Development Aid: Successes & Failures
“To and for the establishment, promotion and development of a Secret Society, the true aim and object whereof shall be for the extension of British rule throughout the world, the perfecting of a system of emigration from the United Kingdom, and of colonisation by British subjects of all lands where the means of livelihood are attainable by energy, labour and enterprise …..”
From the first clause in the first will by Cecil Rhodes, dated 1877, quoted from africasource.com
Ex-colonialist as development agent
Most of the present nation states of the Americas, Australasia and Africa were created by European settler-populations through extreme violence against existing populations and sometimes calculated genocide. Over-population in Europe was solved by settlements overseas as the commercial and industrial revolutions in Europe gave them an immense superiority in military power while creating mass unemployment for agricultural workers. Cecil Rhodes justified the English settlements in Africa on the grounds that it would avert a revolution in
England organised by the unemployed poor.[1] Shades of the past haunt the present. It is a sweet irony that the very nations that conquered and enslaved these people and destroyed the native African societies are now mourning the corruption and violence in that region. Sub-Saharan Africa is, consequently, the most baffling region for aid development agencies.
What we saw in Sub-Saharan Africa in the last four decades of the 20th century was the chaotic birthing of newly independent nations through violence. The artificially created boundaries of avaricious Western imperial powers that competed to gobble up an under-developed continent[2] cut across traditional tribal territories to create unstable social foundations. Unlike their Asian colonies, where nation states had been established several millenniums earlier and, in fact, before most European nation states were created, most of Sub-Saharan Africa lacked nations with defined boundaries as tribes moved across the vast land seeking pasture for their herds or better forests to accommodate the hunter-gatherers. Europeans who colonised the entirety of the continent set out to create a master-servant relationship with native Sub-Saharan Africans, undermined their traditional political structures, and did little to help in the education of Africans for the governance of modern nation states. When they relinquished their imperial status, most of Africa lacked an established political leadership and administrative class that could take over the reins of authority in a modern state, making way for piratical adventurers to seize power and plunge the region into seemingly endless turmoil, sometimes with the connivance of the old imperial powers whose special interests still darken much of Africa.
Despite much publicised World Bank/IMF and Western aid programmes, most of Africa remained in political and economic turmoil and the majority of its people in degrading poverty with the constant threat of violence against their persons. In fact, in terms of genuine impact on creating better lives even for limited groups, the private charities like the Bill & Melinda Gates Foundation, George Soros Foundation, William J. Clinton Foundation, Agha Khan Foundation and some non-governmental organisations have often done a much better job with less money than the international and the big bi-lateral aid agencies because they were more focussed on a few achievable goals. This is not to deny the exceptional relief work by the UN humanitarian agencies in crisis afflicted poor regions of the world, work which is also focussed on specific problems.[3] International development agencies have spent the bulk of their money in the poorest countries on small enterprise development and poverty alleviation with very little progress to show for it. The Grameen Bank in Bangladesh, using the concept of working with the poor at their grassroots level, has demonstrated with success an alternate strategy on how people can be empowered through small business and brought out of absolute poverty to middling poverty far more effectively.
Problems of funding aid
Foreign aid is touted in the West as the mantram for the development of Third World countries. The Paris Club and G8 summits proclaim the need to help the needy. In the US, ordinary citizens believe their government is too generous with foreign aid and that these monies could have been used to help its own citizens. The reality is quite different. The rich countries pledged to allocate 0.7% of their GDP as foreign aid, but except for the Netherlands and the Scandinavians, others are nowhere near this target, the USA being the lowest in these terms. In 2005 the G8 pledged US$25 billion in aid to Africa over the next five years. At mid-term, in 2008, only US$3.0 billion of this had materialised[4]. It is the same with all grandiose promises of aid: it is often more propaganda than reality. In the case of the USA, half the allocations go to the two favoured political allies in the troubled Middle East, Israel and Egypt. A lot of US aid is military.
