New Internationalist Issue 285

Development (Aid)

[image, unknown] New Internationalist Issue 285

Official Aid - a brief history

New world orders and theories of aid have come and gone - but old world problems have persisted all the while.
Photo by Maggie Black.
Ugandan schoolchildren wield bars of soap they have received in aid

The two wars that began in Europe in the first half of the twentieth century were 'total': waged by industrial means on civilians as well as between armies, and with devastating results. In the interval between them came the Great Depression - the worst financial collapse in the history of capitalism - and revolutionary upheaval in Russia. The legacy of this chaotic experience pushed Northern governments into more active economic and social intervention. This shift was reflected internationally. A conference at Bretton Woods in 1944 agreed heavily modified versions of economic ideas for a 'new world order' proposed by John Maynard Keynes. The International Bank for Reconstruction and Development (IBRD - now known as the World Bank) was established to help the post-War reconstruction of Europe. Together with the foundation of the United Nations, Bretton Woods laid down the basic structure of the 'multilateral' financial agencies that has remained in place to this day.
In 1948 the US Congress authorized the use of two to three per cent of US Gross National Product (GNP) until 1953 to finance grants for the reconstruction of Europe - what became known as the Marshall Plan. With this the present concept of aid was born. Three-quarters of the goods financed under this plan came from the US, mostly in the form of food aid. The recipients agreed to co-operate and make joint requests to the US. The organization set up to do this eventually became the Organization for Economic Co-operation and Development (OECD) - today's rich-country 'club' whose Development Assistance Committee (DAC) includes all the major official-aid donor countries. All the new institutions were designed for, and controlled by, the North. Repeated attempts to establish alternatives based on the UN, in which the interests of the South were better represented, were thwarted.

Cold war

The end of the Second World War also ushered in a 'cold' war with the Soviet Union in which aid became a pawn. Massive US aid was sent to the island of Taiwan, to which the opponents of the Chinese revolutionary regime had retreated. Following the Korean War - which began in 1950 - Western aid financed more than 68 per cent of total imports and 60 per cent of investment in South Korea, while aid from the 'Communist Bloc' financed a third of national revenues in North Korea. Former European colonies were becoming independent. A meeting of Southern heads of government in Bandung, Indonesia, in 1955 gave rise to the Non-Aligned Movement. The idea of a 'Marshall Plan for the South' was taken up by Bruno Kreisky, Austria's Federal Chancellor, in 1958. In the same year the World Council of Churches called for one per cent of the GNP of rich countries to be devoted to aid in the South: an idea adopted by the General Assembly of the UN in 1960.


In response to the glaring post-colonial poverty of the South, the UN declared the 1960s to be a 'Decade of Development'. Most 'bilateral' aid between individual countries was 'tied' to narrow commercial or political self-interest in the donor country. West Germany would not give aid to any government that recognized East Germany, while the US strategic and domestic agenda prompted aid to Israel. Great reliance was placed on promoting the 'Green Revolution' to meet the food needs of a world population that was expanding rapidly, especially in the South. But the one-per-cent aid target was never reached. In 1969 a Commission led by Lester Pearson, the Canadian Prime Minister, called for 0.7 per cent of rich countries' GNP to be given in aid, excluding commercial loans and military expenditure - the average was about 0.5 per cent at the time. This was accepted unanimously by members of the OECD.


The Pearson Commission recommended a 'Second Decade of Development' for the 1970s. It got off to a bad start: by 1973 aid levels had fallen to 0.29 per cent of GNP. In 1972 Robert McNamara, head of the World Bank, called for a reorientation of aid towards the poorest 40 per cent of the world's population. 'Targeting the poor' became the new orthodoxy. A series of UN conferences (on the environment in 1972, population and food in 1974, women in 1975, human settlements in 1977) underlined the failures and challenges of 'development' - particularly for women. The oil crisis in 1973 hit the South hard - and the process of recycling the oil-producers' huge cash surpluses through Northern private banks into 'Third World' loans began. In 1974 the UN endorsed the 'New International Economic Order' called for by the Group of 77 developing countries, who argued that aid was no substitute for a fair deal on basic economic issues like trade.

Lost decade

In 1982 a major financial crisis hit Mexico, which threatened to default on its foreign debts. The Brady Plan - the first major 'structural adjustment' programme - was negotiated between the US and Mexican Governments to protect Northern banks and prevent a global financial collapse. A crisis of debt began to overwhelm the South as interest rates rose and commodity prices fell. Structural adjustment, requiring cuts in public expenditure, privatization and strict anti-inflation measures, was the formula imposed to deal with it. Aid levels stagnated well below the 0.7-per-cent target. Large-scale projects like dams came under increasing criticism, particularly on environmental grounds. The 1980s became known as the 'lost decade'. The search for 'environmentally sustainable development' began. The economic success of the 'Little Tigers' (South Korea, Taiwan, Hong Kong and Singapore - all of which had at one time been recipients of substantial aid) seemed to offer a new model of 'export-led' economic growth in developing countries.

Washington consensus

In the latest 'new world order' after the collapse of communism, the acceptance of 'adjustment' by recipient countries became a uniform condition of almost all official aid. A 'Washington Consensus' emerged in 1990 as the World Bank declared that though poverty persisted only free markets could reduce it. However, growing anxieties about the threat of social unrest resulted in a New Policy Agenda. This demanded 'good governance' and 'ownership' of adjustment policies from Southern governments. An increasingly long list of conditions became attached to aid - no less than 111 in the case of Kenya in 1994. Civil conflict replaced the national contests of the Cold War and became the focus of humanitarian crises in Somalia, Bosnia, Rwanda and elsewhere. The proportion of aid budgets devoted to peacekeeping and emergencies increased. And all the while the divide between rich and poor people everywhere widens sharply.

Kunibert Raffer and HW Singer, The Foreign Aid Business, Edward Elgar, Cheltenham, 1996; The Progress of Nations 1996, UNICEF.

©Copyright: New Internationalist 1996 [image, unknown] NI Home Page[image, unknown] Issue 285 Contents

New Internationalist issue 285 magazine cover This article is from the November 1996 issue of New Internationalist.
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