The Roles of Aid in Politics Putting China in Perspective

Foreign aid policies cannot be more successful than their implementation, which inherently involves people and institutions. But people have their own interests and cultural frameworks, and institutions are inevitably grounded in culture and politics. Inattention to the agendas of individuals involved on both sides of foreign aid to Central and Eastern Europe played a major role in its shortcomings. A recent court decision holding two Harvard university scholars guilty of defrauding the U.S. government while running a flagship project to reform the Russian economy underscores the pitfalls in outsourcing traditional functions of government to small, well-connected groups that are not fully accountable in serving the public interest. Drawing on the author’s experience studying informal systems and networks over several decades, this article illuminates the importance of foreign policy and aid relationships – how they are set up, who wins and who loses, and how their lack of accountability can contribute to the derailment of nation-building and constructive relations among countries.

What do the indicators tell us about patterns of aid allocation? Because the indicators do not agree with one another, no unambiguous story emerges. However, some statements about relative donor performance and changes over time may be made.

Some donors are fairly consistently among the top performers – notably the Scandinavian countries, the Netherlands and the UK. Others, especially the US, Austria and New Zealand, are consistently among the poorest performers. The UK’s African links (meaning that it gives aid to a number of relatively small countries) means that it does particularly well on measures that are based on aid per capita – for example ranking in the regression coefficient of per capita aid on per capita income.

Figure 7 shows how performance has changed over time, as measured by three of the indicators: McGillivray’s Performance Index, the correlation coefficient (using aid per capita) and Suit’s Index. All three are indexed with 1980=100. For the first of these a downward movement is a deterioration in performance, whilst the reverse is the case for the latter two. Based on a log linear regression, there is no significant trend (at the 10% level) in either the correlation coefficient and Suit’s Index. Using the MPI there has been a statistically significant worsening of performance over the period show. All three indicators agree that performance took a dive in the second half of the seventies (thought [sic] the timings do not coincide) and recovered into the 1980s. The poor performance in the latter part of the 1970s is surprising, since this is a time when donors were beginning to be more vocal about directing aid towards the poor. It is possible that we are observing the lags involved for this policy to make itself felt – though the impact does not appear terribly great. The greater attention that donors have begun to pay Africa should improve performance (especially by those measure based on income per capita). But against this are a number of factors that will put a downward pressure on allocative performance. These are the continued and rising use of mixed credits, the use of aid for debt relief and aid for Eastern Europe and the Soviet Union. Mixed credits (i.e. an aid package being tied to non-concessional finance, the whole lot of which is procurement tied) were introduced during the 1970s and, despite efforts by DAC, have increased in importance ever since. The nature of such “aid” (relatively sophisticated capital equipment) means that it has a built-in bias towards middle-income countries. The debt burden is, in volume terms, concentrated in middle income countries. This will create a tendency for aid as debt relief to have a bias towards these countries. (This need not necessarily be so, if such aid is given disproportionately to low income countries). Finally, growing assistance to Eastern Europe and the Soviet Union will, despite the claims of some donors, almost inevitably eat away at developing country receipts. The German government has already explicitly stated that this is the case.

Not only has donor allocative performance not improved over the last two decades (it may even have deteriorated) there are worrying signs that things may go from bad to worse. Discussion of the appropriate measure of aid impact will help draw attention to this issue. But we already have the evidence to made [sic] aid allocation a matter of concern – one that may possibly be taken up by pressure groups active in development issues.

Windsor, Jennifer (2008), “Mainstreaming Democracy and Governance in Foreign Assistance,” in Picard, Louis A., Groelsema, Robert and Buss, Terry F. (eds.), Foreign Aid and Foreign Policy: Lessons for the Next Half Century, pp. 414-424, New York: M. E. Sharpe, Inc.

Debates about the relationship between democracy and development have evolved considerably since the 1950s. Although the East Asian model – exemplified by China – still continues to hold allure for some, a consensus has increasingly emerged that democratic regimes are likely to produce the governance outcomes that are necessary for sustained, successful development.

The evolution of U.S. aid policy since 1990 has reflected that debate, and successive administrations – Democrat and Republican – have taken steps to integrate democracy into their development approaches. USAID has been at the forefront of aid efforts, but under the George W. Bush administration, establishment of the new Millennium Challenge Account was a significant policy development. The issue is whether and how linkages between democracy and development will be impacted by the fate of USAID, which in 2006 seemed increasingly in jeopardy.

