Australian aid: Overcoming poverty, or alleviating its consequences?

Written by Hugh White

Many thanks to Terence Wood for his excellent post in response to my oped on Australia’s aid program. His well-made points, and others from Annmaree O’Keeffe over at The Interpreter challenge my arguments very effectively. I’ve replied to Annmaree there, and I’m glad of the chance to respond to Terence here.

1. I completely agree that there is still a lot of poverty around, with real human cost. But as Terence suggests, that is not a reason to give more aid unless there is reasonable confidence that aid makes an effective contribution to ‘overcoming poverty’. And that is what the aid program is all about, according to both the Hollway Review and the Government.

2. I think Terence agrees that economic growth is the essential key – the necessary even if not the sufficient condition – for overcoming poverty. So I think we agree that the key question for the effectiveness of the aid program in meeting the key objective set by the Review and the Government is: how much does aid help economic growth?

3. We both agree that aid makes some contribution to the economic growth. But I was a bit surprised that Terence’s claims for the scale of that contribution are so modest. In fact I think we really agree on this too. He said ‘aid’s impact on economic growth, while probably positive, isn’t massive.’ I said aid ‘doesn’t make much difference’ to growth. Well, I’m happy to go with his formulation. ‘Probably positive, not massive’ is not very compelling, is it? If all we can say for an $8 billion program is that it ‘probably’ has a positive effect on the outcome we seek, then I think we do have a problem.

4. Terence’s post suggests that there are other ways aid can help overcome poverty other than fostering growth. He argues that aid can help redistribute wealth within a country to those who remain poor when their economy grows. But is that true? I imagine that distribution of wealth in any society is peculiarly tied up with the most intimate details of its political and social structure, and would be very hard for aid to change. So I’d guess that all aid can do is offset the inequalities by giving handouts to those who miss out. But that will not ‘overcome poverty’, just alleviate its effects.

5. Finally, Terence argues that we can help them enjoy better lives even when we can do little to overcome poverty. His PNG graphs make the point perfectly – assuming that some share of the life-expectancy outcome can be attributed to aid. I expect they can.

Australia’s long-running provision of direct health care has made a real difference to millions of people in PNG. But after decades of effort we have never managed to build a national heath system in PNG which can take this job over and one day allow us to stop handing out medicines. So again, our aid program does not overcome poverty, only alleviate its consequences. We are back handing out fish, not nets. This is a legitimate humanitarian aim. But it is not meeting the Hollway Review’s and the Government’s objective for the program.

Does this matter? I’m sure many people would say that as long as we are helping people in need, there is no need to worry too much about whether we are handing out fish or nets. Well, perhaps. But it is still important – for humanitarian, as well as fiscal reasons – to spend the money well to achieve the maximum outcomes. We cannot do that if we are not clear what the outcomes are supposed to be, and I think Terence’s arguments reinforce my sense that, despite the Review, we are still not at all clear what the Government thinks it is trying to do with aid.

Hugh White is Professor of Strategic Studies and Head of the Strategic and Defence Studies Centre at ANU, and a Visiting Fellow at the Lowy Institute for International Policy.

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Hugh White

Hugh White is Professor of Strategic Studies and Head of the Strategic and Defence Studies Centre at ANU, and a Visiting Fellow at the Lowy Institute for International Policy.

2 Comments

  • Surely it is a key question to ask (if not the only question) what the link is between economic growth and the achievement of poverty outcomes and the Millennium Development Goals. As ODI’s Claire Melamed and others have argued this depends on the degree to which ‘the opportunities and benefits created by growth support the human development of the poorest people’. This includes an ‘equitable distribution of the benefits of growth, in the form of progressive taxation and pro-poor public spending on health, education and social protection’. See http://www.odi.org.uk/resources/details.asp?id=4892&title=millennium-development-goals-equitable-growth-policy-brief

    Is part of the debate really therefore about what type of economic growth brings about pro-poor change, and the degree to which aid supported pro-poor public spending also contributes to that growth?

  • I don’t agree with Hugh that overcoming poverty necessarily means overcoming income poverty, therefore I can’t agree with him that ‘the key question for the effectiveness of the aid program … is: how much does aid help economic growth?’  For example, if a person survives, gains an education and goes on to live a longer, more healthy and fulfilling life as a result of aid assistance, have they been assisted to overcome poverty, even if their country’s GDP has not increased?
     
    I also think Hugh, with the PNG reference, is commenting on an extreme example of poor aid performance and that there are many examples of aid helping to build better ‘nets’ – just look at the improving health and education services of almost every other developing country in our region.
     
    I do agree, however, that the Review has failed to clarify how best to use aid.  This is partly because of the need to balance all the humanitarian, economic, security and feel-good objectives of the aid program. We will always have compromises as a result of these competing demands.
     
    But I think it is also because the Review failed to look at the question of which types of aid intervention are most effective – arguing instead that aid effectiveness was only a product of the recipient, the donor and the interaction of the two.
     
    This ignores the clear evidence that aid can be very effective at providing services (such as health, education, water and sanitation) and at boosting the incomes or welfare of the poor, but that it is a far less reliable tool to boost economic growth or transform governance directly (for example see Charles Kenny’s book Getting Better).
     
    The Aid Review set out a useful process and set of guidelines to better manage the aid program, but it did not provide all of the answers.  It is now time, as the Government develops its 4 year aid plan and new country strategies, that we incorporate the evidence on which types of aid are the most effective to ensure that we maximise the return on this investment and make sure we can help as many poor people as possible overcome poverty.

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