A former government economist has said that aid is “close to irrelevant” in solving the problems of developing countries.
Nations that achieved fast growth and declines in poverty, such as Bangladesh and Ghana, do so thanks to their own wealthy elites and not to outside help, argues Stefan Dercon.
In his new book, Gambling on Development, Dercon, former chief economist at the now defunct Department for International Development (DfID), says successful growth needs “a development bargain” – a commitment by a country’s elite.
Dercon credits growth in countries including China, India, Vietnam, Indonesia and Rwanda not to an enlightened leader but to wealthy elites motivated to bring change. His argument is that aid will bring low or no return in countries without this.
“If you look at the bigger picture of change, aid has been close to irrelevant,” he said. “It has definitely not been the cause of change. Take a country like India: it never had more than 1.1% of its GNI [gross national income] as aid. China got very little. Having said that, there are countries [with a committed elite] where aid played a constructive role, and if you think of Ghana and Bangladesh, aid actually worked well.”
Dercon, a professor of economic policy at Oxford university and director of its centre for the study of African economies, was until earlier this year a policy adviser to foreign secretary Liz Truss, starting the day before the DfID was merged with the foreign ministry, becoming the Foreign, Commonwealth and Development Office (FCDO).
Arguing that a political and economic elite have much more agency than institutions, Dercon adds: “Several of the success stories described in this book did not necessarily have strong institutions at the time of take-off. Think of Bangladesh, with its volatile rent-seeking politics, and seemingly a ‘basket case’, as Henry Kissinger’s advisers called it.
“Even China, after the nationalist and Maoist eras, hardly had strong institutions to deliver the kind of take-off it achieved post-1979.”
Ghana became successful because the political elites “quickly learned [in the 1990s] to respect democracy, which created a lot of stability”.
Ethiopia had also been doing well, but “misfired” after being “declared by the IMF to be the fastest growing economy in the world between 2010 and 2019”. “The progress of Ethiopia was amazing in that period,” said Dercon, but somehow or the other they didn’t bring the elite together, so the gamble misfired.
“The political deal underlying the elite bargain for development, that equilibrium in Ethiopia, has disappeared.”
In contrast, Nigeria and Malawi have remained poor. “If you look at Malawi, there’s no objective reason why it should be as poor as this. It has had 60 years of peace. They have a democracy, and do transitions of power, but all the time you get more or less the same people in elite back, and the only thing they seem to be interested in is, more or less, the status quo.”
Poverty in Nigeria and the Democratic Republic of the Congo has, he said, been exacerbated by access to easy financial returns from oil and minerals to fund the elite, offering few incentives for them to commit to the more difficult pursuit of development.
Dercon, who said he wrote the book not as an academic but a practitioner, has hope for the future of Senegal, Côte d’Ivoire, Kenya and – more recently – Tanzania and Zambia.
“We probably don’t support enough the countries where they actually want to do development, and we support too much, probably, the countries where nothing is happening.”
He said he had not been concerned at DfID’s disappearance. “I don’t think the merger in itself is the problem – probably the bashing of DfID is not something that ends up being hugely appreciated internationally because people respected it.
“Of course, the bigger damage has been done by the vast cut in aid: the merger became far harder to handle due to the double whammy of things we had to deal with.”
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