The future of aid

Future international development agencies will be cross-ministerial platforms for the coordination of aid rather than behemoths with their own projects, programmes and spending. These agencies will be staffed by politically astute people with good negotiation skills. So says says Andy Sumner in the Economist:

One might imagine smaller, cross-governmental administrative units with mandates to pursue ‘policy coherence’ on trade and other matters and with the technical capacity needed to build, say, tax systems in developing countries. Such new units would need to be staffed by people with ‘soft skills’, meaning with strong political sensitivity, rather than, as in the old days, people whose skill lay in evaluating and managing big projects.

What’s striking is the optimism of Sumner’s piece. Sumner accepts the possibility that extreme poverty — those who live on $1.25 a day or less — could be slashed to about 300 million by 2030. This is based on the idea that big countries like China, Brazil, Indonesia and India are developing so rapidly that they’re on the brink of becoming middle-income. Contrast this optimism with the negativity of a book like Dead Aid by Dambisa Moyo, which Bill Gates recently called “evil” (h/t Andrew Parker). Moyo presents a picture where vast oceans of aid are being squandered and stolen. In reality global aid is much smaller than she states (ridiculously, she counts only gross aid to Africa, not net — lenders receive large sums in interest payments on development loans) and it’s had a tremendous effect. Gates, for example, points out that it’s just immoral to deny children live-saving medicines and vaccines, and that health-related aid has saved countless lives — not to mention supported economic growth — over past decades.

Sumner is clear that this positive trajectory isn’t guaranteed. But it’s likely that in a few decades most poor people will live in middle-income countries, with the result that global poverty is increasingly found either in countries which don’t really need aid or in countries that can’t absorb aid easily and quickly.

This relatively small number of fragile states where a relatively high number of poor people live will still benefit from direct aid funding in the form of grants, budgetary support and so on. But overall, traditional aid will become less important, and donors will start thinking of more innovative ways of supporting the big, rapidly-growing countries using tools like better trade and migration policies and additional concessional lending. Handouts just might not cut it anymore. Attention will turn to questions like inequality, the environment and the inclusiveness of economic growth — and this will require a softly-softly approach from donors.