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The Political Economy of Aid

The Political Economy of Aid

The Political Economy of Aid Anand Chandavarkar This is an exceptional work in its genre, by any criterion, that fills a conspicuous gap in the exponentially voluminous literature on aid, which has been primarily concerned with the economics of aid. It provides a comprehensive and transparent, yet critical and constructive, narrative of the origin, evolution and the politics of aid by the United Nations (UN), the major donor in the international grants economy. The robust scholarly apparatus, well supported by archival research and instructive tabular material, is robed in lean, muscular prose. The author, a well-credentialled economist, writes with hands-on experience having held several senior positions in the UN, including director of development administration programme in the department of technical cooperation. Remarkably for a civil servant, he is clinically objective in his evaluation of UN aid programmes, free of the self-referential institutional pietas, which so often afflicts retired civil servants who venture into print. Invasiveness of Politics The book

The Political Economy of Aid

Anand Chandavarkar

T
his is an exceptional work in its genre, by any criterion, that fills a conspicuous gap in the exponentially voluminous literature on aid, which has been primarily concerned with the economics of aid. It provides a comprehensive and transparent, yet critical and constructive, narrative of the origin, evolution and the politics of aid by the United Nations (UN), the major donor in the international grants economy. The robust scholarly apparatus, well supported by archival research and instructive tabular material, is robed in lean, muscular prose. The author, a well-credentialled economist, writes with hands-on experience having held several senior positions in the UN, including director of development administration programme in the department of technical cooperation. Remarkably for a civil servant, he is clinically objective in his evaluation of UN aid programmes, free of the self-referential institutional pietas, which so often afflicts retired civil servants who venture into print.

Invasiveness of Politics

The book’s emphasis on the politics of aid is well-merited insofar as: “giving policy advice entails a participatory role, at least to some extent. And to play that role effectively, economists must include politics and the strategic games of policymaking in their analysis” [Dixit 1997]. More fundamentally, politics is the inarticulate major premise of economic discourse which explains why there are no economic or political problems but only problems, as so memorably stated by Gunnar Myrdal. A textbook example of the invasiveness of politics is afforded by the experience of even the lily-white International Monetary Fund (IMF) whose Evaluation Report (2004) noted that political considerations have influenced prolonged use of fund resources in some cases as, for instance, Pakistan. The politicisation of the World

Economic & Political Weekly january 5, 2008

book review

United Nations Development Aid (A Study in History and Politics) by Digambar Bhouraskar;

Academic Foundation, New Delhi, 2007; pp 269, Rs 695 (hb).

Bank too and the US role in it is in clear violation of its Article IV, Section 10 (‘Political Activity Prohibited’)1 as so well documented by Brown (1992). Clearly, the Bretton Woods twins have lost their vestal virginity. Bilateral aid by major donors is more liable to be a continuation of politics by other means, which, if anything, strengthens the case for multilateral aid. But as the IMF Evaluation Report noted, political conside rations are bound to enter where ultimate approval rests with shareholder governments which only strengthens the case for greater transparency and accountability. There is a growing conviction that development is all about making politics work for the poor, and that an essentially technocratic approach to aid is insufficient [Armon 2007].

Grants Economics

Foreign aid is best defined as official grants and concessional loans, in currency or in kind, which aims at transferring resources from the developed countries (DCs) to the less developed countries (LDCs) on developmental and/or income-distributional grounds. There is no endogenous economic rationale for aid which is to be rather derived from the realm of the Economy of Love and Fear, i e, one-way transfers arising out of “love” or “fear” in the national and international sphere [Boulding 1973]. Exchange, i e, market, economics cannot grapple with problems involving the distribution of power, wealth and income but any viable international system has to view both grants and exchange as interacting mechanisms. The modern welfare state is the ultimate expression of grants economics in the national sphere. If Adam Smith’s Wealth of Nations is the progenitor of exchange economics, his Theory of Moral Sentiments can be read as the precursor of grants economics.

The cross-country evidence on aid effectiveness is fragile [Bourguignon and Sundberg 2007] and the evidence on

whether aid helps or hinders development is indeterminate [Easterly 2007]. Oddly, the aid literature generally does not differentiate between growth and development, a vital distinction, and also ignores the deleterious consequences of the massive agricultural subsidies in the DCs on the LDCs, which more than offset aid. But even the most vocal critics of aid like Easterly and Bauer (1976) have not pleaded for the elimination of aid. Rather they argue for aid to be selective and targeted towards eliminating the binding constraints on growth and development in the spirit of piecemeal social engineering. Thus the core issue is how to make aid more effective, a governance rather than an economic problem. This book makes a vital contribution to this debate. In any event it is ironic to attach the Kiplingesque rubric of the White Man’s Burden (Easterly) to aid whose proceeds are all spent on the goods and services of the White Man’s countries. This is over and above the historically exploitative drain from the colonies to the imperium, not to speak of slavery, as so well-substantiated by Africanists like Colin Leys, Giovanni Arrighi, Walter Rodney and Indian analysts like Dadabhai Naoroji and R C Dutt. Rather it is the “Black Man certainly [who] has [had] to pay dear for carrying the White Man’s burden” as so plaintively exclaimed by George Padmore, the West Indian Pan-Africanist [Rodney 1981: 205].

