29
May
14

Foreign Aid – Does it work or not?

In my recent readings, I came across two extreme contradicting views on the issue of foreign aid and its efficiency. Here, I wish to list just two distinct examples which argue against and for foreign aid.

Leading economists Daren Acemoglu and James A. Robinson in their book, “Why Nations Fail?” write that —

“Many studies estimate that only about 10 or at most 20 percent of aid ever reaches its target. There are dozens of ongoing fraud investigations into charges of UN and local officials siphoning off aid money. But most of the waste resulting from foreign aid is not fraud, just incompetence or even worse: simply business as usual for aid organizations. Throughout the last five decades, hundreds of billions of dollars have been paid to governments around the world as ‘development’ aid. Much of it has been wasted in overhead and corruption. Worse, a lot of it went to dictators. And, of course, the cycle of the failure of foreign aid repeats itself over and over again. The idea that rich Western countries should provide large amounts of ‘developmental aid’ in order to solve the problem of poverty is based on an incorrect understanding of what causes poverty.”

In their “2014 Annual Letter”, Bill Gates and Melinda Gates explain three myths that block progress for the poor. One of those myths is ~ ‘Foreign aid is a big waste’. Bill asserts that —

“I worry about the myth that aid doesn’t work. Aid is only one of the tools for fighting poverty and disease. Aid is a fantastic investment, and we should be doing more. It saves and improves lives very effectively, laying the groundwork for the long term economic progress (which in turn helps countries stop depending on aid). Through foreign aid, taxpayers around the world invest in development organizations that are saving lives in the poorest countries. We do know that aid drives improvements in health, agriculture, and infrastructure that correlate strongly with growth in the long run.”

Being part of a Non Governmental Organization, I might be biased arriving at a conclusion in this debate of foreign aid. Before taking sides, I personally think that development aid (be it from the State or non-State funders) will become more demanding and conditional in the future. It will no longer blindly be – give, give, give, give, give and take, take, take, take, take between the partners without any concern for performance.

In this era of uncertain economic cycle, when the resources are becoming scarce, the donors will be more likely to ask for measurable results from the recipients. For example, the Global Fund uses the approach of ‘performance-based funding’ to disburse its grants to various recipient countries. This may become the norm in the future. Measuring the results through evaluation, performance review may no longer be a luxury. It will become a necessity. Assessment approaches adopted by the recipients will become more rigorous and analytical. The funders will start insisting that — every penny goes to “eradicate the poverty” through funding for programs; that – “overheads” do not water down their donation. Metrics closely tied to their vision and mission will be guiding the recipient organizations in their exercise of “assessment”, and “accountability”.

In today’s world, the combination of reduced funding and increased need will force every Not-for-Profits and Non Governmental Organizations to reinvent themselves literally. They will be compelled to foster performance culture as their way of functioning. It is no longer going to business as usual. It will be subject to the culture of – perform or perish.

I would like to share the thoughts of former CEO of Honeywell Larry Bossidy.  Bossidy explains that – ‘accountability is one of the real keys to effective transformation.’ Bossidy also espouses his deep-seated belief in measurement which played a decisive role in his success throughout his thirty four year career.

“Change can’t occur without laser-like accountability and metrics to measure how you are doing. I encourage organization to measure their performance against their plans.”

– Larry Bossidy

I believe that what Bossidy has prescribed for corporates will be the way forward for the Not-For-Profits too.

 

Question: How can we make recipients in the humanitarian industry like the State, Not-For-Profits, Non Governmental Organizations, etc using foreign aid more accountable and performing? Please share them by leaving a comment to this post. I welcome your thoughts.

 

References:

[1] “Why Nations Fail? The Origins of Power, Prosperity and Poverty” by ‘Daren Acemoglu’ and ‘James A. Robinson’, Profile Books, 2012.
[2] “2014 Gates Annual Letter: 3 Myths that Block Progress for the Poor” by ‘Bill Gates’ and ‘Melinda Gates’, Bill and Melinda Gates Foundation, January 2014.
[3] “Leap of Reason: Managing to Outcomes in an Era of Scarcity” by ‘Mario Morino’, Venture Philanthropy Partners, 2011.
[4] “Jack Welch and the 4 E’s of Leadership” by ‘Jeffrey A. Krames’, The McGraw-Hill Companies, 2005.

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1 Response to “Foreign Aid – Does it work or not?”


  1. August 29, 2014 at 2:40 am

    Hello there! This post couldn’t be written any better! Reading through this post reminds me of my old room mate!
    He always kept chatting about this. I will forward this article to him.

    Pretty sure he will have a good read. Thank you for sharing!


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