1

Development and aid

DEVELOPMENT AND AID

Age-specific mortality is higher in hospitals than in ordinary homes; it is highest for people recently
transported in ambulances. This should not lead to the conclusion that hospitals are bad for health,
and ambulances worse. Sub-Saharan Africa has long been the greatest recipient of aid, and its share
has even risen; yet few of its countries have seen effective development. One should not conclude
that aid is useless or bad for development.
Some critics of aid use the syllogism “aid is for development - development has not been happening -
therefore aid is useless or worse”. Without constituting a+ proof, the reverse of this syllogism should
constitute a prima facie presumption. There has been considerable progress towards development.
Among other prerequisites, this has required fairly effective governments. Since World War II,
development has almost never gone without aid. Governments that were effective in promoting
development would not have accepted, and usually actively solicited, aid (which is not without
burdens) if it had not facilitated their development efforts.
Naturally, aid is not enough. The liited amounts provided cannot overcome all obstacles to
development, all the less so as overcoming those obstacles is just one of aid’s multiple objectives.
A HALF-CENTURY OF DEVELOPMENT.
Though a vast and well-selling literature has bemoaned the failure of development, only the
exceptionally ill-informed have not heard of the much-increased economic weight of developing
countries. In reality, the overwhelming majority of people who live in what were developing
countries fifty years ago are much more prosperous nowi. In this brief discussion I will mostly use
per capita Gross Domestic Product (GDP) in constant dollar prices of 2000ii as a proxy for
development, and the World Bank’s World Development Indicators (WDI) constitute my main
source. GDP growth alone cannot be equated to development, but it comes in handy, and I will
consider a doubling of per capita GDP since the origin of the data series (mostly 1960) as a prima
facie indicator of successful progress. Other indicators have generally moved in the same direction,
though at varied rates. Considering mostly school attendance, literacy or child mortality would lead
to very similar, and often even more favorable conclusions.
The three most populous developing countries, China, India and Indonesia now belong to the WDI’s
middle income country group. All three were close to the bottom of the low-income group in 1960,
when the series begins. Brazil, the fourth most populous developing country, has risen to the upper-
middle income group. These four account for more than half the people living in developing
countries today. Since 1960 China’s per capita income has risen twenty-fold, Indonesia’s more than
five-fold and India’s and Brazil’s about four-fold. Poverty has fallen substantially in all these
countries and in many others. From privileged exceptions in many countries fifty years ago, basic
literacy has become the rule in most. Secondary and tertiary education have progressed even more.
Infant mortality has fallen by two thirds in India (the smallest achievement among the four big
countries). In Indonesia it is lower now than it was in the US and France in 1960, in Brazil than in
1970. IBM’s personal computer and the Volvo car are now Chinese and the Jaguar luxury car brand
is Indian.
In the early 1960s South Korea’s first manufactures exports were wigs made of human hair. It is
now a high-income country whose per capita GDP has risen more than fifteen-fold, a high
technology producer that just won a major competition to supply nuclear power stations and stands at
the top of rich country competitions for math studies. Its infant mortality has fallen from 90 to 4.4
per thousand, from almost four times higher than that of the United States in 1960 to one third lower.
In all but two regions, the majority of developing countries comprising the overwhelming majority of
population more than doubled their per capita GDPs since 1960. The exceptions are Sub-Saharan
Africa and the sub-region consisting of the successor States of the USSR in Europe and Central
Asiaiii. A few countries owe the increase in their GDPs to the discovery of petroleum, which
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Development and aid

