The COVID-19 pandemic. Climate change. Socioeconomic inequality. Steep political division. Rising global authoritarianism.
The Biden administration is inheriting a host of problems from its predecessor. But with its relatively blank slate, the administration needs to make its mark on the sphere of international development.
The United States Agency for International Development (USAID) — which experienced a budget cut of over 22% under the Trump administration — seems to have lost its teeth over the past four years. Once a hallmark for international assistance and development, USAID suffered under leadership from the White House in the last four years. In particular, Trump’s foreign policy doctrine of selective engagement and withdrawal has only hurt its cause. But with new leadership in 2021, there are many options in play. Should the Biden administration opt for gradual improvement or ambitious innovation? What issues should it tackle first? To make up for lost time, it seems as though innovation is the only viable strategy — beginning with reforming the foreign aid system.
According to the World Bank, in 2018, over $165 billion was spent on official development assistance. Yet, foreign aid is still a topic of controversy in the international community — and for many reasons. Among scholars and practitioners, there is uncertainty over how foreign aid is defined and measured, as well as how it should be allocated. Additionally, one topic of contention is what the underlying motivations of donor countries are and how intent may hinder USAID’s effectiveness in promoting development.
In its current form, the foreign aid system is flawed. The burdens of aid and a donor dominated system have distorted the development process – only providing short-term relief in developing countries while reinforcing weak institutions and corruption.
From Michael Todaro and Stephen Smith, foreign aid is best defined as: “all official grants and concessional loans in currency or in kind that are aimed at transferring resources from developed nations to less-developed nations on development, poverty, or income distribution.”
Most aid comes with strings attached, known as “tied foreign aid,” or conditional foreign aid, giving little bargaining power to recipient countries. Donor countries often control how aid is used, choose who the recipients are, and define its terms and conditions. Tied aid can have detrimental consequences for recipient countries. It can burden them with debt repayment, a current reality for much of the developing world. It can also drive up import costs since developing countries are often required to purchase capital and goods from the donor, when they could find better low-cost goods for development.
Aid without conditions, known as “untied aid,” or unconditional aid, has its own set of drawbacks. Untied aid is often given to a country with little to no research; historical precedent shows a high likelihood that corrupt officials use it to reinforce their own power. In all forms, foreign aid can prove harmful to the development process.
Scholars often identify the foreign aid regime as using a system of “top-down strategies,” where the wealthy donor countries are the key decision-makers. In practice, there is a clear pattern of donors promoting their strategic interests rather than helping the countries with the most need.
The United States’ aid allocation is a prime example of this. South Asia, where nearly 50% of the world’s poorest people live, receives only $8 per person in aid. Meanwhile, the Middle East, a region of particular strategic interest to the United States (due to political influence, natural resources and geopolitical caution), has well over triple South Asia’s per capita income but receives nine times the per capita aid. Since the War on Terror began following the events of 9/11, the largest country-level aid recipients were Iraq with $61 billion and Afghanistan with $133 billion. Meanwhile, India, which has the largest number of impoverished people in the world, received only $2 per person in aid.
Poverty rates should not be the only consideration for foreign aid — both Iraq and Afghanistan are war-torn nations with refugee crises, sectarian violence, among other issues. However, the majority of U.S. international assistance was not used for disaster relief or economic development — it was used for military or security purposes. It is no coincidence that the countries that receive the most aid have a significant U.S. military presence, while the country with the largest amount of poverty received much less aid.
The European Union (EU) displays a similar trend. According to Allison Carnegi and Nikolav Marinov in the American Journal of Political Science, the country of origin of the European Council’s president affects which countries receive aid. There was a “consistent, large, and uncontroversial finding [that]former colonizers give disproportionate amounts of aid to their former colonies.” Quantitatively, a country that normally receives $20 million in aid would receive about $3.6 million more if the president is from their former colonizer country. Since the presidency rotates every six months, this creates tremendous volatility in the European Council’s aid plans.
It is clear that foreign aid allocation is a mechanism of control, rather than an act of benevolence on the part of developed countries. Donors are not promoting development. Instead, they reinforce the distribution of power skewed in their favor, at the expense of developing countries.
Developed countries as the decision-makers in foreign aid present other issues. Their allocation strategies often suffer from complex data problems – those at the top simply do not have enough information to help developing countries.
This explains the long history of bureaucracies mistaking symptoms of underdevelopment as causes. Donors often identified low levels of investment, poor education and the absence of modern industry as causes of underdevelopment. In reality, the source of underdevelopment is weak institutions and policies. This is evident in Zambia’s case. If lack of capital was the fundamental cause of Zambia’s underdevelopment, massive amounts of aid should have addressed this. However, without institutional reform, Zambia has seen virtually no increase in per capita income and remains underdeveloped. William Easterly in Foreign Policy calls this phenomenon the “Utopian Nightmare.”
Donors could pursue institutional change but they hold back for economic reasons. When deciding between changing actions or altering institutions, donors opt for the less costly option: changing policies, although their efforts are eventually short-lived.
The current foreign aid system provides “band-aid” solutions rather than long-term relief. Aid culture has left Africa debt-laden and more vulnerable economically. African countries pay up to $20 billion in debt repayment per annum, at the expense of investing in education and health. Aid has also fueled corruption. The World Bank has contributed $100 billion for development, but in the DRC, Malawi, and Zambia, corrupt leaders used development funds for their personal gain.
NGO-led aid has seen some success, like with smallpox eradication and child survival. However, foreign NGOs have failed to spur sustainable development. Even after billions of dollars of development aid and numerous hours of NGO work, Kenya is miserably worse off, with nearly six in every ten people living on less than two dollars a day, and the figure is rising. Foreign NGOs providing food aid and other resources create an unsustainable dependency due to the short-term nature of their work. This dependency weakens the state, ensuring that the government is not held accountable for its mismanagement; it also removes the incentive for institutional reform that would actually promote development.
For foreign aid to be effective, there needs to be more accountability and coordination between donor and recipient countries. There has been some progress through the Millennium Development Goals (MDGs) and its successor, the Sustainable Development Goals (SDGs), but more needs to be done to fix a system of “top-down strategies” and donor domination.
So what can the Biden administration do?
Working with USAID, it must issue global developmental policy that reworks foreign assistance programs and promotes institutional reform. In the near term, that should include strengthening health systems to respond to COVID-19 and bolstering democratic governance amid rising authoritarianism. The administration must also engage with international initiatives: listen to the needs of recipient countries and coordinate with other donor countries on how to meet them. As it reenters the Paris Climate Agreement, the U.S. needs to pull its weight and support developing countries in honoring their commitments.
Aid can no longer just be donors throwing money at the problem; it should be geared towards long-term prosperity. Without significant reform, the foreign aid system will remain ineffective and hinder development.