Thomas Jaye

Book Review

Yash Tandon, Ending Aid Dependence

Ending Aid Dependence. By Yash Tandon. Fahamu Books & South Centre, 2008. ISBN 978-1-906387-29-7, 160 pp.

The issue of aid and dependence has dominated academic and policy debates for a long time. In part, this debate has been generated by the impact that aid has on the recipient countries and their peoples. While some countries have either avoided or emerged from aid dependence, many countries in the South are still held in its grip to the detriment of real development for real people. Yash Tandon’s book, Ending Aid Dependence, contributes immensely and positively to this debate. The book is topical because it has been published at a time when the global capitalist economy is gripped by serious crisis. One of the interesting developments about this crisis is that the very states that called for a minimalist state through the Bretton Woods institutions have been forced to adopt a state intervention approach to addressing their economic crisis.  This book, therefore, is very timely for readers, practitioners and policy makers in the South.

Ending Aid Dependence is divided into five chapters. The first chapter discusses why developing countries should escape aid dependence; chapter two provides case studies and examines the effects of aid on these countries; chapter three provides strategies for ending aid dependence; chapter four discusses the global aid architecture; and chapter five provides a conclusion in specific relation to the future of aid.

As the title suggests, Tandon’s book is about the debate on development aid and its consequences on the aid-dependent countries. The book also provides strategies for ending aid dependence and strongly argues that ending aid dependence requires achieving three inter-related objectives: (1) changing mindsets and strategies in the aid dependent countries; (2) direct and deeper involvement of the people in making decisions about their own development; and (3) a radical restructuring of the global aid architectural system.

Escaping Aid Dependence: Conceptual Issues

According to the author, aid, in the public eye, is linked with development and humanitarian and solidarity causes. He makes a strong case against this perception, arguing that this is rarely the case. He presents striking evidence to support his premise that aid dependent governments are not accountable to their citizens, but instead are accountable to the donors. He posits that those who provide aid do get something in return for their money; it is far from being an altruistic or philanthropic exercise. In addition, the book outlines what constitutes aid or Overseas Development Assistance (ODA) in the eyes of the OECD. These include but are not limited to awareness raising programmes in the donor countries; administrative costs of ODA programmes; official equity investments in the developing country; support to refugees; and costs of secondary and tertiary education provided to nationals of developing countries in the donor countries.

Two of these definitions warrant closer and critical examination. For example, it would be good to know what is included in the administrative costs of ODA. Does this include costs incurred in the donor countries? How are they calculated and who benefits from these costs? In addition, readers are educated as to how even monies spent inside the donor countries for raising awareness about ODA are taxed to the recipient countries as part of the aid package. Further, the money spent on so-called development experts and consultants from the donor countries to advise African governments is counted as development aid and hence are paid back by the recipient countries. Clearly, the decision to contract such experts do not originate from the recipient countries, and so it makes no sense charging them for it.

The author also makes the valid point that aid is also “tied to procurement from the donors.” The disturbing thing about tying aid to purchase of goods and services is that this increases costs by 25 per cent. Moreover, donors channel aid through NGOs from their countries. For example, in the 1990s, about 75% of British food aid was channelled through NGOs; 40% of emergency aid from Sweden was channelled through Swedish NGOs; and excluding food aid, about 65% of US aid is channelled through a similar route. The author admits that food aid may be necessary under certain conditions, but if the factors that created such emergences are not addressed fully, such aid can be counterproductive.

Tandon also discusses what constitutes development in the first place and provides the caveat that it is self-defined and it cannot be imposed from outside. Further, he argues that it is a process of self-empowerment and an integral part of the overall process of the struggle for liberation from the global structures of dominance and control including “mental constructs and use of language”. I would stretch this argument further to include emancipation from the global, regional and national structures of oppression and repression in whatever way they manifest themselves.

While the neoliberal definition of development is equated with growth (open markets plus foreign investments and good governance as defined by donors) and wealth accumulation (ensuring that the rich getting richer), from the southern perspective, it is also defined as social factors (wellbeing of the people) plus the democratic factor (right of the people to participate in decision-making) minus the imperial factor (right to self-determination).

A fascinating aspect of Tandon’s dissection of the aid package is the insight he provides on the provision of taxonomy (classification) of aid to the developing world. According to him, these include Red aid (ideological aid), Orange aid (commercial aid or non-developmental development aid), Yellow aid (military and political aid), Green/Blue aid (provision of global public goods), and Purple aid (solidarity). Ideally, I would have liked to discuss all of these different types of aid, but for the purpose of this review only red aid, which is the most controversial, will be subjected to critical scrutiny.