sometimes brought little or no other development. However, in most cases progress did not come
through treasure trove.
Asia has seen the fastest progress. East Asia, with a population of 1.9 billion and South Asia with 1.5
billion together contain three quarters of the population of developing countries today, and contained
a rather higher share in 1960.
In East Asia, the Philippines, having merely doubled their per capita income, appear as laggards, and
stagnant Myanmar is a complete outlier (so is Papua – New Guinea, in every sense). The first four
“tigers” (South Korea, Taiwan, Hong Kong and Singapore) have become high income countries with
commensurate social indicators. Long ravaged by war, even Cambodia and Laos have managed to
double and Viet Nam to treble their per capita GDPs since 1990, when their market-oriented reforms
got under way in earnest; in Vietnam, the ratio to pre-war levels is probably similar, though in
Cambodia and Laos it is no doubt somewhat lower.
East Asia’siv average per capita GDP in constant year 2000 prices rose almost 12-fold since 1960,
from $ 141 to $ 1641. Health and education also improved in spectacular manner. The four “tigers”
are on top of the high-income country class in those respects; infant mortality in China now stands at
18.5, where France’s was around 1970, and in Vietnam it has fallen from 45 in 1980 to 12.5 – where
France’s was in 1976! By further comparison, infant mortality in the Euro area and the US stood at
37.6 and 26 per thousand respectively in 1960 and at 3.6 and 6.5 per thousand in 2008.
Equally remarkable has been the decline in fertility (the average number of children per woman), to
about 1.9 for the region, i.e. well below replacement levels. China’s radical birth limitation programs
are well known, and may have contributed to causing its fertility rate to fall from 7.6 in 1962 to 1.7
recently; but fertility has also fallen to 1.3 in Singapore and Korea, despite Government attempts to
stimulate it in recent years, and to 1.0 in Hong Kong. At lower income levels and with relatively mild
official birth limitation incentives, fertility and Indonesia has fallen to 2.2 and in Vietnam to 2.1... In
several of these countries (though not in Indonesia), population growth will slow down even more
than the fertility levels indicate, because the sex-ratio of births and survival rates is somewhat
skewed towards malesv.
South Asia’s growth has been slower, and it continues to face more severe problems. Yet India
quadrupled its per capita GDP, and seems set to continue with per capita growth of over 5 percent.
Pakistan managed to more than double its per capita GDP by 2000, before it was slowed down by
political turmoil; and Sri Lanka, despite civil war, more than trebled its. Bangla Desh, born in the
blood of civil and foreign wars that followed a devastating storm, given up for triage by Dr.
Kissinger at its birth, has also more than doubled its per capita GDP since independence. Nepal has
stagnated, but Bhutan and the Maldives illustrate the possibility for small landlocked or island
countries to grow substantially through controlled tourism.
South Asia’s average per capita GDP in constant year 2000 prices rose almost fourfold since 1960,
from $ 186 to $ 724. Social indicators have progressed in line with incomes, though less markedly
than in East Asia. In Sri Lanka, infant mortality has fallen from 83 in 1960 to 16.5, and in India from
157 to 54 – still much too high, but it was Portugal’s as recently as 1970.
Latin America presents a more mixed picture. Despite the setbacks of the “lost decade” due to the
debt crisis of the 1980s, per capita GDP in its most populous country, Brazil, has risen threefold, as it
has also in Chile and Colombia. Its second most populous country, Mexico, also has recovered from
the major setbacks of the 1980s and 90s to well over double its 1960 per capita GDP, as have other
countries like, say, Uruguay. Size does not seem to have been a major factor: per capita GDP almost
trebled in tiny Belize and rose more than seven-fold in the Dominican Republic! On the other hand,
Nicaragua’s per capita GDP almost stagnated, Venezuela’s declined moderately and Haiti’s
drastically. Data are lacking for Cuba, but indirect indications point at a per capita GDP that is at best
not much changed since 1960, though no doubt somewhat better distributed.