The very nature of these international aid organisations and structures sometimes inhibit productive work. UN development agencies (UNIDO, FAO, ITC) are under-funded and their UN budget allocations are usually just sufficient to cover their large administrative overheads and vast numbers of personnel. At the same time, project officers and associated personnel will be retained and promoted only on the basis of the number of projects they initiate and manage with funding they have secured from external donors. Project officers scramble to various developed countries and funding organisations seeking funding for their projects. Those who are willing to come up with funds will indicate the type of project they will agree to fund and the countries they are interested in. The project officers then set out to seek developing countries to which they can sell these projects. There are ways of attracting support for projects from many developing country governments that see any aid as a windfall, especially for people in high positions. There are cases where the aid givers will also stipulate that the management of the project must be handled by their own country personnel who will be stationed as staff members of that UN body. The popular lament afterwards is that aid money is not working, with giver and receiver each pointing accusing fingers at the other party.
If developing countries had long-term national development plans and strategies, like China and India today, and Japan and South Korea and some other notable East Asians in the past, that are monitored by government and implemented methodically, they would not have these problems. But these simply do not exist in many countries which lack the organisation and the political will (and political stability) to plan ahead.
The situation of ex-communist states in Eastern Europe was quite different. Under communist governments these states did not permit their citizens the political freedoms associated with modern liberal democracies. Yet they created industrial nations that offered full employment and a high level of social amenities like free education, free health services, gender and racial equality, cultural and sports development, exceeding the basic social benefits found in many Western democracies for their lower income citizens. But rigid central planning and political ideology did not create sustainable economies in the fast developing modern era. After the collapse of their socialist economies through internal problems, they were quickly embraced by the Western alliance of nations and provided with liberal doses of advice and some economic aid. Yet in the first decade of free enterprise capitalism, these states lost on average about 50% of their GDP, plunging large numbers of the population into dire poverty and deprivation while a few manipulators, with some help from their new found foreign friends, gained astronomical fortunes by seizing large state assets for themselves[5]. Many people found that they had bartered economic security for a political freedom that did not provide adequately for their daily bread. But these are old nation states with strong social and economic foundations and industrial bases and their gradual recovery from these tribulations was assured. Their situation has no parallel in Sub-Saharan Africa.
Flat earth propaganda
The earth is flat says Mr. Milton Friedman, the popular propagandist for global business corporations. It is certainly full of superhighways for the transnational corporations that control three fourths of global trade and their satellite manufacturing and service industries in developing countries. But one fourth of the world’s population live in dire poverty and perpetual hunger and most peasants in the poor developing world haven’t travelled beyond a few miles from their villages.
Western imperial powers had traditionally developed their colonial territories as raw material suppliers of commodities (minerals, petroleum, agricultural raw materials) for the profitable industries in their home countries. Since World War 2 commodity prices kept declining due to over-production, the discovery of alternate materials and market forces unfavourable to developing countries (usually referred to as the Terms of Trade). Despite the advice of aid agencies and international economic experts, who continued to advocate commodity production and peasant agriculture as “the comparative advantage” of developing countries, some countries, notably the East and South Asians, went into manufacturing, beginning with labour intensive productions, mainly textiles/garments and leather footwear. By 1980 the bulk of developing country exports were manufactured goods, principally textiles and garments, even though these new developments had by-passed large areas, mainly in Africa. But then the restrictions began to grow in Europe and the USA in the form of the Multi-Fibre Agreements with limited quotas for market access for each exporting country, restrictions that were rigidly maintained till 2004 and still continue in hidden forms such as high duties, except for Sub-Saharan Africa which is an insignificant player in manufactured goods exports.
