
disaggregated make-up of donor exports and the interests benefited remains a
challenge. A study of OECD/DAC donors for example goes no further than to
indicate economic infrastructure and production sectors as main beneficiaries
of aid-induced export drives (Barthel and others 2013). Somewhat more
revealing are studies of domestic economic impacts of respectively German and
of Dutch foreign aid. In the German study, covering the period 1978-2011, aidinduced exports yielded at least 150 000 additional jobs in German enterprises,
distributed among three sectors: non-electrical machinery, 64 percent; electrical
equipment, 26 percent; and transport equipment, 10 percent of additional jobs
(Martnez-Zarzoso and others 2013: 25). The Dutch study estimates that bilateral
aid yielded about 13 000 jobs in the Netherlands in 2008 alone, of which 30
percent fell in the category manufacturing & recycling and 39 percent in
services (IOB 2014: 56). Meanwhile in the Dutch case as in other donor
economies, the multiplier effects and resulting institutional impacts of aid
spending, whether via businesses, universities or NGOs, remain to be mapped
and analysed.
Trade promotion programmes, an aid approach long pursued by the USA and
Japan but gaining more practitioners after 2005, have indeed increased trade
between donor and recipient economies. During the period 1990-2010 in the
cases of Asia and Latin America, aid-for-trades chief beneficiaries were exporting
interests in recipient countries. But in the case of Sub-Saharan Africa, where such
programmes were supposed to have the most significance for recipients, aid-fortrade helped boost sales of exports from donors to recipients (Hhne and others
2013).
Aid-for-trade programmes commonly target transportation, energy supply and
telecommunication sectors in recipient lands. These programmes have been
especially rewarding for large corporations, especially mineral exporting firms, as
they can take advantage of improved infrastructure and resulting lowered costs
(Cali and te Velde 2010). While types of beneficiaries may be detected in broad
terms, published knowledge of specific interests benefitted by aid-for-trade is
scarce. Some characteristics of those interests emerge, however, from probes of
9

aid-for-trades interplay with global value chains (GVCs). The field is clouded by
a policy climate that:
ignores the fact that global production is often governed by oligopolistic
lead firms or first - tier supplier firms which have for years successfully
generated rents from their subcontracting relations. The asymmetry of
market structures across GVCs creates the possibility that rents from lower
trade costs resulting from Aid for Trade will flow to these lead firms instead
of those enterprises, households and communities that are its intended
recipients (Mayer and Milberg 2013:15).
Aid serves as a tactical tool in the strategic politics of trade. Seeking advantages
over their commercial competitors, donors deploy their aid to gain Preferential
Trade Agreements with recipient countries. These comprehensive trade deals
can be highly lucrative for interests in richer countries (such as investors pushing
for tax breaks; see Eurodad 2014), but they pose political risks in targeted lowerincome places, as they introduce policy changes (trade liberalization,
privatization, enforcement of intellectual property rights obligations, etc.) often
costly to organised domestic interests. Donors usually manage to overcome
resistance, however, by using official aid as side payments in order to make
the deals more palatable to domestic leaderships (Baccini and Urpelainen 2012).
Meanwhile donor action to curb the market powers of Western trade cartels vis-vis lower income countries has not been vigorous (Gal 2009). Yet rents extracted
from those countries thanks to this market failure are among the largest drains
on their resources. Indeed by one estimate, overcharges stemming from cartel
arrangements may surpass total Western aid for the countries victimized (Sokol
2007: 53-54). Especially lucrative are monopolies for pharmaceutical companies
created by the intellectual property rights regime, discussed later in this chapter.
A global regime to combat price-fixing and other commercial malfeasance is only
slowly being built. Its scaffolding is made weak by secrecy rules, fragmentary
legislation and the under-resourcing of means to investigate and share
information, according to a recent survey of international antitrust enforcement
cooperation (OECD Competition Committee 2013). Yet despite their potential
impacts lower prices for consumers and producers, lower inequality, improved
public finances the curbing of international anticompetitive practices is hard to
detect on IFI or donor policy agendas. It has yet to appear in their statements
about policy coherence for development. This state-of-play is consistent with
10

findings by a Sussex University professor of economics regarding competition

policy and poverty reduction. He concludes: controlling international cartels and
standing up to abuses by multinationals is very important for developing
countries, but is unlikely to be promoted very actively by developed ones
(Winters 2013: 11).

