Should we keep providing foreign aid through governments?

The default process for providing foreign aid is to direct the money through country governments. I’ve long had my doubts about doing things this way: most of the problems that people like Bill Easterly and Dambisa Moyo attribute to aid really boil down to the fact that, when aid money is directed to governments, it becomes a fungible, capturable resource that is quite similar to natural resource proceeds.

Now it seems there are increasing challenges to that default from across the development world. In a great interview about cost effectiveness, Bill Gates highlights Somalia, which has no functioning government but fairly high vaccination coverage, and Nigeria, which has much less success with vaccines:

Well, in Somalia they’ve given up using the government. The money goes through the NGOs. Whereas in Nigeria they’ve designed a system where the federal government buys the vaccines, the state government provides the electricity, and the one level down below that provides the salaries. It’s just a bad design. You know, the north of India has very poor vaccination rates, so we picked a state up there with 80 million people and we drove it from 30 percent to 80 percent. But they had a really good chief health minister and the federal government was providing lots of money and lots of good technocrats, so the skills were there, as long as you employed them in the right kind of system.

Gates takes a very nuanced view: it’s not that funding vaccinations through governments can’t work, but the conditions need to be right. Ethiopia has done well, but Nigeria has not. He’s also not saying that the only reason that vaccination programs have failed in Northern Nigeria is because of the difficulties of running them through the Nigerian government – widespread urban legends about vaccines have played a major role – but the failings of the government are still an important factor.

In the latest edition of the Development Drums podcast (transcript here) Daron Acemoğlu and James Robinson discuss their book Why Nations Fail. I’m not broadly in agreement with their take on development, mainly because I don’t see their findings as actionable. But I agree strongly with the policy implication that Acemoğlu highlights, which is that providing aid through governments can be bad because it can support extractive institutions:

Daron Acemoğlu
But it’s a better formula than saying whoever is in power, we’re going to hand the power, the money to them.

Owen Barder
Is it implicit in what you are saying that some of the current aid modalities, particularly government to government aid, tend to reinforce the elites?

James Robinson
Absolutely, yes. I mean, I’d say our view was that you know, at the end of the day, that’s probably – if you asked where do all these development problems come from in Africa, are they created by the perverse incentives generated by the aid industry? Our answer to that would be no: they are much more deeply rooted in the history of these societies and you know, so sure you can find examples where aid kept in power, you know, Mobutu for another five years and he wouldn’t otherwise have been there but what did you get instead, you know?

We might not be able to do too much to promote beneficial institutions, but it’s pretty clear we can (and unfortunately do) support crappy ones, not by giving foreign aid, but by doing so through horrible governments. Don’t like what Mobutu is doing to the Congo? You don’t have to cut the people of the Congo off, just their government.

The obvious question is why we were giving aid through governments in the first place. There must be a reason, and any change to the process needs to consider the benefits of the current default as well as the costs. The basic argument I’ve heard, as Owen Barder put it during the Development Drums podcast, is “the thinking of providing aid through the governments is to try to build a stronger social contract between citizens and the state.” This claim is crying out for quantification: how much social contract strengthening actually occurs when aid goes through governments? Is that a valuable end in itself, and if so how much do people value it? What about eventual benefits of other kinds – do they happen? How much?

Given all the light being shed on the downsides of automatically sending aid through governments, it’s no longer enough to have qualitative evidence that sending aid through governments promotes their legitimacy. We need to know how much, and whether it’s worth the cost.

Hat tip: Amanda Stype for the Gates interview.

2 thoughts on “Should we keep providing foreign aid through governments?”

  1. This post does a good job of discussing the bad things that foreign aid directed through governments can do. However, the problem I have with this line of argument is that it does not fully consider the consequences of what would happen were we to stop directing foreign aid through governments.

    Yes, foreign aid can support extractive institutions and allow them to persist. It can also get horribly wasted in corrupt and/or inefficient governments.

    However, when the decision is made to stop directing aid through the government, there are two important consequences. First, a strong signal is sent to the international community that the government in question is illegitimate and/or incapable of serving its people. Many advocates would argue that this is sometimes needed in order to send a strong enough signal to make change happen. On the flip side, that act can dramatically weaken the position of the government and make it doing an even worse job of supporting its people.

    Consider what happened in Malawi when the British High Commissioner removed its aid. A chain reaction followed of numerous other governments and international organizations reducing or eliminating their aid to Malawi. Services suffered. Hospitals ran out of supplies. Fuel crises got worse. The list goes on and on.

    Changes have been made in Malawi since then, but only following the death of Mutharika. Would they have happened any time soon had he not died in office? Personally, I highly doubt it.

    Additionally, this idea that we have to stop sending aid through governments in order to send a strong enough signal to enact change merits criticism. There are a lot of available tools that donors have besides redirecting their aid away from governments that could be used to encourage reform. The simplest step is to reduce aid, though this is a weak action. Alternatively, trade agreements, treaties, or other favorable diplomatic action can be held out as carrots to encourage reforms. If dealing with treaties or trade agreements, insert language like “This treaty is null and void if reforms are not carried out.” Most importantly, there are a lot of tools that can be used, and used more effectively, to accomplish the tasks that one tries to accomplish by redirecting aid away from governments.

    The second consequence of redirecting foreign aid away from governments that should be discussed is the new equilibrium that is created. Once the message has been sent that a government cannot manage aid, how do you later convince people that it has improved enough to start receiving aid again? There will be resistance to giving aid back to governments once it has been taken away from them, and this is a dangerous position in which to place a country. Questions will continue to be asked about the wisdom of directing aid through the government even if it gains the ability to use the aid well. If questions persist, then people may stop looking to the government to provide public goods. As much as we want people to solve their own problems, the most important purpose of governments is to provide public goods. When it stops doing that, a country is in serious trouble. Somalia, DRC, CAR, and Afghanistan are prime examples.

    I can understand the frustration at foreign aid directed through governments. Aid is definitely not given wisely in many cases. This is where our thought should be directed. I don’t know what the best incentives to offer, punishments to threaten, or policies to enact would be. I am convinced though that we do not need to be so draconian as to remove foreign aid from the governments of developing countries altogether.

    1. Thanks for the detailed response. I think this is all generally framed in a way that’s too dichotomous: do it via governments always or not at all. What I was trying to suggest is that providing aid sometimes via governments and sometimes not might be a better option. Then not only can you do it in a way that is maximally effective, but any signals sent are highly targeted. For example, you could refuse to send ARVs through Malawi’s Ministry of Health in response to reports of their being misdirected or stolen; then, when the situation improves, you could resume. This wouldn’t mean cutting off aid to the country as a whole (it would still arrive in the same amounts) nor shifting all aid away from the government.

      This is not totally consistent with A&R’s suggestion that aid be redirected in cases of illegitimate or extractive government. That’s pretty much a wholesale strategy.

      In any case I think it’s clear that quantifying the political economy costs and benefits of aid provision is really important. Do you know of any research that’s tried to do this? Seems like it might lend itself to an RCT.

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