Three years after the world's richest countries declared war on poverty, the aid industry is on the brink of disaster, writes Joshua Kurlantzick. George Bush's Foreign Aid: Transformation Or Chaos? Carol Lancaster Centre for Global Development Dh72 Global Development 2.0: Can Philanthropists, The Public, and the Poor Make Poverty History? Lael Brainard & Derek Chollet Brookings Institution Dh90 Foreign Aid And Foreign Policy: Lessons For The Next Half-Century Louis A Picard, Robert Groelsema and Terry F Buss ME Sharpe Dh187
At the 2005 G8 summit in the quaint Scottish village of Gleneagles, Tony Blair led the world's wealthiest industrial nations into battle against poverty. Rich nations, Blair announced, would double their annual aid to Africa by 2010, giving some $50 billion. "It is the definitive expression of our collective will to act in the face of death and disease and conflict that is preventable," he declared.
It seemed a triumphant moment for aid campaigners: days earlier, 40 million people had participated in the Global Call to Action Against Poverty campaign. Time put the economist Jeffrey Sachs on its cover, where he promised solutions to "end poverty." Celebrities, always the first to detect a trend, got in on the act: Angelina Jolie went to Africa for weighty briefings on the continent's future, while Bono launched his own organisation, DATA, to pressure governments to boost aid and forgive debts. Even C-list celebs like the former Who's the Boss star Alyssa Milano hitched themselves to a cause. (Neglected tropical diseases like hookworm, in her case.)
Today Gleneagles seems like a distant memory. Three short years ago, the established foreign aid providers - rich donor nations like Britain and the United States, financial institutions like the IMF and World Bank and aid NGOs - seemed to have overcome years of failure by devising serious plans to confront endemic global poverty. A new model for aid promised to reward good government and tailor programs to the actual needs and desires of recipient nations. The UN's bold Millennium Development Goals laid out a clear set of objectives, and the attendant publicity seemed sure to produce the necessary money. Even the United States, long one of the stingiest rich countries - led by a President once disdainful of foreign nation-building - established three new high-profile aid initiatives.
But rich nations have failed to deliver the money, and today the aid industry stands on the brink of disaster - a disaster that could not only increase global poverty, but also create failed states and security crises. According to the OECD, net aid from most of the wealthiest nations actually diminished in 2006 and 2007. Leading aid organisations like the World Bank have been tarred by their own scandals, while the aid industry has fallen back on its old ways, like steering money to favoured countries for geopolitical reasons.
As traditional aid providers struggle to retain legitimacy, a new class of newly wealthy non-western donors like China, Russia and Venezuela is emerging onto the scene to challenge their authority - refusing to co-operate with international aid organisations like the World Bank, and dispensing aid with little concern for the progress of reforms in recipient nations. After the promise of 2005, the development industry is today mired in multiple crises, with many of its veterans asking: is this the death of foreign aid as we know it?
A range of new books examining the past and future of foreign aid has been released in the past two years, and they provide essential perspective on why change was so badly needed. Foreign Aid and Foreign Policy, a collection of essays by aid and foreign policy analysts, provides a cogent, comprehensive overview of the litany of past aid failures. Aid providers, the authors note, had a long, sad history of tying aid to political objectives - during the Cold War, aid agencies poured assistance into nations like Congo because they were considered outposts against communism - while ignoring graft and corrupt governance. Advocacy groups like Oxfam UK criticised aid providers for not focusing on the world's poorest and using aid money to support the local work of multinational corporations, while the aid industry remained unwilling to design its programs to meet local needs.
Another collection of essays, Global Development 2.0, captures the optimism that buoyed aid providers earlier this decade, as they learnt to listen to recipients and devised new means to test the efficacy of aid. "The international community is rising to the challenge," the authors write. And as Georgetown professor Carol Lancaster reveals in the first lengthy study of George W Bush's aid programs, even the Bush White House, which like many conservatives opposed the very idea of welfare inherent in foreign aid, was brought on board by the idea of rewarding countries that achieved. With the new Millennium Challenge Corporation (MCC), launched in 2002, the Bush administration created a program that used 16 indicators, including civil liberties, political rights and corruption to determine which nations should receive assistance.
The September 11 attacks, as Lancaster notes, boosted support for foreign aid: after years of proposing cuts, Western and Arab politicians realised that development aid could prevent the disintegration of poor nations into failed states. Bush enshrined aid in America's 2002 National Security Strategy, while states like Saudi Arabia shifted their priorities to focus on alleviating poverty in other nations. Between 2001 and 2005 the amount of foreign aid given by governments more than doubled, while spectacularly wealthy private donors like Bill and Melinda Gates - who established a foundation with an endowment larger than the economies of most nations - began to transform the aid industry.
But the factors that gave the aid industry its greatest chance in decades - wide public support, a new model for accountability, promises of more money - have now vanished. Because hopes for ending poverty rose so high, the letdown has been enormous. The chaos in Iraq - which has threatened the safety of aid workers - has also turned much of the world against US-led programs and sparked fears that foreign interventions, even non-violent ones, may prove useless. Many Arab governments became wary of co-ordinating aid efforts with Western nations involved in the Iraq invasion.
To its shame, the aid industry also fell back into the mistakes of the past. In The Utopian Nightmare, a biting essay published in Foreign Policy, William Easterly, a former World Bank economist, attacks the entire aid industry. Donor nations continued to ignore local needs in favour of bloated quasi-socialist plans intended to fix problems everywhere once and for all - like Sachs' proposal for a massive fund to wipe out world poverty - which were imposed on developing nations as one-size-fits-all solutions. Wealthy nations, Easterly notes, started to believe there was "an easy and sudden answer to long-standing, complex problem" - and they opted for grand plans that accomplished little.