The new “hidden barriers to trade” against developing countries was the result of developing countries, again notably the East Asians, China and India, developing and competing in the market for high technology goods and developing processed agricultural exports. These restrictions try to by-pass World Trade Organisation rules by using subversive means other than tariffs: “Anti-dumping” claims, “voluntary restraints” on successful imports[6], rigid product and production standards certification requirements, patent right claims, environmental concerns, concerns for workers in developing countries, concerns about military production companies, etc. Standards certification requirements are basically concerned with all types of certification of the manufacturing processes, labour conditions, environmental concerns, raw materials used, the product quality testing standards. All these standards are set by the buying countries or the buying companies without any negotiating process and the testing processes have to be paid for with high certification fees[7]. On the other hand, a poor country that restricts genetically modified (GM) foods or hormone fed meat products from the West will face serious political and economic pressures[8]. These restrictions keep increasing as developing countries increase business into the highest technology areas: the goal posts keep moving away as the new players advance.
While Western economists deplored the lack of full market access in China and
India, all manner of prohibitions face Indian, Chinese or Middle Eastern corporations trying to buy into high profile Western companies. The levers of power and dominance have not changed. The rich Western countries zealously guard their markets against intruders from developing countries. When large corporations in China, India or even Dubai want to buy into a large business in the EU or the USA, they come up against an outcry from politicians, trade unions and the public. A bid by the Chinese telecommunications company, Huawei, to buy a $2.2 billion stake in 3COM in the USA was not permitted. China National Oil Company was not allowed to buy the US oil company UNOCAL. A suggestion that the Chinese electrical appliance giant Haier might buy Maytag was greeted with hysteria in the USA. A Dubai based ports’ management company was shut out after they bought the major share of the existing operator, the P&O Company, even though its top management was British. Lenovo’s effort to buy the loss-making IBM personal computer business met with serious obstacles for several years. The Indian owned Mitall Steel’s (the world’s largest steel maker) efforts buy into the European steel giant Arcelor Steel (the second largest) was stymied for a long while by overtly racist outrage in France and Luxembourg, with leading EU politicians threatening to prevent it[9]. Later, ArcelorMittal was forced to sell off its holdings in the USA. . Bankrupt car manufacturers in Britain resisted attempts by Asian companies to buy them.
American and EU politicians, reflecting public racial prejudice against non-European people, loudly complain of national security concerns if Asians or Middle Easterners enter their business domains, even though these corporations are from friendly nations. Australia’s largest trading partner is now China, whose purchase of most of its minerals, over $60 billion annually with an appetite for much more, has created a mining boom in that country. Yet Chinese corporations are restrained from investing in the Australian mining industry on the grounds of “national interest”.
The other platform for unequal trade is intellectual property (TRIPS, or Trade Related Intellectual Property Rights) rights. While Western pharmaceutical corporations have registered hundreds of thousands of native plant species and their traditional medicinal uses from developing countries as their own private patents (outrageous examples were the patenting of Basmati rice, tumeric and neem tree products in the USA, though these were later challenged), developing countries generally have no facilities to counter these thefts due to lack of finance and the expensive legal expertise required. While each country may have its own patent laws, the largest number of patents and their most rigorous enforcement is in the USA. While patents for original inventions/discoveries can be justified, many patents are for minor modifications of existing products or systems. Patents have also been issued for natural products and even sections of the human DNA. The enforcement of these patents is a high priority for the World Trade Organization and for Western governments.
Unquestionably, globalization, if it means the exchange of knowledge and resources between all countries for the advantage of all parties, can be of great benefit. The reality is that what is being implemented and promoted by Western aid organizations has been designed by the rich countries primarily for their own advantage. There is a little known comparison which, to my knowledge to date, is never mentioned by current economic historians but it defines the structure of the global economic order which can be divided into two categories: the masters and the servants. When Britain was the most industrialized country in the world from 1750 to 1850, it was the richest country in the world. When the USA was the most industrialized country from about 1850 to 1970, it was and still remains the richest country in the world. But though China has become the principal workshop of the world, it remains a comparatively poor developing country with a low per capita GDP, even though it is now the third largest economy in the world.
