THE CASE FOR AID IN FISCALLY CONSTRAINED TIMES: MORALS, ETHICS AND ECONOMICS

THE CASE FOR AID IN FISCALLYCONSTRAINED TIMES: MORALS, ETHICS

AND ECONOMICS

ANDY SUMNER1* and MICHAEL TRIBE2,3

1Institute of Development Studies, University of Sussex, Falmer, Brighton, UK2Department of Development and Economic Studies, School of Social and International Studies,

University of Bradford, West Yorkshire, UK3Department of Economics, University of Strathclyde, Glasgow, Scotland, UK

Abstract: Aid [Official Development Assistance (ODA)] is under pressure as fiscal constraintsmount in OECD countries following the 2008–2009 global financial and economic crisis. The argu-ments in favour of ODA commitments from donor countries have been articulated by several writersover the years but have consistently been challenged. This paper briefly and critically assesses themain arguments in favour of, and against, continuing substantial international aid programmes andmakes a distinction between arguments relating to the short‐term and to the long‐term. The long‐termis considered in the context of the cases for and against sustained ODA programmes. The short‐termis discussed in the context of potential adjustments in ODA volumes because of economic decline,reduced tax revenue and public expenditure cuts in OECD countries. Copyright © 2011 John Wiley& Sons, Ltd.

1 INTRODUCTION

The financial and economic crisis, which beset advanced industrial countries in 2008 and2009, has led to significant reductions in real GDP in OECD countries, implying reduc-tions in tax revenue and a perceived need to reduce public expenditure. This raises theissue of whether Official Development Assistance (ODA) should be reduced in line withpublic expenditure cuts.1 Such reductions could be consistent with holding ODA at theUnited Nations (UN) target of 0.7 per cent of national income if that target had been

*Correspondence to: Andy Sumner, Institute of Development Studies University of Sussex Falmer Brighton BN19RE.E‐mail: [email protected] is defined in the Glossary to the annual report of the Development Assistance Committee (DAC) of theOECD (OECD‐DAC, 2010a: 273), and the ‘grant element’, which is a critical component of ODA, is definedin the same Glossary (OECD‐DAC, 2010a: 272). Refer also to OECD‐DAC (2010b).

Copyright © 2011 John Wiley & Sons, Ltd.

Journal of International DevelopmentJ. Int. Dev. 23, 782–801 (2011)Published online in Wiley Online Library(wileyonlinelibrary.com) DOI: 10.1002/jid.1810

achieved in every donor country, but in many cases, ODA still remains below the target.2

In the UK, for example, a consensual agreement has emerged between the main politicalparties to the effect that the 0.7 per cent target should be achieved before 2013 (i.e. withinthe time span of the current Millennium Development Goals) (Treasury, 2010: 6).3 Inthe UK, with an active public expenditure reduction programme with recurrentpublic expenditure set to fall significantly across all sectors other than health and ODA(Treasury, 2010: 5), the coalition government has explicitly ring‐fenced ODA withthe achievement of the 0.7 per cent target still being an objective. This position hasbeen maintained despite substantial criticism from sections of public opinion and UKmedia, which is antagonistic, or at least agnostic, about the consensual ODA commitment.Over the period 2010–2011 to 2014–2015, the real cumulative reduction in the UKgovernment’s recurrent expenditure is scheduled to be 8.3 per cent, whereas in the sameperiod, the real cumulative increase in ‘international development’ expenditure is to be37 per cent (Treasury, 2010: 10).We distinguish between long‐term and short‐term considerations relating to ODA and to

discussion of ODA in the context of donor public expenditure constraints. ‘Long‐term’considerations are taken to refer to periods of 10, 15 or 20 years (i.e. in terms of genera-tions or periods over which changes in international socio‐economic structures take place).‘Short‐term’ considerations are taken to refer to periods of 3–5 years, during which fluctua-tions in national income, taxation and public expenditure occur. This distinction is impor-tant for a careful assessment of the case for maintaining or increasing ODA commitmentsduring the recent global financial–economic crisis.We have not attempted a comprehensive review of the ‘aid literature’ for two reasons.

First, the ‘aid literature’ is vast and has several distinctly different foci so that, for example,the literature assessing developments in aid architecture or evaluating aid effectivenesswould only be peripherally relevant to discussion of the arguments for and against ODAat a time of global financial and economic crisis. Second, our main focus is on the relation-ship between the contemporary global financial–economic crisis and the pressure whichthis has placed on the allocation of public expenditure to ODA in traditional ‘donor’countries.Our focus is on ODA by governments to developing countries, with the emphasis on

‘official’, including neither aid contributed by NGOs nor non‐ODA development assis-tance. No distinction has been made between bilateral and multilateral ODA because thiswould not be directly relevant to the discussion. We also have excluded consideration ofinterventions by private foundations, which are not directly related to ODA. In addition,it may be noted that ODA is increasingly a smaller proportion of international transfers—private remittances for example, from developed market economies to developingcountries now exceed ODA in global terms (Commission on Growth and Development,2008: 154).Section 2 of the paper will review some of the main long‐term arguments in favour of,

and against, ODA, giving particular attention to the moral/ethical case. Arguments relatingto the self‐interest case have largely been omitted for reasons of space, although they arereferred to in the third section.4 Section 3 considers the implications of the recent global

2Statistics are presented in Table 2 below.3We have taken the UN target as ‘given’ for this paper, although it is open to question. A comprehensive back-ground on this target can be found on the UN Millennium Project website (United Nations, 2011), and an inde-pendent view is provided by Clemens and Moss (2005).4These arguments will be enlarged upon in a longer version of this paper (Sumner and Tribe, 2011 forthcoming).

The Case for Aid in Fiscally Constrained Times 783

Copyright © 2011 John Wiley & Sons, Ltd. J. Int. Dev. 23, 782–801 (2011)DOI: 10.1002/jid

financial and economic crisis for ODA from ‘traditional’ donor countries. Section 4 sum-marises the main conclusions of the paper.