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Development and aid

Overall, Latin America’s average per capita GDP in constant year 2000 prices rose by 135 percent,
from $ 2 020 in 1960 to $ 4 767. Social indicators broadly followed suit. At 22.4 per thousand,
today’s average infant mortality in the region compares favorably with Western Europe’s forty years
ago. The greatest improvements came in fast growing countries like Brazil (down from 132.8 to 19.7
per thousand), though there was improvement even in stagnating countries, say in Venezuela from 53
per thousand (in 1965) to 16.8; and Cuba still has one of the lowest infant mortality rates of the
continent, 5.1 per thousand, down from 35 in 1960. The region’s average fertility has fallen from 6.0
in 1960 to about 2.3; it is only 1.9 in its two most populous countries, Brazil and Mexico…
Considerable though contrasted success also characterized the World Bank’s Middle East and
North Africa region. Tunisia’s per capita GDP has trebled, Morocco’s doubled, while despite, or
because, of its hydrocarbon revenues (but also a savage civil war) Algeria’s did not quite double;
data for Libya are available only since 1999, and they show stagnation at a relatively high level,
$7740 in 200 prices – in current prices it must have been raised very substantially by the petroleum
price rise of recent years.
In the region’s most populous country, Egypt, per capita GDP almost quadrupled; it more than
trebled in Israel (now a high income country) and not quite trebled in Syria … Since the 1980s, Iran
and Iraq have suffered from bad governance, international isolation and devastating wars; Iran’s per
capita GDP had more than doubled from 1965 to 1978, then declined and found its earlier peak only
in 2006, while Iraq, for which data are lacking, no doubt fared even worse. The countries of the
Arabian peninsula obviously diversified and improved many human indicators: schooling, including
University education, and health. Infant mortality has fallen to the low teens in the Gulf countries (a
level first reached in the United States in the early 80s) and to the 20s in Saudi Arabia… However,
except in Oman, per capita GDP in constant prices seems to have stabilized long ago; the
diversification of income sources has not yet much advanced, even in the Gulf countries, despite
their vaunted advance into financial servicesvi.
Excluding the Region’s high income countries (Israel and the Gulf oil producers), since 1965 (the
first year for which this figure is available), average per capita GDP in constant year 2000 prices rose
about 130 percent, from $ 812 to $ 1910. Infant mortality has declined substantially, and education,
particularly higher education, progressed spectacularly. Such social indicators nevertheless are
generally much less advanced than for countries at similar or even lower income levels in East Asia.
Thus infant mortality is somewhat higher in Egypt than in Indonesia, whose per capita GDP is 40
percent lower. Fertility has also fallen, from 7 to 2.8 for the region as a whole, somewhat modestly
in much of the Mashrek (the latest numbers are: West Bank & Gaza 4.6, Iraq 4.1, Jordan 3.6, Saudi
Arabia 3.4, Egypt and Israel 2.9) and quite drastically in Iran (2.0) and the Maghreb (Morocco and
Algeria 2.4, Tunisia 2.0).
Europe and Central Asia are even more contrasted, but in a more systematic and easily understood
manner. Those of the region’s countries that did not belong to the erstwhile communist bloc and had
low or middle incomes in 1960 have grown rapidly. Among them, with a per capita GDP of $ 5400,
about 2.5 times its level in 1968 (the first datum available), only Turkey remains a middle income
country. Other erstwhile middle-income countries in this group, Cyprus, Greece, Ireland, Malta,
Portugal and Spain, have moved into the high income category with per capita GDPs generally about
four times higher than in 1960 (almost ten times for Maltavii).
Among the erstwhile centrally planned economies outside the Soviet Union, only for Hungary does
WDI show 1960 GDP; other countries’ series begin in 1985 or 1990. Hungary is a special case, as
from the early 1960s on it gave much larger scope to private initiative and trade with the West than
other non-Asian Centrally Planned Economies, under a régime nicknamed “goulash capitalism”. Pre-
1990 growth is likely to have been slower elsewhere. The success of post-1990 adaptation has also
been variable, quite important among early entrants into the European Union, slower in the Balkans,
quite limited among the successor States of the USSR (other than the Baltic countries). Nevertheless,

