Friday, November 5, 2010

The case for aid in fiscally constrained times: Ethics or Self-interest?

Andy Sumner
What is the case for ODA and does it differ in fiscally constrained times? And what if 72% of the world's poor live in middle income countries?
That's what we asked in our paper for this year’s DSA conference which starts today.
We argue that the case for Official Development Assistance (ODA) at a global level is based on two things:
-  Ethical/Moral Arguments: compassion, compensation (slavery, colonialism, unfair trade, etc), responses to disasters (acute need);
- Self-interest: Mutuality (inter-dependence); support for MNCs (inputs and markets) and security.

But how does this differ in fiscally constrained times?
One could argue that the ethical case for ODA is largely independent of the fiscal context in the donor country because this case is a long-term one.
However, one could also say the compassion-ethical argument might be stronger, depending on the socio-economic situation in the potential recipient.
What might be important are the relative impacts of the global crisis in recipient and ‘donor’ country.
The self interest case for ODA may even be stronger in fiscally constrained times if it stimulates the global economy more than the same spend at home (but whether this can be accurately assessed is another matter) and the self interest-security might also be stronger. Again, the impacts of the global crisis in ‘recipient’ relative to the ‘donor’ country might shape the argument. If a fragile state was particularly badly impacted by the crisis (lost remittances, falls in exports, etc) the resultant pressure on the country might form the basis of a self interest-security argument in favour of ODA which seeks to prevent further pressure on the country.
What really matters in making the case for ODA is one of where the poor live and what resources their own governments have at their disposal.
Of the world’s US$1.25 poor, 960m or 72% live, not in poor countries but in middle income countries (MICs) and most of them in stable, non-fragile MICs.
Only about a quarter of the world’s poor – about 370mn people or so − live in the remaining 39 low-income countries (LICs), which are largely in sub-Saharan Africa. This is a dramatic change from just two decades ago when 93% of poor people lived in low-income countries.
The poor haven’t moved of course nor are these ‘newly’ poor people. What has largely happened is the countries in which many of the world’s poor live have got richer in average per capita terms – transitioning from low income to middle income country status under World Bank classifications and many poor people have been left behind.
A good question to bloggers is -
- How does this changing nature of global poverty impact the ethical and self-interest case for ODA?
Is it time to think more about aid beyond ODA flows and relationships with MICs and the 'do no harm' agenda (aid as northern policies on climate, migration and remittances, tax havens, favourable trade policies, etc)?
Or is it time to make ODA more political - and fund the progressive forces like CSOs, media, etc?

Andy Sumner is a cross-disciplinary Economist based at IDS

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