Promoting Recipient Country Exports

Boosting exports from low-income countries is another objective claimed for aid.
Yet achievement of that aim remains elusive. Indeed careful research indicates
that the net effect of aid on recipient countries exports is insignificant (NowakLehmann and others 2013: 505). Reasons for this non-achievement are many
and diverse, but the weakness of lobbies promoting aid-assisted imports is
common to most donor countries. However systematic evidence about the
distribution of benefits of aid-induced commodity exports, as others have noted
(e.g., Mayer and Milberg 2013: 11), is still scarce. The following cases are more
suggestive than definitive in tracing links between aid and recipient exports.
Donors have long sought to promote their aid recipients agrarian exports, both
traditional crops such as coffee and cacao, and non-traditional commodities
such as ingredients for pharmaceutical products. But once inserted into such
global commodity chains, rural producers do not necessarily enjoy the rising
incomes that advocates have projected so enthusiastically. A rigorous study of
benefits of aid-supported fairtrade schemes in Ethiopia and Uganda, for
example, detected no substantive benefits for wage earners (Cramer and others
2014). Instead, value is routinely captured elsewhere, mainly at high levels of
commodity chains, where oligopolistic systems led by large firms operate.
Sometimes power can move down a bit toward producers; but the general trend
is upward. Coffee value chains are a case in point. A researcher surveying
decades of global politics of coffee noted swings in power balances: producers'
collective action and the resulting international regulation of the chain led to
increased levels and stability of benefits flowing back to the producing countries.
Once the coffee TNCs had consolidated their control over the consuming markets
and international regulation had collapsed, the shift of benefits away from
producing countries and to the TNCs was massive and rapid (Talbot 2009: 104).
The export of tropical hardwoods is a further example of a commercial circuit
whose benefits accrue high on value chains, far from consumers and producers
11

in the exporting land itself. Indeed overall returns may be negative, given the
impacts forests. In 60 low and middle-income countries in the period 1990-2005
loss of forest cover was strongly associated with policy-based lending by the IMF
and World Bank to in those countries (Shandra and others 2011). Plausibly,
hardwood export growth is not detected in conventional aid-trade impact studies
because it takes place in global value chains that are illicit.
Coastal fisheries are yet another source of rents for rich country interests. Aid
facilitates access to them. In West African waters, aid figures in deals benefiting
European industries profiting from fisheries (Kaczynski and Fluharty 2002), while
in South Pacific fishing zones it eases access for Japanese fleets: The Pacific
island countries are heavily dependent on foreign aid, essentially exchanging aid
for cheap access to their fisheries and poorly-directed foreign direct investment
(Petersen 2003: 3). Looming larger are rents accruing from the import of
strategic materials (Johansson and Pettersson 2009), especially for the
hydrocarbon and nuclear power industries. A sign of aids role in lubricating
those industries access to those rents and mineral resources appears in the
gravitation of bilateral aid toward countries with proven oil reserves; aid flows to
them surged during the fuel crisis of the 1970s and then again with special
intensity after 2000 (Carbonnier and Voicu 2014).

Foreign direct investment

Foreign direct investment (FDI) can also be highly lucrative for donor country
interests, while delivering only modest returns, and spillover effects, for
countries hosting that investment. In 2011, recorded FDI profit outflows of
US$420 billion from poor to rich jurisdictions were equivalent to about 90 percent
of recorded FDI inflows in the same year (Griffiths and others 2014: 12). To what
extent does aid play a path-breaking or vanguard role on behalf of FDI? While
some studies of aids interplay with FDI show ambiguous results (e.g.
Donaubauer 2014), it has long been evident that the aid system never ignores
the interests of foreign investors. Under IMF leadership, austerity policies
promoted by most donors have been associated with greater FDI inflows,
suggesting that aid system policies are satisfying investor interests in general
(Woo 2013). At more specific levels, a study of aid and FDI from France,
Germany, Japan, the UK and USA in the period 1990-2002 identifies Japan as a
clear case of how aid can routinely create profitable opportunities for the donor
12

countrys private investors. Drawing on their inside knowledge of how the

Japanese system works, the researchers write:
In practice, the Japanese government employs a number of measures to
promote FDI through aid. Most notably, when Japanese aid is provided,
there is close coordination between the public and private sectors through,
for example, the participation of representatives of the private sector in
government committees on foreign aid and exchange of personnel
between aid agencies and private firms. Such close interaction between
the public and private sectors should lead to spillovers of information on
the recipient countrys business environment to private firms through
foreign aid, encouraging FDI. In addition, private firms can easily propose
aid projects that facilitate implementation of business standards, rules,
and systems specific to Japanese firms, such as kaizen. The Japanese
government in fact provides technical assistance to teach such Japanese
business systems and funds to transplant certification systems for
management and engineering skills developed and used in Japan. Those
types of aids are likely to promote Japanese FDI but not other countries
FDI. (Kimura and Todo 2010: 492).
A parallel econometric study (Kang and others 2011) indicates that Korean
official aid benefits Korean companies in roughly the same ways as in the case of
Japan.
Subsidies for FDI exemplify ways by which aid helps redistribute public resources
upward to private interests. Numerous evaluations of private sector
development programmes (some of them reviewed in Griffiths and others 2014:
25-26) confirm that many aid-subsidised private investments would have gone
ahead anyway without public aid monies. That is, rather than adding to or
catalysing development processes, official aid for the private sector often
substitutes for private initiative. It thus serves as a covert source of rents to
business interests, with no developmental justification. Such aid measures can
create occasions for corruption and other malfeasance. Yet such possibilities, and
who actually benefits from these superfluous subsidies are seldom if ever
publicly investigated and discussed.
Beyond their direct support to investors, major aid institutions have routinely
used lending, technical assistance, training and other measures to promote
enabling environments for FDI-related private interests. In 2006, after several
years of secretive preparations, the OECD launched its Policy Framework for
Investment (PFI), a set of guidelines it now describes as the most
comprehensive and systematic approach for improving investment conditions
ever developed (OECD PFI website). For donors, the PFI and its operations (such
13