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Development and aid

per capita GDPs generally increased by about 50 percent or more since the start of reforms around
1990.
Present per capita GDP levels among the USSR’s successor states now vary from about $ 3000 in
resource-rich Russia to $ 580 in Europe’s poorest country, Moldova and $ 245 in Tajikistan. These
are, one must recall, in constant prices; these countries cannot have known much past growth. By
way of comparison, Morocco’s per capita GDP was already more than $ 600 in 1960 and is more
than $ 1200 now. Many social indicators are also unfavorable: infant mortality in Tajikistan is 56 per
thousand, higher than in Senegal; it is 12.8 in the Russia, higher than in Vietnam. Lest this be
attributed to heartless market-oriented capitalistic reforms pursued since 1990, note that infant
mortality in Russia was 27.5 and 98.2 in Tajikistan in 1980, by which time it had fallen to 16 in
Korea, 12 in the United States and 79 in Indonesia…
Fertility has remained fairly high in Central Asia (e.g. 3.4 in Tajikistan and 2.5 in Turkmenistan),
fallen from 6 to 2.1 in Turkey and collapsed in Russia (1.4) and Eastern Europe (e.g. Hungary,
Slovakia 1.3, Bosnia 1.2). Russia is almost unique in having such a collapse in fertility coincide with
a life expectancy that, on average, has risen little since 1960, and has even declined marginally
among malesviii - another trend that began well before the reforms of the 1990s.
Such is the divergence between the three groups of countries in the region, those that never belonged
to the Communist bloc, East Europe and the three Baltic countries, and the other successors of the
USSR, that averages make little sense. The erstwhile developing countries belonging to the first
group have mostly grown to high incomes; though still only a middle-income country, even Turkey
has progressed substantially. The second group has undergone a difficult transformation, but it has
been progressing well before the last financial crisis and seems well on its way to resuming growth.
Progress has been modest or absent in the third group. Most social indicators reflect these
divergences…
In continental Sub-Saharan Africa, only a handful of countries have at least doubled their per capita
GDPs. Only Burkina Faso and Swaziland achieved this (just) without substantial new resource rents,
while Botswana has diamonds and Equatorial Guinea, the Congo (Brazzaville) and Angola have
petroleum. The island countries of Cape Verde, Mauritius, and the Seychelles also more than
doubled their per capita GDPs. Elsewhere, including some large petroleum and other natural resource
exporters, per capita incomes grew slowly or not at all; in several cases they declined. Even in most
resource-rich relatively high income countries not much true development has resulted; while
extreme, the case of Equatorial Guinea is emblematic. It is now in the World Bank’s high income
category, with a per capita GDP higher than Estonia or Hungary, yet its infant mortality remains well
above even the Sub-Saharan average. Or again, though Botswana’s per capita GDP rose smoothly to
$ 4400, infant mortality is about the same as in Algeria (per capita GDP $2191); and life expectancy,
having risen from about 50 to 63.5 years then fell back to about 50 under the impact of the AIDS
epidemic.
For the region as a whole, average per capita GDP rose by less than half, from $ 437 to $ 619. Infant
mortality, which in 1965 had been comparable to the other poorest regions’, at 146 per thousand
births (South Asia 144; the Middle East & North Africa 154) has declined to 89 (South Asia 59,
Middle East & North Africa 32). Average life expectancy has risen from about 40 to about 50 years;
from the same starting point, it has reached 62 in South Asia… With a per capita GDP almost
identical to the African average, average life expectancy in Vietnam now exceeds 74 years and its
infant mortality is 12.5 per thousand... Education has advanced more markedly, but fitfully...
AID HAS HELPED
Despite Sub-Saharan Africa’s dismal performance, it is obvious that enormous progress has been
achieved in most of what constituted the developing world in 1960 and earlier. The contribution of
aid is not quite so evident; it probably cannot be demonstrated; but it can be inferred. Many countries
have received large amounts of development aid without demonstrating much economic and social
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Development and aid