2 THE LONG‐TERM CASES FOR AND AGAINST ODA

2.1 The Case for ODA

The case for aid can be placed within two distinct areas: first, the ethical or moral case andsecond, the self‐interest case. 5 The bases of these cases are summarised in Table 1 below.Controversy has never been far away from the literature on ODA, and well‐known authorshave argued the case for and against throughout the last half century. Bauer (1972) andEasterly (2007 and 2008) exercise robust arguments which are critical of ODA (neitherare totally against aid), whereas some of the most supportive arguments have been articu-lated recently by Sachs (2005) and Radelet (2003 and 2006). Further significant contribu-tions to the literature are by Riddell (2007), Cassen (1994), Lancaster (2000 and 2007a),Lancaster and Van Dusen (2005) and Tarp and Hjertholm (2000). Riddell’s recent bookis almost unique in discussing ‘why aid is given’ in four substantial chapters, albeit inthe middle of the volume rather than at the beginning (Riddell, 2007: Chapters 6, 7, 8and 9).6 Baulch (2006: 933–934) suggests that there are many factors determining donordecisions about ODA, including historical and commercial ties, governance and institu-tions, absorptive capacity, recipient government attitudes towards donors and geopoliticalconsiderations. Baulch’s discussion is supportive of the findings of Alesina and Dollar(2000) that, in practice, donor allocations are driven as much by political and strategic con-siderations as by recipients’ economic needs and policy performance. They argue that allo-cation patterns—commonly inconsistent with the ‘demand side’ of aid markets—arepartially responsible for why aid has not had more of an impact on growth and povertyreduction, presumably because the patterns have not lined up with ‘poverty efficient’ allo-cations. They find that three major donors (the USA, France and Japan) allocate significantamounts of their aid to strategic allies, former colonies or in ways highly correlated withUN voting patterns. They also report a clear trend for ‘democratisers’ to benefit from moregenerous ODA allocations (Alesina and Dollar, 2000).Recent contributions to the literature on ODA have questioned the rationale for

ODA without challenging the underlying need for donor transfers. For example,Severino and Ray (2009 and 2010) have argued that a wholesale reconsideration of therole of aid in the context of the 21st century international development is needed, takinginto account increased complexity in the relationship between advanced industrial coun-tries, newly emerging economic powers and more ‘conventional’ developing countries.They discuss a ‘triple revolution’ in ODA in terms of goals, players and instruments, ques-tioning the validity of the current definition of ODA and foreseeing an eventual end to

5This paper is mainly concerned with the arguments for and against the commitment of ODA contributions bydonor countries. There is an obverse set of issues concerning why recipient countries accept (or do not accept)ODA, which is not much touched upon in the literature. A recent paper by Nixson takes a broader overview ofODA than is found in much of the literature (Nixson, 2007–2008).6Most ‘development texts’ include substantial discussion of ODA. From the more ‘economic’ direction, theseinclude Todaro and Smith (10th edition, 2008: Chapter 14) and Thirlwall (9th edition, 2011: Chapter 14). Moremultidisciplinary ‘development studies’ texts covering ODA include Desai and Potter (2008: Chapter 10), Clark(2006: Chapter 29) and Chari and Corbridge (2008: Part 6).

784 A. Sumner and M. Tribe


ODA as conventionally understood. Key issues of the moment, and possible future‘game changers’, include the emergence and rise of non‐DAC donors (accountingfor an increasing proportion of global ODA) (Manning, 2006), contributions fromsignificant private foundations, new financing and delivery mechanisms and theincreasing significance of climate change financing. Others have focussed on aid gov-ernance, aid effectiveness, aid architecture and the relationship between developmentpolicy formulation and the aid system—with Barder (2009b), Birdsall (2009), Brainardet al. (2003), Fischer (2009), Hudson and Mosley (2008), McGillivray et al. (2006) andMavrotas (2010) being particularly notable in this respect. Easterly also has contributedto this discourse through an edited book (2008) in addition to his better knownbook (2007).

Table 1. Arguments in favour of ODA

Arguments infavour of ODA

Aid is required toaddress or promote…

Examples ofreferences

in the literature

Ethical/moralarguments

Compassion/humanitarian

Poverty and deprivation Riddell, 2007

Compensation Compensation for colonialism;unfair trade and investmentpatterns; climate change

Aiello, 1999; Husainand Faruqee, 1994;Miller, 2007; Nixson,2007–2008

Disasters Impact of natural orman‐made disasters

Wisner et al., 2004

Climate change—environmental

Redress for the adverse effectsof developed country impactson the global environment tothe detriment of developingcountries

UNFCCC, 2008

Conflict and stress—fragile states

Conflict prevention, resolutionand reparation

Fukuda‐Parr, 2010

Self‐interestarguments

Mutuality inincome growth/welfare

Improve welfare in both donorand recipient countries: incomegrowth in developing countriescreates markets for developed countries’exports; incomegrowth in developed countriescreates markets for developing countries’exports

IndependentCommission onInternationalDevelopmentIssues, 1980;Sayanak and Lahiri,2009

Supply of rawmaterials andagriculturalproducts

To support commercial interestsof donors, development of economic andsocial infrastructure (transport, education,etc.) improves economic performance ofmulti‐national corporations (MNCs); supplyof essential materials and agriculturalproducts at competitive prices aidsprofitability of international firms

Baulch, 2006;Berthelemy, 2005

Internationalsecurity

Ensure ‘spillovers’ from conflictand fragility do not create internationalproblems; to support geo‐political interestsof donors

Berthelemy, 2005;Hattori 2001;Riddell, 2007



Table 1 summarises the range of arguments, which together make up the case in favourof ODA. Inevitably there are overlaps between some of the categories. For example, themoral/ethical argument relating to poverty reduction can be applied to ODA focused onstimulating economic growth in developing countries, which also can be linked to theself‐interest case for ODA. A number of the elements of the ‘security’ case for ODA alsomight be linked to economic growth, socio‐economic development and the moral/ethicalcase. Such ‘overlaps’ are common in attempts to set up logical categorisations. The follow-ing sub‐section of the paper focuses on the moral/ethical dimensions of the case for ODA,focusing on the theme of this special issue of the journal.

