Angus Deaton and the foreign aid debate

Angus Deaton is in town, promoting his new book, The Great Escape. I am a huge fan, so off I went to a breakfast discussion at the (super-plush!) Legatum Institute, to hear him talk about it. And of course he was brilliant and interesting on inequality and the stuff that really matters. Then the last third or so of the talk was taken up by a big diatribe against aid, on the basis that it does more harm than good.

I almost always find myself disagreeing with strong opinions either for or against aid. On the whole I don’t think it’s as important as either its supporters or its detractors think it is.  But if an intellectual giant like Prof Deaton pays so much attention to it, you’d assume that the evidence base is pretty strong. Not quite. The aid chapter of the book relies on a series of anecdotes and inferences – which in any other case, I suspect an academic of the standing of Angus Deaton would not consider adequate as the basis for drawing such unequivocal conclusions.

People have tried to get beyond stories and test the relationship between aid and governance more systematically – some find a negative relationship, others a positive one, at least with some aspects of what we think of as good governance.  We shouldn’t be surprised that the evidence isn’t clear – all attempts to link aid strongly to macro level outcomes like ‘growth’ or ‘good governance’ seem doomed to failure. It’s just not that simple. Disappointingly for the polemicists among us, the answer to any question about aid is almost always….’it depends’.

…all of which serves to introduce this much more detailed analysis by my colleague Richard Mallett:

No role for aid? Some thoughts on Angus Deaton’s new work

Richard Mallett, ODI

I don’t like Mondays. This is true in general, but this week’s was made particularly disappointing by a fruitless visit to a university bookshop in an attempt to procure Angus Deaton’s latest, The Great Escape. Hadn’t had any in stock since August, apparently. Not strong. Thankfully, my disappointment was short-lived: I soon learned that the man himself would be talking about his new tome at the LSE the next day. Perfect – a chance to snare a copy (and feel like a student again).

His talk was excellent. Crystallising vast amounts of data and information, Deaton took his audience on a journey starting several hundred years ago, showing how the remarkable gains in wealth and health made over this period have not just been accompanied by, but have actually created, screaming gaps in living standards (the health and wealth inequalities we see today).

But I left feeling not altogether satisfied. The reason for this was, I think, the treatment given to aid towards the end of the talk, which kind of came out of the blue: there was no particularly strong suggestion at any point that aid would become a central theme of the conclusion (Fred Andrews of the New York Times has likewise described the book’s discussion of aid as ‘jarring and odd’). But it did – and Deaton’s assessment is not an encouraging one.

So, what’s the beef?

It is first worth emphasizing that it would clearly be wrong to portray Deaton’s book as being ‘about aid’. It is far grander than that. But the claims Deaton makes about aid – that it is antithetical to real and proper socio-political change – are problematic, and should be engaged with.

Deaton’s main issue seems to be with the distorting effects aid has on domestic processes and institutions. He sees aid not simply as peripheral or marginal, but as actively damaging to the kind of progress and development that many countries so badly need. I don’t think Deaton is saying that aid never has any positive impacts, but rather that it lacks the capacity to effect the kind of transformation truly needed – positive institutional change. He makes the argument that, because many states suffer from a chronic lack of capacity, more money will not produce better services over a sustained period. What is needed is for an effective social contract between citizens and the state to be in place. Aid not only has no role to play in this respect, but it is actually responsible for the disintegration of the social contract in the first place (for example, through the displacement of domestic tax revenue, by making states more responsive to third parties, and so on).

The way forward for Deaton is to explore alternatives to aid; things like global public goods or getting our own governments to implement policies which a) don’t cause too much harm in other places, and b) may even help other countries out a bit more. Our role in this vision: don’t donate, agitate. But when it comes to our ability to influence externally, through aid and other means, Deaton is not optimistic: as he said last night, ‘I don’t really think we can do very much’.

Thinking more carefully about aid

I’m with the Professor on the whole ‘beyond aid’ stuff – freeing up global mobility and ensuring that poor countries don’t lose out thanks to Northern protectionism are far more likely to bring about the kind of structural change needed. And there is some sense to Deaton’s argument about the potentially disruptive effects of aid on domestic accountability, state responsiveness and revenue generation. But would it not be going a little far to use this as a justification for dismantling an entire system?

My biggest concern is that Deaton seems to be talking as if aid were something singular or monolithic, which presumes a lack of diversity in the way aid is used. This comes disturbingly close to the kind of recourse seen so frequently in parts of the mainstream media, where one or two pieces of evidence (often anecdotal) form the foundation for massive attacks on both the fundamental concept and practice of aid. Aside from the logical problems with this approach, it also fails to recognize some key characteristics of aid, notably that it is used in different ways to achieve different objectives depending on the circumstances. In other words, not all aid is for frontline service delivery.

Why assume, for example, that aid and domestic revenue generation are mutually exclusive? In addition to recent cross-country evidence which suggests the relationship might not be as bad as so widely thought, as well as suggestions that aid can actually act as a stabilizer or coping mechanism when tax revenues become unstable, why not explore the option of using aid directly to build up domestic tax bases (e.g. through strengthening revenue authorities, pushing for greater transparency in the system)? What is needed here is the kind of deep capacity building we often do not see as a result of aid spending. It’s not easy (or sexy), but that’s not an out.

And what about more iterative, innovative ways of working? As Deaton spoke, I was reminded that just down the road at SOAS David Booth was launching his new book on governance in Africa – what about the kinds of suggested approaches that emerge from this work? Is there a role for aid agencies and actors as facilitators at the country and sub-national levels, as intermediaries who can help create the space and broker the dialogue for domestic problem-solving? I would hope so, even if it means working a little differently – a little more politically, even – than before.

So, I’m more optimistic than Angus. I think many others are too. True, the ‘how’ questions of positive institutional change and sustained state capacity are some of the biggest and (therefore?) some of the most difficult facing those in development, but this should motivate harder work and more careful thinking; it shouldn’t make us throw in the towel.

All that said, I still bought a copy of the book…and the great man even signed it.