progress, but the converse is not true: except for a very few hydrocarbon producers, all the countries
that have showed major progress towards development have been substantial recipients of
development aid. Some of this aid, most of it in some cases, was not truly aiming at the promotion of
development but at purchasing friends, conciliating allies, securing markets or preventing the failure
of some States from becoming complete. However, such aims are rarely fully acknowledged, and I
shall not try to segregate them: I will consider as “aid” all that the World Bank records as such.
Amounts vary greatly. Apart from other considerations, there has clearly been a small country bias in
aid allocations; even the very large absolute amounts of aid sometimes allocated to large countries
are small in per capita terms. Thus India, in some ways a favoured recipient, only once (in 1991)
received more than $ 3 per capita in current prices. Development aid to China started in 1980, peaked
at just below $ 3 per capita in 1995 and has fluctuated around $ 1 in recent years (all aid figures are
at current prices). Indonesia, supposedly long a darling of Western donors and aid organizations, in
no year received more than $ 12 per capita. Meanwhile, many smaller countries receive aid valued at
many tens, and in a few cases even hundreds, of dollars. Thus aid to Bhutan has only once fallen
below $ 100 per capita since 1990, Sri Lanka has received more than ten times more aid per capita
than India in most years, and aid to Nicaragua has amounted to well over $ 100 per capita in recent
years…
Aid has surely has not led to development everywhere. Many of the countries where development
has yet advanced little have received much more aid per capita (and as a percentage of their GDPs)
than the most successful countries. Eritrea is not the only country where aid per capita rose just as
GDP per capita fell. Conversely, while even enormous China and India have received aid, it is
difficult to argue, at least for the former, that the maximum of 4% of imports into China financed by
aid around 1990, when its growth truly took off, was the major factor behind that acceleration.
Even if such an argument would be more credible for, say, Egypt, a third of whose imports were
financed by aid at critical times, or even for India or Vietnam (about ten percent), this does not seem
a productive way to go about the discussion. Counterfactual reasoning, the attempted description of
what would have happened in the absence of aid, is rarely convincing and cannot be made even
modestly credible without much deeper country by country analysis than is feasible in a text of this
sort. I will use a different and a more general argument.
Development is difficult. It can happen only if the national government ensures the provision of an
adequate legal framework, sufficient infrastructure, proper fiscal, monetary and trade policies,
acceptable education and health… Not all of these need to be fully provided by government directly,
but for each of these factors government plays a key role either in providing them directly or
enabling others to provide them. In effect – and this is now widely recognized – there can be no
development without a government that displays acceptable levels of competence, orderliness and
dedication to the common good. It follows that all the countries that registered substantial
development progress (with the possible exception of a very few countries with exceptionally
remunerative natural resources) must have had quite reasonably effective governments.
As noted, almost all successful developing countries have received aid; all those that have not yet
reached high income levels (and several that have!) continue to receive aid. Such aid is not thrust
upon governments without some effort on their part. It rarely finances the totality of whatever
constitutes their object, but usually requires local participation. It is also rarely composed entirely of
gifts, but has usually to be repaid, in whole or in part, at interest rates that are rarely zero and often
approach market levels.
If we then formulate the hypothesis that aid is unhelpful, its corollary is that governments that have
demonstrated reasonable levels of competence and dedication in their overall management of their
economies nevertheless systematically go through difficult and onerous processes to obtain and
manage aid that is in fact useless or worse. This is not a reasonable hypothesis. Much more likely is

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Development and aid

that competent and dedicated governments seek aid because it makes a useful contribution to
development.
One may not be able to prove a hypothesis, and it may not even be necessary; but for it to be useful it
must be possible to disprove it. Taking as a starting hypothesis that aid has played a useful part in
promoting development, how could this be disproved? Not by econometric studies, unless all other
things could be made equal; that cannot be done because we are unable even to list, let alone quantify
all other things… Nor by showing the failure of many projects in countries that did not progress
towards development; nor by showing flaws in project selection methodology – I have done that - or
showing that many projects failed to reach the extravagant rates of return attributed to them on
appraisal.
No; the way to show that aid failed would be to look at countries which did make appreciable
development progress, and show that projects and activities that helped or promoted by foreign aid
performed less well than those not so assisted, and that policies and programs promoted by foreign
aid agencies were less effective than those not so promoted. This has not been attempted. Until such
a demonstration is made, the presumption must prevail that in that majority of the developing world
that has achieved considerable success, foreign aid has contributed positively to that success.