2.2 The Moral/Ethical Case for ODA

2.2.1 Poverty and international socio‐economic justiceIn an article published in the 1980s, Riddell made it clear that public opinion gave ethics amajor role in the justification for aid (Riddell, 1986: 24) at that time. A recent study foundthat, depending upon the nature of the question asked, between 50 per cent and ‘over6 in 10’ of a sample supported the moral/ethical stance on aid in the UK (Henson andLindstrom, 2010). This public view appears to transcend aid weariness, internationalsecurity threats and ideological shifts in developed market economies, which might havebeen expected to change public opinion somewhat more. Riddell’s more recent majoroverview of aid highlights the moral case for aid (Riddell, 2007: Chapters 6, 7, 8 and 9),but other specialist ‘aid’ literature gives little attention to the ethical case.A fundamental argument in favour of richer countries giving aid to developing countries

relates to the application of moral, ethical or humanitarian principles to the phenomenon ofglobal poverty and is analogous to the intellectual basis for income transfers from richer topoorer people within any one country. Economic theory relating to inter‐personal welfarecomparisons within any particular society has tended to be very restrictive, avoiding moralor ethical judgements.7 However, it is logical that the arguments on which income transferswithin a country are based should be extended to the global society. This extension raisesquestions of legitimacy because there is presently no system of global governanceinvolving conventional forms of democratic consent. The decision making of many inter-national bodies is based on a form of derived legitimacy through representation of membergovernments, and this lies behind acceptance of the 0.7 per cent of gross national incometarget for ODA by the international community. The principle of the more privileged in theglobal society giving some of their income through ODA to those who are less privilegedis a form of international socio‐economic justice comparable with the adoption of progres-sive taxation and public expenditure programmes by national governments.8 Because mostricher countries have elements of poverty within their societies, and developing countrieshave elements of privilege within theirs, it is logical that international aid programmes, whichhave poverty reduction objectives such as the adoption of the Millennium Development

7The conventional Paretian approach within economic theory is that one welfare position cannot be said to be ‘better’than another unless at least one person is better off and nobody is worse off. However, there is a substantial literaturewhich extends Paretian optimal redistribution principles to provide theoretical support for re‐distributive publicfinance systems based particularly on the work of Hochman and Rodgers (see, e.g. Hochman and Rodgers, 1977).Political scientists have focused considerable attention on the concept and practice of global social justice andrecent books by David Miller (2007) and Richard Miller (2010) are good examples of this.8Tribe and Lafon (2010) report the view that ODA transfers should become, at least partially, automatic in theform of ‘international taxation’, and this view received support from a thousand economists in a letter to theG20 and its adviser, Bill Gates, in April 2011 (Europeans for Financial Reform, 2011).



Goals (MDGs) would not aim to enrich the more privileged groups within developingcountries.

2.2.2 ODA as compensationOne aspect of the case for ODA as compensation from richer countries to developing countriescase is based on past ‘transgressions’ of the former colonial powers, including the slave trade.To the extent that imperialism/colonialism exploited or immiserated the former colonies, itmay be argued that transfers should be made from the former colonial powers to the countrieswhich suffered from the exploitation. The economic impact of the slave trade can be comparedwith that of the extraction of mineral wealth (i.e. plundering rather than commercial transac-tions recognising the property rights of the indigenous population) in its immiserating effects.It would be extremely difficult to place a value on the level of transfers which might be

associated with this ‘exploitation’ element of the case for aid, and many people within thericher countries would reject these arguments for compensation either on the grounds that‘exploitation’ simply reflects legitimate market forces, or that their country was notinvolved in the slave trade or in past imperial/colonial exploitation. Equally, not all devel-oping countries were involved in these forms of colonial exploitation, and the impacts havebeen diverse on those which were. Fair and equitable compensation would be difficult toachieve even if basic principles relating to the impact of exploitation were to be accepted.A more tangible aspect of the ‘compensation’ argument relates to contemporary, rather than

past, ‘exploitation’ either through movements of the international terms of trade against devel-oping countries (and in favour of the richer countries) or through the process of richer countriesreceiving merchandise imports from countries that have significant reserves of cheap labour inan international variation of the ‘Lewis model’ (Tribe et al., 2010: Chapter 2). This has beenrecognised in two particular instances relating to distinctly different logical arguments:

(1) In a review of the impact of Structural Adjustment Programmes on six sub‐SaharanAfrican countries it was found that during the ‘adjustment period’ ODA had been ata level which offset income lost through deterioration of the international terms oftrade, implying that ODA had not made any net contribution to these economies(Husain and Faruqee, 1994: 7). Although this link to a compensatory principle isuncommon in official discussions of aid policy, the fact that it appeared in a WorldBank source is of great interest. These arguments relate to secular deterioration inthe net barter terms of trade and its impact on the international purchasing power ofdeveloping country exports, essentially based on the well‐established arguments ofthe Prebisch‐Singer thesis and its derivatives (Tribe et al., 2010: Chapter 2).

(2) The EU’s STABEX programme was devised to cushion the economic impact of fluc-tuations in export earnings because of changing world market conditions (Aiello,1999). The STABEX scheme was never intended to relate to the deterioration of inter-national terms of trade but was explicitly focused on the uncertainties created by fluc-tuating export revenues—focused on instability rather than on secular and sustainedchanges in international trading relationships.

