Academic journal article Policy Review

Rich Donors, Poor Countries

Academic journal article Policy Review

Rich Donors, Poor Countries

Article excerpt

THE SHIFTING IDEOLOGICAL winds of foreign aid donors have driven their policy towards governments in poor countries. Donors supported state-led development policies in poor countries from the 1940s to the 1970s; market and private-sector driven reforms during the 1980s and 1990s; and returned their attention to the state with an emphasis on governance and government social spending thereafter. Poor countries--sometimes called "low-income economies" or "least-developed countries"--have over the decades been a proxy battleground for the Western left and the right, with heated debates about the merits of infant industry protection, privatization of public utilities, government-provided health care, and the role of government more generally.

Both liberals and conservatives in the West have more in common than they realize, however. Their policy preferences have evolved in the richest countries in the world, with well-financed governments that carry out an ever-growing number of functions under the rule of law. Much of their sense of what is minimally acceptable in government is a relatively recent product of wealth. Yet they do not hesitate to apply their home-grown standards to governments in poor countries.

While it may seem obvious that the governments of poor countries are themselves poor, donors have largely failed to appreciate the enormity of the gap between the revenues of poor country governments and of their own governments. They have taken for granted the government-provided prerequisites that make their favorite policies work at home. When their policy prescriptions fail in poor countries, donors blame the failure on corruption and weak political will for implementation. But even with clean government and the best will, many of their policy prescriptions are unlikely to succeed. The poorest countries do not have the resources to build weaker versions of Western governments. Their attempt to do so spreads government too thin, making it impossible for the government to deliver on its commitments and making both law and government policy declarations aspirational. Instead, poor countries will have to build sustainable governments commensurate with their resources, which will necessarily be governments of more limited function. Donors shrink before the hard choices, and their reluctance to acknowledge them undermines the quality of government in poor countries and deepens poor country aid dependence.

Development and government

BOOKS AND ARTICLES that trace the intellectual history of development tell how development policy has been shaped by ideas of the role of government in richer countries. The story they tell divides development thinking into three eras: an initial era of state-led development; the "Washington Consensus" era, which focused on government retrenchment and market solutions; and the current era, which has been characterized as post-consensus or no consensus, but in which the pendulum swung back towards a more important role for government.

The idea that government had an important role to play in managing the economy, educating the people, providing social safety nets and reducing inequality was well accepted in the United States and other industrialized countries when most poor countries gained independence. The Great Depression and World War II led the United States to adopt Keynesian economic policies, intervene in the economy, and begin to create social safety nets first for returning veterans and then for others. Alternative models available to leaders of newly independent countries were even more statist--European and Latin American socialism, or Soviet or Chinese communism.

Initially, poor governments attempted to fill an expansive role in leading development. They regulated international trade, currency exchange, and domestic markets; established state-owned enterprises; sought to protect and nourish infant industries; and sought to raise revenue for infrastructure construction and the provision of social services, such as education and the delivery of clean water. …

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