New Internationalist Issue 285
Official Aid - a brief history
New world orders and theories of aid have come and gone - but old world problems have persisted all the while.
Ugandan schoolchildren wield bars of soap they have received in aid
Aftermath
The two wars that began in Europe in the first half of the twentieth century
were 'total': waged by industrial means on civilians as well as between armies,
and with devastating results. In the interval between them came the Great Depression
- the worst financial collapse in the history of capitalism - and revolutionary
upheaval in Russia. The legacy of this chaotic experience pushed Northern governments
into more active economic and social intervention. This shift was reflected
internationally. A conference at Bretton Woods in 1944 agreed heavily modified
versions of economic ideas for a 'new world order' proposed by John Maynard
Keynes. The International Bank for Reconstruction and Development (IBRD - now
known as the World Bank) was established to help the post-War reconstruction
of Europe. Together with the foundation of the United Nations, Bretton Woods
laid down the basic structure of the 'multilateral' financial agencies that
has remained in place to this day.
Reconstruction
In 1948 the US Congress authorized the use of two to three per cent of US Gross
National Product (GNP) until 1953 to finance grants for the reconstruction of
Europe - what became known as the Marshall Plan. With this the present concept
of aid was born. Three-quarters of the goods financed under this plan came from
the US, mostly in the form of food aid. The recipients agreed to co-operate and
make joint requests to the US. The organization set up to do this eventually became
the Organization for Economic Co-operation and Development (OECD) - today's rich-country
'club' whose Development Assistance Committee (DAC) includes all the major official-aid
donor countries. All the new institutions were designed for, and controlled by,
the North. Repeated attempts to establish alternatives based on the UN, in which
the interests of the South were better represented, were thwarted.
Cold war
The end of the Second World War also ushered in a 'cold' war with the Soviet Union
in which aid became a pawn. Massive US aid was sent to the island of Taiwan, to
which the opponents of the Chinese revolutionary regime had retreated. Following
the Korean War - which began in 1950 - Western aid financed more than 68 per cent
of total imports and 60 per cent of investment in South Korea, while aid from
the 'Communist Bloc' financed a third of national revenues in North Korea. Former
European colonies were becoming independent. A meeting of Southern heads of government
in Bandung, Indonesia, in 1955 gave rise to the Non-Aligned Movement. The idea
of a 'Marshall Plan for the South' was taken up by Bruno Kreisky, Austria's Federal
Chancellor, in 1958. In the same year the World Council of Churches called for
one per cent of the GNP of rich countries to be devoted to aid in the South: an
idea adopted by the General Assembly of the UN in 1960.
Development
In response to the glaring post-colonial poverty of the South, the UN declared
the 1960s to be a 'Decade of Development'. Most 'bilateral' aid between individual
countries was 'tied' to narrow commercial or political self-interest in the donor
country. West Germany would not give aid to any government that recognized East
Germany, while the US strategic and domestic agenda prompted aid to Israel. Great
reliance was placed on promoting the 'Green Revolution' to meet the food needs
of a world population that was expanding rapidly, especially in the South. But
the one-per-cent aid target was never reached. In 1969 a Commission led by Lester
Pearson, the Canadian Prime Minister, called for 0.7 per cent of rich countries'
GNP to be given in aid, excluding commercial loans and military expenditure -
the average was about 0.5 per cent at the time. This was accepted unanimously
by members of the OECD.
Redevelopment
The Pearson Commission recommended a 'Second Decade of Development' for the 1970s.
It got off to a bad start: by 1973 aid levels had fallen to 0.29 per cent of GNP.
In 1972 Robert McNamara, head of the World Bank, called for a reorientation of
aid towards the poorest 40 per cent of the world's population. 'Targeting the
poor' became the new orthodoxy. A series of UN conferences (on the environment
in 1972, population and food in 1974, women in 1975, human settlements in 1977)
underlined the failures and challenges of 'development' - particularly for women.
The oil crisis in 1973 hit the South hard - and the process of recycling the oil-producers'
huge cash surpluses through Northern private banks into 'Third World' loans began.
In 1974 the UN endorsed the 'New International Economic Order' called for by the
Group of 77 developing countries, who argued that aid was no substitute for a
fair deal on basic economic issues like trade.
Lost decade
In 1982 a major financial crisis hit Mexico, which threatened to default on its
foreign debts. The Brady Plan - the first major 'structural adjustment' programme
- was negotiated between the US and Mexican Governments to protect Northern banks
and prevent a global financial collapse. A crisis of debt began to overwhelm the
South as interest rates rose and commodity prices fell. Structural adjustment,
requiring cuts in public expenditure, privatization and strict anti-inflation
measures, was the formula imposed to deal with it. Aid levels stagnated well below
the 0.7-per-cent target. Large-scale projects like dams came under increasing
criticism, particularly on environmental grounds. The 1980s became known as the
'lost decade'. The search for 'environmentally sustainable development' began.
The economic success of the 'Little Tigers' (South Korea, Taiwan, Hong Kong and
Singapore - all of which had at one time been recipients of substantial aid) seemed
to offer a new model of 'export-led' economic growth in developing countries.
Washington consensus
In the latest 'new world order' after the collapse of communism, the acceptance
of 'adjustment' by recipient countries became a uniform condition of almost all
official aid. A 'Washington Consensus' emerged in 1990 as the World Bank declared
that though poverty persisted only free markets could reduce it. However, growing
anxieties about the threat of social unrest resulted in a New Policy Agenda. This
demanded 'good governance' and 'ownership' of adjustment policies from Southern
governments. An increasingly long list of conditions became attached to aid -
no less than 111 in the case of Kenya in 1994. Civil conflict replaced the national
contests of the Cold War and became the focus of humanitarian crises in Somalia,
Bosnia, Rwanda and elsewhere. The proportion of aid budgets devoted to peacekeeping
and emergencies increased. And all the while the divide between rich and poor
people everywhere widens sharply.
Sources:
Kunibert Raffer and HW Singer, The
Foreign Aid Business, Edward Elgar, Cheltenham, 1996; The Progress of Nations
1996, UNICEF.
©Copyright: New Internationalist 1996
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