Episode 83. Does Foreign Aid Actually Work?
Billions of dollars worth of aid have been spent over the recent decades in hopes of building up the developing world, but whether the aid is achieving its stated goals is still up for debate.
This week, we look at how aid is being spent in Africa, how it compares to private funding and foreign loans, and what would need to be changed to make the impact on the ground?
Part 1: So Much Money (But Not Enough Sense) to Make Change (6:57)
Max Lawson talks to us about the difficulties of assessing the effectiveness of foreign aid, noting that glory projects can be seen as neo-colonialism or have unintended consequences economically and politically, yet that it would also be a massive simplification to tar all aid with the same negative brush.
We discuss some of Oxfam's projects that didn't work as intended and the lessons learned from those experiences.
We turn to the question of regional approaches to aid, and how the naivety of some aid projects are unprepared for the complexity of geopolitics in Africa. We compare gaining aid from the US and Western nations and how it differs from Chinese aid and Belt and Road Initiative projects.
Part 2: Purchasing Policy (31:38)
Daron Acemoglu notes that there is no evidence that aid actually creates a transformative difference without targeted, considered investment. He argues that building institutions are the best way to counter the complex economic and political factors that result in the majority of aid failing to achieve its aims.
We discuss the role of the private sector in investing and developing nations, noting the differences in the objectives of each side.
We turn to the roles of the World Bank, International Monetary Fund, and Chinese organisations such as the Asian Development Bank and New Development Bank, and their respective roles in international aid within a globalised role.
We discuss the IMF's role in bailouts and why a country would accept their conditions instead of defaulting on loans, talking through the example of Greece. We also discuss why these institutions practice debt forgiveness and what they gain from those actions.
We also discuss the realities of microloans and if those could create enough impact to be transformative to developing nations.
Part 3: Subsidising Stagnation (57:50)
Alex Vines takes us through how much money reaches the economy and people of recipient nations, noting the variance between different government types and the security situation in those nations.
We discuss the grey areas of negotiating aid delivery with militaries and rebel groups during civil conflicts and the difficulty of calculating the best path forward.
We unpack the motivations of infrastructure development projects funding by international aid and if the private sector and national strategic aims are outweighing any benefit to recipient nations. We also note that in a more competitive international financial marketplace, diversification of funding sources is helping to secure better outcomes for itself.
We discuss the potential for pan-African solutions to improving the continent's ability to develop more holistically, including the role of the African Union and the need for institution building.
Head of Inequality Policy at Oxfam International
Previously he served as Head of Development Finance and Public Service, leading Oxfam International's policy work on development finance and on education and health
Professor of Economics at the Massachusetts Institute of Technology
His recent research focuses on the political, economic and social causes of differences in economic development across societies; the factors affecting the institutional and political evolution of nations
Co-author of Why Nations Fail: The Origins of Power, Prosperity, and Poverty
Director of the Africa Programme at Chatham House
He is also the Managing Director, Risk, Ethics and Resilience at Chatham House
He chaired the UN Panel of Experts on Côte d’Ivoire from 2005 to 2007 and was a member of the UN Panel of Experts on Liberia from 2001 to 2003
He worked at Human Rights Watch as a senior researcher on its Africa, Arms and Business and Human Rights programmes, and has served as a consultant including for the UN Office on Drugs and Crime (UNODC); JICA, DFID, USAID, and the EU
The Red Line's Foreign Aid Reading List:
We’ve compiled a list of further reading to better understand the geopolitics of foreign aid and the global market of capital.
Why Nations Fail: The Origins of Power, Prosperity, and Poverty
Daron Acemoglu and James Robinson
Abhijit V. Banerjee and Esther Duflo
Capital in the 21st Century
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This episode is dedicated to Patreon members Diana J Austin and Ali El Ali.