Aid is no Christmas present for under-developed countries

Some economists wonder whether we should give Christmas presents. They argue that having other people deciding what we want is not really efficient. There are several counter arguments to this, of course. The first is that the giving of the present brings the giver joy. Secondly, there are the religious and symbolic aspects of giving and receiving presents that may bring happiness beyond the utility arising from the object itself.

But at least the worst that can happen with a Christmas present is that it is useless. The bright yellow jumper might go straight in the bin. However, foreign aid – unlike freely given charity – may well have negative impacts. It may be counter-intuitive that the government of one country giving money money to another country can actually have negative effects on the recipient country, but it is true. Often the recipient countries are poorly governed and aid can then distort the economy and structures of governance further. Furthermore, aid can undermine home grown development.

Two recent reports do not go quite as far as arguing that government aid to Africa has negative effects but they strongly question its positive effects. The most recent one, published today, accuses the government of using anecdotes to justify its policy of rapidly increasing aid spending. This is true. If the government is spending £8bn on aid, there is bound to be some project somewhere – some photo opportunity for a government minister – that bears fruit. Meanwhile, the dark negative consequences, such as the 40% of African arms that might well be funded by diverted aid, go unseen and unreported.

Both today’s report from the Public Accounts Committee and an earlier report from the National Audit Office point to the government’s spending on education through aid. You might think that the government counting the schools built and school places opened up with aid money alleviates the problem of governments focusing on aid inputs rather than outputs when evaluating policy. This is not so. As the two reports taken together show, the schools might be built, the teachers might be employed, theoretical school places might be allocated, but there could be precious little education going on.

The NAO report, for example, noted that there was little improvement in standards of maths or literacy in recipient countries and that students in Ghana went to school for only about 40% of the year because of teacher absenteeism. In Ethiopia, teachers taught only one third of intended hours. In other words, there is an input of money and teachers but not much output in the form of education. Another problem identified by the NAO is that the government focuses on school enrolment as a target rather than on whether children are actually attending school or learning anything. Bureaucrats target what bureaucrats can measure.

Furthermore, 50% of the increase in school attendance in Kenya has come from increased attendance in private schools not funded by the government. This will not be a surprise to regular readers of James Stanfield’s columns in Economic Affairs. However, there is a further problematic side to the aid agenda in individual areas within Kenya. James Stanfield reported recently that total school enrolment in one of the poorest areas of Kenya had actually fallen since aid money was poured into state schools. This counter-intuitive result arises because the private schools for the poor cross subsidise the poorest children with the fees from the slightly better off. When the better off left the private schools to attend the new, “free” state schools many of the private schools collapsed. The poor could not afford the expensive uniforms and other requirements for the new “free” state schools and thus joined the ranks of the unschooled.

These reports should be taken very seriously by the government. To repeat, they merely add to the well-known evidence that there is no relationship between aid inputs and economic outcomes in poor countries. The coalition is pursuing its policy of rapidly increasing foreign aid for purely political reasons – to keep the aid lobbies happy. This is unwise and, arguably, immoral. The government has no good evidence to justify its policy. The government’s aid policy adversely affects the poorest people in this country (who have to pay the increased taxes) and the poorest people in developing countries – who suffer from the greater government empowerment and proliferation of arms financed by aid.

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.