The Domestic Politics of Foreign Aid

Erik Lundsgaarde

• Publisher: Taylor & Francis
• Year: 2012
• Print ISBN: 9781138672338
• eBook ISBN: 9781135131616
• Edition: 1
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

In spite of shared rhetorical commitments to tackling poverty worldwide, donors have varied considerably in their use of aid as an instrument for global poverty reduction. This book explains varied donor priorities by examining how societal actors, governmental actors, and the institutions that regulate their interactions influence development policy choices.

The Domestic Politics of Foreign Aid challenges explanations for donor generosity that identify humanitarian values, partisan politics, and welfare state institutions as key determinants of aid-giving patterns. It explains how the preferences of diverse sets of actors are amalgamated in the domestic political arena to shape national preferences for international redistribution. Drawing on interview research conducted with a variety of stakeholders in four donor countries (Denmark, France, Switzerland and the United States) and an extensive review of primary and secondary sources on aid politics in the countries studied, the book offers both a static overview of the characteristics of aid policymaking systems and a historical treatment of policymaking dynamics over a 25-year period (1980-2005).

Applying a common theoretical framework to the four case studies and using development NGO advocacy as a starting point for examining the politics of aid, this book provides a synthesis of several strands of theoretical work dealing with interest group politics and political institutions to inform the analysis of the societal and governmental determinants of aid choices.

1
Development aid as a policy instrument

We will spare no effort to free our fellow men, women and children from the abject and dehumanizing conditions of extreme poverty, to which more than a billion of them are currently subjected. We are committed to making the right to development a reality for everyone and to freeing the entire human race from want.

United Nations Millennium Declaration, September 2000

At the United Nations Millennium Summit in 2000, world leaders endorsed a long list of goals to promote peace and global development. The list included calls to halve the number of people living in extreme poverty by the year 2015 and to encourage the world’s wealthiest countries to increase development assistance to mobilize the resources needed to achieve the goals. These prescriptions were not revolutionary. As early as the 1970s, the World Bank had begun to emphasize the centrality of poverty alleviation as an international development policy goal (Finnemore 1996), while the UN proposed that industrialized donor states should allocate 0.7 percent of their national income toward development assistance. In spite of shared rhetorical commitments to tackling poverty worldwide, however, donors have varied considerably in their use of aid as an instrument for global poverty reduction. This book explains these varied donor priorities by examining how societal actors, governmental actors, and the institutions that regulate their interactions influence development aid policy. In so doing, it offers a theoretical framework for understanding foreign aid choices that places domestic politics and the development policymaking process at the center of the analysis. It challenges explanations for donor generosity identifying humanitarian values, partisan politics, and welfare state institutions as the most important determinants of donor giving patterns and explains how the preferences of a diverse set of actors are amalgamated in the domestic political arena to shape national preferences for international redistribution via foreign aid.

The characteristics of foreign aid

Ever since it emerged as a policy instrument in the aftermath of the Second World War, foreign aid has been both heralded as an instrument for promoting economic development and improving living conditions in poor countries and criticized as an ineffective means for achieving development goals. For aid proponents, inter-governmental resource transfers can provide a needed capital injection into economies unable to accumulate capital through domestic savings or private international investment, or help to directly address the basic needs of vulnerable populations in developing countries. Aid skeptics argue in contrast that aid may actually hinder development efforts by, among other things, creating unintended incentives for developing country leaders to delay political and economic reforms.¹ The immense development challenges that large segments of the world’s population continue to face lead aid advocates to continue to call for aid increases, while persisting development challenges reinforce the perception of aid skeptics that decades of aid provision have failed to deliver development results. Although the 2005 Human Development Report reported global progress in limiting impoverishment and expanding access to education and health care, the report also painted a somber image of the limited opportunities available to many of the world’s inhabitants. One-fifth of the world’s population (around 1.2 billion people) lived on less than a dollar a day, one billion people lacked access to clean water, and 800 million people lacked basic literacy skills (UNDP 2006). Notwithstanding its continually debated utility, foreign aid remains one of the main policy instruments that industrialized countries can use to redistribute wealth to the world’s poor and potentially alleviate poverty.