Jean Baneth
i
The picture is somewhat less favorable if we look at today’s populations, as successful development has gone with
falling fertility and slowing population growth: the demographic weight of the least successful countries is increasing.
ii
Taken, as all other data in this text, from the World Bank’s World Development Indicators 2009. The World Bank
classifies countries by their national income per capita in current prices. For conceptual reasons, national income series
are not shown in constant prices. While GDP and constant prices must be used to establish change, the results are
influenced by the year of reference chosen. Thus, for a few old-established petroleum producers the slow growth or
even decline of petroleum production, measured at year 2000 prices, occults the beneficial impact of the sharp rise in
the relative price of petroleum; these countries’ domestic purchasing power increased much more than their GDP.
Conversely, GDP at constant prices may overstate the increase of domestic purchasing power when primary
commodities constitute a major component of exports and their relative price has been declining. This has been the
case, in particular, in countries whose imports are heavily weighted with petroleum and rice, and whose exports are
dominated by a few primary commodities.
iii
These form a subset of the WDI Europe and Central Asia region.
iv
Here and subsequently, each region’s average per capita GDP excludes those countries that now belong to the high
income group. For the countries that stkill had low or middle incomes at the beginning of the period, the change is even
greater.
v
This is a real problem, though perhaps not the catastrophe some present. The best single
indicator is the sex-ratio of children 0 – 14 years. In normal populations it is about 103 – 105
(e.g. France 104.9 males per female). It is about 113 in both India and China, though quite
normal in Indonesia, and only about 108 in Vietnam.
vi
Constant 2000 prices value petroleum much more than it was valued in 1960 (the posted price of Saudi light was $
1.40 per barrel then) but much less than today. The hydrocarbon sector’s contribution to national income has grown
considerably.
vii
WDI classifies Malta with the Middle East and North Africa region; this will be corrected next year.
viii
Male life expectancy in Russia peaked at 63.3 in 1972; it was then comparable to other middle-income countries
(Argentina 66.7 in 1970). Almost uniquely, it then started to decline while female life expectancy continued a modest
advance. It has since fluctuated between the high 50s and the low 60s; the latest number is 61.5. By comparison, male
life expectancy in Colombia, a country with a similar income level, is over 69 and in Argentina it is 72; it is also 72 in
much poorer Vietnam. Evolution in Belarus and Ukraine has been similar though slightly less dismal than in Russia.

Evolution of male life expectancy in Russia.

1970197319801985199019952000200520062007200863,163,361,462,763,858,359,058,960,461,5..

………………………………………………………………………………………………………………………………
…..

Jean, You gotta be kidding! Let me posit a different parable: Just

because the birds chirp at dawn, it does not mean the sun is regulated
by bird chirps! Aid may help countries develop, but it has been long
researched--by independent researchers--as to its effectiveness. And the
consensus seems to be that aid may account for about one tenth of the
economic growth of developing countries. From Luis Landau's thesis at
Harvard to Bill Easterly's ongoing analyses, this conclusion seems a
relatively sturdy one. Far more important, of course, are the policies
a country follows, its poltical/social stability, and even its cultural
inheritance. Your paper leaves all this out.

First, as you note throughout your paper, much of the growth has
come from populous countries--China, India, Indonesia, and Brazil--and
anyone acquainted with their growth spurts would immediately give far,
far more importance to (say) Fernando Enrique Cardoso's Real Plan,
Deng's discovery of Communist Capitalism, or India's steady opening to
the world just as globalization rewarded it. Their aid was not only
trivial, as a percent of GDP, in per capita terms, and even as capital
flows, it was (in a financial sense) redundant. China's, India's, and
Brazil's increased reserves probably exceeded any net aid flow over the
past ten years.

Next, you include in your universe countries that did extremely well
but hardly received any significant aid. Taiwan and Singapore, of
course, lead such a list, but places like Thailand and South Africa also
received very little. Their success most definitely cannot be linked in
any significant way to aid flows.Thailand was in fact a significant aid recipient in the 1960s
and 70, by those decades standards: more per capita than Sri Lanka, with a substantial
rise towards the end of the late 70s and through the following two decades.

