Response to Owen Barder on UK Budget Support

Owen, thanks for responding to our piece. Open debate is an important way to clarify issues and hold us all accountable for the integrity of our intellectual positions. First off, you criticize us for getting our facts wrong on Ethiopia’s elections. We said:

Ethiopia’s autocratic government, which is inexplicably the largest recipient of UK budget support in Africa, won 99% of the vote in the last ‘election’.

And you say:

Nice point, except: a. according to the official results of the 2005 election, the ruling party won 59.8% of the votes…it is nonsense to say that the government received 99% of the vote.

I guess we really left you with a poor impression if you think we can’t even count votes! We were referring to the local elections of April 2008 (the more recent, and hence ‘last’). Human Rights Watch (the source of our original assertion) found, during two weeks of field research in the lead up to the elections, “systemic patterns of repression and abuse that have rendered the elections meaningless in many areas.

HRW concluded that the 2008 elections “provided a stark illustration of the extent to which the government has successfully crippled organized opposition of any kind—the ruling party and its affiliates won more than 99 percent of all constituencies, and the vast majority of seats were uncontested.” An Associated Press article from April 20, 2008 told the same story: “opposition parties said a systematic campaign of beatings, arrests and intimidation forced out more than 17,000 of their candidates.”

You also challenge us on another fact:

The UK does not give budget support to the Federal Government of Ethiopia… the UK Government provides finance to local government (albeit through the existing financial transfer mechanism via central government).

But wait, aren’t those the same local governments that just had the rigged elections? A recent article by Aalen and Tronvoll in the journal African Affairs points out that one of the reasons why the ruling party bothered to fix the local elections so thoroughly was precisely because international donors had cut off budget support to the federal government (in the political mayhem following the 2005 elections) and started channeling it to local government bodies instead. (Anyway, we never made any assertion about which level of government received budget support.)

You don’t think we developed our case enough that budget transfers to corrupt autocrats are bad. Fair enough, cases should always be developed more. But for now, which is more intuitive: your claim that aid to kleptocrats is “a way to make the government more accountable to its own citizens,” or our claim that aid money given directly to corrupt dictators is unlikely to reach poor people?

You continue:

The British Government's approach of giving some aid in the form of budget support (too little, in my view) is motivated by evidence that in some circumstances this is an important way of building more effective, responsive and accountable institutions.

“Effective, responsive and accountable institutions”—wouldn’t that include democracy and freedom from corruption? The “evidence” you cite in your post is from a report commissioned by the donors to evaluate themselves. While self-evaluation raises suspicions of bias, even so the support for your claims from this report is a tad on the weak side: “Where a separate governance matrix has been developed, progress is slow…or donors are not satisfied with quality of dialogue…or implementation is weak.”

As for corruption, the same study said that “corruption, and anti-corruption measures, have featured explicitly in the performance matrices and prior actions linked to PGBS. Most often, prior actions related to legal measures, policy development and administrative actions, but, even when formally complied with, such measures have not been conspicuously effective.” Not too surprising—isn’t giving aid to corrupt officials for anti-corruption strategies kind of like giving aid to burglars to install burglar alarms?

You conclude your post by stating:

If Aid Watch wants to be taken seriously as an aid watchdog, then … they need to do some proper analysis of the costs and benefits of different choices for aid delivery in different contexts, rather than simply asserting that it is wrong to give aid to and through governments of which they disapprove.

Thanks for your helpful suggestions on how to ingratiate ourselves with the aid establishment by toning down our criticism of bad aid-receiving governments. However, what really matters to us is not whether WE disapprove of a country’s government but whether the CITIZENS of that country disapprove of their own government—and have the right to express it. Judging from recent election practices by the government of Ethiopia, most Ethiopians don’t have that right.

Response to "Why Does British Aid Favor Poor Governments over Poor People"?

