Transitions from authoritarianism and state-centred markets are expensive, economically and socially. But cash alone is not enough to ensure a smooth shift in power.
Better targeting of aid will ensure a lasting Arab spring
Transitions from authoritarianism and state-centred markets are expensive, economically and socially. Since their revolutions, Tunisia and Egypt have sought outside funding to pay for much anticipated, if not yet clearly defined reforms.
But how effective can aid be to a country that is emerging from years of authoritarian control? Aid alone is not enough. Cash handouts and loans must be targeted to encourage democratisation and, most importantly, an open economy.
While we have seen successful simultaneous political and economic transitions elsewhere in the world, the majority of democratisation aid has tended to focus too heavily on short-term solutions - like funding an election - rather than long-term development goals.
Egypt and Tunisia can reverse this trend, but only if donors target and condition their money correctly. At the same time, these nascent governments must find ways to attract foreign investment while making good on promises to create jobs and encourage political participation.
International assistance for governments in both Cairo and Tunis has been forthcoming. The World Bank, for instance, has promised US$6 billion (Dh22billion) in loans, and the American Overseas Private Investment Corporation (OPIC) has promised $1 billion to Egypt in investment.
The US has also forgiven $1 billion of outstanding Egyptian foreign debt (though Egypt's outstanding foreign debt is about $30 billion, and only $3 billion of that is owed to the US.) The recent Group of 8 summit produced aid and loan commitments of an additional $20 billion for Egypt and Tunisia.
These soft loans, forgiven debt and aid are welcome now, but will they make a difference in the long-term?
Aid does not always promote democracy or improve governance. Since 1945, there has been a total of over $2.3 trillion in development finance (aid and infrastructure loans) extended to states worldwide. Since 1975, Egypt has received a total of $28 billion in aid from the US alone, averaging $1.3 billion per year.
Yet Egypt scores 101 on the UN Human Development Index, between Mongolia and Uzbekistan, and frequently ranks well below the top 50 countries in the World Bank survey on ease of doing business.
Financial aid in a political transition from authoritarianism is especially precarious. Many scholars argue that foreign aid can decrease the effectiveness of political institutions, and is often used as a tool for autocratic leaders to buy support during a transition and stall its movement towards a more open, participatory system.
In a study by a prominent World Bank economist of nearly 100 aid recipients between 1975 and 2000, the resounding conclusion was that there was no evidence that aid promotes democracy.
So how can new governments ensure the money is better spent? And how might western donors ensure that their funds foster an open political system and help to build a healthy economy rather than a corrupt one?
New political science research on the question of aid effectiveness suggests that targeted, high levels of "democracy assistance" - focusing less on holding an election and more on strengthening political institutions, judicial reform, anti-corruption measures, citizen advocacy programmes and strengthening civil society and civilian rule - can contribute to democratisation.
From 40 years of political science research, we know three basic things about democratic transitions. One, transitions tend to cluster in time and space. That is, there can be a real cascade effect of one revolution or transition influencing the domestic politics of a neighbouring country.
Two, we know that democratisation aid can have some positive effects in limited areas like encouraging low-level political participation or civil society building. Aid in Poland, the Dominican Republic and South Africa all demonstrate this positive effect. But democratisation aid is not a cure-all for what is essentially a domestically-driven reconciliation process. Political actors must agree to play by the same rules.
And third, transnational networks, or simply, the power of shared ideas across national boundaries, can create avenues for political change. The activation of these networks with aid money can be a powerful tool for citizens seeking participation in their political systems.
In 1990, the symbol of the Polish Solidarity movement (a political party formed on the backs of union workers in the port of Gdansk) inspired people throughout Eastern Europe. In 2011, perhaps media and social network tools are more important.
In short, simply giving money away doesn't seem to work. Indeed, we are in the midst of this Arab revolution in part because of the failure of international aid efforts, and because of the failure of the authoritarian state.
The answer, it seems, will be more of a question of domestic politics and the speed at which nascent political orders can demand accountability from their leaders and be patient for the results.
Donors must demand nothing less and target aid to citizens involved in the transition, rather than the governments overseeing it. That means foreign investment, loans and aid first to people, businesses, and civil society, and government last.
Karen E Young is an assistant professor of political science at the American University of Sharjah