Time to dump 0.7 Alex Evans

March 4, 2009 | More on Economics and development, Key Posts | 4 comments

The Economist has a piece on its website today bemoaning the effect of the credit crunch on aid flows:

It is unclear how aid flows are responding to the slowdown but the most recent data (which predate the crisis) hardly encourages hopes of a substantial expansion. Aid from OECD countries fell between 2006 and 2007, partly because of an exceptionally high level of debt relief in 2006. Disregarding this one-off effect, aid only crept up by 2% in 2007. And as a new report from the OECD points out, a 1970 United Nations target for aid of 0.7% of rich-country GDP remains a distant dream. Only Sweden, Norway, Denmark, Luxembourg and the Netherlands have reached this target. The average contribution is 0.45% of GDP.

And this sum was calculated before donor countries were hit by an economic crisis that has shifted priorities dramatically. Moreover, the size of the overall pot in rich countries will shrink as economies contract. Maintaining current levels of aid implies the unlikely earmarking of an even greater share of GDP.

Ah, the target of giving 0.7% of GNI to development assistance: bow your heads in reverence.  But hang on a minute.  Why are we all paying so much attention to a target that’s (a) not based on any assessment of how much money is needed to achieve any defined set of objectives, and (b) nearly forty years old?

Just think of how much has changed in the finance for development context over the past 40 years. There’s the explosive growth in remittances from migrant workers, for starters – which in 2006 totalled $280 billion, three quarters of which went to developing countries. That makes a finance for development flow of $210 billion from migrant workers in 2006 – almost exactly double the $103.9 billion that went to official development assistance in that year. So presumably that affected how much ODA was needed? Nope.

Well, what about the growth of philanthropic donors, then – the arrival on the development scene of deep-pocketed billionaires like Bill Gates and Warren Buffet? The Gates Foundation alone has an endowment of $60 billion, so philanthropic donors as a whole might be taken as a pretty transformational shift on finance for development. But the 0.7% target remains inviolate.

Well, what about the fact that some of the most popoulous developing countries have hoisted hundreds of millions of their people out of poverty over the last decade – and are now building aid programmes of their own?  Surely that affects the ODA needs assessment? Um, no.

If these examples lead you to suspect that the 0.7 target is taking on some of the attributes of a sacred cow, then try this for size: when, as part of the UN Millennium Project, Jeff Sachs – about the biggest enthusiast for more aid on the surface of the planet – calculated how much aid was needed to achieve the Millennium Development Goals around the world, the figure he ended up with was 0.54% of donor countries’ gross national income by 2015.  So did that lead to 0.7 being consigned to the trash? Er…

And all this is before we even consider how finance for development needs might change in the future.  Take climate change adaptation.  Everyone agrees climate change will hit developing countries hardest, even though they have the least capacity to adapt.  How much it will cost is widely debated: the UNFCCC Secretariat thinks $28-67 billion by 2030, the World Bank says $10-40 billion (no timetable given), the UN Human Development Report puts the figure at $86 billion dollars a year by 2015.

Despite these divergences, on one point all agree: of course these sums should be additional to nought point seven. Yet it’s not immediately clear why: if the challenge of climate adaptation is all about mainstreaming climate resilience through development programmes as a whole, then it seems mighty strange to assert that all the expenditure should be additional – without admitting that even a single dollar might just need to be spent differently, rather than additionally.

Of course, you might argue that I’m just splitting hairs, and that the bottom line is that it’s abundantly clear that more aid is needed in order to achieve the MDGs, and that 0.7 is a crucial rhetorical target in holding rich countries to account – especially now, with the credit crunch already eroding aid flows.

But I’m not so sure. For one thing, I think there’s an issue of credibility at stake. Changes like remittances, philanthropic donors, the emergence of the BRICs and financial requirements arising from global risks like climate change are all major shifts for development.  We development advocates risk coming across as rather defiant of the facts if our answer to how much money is needed is always (as if by magic) 0.7 – when everyone else can see how much has changed since that figure was determined.

This credibility point matters more, not less, because of the credit crunch.  We can all see that the development agenda is at serious risk of a major public backlash on aid effectiveness as publics feel the pinch and realise how much of a fiscal burden their governments are taking on through their economic recovery packages.  As we make the case for development in these difficult circumstances, we need to be sure that our case is backed up proper data – which 0.7 clearly is not.

But most fundamentally, it’s time to rethink 0.7 because so many of us in the development community have privately felt for some time that even if the aid volume emperor isn’t exactly naked, he’s certainly scantily clad.

If cash could buy development, then why haven’t we seen more of it after spending so much?  Why is it that the developing countries that have really taken off seem to have managed it without massive aid flows? And if effective states are so crucial for development, and taxation is so critical to building up social contracts between states and citizens, then isn’t there a pretty big risk that we risk undermining that social contract by supplanting developing country governments’ needs to tax their citizens? And so on.

None of this is to fall into the ideological trap of saying that ‘development doesn’t work’; I’ll leave that to William Easterly. But in talking so much about 0.7, we constantly reduce the complex process of development to a discussion about aid – when in fact, we all of course know better than that.

If we really want a full-spectrum approach to development, we need to place a bit less emphasis on aid and a lot more on (a) political economy work in countries – the slow, steady process of using influence at the margins to work with progressive drivers of change towards pro-poor political outcomes in country; and (b) global issues, like climate change, tax havens, the arms trade, trade liberalisation and so on.

Those challenges are less about the quantity of aid than they’re about influence – and hence the quality of people who work for donor agencies (which, in the UK at least, is generally exceptional – a shame, then, that DFID’s headcount has been slashed in recent years even as its aid budget went through the roof).

This is the kind of development agenda I wish we talked about a bit more.  Within that broad context, I’m even prepared to admit that it might be the case that we need to spend more on aid than we do today. But before I sign up, please can I see some data?