By Owen Barder, the Addis Ababa-based director of aidinfo.org, an initiative to accelerate poverty reduction by making aid more transparent. Aidinfo is part of Development Initiatives, a UK-based development consultancy. Bill Easterly and Laura Freschi at Aid Watch lay in to British Government aid for giving financial support directly to governments:

In 2007, the UK gave 20 percent of their total bilateral ODA in the form of budget support to 13 countries: Tanzania, Ethiopia, Pakistan, Ghana, Uganda, Mozambique, Vietnam, Malawi, Zambia, India, Sierra Leone, Nepal, and Nicaragua. Of this list, only Ghana and India were classified as “free” by the annual Freedom House ratings on democracy (according to either the 2007 or 2008 rating). For the 11 other countries that did get British budget support, how much is there “country ownership” when the government is not democratically accountable to the “country”? ... There is nothing that says you have to give aid meant for the poorest peoples directly to their governments, if the latter are tyrannical and corrupt. With the examples above, which side are UK aid officials on, on the side of poor people or on the side of the governments that oppress them?

With all due respect to Aid Watch, I don't think they have got this right. For example, they say:

Ethiopia’s autocratic government, which is inexplicably the largest recipient of UK budget support in Africa, won 99% of the vote in the last "election".

Nice point, except:

a. according to the official results of the 2005 election, the ruling party won 59.8% of the votes; the Coalition for Unity and Democracy got 19.9% and the United Ethiopian Democratic Forces got 9.5%. I have no idea if those accurately reflect how people voted, but it is nonsense to say that the government received 99% of the vote;

b. the UK does not give budget support to the Federal Government of Ethiopia. Through the Protection of Basic Services scheme, which was introduced after worries about the election, the UK Government provides finance to local government (albeit through the existing financial transfer mechanism via central government). As well as funding health and education, the project includes significant components to increase transparency and accountability of federal and regional parliaments.

Aside from getting the facts wrong, Aid Watch seem to be criticising this form of aid by slinging mud rather than by way of a proper analysis of the advantages and disadvanges. We should be asking what benefits arise from giving aid through government, and what harm may come from it. Aid Watch acknowledge the possible benefits: lower transaction costs, more coherence in development policies, building capacity of government. There is another crucial possible benefit: putting money through government budgets is also a way to make the government more accountable to its own citizens, rather than to a bunch of foreign donors.

But Aid Watch don't try to spell out what the harm might be if aid is given to governments with unpleasant records on human rights or corruption. I personally think there is a case to be made against giving money to many governments, for example if there is reason to believe that the money will not be spent on poverty reduction, or if it will sustain in power a government which might otherwise be booted out of office. But let's set out these reasons coherently, and let's try to assess their importance relative to the possible benefits. Aid Watch seems to suggest that guilt-by-association is enough to damn the whole enterprise.

As it happens, the governments mentioned in this piece (Ethiopia, Vietnam and Malawi) all make demonstrably good use of the money they have received. Here in Ethiopia the expansion of public services such as free education and publich health workers financed by Protection of Basic Services is transforming the quality of lives across the country; and Vietnam has made quite staggering progress in bringing down poverty. Personally I think there are important questions to be answered about the quality of democracy in both countries: but that doesn't mean I want to kill some of the citizens of those countries, or deprive them of basic services, by giving less effective aid. The British Government's approach of giving some aid in the form of budget support (too little, in my view) is motivated by evidence that in some circumstances this is an important way of building more effective, responsive and accountable institutions.

Developing countries don't want to receive aid forever, any more than industrialised countries want to give it forever. Building effective and accountable public services is a way of financing the delivery of public services in the short run, while at the same time making it more likely that countries have an exit strategy from aid in the long run. That is not preferring governments to poor people: it is preferring poor people to giving aid in a way which maximises the publicity you get and covering your back but doing little to build accountable and sustainable public services. Giving aid as budget support should not be promoted ideologically: it should be used where the advantages (in terms of better service delivery and the long term benefit to accountability and institutions) outweigh the disadvantages (such as the risk of sustaining a bad government in power). Equally it should not be opposed ideologically. Budget support has not been shown to be at any greater risk of corruption or of fungibility than other forms of aid (these are the two main arguments that are offered against budget support). It should be assessed case-by-case. Where it can be used, it represents a very powerful mechanism for both the short term benefits of service delivery and the long term benefits of institutional development. Where it cannot be used, donors should be focusing on what they can do to help create an environment where it can be used in future.

