The purpose of aid

 Teresa Hayter has responded to our recent special feature The Aid Debate (see NI 425) – which was provoked in part by Dambisa Moyo’s controversial book Dead Aid.

In her contribution to the on-going discussion, Dr Hayter takes issue with the very idea that the purpose of aid is to alleviate poverty. She writes:

‘The notion that official foreign aid is in reality intended to alleviate poverty in the Third World dies hard.

 The actual function of aid from western governments and their agencies, the World Bank and the IMF, is to subsidize the operations of the private corporations and banks of the West. This is not conspiracy theory. It is a conclusion painfully and slowly, reached after many years of research.

 My first proper job, from 1963 to 1968, was at the British Overseas Development Institute, a lobby for more and better aid. The ODI was funded by Unilever, Barclays Bank and the like. We were not allowed to criticize foreign private investment in the ‘developing countries’ – which surprised me a little.

 But it was even more surprising that these corporations and banks wanted more government foreign aid. It gradually became clearer to me why this was so. They wanted to be able to continue their profitable operations in the Third World. Aid was, and is, used by governments and big multilateral aid agencies to ensure that the governments that receive it adopt policies that favour not just capitalism in general, but the interests of their private corporations and banks in particular.

 From 1944 onwards, when the World Bank and the IMF were set up, these institutions have dominated aid policies. They are controlled by the US and other major western governments, through weighted voting and the fact that the World Bank raises most of its money on Wall Street. In turn, the World Bank and the IMF have a powerful influence on these governments’ aid policies and, in particular, on which Third World governments they do and do not support. It is hard to determine whether lending decisions result from US pressures or from the overwhelmingly right-wing proclivities of these aid agencies’ staff.

 From the beginning, they intervened heavily in the policies of the governments receiving aid. The IMF sees its role as attaching conditions to its lending, designed to secure financial stability through orthodox, monetarist policy – especially by cutting public spending.

 The World Bank was, in theory, supposed to promote long-term development through funding projects. But, although at first secretively – officials, when they tried to suppress my research, told me they favoured ‘secret diplomacy’ – the Bank too tried to determine the general economic  policies of the governments it lent to, and did so in a classic, monetarist direction. In other words it attached, and attaches, conditions not merely to the projects it funds, but on government economic policies in general. This policy became public in the 1980s, when it became known as structural adjustment lending.

 The demands the Bank makes are no less restrictionist and orthodox than those of the IMF, and sometimes more so. Both institutions demand not – as I had expected when I was sent to study the Bank in Latin America in 1967 – more spending on health and education  for example, but cuts in such spending. At first this was to secure ‘stability’ and then, in the 1980s, to extract servicing on foreign debt. For similar purposes these institutions demand privatization, which has meant selling off public assets – in practice, cheaply, to foreigners.

 They demand the removal of controls on imports and on the export of capital, and devaluation. They demand, supposedly in the interests of ‘capitalist efficiency’, that projects be put out to tender in ways which favour foreign rather than local contractors. The Bank requires ‘full cost recovery’ on any projects it finances in, say, water or housing. In other words, the poor have to pay. It demands cuts in wages and jobs in the public sector. It opposes land reform, at least land reform which involves transfers from the rich to the poor. It prefers the abolition of collectives or co-operatives. And so on.

 All of this has meant that the aid agencies support only right-wing, pro-Western and often repressive governments, some of them the product of US-supported military coups; the Pinochet government in Chile was one of their most favoured. The converse, of course, is that they deny aid to elected governments which attempt to introduce reforms, such as redistribution to the poor and of course nationalization of foreign assets, let alone socialism. In 1985 I recorded a list of some of the governments which had had aid cut during periods when they were pursuing left-wing reforms: Chile, Vietnam, Nicaragua, Grenada, Algeria, Peru, Brazil, Egypt, Jamaica. Virtually no right-wing government has been penalized by the withholding of aid.

The threat to cut aid, or the promise of more for governments that do what they are told, sometimes works.

 The decision by the South African ANC to apply for loans from the World Bank (which are classed as ‘aid’) explains to a great extent its abandonment of some promised reforms, including redistribution to the poor and land reform, and contributed to the creation of a, now, notoriously corrupt governing élite. Other factors may be more important, of course.

 Third World élites know which side their bread is buttered on. For example the fact that Latin American governments did not default on their foreign debts when interest rates rocketed at the beginning of the 1980s, and cut domestic spending instead, is incomprehensible unless one accepts that there was not just a lenders’ cartel, but collusion from high up Latin American politicians and officials who did not want to lose their access to Wall Street jobs, and other privileges derived from membership of the international financial elite. The financial effects of losing aid would have been small compared to the gains from default. And if the threats and promises of aid fail to have their effect, the West of course may resort to other means, including military intervention, directly or by proxy. But aid is a first line of defense against socialism and against other reforms which might undermine the ability of the West and its corporations and banks to extract wealth from the Third World.

 Some aid projects may in themselves be useful. Others may be problematic: foreign so-called experts, however well-meaning, often get it wrong. But, above all, the policies which governments have to adopt to get the money are deeply damaging to the interests of the poor. I believe, therefore, that official government aid, on balance, does more harm than good to the poor of the Third World.’

 Teresa Hayter is an Oxford-based writer and activist. Her books include: Aid as Imperialism, Penguin 1971; Aid: Rhetoric and Reality, Pluto 1985; The Creation of World Poverty, Pluto 1981.