2.2.3 Poverty reduction through economic growthA more dynamic framework relating to the positive relationship between economic growthand poverty reduction in developing countries would emphasise the role of ODA in contribut-ing to sustained economic growth and to poverty reduction. This contrasts with an alternativeapproach emphasising static income redistribution from high‐income countries to developingcountries. The link between economic growth in developing countries and poverty reduction



is provided by the ‘poverty elasticity of growth’.9 ODA, which supports agricultural, indus-trial, infrastructural or trade development as part of the economic growth and development pro-grammes of recipient countries is directly related to objectives of long‐term sustainable povertyreduction through the link between economic growth and reduced poverty.Historically, there has been emphasis on a ‘two‐gap’ approach to the analysis of the contri-

bution of ODA to economic growth in recipient countries, dating back to a paper by Cheneryand Strout (1966). The intellectual basis for this approach consists of the notion that ODAprovides funds which supplement domestic savings (and private capital inflows) and,therefore, increases the capacity to invest, which should have the result of increasing therate of economic growth. However, investment in recipient countries tends to be foreignexchange intensive so that the binding constraint may not be savings per se but rather for-eign exchange availability. Through providing foreign exchange, ODA was viewed as eas-ing both these savings and foreign exchange constraints—or what are referred to as the‘financing gap’. This ‘financing gap’ is based on the difference between the levels of sav-ings and investment required to sustain the rate of economic growth which is aspired to,and the levels available in the absence of ODA. The ‘financing gap’ approach has beencriticised robustly by Easterly (1999) and, more recently, by Clemens and Moss (2005).Such papers do, although implicitly, omit reference to the role which ODA can have inthe context of contemporary economic growth theory. This ‘modern’ growth theoryemphasises the roles of technology change, institutional change, labour force quality andthe ‘economic environment’, in addition to savings and investment rates, within whatis referred to as ‘endogenous growth’ (Pack, 1994; Romer, 1994; Tribe et al., 2010:Chapter 4).10 Although there has been little research on the contribution of ODA to ‘endogen-ous growth’, there can be little doubt that it is probably quite substantial and that it needs to beincorporated more fully into discussion of the relationship between ODA flows, economicgrowth and poverty reduction. White (1992) provides a systematic review of many of themacroeconomic issues associated with the impact of ODA on the economies ofrecipient countries, and Killick and Foster (2011) have recently revisited such argumentsfor Africa in depth.One implication of all this is that, for aid to have a poverty‐reducing role, it does not

necessarily have to be committed to explicitly poverty‐related projects, programmes orpolicies. Equally, a broader definition of poverty, which extends beyond income povertymeans that public health, water and sanitation and other social infrastructure developmentprogrammes usually have clear poverty‐reducing impacts—being evident in improvementsto Human Development Index or Human Poverty Index composite indicators. These pro-grammes often involve a ‘public goods’ dimension in the sense that benefits to the indi-vidual arise through community‐based services.Although ‘poverty reduction’ is often used as a shorthand for promoting widespread

poverty‐reducing economic growth, in reality there are a series of trade‐offs and sacrificeswhich come at the expense of facilitating such growth. If the focus of donor objectivesis simply on the growth aspect of poverty reduction, there is a risk of marginalising other legit-imate objectives, such as reducing chronic poverty or providing social services (Barder,2009a: 1–2). In contrast, by adopting too many diverse objectives, donors risk negatively

9The poverty elasticity of growth links economic growth to poverty reduction (Heltberg, 2002; McKinley, 2009)and is a more sophisticated approach to the growth/poverty relationship than that provided by Dollar and Kraay intheir ‘Growth is Good for the Poor’ (Dollar and Kraay, 2002, 2004).10A more elaborate criticism of the financing gap approach to ODA will be contained within a forthcoming paperby Sumner and Tribe (2011 forthcoming).



affecting the performance of ODA (Edgren, 2002). Indeed, Easterly (2002: 39–40), forone, has argued for a reduction in our expectations: ‘Aid agencies should set more modestobjectives than expecting aid to launch the takeoff into self‐sustained growth’.

2.2.4 Climate change and the environmentAnother form of compensation linked to ODA recognises the negative economic rolewhich the demonstrable global environmental impact of high developed country consump-tion levels (and global warming emission levels) has on developing countries and on theiragricultural production in particular (for a detailed review of studies of climate‐related pov-erty impacts, see Skoufias et al., 2011). This is an example of the transmission of interna-tional external diseconomies. However, the forms of compensation which have beensuggested, for example, in documents produced at the time of the 2009 International Con-ference in Copenhagen (UNFCCC, 2008), have not usually been conceptualised as beingpart of ODA. However, in the new, wider, view of ODA reflected in Table 1, this type offinancial flow does need to be included, although whether ‘climate finance’ is additional to,or part of, ODA has been a source of considerable discussion.

2.2.5 Conflict and stressOne of the most challenging issues within international development has been the role ofconflict and civil strife in dislocating economies and societies over long periods. This hasbeen notable in sub‐Saharan Africa and South East Asia in particular but extends to otherregions as well. The response of the ODA sector to this problem has involved two strands:efforts to control and resolve conflict, including provision of international armed forces(which also relate to the international security argument for ODA) and contributions tothe recovery and rebuilding of fragmented economies and societies. It is the second ofthese which properly belongs within the ethical/moral argument for ODA through theapplication of the principles of international social justice (Fukuda‐Parr, 2010).

2.2.6 Responses to disastersThe final element of the moral/ethical case for aid relates to international responses todisasters. This argument has an illustrious record and has become considerably moresophisticated over the years and now involves significant collaboration between bilat-eral aid agencies, international institutions and international NGOs. Governmentalinstitutions contribute not only funds but also a coordinating and emergency responserole (see, e.g. DFID, 2010b).