Many polls indicate that citizens of rich nations support the idea of aid - who wouldn't? - but recent surveys in the US and Europe reveal a deep scepticism of aid and trade alike. In Japan, historically one of the world's biggest donors, a rise in nationalist sentiment over the past decade has diminished public support for aid. The war in Iraq has further distracted governments from their aid commitments: US funding for Africa actually decreased, and according to one recent study, at least 25 per cent of American aid money is now dispersed through the Department of Defense.
The leaders of the rich world have backed off their Gleneagles vows. In 2007, net aid disbursements from G7 nations actually dropped. Oxfam projects that by 2010, wealthy nations will fall short of their pledges by some $30 billion. While their funds have dried up, the aid industry has also squandered the credibility needed to promote the new development model, with its emphasis on better governance. The stormy end of Paul Wolfowitz's tenure at the World Bank - after he was accused of skirting rules to help his girlfriend and bring in political allies - the most attention, but his problems overshadowed a string of scandals facing the aid industry. A 2006 paper in The Lancet, a British medical journal, presented evidence suggesting the World Bank falsified its statistics on malaria treatment and lending. Several rich nations have failed to sign up to the international anti-corruption pact, and a recent audit of the IMF found it needed to be more "transparent and accountable". Randall Tobias, the man responsible for reorganising American foreign aid and making sure American aid programs adhered to certain standards of sexual morality, stepped down after it was revealed he was a client of an infamous Washington madam's escort service.
Shortly after the Wolfowitz scandal, I visited the Philippines, where foreign organisations have repeatedly criticised the high level of corruption in Philippine government projects. "We have our payoffs, and you have yours," one Philippine diplomat told me. "What's the difference?" On a humid day two years ago, I sat along the banks of the Mekong River in Phnom Penh, the capital of Cambodia, sipping cappuccino with one of the country's top aid experts. After ending its civil war in the early 1990s, Cambodia became a ward of the foreign aid industry, and received hundreds of millions of dollars in assistance. In recent years, international donors began to threaten cuts in aid over allegations of persistent corruption and human rights abuses. But these complaints don't carry much weight in Phnom Penh today, not since China arrived on the scene.
In just a decade China has become the largest investor in Cambodia and, according to anecdotal evidence, probably the largest provider of aid in the country. In the centre of the city, new construction funded partly by Chinese soft loans has created a building boom in a capital once dominated by simple stores and squat homes. Unlike Western donors, China has said little about graft in Phnom Penh. Worried about being forced out by Beijing, the older donors have shut their mouths, too.
Cambodia is hardly unique - developing countries now have far more sources of funding, which are breaking the Western monopoly on aid. A new class of donors - nations like China, Russia, Venezuela, Iran and some Gulf states - have in just a few years become major players in foreign assistance. Russia is an important donor in Central Asia, and under Hugo Chavez Venezuela's aid to Latin America now tops that of the United States. China, which possesses some trillion dollars in currency reserves, had virtually no aid programmes a decade ago but is now the largest lender to Africa and largest aid provider in a number of poorer South-east Asian nations.
These new donors are, in some respects, a needed source of competition for traditional aid providers; they have forced the US, Britain and other countries to rethink their programmes - and to include developing nations like China in global aid deliberations. But most emerging donors like China have not signed onto international standards to protect the environment, support economic and political reform, or ensure money goes to fight poverty rather than buying new BMWs for top officials. Often, their loans and grants seem reminiscent of the West's past misdeeds, simply handouts to grease the approval of local Chinese investments. Many poor countries are likely to accept China or Russia-backed aid programs that do little to promote reform. Already the notoriously corrupt Angolan government has shunned a deal with the IMF in favour of a massive financing agreement with China, which holds Angola to no conditions and provides aid with little transparency.
The failure of the established aid industry has vast human consequences. Oxfam estimates that the $30 billion Western nations are failing to provide could save five million lives if spent on HIV and on maternal and child health. Drought and famine are spreading in Africa and sparking conflicts over resources, yet promised funds from rich countries to help developing nations combat the effects of climate change, which falls hardest on poor tropical countries, have not materialised.
For all their ills, institutions like the World Bank remain the biggest source of development finance. Less aid money will almost surely doom more people to poverty, and less pressure for aid recipients to enact reforms will make it harder to successfully fight for clean government in many developing nations. The aid industry has been responsible for enormous successes in the past, particularly when it has paired sizeable sums of money with a scientific breakthrough - like the Green Revolution in agriculture. This history suggests that, with diseases like malaria, vast sums of Gates money combined with an effective vaccine could wipe out the disease.
Though poverty does not directly cause political radicalism, a complete breakdown in state control as nations slide into abject poverty does provide the environment necessary for terrorism to breed. In a comprehensive study, the Foreign Policy magazine Failed States index, the weakest states - like Somalia or Sudan - also tend to have high rates of extremism, transnational crime and pandemic diseases like Aids. Eventually the woes of these failed states spill over their borders into wealthier neighbours: the continuing economic and social problems in Yemen, to take one example, have driven migrants to wealthier Gulf States while breeding radicalism at home.
Perhaps new leaders - at the World Bank, in the White House, at Whitehall and in many other nations - will understand that global development has reached a critical stage. The past five years were supposed to be the best chance for foreign aid, a time of consensus behind aid funding and a model to make aid work. That time is over. Perhaps the new administrations will see ways to make the aid industry more transparent, to ensure that it is audited independently, to ante up to Gleneagles commitments, to work with China and Russia without abandoning their own standards. If aid fails this time, there may never be another chance.
Joshua Kurlantzick is a Visiting Scholar at the Carnegie Endowment for International Peace and the author of Charm Offensive: How China's Soft Power is Transforming the World.