as country-by-country research on investment climates, emphasising the ways

public policy should meet the PFI ideal) serve to persuade recipients to adopt
stances on such matters as taxation and protection of intellectual property
rights.
Policy-based lending, often accompanied by technical assistance and training,
has helped to reconfigure recipient country policies and laws, bringing them into
closer alignment with foreign investor preferences. Econometric analysis
indicates that US investors, for example, respond to FDI-friendly incentives
created in countries under IMF supervision (Biglaiser and DeRouen 2010). British
aid has helped transmit the business-backed Public Finance Initiative model to
Eastern Europe and other lower-income places in order to lay the basis for the
winning of consultancy, construction and other contracts by British firms
(Holden 2009:313). Emphasis on investment-promotion occurs even where other
matters might logically take precedence, such as in low-income fragile and
conflict-affected countries. A recent internal evaluation of the World Bank
Groups work in such countries found that the Bank Group made investment
climate reform geared to foreign firms a key focus of its work. Given the World
Bank Groups neglect of job creation in those places, the evaluators evidently
saw the Groups attentiveness to the wishes of foreign investors as lopsided (IEG
2014). Finally, a creeping securitization of aid, seen in conflict-prone places
where investor interests are at stake, can reflect yet another kind of support to
foreign firms. European Union aid for Niger, for example, effectively subsidizes a
uranium mining venture by the French energy company AREVA, which has faced
security threats (Furness and Gnzle 2014: 9).
These measures generally deliver short-term gains to donor country interests,
but their pay-offs are usually even greater over the longer term. That result is
thanks in part to contacts, force of habit and commercial goodwill (as shown by
Arvin and others 2000). New business linkages, according to an evaluation of
Belgiums aid-supported trade promotion agency, FINEXPO, were the key
outcomes for participating Belgian firms. The agencys achieved this by allowing
companies to enter relatively closed markets (where concessional loans are
necessary) and improving the image of / confidence in Belgian products
companies among recipient countries banks and authorities (SEC 2010: 51).
Returns on FDI from lower-income countries to rich country interests are
substantial and appear to be accelerating: Developing countries lose a

14

consistent and large proportion of GDP to investors repatriating profits from their
FDI investments over 2% of total GDP since 2005 (Griffiths 2014: 20).
Donor self-interest in promoting foreign direct investment is thus evident. This
might be excused if such investment could be shown to be indisputably
beneficial for poorer countries. But this is not the case. In an interview focused
on sub-Saharan Africa, the French economist Thomas Piketty likened foreign
investment to a drug or slow poison, pointing out that basically no country in
history has become rich through foreign investment (Norbrook 2014).

Trade and Investment Finance

Soft loans or credits for trade and investment are key to aids deployment in
pursuit of commercial ends. Disguising mercantilism in the cloak of altruism is
as old as the aid system itself. In the case of the United States, the two main
official agencies for export- and investment-promotion, the U.S. Trade and
Development Agency and the Overseas Private Investment Corporation (OPIC),
draw their formal mandates from the Foreign Assistance Act of 1961. These
agencies essentially subsidize private sector interests of donor countries. They
enable national firms, at little risk to their balance sheets, to gain protected
footholds in non-Western markets.
Soft loans for donor country businesses have for decades been disputed, their
rules negotiated and re-negotiated among OECD donors (Evans 2005: 108-158).
Yet to identify precisely which interests benefit from them is not straightforward.
The OECD regime of export credits does not promote transparency, nor do the
cartel arrangements that influence it; on the contrary, norms of secrecy prevail.
An exhaustive review of OECD country soft loan programmes, including in-depth
studies of the Austrian, German, Danish and Dutch cases, was unable to probe
specific interests served, since crucial information about participating firms is
routinely classified as secret. At best, data are available in aggregated forms. In
the period 1995-2005 those donor country businesses benefitting from soft
loans, in order of overall allocations, were in the following sectors: transport and
storage, water supply and sanitation, energy generation and supply, and health
(Fritz and others 2014: 168). If undertaken, scans of industry associations and
chambers of industry and commerce might reveal more. Those lobbies routine
interaction with aid institutions and parliaments is vigorous and sustained (Fritz
and others 2014: passim.)
15

Mixing aid and commerce has long been standard practice among OECD-DAC
donors. Will new donors behave any differently? In their aid programmes, might
they pursue paths of South-South solidarity ahead of trade interests?
Econometric research indicates that in the case of India, at least, the answer is
negative. Commercial and political self-interests dominate Indias aid
allocation, according to researchers, who identify Indias oil, water engineering
and transport sectors as favoured by Indias foreign aid programmes (Fuchs and
Vadlamannati 2013: 4).

