IDC inquiry into the philosophy and culture of aid

Submission by Marcus Manuel 18 March 2021

 

Introduction

My name is Marcus Manuel. I am an economist and have worked in international development for thirty years. For the last eight years I have been working as a research consultant, focusing on development finance issues. I have also held senior management roles in the UK’s former Department for International Development (DFID), responsible for country programmes in Africa and Asia. I was also deputy director in HM Treasury, where I established the International Poverty Reduction team and was responsible for overseeing DFID expenditure and the conceptual work on international financing facilities. For four years I was seconded from the HM Treasury to work as the senior resident adviser in Uganda’s Ministry of Finance, Planning and Economic Development. While I am a Senior Research Associate at the Overseas Development Institute (ODI) the views presented in this submission are mine and do not necessarily represent the views of ODI.

 

Submission 

This IDC inquiry is most timely as the public debate in the UK over overseas aid has become increasingly narrow and limited. The debate has moved from recognising that overseas aid has always been given with mixed motives to a seeming acceptance that all aid should have dual benefits – to the populations in both aid donor and aid recipient countries. There are also growing calls for national interests in aid donor countries to predominate. The recent EU announcement[1] about using aid to stem migration is just one recent example of this. No longer is EU aid about partnership and shared commitment to poverty eradication or improving governance. It is now explicitly about making sure poor people do not come into the EU. The picture of everyone living in a generous global village has been replaced with one of a rich gated community, dispensing aid as the most cost-effective way of keeping people out.

At a conceptual level, the interesting new idea of Global Public Investment (GPI)[2] also illustrates how the debate is shifting. The “Global public” element highlights the point that there are global public goods that benefit everyone, including those providing the aid. The “Investment” element highlights that there is an expected return to this aid spending.

At the same time, the debate about decolonialising aid is prompting a reconsideration of whether aid is dead and just belonged to the last century. In this new public debate, old concepts of redistribution and global solidarity are being squeezed into the margins.

The near absence of any public debate around UK sharing its Covid-19 vaccinations with other countries is another example of how the aid debate has narrowed. If the UK’s objective were to minimise the number of global deaths from Covid-19, then the UK would use its stocks now to vaccinate older people in other countries, before vaccinating younger people in the UK. Yet there is not even a debate about whether it would better to vaccinate everyone in the UK first so that the UK economy could recover and then be able to help others. No-one is re-running the argument that the key point about the Good Samaritan was that he had money.

To rebalance the current debate I want to introduce the concept of a “Global Fiscal Transfer (GFT) to categorise one key aspect of aid. The “transfer” element is to emphasise that no return is expected, and that aid can be a mechanism for redistribution. The “fiscal” element is a reminder that aid is in part a response to the absence of an international taxation system that reallocates global resources to address global inequalities. Fiscal transfers of course are common within countries and within regional economic groups (such as EU).  The “global” element in GFT highlights that aid involve transfers across all countries.

Humanitarian aid is the most obvious example of a GFT. No return is expected, and the transfer is mediated by UN agencies and INGOs. The Global Fund for AIDS, Tuberculosis and Malaria is another example of a long term managed GFT, with the transfer mediated by a specialised global agency. Financing UN peacekeeping forces is another example, with the unusual element of having a pre-agreed burden sharing arrangements for the costs, based on the size of the contributor’s economy. If the calls for aid to fund universal child benefit are taken up, this would be another example of a GFT.

As far as I am aware GFT is a new term. The idea arose from research that I have done with others at the Overseas Development Institute (ODI).[3] This has identified 34 countries which have no hope of providing their populations with basic education, essential healthcare, basic water supply and minimal levels social protection (based on the international extreme poverty line). These papers draw in part on IMF and World Bank research about the maximum feasible level of domestic taxation that is possible in any county, based on the economic structural constraints such as the share of agriculture in the economy (as this is hard to tax) and the extent of external trade (which is much easier to tax). We combine the estimates of maximum taxation with costs of basic education and health etc drawing on estimates made by World Bank and UN agencies as well as our own estimates of social protection costs. The estimates factor in the impact of expected economic growth over the next ten years. The standout result is that there are 34 countries that are so severely financially challenged that even if they maximised their taxation, they could not even afford half the costs of basic services. Substantial financial transfers from richer countries will be needed for these countries to reduce extreme poverty.

The other driver for my interest in GFTs is the limited convergence of between poor and richer countries that ODI researchers have alerted me to. Some researchers argue that convergence is not happening,[4] implying that poor countries will be with us forever. Others argue that unconditional convergence has started to happen,[5] but their research suggests it will take 190 years for full convergence to occur. Either result suggests that the question about whether there should GFTs to reduce global inequalities will be around for many decades. Given this we should approach the design of such systems with an appropriate decadal time horizon. While aid maybe dead and last century, the moral case for GFTs will be around for at least the rest of this century.

Conclusion

The current debate suggests that the term “aid” may be outdated politically. And as it becomes clearer how aid is being used to describe all manner of spending, aid may also no longer be a useful term analytically. As the current debate focuses on national benefits and global public goods, the GFT concept might help balance the debate. The GFT concept may help facilitate discussion of the continuing long-term rationale for altruistically motivated transfers and the very real challenges of how do that well. The GFT concept may also be useful in future debates about whether to unbundle aid and redefine and reset the OECD DAC measure and target. 

 

Marcus Manuel

18 March 2021

 

 

 

 


[1] https://www.devex.com/news/eu-breaks-impasse-on-aid-budget-98828?mkt_tok=eyJpIjoiWlRNMk1ETTNNRE0xWXpsbSIsInQiOiIxeHNRZ3JCWHdsclwvaGVVdkU5SkZrcjdMMlwvYWtKTmQrT25Wc2RXTmF1cXorMTBWVDNTWWxYSGVOQkl1M1hRSlpFU3hhcUdiUUVZWENjWWM2YkhyQzVGZTY0S0lxa2Q3cDNKQTN0Q3FcL2J0RDRneFhaVytoT0RTZlZmbWhQR0dxOCJ9&utm_campaign=editors_picks&utm_medium=gdb&utm_source=newsletter

[2] https://www.globalpublicinvestment.org/

 

[3] Greenhill et al (2015) https://www.odi.org/publications/9462-financing-future-how-international-public-finance-should-fund-global-social-compact-eradicate; Manuel et al (2018) https://www.odi.org/publications/11187-financing-end-extreme-poverty; Manuel et al (2020) https://www.odi.org/publications/17516-financing-reduction-extreme-poverty-post-covid

[4] Johnson and Papageorgiou (2020) https://www.aeaweb.org/articles?id=10.1257/jel.20181207

[5] Patel, Sandefur and Subramanian (2021) https://www.cgdev.org/publication/new-era-unconditional-convergence