Winpenny, James T. (1991), “Efficiency and Effectiveness in the Overseas Development Administration,” in Bose, Anurdha and Burnell, Peter (eds.) (1991), Britain’s Overseas Aid Since 1979: Between Idealism and Self-Interest, pp. 97-124, Manchester: Manchester University Press.

The concepts of efficiency and effective cannot be applied without any pretence at science to the work of a government department with such a complicated mission as the ODA’s.

In judging its effectiveness one needs to be aware of the ambiguity of the ODA’s objectives. The problem cannot be reduced to the usual form of maximizing an objective function subject to constraints, since there would be disagreement over what the objectives and constraints were, and over the measures of attainment. This chapter has argued that in the 1980s the purposes of aid became even more complicated than before, while new constraints appeared on the ODA’s operations.

Efficiency is an equally nebulous concept to apply to the ODA’s operations. The ODA’s work is unlike that of any other UK government department, and it is dissimilar in important respects from that of other overseas aid agencies. Although the ODA, in consort with the rest of the international community, has sought to apply performance criteria to its developing country clients, the application of analogous criteria to its own operations is still an elusive goal. In either case, judgment, informed by an awareness of the events outlined in this chapter, is indispensable.

A striking feature of the analysis is that the hypothesized association between aid and votes was found to hold only for the United States, and only in that portion of the analysis using deviations from idealized norms as the operational measures of aid allocations and voting agreements. Although positive associations were discerned for other donors as well, such as the Soviet bloc in 1964, for no aid donor other than the U.S. was the association found to be consistently strong over time. In some respects, then, the results support Keohane’s observation that the use of extra-parliamentary instruments of influence in the United Nations is confined almost exclusively to the United States and the Soviet Union.⁵⁸ This appears to be the case even though for other donor countries (notably Britain and France vis-à-vis their former colonies) foreign aid is clearly part of a general dependency relationship between developed and developing nations. Apparently, then, the voting behavior of developing nations is largely irrelevant to the concerns of most foreign aid donors.

Even in the relationship between aid allocations and voting behavior observed for the United States, it is unclear which of the two variables should be considered a cause and which a consequence. With the possible exception of the analyses of Soviet bloc aid commitments, most of the results based on a lagged relationship between the variables examined have failed to point toward significantly different relationships between aid and votes within either of the two three-year periods analyzed.

Certainly the association between aid and votes is sufficiently strong in the case of the United States to warrant further research into the exact nature of the causal nexus – if, indeed, it exists at all. As suggested above, multivariate analysis would be a logical next step. Alternatively, longitudinal rather than cross-national analysis of some selected subset of developing nations might be pursued. Or one might attempt to measure the perceptions that UN participants have of the use of aid as influence. Whatever the particular strategy pursued, from the viewpoint of the student of international organization the results for the United States do suggest that continued examination of the extraorganizational links between UN members may prove useful in describing and explaining the outcomes of the political processes in the United Nations.

A word of caution is in order, however. Although the results do show a statistically significant positive association, neither 10 per cent nor even 25 per cent covariation is sufficiently large to lead one to believe that extraorganizational links alone will suffice to explain organizational politics. Indeed, another researcher viewing these results may find here a case for directing greater attention to intraorganizational processes and influence patterns in an effort to explain political outcomes.⁵⁹ There is merit in this position.

Similarly, the foreign policy analyst could interpret the results for the United States as suggesting the need for continued examination of the impact of external variables on foreign policy outputs, for both developed and developing nations. When we move beyond the United States, however, the results also suggest that external variables – at least insofar as they are tapped in this study – may well be insufficient explanations of foreign policy behavior; that we may have to examine role, governmental, and societal variables⁶⁰ as well in order to explain foreign policy outcomes.

More than most of the industrialized nations, Canada is visibly torn between its interests in the global status quo and in a basic re-ordering of the international economic system. Even the country’s international ‘identity’ has sometimes seemed to be at issue in the major North- South debates of recent years.

