Rich Nations Agreed at UN to 0.7% of GNP To Aid

The aid is to come from the roughly 22 members of the OECD, known as the Development Assistance Committee (DAC). [Note that terminology is changing. GNP, which the OECD used up to 2000 is now replaced with the similar GNI, Gross National Income which includes a terms of trade adjustment. Some quoted articles and older parts of this site may still use GNP or GDP.]

ODA is basically aid from the governments of the wealthy nations, but doesn’t include private contributions or private capital flows and investments. The main objective of ODA is to promote development. It is therefore a kind of measure on the priorities that governments themselves put on such matters. (Whether that necessarily reflects their citizen’s wishes and priorities is a different matter!)

Almost all rich nations fail this obligation

Even though these targets and agendas have been set, year after year almost all rich nations have constantly failed to reach their agreed obligations of the 0.7% target. Instead of 0.7%, the amount of aid has been around 0.2 to 0.4%, some $100 billion short.

Some donate many dollars, but are low on GNI percent

Some interesting observations can be made about the amount of aid. For example:

• USA’s aid, in terms of percentage of their GNP has almost always been lower than any other industrialized nation in the world, though paradoxically since 2000, their dollar amount has been the highest. (Only since 2004 have they move up from last place, by just one or two places.)
• Since 1992, Japan had been the largest donor of aid, in terms of raw dollars. That was until 2001 when the United States reclaimed that position, a year that also saw Japan’s amount of aid drop by nearly 4 billion dollars (as tables and charts below will also show).

Aid beginning to increase but still way below obligations

Throughout the 1990s, ODA declined from a “high” of 0.33% of total DAC aid in 1990 to a low of 0.22% in 1997. 2001 onwards has seen a trend of increased aid. Side NoteThe UN noted the irony that the decline in aid came at a time where conditions were improving for its greater effectiveness . According to the World Bank, overall, the official development assistance worldwide had been decreasing about 20% since 1990.

Between 2001 and 2004, there was a continual increase in aid, but much of it due to geo-strategic concerns of the donor, such as fighting terrorism. Increases in 2005 were largely due to enormous debt relief for Iraq, Nigeria, plus some other one-off large items.

Aid money is actually way below what has been promised

Side note on private contributions

As an aside, it should be emphasized that the above figures are comparing government spending. Such spending has been agreed at international level and is spread over a number of priorities.

Individual/private donations may be targeted in many ways. However, even though the charts above do show US aid to be poor (in percentage terms) compared to the rest, the generosity of the American people is far more impressive than their government. Private aid/donation typically through the charity of individual people and organizations can be weighted to certain interests and areas. Nonetheless, it is interesting to note for example, per latest estimates, Americans privately give at least $34 billion overseas—more than twice the US official foreign aid of $15 billion at that time:

• International giving by US foundations: $1.5 billion per year
• Charitable giving by US businesses: $2.8 billion annually
• American NGOs: $6.6 billion in grants, goods and volunteers.
• Religious overseas ministries: $3.4 billion, including health care, literacy training, relief and development.
• US colleges scholarships to foreign students: $1.3 billion
• Personal remittances from the US to developing countries: $18 billion in 2000
• Source: Dr. Carol Adelman, Aid and Comfort, Tech Central Station, 21 August 2002.

Although Adelman admitted that “there are no complete figures for international private giving” she still claimed that Americans are “clearly the most generous on earth in public—but especially in private—giving”. While her assertions should be taken with caution, the numbers are high.

Side Note on Private Remittances

Globally, private remittances are enormous—$167 billion in 2005, far more than total government aid.

Ranking the Rich based on Commitment to Development

The CGD therefore attempts to factor in some quality measures based on their commitment to development for the world’s poor. This index considers aid, trade, investment, migration, environment, security, and technology.

Their result shows the Netherlands first, Japan last, and the US ranking thirteenth, just behind the United Kingdom, out of 21 total. As David Roodman notes in his announcement of the 2006 Commitment to Development Index, “As in the past, the G-7 ‘leading industrial nations’ have not led on the [Commitment to Development Index]; Germany, top among them, is in 9th place overall.”

Recent claims of some “leading industrial nations” being “stingy” may put people on the defensive, but many nations whom we are told are amongst the world’s best, can in fact, do better. The results were charted as follows:

Source: Center for Global Development, Commitment to Development Index 2006

Private donations and philanthropy

Government aid, while frought with problems (discussed below), reflects foreign policy objectives of the donor government in power, which can differ from the generosity of the people of that nation. It can also be less specialized than private contributions and targets are internationally agreed to be measureable.