Financial Sector
Banks and other financial sector actors based in core countries have long
enjoyed priority treatment from the top of the foreign aid system. The
International Financial Institutions (IFIs) have worked assiduously to facilitate and
lock in Western business access to markets for financial services in non-core
countries. Routine but well-financed lobbying, but also the availability of
revolving doors and personal networks in the public-private careers of senior IFI
staff have helped bring about the capture of the commanding heights of the
foreign aid system and indeed much of the global financial architecture by
financial sector interests.
IFI leverage has operated, often imperfectly, through the conditions those
institutions attach to their loans, as well as through their shaping of policy
formulas, knowledge and information. Those conditions have helped the
penetration into aid recipient countries by foreign banks, insurance companies
and shadow banking operations. The rapid multiplication of stock markets in
peripheral countries and the explosive growth of portfolio investment flows
developments welcomed by institutional investors in core countries had
enthusiastic backing from the top of the aid system. An econometric study of
the period 1980-2005 leaves no room for doubt that IMF and World Bank aid
was a conduit for the creation of stock markets (Weber and others 2009: 1341).
Yet their developmental relevance is anything but self-evident, given than
portfolio flows fuel boom-and-bust cycles, felt especially in lower-middle income
economies such as that of Nigeria.
A priority condition of IFI and some bilateral donor aid was the requirement that
recipients relax controls over and taxation of capital movements. In both direct
and in signalling roles, donors have helped to market loans and credits; their
16

sentinels were quick to identify any country thought to be under-borrowed. Not

content with seeing money flow only to the real sector, they helped introduce
financialized circuits. Portfolio investments, manifested in hot money circuits
and the carry trade were favoured. To promote ever-milder tax climates to
attract those monies, the European Union was careful to insert clauses in its
Post-Lom trade agreements, whose acceptance by poorer countries has been a
condition of full access to EU aid (EU Observer 2014).
Resulting policy shifts created vulnerabilities to ever-greater financial volatility,
capital flight, more borrowing (at higher cost), exchange rate fluctuations and
the crowding out of longer-term development strategies by short-term
expedients to cope with crisis. That architecture did nothing to shield poorer
people from shocks such as swings in food, energy and commodity prices. Today
the weight of evidence, although disputed by some, suggests that IFI-led
financial liberalisation has failed to benefit most people in recipient countries,
especially the poorer ones (Rodrik and Subramanian, 2009; Stockhammer, 2013).
Indeed in foreign aids main theatre, Sub-Saharan Africa, its impacts have been
called unambiguously adverse (Rashid 2013: 321; see also Ahmed 2013). Yet
apart from acknowledgement that these policies promote uphill flows of
finance, there is little systematic analysis and discussion of just where flows have
gone, and of just who has been benefited.
The aid systems own banks, together with wealthy interests who buy and sell
their shares or bonds, have themselves been important beneficiaries of aid. Led
by the World Bank, multilateral development banks have built up massive dollar
reserves in order to reassure holders of their bonds and to satisfy financial
market players generally. Borrowing countries have had to foot the bill; they
must pay higher interest rates as a consequence of bank reserve accumulation
efforts (Humphrey 2014:621). Financial institutions benefit in other ways. The
US General Accounting Office once reported with satisfaction about World Bank
funds, the temporarily idle balances waiting to be disbursed are often invested
in US capital markets (US GAO 1986: 19).

From the outset in the 1980s, IMF austerity programmes helped make reserve
accumulation an imperative for recipient countries. As a result, much aid was
displaced away from public goods such as health services and toward reserves
held abroad (Stuckler and others 2011). After 2000, the growth of those
17

countries reserves accelerated. The average sub-Saharan African country under

IMF supervision put 37 percent of its increased aid into foreign reserves; IMFsupervised countries outside Africa put even larger proportions incoming of aid
into foreign reserves (IEO 2007). Americas expanding current account deficits
were a natural concomitant of the demand for increased reserves (Stiglitz and
Greenwald 2010: 5). Held mainly in US dollars, reserves benefitted Finance,
Insurance, Real Estate (so-called FIRE) interests in the USA, including semi-public
and private players in housing finance. Estimated to run into many tens of
billions of dollars, reserves contributed to financial bubbles that began to burst in
2007, triggering a global financial crisis. Yet this mismanagement and resulting
losses seem not to have reduced the influence of bankers and shadow bankers
over Western political classes. For the top of the aid system, both before and
throughout the ensuing crisis, the primacy of financial sector interests has been
apparent: Most of the crises occurred in developing countries, with the IMF and
the G-7 bailing out Western banks that had made bad lending decisionsbut
with the burden of the bailout falling on the citizens of the developing countries
(Stiglitz and Greenwald 2010: 21).
Moves to protect financial sector interests against loss can be seen where loaned
monies are not being repaid and default risks are rising. A study focused on the
post-Cold War period (Morrison 2011), found a distinct pattern of defensive
lending by the International Development Association (IDA), the World Banks
soft loan branch, in order to cover loans by the Banks non-concessional branch,
the International Bank for Reconstruction and Development (IBRD). A
subsequent study focused on the longer period 1982-2008 (Marchesi and Missale
2013), found no evidence of defensive lending but strong evidence of defensive
granting, including debt relief, by both multilateral and bilateral creditors.