2.3 The Case Against ODA

There have been considerable arguments marshalled against ODA over the years froma diversity of political perspectives. Bauer (1972), Moyo (2010), Hayter (1971) andEscobar (1995) approach the issues from a range of radical positions across the politicalspectrum. Others, and Easterly (2007) in particular, have launched their criticisms froma more apolitical stance.11 Essentially, these negative perceptions are of a long‐term nature,and shorter‐period fiscal constraints are not directly relevant. Be that as it may, those whotake a negative overall view of ODA would be likely to welcome short‐period cuts in ODA

11A very good summary of some of the main arguments for and against ODA can be found in a recent workingpaper by de Haan (2009). Discussion of the diverse views of the nature of ‘development’, including the position ofthe ODA donor community, can be found in Chapter 2 of Sumner and Tribe (2008).



commitments and would wish to convert them into long‐term reductions. It should beapparent that, to a considerable extent, negative views of ODA do not place a high priorityon the moral/ethical case in favour of ODA.Broadly, the case against ODA might be broken down into six elements: first, ODA

has consistently under‐achieved its objectives, and the record of aid effectiveness isnot good. This argument is contentious but is significantly dependent upon empiricalevidence, which is itself open to question (see the systematic review by Doucouliagosand Paldam, 2009). Booth (2011) reminds us of the limited role, which external assistancecan play in fostering or developing political economy processes within recipient coun-tries. Second, ODA is an inefficient means of achieving long‐term economic growthand poverty‐reducing objectives, and it is better to depend on market solutions inaiming for these objectives (this is the argument of Moyo, 2010). This element isdependent upon ideological pre‐conceptions to a considerable extent, representingthe neo‐liberal critique of aid. Third, ODA suffers considerably from the heavy handof bureaucracy, making it unresponsive to democratic pressures and leading to a‘donor‐driven’ set of priorities and predilections. This is a variant of the second ele-ment in many respects but does not necessarily include the ideological baggage of theneo‐liberal view of the world (de Haan, 2009). Fourth, ODA has consistently failed totackle corruption and has tended to reinforce privilege and power relations in recipientcountries (de Haan, 2009). Fifth, a view which is found in domestic political discoursein donor countries explicitly rejects ethical and moral arguments supporting ODA,reverting to a myopic nationalism and taking the view that advanced industrial coun-tries should focus on domestic issues rather than commit resources to the reduction ofpoverty in the rest of the world [see, e.g. blog responses from the public to TheGuardian (2010) or Scottish Daily Express (2011)]. This position is not directly identifiedin de Haan’s (2009) review paper but needs to be recognised explicitly. Sixth, ODAperpetuates a neo‐colonial, or imperialist, relationship between ‘recipients’ and ‘donors’(former metropolitan powers—vide the views of Alesina and Dollar, 2000) which ismainly to the advantage of the donors and to more privileged groups in recipient countries(Hayter, 1971; Escobar, 1995).Set against these longer term arguments against aid are those which take the view,

in the shorter term, that ODA should take its ‘fair share’ of public expenditure cuts ata time when a serious economic and financial crisis has occurred in the developedmarket economies, comparable with (and probably more serious than) the East Asiancrisis of 1997. In many respects, this argument for short‐term, temporary, cuts inODA do not necessarily imply an antagonistic view of ODA in the longer term butat least represent an ‘agnostic’ view.

3 ODA AND FISCAL CONSTRAINTS ASSOCIATED WITH THE GLOBALFINANCIAL/ECONOMIC CRISIS

A major issue for this paper is whether fiscal constraints, and public expenditure cutbacks,which are currently being experienced across developed market economies should be thebasis for reductions in allocations of ODA. This is essentially a short‐term preoccupation,rather than being within a long‐term perspective of the appropriate position of ODA withpublic expenditure commitments by donor countries. In this section, in addition to attempt-ing to identify the extent of the economic contraction in OECD countries caused by the



2007–2010 global economic crisis, a series of arguments in favour of maintaining or evenincreasing ODA in this time of economic crisis will be elaborated, followed by a series ofarguments for reductions in ODA at this time.Table 2 presents data taken from the OECD online statistical country profiles (OECD,

2011) for 14 developed market economies. The main limitations of these data are thatfor key variables they end at 2008 and cannot provide any indication of the intentions ofthe governments of these countries with respect to ODA commitments beyond the endof 2008. Five of these countries experienced a decline in GDP between 2007 and 2008,and the remainder experienced a reduction in the rate of economic growth. Between2008 and 2009, 12 of the countries experienced a decline in GDP ranging between 5.6 (Ire-land) and 0.5 per cent (France). However, by the end of 2010, 13 of the countries wereagain experiencing increases in GDP, the exception being Ireland, suggesting that mostof these economies are resilient and that the decline resulting from the crisis was only atemporary phenomenon.12

From the perspective of this paper, the incidence of fiscal constraints is manifested by acombination of reductions in GDP and reductions in the proportion of GDP received bygovernments in the form of tax revenue. For the 11 countries with data on tax revenueavailable from the OECD, only one has an increase in the proportion of GDP taken astax revenue between 2007 and 2008, although some of the changes are comparatively mar-ginal and are within the context of fluctuations rather than distinct trends.The data in Table 2 on the percentage of gross national income (GNI) committed to

ODA is of special interest. To some extent, countries fall into clusters—some havingaround 0.2 per cent, some around 0.4–0.5 per cent, and others having around 0.8–0.9per cent committed to ODA. The first group includes Italy, Japan and the USA; the secondincludes Australia, Canada, Finland, France, Germany and the UK; and the third includesDenmark, the Netherlands, Norway and Sweden. Ireland represents a transitional case withan increase from about 0.3 per cent in 2000 to about 0.6 per cent in 2008. Eleven of the 14countries have either attained, or are within reach of, the 0.7 per cent target: there is signif-icant international consensus in practice.Table 3 provides some more easily comprehended statistics on the reduction in GDP for

six OECD countries from the beginning of 2008 until the end of 2009, taken from anOECD table presenting comparative data for economic/financial crises since the 1970s.13

For these countries, the reduction ranges from a low of about 2 per cent for the USA toa high of about 6 per cent for the UK and Italy. The implication of this is that governmentrevenues would have been expected to have fallen by approximately the same proportionas GDP.