Thirdly, what you leave out is that where aid was very, very
considerable--in per capita terms, as a percent of GDP, or as a percent
of investment--the record is close to dismal in a large amount of
countries. Moldova received, over the past fifteen years, more in per
capita terms from the IBRD, EBRD, and EU, than virtually any other North
African or European country. Except, of course, for South Yemen (PDRY),
the favorite target of the Former Soviet Union and IDA. And Moldova's
per capita growth has been minimal, while Yemen--in spite of
oil--remains a stagnant mess. Tanzania--the love child of MacNamara and
many others--received massive grant-equivalent aid for years, and had
far less (if any) growth than Kenya, its neighbor, that received less
than a quarter the per capita sums. Countries favored by aid in Latin
America--Haiti, Nicaragua, Honduras--have shown the least development.
If aid is all that significant, then these countries that received the
most should show some growth variation compared to others. Study after
study shows they don't. Indeed, some respectable analysts claim that aid
may have perverse effects, and they recommend ending most aid as we know it.

I think your paper shows that the development pessimists are (or
have been) very wrong. Some large countries have done very, very well,
not since 1960 but over the past twenty years, while most European
countries repressed by nonsensical command economies have done equally
and amazingly well when freed from such nonsense. These latter as well
as some middle-income countries have become fully developed countries: I
would place Portugal, Israel, Singapore, South Korea, and a few others
in this list. Others, like Chile, Mexico, and Thailand (the latter two
in the midst of very sad disruptions) are either in or flirting with
OECD membership for very good reason. The rich world today includes
countries that a few generations ago would have been thought hopeless.
These countries have transformed global trade, politics, and even
security strategy. But as these countries are weaned from aid--as they
should have been even years ago--the aid donors are being asked to
concentrate their aid on the poorest countries. And these poorest
countries, it has become now very clear, are usually poor because the
are kleptocracies, addicted to perverse economic policies, or are as
politically stable as jelly. The argument is not whether successful
countries got aid; virtually all countries got aid at one time or
another (and all had birds chirping as dawn approached); the debate is
whether aid can make a significant difference in these laggards. Doubts
expressed by some reasonable people are not eased much by your
arguments. Paul

Paul : Your reading was over-enthusiastic and under-careful. In reality, I think we