In

short, there is abundant evidence that major foreign aid bodies operate at
virtually no risk to themselves and their bond-holders.
Official donor engagement with banks and other financial intermediaries has
accelerated in the 21st century. The emphasis on the financial sector as such is
apparent in the strategies of key multilateral financial institutions, notably the
European Investment Bank and the International Finance Corporation (IFC) of the
World Bank Group, but also bilateral Development Finance Institutions (DFIs)
such as CDC (UK), FMO (Netherlands), KFW (Germany) and Swedfund (Sweden).
18

These semi-public aid agencies have expanded their arms length practices of
financing international and domestic private banks and other financial
intermediaries, which are in turn supposed to boost local enterprise by easing
their access to credit. However, a recent evaluation of DFI activities in five subSaharan African countries found almost no evidence to back that supposition.
Arms length aid from DFIs indeed benefits financial intermediaries, but delivers
little for local enterprises, whose limited access to credit justifies the aid (Horus
Development Finance 2014). These development banks talk about their concern
for small enterprise, yet in practice they favour large investors; close to 40
percent of firms they support are listed on stock exchanges. They also prefer
private equity deals, geared to deliver rapid returns to private interests (Bretton
Woods Project 2014:11; Romero 2014).
These studies reveal reasons to doubt claims of DFI additionality, that is, that
their aid provides goods and services that market actors would not have
provided without aid. The Dutch foreign ministrys evaluation unit also expresses
scepticism about such claims. Its study (in Dutch) of aid for private sector
development in the period 2005-2012 concludes that the half-dozen semi-official
Dutch business-oriented aid agencies cannot show that their subsidies are the
sine qua non for private sector growth, in part because those agencies pay little
or no attention to additionality in the first place. The study refers to many
instances where Dutch-funded private sector activities would have gone ahead
anyway without any official aid subsidy (IOB 2013).
The Netherlands is not alone in subsidizing financial and other firms through
public-private partnerships and aid blending. The European Court of Auditors
probed 30 projects in low-income countries that blended public monies of the
European Investment Bank, among other European DFIs, with that of private
investors. The Court of Auditors found that in half the cases there was no
convincing analysis to justify grant aid, given the likelihood that the
investments would also have been made without the grant (ECA 2014:20). In
presenting this damning report (whose main conclusions the European
Commission dismissed), a member of the Court of Auditors called attention to
risks of further waste as state-supported DFIs become sponsors of private
firms, and of added debt burdens for recipient countries.
Evidently, official aid in the name of private sector development is riddled with
rents. That category of aid effectively promotes rent-seeking by large firms,
19

particularly those acting as financial intermediaries. In addition, revenues

applied or generated by DFI activities are unlikely to be fairly taxed or otherwise
ploughed back into local economies. That is because DFIs and the financial
intermediaries they support make routine use of offshore financial centres and
secrecy jurisdictions. As a result, potential tax revenues get siphoned off, while
obligation to repay the external loans remain. Beyond the redistribution of
wealth, such mechanisms create occasions for corruption and legal impunity
(Murphy 2010). Routinely attracting attention is Britains CDC, whose dealings
on behalf of its shareholders and self-dealings by its management are regularly
pilloried in public media (e.g. Brooks 2010). Few aid donors have moved to stop
their DFIs or other aid agencies from using secrecy jurisdictions (Eurodad 2013).
Meanwhile donors today continue to ratchet up their development lending and
provision of credit in support of their national exporting firms. They show no
signs of abandoning defensive practices that assure creditors of virtually risk-free
operations. As some have predicted (for example, Dijkstra 2003), moral hazard
keeps manifesting itself as loaned monies get allocated adversely. This includes
capital flight departing via revolving doors to secrecy jurisdictions, thus
nullifying the loans developmental purposes. From Africa in the period 19702004, within a year of a loans receipt, an estimated 50 cents fled for every
dollar borrowed. To expose this and other kinds of collusion between elites and
financial sector actors, there are calls for formal debt audits. As advocated
officially by Ecuador and Tunisia, such audits would establish the legitimacy of
debts to donors and others, and would identify those debts that could be
repudiated under international law as odious (Boyce and Ndikumana 2012).
Among donors, Norway stands alone in having commissioned an independent
audit of its official export credits. It has also pioneered research and
international pressure to curb secrecy jurisdictions and related mechanisms,
such as transfer pricing, that effectively legalize transfers of substantial amounts
of money from poor to rich.

Other Upstream Branches

In light of the findings sketched in foregoing sections, the following paragraphs
briefly note research about upstream flows in specific sectors, including the aid
industry itself.

20

Procurement of Services
Donor country interests loom large where aid is furnished in the form of technical
assistance. Procurement of services from big companies, especially consulting
firms, figures prominently in aid from several western donors, notably the USA.
To design and operate aid projects, the US routinely hires firms such as the
Development Alternatives Group, Creative Associates and Partnership for Supply
Chain Management. These large companies stand out in a large field of
competing and cartelized, profit and not-for-profit organisations whose combined
annual turnover runs into the tens of billions of dollars, Euros and Yen. Paradigms
of privatization, private sector development and tertiarization (Kleibl 2013) in
donor countries, exemplified in New Public Management thinking, have all helped
to drive aid industry demand for services of global consulting firms. For auditing
and other financial services, there are the worlds big four firms: Deloitte Touche
Tohmatsu, PricewaterhouseCoopers, KPMG and Ernst & Young, about which
questions of integrity and of market dominance continue to be posed, and to be
met with vigorous pushback.
Developed and promoted from the top of the aid system, the privatization of
state-owned firms and public services and the introduction of public expenditure
management systems have furnished the Wests consultancy industry with
lucrative sources of income (Hilary 2004; Fyson 2009). Donors may report
consultancy services as untied, yet in practice those services are tied de facto.
Clay and others (2009: 55-56) found that at least three-fifths of all contracted
bilateral spending went to donor country firms. Some curbs on rent-seeking may
be present, however; a review of USAID and State Department contracts from
2000 to 2010, a period of rapid growth in demand for services from private
suppliers, described the market as a very competitive environment (Sanders
and others 2011: 57). Yet in these procurement systems, whether with or
without tendering procedures, domestic firms enjoy major advantages. These
can stem directly from aid policy such as up-scaled projects and programme
dimensions or from rules such as high-threshold technical or language criteria to
qualify for tendering.