12Some of these OECD countries have experienced economic setbacks, which are not directly associated with themain financial–economic crisis of 2008–2010, which are likely to delay recovery and to influence public expen-diture levels and allocations. Examples include the sustained impacts of the very considerable Irish financial sec-tor crisis and of the Japanese earthquake and tsunami of early 2011. There also is a possibility that the current UKgovernment’s strategic reduction in public expenditure will slow economic recovery from the crisis, compoundingthe variety of country experiences.13The statistics in Table 3 come from the same OECD source as those in Table 2, but there are apparent incon-sistencies between the two tables, which can be reconciled. For example, for the Q4 of 2008, the UK has aGDP decline of 2.75 per cent over the same quarter in 2007, and for 2009, the equivalent figure was 2.84 per cent,giving a cumulative reduction over the 2 years of 5.5 per cent, much closer to the decline of about 6 per centreported in Table 3.



Table

2.GDP,g

overnm

entrevenueandODA

statisticsforselected

OECD

countries

2000

2005

2006

2007

2008

2009*

2010*

Australia

GDPgrow

th(annual%)

1.90

3.00

3.30

3.68

2.29

2.61*

2.71*

Total

taxrevenue(%

GDP)

31.14

30.82

30.63

30.83

n.a.

Net

ODA

(%GNI)

0.27

0.25

0.30

0.32

0.32

0.29**

0.32***

Can

ada

GDPgrow

th(%

)5.23

3.02

2.85

2.53

0.41

−1.10*

3.21*

Total

taxrevenue(%

GDP)

35.64

33.38

33.55

33.28

32.17

Net

ODA

(%GNI)

0.25

0.34

0.29

0.29

0.32

0.30**

0.33***

Denmark

GDPgrow

th(%

)3.53

2.45

3.39

1.69

−0.87

−3.11*

2.67*

Total

taxrevenue(%

GDP)

49.36

50.82

49.63

48.67

48.29

Net

ODA

(%GNI)

1.06

0.81

0.80

0.81

0.82

0.88**

0.90***

Finland

GDPgrow

th(%

)5.06

2.77

4.92

4.20

1.04

−5.52*

5.05*

Total

taxrevenue(%

GDP)

47.22

44.01

43.48

43.01

42.78

Net

ODA

(%GNI)

0.31

0.46

0.40

0.39

0.44

0.54**

0.55***

France

GDPgrow

th(%

)3.91

1.90

2.22

2.32

0.43

−0.52*

1.47*

Total

taxrevenue(%

GDP)

44.35

43.91

44.05

43.47

43.07

Net

ODA

(%GNI)

0.30

0.47

0.47

0.38

0.39

0.47**

0.50***

German

yGDPgrow

th(%

)3.21

0.75

3.16

2.47

1.26

−2.00*

5.05*

Total

taxrevenue(%

GDP)

37.19

34.79

35.59

36.17

36.43

Net

ODA

(%GNI)

0.27

0.36

0.36

0.37

0.38

0.35**

0.38***

Irelan

dGDPgrow

th(%

)9.45

6.18

5.36

6.02

−3.04

−5.64*

−0.69*

Total

taxrevenue(%

GDP)

31.28

30.36

31.69

30.81

28.26

Net

ODA

(%GNI)

0.29

0.42

0.54

0.55

0.59

0.54**

0.53***

Italy GDPgrow

th(%

)3.69

0.66

2.04

1.56

−1.04

−2.91*

1.49*

Total

taxrevenue(%

GDP)

42.29

40.85

42.34

43.46

43.17

Net

ODA

(%GNI)

0.13

0.29

0.20

0.19

0.22

0.16**

0.15***

(Contin

ues)



Table

2.(Contin

ued)

2000

2005

2006

2007

2008

2009*

2010*

Japa

nGDPgrow

th(%

)2.86

1.93

2.04

2.39

−0.70

−1.75*

2.53*

Total

taxrevenue(%

GDP)

27.00

27.40

27.97

28.33

Net

ODA

(%GNI)

0.28

0.28

0.25

0.17

0.19

0.18**

0.20***

The

Netherlan

dsGDPgrow

th(%

)3.94

2.05

3.39

3.61

2.00

−2.44*

2.09*

Total

taxrevenue(%

GDP)

39.66

38.50

38.91

37.54

..Net

ODA

(%GNI)

0.84

0.82

0.81

0.81

0.80

0.82**

0.81***

Norway

GDPgrow

th(%

)3.25

2.74

2.28

3.13

2.13

−0.89*

1.54*

Total

taxrevenue(%

GDP)

42.64

43.52

43.97

43.63

42.09

Net

ODA

(%GNI)

0.76

0.94

0.89

0.95

0.88

1.06**

1.10***

Sweden

GDPgrow

th(%

)4.40

3.30

4.25

2.54

−0.22

−1.60*

7.23*

Total

taxrevenue(%

GDP)

51.79

49.48

49.05

48.31

47.11

Net

ODA

(%GNI)

0.80

0.94

1.02

0.93

0.98

1.12**

0.97***

UK GDPgrow

th(%

)3.92

2.17

2.85

2.56

0.55

−2.84*

1.46*

Total

taxrevenue(%

GDP)

36.39

35.76

36.62

36.08

35.71

Net

ODA

(%GNI)

0.32

0.47

0.51

0.35

0.43

0.52**

0.56***

USA GDPgrow

th(%

)4.17

3.06

2.67

2.14

0.42

0.19*

2.70*

Total

taxrevenue(%

GDP)

29.89

27.54

28.20

28.29

26.86

Net

ODA

(%GNI)

0.10

0.23

0.18

0.16

0.19

0.21**

0.21***

Notes:

*These

quarterlystatisticsrepresentthepercentage

change

comparedwith

thesamequarterin

theprevious

year.

**These

statisticsarefrom

theOECD‐D

AC’s‘A

idFlows’

website

provided

incollaboratio

nwith

theWorld

Bank—

accessed

on28

March

2011

from

oecd.org.