Red aid, according to the Tandon, encourages and supports particular ideological viewpoints among the recipient countries; it is based on the Washington consensus and certain conditionalities by the donors that must be met by the recipient countries. In essence, the donors purport to know best what needs to be done in the recipient countries, and such knowledge can only originate from them – the donors. Red aid aims to capture the hearts and minds of the people in ways that ensure they remain dependent, even long after the donors have left. Thus, it is about developing a “colonized mind”. This type of aid is conditioned on the promotion of market fundamentalism, a narrow concept of human rights (political and civil rights at the exclusion of economic and social rights), good governance (equated with norms and principles of democracy defined by the West), and other Western ideas conceived to control developing nations.

If we take the argument by donors that the causes of poverty is bad governance, all we are really doing is accepting the blame for the pervasive poverty in our countries, which justifies the interference of these donors in “matters of good governance and aid effectiveness”. This begs the issue because, for example, during the period 2003-05, the rich countries committed the total of $1.5 billion ODA funds to improving governance in the South, but only $12 million was provided for agricultural improvement. Therefore, how were such priorities defined and by whom? All of this goes to say that aid is not apolitical and value free; it is politically motivated and should be seen as such.

Case Studies

In the chapter of the book that looks at case studies, Tandon discusses the real impact of aid, particularly red aid, on the recipient countries. In this light, he examines the examples of Zambia, Zimbabwe, Mexico, the East Asian Crisis of 1997-98, and Argentina.

In the case of Zambia, it faced economic difficulties in the 1970s and decided to turn to the IMF for help in order to stabilise its economy. In the process, they adopted a two-year IMF stabilisation programme, which led to reduction in state subsidy to maize meal. This led to a riot in the Copper belt that caused the death of 15 people from police action. The severity of the conditions forced the country to abandon the IMF programme in May 1987 and replace it with its own “growth from our resource strategy” based on diversification, inflation control, rationing of foreign exchange and reduction in import dependence. Consequently, the economy improved with agriculture growing at 15% and manufacturing at 13%. But then the creditors, including the IMF and World Bank, began knocking on the doors of the country for debt payment. In keeping with its arrears, out of every dollar made from the copper and other commodities, only 17 cents would remain in the country. This meant that about 83% would be transmitted abroad to foreign creditors. Under these conditions, Zambia was forced to adopt IMF conditions by cutting down on health and education, devalue its currency (kwacha), and sell off state control enterprises. Regrettably, these enterprises could only be bought by foreign corporations that had the capital to do so.

Similarly, in December 1994, Mexico faced payment crisis and was forced to also accept IMF and US intervention to the sum of $40 billion in order to shore up its currency. Consequently, the fall of the peso meant that its assets were devalued on the world market; the assets were picked up by owners of foreign capital and thus, the middle class of the country was wiped out overnight. Mexico was forced to hand over national control of oil. This is the price paid by so-called “developing nations” for accepting such “bailouts”. Argentina, which was showcased as one of the success stories of the Washington Consensus programme, also faced a massive economic crisis in 2001. All of these examples have implications for IMF bailouts which, in essence, do not protect the economies of the recipient countries. According to Tandon, the objective of these projects “was to bailout hard-pressed American financial and banking interests, and to create conditions for further control by American (and allied) capital over the national economies of the developing countries in distress”.

Towards Ending Aid Dependence

Although many countries in the south are still aid dependent, the book suggests that some have also graduated from aid dependence. These include India, China, Brazil and Malaysia; according to Tandon, “aid was never a component in the development of either India or China”. These countries relied on domestic savings, development of domestic markets through protection of local enterprises and innovation. In the specific cases of Brazil and Malaysia, they relied on “nationally oriented investment and trade policies, whereas the economies of Korea, Singapore, Hong Kong and Taiwan-China benefited from the Cold War through the containment doctrine of the United States, ensuring that communism did not spread in that of the world. It was through this that state supported industrialization was carried out. Thus, the role of the state in these economies was crucial to their successes.”

In light of the above, the author suggests seven steps to ending aid dependence. Overall, these strategies are based on a radical shift in mindset and a deeper and direct involvement of the people in order to ensure a more self-reliant economy for themselves. At the international level, this requires overhauling the global institutions of governance. All of this should encourage a “national project” based on local, national, regional and south-south strategies for self-determination, independence, dignity and solidarity.