Important Issues

The UN Programme of Technical Assistance, set up in 1948, marked the beginning of unconditional multilateral aid2 by the UN, which was disbursed till 1970 through three programmes – the UN regular programme, the Expanded Programme of Technical Assistance and the Special Fund. This led to considerable overlaps until the centralisation in the United Nations Development Programme (UNDP). Since the creation of UNDP, there

BOOK REVIEW

have been major reforms in the conceptulisation and administration of technical assistance. but there are still several important issues on which further progress is desirable as identified by the author. First, the goal of the centrality of the UNDP for mobilising resources and their programming and coordination has not been achieved. Secondly, the question of coordination at the country level between the UNDP and agencies and between them has never been fully resolved. Thirdly, although the evaluation office of UNDP has done good work, there is a need for an independent office of evaluation on the lines of the IMF. Fourthly, there is the question of effective implementation. The UNDP should cease to implement projects on its own and like the World Bank they should rather be implemented by recipient governments and thereafter undertake evaluation of project performance. Finally, the extremely complicated decision-making process of the general assembly of 191 members, which in turn is delegated to several subordinate legislative bodies, merits a drastic overhaul. Technical assistance activities should be vested in the executive board of the UNDP which should then report to the general assembly for any amendments or comments.

Aid too is not exempt from the iron law of unintended consequences as evidenced by the measures announced by the IMF on July 6, 2007 to help member countries to cope with high and volatile aid inflows that can cause inflation and exchange rate volatility which could make the poor even worse off. It has, therefore, been proposed that the IMF should coordinate with the World Bank and key donors to help use aid effectively.

However, the book raises three overarching questions: Is there any evidence of aid fatigue among donors other than the Netherlands and Scandinavia? Has aid bred an entitlement culture among recipients? Is there not a strong case for graduation of recipient countries from the UN aid roster on the lines of International Development Association (IDA) in the World Bank? Be that as it may, the book will take its rightful place as an indispensable source-book and catalyst for further debate on the subject. The handsome getup and accurate text of the book is also a deserved tribute to the publishers who are up to the best international standards.

Email: anandchand@starpower.net

Notes

1 The effort was made to forestall this curse by including two provisions in the Bank’s articles. Article I sets forth the purposes of the Bank and ends with the sentence: “The Bank shall be guided in all its decisions by the purposes set forth above”. Article IV, Section 10 is headed ‘Political Activity Prohibited’ and provides that “The Bank and its officers shall not interfere in the political affairs of any member; nor shall they be influ enced in their decisions by the political character of the member or members concerned. Only economic conside rations shall be relevant to their decisions, and these considerations shall be weighed impartially in order to achieve the purposes stated in Article I.” Article IV reflected the prescient wisdom of Keynes who had exhorted the Boards of Governors of the IMF and the Bank at their inaugural meeting at Savannah, Georgia on March 9, 1946 to be aware that: “If these institutions are to win the full confidence of the suspicious world, it must not only be, but appear, that their approach to every problem is absolutely oecumenical, without prejudice or favour”.

2 For instance, subsidies to about 20,000 American cotton producers (with an average annual income of more than $125,000) are about 72 cents a pound even though the market price of cotton has averaged about 57 cents. According to Oxfam America, reform of the US subsidies would increase the family incomes of about 10 million people in cotton growing West Africa by 2.3 to 5.7 per cent. The US has retained these subsidies despite the WTO ruling on their illegality.

Institute of Rural Management Anand

Announces Faculty Positions

IRMA is a premier, national level institute for masters, doctoral and mid-career professional education, interdisciplinary research, and consulting in rural management. Founded in 1979, the Institute’s domain covers the entire farm and non-farm rural sector. Growing rural-urban disparity in income & basic services, distress in agriculture and rural livelihoods, resilient poverty and continuing marginalization of segments of rural society today combine to pose formidable challenges in development scholarship and practice, and add urgency to the evolving vision of IRMA.

We invite applications from scholars and practitioners committed to addressing these challenges to join the faculty and contribute to its mission of promoting all-round sustainable rural development through professional management. Positions are open at all levels, i.e., Professor, Associate Professor and Assistant Professor, in the following areas.

(1) Economics; (2) Organisation Behaviour; (3) Marketing Management; (4) Finance; (5) Production & Operations Management; (6) General Management; (7) IT & Systems; (8) Social Sciences

We also invite applications from eminent scholars for the RBI Chair Professorship in Rural Economics

Applications stating the area of interest, specific specialization within the area, and position applied for, may be sent at the following address: Director, IRMA, Post Box – 60, Anand – 388001 Gujarat, email: director@ irma.ac.in

For details pertaining to the announcement kindly visit our website: www.irma.ac.in

January 5, 2008 Economic & Political Weekly

BOOK REVIEW

References

Armon, Jeremy (2007): ‘Perspective’, Development Policy Review, 25(5), pp 653-56.

Boulding, Kenneth (1973): The Economy of Love and Fear (A Preface to Grants Economics), Wadsworth Publishing Company, Inc Belmont, California.

Bourguignon, Francois and Mark Sundberg (2007): ‘Aid Effectiveness – Opening the Black Box’, American Economic Review, May, Vol 97, No 2, pp 316-20.

Brown, Bartram S (1992): The United States and the Politicisation of the World Bank: Issues of International Law and Practice, Kegan Paul International, London and New York.

Dixit, Avinash (1997): ‘Economists as Advisers to Politicians and to Society’, Economics and Politics, Vol 9, No 3, November, pp 225-29.

Easterly, William (2006): The White Man’s Burden (Why the West’s Efforts to Aid the Rest Have Done So Little Good), The Penguin Press, New York.

– (2007): ‘Was Development Assistance a Mistake’, American Economic Review, Vol 97, No 2, pp 328-32.

Rodney, Walter (1981): How Europe Underdeveloped Africa, Howard University Press, Washington DC.

Economic & Political Weekly January 5, 2008

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