A seasoned observer describes outcomes in the British

case as follows:
This means that DFID and other donors are now in the hands of very large
consultancy companies who charge higher rates per day, but can afford to
cover the expenses required in advance. This has inflated many of the
21

rates paid, and led to the dominance of the sector by very large
companies, including financial multinationals with no previous experience
except in auditing. These companies are driven by profits and are more
concerned about meeting the last letter of their TOR rather than achieving
lasting social change (Pratt 2013).
Other advantages can stem from asymmetric access to information, such as
knowledge of the donors procedures, the focus of the project and in early
informal access to information about the contract (Clay and others 2009: 44).
Mergers and cartel-like arrangements are not unknown. Some contexts are ripe
rent-seeking. Unregulated micro-systems of personal contacts and revolving
doors between consultancy firms and official aid bodies, a phenomenon termed
inside aiding in Norway (Tvedt 2007: 629), make such rent-seeking a low-risk,
high-return pursuit. Similarly in the UK, Pratt (2013) sees consultancy companies
being set up by former DFID staff with comfortable links to their ex-colleagues.
Hence they faced very little competition at this level. Further anecdotal
information from seasoned aid industry insiders is available in memoires,
consulting industry histories such as Barclay (2013), and in blogs such as Dev
Balls4.

Procurement of Food Aid and Shipment Services

For certain businesses and non-profits, food aid brings substantial benefits, some
of them bearing the hallmarks of economic rents. In the USA, these interests
have been termed an iron triangle: agribusiness, shipping companies and
charity-focused NGOs. For many decades this bloc has held sway over US law
and policy on food aid. Among the achievements of the iron triangle beyond
maintaining US dominance as a source of food aid, is to have helped advance
market penetration and expanded market shares for such agribusiness giants as
Cargill and Archer Daniels Midland; and to have added to profits of such
corporations as Waterman Steamship and Liberty Maritime (Clapp 2009). A major
study of food aid concludes:
For agricultural and maritime interests, profits are the bottom line.
[T]hey fare well under existing food aid policies. Food aid procurement
regulations create effective market power that generates considerable
economic gains for these constituencies. Producers and processors earn a
premium on sales of commodities into the food aid distribution system,
22

while shippers receive significant mark-ups on food aid cargo. The

consequence of these premia is the abysmally poor financial efficiency of
food aid as a means of providing overseas development and humanitarian
assistance (Barrett and Maxwell, 2007: 87-88).
Aid furnishes rents to shipping interests. In the United States in fiscal year 2006,
agricultural cargo preference (ACP) requirements for USDA and USAID programs
cost US taxpayers roughly $140 million, a 46 percent markup over competitive
freight costs (Bageant and others 2010: 2). However this mandatory preference
for American merchant shippers, from which US taxation might be expected to
recoup at least some revenues, is frustrated by global secrecy jurisdictions. That
is because US flag vessels are commonly held within complex structures of
nested holding companies, many of them privately held, such that we
conclusively pinned down the ultimate ownership of less than half the vessels in
the ACP program (Bageant and others 2010: 3).

Intellectual Property
Since the 1990s aid donors have joined in efforts to protect intellectual property
rights (IPR). Guiding these efforts is a major policy beacon: the WTOs
multilateral agreement on Trade Related Aspects of Intellectual Property Rights
(TRIPS). Following enactment in 1994, it has become a major fulcrum for
leveraging change and extracting rents. Since 2000, adherence to TRIPS has
been compulsory for all states in the WTO; by 2016 even the Least Developed
Countries should have made their laws TRIPS-compliant. That agreement came
about in the wake of vigorous lobbying by a private sector coalition, the
Intellectual Property Committee, composed of 13 large Western-based
multinational corporations. Follow-up pressure has come from such bodies as the
International Intellectual Property Alliance (representing copyright industries) and
the Pharmaceutical Research and Manufacturers of America (PhRMA). Those
lobbies pursue their work on many fronts, including the capture of public
authorities tasked with issuing patents and other types of intellectual property.
Thanks to IPR legal constructions, market power and corruption, the
pharmaceutical industrys profits have been substantial. Rents are high and
rent-seeking incentivized in large part because, in the words of a specialist,
Despite the very real differences between all the types of intellectual
propertycopyright, patent, and trademarkcontained in the intellectual
23