Private donations, especially large philanthropic donations and business givings, can be subject to political/ideological or economic end-goals and/or subject to special interest. A vivid example of this is in health issues around the world. Amazingly large donations by foundations such as the Bill and Melinda Gates Foundation are impressive, but the underlying causes of the problems are not addressed, which require political solutions. As Rajshri Dasgupta comments:

“Private charity is an act of privilege, it can never be a viable alternative to State obligations,” said Dr James Obrinski, of the organisation Medicins sans Frontier, in Dhaka recently at the People’s Health Assembly (see Himal, February 2001). In a nutshell, industry and private donations are feel-good, short-term interventions and no substitute for the vastly larger, and essentially political, task of bringing health care to more than a billion poor people.

— Rajshri Dasgupta, Patents, Private Charity and Public Health, Himal South Asian, March 2001

As another example, Bill Gates announced in November 2002 a massive donation of $100 million to India over ten years to fight AIDS there. It was big news and very welcome by many. Yet, at the same time he made that donation, he was making another larger donation—over $400 million, over three years—to increase support for Microsoft’s software development suite of applications and its platform, in competition with Linux and other rivals. Thomas Green, in a somewhat cynical article, questions who really benefits, saying “And being a monster MS [Microsoft] shareholder himself, a ‘Big Win’ in India will enrich him [Bill Gates] personally, perhaps well in excess of the $100 million he’s donating to the AIDS problem. Makes you wonder who the real beneficiary of charity is here.” (Emphasis is original.)

India has potentially one tenth of the world’s software developers, so capturing the market there of software development platforms is seen as crucial. This is just one amongst many examples of what appears extremely welcome philanthropy and charity also having other motives. It might be seen as horrible to criticize such charity, especially on a crucial issue such as AIDS, but that is not the issue. The concern is that while it is welcome that this charity is being provided, at a systemmic level, such charity is unsustainable and shows ulteria motives. Would Bill Gates have donated that much had there not been additional interests for the company that he had founded?

In addition, as award-winning investigative reporter and author Greg Palast also notes, the World Trade Organization’s Trade-Related Intellectural Property Rights (TRIPS), “the rule which helps Gates rule, also bars African governments from buying AIDS, malaria and tuberculosis medicine at cheap market prices.” He also adds that it is killing more people than the philanthropy saving. What Palast is hinting towards is the unequal rules of trade and economics that are part of the world system, that has contributed to countries such as most in Africa being unable to address the scourge of AIDS and other problems, even when they want to. See for example, the sections on free trade, poverty and corporations on this web site for more.

The LA Times has also found that the Gates Foundation has been investing in questionable companies that are often involved in environmental pollution, even child labor, and more.

In addition to private contributions, when it comes to government aid, these concerns can multiply as it may affect the economic and political direction of an entire nation if such government aid is also tied into political objectives that benefit the donor.

Aid is Actually Hampering Development

Aid Money Often Tied to Various Restrictive Conditions

In their 2000 report looking back at the previous year, the Reality of Aid 2000 (Earthscan Publications, 2000, p.81), reported in their US section that “71.6% of its bilateral aid commitments were tied to the purchase of goods and services from the US.” That is, where the US did give aid, it was most often tied to foreign policy objectives that would help the US.

Leading up to the UN Conference on Financing for Development in Monterrey, Mexico in March 2002, the Bush administration promised a nearly $10 billion fund over three years followed by a permanent increase of $5 billion a year thereafter. The EU also offered some $5 billion increase over a similar time period.

While these increases have been welcome, these targets are still below the 0.7% promised at the Earth summit in Rio de Janeiro in 1992. The World Bank have also levelled some criticism of past policies:

Commenting on the latest US pledge [of $10 billion], Julian Borger and Charlotte Denny of the Guardian (UK) say Washington is desperate to deflect attention in Monterrey from the size of its aid budget. But for more generous donors, says the story, Washington’s conversion to the cause of effective aid spending is hard to swallow. Among the big donors, the US has the worst record for spending its aid budget on itself—70 percent of its aid is spent on US goods and services. And more than half is spent in middle income countries in the Middle East. Only $3bn a year goes to South Asia and sub-Saharan Africa.

— Monterrey: US Will 'Seek Advice On Spending Aid', World Bank, March 21, 2002

In addition, promises of more money were tied to more conditions, which for many developing countries is another barrier to real development, as the conditions are sometimes favorable to the donor, not necessarily the recipient. Delhi-based Centre for Science and Environment commented on the US conditional pledge of more money that:

Thus, status quo in world relations is maintained. Rich countries like the US continue to have a financial lever to dictate what good governance means and to pry open markets of developing countries for multinational corporations. Developing countries have no such handle for Northern markets, even in sectors like agriculture and textiles, where they have an advantage but continue to face trade barriers and subsidies. The estimated annual cost of Northern trade barriers to Southern economies is over US $100 billion, much more than what developing countries receive in aid.