broadly agree, perhaps even when I reject the move from the demonstrated failure of
some aid to claim a general uselessness of all aid.
My main point is that development has worked. There should be no need to show this
in detail, given the prominence every day given to the growing power of developing
countries; but the intellectual (if that is the word I want) current that bemoans the
supposed stagnation of developing countries is still quite prominent. What provoked
my note was a remark by an ex-colleague, a M. Schul, who proclaimed the general
failure of aid, and boosted his claim by noting that aid was supposed to serve
development, and poor countries have wholly failed to develop – so there.
I did note that many of the worse laggards have received much aid – I specifically refer
to Eritrea as an example. More generally, Africa has received more aid per capita than
any other region, except for Europe’s ex-poor countries. And surely, it should be quite
clear that policies are a key: I stress that there cannot be development without at
least fairly good government.
I do not attribute a key role to aid in general, nor contend that development would not
have happened without it; indeed, I explicitly say that in the case of China, aid was too
small per capita and as a percentage of imports to have played a key role. My only
contentions are that:
1. Development has been a widespread success – this is demonstrated fact.
2. Development requires fairly good government –if not quite demonstrated, this is at least common
sense and generally accepted truth. Naturally, good government implies effective policies;
3. To get aid government must make efforts; this too is easily demonstrated;
4. Almost all countries that have successfully developed have received aid – this is verifiable fact;
5. Therefore in developing countries most good governments have devoted substantial efforts to
receiving aid. This constitutes prima facie evidence that aid has been useful. Useful – not necessarily
indispensable.
To show where and when aid was a necessary condition for launching the
development process, when it was a very substantial help, and when it was just an
adjunct, would require a country by country study for which I have no time or taste,
nor the knowledge – you must have gathered from my first paragraph that I reject
econometric studies for this (as for much else!) as useless. From my limited
knowledge of a few countries, I can say that in Vietnam in the early 1990s, aid was a
very substantial accelerator of progress, which in turn helped bring in further reforms.
Opposition to reforms persisted and was strong, and it is quite possible that with
slower progress it may have prevailed – possible but not certain. The same can be said
of Indonesia in the late 1960s and 1970s, and of India in the early 1990s…
Conversely, it is quite clear that the large amounts of Soviet, American and even
international aid poured into Somalia once (or even twice) upon a time have not
furthered its development.
Some of your facts need to be corrected. Though South Africa indeed received no aid
until 1993, since then its aid receipts per capita have been in the mid-teens, in current
dollars – about the same as Egypt’s, an avowedly high aid recipient. Its per capita GDP
had risen substantially in the 1960s, declined from 1970 to 1993, and rose modestly
since then. Singapore, a city without any rural hinterland, is obviously a special case,
particularly given its role as a trade and services hub in a fast-growing region: Bombay
grew much faster, even though it was a net source of funds to the rest of India. Yet
Singapore was an aid recipient: about $10 per capita in the seventies and eighties,
more than Indonesia ever got! Taiwan was a very large aid recipient in the 1950s and
60s (WDI does not give data, but Taiwanese sources indicate “net current transfers”
peaking at 3.9 billion in 1961 and disappearing only in the mid-70s. IBRD-IDA
disbursed $ 350 million to Taiwan (about a million is still outstanding): offhand, this
seems to have been higher per capita than many other countries (say, India), yet it
was at the time dwarfed by US bilateral aid – I do not want to spend more time to
research the precise data.
You also say that in cases where “increased reserves probably exceeded any net aid
flow” “aid was […] (in a financial sense) redundant”. Not so! You surely would not
argue that Marshall Plan aid was redundant because much of it served to allow Europe
to reconstitute its external reserves? Reserves are an indispensable necessity (except
for the US!), and adding to them is a perfectly legitimate use of aid: what do you think
the IMF has been doing all these years? The wisdom of adding to reserves was well
demonstrated in the latest crisis, when they allowed prudent developing countries to
forestall a severe depression –just as the unwisdom of low reserves had time and
again been demonstrated earlier. Brazil and India’s reserves amount to only about a
year’s imports – comfortable, but not horrendously high; I presume you would not
accuse, say, Argentina of hoarding excessive reserves, yet they cover almost as long a
period. Even China (note that by now its aid receipts have fallen to quite paltry levels)
has reserves covering only about fifteen months of imports; this may be excessive, but
who are we to gainsay on this a government that has demonstrated its economic
competence in many ways…
You raise the proper question: “whether aid can make a significant difference to (…)
laggards”. Whether, and I add how, is indeed the operationally important question;
and it is indeed not the one I was addressing. For one, because someone made quite a
different assertions, denying aid’s usefulness in general in the past, and even the
reality of progress in development. But also because your question –which, I repeat, I
truly believe is the important one – can only be addressed one country at a time, in
light of specific knowledge of country conditions,.
Even so addressing it, it can never be answered with certainty, both because our
knowledge will never be deep enough, and also because the future is never fully
predetermined. What we should be able to determine is whether there is a significant
probability of aid making a difference; and then make a difficult choice.
It is tempting to declare that aid is useless or harmful, because this greatly eases
decision-making: give no aid, keep your money, do no harm... But, while crudely put
and, for Bangla Desh, wrongly answered, Kissinger’s triage analogy is apt. If you
accept the potential usefulness of aid, one type of error condemns to death
(stagnation or worse for a country), the other one wastes aid. One will then quite
rationally often assume this second risk rather than the first, in other words give aid
on the slim chance that it will make the key positive difference, rather than withhold it
and condemn to stagnation or worse the target country.
I remember pointing out once, much to Ernie’s annoyance, that there seemed to be
very little chance of an umpteenth structural adjustment loan to Jamaica bringing
about the expected positive results; it would leave the country in a worse shape,
because of the added debt. The loan went ahead anyway. The decision turned out to
be loss-making; it was not necessarily mistaken, just as it was not necessarily
mistaken to try and operate on a badly wounded soldier who died in the process.