***T

hese

statisticsarefrom

theOECD’s

New

sroom

‘Developmentaidreachesahistoric

high

in2010’—

accessed

on9April2011

from

www.oecd.org.

Source:

OECD,2011—Statistics:Country

Profiles—

www.oecd.org.



Table 4 presents some calculations based on an assumption that there is an approximateequivalence between GDP and GNI, giving an estimation for the proportion of total taxrevenue allocated to ODA in these 14 countries.14 The proportion of total tax revenue com-mitted to ODA depends in part on the ratio of tax revenue to GDP. For example, in Ireland,tax revenue is about 30 per cent of GDP so that the 0.6 per cent of GNI contributed asODA represents about 2 per cent of the total tax revenue, and for the UK, the equivalentproportion is about 1.2 per cent of the tax revenue. The UK’s GDP fell by about 6 per centbetween the beginning of 2008 and the end of 2009 so that if tax revenue fell propor-tionately, and for ODA to contract in line it would have to fall by about 0.07 per cent ofthe total tax revenue in 2008 (i.e. 6 per cent of 1.21 per cent), a comparativelyinsignificant change in the context of public expenditure management as a whole.This review of the economic and public finance impacts of the global crisis suggests that

if ODA were to have been reduced in line with fiscal constraints, the economic and finan-cial dimension would hardly have been significant and would perhaps have been regardedas nominal and symbolic.We will now set out some of the issues relating to support for ODA in the context of the

current global financial and economic crisis. The first relates to the ‘0.7 per cent target’, thesecond to a mutuality of interest, the third to the nature of the ODA commitment process,

14Data were not available for two of the countries for 2008, but the calculation could readily be made for 2007. Inthe OECD source for the statistics in Table 2, the total tax revenue is given as a proportion of GDP, and ODA isgiven as a proportion of GNI (as is conventional) with the ‘heroic’ assumption of identity between GDP and GNIhaving been made in full knowledge of the differences between these two measures.

Table 3. Reduction in indexed levels of GDP for selected OECD countries 2008–2009

2008 2009

PeriodQ1‐2008

Q2‐2008

Q3‐2008

Q4‐2008

Q1‐2009

Q2‐2009

Q3‐2009

Q4‐2009

France 100.00 99.56 99.32 97.81 96.49 96.80 97.05 —Germany 100.00 99.44 99.12 96.70 93.28 93.69 94.37 —Italy 100.00 99.44 98.64 96.61 93.98 93.52 94.05 —Japan 100.00 97.91 96.91 94.34 91.41 92.02 92.33 —UK 100.00 99.92 98.99 97.21 94.76 94.12 93.97 94.06USA — 100.00 99.32 97.96 96.35 96.17 96.70 98.06

Source: OECD, 2011—Statistics: Country Profiles—www.oecd.org

Table 4. Net ODA as a percentage of total tax revenue 2008

Australia n.a. Italy 0.50Canada 1.01 Japan n.a.Denmark 1.69 Netherlands n.a.Finland 1.02 Norway 2.09France 0.89 Sweden 2.08Germany 1.05 UK 1.21Ireland 2.09 USA 0.69

Note: The data in this table are based on the assumption of an equivalence between GDP and GNI statistics, whichis not perfect but gives an indicative order of magnitude.Source: calculated from OECD, 2011—Statistics: Country Profiles—www.oecd.org



the fourth to emergency and disaster‐related aid, the fifth to security arguments, and thesixth to environmental arguments.The target 0.7 per cent of GNI as ODA from economically advanced countries is a long‐

term one, and several countries experiencing contraction of GDP and of tax revenues dur-ing the current crisis have not yet reached it (see Table 2). For most of these countries, evenwith the contraction of GDP, holding ODA constant would still not lead to the 0.7 per centtarget being met. Indeed, for the UK, even with a substantial increase in ODA over the cur-rent spending review period, the target will barely be met by 2013 (Treasury, 2010: 6).This provides a partial argument for maintaining or increasing ODA despite the short‐termcontraction of GDP.One of the key ‘mutuality’ arguments supporting ODA has related to expenditures from

aid disbursements being made in the domestic economies of donor countries. The AccraAgenda for Action committed donors to ‘untie’ ODA, potentially increasing the effective-ness of ODA but reducing the ‘mutuality’ element (OECD‐DAC, 2008). However, in prac-tice, even for donor countries which have most or all of their ODA ‘untied’, there are stillsignificant expenditures from ODA programmes which occur in their domestic econo-mies.15 Expenditure on, for example, capital equipment, consumables, consultancy feesand scholarships can strengthen the mutuality of interest in maintaining or increasingODA commitments. Recipients obtain tangible benefits from ODA, and donors benefitfrom expenditure through its favourable impact on the ‘home’ economy and on recoveryfrom the crisis. One factor making short‐period cutbacks in ODA commitments dysfunc-tional is that they would be made in a medium‐term to long‐term context. Individual devel-opment programme aid allocations are made for expenditures over a number of yearsahead, rather than for single years. Therefore, short‐term cuts run the risk of endangeringthe projected outcomes from past expenditures in these development programmes, riskinghigher degrees of ‘waste’.The ODA which is committed to emergency and disaster aid, could be subject to

cuts simply because the reasons for the expenditures are not foreseeable at the timeof setting budgets. Donor governments might therefore reduce budget commitmentsfor emergency and disaster relief, citing the significance of private contributions bythe general public as one form of justification. However, this type of ODA probablyhas considerable public support, with media reporting of international emergenciesand disasters being very visible and eliciting great public sympathy.Likewise, ODA linked to international security issues can receive significant support

from the public in donor countries, particularly where linked with domestic securitythreats in donor countries and to military actions in countries where donors have com-mitted armed forces (such as Afghanistan). International peace‐keeping actions whichare linked with ODA expenditure might also be regarded as having a strong argumentfor ring‐fencing.Equally, the arguments for retaining ODA expenditures associated with the environment

also are likely to be strong because these are of a long‐term nature and ‘mutuality’ linksexist between donor and recipient countries. International inter‐connectedness is likely tobe a significant factor supporting a case for maintaining ‘environmental’ ODA.Another approach relating to potential ODA cutbacks would be to increase sectoral

selectivity. The social sectors have particularly benefited from ODA increases over the lastdecade. At a global level, bilateral ODA went up in absolute terms between 2000 and 2008