property enforcement agendas big tent approach, there is one thing that
Kate Spade bags, copyrighted software, games, music and movies, and
patented pharmaceuticals do have in common, and that is high prices (Sell
2010: 459).
Current and prospective flows derived from IPR have proven to be unexpectedly
large. In the year 2009, high-income countries mainly the United States, but
also Germany, Japan, France and the UK received about US$177 billion in
royalty and license fees (up from US$71 billion in 1999) 5, while low and middle
income countries paid out about US$32 billion in royalty and license fees (up
from about US$7 billion in 1999). Globally, throughout the period 1999-2009,
firms based in rich countries took in about 98 percent of all intellectual property
receipts (Athreye and Yang 2011: 29).
Aid donors promote these flows. They help finance recipient government
agencies tasked with enforcing IPR provisions, thus advancing the core business
of collecting fees on behalf of the patent and copyright holders. Donors promote
bilateral and regional trade agreements reinforcing IPR imperatives. They
disseminate policy guidelines, such as the OECD Policy Framework for
Investment, noted above, which stress obligations to pay for patents and other
kinds of intellectual property. Some donors promote the IPR regime with focused
operations, such as USAIDs Intellectual Property Rights Assistance Project.
Resistance to the intellectual property regime has surfaced in regard to essential
medicines and their rational use, from the governments of India and Brazil and
from activist organisations such as Mdecins Sans Frontires and Health Action
International. To cope with these rebukes and setbacks, some donors have tried
to show less affinity with the agendas of pharmaceutical corporations. In 2008
the British government launched the Medicines Transparency Alliance (MeTA) to
reduce corruption and unfair dealings by pharmaceutical firms. Although a World
Health Organisation report, The World Medicines Situation 2011 (Kaplan and
Mathers 2011), notes progress in gaining donor pledges to procure and distribute
cheap, generic medicines such as through pooled regional procurement,
problems in transparency and efficiency persist. Positive measures are
detectable but on balance the aid system has reinforced the global intellectual
property regime. In an allusion to dispossession of common property in an
especially predatory phase of capitalism, some have termed this regime the
new enclosures (May 2013).
24

Agricultural Research
Advertised as one of the triumphs of foreign aid for poor countries, green
revolution technologies from the International Maize and Wheat Improvement
Center (CIMMYT) and the International Rice Research Institute (IRRI) have also
benefitted business interests in donor countries. Researchers in the 1990s
documented evidence that benefits from wheat and rice research conducted in
international centers have yielded major payoffs in Australia and the United
States as well as in less-developed countries. These studies have shown huge
rates of return to this investment (Alston and others 1998:1060). Specifically,
those returns have been estimated as follows:
[B]y the early 1990s, about one-fifth of the total US wheat acreage was
sown to varieties with CIMMYT ancestry, and around 73% of the total US
rice acreage was sown to varieties with IRRI ancestry. This meant, for
example, that US wheat producers gained at least $3.4 billion over 197093 from CIMMYT wheat variety improvements, which implies a ratio of
benefits to costs borne by the United States of at least 40:1 (Alston and
others 1998: 1069, footnote 5).
As green revolution technologies have interlocked with food aid, a perverse
circuitry is detectable: aid-subsidized bio-engineering has boosted output of
crops (such as rice) in rich countries whose aid-subsidized export to West Africa,
Haiti and other scenes of crop output collapse have left many small-scale
producers impoverished and Western agribusinesses enriched. These may
illustrate what one writer termed a Greshams law of subsidies whereby the
good subsidies will over time be politically outmanoeuvred by the established
groups to redirect public spending to themselves (Steenblik 2006: 25).

Health
One of the most common claims made for foreign aid is that it has helped
improve the health of people in low-income places. Yet aids pay-offs for health
in high-income places are never forgotten. Two kinds of aid for health with
positive returns for donor countries are disease-specific research and medical
education. Win-win outcomes in both cases are not impossible, but surveys of
donor spending indicate that aid to combat specific diseases is geared more to
health risks in rich countries than to health risks in low-income countries.
25

Contrary to the idea that disease specific development aid for health is
allocated with the intention of alleviating suffering for the greatest number of
people in recipient countries, these results suggest that bilateral disease
specific development aid is intended to alleviate the threats to populations
within the donor state. Indeed, of all of the variables included in the model,
only those representing donors' interests are significant even when
controlling for other indicators that typically influence foreign aid decisions.
(Steele 2011: 73)
In a review of donor funding priorities for communicable diseases, another
researcher poses the following hypotheses:
A strong correspondence between industrialized world disease burden and
donor funding for control of developing world diseases may indicate the
influence of provider interests, as donors may be targeting diseases that
industrialized world political elites believe to be threats to their own citizens
or that pharmaceutical companies perceive to be sources of potential drug
sales profit (Shiffman 2006: 415).
A survey of UK-funded research on communicable diseases shows gross
disproportions, with most research failing to match the global burden of
disease, that is, death and disability caused by gastrointestinal infections,
antimicrobial resistance, trachoma and other diseases affecting people
(especially children and the elderly) in poorer countries (Smith 2012).
Foreign aid often steers policy for the education of health professionals,
sometimes subsidizing that education. Yet many expensively-trained health
workers end up migrating to richer countries, in some cases thanks to official
recruitment drives by health authorities. A recent study of medical brain gain
concludes, Many wealthy destination countries, which also train fewer doctors
than are required, depend on immigrant doctors to make up the shortfall. In this
way developing countries are effectively paying to train staff who then support
the health services of developed countries (Mills and others 2011: 2). The study
focused on nearly 20 000 doctors from nine sub-Saharan African countries
working in Australia, Canada, UK and the USA. It estimated that together those
rich countries have gained about US$4.55 billion, mainly through savings in
education costs borne by others. Health services of the United Kingdom, which
take on the largest number of doctors, have been major beneficiaries. Major
differences in salaries and working conditions, borne of global inequalities and
26