Before delving into the concrete steps towards ending aid dependence, Tandon cites certain factors that have led to aid dependence. These include the following:

• Past structures of relations inherited from the colonial era, which are reinforced by aid, northern control and the ideology of market fundamentalism;
• Lack of alternatives to aid dependence in face of the need to address pressing need: balance of payments, purchase of machinery and equipment tied to aid, natural disasters and humanitarian crises;
• Aid as soft option because the process of seeking alternatives through domestic resources for development involves hard work, and it creates domestic enemies and so the easy way out is to turn to donors;
• Psychology of aid dependence; and,
• Governments that do not seek aid are blamed for the plight of their people by the donors and media, which propagates that only the donors can help.

But these conditions are not cast in stone; they are not insurmountable. In this light, Tandon proposes the following as possible steps towards ending aid dependence. Tandon suggests that the first place to start is with changing the mindset which perpetuates aid dependence. Through the combined efforts of the people and their leaders, they can get rid of a self-defeating psychology. Secondly, there is the need to replace budgeting for donors with budgeting for the poor. In most cases, national budgets are prepared to please outsiders as opposed to factoring in the wellbeing of the people. Our countries plan budgets with the concerns of donors as paramount rather than with concern for the conditions of their own people. Such processes must start from the village level. Although issues like defence, foreign policy and exchange rate can be excluded, others must come from the people.

Thirdly, the author proposes putting employment and decent wages upfront. In his view, one of the factors that threaten sustainable development is social inequality and the uneven distribution of the benefits and costs of globalisation. According to him, without social partners and effective public polices, market economies do not automatically generate social inclusion.

Fourthly, Tandon argues for the creation of domestic market and ownership of domestic resources. One way to achieve this objective is for countries to “seek their wealth in exports first” and then “put the proceeds of exports into domestic growth”.  He cites the examples of the oil producing countries of the Gulf that have developed their domestic economies based on oil wealth. Similarly, Botswana has added value by undertaking to polish its diamonds at home than to export the raw mineral. “England . . . became the world’s biggest trading nation only after becoming [the] biggest manufacturing nation”, argues Tandon.

Fifthly, there is the need to address the problem of the resource gap. What we do with national savings, i.e. what remains of national income after expenditure, is of critical importance. For example, Angola could obtain enough income from the sale of its oil and minerals, but if this income goes toward expenditures like war, and the profits are taken out of the country by foreign countries that are exploiting its oil, then the effect is “zero saving”; if the country is borrowing money to fight its war, the result is “negative (domestic) savings”.

Sixthly, Tandon proposes the creation of parallel institutions that serve to ensure national savings are invested properly. The actors identified by the author include: the state, the private sector, and the community. Such a proposition is a radical shift from the orthodoxy proposed by the Washington Consensus institutions as the recipe for growth in Southern countries. The author suggests that the state raises revenues from taxes and tariffs; the private sector would be given incentives to “raise investment finance and facilities to invest it in ways that benefit private entrepreneurs as well as the nation”. The community would carry out community-based initiatives to generate employment and wealth. However, to propose that the state be brought back in is too much for the Bretton Woods institutions, and the recent debates in the United States about bailing out their own institutions that face crisis verify this assumption. To suggest that this move was tantamount to socialism was said to be ridiculous; however, in a non-western context, such calls are invariably and vociferously defined as socialist.

One of the reasons why such a model could benefit the people is that the experiences of African countries, where private sector was supposed to serve as the ‘engine of growth’, is that in most cases, it is only foreign capital that stands to benefit. They have the money to invest in our economies at our detriment. I have consistently argued elsewhere that the real private sector in African economies is the agricultural sector in the rural areas. They require more protection and support from the state than the foreign private corporations that invest in order to loot the economies of the developing countries. To achieve this, feeder roads must be built; national electrification is a must; the construction of social infrastructure such as schools, clinics, access to clean and safe drinking water and other such initiatives to raise the basic standard of living should preoccupy the attention of the governments. The governments in the developing world should also take local knowledge and research very seriously. Tandon also shares this viewpoint. And finally, the author suggests that aid should be limited to national democratic priorities. In this light, the donors, World Bank and the recipient countries would collectively supervise aid in ways that will ensure that the money is spent in line with priorities identified by the recipient country. It is however doubtful whether donors will accept such a proposal that puts the recipient countries in the driver’s seat.