Because Canada’s own economy remains heavily resource-based and is dominated by foreign investment and imported technology to a greater degree than other industrialized states, there are special temptations to assume an identity of interest with some of the Third World’s demands for a New International Economic Order. On the other hand, the cultural and ideological permeation which has accompanied Canada’s economic linkages and defence alliances (particularly with the United States), means that Canadian attitudes and perceived interests internationally are often too-readily identified with those of the dominant Western industrial powers. With these dual dangers of the over-simplification and misperception of Canadian interests, remarkably little serious analysis has been carried out, even within limited areas of North-South relations (such as international commodity trade, the surveillance and direction of transnational business activity, or the relationship between development aid and trade promotion). Even more apparent, and a reflection of some of the gaps in domestic policies, is the absence of comprehensive, integrative strategies of Canada-Third World relations. None the less, the heightened debate on issues such as ‘de-industrialization in Canada¹, the need for national industrial strategies and Third World competition in both manufactured goods and resource sectors, now provide an environment in which more comprehensive perspectives may be able to take root.

However, under conditions of chronic economic slack and demoralization (combined with unprecedented centrifugal pressures from the increasingly aggressive provincial governments), Canada’s mutual interests with developing countries are defined and pursued in some extraordinary ways. In longer-term assessment of Canada’s international and global interests, it is especially important to take into account the diverse, and sometimes surprisingly narrow, approaches to mutual interests which may be taken by different Canadian spokesmen. In particular, it is essential to view these mutual interests in a much wider context than that of the aid relationship which, for Canada, is frequently still the most direct and visible link.

In late 1977 it was the President’s committee of the Canadian International Development Agency (CIDA) that listed ‘the pursuit of mutual benefits’ as the first strategic guideline CIDA officers. The President amplified in the following terms, on this ‘adaptation’ of the Canadian aid strategy:

The recent evolution of the Canadian economy as well as its short and medium term prospects require that CIDA strive to ensure that its activities maintain or generate employment and economic benefits in our own country. We must also aim at strengthening mutually beneficial bilateral relationships between our developing partners and Canada. This goal must be achieved while not neglecting our essential mandate which is international development.²

In cognisance of the intense pressures reflected in this kind of statement (and their potential impact on Canadian perceptions of ‘mutual interests’ with developing countries), it is important to establish more clearly where Canadian interests lie.

By most of the usual indices, Canada must be considered to be among the richest and most highly-developed of nations.³ It is noteworthy that in recent years Canada has joined the Western Summit powers but, like Italy, falls just outside their inner circle. Canada is the next most important Western actor to be considered when the United States, the European Economic Community (acting as a unit) and Japan have set their directions. In a forum such as the Multilateral Trade Negotiations, Canada’s position can be important, particularly as it influences the balance among giants (Canada is still the largest trading partner of the US). On the other hand, the Canadian impact apparently can safely be ignored in setting Western policies for an OECD ‘steel cartel’.

While Canada’s freedom of action has always been shaped, for good or ill, by continental realities,⁴ Canada’s breadth of vision has sometimes not only been unconstrained, but even somehow bolstered by the overwhelming US presence. John W. Holmes has traced the ways in which Canada has maintained a vigorous commitment to multilateralism and collective internation action, true to Lester Pearsopn’s view:

as a Canadian that our foreign policy must not be timid or fearful of commitments but activist in accepting international responsibilities To me, nationalism and internationalism were two sides of the same coin.⁵

Others, however, have seen a waning of Canada’s prudential internationalism from the disproportionately energetic Canadian response to ‘community interests’ in the post-war period. One seasoned American observer has commented that:

Canadian diplomacy in recent years has in fact reflected a rather narrow conception of Canada’s problems and interests. In multi-national meetings, Canada has been less and less likely to propose general solutions or to act as a middleman. Instead, when multi-lateral proposals were made by one of the ‘big three’ or by international secretariats, Canada would seek to differentiate itself and to seek exceptional treatment or inclusion of a Canadian reservations.⁶

In some areas, however, and for a variety of reasons, multilateralism remains a constant in Canada’s external action and promotes interaction with other countries (many in the Third World) whose size and vulnerability incline them too to seek ‘safety in numbers’ and in a diversity of international links and contacts.

This ‘multilateralizing’ imperative has found tangible expression in Canadian support for international trade and monetary regimes, UN peace-keeping activity, multilateral development programmes; NATO membership and the search of a ‘Contractual Link’, with the European Community and in leading participation in both the Commonwealth and la Francophonie. Canadian commitment in several of these fields promotes specific contact and sometimes commonality of interests with Third World countries. Canada has come to see the Commonwealth and Francophonie associations, in particular, as invaluable linkages, cross-cutting the North-South divide. Thus it was at the Commonwealth Heads of Government meeting in Jamaica in 1975 that the Canadian Prime Minister sharpened his government’s perception of the demands of the New International Economic Order and undertook a firm moral commitment to try to accommodate them. Although the government machinery failed to follow up this top-level commitment adequately, the theme remained close to the centre of Canadian foreign policy statements, at least until the disillusioning 1977 outcome of the Conference on International Economic Cooperation with Canada, as co-Chairman, had worked at the thankless task of trying to achieve some bridging of North-South differences.