failure to generate decent jobs, explain these flows of skilled labour from poorer
to richer lands, including south-south circuits such as Philippine nurses working
in Saudi Arabia and Gulf States. In the face of these transfers of vital human
resources, leadership of the aid system has no response commensurate with the
problem. Indeed some do not see it as a problem at all; for example, a World
Bank education policy unit portrays the out-migration of young women from the
Philippines, mainly as care providers, as an indicator of Bank programme success
(World Bank 2012). As long as major aid institutions keep applauding this drain
of skilled persons while at the same time failing to address the push factors
mainly the lack of decent employment on home ground -- then these kinds of
human resource losses will persist.

Higher Education
Since the 1960s, aid-supported scholarship programmes have brought hundreds
of thousands of young people from Asia, Africa and Latin America to universities
and other tertiary-level institutions in rich countries. Although self-financing is
today the norm, aids role remains important. Of the US$5.4 billion OECD donors
disbursed annually in the period 2006-2011 for tertiary education, about threequarters paid for tuition and living costs of students in donor countries. Canada,
France, Germany and Japan accounted for 81 percent of this spending (UNESCO
2014: 134). In the USA, where foreign aid primed the pump decades ago by way
of scholarship programmes for Africans and for Latin Americans, overseas
students have become important sources of income for universities and local
economies. Aid-based scholarships support many of them. Monitoring of foreign
students economic impacts in the USA reveals that 819,644 international
students and their families at universities and colleges across the country
supported 313,000 jobs and contributed $24 billion to the U.S. economy during
the 2012-2013 academic year (NAFSA 2014). Because monies for scholarships
and imputed student costs are spent almost entirely in donor countries, calls are
now heard to stop counting them as official foreign aid. Who ultimately benefits
from scholarship programmes is hard to ascertain in the absence of adequate
follow-up studies of ex-scholarship holders (Mawer 2014). Indicators thought to
be unambiguous, such as proportions of former scholarship holders who return
home, are muddied by the fact of institutional brain drain, that is, employment
in the service of transnational businesses or international agencies. These
27

matters, and related issues such as the bonding of returnees to public service in
order to gain some social or collective returns, remain to be probed in depth.

Conclusion
There can be little doubt that helping oneself that is, providing benefits to
interests within ones own political economy is for donors a central pursuit.
Indeed it may a central purpose. In contrast to its many elusive quests in its
downstream realms, foreign aid has met considerable success in its upstream
realms. Payoffs for interests based in donor countries help explain why the
foreign aid system continues to grow despite its lack of success in promoting far
better-known goals such as equitable growth and good governance. The foreign
aid system continues moving its policies, goods and services downstream toward
poorer places while at the same time casting an indulgent eye on large amounts
of money and other resources moving upstream to richer places.
Aid system institutions are often aligned, if not in active collusion with interests
gaining from these counter-flows. This is a paradox, but also no great surprise in
a context where leading architects of both the worlds financial system and the
foreign aid system share the same institutional addresses and circulate in the
same social and political spheres. In the realm of study and debate, another
paradox presents itself: despite a scholarly consensus that donor self-interest is
of primary importance in any understanding of what drives the aid system,
research about the workings and specific beneficiaries of that self-interest does
not begin to match its primacy. This asymmetry helps shape attention such that
rich-to-poor flows remain floodlit in the foreground while the far larger poor-torich flows remain poorly-lit or disappear altogether.
Spurred by these anomalies and gaps in knowledge, this article has reviewed
some findings of scholars, evaluators and policy activists about upstream realms
of foreign aid and how the primacy of donor country interests are pursued or
protected there. As an overview it is highly incomplete. Systematic and precise
information about those realms is not abundant. Much of it is withheld from the
public under various pretexts such as commercial sensitivity. Often, perhaps, it
simply escapes attention and is not assembled. Together with the many
questions about the aid systems interplay with counterflows, upward
redistribution, rent-seeking and hidden subsidization of the rich , the politics of

28

who knows what, when and how about aids upstream realms are in themselves
an intriguing terrain awaiting fresh scholarly work.

29

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1 Among those calling attention to these information and knowledge deficits are Powers,
Leblang and Tierney (2010), and Lancaster (2006).
2 For adherents to neoclassical theory this was a puzzling anomaly. After publication of an
American economists article (Lucas 1990) it became known as the Lucas Paradox.
Prefiguring this discussion had been scholarship about periphery-to-centre flows, chiefly
by a number of 20th century international political economists (see Bichler and Nitzan
2012).
3 Earlier, a US General Accounting Office report (US GAO 1995) on U.S. firms' market
share of business with MDBs was likewise bullish about what aid yields for US business.
Since 1995, no comparable report on US business gains from the aid system seems to
have been published.
4 Dev Balls (blog) available at: http://devballs.yolasite.com/page-3.php
5 Receipts from intellectual property rights have exceeded official projections. The World
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headquartered in major OECD countries for patents, royalties, licenses and other
intellectual property would amount to about $41 billion annually, in US dollars of the year
2000 (World Bank 2002: 133).