International Aid Architecture

In chapter four, the author examines the international aid architecture, including the following institutions: the World Bank and its associated institutions like the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the Centre for Settlement of Investment Disputes (ICSID). There is also the OECD, which was created for the implementation of the Marshall Plan (Reconstruction of Europe) and is the Club of 23 rich countries that endorsed representative democracy and free markets. There is also the infamous IMF whose conditionalities under the notorious Structural Adjustment Programme (SAP) has created more problems than anything else for most African countries. All of these institutions are antiquated and require restructuring if they should gain the legitimacy that they have lost through their northern-biased policies that reinforce imperial domination and the dependency syndrome, the woes of the developing world. The Development Cooperation Forum, however, has the potential to fill in the gap; but, according to Tandon, it must be “nurtured carefully within the UN system”. It must also “focus on providing conceptual clarity on issues related to development”; and “encourage an independent study of its own on how the developing countries can end aid dependence”. The issue of South-South Cooperation is crucial to this debate because of the potential for collective action on the issues affecting the countries of the south.  The experiences of the Non-Aligned Movement (NAM), the advocacy for a New International Economic Order (NIEO) and other organizations could be of immense use in this direction.

By Way of Conclusion

Against the backdrop of the above, I fully share the view of the author that the study seeks to provoke a serious debate about rethinking development aid. Thus, he argues that for too long, the definition of development aid has been dominated by donors. If development aid should mean something to the recipients, then defining it should change location from the north to the south. The entry point should therefore be development and not just aid; it should be defined within the political economy and historical contexts; and the national project of self-determination should not be abandoned, and values should not be imposed from outside.

Thus, from the above, it is evident that the book could not be published at a better time. Currently, the world is gripped by the crisis of global capitalism. Unlike in the past when state intervention was seen as unacceptable, the world is living witnesses to the process whereby the US and other western governments are all lining up to ‘bailout’ the enterprises that are crumbling before our very eyes. Certainly, they would prefer to use ‘bailout’ as opposed to ‘nationalisation’ because to choose the latter could be interpreted as a socialist project. One thing that is clear from this is that state intervention is unavoidable, but whether governments of the developing countries understand this or not is a totally different thing.

The other disappointment is that most of these governments still think that “development aid” is the way forward. Therefore, they are jetting from one western country to the other with bowls and hats in hands to beg for “aid”. In essence, these governments are begging for the enslavement of their people perpetually; they do not see that over the years, aid has undermined and underdeveloped Africa rather than develop it. Even the obsession with the private sector as the engine of growth is unfounded because the experiences of the African peoples point to the contrary. Besides the countries used as case studies in this book, nearly every African country has faced the wrath of the policies of the Washington consensus. The effects of the policies of these institutions are not just social and economical, they are highly political. Herein lays the trap. Ironically, when troubles erupt, these institutions shift the blame to bad governance. It must be understood that any governance discourse that is not embedded in the historical and cultural contexts of the recipient countries is problematic.

Liberia has carried out its open door policy for a long time, encouraging foreign corporations to invest in its economy. All of the governments since the end of the Second World War, when the economy was integrated into the global capitalist economy, have adhered to this policy without success. Thus, it unfortunate that the leaders of the country have not re-examined this policy to adopt an alternative one that would still recognise the private sector as the sole engine of growth, but keep development in mind. Of what use is growth without development? This assumption is verified by the fact that over the last fifty or more years of open door policy, the foreign corporations have looted the country’s mining industry without developing even the areas where their activities were carried out. Firestone, the largest rubber plantation in the country, has been around since the 1920s but it has contributed very little to the development of the country. All of these experiences say a lot about the role of private sector in national development.

Finally, for those countries and governments that depend on aid for “development”, the present crisis of global capitalist economy should really warn them about too much dependence on aid. These countries will receive lesser attention than ever before because the leading lending countries must first and foremost stabilise their own economies. They never really cared before and so why do we believe that they will do so now when they are in dire straits? Thus, Tandon’s book offers hope and a strategic way forward for countries wanting to end aid dependence.

Policy makers, researchers, development practitioners and others interested in the aid and development discourse will find this book very useful. I strongly recommend this book for African universities and do hope that its findings and conclusions will be taken seriously. For the good of their citizens, African countries in particular should pursue the course of “ending aid dependence”.