15This issue is explored in the 2010 OECD‐DAC Annual Report (OECD‐DAC, 2010: 16, 23, 225 and 226).



from $46billion to $74billion and from 0.14 per cent of donors’ GNI to 0.20 per cent buthas actually fallen slightly as a percentage of recipients’ GNI (McKinley, 2009). There hasbeen a structural shift towards social sector allocations and away from economic and pro-ductive sectors. In absolute terms social‐sector bilateral ODA spending has doubledbetween 2000 and 2008 from about US$20billion per year to over US$40billion per year.In contrast, production‐sector ODA has stagnated (McKinley, 2009). In this sense a formof selectivity has already been operating with increasing focus on ‘direct’ poverty reduc-tion through social sector interventions as opposed to ‘indirect’ poverty reduction throughfocusing on infrastructure and productive sector interventions.Reducing ODA commitments also can be related to directing aid more selectively to

countries with a high proportion of the world’s poor. It is arguable that some ‘developing’countries contain only a small proportion of the world’s poor people, whereas other lowermiddle‐income or even upper middle‐income countries, through being more populous,contain a higher proportion of the world’s poor. Through switching ODA to focus morefinely on higher concentrations of the world’s poor, and away from a focus on ‘developingcountries’, could have a larger impact on global poverty. Evans (2010), Sumner (2010) andKanbur and Sumner (2011) have discussed this ‘new geography of global poverty’, whichincludes the proposition that many of the world’s poor live in middle‐income countries,such as India and Indonesia, that may—in the medium term—neither need nor request sig-nificant levels of ODA. These countries will be more interested in policy coherence, ratherthan in ODA resource transfers, relating to issues such as trade relations, tax havens,migration and remittance policy, and global public goods. ODA might then be increasinglyfocused on an ever smaller number of low‐income countries that are fragile or conflict‐affected states (Moss and Leo, 2011).However, even if some middle‐income countries can support their own poverty‐reduction

programmes through internal resource mobilisation, others cannot (Ravallion, 2009), andeven in countries with substantial resources, the poor often will lack the ‘voice’ withingovernance structures. Furthermore, some countries, such as Pakistan, are only just withinthe ‘middle‐income threshold’ so that withdrawing ODA suddenly could lead to a slipback into the ‘low‐income’ status.The issues discussed above are illustrative of changes in financial and economic condi-

tions in developing countries over the years so that some of these countries now have sub-stantial domestic resources and are even donors themselves (see, e.g. Manning, 2006).Estimates for India’s aid programme are $550million in 2008, China’s aid programme isin the region of at least $1–2billion per year, and Brazil’s aid programme is estimated at$1billion per year.16 This would mean that new donors are set to overtake some ‘tradi-tional’ DAC donors including Australia, Belgium or Denmark. At the same time, netannual ODA into India is $2.1billion, and that into China is $1.5billion, raising a questionover the ethical case for ODA flows to countries which themselves have substantial domes-tic resources (World Bank, 2010).However, fragile and conflict‐affected states are regarded as having a very strong case as

recipients of ODA, particularly where the mobilisation of domestic resources, includingtax revenue, is a particular problem [for ‘fiscal space’ in low‐income countries, see Kyriliand Martin (2010)]. However, whether ODA can be absorbed in fragile states and even

16On India’s aid programme, see Ramachandran and Walz (2010); on China’s, see Lum et al. (2009) or Lancaster(2007b); and on Brazil’s, see Cabral and Weinstock (2010). Another interesting source on this issue is Dreheret al. (2010).



non‐fragile low‐income countries remains a point of contention (Feeny and McGillivray,2010; Killick and Foster, 2011).

4 CONCLUSION

In this paper, we have sought to present a coherent set of arguments in discussingissues surrounding the cases for and against reducing, maintaining or increasing thelevel of ODA commitments to developing countries by donors in fiscally constrainedtimes. These arguments fall broadly into two categories: the moral or ethical case andthe self‐interest case. The paper focused mainly on the moral and ethical case, but inrelating to donor responses to fiscal constraints, the self‐interest case was found tobe significant.There are significant long‐term arguments based on the moral/ethical case in favour

of donor commitments to ODA. The arguments against ODA tend not to consider themoral/ethical case, rejecting it in an extreme variant, and also do not give much atten-tion to the self‐interest case. Some of those taking an antagonistic or agnostic viewof ODA would accept a moral/ethical case with respect to emergency relief in particu-lar. There have been significant arguments marshalled in favour of making ODA moreselective and effective and more responsive to global socio‐economic structural change.Donor‐related arguments in favour of ODA reform focus on changing sectoral priorities,the ‘new geography of poverty’ and changes in aid allocation criteria.The arguments for and against ODA relate to long‐term considerations rather than to

short‐term considerations linked with temporary economic, financial and fiscal constraints.The recovery of most OECD economies from the 2008–2010 crisis has followed soon afterthe decline, making the case for short‐term cuts in ODA weaker. From the viewpoint ofdonor countries, there are arguments for maintaining or increasing ODA during economicand financial crises as a measure contributing to recovery strategies, based largely on theself‐interest case. The case for ODA is stronger for fragile and conflict‐affected statesand particularly those with serious crisis impacts, based on both the moral/ethical andself‐interest cases.

ACKNOWLEDGEMENTS

The authors wish to thank two anonymous reviewers and the editors for helpful comments onearlier versions of this paper.

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THE CASE FOR AID IN FISCALLY CONSTRAINED TIMES: MORALS, ETHICS AND ECONOMICS