Power lies in the control of markets
We may well ask why this is so. Developing countries that are industrialised are mainly contract manufacturers or service centres for Western corporations. The money is in the marketing which is a carefully guarded preserve. Western corporations design and patent products and get these manufactured in China or India or Mexico or some other developing country. Even the research and development for a lot of products and services of transnational corporations are now being increasingly located in developing countries like China, India or in Singapore which have advanced scientific communities. But the developing country manufacturers or service providers are hired only because they are cheap. The manufacturer gets only about 8-10% of the final price. For example, almost all US computers are made in China. The manufacturer may be paid US$80-100 for a computer sold in the US market for US$1,000-2,000. This is why Western politicians and businesses close their markets to efforts by large developing country corporations to buy the assets of existing Western corporations to be able to become marketers on their own. Japan and Korea have established their own corporations in Western markets after decades of effort. It will take the others a long time more to penetrate Western markets with their own proprietary brands.
China, despite having the highest volume of exports, was not even the biggest exporter in value terms till 2009. The world’s leading exporter was Germany which sold its products under its own brand names.
A different form of aid from China & Japan
Sudan draws attention to the most significant phenomenon that is quietly changing the international balance of power and the complexion of the international aid business. Where the pre-conditions for aid demanded by the World Bank/International Monetary Fund and the Western aid agencies made difficulties for many developing countries, China, with its huge external resources has made investments and given generous aid and concessional loans without pre-conditions that is transforming many countries in Africa and Asia and is now entering South America. Beneficial aid also brings political influence and mutually advantageous economic relations. Chinese external resources, currently standing at over US$2.5 trillion (2009) and growing annually, dwarfs the funding capacity of North America, the EU and the international aid agencies. The IMF has been moved out of many developing countries and the World Bank is trying to present itself more as a consulting resource and coordinator than a substantial aid-giver. Not unexpectedly, there is a growing criticism of China’s increasing role in the world by Western news agencies and governments who see it as a threat to their dominance and control over developing countries and the news channels now proliferate with disinformation about Chinese aid and motives, lack of human rights and its imperial policies.
The Chinese aid-based charm offensive that is successfully replacing Western influence with Chinese influence in Africa and South America is being facilitated by the Western nations through their own actions. The West, still living its lost imperial glory, is unable to stop lecturing and hectoring developing nations and demanding they take their advice. They hold up their own institutions as the models for everyone else without appreciation of other cultures and traditions and see fit to intervene militarily for economic reasons. With characteristic lack of sensitivity and the belief that military prowess overrides diplomacy, the US administration of President Bush formed an Africa Command in 2008 to station a regional US military command headquarters in Africa to “coordinate military support for US Government policies and initiatives” in that region, a project that has not taken off yet as no African country was willing to host AFRICOM, as it is referred to in acronym. Its headquarters is now operating from Stuttgart, Germany, for want of an African host nation.
The World Bank and the UN development agencies confirm that the high growth rates of many African countries since 2000 is due to the increase in commodity prices resulting from the huge demand from the growing economies of China and, to a lesser extent, India. The main engine of world economic growth over the last five years was China, which has supplanted the USA in this role, according to the same sources. By 2007, China had established about 10,000 companies in 172 countries and regions with a total investment of US$90.63 billion according to Prof. Lu Bo, Deputy Director of the Chinese Academy of International Trade and Economic Cooperation[10]. Though this volume is still smaller than total Western investments overseas (which are mainly with other developed countries), the trend of investment flows from the East, instead of being only from West, is growing. Yet China consciously maintains a very modest international profile unlike the Western powers.
There is another feature that is changing the nature of the world economy which is widely ignored by Western economists and not considered in Western political calculations. Since China, India and other major East Asians are now the major buyers of commodities required for manufacturing, commodity prices are stronger, reversing the trend from 1950 to 1990. At the same time, the prices of most manufactured products that were rising earlier during this same period are now declining because manufacturing has moved to developing countries that have proved their efficiency in management and production. It is inconceivable that the industrialised Western nations can ever reverse this trend and bring large scale manufacturing back to their own countries, unless they are willing to accept something closer to current Third World living standards for their workers.
