We find ourselves agreeing with Lord Lawson that development aid is not the solution to the problem of underdevelopment; dismantling the extractive institutions which dominate poor countries would be a far better start (how could we disagree when he cites such authority!).
But we do not actually argue in our book that international aid should be scaled back. In fact our own personal experience and understanding of the wider social science evidence is that aid does help poor people and improve their quality of life, unless it is directed specifically to dictators trying to suppress their people (which has unfortunately happened, for example, when the US was pouring aid to Mobutu in Zaire, though not when aid was directed to deal with issues of economic development, but when it was used for “geopolitical reasons”).
Of course some aid — often far too much of it — gets stolen. But this is the nature of the beast. Almost by definition any poor country is dominated by extractive institutions so it is inevitable that extractive elites should siphon off some of it. Yet this is not an argument for abandoning poor people to their fate or instead giving aid only to “deserving” countries with functional governments like Norway, which of course don’t need it! Rather, it is a plea to re-think aid and try to find ways in which it can be used to build institutions and move away from extractive institutions.
In this light, it is worth observing that there are several positive initiatives currently being implemented by the Department For International Development (DFID), the British governments aid agency. This, for example, includes their project to move away from simple budget support to poor countries which, by virtue of its lack of transparency as aid money simply goes into the government budget, is the type of aid most likely to be siphoned off by extractive political elites.
To which I’d also add in DFID’s favour, they’ve been funding a heck of a lot of good research on governance, institutions and politics. I agree that the biggest binding constraints on self-sustaining development are institutional and political. And I think aid as given to date has done little to shift these (while delivering some very real welfare improvements nonetheless). But it isn’t inevitable that aid will never be able to improve governance and institutions. Aid is much more than a variable in a regression equation, it is an evolving, differentiated thing. Better from some donors, worse from others. Better in some eras worse in other. And this quality is in part a product of donor political economy but also of the interface between the world of ideas and the world of practice. It’s not guaranteed that aid will ever be able to bring about dramatic institutional change. But it could happen. And it’s worth making that could as large as we can by researching and learning.