Aid as a Band-aid?

Teniola Tayo | June 2020

Introduction
Although there is a general agreement among scholars that the flow of resources from rich
countries to poor countries is needed for global prosperity, there is some contestation on the
channels through which these resources should flow. Arguably the most contested channel is
the development aid channel – the transfer of resources from richer countries through state
development agencies or international non-governmental organisations to support poorer
countries in achieving development goals. One school of thought outrightly rejects the need for
development aid, citing its failure so far (Moyo, 2009). However, Moyo’s (2009) argument
that poor countries are better off borrowing from financial markets falls apart when it is
considered that South East Asian countries (with the exception of South Korea) successfully
used development aid to finance their industrialisation while Latin American countries
borrowed from the financial markets and ended up with a debt crisis. Another school of thought
completely embraces the need for aid (Sachs, 2005; Collier, 2007). However, a significant
number of development scholars have now directed their attention away from the question of
whether aid is good or bad, and more towards the question of how aid can be more effective in
achieving the goal of global prosperity (Banerjee & Duflo, 2011; Banerjee & Duflo, 2019;
Easterly, 2006).

In this essay, I will argue along the same lines, by positing that development aid in itself is not
inherently bad for poor countries, but the challenge lies in how it is structured, delivered and
spent. The main thrust of my argument will be to interrogate challenges that present
development aid as a ‘band-aid’ – mere temporary stopgaps that hardly often address the
underlying causes of poverty and under-development. These conditions are exacerbated by the
fact that there are poor or non-existent accountability mechanisms between poor countries and
the agents that deliver development aid to them. I will build a case to demonstrate that although
development aid is not inherently bad for poor countries, the only way it can move beyond its
‘band-aid’ status will be for these concerns to be sufficiently addressed. This essay will also
focus specifically on bilateral development aid from donor governments and aid from
multilateral organisations like the World Bank.
Aid as Band-aid? Page 2 of 4

Challenges with Development Aid to Poor Countries

Aid as a Band-aid
In opposition to the fallacy of liberation, the answer to the question of to what extent
development aid has been successful in achieving the overarching goal of improving global
prosperity is much contested. Moyo (2009) contends that aid has been harmful to poor countries
by having the effect of destroying local economies, increasing corruption, and increasing
poverty. Although Banerjee and Duflo (2019) insist that more focus should be paid on the
effects of aid on specific development indicators such as health and education, Boone and
Faguet (1996) find no evidence to support the effectiveness of aid on a broad range of these
indicators. Sachs (2005) argues that this is simply because rich countries are not paying enough
aid to poor countries, but on the other hand, Easterly (2006) asserts that the challenge lies more
with the way development aid is spent.

If one were to align with the argument that the clearest solution to slow growth is the
reallocation of poorly allocated resources (Banerjee, Duflo & Munshi, 2003), then the question
remains whether development aid, as it is currently structured, can accomplish this task.
Available evidence suggests that it cannot with Easterly (2006) stating that aid is associated
with falling growth rates as Bauer (1981) may have predicted. In addition, although Acemoglu
and Robinson (2012) argue that strong and inclusive political and economic institutions are
needed for sustainable development, there is no evidence that development aid is able to create
these institutions. It can actually be argued that aid can erode these institutions in some cases,
given that they can break the accountability loop between citizens and governments; as well as
disrupt the formation of a strong civil society by making them more accountable to donors
(Moyo, 2009). If this situation persists, aid to poor countries will continue to act like band-aids
in the sense that they do not sufficiently address structural issues and may prevent poor
countries from developing productive capacity for sustainable long-term growth.