— Puppets on purse strings, Down To Earth, (Centre for Science and Environment) Vol 10, No 23, April 30, 2002

Another aspect of aid tying into interests of donors is exemplified with climate change negotiations. Powerful nations such as the United States have been vocally against the Kyoto Protocol on climate change. Unlike smaller countries, they have been able to exert their influence on other countries to push for bilateral agreements conditioned with aid, in a way that some would describe as a bribe. Center for Science and Environment for example criticizes such politics:

It is easy to be taken in with promises of bilateral aid, and make seemingly innocuous commitments in bilateral agreements. There is far too much at stake here [with climate change]. To further their interests, smaller, poorer countries don’t have aid to bribe and trade muscle to threaten countries.

— Pop of the world, Equity Watch, Center for Science and Environment, October 25, 2002.

This use of strength in political and economic arenas is nothing new. Powerful nations have always managed to exert their influence in various arenas. During the Gulf War in 1991 for example, many that ended up in the allied coalition were promised various concessions behind the scenes (what the media described as “diplomacy”). For example, Russia was offered massive IMF money. Even now, with the issue of the International Criminal Court, which the US is also opposed to, it has been pressuring other nations on an individual basis to not sign, or provide concessions. In that context, aid is often tied to political objectives and it can be difficult to sometimes see when it is not so.

But some types of conditions attached to aid can also be ideologically driven. For example, quoted further above by the New York Times, James Wolfensohn, the World Bank president noted how European and American farm subsidies “are crippling Africa’s chance to export its way out of poverty.” While this criticism comes from many perspectives, Wolfensohn’s note on export also suggests that some forms of development assistance may be on the condition that nations reform their economies to certain ideological positions. Structural Adjustment has been one of these main policies as part of this neoliberal ideology, to promote export-oriented development in a rapidly opened economy. Yet, this has been one of the most disastrous policies in the past two decades, which has increased poverty. Even the IMF and World Bank have hinted from time to time that such policies are not working. People can understand how tying aid on condition of improving human rights, or democracy might be appealing, but when tied to economic ideology, which is not always proven, or not always following the “one size fits all” model, the ability (and accountability) of decisions that governments would have to pursue policies they believe will help their own people are reduced.

More Money Is Transferred From Poor Countries to Rich, Than From Rich To Poor

For the OECD countries to meet their obligations for aid to the poorer countries is not an economic problem. It is a political one. This can be seen in the context of other spending. For example,

• The US recently increased its military budget by some $100 billion dollars alone
• Europe subsidizes its agriculture to the tune of some $35-40 billion per year, even while it demands other nations to liberalize their markets to foreign competition.
• The US also introduced a $190 billion dollar subsidy to its farms through the US Farm Bill, also criticized as a protectionist measure.
• While aid amounts to around $50 to 55 billion per year, the poor countries pay some $200 billion to the rich each year.
• There are many more (some mentioned below too).

In effect then, there is more aid to the rich than to the poor.

While the amount of aid from some countries such as the US might look very generous in sheer dollar terms (ignoring the percentage issue for the moment), the World Bank also points out that at the World Economic Forum in New York, February 2002, “[US Senator Patrick] Leahy noted that two-thirds of US government aid goes to only two countries: Israel and Egypt. Much of the remaining third is used to promote US exports or to fight a war against drugs that could only be won by tackling drug abuse in the United States.”

In October 2003, at a United Nations conference, UN Secretary General Kofi Annan noted that

developing countries made the sixth consecutive and largest ever transfer of funds to “other countries” in 2002, a sum totalling “almost $200 billion.”

“Funds should be moving from developed countries to developing countries, but these numbers tell us the opposite is happening…. Funds that should be promoting investment and growth in developing countries, or building schools and hospitals, or supporting other steps towards the Millennium Development Goals, are, instead, being transferred abroad.”

— Kofi Annan, Development funds moving from poor countries to rich ones, Annan says, United Nations News Centre, October 30, 2003

And as Saradha Lyer, of Malaysia-based Third World Network notes, instead of promoting investment in health, education, and infrastructure development in the third world, this money has been channelled to the North, either because of debt servicing arrangements, asymmetries and imbalances in the trade system or because of inappropriate liberalisation and privatisation measures imposed upon them by the international financial and trading system.

This transfer from the poorer nations to the rich ones makes even the recent increase in ODA seem little in comparison.