Although Canada lacks the colonial or other long-standing Third World links of other industrialized countries, Canadian relations with the Third World have grown to substantial proportions even beside Canada’s much closer overall relationships with other Northern countries. In 1977, the Third World (including oil-exporting countries) accounted for nearly nine per cent of total Canadian exports and over 11 per cent of imports, while 23 per cent of the stock of Canadian-based foreign direct investment was found in Third World countries at the end of 1975. By one significant non-economic yardstick, that of immigration to Canada, Canada clearly had established closer Third World connections. By 1977 Third World arrivals (at 48 per cent) almost equalled those from traditional European sources and the United States.

Canadian perceptions of the Third World and the relationship, however, have been slow to change since the initial impetus given by the creation of the Colombo Plan in 1950 to assist new-independent nations of Asia. Throughout the 1950s, development assistance continued to be the focal point of interaction; the Colombo Plan led to similar efforts for the Commonwealth Caribbean) one region of long-standing links) in 1958 and for Commonwealth Africa in 1960, the same year that an External Aid Office, to be responsible for the Assistance programme, was established within the Department of External Affairs.

Canada’s basic outlook towards the Third World during the 1960s followed the pattern established in the previous decade. New regions were included within the development assistance programme – Francophone Africa in 1961 and Latin America in 1964 through the Inter-American Development Bank, and in 1970 on a country-to-country basis. As a reflection of an increased emphasis on development assistance, a new structure, the Canadian International Development Agency was created to administer the programme. The 1969 Pearson Commission report, Partners in Development, aroused special interest in Canada because of the chairmanship of former Canadian Prime Minister Lester Pearson, but its stress on ‘non-aid’ measures to promote development failed to make much impact. The ‘aid stereotype’ built up during the 1950s continued to predominate, and even the strengthening of the ‘Group of 77’ after UNCTAD I and the enunciation of demands that would eventually evolve into the call for a new international economic order, failed to shift public or official perception in any decisive way.

In 1970, the beginning of a new ‘Development Decade’ and the expectations held fro the still-new Trudeau Government gave hope to some of the most interested Canadians of a promising new era in Third World-Canada relations. As a result of the foreign policy review initiated in 1968, the Government’s Foreign Policy for Canadians was published in 1970. It noted the trade and investment opportunities in the Third World, pinpointed some of the hard choices to be faced in ‘seeking social justice for developing nations’, and recognized that the ‘progress of the developing countries can be affected through every aspect of their relationship with the more-developed countries’.⁷ This foreign policy review explicitly anticipated the eventual pressure for structural changes in the world economy without, however, presenting any accompanying indications of a positive Canadian response to this pressure. The review also ratified the compartmentalization of the ‘non-aid’ relationships affecting developing counties outside any integrated developed assistance approach. For example, the discussion of international development policy tacitly dismissed these other issues, such as trade investment and monetary relations, as those ‘whose primary consideration lie outside the Canadian development assistance program’.⁸

In the course of the 1970s the basic Canadian approach to the Third World continued to exhibit similar characteristics. The rhetorical response from Canadian officials to the NIEO demands formulated at the Sixth Special Session of the UN General Assembly has often been eloquent and supportive. An excerpt from Prime Minister Trudeau’s speech at the Mansion House in London in March 1975 perhaps best exemplifies this:

The demands of developing countries have been carefully formulated and powerfully articulated. They reflect a sense of frustration and anger. Those countries seek no piecemeal adjustments but a comprehensive restructuring of all the components – fiscal, monetary, trade, transport and investment. The response of the industrialized countries can be no less well-prepared and no less comprehensive in scope. But we should be very wrong, and doing ourselves and our children a great disservice, if we regarded this process as an adversary one. We should be foolish as well, for solutions are not beyond our reach.⁹