If Aid Watch want to be taken seriously as an aid watchdog, then (a) they'd better get their facts straight and (b) they need to do some proper analysis of the costs and benefits of different choices for aid delivery in different contexts, rather than simply asserting that it is wrong to give aid to and through governments of which they disapprove. Incidentally, last year Easterly and Pfutze ("Where Does the Money Go? Best and Worst Practices in Foreign Aid.") ranked the UK as the best bilateral donor. That doesn't mean that the UK is perfect, by any means, and it doesn't mean that they get every judgement right; but it does suggest that UK aid officials might not deserve the allegation in this blog entry that they prefer poor governments to poor people.

Declaration of interest: I used to work for the UK Department of International Development.

Why Does British Foreign Aid Prefer Poor Governments Over Poor People?

European donors are moving towards increasing direct budget support to governments of aid-receiving countries. Leading the charge is the UK, which gives the largest percentage of direct budget support of any bilateral or multilateral donor (although the World Bank, the European Commission, the US and France also give substantial budget support). Giving cash directly to host country governments for use in the general budget for public spending has a number of advantages. The donors say it gives recipient governments more predictability, and more control over the aid resources being funneled in. Rather than serving a plethora of masters in the international donor community, funds given as budget support can be corralled by the host government and spent coherently according to host government priorities, while building government capacity to do what everyone wants governments to do for themselves in the long run: competently manage their own affairs. The aid jargon for this is “country ownership.”

So how is this working out in practice? In 2007, the UK gave 20 percent of their total bilateral ODA in the form of budget support to 13 countries: Tanzania, Ethiopia, Pakistan, Ghana, Uganda, Mozambique, Vietnam, Malawi, Zambia, India, Sierra Leone, Nepal, and Nicaragua. (Source)

Of this list, only Ghana and India were classified as “free” by the annual Freedom House ratings on democracy (according to either the 2007 or 2008 rating). For the 11 other countries that did get British budget support, how much is there “country ownership” when the government is not democratically accountable to the “country”?

Moreover, Human Rights Watch (HRW) accused some of these governments of serious human rights violations. Ethiopia’s autocratic government, which is inexplicably the largest recipient of UK budget support in Africa, won 99% of the vote in the last “election.” The government army is accused by HRW of war crimes in the Somali region of Ethiopia. Nor is this brand new -- neither army officers nor civilian officials have been “held accountable for crimes against humanity that ENDF (Ethiopian National Defense Force) forces carried out against ethnic Anuak communities during a counterinsurgency campaign in Gambella region in late 2003 and 2004.” HRW also notes that today: “Credible reports indicate that vital food aid to the drought-affected [Somali] region has been diverted and misused as a weapon to starve out rebel-held areas.” Ironically, Ethiopia’s autocratic ruler, Meles Zenawi, was the Africa representative at the recent G-20 meeting campaigning for more aid to Africa during the current crisis, because, among other reasons, Meles said “people who were getting some food would cease to get it and … would die” (from an article in Wednesday's Financial Times.)

As for Vietnam, HRW reports: “In March 2008 police arrested Bui Kim Thanh, an activist who defended victims of land confiscation and involuntarily committed her to a mental hospital for the second time in two years. … In October a Hanoi court sentenced reporters Nguyen Viet Chien of Young People (Thanh Nien) newspaper to two years in prison and Nguyen Van Hai from Youth (Tuoi Tre) to two years’ “re-education” for having exposed a major corruption scandal in 2005…..”

Oh yes, and let’s consider corruption, which may affect whether aid to governments translates into aid to poor people. Another country on the UK budget support list, Malawi, had received $148 million in budget support from its donors from 2000 to 2004. It ended those four years with poorer government capacity and greater fiscal instability than it began them, according to one evaluation. Also during those four years, the Malawian president was accused of awarding fraudulent contracts, and government officials achieved new lows when they sold off all 160,000 tons of the country’s grain reserves for personal profit. In the ensuing famine, provoked by drought and floods but made worse by the loss of the grain reserves, the government had to borrow an additional $28 million to feed its starving people. Yet Malawi continues to receive British budget support today.

Elsewhere on the corruption front, British aid continues to give direct transfers to the Sierra Leonean government even though its own 2006 report found that previous support to the “Anti-Corruption Commission” had “made no progress on the overall goal of reducing corruption, had made no impact on reducing real or perceived levels of corruption, had suffered a fall in institutional capacity since the previous year.” (Quote from a 2008 Transparency International report). Sierra Leone is ranked the 158th worst country in the world on corruption (where the worst ranking is 180th).