The aid projects by China, India and the Middle East have a much better impact on economic and social development as these usually focus on big infrastructure projects (ports, roads, power plants, railways) and major resource development (mining projects for minerals, oil exploration, farming). They are also more cost effective as Asian aid is implemented by Asian companies whose costs are far less than those of Western corporations. Meanwhile, EU and US aid is moving into more esoteric fields of aid such as good governance, democracy, human rights, etc., which will have little impact on poverty alleviation and economic prosperity.
Even when Western aid arrives, most of it often goes to the donor country in the form of consultancies and higher priced equipment. Many aid agencies, including the UN development agencies, have armies of consultants. In the area of business development, many of the experts are former university teachers, young MBAs or Third World government servants. Most of these people have never worked in a successful large business but are capable of producing bulky reports on a regular basis full of acronyms and the latest jargon. While studies are often heavily funded, implementation is under-funded.
This is what differentiates aid from Japan or China where the main component goes into actual project implementation. In 1986 I prepared a study of the fisheries sector of Sri Lanka for the Ministry of Fisheries. One aid project had transformed the local fishing industry when Japanese aid in the 1959-63 offered loans to fishing boat owners to convert from outrigger catamarans with a single sail to mechanised boats (using mainly Japanese outboard motors, of course) and use gill nets and drift nets. Despite government red tape, thousands of fishing boat owners availed of these facilities. The volume of wet fish landed in 1957 was 34,000 tons. By 1980 the volume of the catch exceeded 200,000 tons. Many fishermen deliberately defaulted on loan repayments under various pretexts. But this was a small price to pay for the advances in production and the resulting economic development.
Kenneth Abeywickrama
August 2010
[1] Cecil John Rhodes, known today mostly because of the Rhodes Scholarships for people of the present and former British colonies, epitomised the arch imperialist. He was the founder of the De Beers diamond company of South Africa. Of British colonialism, he said: “I contend that we are the finest race in the world and that the more of the world we inhabit the better it is for the human race.”
[2] Sub-Saharan Africa is distinguished from North Africa which in most respects is an extension of the Middle East and of Arab civilization.
[3] Exceptional work has been done in many regions by the United Nations High Commission for Refugees (UNHCR), the World Food Programme (WFP), United Nations Children’s Emergency Fund (UNICEF), UNRWA (United Nations Relief and Works Agency) and the World Health Organisation (WHO).
[4] Source: AllAfrica.com from Cape Town of July 11, 2008, in article titled G8 Summit 2008 – All Talk, Zero Walk.
[5] Nobel prize-winning economist Joseph Stiglitz has described this better than most others.
[6] The expression came into vogue in 1970 when President Reagan coerced the Japanese government to restrict automobile exports to the USA to two million units annually to protect US manufacturers.
[7] The hypocrisy surrounding these testing regulations were evident in the pet food crisis that hit the Western markets in 2006 when Chinese manufactured pet foods killed hundreds of thousands of pets because of the presence of melamine in toxic quantities. The Western buyers who owned the brands and the US Food & Drug Administration simply had not bothered to carry out safety tests on these products, despite all the restrictive regulations.
[8] Sri Lanka’s ban on GM foods in 2001 lasted only a few weeks before it was revoked under aggressive US pressure.
[9] Luxembourg (where Arcelor Steel was headquartered) Prime Minister Jean Claude Juncker called the Mittal take-over bid “incompatible with the way Europeans view globalization”. French President Jacque Chirac on a visit to India in 2006 tried to explain that the take-over plan was opposed because it lacked a proper basis. Finally, Mittal Steel leaked the development plan they had submitted to EU governments to the press to gain shareholder approval.
[10] Quoted from the Danwei newspaper of June 20, 2008.