EAC Report: Development Aid

Lord Lawson of Blaby Excerpts

Monday 22nd October 2012 Lords Chamber

[Lord Lawson of Blaby]

My Lords, I hope that the right reverend Prelate will forgive me if I do not address the points he made in his contribution to the debate. We are strongly constrained for time, which unfortunately prevents us having a debate in the real sense of the word.

As the first member of the Economic Affairs Committee of your Lordships’ House to speak after our chairman, I start by paying a large tribute to his outstanding chairmanship. He pointed out that in this tricky area we produced an absolutely unanimous report. I think that the main reason for our unanimity, if I may say so, was because the weight of evidence that we received was so overwhelming—evidence that noble Lords who have spoken so far seem to regard as of no account. However, his outstanding chairmanship also played a part, and I thank him.

This country’s aid programme stands out in at least three ways. First, as my noble friend said, we give more in overseas development aid than any country in the world with the sole exception of the United States. Secondly, while in order to achieve sadly necessary fiscal consolidation, all other public expenditure programmes are being either frozen or cut back, the UK overseas aid budget is roaring ahead—at a time when most other countries are slowing down on this front. Thirdly, we are doing this explicitly in pursuit of a pledge to meet the 42 year-old United Nations target of spending 0.7% of our GNP on aid by next year; and, unlike any other country in the world, and in contrast to all other areas of public expenditure in this country, we have said that we will introduce legislation to bind this and all future UK Governments to maintaining this level of spending in perpetuity.

As my noble friend Lord MacGregor pointed out, the principal conclusion of our report, although not the only one, was that, far from making it a legal obligation, we should abandon this antique and wholly arbitrary target altogether. He admirably set out why we unanimously reached that conclusion. In particular, he pointed out how the 0.7% target prioritises the amount spent rather than the results achieved, and thus makes the achievement of the spending target more important than the effectiveness—if any—of the programmes. The Government’s pathetic response to our report was that the 0.7% commitment was a solemn pledge by all three political parties, and that is that.

[Baroness Royall of Blaisdon]

Hear, hear.

[Lord Lawson of Blaby]

I very much hope that the Minister will do better than that this evening, even if the Leader of the Opposition is unable to do so.

In my rather long political experience, when all three political parties are agreed on a policy, it is nearly always mistaken—as it is in this case. There is a very clear reason why that should be. The existence of all-party consensus ensures that the policy in question is never properly debated or scrutinised. If the evidence shows that a policy is mistaken, it should be abandoned: it is as simple as that.

I do not question for a moment that the policy is well meant, or that the intentions behind it are noble. However, as we all know, the road to hell is paved with good intentions. Policies need to be judged by their outcomes, not by their intentions. I cannot stress this too strongly. I believe that all of us on all sides of the House are well intentioned, but that does not prevent us frequently disagreeing strongly with the proposals of those who sit opposite us, on the grounds that the consequences of what they propose would be damaging. For example, I am sure that Mr Blair had the most high-minded intentions when he took this country to war with Iraq. However, that does not mean that he was right to do so. It is outcomes, not intentions, which matter.

I return to the proposal that the 0.7% aid target should be abandoned. I suspect that we might not have felt quite so strongly about this had there not been serious doubts about the efficacy of development aid more generally. To quote the cautious conclusion of our report,

“the evidence that aid makes a contribution to growth in recipient countries is inconclusive”.

We did not go deeply into the question of why development aid does not, on balance, promote economic development, although we did point to the malign relationship between aid and corruption, which has already been mentioned in this debate. But corruption—important as it is—is only part of the story. The real issue is more fundamental than that.

A useful analysis, which I commend to the House, is to be found in a penetrating new study, Why Nations Fail, by a couple of economists, Acemoglu and Robinson, which unfortunately was not published until after we had completed our inquiry. They say that what the nations that fail,

“all share is extractive institutions. In all these cases the basis of these institutions is an elite who design economic institutions in order to enrich themselves and perpetuate their power at the expense of the vast majority of people in society”.

In parenthesis, my noble friend Lady Falkner reminded us earlier of my old friend, the distinguished development economist the late Professor Peter Bauer, who many noble Lords will recall was a stimulating Member of this House. He used to say that the principal effect of official development aid was to transfer money from the poor in the rich countries to the rich in the poor countries. That is far too true for comfort.

Be that as it may, Acemoglu and Robinson continue:

“The idea that rich Western countries should provide large amounts of ‘developmental aid’ in order to solve the problem of poverty in sub-Saharan Africa, the Caribbean, Central America and South Asia is based on an incorrect understanding of what causes poverty. Countries such as Afghanistan are poor because of their extractive institutions—which result in a lack of property rights, law and order, or well-functioning legal systems and the stifling dominance of national and, more often, local elites over political and economic life. If sustained economic growth depends on inclusive institutions, giving aid to regimes presiding over extractive institutions cannot be the solution”.

That must be right. But I would myself put it more simply. The crucial requirement for economic development is a variant of the separation of powers: in this case, a separation between the political and the economic spheres.

Without that separation, if the route to individual wealth is via political office, government becomes a means of extracting wealth for the benefit of those in government, at the expense of the governed; and the notion of facilitating economic development or growth by providing conditions in which the governed can escape from poverty by their own efforts, outside the political process, is conspicuous by its absence—hence the futility of development aid.

I stress that I am not speaking here about disaster relief, although even in the area of disaster relief, the reality is all too frequently far from the intention, as Linda Polman has devastatingly documented in her book War Games: The Story of Aid and War in Modern Times..

The record of development aid, however well intentioned— and I admit that it is—is as disappointing as it is because it does not and cannot achieve the indispensable political and institutional requirement of a separation between the political and economic spheres in the recipient countries. Without that, development aid is futile; with it, development aid is unnecessary. Indeed, official development aid is likely to be worse than futile, and actively counterproductive overall—even though individual projects may bring useful if minor benefits, such as better paid schoolteachers and thus, we hope, better schools.

This is because the principal consequence of the provision of official development aid to Governments in the developing world is to boost the already excessive dependence on government and, more specifically, to reinforce the concentration of political and economic power—the very reverse of what history has shown is required for successful economic development, without taking into account the extent to which aid promotes corruption in the recipient countries; a well documented phenomenon.

It is, of course, important that we do nothing actually to impede the economic development of what used to be known as the third world. That means, in particular, putting no barriers in the way of their exports to us. But if we seriously wish to use taxpayers’ money to help the people of the developing world, the best thing we can do is probably to spend a fraction of what we are currently mis-spending on development aid on educating the future leaders of those countries in our best schools and universities. It is only they who may, in future, be able to effect the political and institutional transformation that their countries so badly need.