Sincere Fictions and Pre-existing Conditions

An interesting argument about some of the limitations development aid suffers from is put
forward by Brett (2016) in the form of the imbalance of aid relationships and the mismatched
expectations between donor agencies and recipient governments. One of these expectations is
the assumption of the capacity that exists both on the side of the donor entity and the recipient
entity. Brett (2016) posits that there is often an overestimation of these capacities leading to
dismal development outcomes. Evidence for this may be found in a report by the Independent

June 2020
Aid as Band-aid? Page 3 of 4

Evaluation Office of the International Monetary Fund (IMF) which revealed that IMF imposed
conditionalities were less effective in areas outside its core competencies (such as privatisation
and public sector reform). The second question that may arise from Brett’s (2016) assessment
is the extent to which strong state capacity is required for effective use of development aid,
given that poor countries may not have this capacity. It is possibly for this reason that Rodrik
(1996) finds that multilateral lending has focused on better performing developing economies.
I argue that a challenge of bounded rationality exists on both sides of the aid equation that can
only be improved with clearer communication between parties and more upfront declarations
of objectives.

He who Pays the Piper Dictates the Tune

One of the major challenges with
development aid to poor countries
pertains to the implicit and explicit
conditionalities attached to them.
Although the idea of conditionalities
appears to be reasonable on the
surface, insofar as it attempts to hold
beneficiary governments accountable
for their received support, a challenge
often lies in the conceptualisation and
enforcement of these conditionalities.
The question of the conceptualisation
of conditionalities includes the
apparent and concealed motivations of
donor governments or agencies, as well Screenshot of USAID Twitter account | Accessed 01/06/2020

as their changing incentives. An interesting illustration of this is the Structural Adjustment

Program that was imposed on several African governments from the late 1970s that force-fed
African economies with the then dominant neo-liberal ideology. Many African governments,
facing a severe debt crisis, had no option but to adopt these policies, some of which some
scholars now acknowledge were ill-fitting to their economies and led to a drastic and sustained
decline in growth (Mkandawire, 2014; Brett, 2008).

June 2020
Aid as Band-aid? Page 4 of 4

In my opinion, potential challenges with the suitability of donor-dictated conditionalities to

beneficiary economies include the worldviews that create these conditionalities as well as the
changing motivations behind them. Although Sachs (2005) takes the position that there are
broadly accepted principles through which economies can develop, some other scholars
disagree, stating categorically that “trying to tease out single factors that lead to growth is a
fool’s errand”1. The argument that there is no one-size fits all approach to economic prosperity
is reasonable, however, a challenge lies in the fact that donor governments have almost
complete agency in imposing a particular approach on poor countries, sometimes to detrimental
effects. Pailey (2019) discusses the assumption of western modernity as a primary signifier of
progress with other factors regarded as deviant or inferior as an indicator of the ‘white gaze’ of
development. I further contend that an added challenge to this is the changing motivations
behind them as a result of changing politics in donor countries. Overt and covert
conditionalities attached to development aid can therefore be quite harmful to poor countries
considering the fact that the interest of donor countries may not always align with beneficiary
countries. A case in point is the election of Donald Trump as the President of the United States,
his “America First” ideology, and its possible link to the update of the mission statement of the
United States Agency for International Development as shown on Twitter that clearly indicates
that US security and economic interests are the dominant objective of aid, and not the provision
of global public goods as would be expected.

Conclusion
Given that poverty can be regarded as a global challenge as it denies a significant percentage
of the world’s population from living truly fulfilling lives by taking away key freedoms, it is
understandable that there is an imperative to transfer resources to these regions. However,
given that the transfer of resources is not an end in itself, it is important to interrogate reasons
why the objective of growth has been largely unmet. Finally, and in conclusion, although I do
not think that aid is inherently bad for development, I posit that there are structural flaws with
the way it is currently set up. Poor countries can only benefit sufficiently from aid if these flaws
are addressed.

1
Banerjee, A. V. and Duflo, E. (2020). How Poverty Ends: The Many Paths to Progress – and Why They Might
Not Continue. Foreign Affairs. Retrieved from: https://www.foreignaffairs.com/articles/2019-12-03/how-
poverty-ends

June 2020