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« From Malaysia, Two Tales Of Corruption | Main | Deloitte And Kabul Bank: Accounting And Accountability »
Wednesday
Apr132011

Good Intentions, Bad Results

Does foreign aid cause corruption? Yes, mainly by helping corrupt regimes stay in power. And because corrupt regimes are the most unstable, aid also fuels civil unrest.

Here are the top ten U.S. foreign aid recipients as of a couple of years ago, followed by their rank now on the Corruption Perception Index:

1. Israel / 30
2. Egypt / 98
3. Pakistan / 143
4. Jordan / 50
5. Kenya / 154
6. South Africa / 54
7. Mexico / 98
8. Colombia / 78
9. Nigeria / 134
10. Sudan / 172

The top ten donor recipients have an average CPI ranking of about 100 out of 178 ranked countries. But the bottom five of those countries by CPI rank -- Egypt, Pakistan, Kenya, Nigeria, Sudan -- have an average CPI rank of 140. In other words, they're among the most corrupt countries on earth. Not coincidentially, they're also among the most unstable.

Four of those five countries are in Africa. Here's what Dambisa Moyo of the Wall Street Journal said in March 2009 about aid to countries there:

[E]vidence overwhelmingly demonstrates that aid to Africa has made the poor poorer, and the growth slower. The insidious aid culture has left African countries more debt-laden, more inflation-prone, more vulnerable to the vagaries of the currency markets and more unattractive to higher-quality investment. It's increased the risk of civil conflict and unrest (the fact that over 60% of sub-Saharan Africa's population is under the age of 24 with few economic prospects is a cause for worry). Aid is an unmitigated political, economic and humanitarian disaster.

And here's an excerpt (without footnotes) from a prescient U.S. Congressional report from 1999 that explored the link between aid, corruption, and instability:

Research relating to foreign aid shows that such aid is dispersed not on the basis of need, but on the basis of strategic and geo-political considerations. That is, aid tends to support existing recipients who generally are supportive of existing donors. Donors, after all, have incentives to provide aid to those forces, supporters, and organizations that will help them remain in power. In practice, these characteristics are more important to donors than forces of change. A World Bank survey of research on foreign aid, for example, indicates that "there is little relationship between changes in aid and policy reform."

Foreign aid, then, often has not worked to promote reform. Consequently, aid tends to subsidize -- and thereby strengthen -- existing government connections and structures since aid recipients also will distribute this aid so as to preserve their political positions. In short, political elites can benefit from aid. In practice, aid subsidizes and strengthens existing regimes so they become solidified and entrenched. When existing regimes are corrupt, such regimes can be strengthened by foreign aid. It has been shown, for example, that foreign aid seldom includes meaningful incentives to alter governmental behavior with regard to corruption. In sum, when existing regimes are corrupt, the result is that these corrupt political regimes can benefit from foreign aid and become more firmly entrenched.

No one wants to be stingy and hard-hearted toward people anywhere who need help finding food and water, shelter and medicine. But international aid, especially when used to help prop up friendly yet corrupt regimes, isn't part of the solution. It's part of the problem.

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