With kind of declaration, Mr Trudeau gave recognition to a profound long-term mutuality of interests, long before the theme of ‘interdependence’ became common international parlance. Even in its own principal foreign policy guidelines, however, his government continued to find it impossible to translate such wide vision into an integrated approach to North-South relations. The gap between rhetoric and policy, let alone practice, was strongly evident in the government’s five-year strategy Strategy for International Development Cooperation released in 1975.¹⁰ While the document’s first section, ‘Analysis’, looked towards ‘new relationships’ with the Third World and the role of ‘non-aid policies in development’, the operative section of ‘policies’ was directed almost exclusively to aid issues. As will become apparent below, subsequent measures have also fallen far short of achieving the ‘comprehensive and organic approach to development’ promised in the Strategy. Consistent with this continuing ‘aid-fixation’ in Canadian policy, it is only in the area of development assistance that Canada’s record in North-South relations has been notably forthcoming.¹¹ At least until the later years of the 1970s, the government was making steady efforts to move towards the international aid-volume target of 0.7 per cent of GNP and was firmly committed to putting priority on aid to the poorest countries. Even in the assistance field, however, Canada has remained particularly unresponsive to the need for ‘untying’ aid procurement, resisting even the limited proposals to open up aid contracts for developing-country-bidding. One Canadian initiative, however, which went beyond conventional aid measures on one important frond, and placed Canada among the most responsive donors, was the 1977 decision to write off aid-related debts owed to the CIDA by some of the poorest debtor-countries.

However, in relation to providing access to the Canadian market for manufactured and processed goods from the Third World, the Canadian record is far from one of leadership. While Canada protects the ‘traditional market share’ of suppliers such as the United States, Third World imports have been heavily restricted, in spite of obligations under the GATT and the Multi-Fibre Arrangement. Canada was, like the United States, tardy in its introduction of the Generalized System of Preferences and failed to give any evident priority to Third World interests in Multilateral Trade Negotiations.

In the area of commodity trade, it is even more difficult to explain, the ways in which Canadian interests appear to have been defined and pursued. While there was early and lively interest, at the highest levels of the Canadian government, in the Integrated Program for Commodities and the Common Fund, Canadian negotiators have sometimes been among the ‘hardest-line’ OECD bargainers on these issues. Canadian resistance here has consistently been explained in the root opposition to interventionism and to cartels and producer-only agreements in international commodity markets. Yet there was apparently official encouragement for Canadian participation in a uranium cartel in recent years, and some legislators appeared receptive at one point to going beyond present consultative arrangements to the possibility of establishing a wheat producers’ cartel.

To provide a basis for assessing Canada’s interests in Third World development in the 1980s and beyond, it is important to try to understand the domestic background to this past performance and then to analyze several aspects of Third World-Canada relations in greater depth. […]

Even in this brief review of some of Canadian interests involved in Third World relationships reveals a striking range of possibilities. The evidence does not support the most simplistic assertions that Canada may have a generalized identity of interests with Third World countries, but it also demands a re-examination of the prevalent assumption that Canada ‘fits’ comfortably into another group of nations whose interests lie in resistance to many Third World demands. Even more than most OECD countries, Canada has solid reasons to abandon the view of North-South dialogue as a ‘zero-sum game’ to be handled through a strategy of obduracy and frugal philanthropy.

‘Aid’, indeed, can be seen to be a relatively small part of the total Canadian response to the Third World, but a critical one in its reflection of the seriousness and clarity of Canadian purpose. It also tests, under adverse economic conditions, the capacity to act strategically with decency, rather than merely to capitalize on every tactical advantage.

There is competition, to be sure, between certain Canadian and Third World interests and, interestingly, even some of the competitive elements make Canada quite distinctive. In grouping towards a satisfactory modus vivendi with the transnational corporation, or in attempting to secure a minimum of order in international commodity markets, Canada’s perspective must be similar to that of some Third World countries, and on some points they will be formidable competitors to be reckoned with. The competitive potential of developing countries in manufactured trade has begun to have a profound impact in Canada, but the opportunities for expanded Canadian exports to these buoyant markets have not yet been properly recognized. With both imports and exports, the new impact of Third World helps expose fundamental changes required in the Canadian economy itself – some of them long overdue and strikingly consistent with the emerging regional and sectoral opportunities for Canadian industrial strategy.

The complexity of some of these relationships, however, and the imperfect and cumbersome machinery for identifying and pursuing Canadian national interests, dictates a long process of analysis, debate, bargaining and adjustment within the Canadian community. On the strength of the analysis here, there is clear Canadian interest in moving urgently, before the costs of change rise higher and opportunities slip away. There is also still a Canadian state in moving co-operatively, through multilateral action where possible, since the traditional Canadian commitment to collective international response is as firmly rooted as ever in the Canadian interest.