Trade and Aid

Oxfam highlights the importance of trade and aid:

Some Northern governments have stressed that “trade not aid” should be the dominant theme at the [March 2002 Monterrey] conference [on Financing for Development]. That approach is disingenuous on two counts. First, rich countries have failed to open their markets to poor countries. Second, increased aid is vital for the world’s poorest countries if they are to grasp the opportunities provided through trade.

— Meeting the Challenge of Poverty Reduction, Oxfam, March 2, 2002

In addition to “trade not aid” perspectives, the Bush Administration is also pushing for grants rather than loans from the World Bank. Grants being free money appears to be more welcome, though many European nations aren’t as pleased with this option. Furthermore, some commentators point out that the World Bank, being a Bank, shouldn’t give out grants, which would make it compete with other grant-offering institutions such as various other United Nations bodies. Also, there is concern that it may be easier to impose political conditions to the grants. John Taylor, US Undersecretary of the Treasury, in a recent speech in Washington also pointed out that “Grants are not free. Grants can be easily be tied to measurable performance or results.” Some comment that perhaps grants may lead to more dependencies as well as some nations may agree to even more conditions regardless of the consequences, in order to get the free money. (More about the issue of grants is discussed by the Bretton Woods Project.)

In discussing trade policies of the US, and EU, in relation to its effects on poor countries, chief researcher of Oxfam, Kevin Watkins, has been very critical, even charging them with hypocrisy for preaching free trade but practicing mercantilism:

Looking beyond agriculture, it is difficult to avoid being struck by the discrepancy between the picture of US trade policy painted by [US Trade Representative, Robert] Zoellick and the realities facing developing countries.

To take one example, much has been made of America’s generosity towards Africa under the Africa Growth and Opportunity Act (AGOA). This provides what, on the surface, looks like free market access for a range of textile, garment and footwear products. Scratch the surface and you get a different picture. Under AGOA’s so-called rules-of-origin provisions, the yarn and fabric used to make apparel exports must be made either in the United States or an eligible African country. If they are made in Africa, there is a ceiling of 1.5 per cent on the share of the US market that the products in question can account for. Moreover, the AGOA’s coverage is less than comprehensive. There are some 900 tariff lines not covered, for which average tariffs exceed 11%.

According to the International Monetary Fund (IMF), the benefits accruing to Africa from the AGOA would be some $420m, or five times, greater if the US removed the rules-of-origin restrictions. But these restrictions reflect the realities of mercantilist trade policy. The underlying principle is that you can export to America, provided that the export in question uses American products rather than those of competitors. For a country supposedly leading a crusade for open, non-discriminatory global markets, it’s a curiously anachronistic approach to trade policy.

— Kevin Watkins, Trade hypocrisy: the problem with Robert Zoellick, Open Democracy, December 12, 2002

Watkins lists a number of other areas, besides the AGOA that are beset with problems of hypocrisy, and concludes that “nihilism and blind pursuit of US economic and corporate special interest represents an obstacle to the creation of an international trading system capable of extending the benefits of globalisation to the world’s poor.” (See also this site’s section on free trade and globalization, where there is more criticism about northern countries exhibiting mercantilist, or monopoly capitalist principles, rather than free market capitalism, even though that is what is preached to the rest of the world.)

In that context then, and given the problems mentioned further above about agricultural and textiles/clothing subsidies, etc. the current amount of aid given to poor countries doesn’t compare to “aid” given to wealthier countries' corporations and industries and hardly compensates for what is lost.

Both increasing and restructuring aid to truly provide developing countries the tools and means to develop for themselves, for example, would help recipients of aid, not just the donors. Aid is more than just charity and cannot be separated from other issues of politics and economics, which must also be considered.

Improving Economic Infrastructure

“Trade not Aid” sounds like decent rhetoric. As the economist Amartya Sen for example says, a lot that can be done at a relatively little cost. Unfortunately, so far, it seems that rhetoric is mostly what it has turned out to be.

In addition, as J.W. Smith further qualifies, rather than giving money that can be squandered away, perhaps the best form of aid would be industry, directly:

Do Not Give the Needy Money: Build Them Industries Instead

With the record of corruption within impoverished countries, people will question giving them money. That can be handled by giving them the industry directly, not the money. To build a balanced economy, provide consumer buying power, and develop arteries of commerce that will absorb the production of these industries, contractors and labor in those countries should be used. Legitimacy and security of contracts is the basis of any sound economy. Engineers know what those costs should be and, if cost overruns start coming in, the contractor who has proven incapable should be replaced—just as any good contract would require…. When provided the industry, as opposed to the money to build industry, those people will have physical capital. The only profits to be made then are in production; there is no development money to intercept and send to a Swiss bank account.

— J.W. Smith, Economic Democracy; The Political Struggle for the 21st Century, Second Edition, (1st Books, 2002), pp. 300-301 (also available in full online)