The folly of the 0.7% foreign-aid solution

Published by the Wall Street Journal (10th July, 2014)

Kenyan President Mwai Kibaki won global applause when he introduced free primary-school education over a decade ago. Who could doubt that the brave policy—backed by tens of millions of dollars in pledges by foreign donors and introduced in support of the United Nations’ millennium goals—would transform prospects for Kenya’s poorest children? Mr. Kibaki was hailed by aid apostles such as musicians Bono and Bob Geldof, while President Bill Clinton spoke movingly about rewarding ‘young and bright faces who carry the future of the world in their minds.’

Sadly, everyone ignored the impact of 1.3 million extra pupils flooding suddenly into schools that received few extra funds to hire teachers, build classrooms or buy new books. So class sizes soared, standards slipped and good schools were overwhelmed.

In 2012 I visited the Olympic Primary School in Kibera, which had been among the nation’s finest despite being in a Nairobi slum. In 2005 then-British chancellor Gordon Brown used it for a photo opportunity to proclaim the triumph of foreign aid. Seven years later I found 28 teachers struggling to educate 3,158 children, twice the number before the free-for-everyone policy kicked in—and staff talking bitterly of betrayal.

There is a difference between attending school and learning. One investigation, released in 2011 by the Uwezo think tank, found that nearly two-thirds of Kenyan children age 14 could not read a sentence from a test aimed at 8-year-olds. Parents are still charged for uniforms, pupils huddle around too few books, and foreign aid has been siphoned off by corrupt opportunists. Perhaps the biggest beneficiary of this poorly handled reform was the wave of low-cost private schools that opened and then outperformed public rivals.

This is a parable for the aid world: Well-meaning but muddled interventions can backfire. There are countless other examples in education alone. Britain, for instance, has been pouring more than £1 billion (roughly $1.7 billion) into Ethiopia, Rwanda and Tanzania over a decade that will end in 2015. But in May 2012 the U.K.’s Independent Commission for Aid Impact reported that basic skills in literacy and math were not improving in the three countries.

Such botched projects often result from the obsession with hitting targets and goals—hey, let’s give all children free education—with little attention to the mechanisms for achieving them, or whether the goals are ever met. No wonder, since such targets tend to be simplistic stunts to salve Western consciences.

Among such targets, none is more sacred in aid circles than the U.N. General Assembly’s call in 1970 that developed nations devote 0.7% of their gross national product to overseas development assistance. Under a Conservative-led coalition, Britain has become one of only five countries hitting this hallowed target; the others are Norway, Sweden, Luxembourg and Denmark. Despite heavy spending cuts at home, the U.K.’s foreign-aid budget soared 28% last year in 2013 to $17.9 billion (£10.6 billion) as coalition parties sought to deflect claims that they lack compassion.

Britain hands over more money in total foreign aid than any other rich nation except the U.S., winning plaudits from the self-aggrandizing aid lobby. Even David Miliband, the former Labour foreign secretary who runs the International Rescue Committee in New York, paid tribute to the Tories during the World Affairs Council meeting in San Francisco on July 1. ‘They carried on raising the international development budget which is very remarkable,’ he said. ‘That is a huge sign of progress.’

Britain’s three main parties all want to see the target enshrined in law, with a bill to be introduced later this year. Yet the cozy consensus at Westminster is on an issue opposed by a majority of voters. To give one illustration: A 2013 YouGov survey of people in Britain and five other European countries found that the British had the most doubt about the effectiveness of foreign aid, and 17% believed the U.K. should spend no money at all on overseas aid.

That 17% might drop even lower if people knew anything about the 0.7% giving target (and its champions seem almost willfully ignorant). Originally promoted by the World Council of Churches, the target is based on outmoded assumptions and figures. It emerged almost five decades ago based on theoretical data from the postwar era that was applied to simplistic calculations of the needs of poor countries.

But then researchers from Washington’s Center for Global Development applied the original data to the modern and expanded global economy for their 2005 report, ‘Ghost of 0.7%: Origins and Relevance of the International Aid Target.’ They came up with a target for contemporary giving (in 2005) of 0.01% of rich countries’ income—a figure as meaningless as the concocted 0.7%.

In certain circles, however, this 0.7% figure—intended to have been reached in the mid-1970s—has become the gold standard against which a nation’s generosity is judged. According to the Organization for Economic Cooperation and Development, development assistance world-wide hit a record high of $135 billion last year as countries came under pressure from charities and activists to hit the 0.7% target.

Yet this concept is increasingly discredited in both donor and recipient countries. Study after study has found aid to be ineffective and even counterproductive: Big flows of foreign money fuel corruption, fan conflict and undermine democracy by encouraging poorer countries to place more emphasis on donor demands than on the desires of their people.

The latest one-time believer to turn against what he calls the ‘aid illusion’ is Angus Deaton, an economics professor at Princeton University and a leading expert on measuring global poverty. ‘We should not be running our aid policies to keep an aid industry going and let them have moral superiority over the rest of us,’ he told me.

If Western politicians want to buy virtue by helping the developing world, they should tear down the walls of trade protection, tackle the tides of dirty money that undermine democracy, loosen immigration controls so people can go abroad to earn and send home remittances, and invest in fighting diseases that kill poor people. But please stop posing as saviors of the poor by promoting an absurd, outdated and destructive target of scattering 0.7% of a developed nation’s wealth every year abroad and calling that a cure for the world’s ills.

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