Of course, low income countries have lower ratings on democracy, human rights, and corruption than richer countries, so poverty-alleviation aid has to face the tricky tradeoff of directing aid to the poorest countries while trying to avoid the most corrupt and autocratic ones. Unfortunately, a recent article found that the UK was one of the best (least bad) official aid agencies in doing this, so most of the others are apparently even worse.

This study did not consider the issue of direct budget support. There is nothing that says you have to give aid meant for the poorest peoples directly to their governments, if the latter are tyrannical and corrupt. With the examples above, which side are UK aid officials on, on the side of poor people or on the side of the governments that oppress them?

African Governments Should Be Accountable to Their Own People, Not Aid Agencies (Maybe Not Even the ICC)

Award-winning Ugandan journalist Andrew Mwenda was eloquent on this point at our recent conference: Andrew Mwenda on Taxation and Accountability in International Aid from LF on Vimeo.

Some recent research supports his view -- aid is associated with less democracy, and of course less democracy means less accountability to your own people:

Simeon Djankov & Jose Montalvo & Marta Reynal-Querol, 2008. "The Curse of Aid," Journal of Economic Growth, Springer, vol. 13(3), pages 169-194. Link to abstract here.

Perhaps a distantly related issue -- Some are also wondering if it really helps to make Sudan's leader accountable to outsiders, in this case the International Criminal Court. The always perceptive Alex de Waal is not so sure.

Does Respecting the Individual Promote Prosperity?

I am covering in my Ph.D. development class today a fascinating new body of research by economists that studies the effects of cultural values on economic development (see some references at the bottom). To drastically oversimplify, values across different cultures lie along a spectrum between two separate poles: (1) valuing individual autonomy, believing in equal treatment of individuals, reliance on formal law, the same moral standards apply to all, enforcement of morality is between individuals vs. (2) seeing the individual mainly or only as part of the group, different standards of treatment for group insiders and outsiders, morality only applies to interactions within the group, group enforcement of moral standards, reliance on informal rather than formal institutions.

To continue the drastic oversimplification, the values closer to the first pole are more consistent with the kind of good government associated with democratic capitalism, while values closer to the second pole are more associated with authoritarian and collectivist politics and economics. Measurement of all this stuff is a tricky issue, but here are two illustrative associations:

Then it also turns out this same measure can predict which countries are richer or poorer:

I’m sure there are several issues that occur immediately to readers: (1) the huge variance around the fitted line, and (2) possible reverse causality from development/democracy to values.

On (1), in defense of the statistical associations shown, scatter plots always look terrible if you are not used to them. This is a remarkably strong statistical association by normal standards. However, it certainly is true that culture is not destiny as there is a huge variance of outcomes for the “group values” cultures. Singapore succeeds despite collectivist values, for example. One interesting bit of research suggests that “group values” cultures will export products that don’t require as much impersonal contract enforcement, and thus values is part of what makes you specialize, and specialization is away of getting around cultural “disadvantages.”

On (2), the research suggests that values are determined by more long run factors, such as a long history of despotic rule (yes there is reverse causality from despotism to values but it operates over a very long time), and also intriguing clues about long run cultural values that are contained in linguistic structure within each culture (do you have to say the subject pronouns “I” and “he/she”, as in English, or can you drop them, as in Spanish, along with whether there are different forms of “you” depending on the status of the person you are addressing). Using these determinants of values, researchers have made some progress on establishing a causal link from values to development/democracy.

So the bottom line (again drastically oversimplified) could be something like “the value of individual liberty promotes prosperity.”

So all of the discussion we have already had on this blog on how aid agencies seem to have so little respect for the poor as individuals seems more relevant than ever.

References (not responsible for my simplifications!):

Guido Tabellini, Institutions and Culture, Presidential lecture presented at the meetings of the European Economic Association,Budapest, August 2007. (Tabellini talks about “generalized vs. limited morality” and “trust & respect”)

Licht, Amir N., Chanan Goldschmidt, and Shalom H. Schwartz (2007), Culture rules: The foundations of the rule of law and other norms of governance, Journal of Comparative Economics, 35 659–688.