In 2005, the 23 members of the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD) distributed more than $100 billion in aid to the developing world through their own bilateral aid programs and contributions to multilateral organizations (OECD 2006a). Although the importance of aid to developing country economies varies widely, aid represents a significant source of capital for many developing nations, and in some cases has accounted for almost half of gross national income (GNI) and nearly equaled the volume of central government expenditures (Remmer 2004). The aid industry now involves a wide array of actors, including an increasingly diverse field of donors.² However, the bulk of the world’s aid is still provided by the states that are members of the DAC.³

Although the DAC monitors its members’ budgetary commitments to aid and the contribution donors make to development at an operational level, its ability to enforce recommendations regarding the overall amount of aid member states should disburse or the content and operationalization of aid programs is limited. Without strong institutional constraints at the international level, donors have substantial autonomy in shaping aid programs, and there have long been considerable differences within the DAC donor club in the amount and nature of assistance distributed to developing nations (Botcheva and Martin 2001). The Nordic states and the Netherlands have traditionally led the donor pack in terms of the percentage of their national income allocated to development assistance, while the United States and Italy have occupied positions at the bottom of the pack of donors in recent years. In addition to these cross-national differences, there are noteworthy variations within donor countries over time. Even in Scandinavian countries that have often been lauded for their contribution to international development, aid programs have not been immune from budget cuts. As an example, Denmark’s aid commitments began to drop from 2001 onward, going from a level of 1.06 percent of GNI in 2000 to 0.85 percent of GNI in 2004 (OECD 2006a).

Overall aid figures highlight the different priority that donors have assigned to the use of aid as a foreign policy instrument over time. This policy instrument takes many forms, and donor choices about the content of their aid programs reveal their more specific goals. Although the DAC defines Official Development Assistance (ODA) as grants or loans directed to developing countries that are “undertaken by the official sector; with the promotion of economic development and welfare as the main objective; [and] on concessional financial terms” (OECD 2006a), this definition leaves room for donor interpretation. In some cases, funding reported as aid may not actually represent a real transfer of resources abroad. For instance, many donors have included costs associated with housing refugees and asylum seekers in the donor country in ODA figures reported to the OECD. Aid via technical cooperation has financed scholarships for students from developing countries at universities in the donor country and paid the salaries of donor consultants advising recipient governments.⁴ In addition, most DAC donors have tied aid at least to some degree to procurement contracts with domestic firms, providing a direct return to domestic suppliers and diminishing the overall value of aid distributed abroad (Kemp and Kojima 1985; Jepma 1991).

Official aid can come in forms such as debt cancellation, macroeconomic support, project assistance administered by the donor, or project aid implemented by non-governmental organizations (NGOs). Moreover, aid can support development efforts across a variety of sectors including investments in economic infrastructure, agriculture, or social service provision. The choices that donors make with respect to the balance of different aid instruments or areas of concentration within their foreign assistance programs reflect the motivations that underlie their use of aid as a policy instrument.

This book explains how domestic political processes shape the overall level of aid that donors provide as well as the content of aid programs. The analysis of factors leading donors to prioritize particular forms of assistance helps to inform discussions on aid effectiveness. Research on aid effectiveness tends to treat aid as a homogeneous sum placed into recipient country economies as an input for economic growth or human development at the macro-level (Burnside and Dollar 2000; Easterly 2003; Kosack 2003); however, aid actually enters the bloodstream of a developing economy in heterogeneous forms (Addison et al. 2005) and is disbursed by a variety of actors whose objectives are not always identical. Aid effectiveness might more appropriately be evaluated on the basis of the achievement of the specific goals that individual components of aid programs are intended to address (Fielding et al. 2006). The immediate goals of aid investments in education, health care, or sanitation are to improve literacy and reduce the incidence of disease, while aid investments in large-scale infrastructure projects are designed to achieve other outcomes such as building productive capacity in the recipient economy or improving linkages to domestic and international markets. Donor decisions on what purposes aid should be allocated for condition the possibilities for what types of problems recipient countries can tackle with this assistance.⁵

Academic perspectives on aid choices

Donors have used aid to pursue a range of foreign policy objectives (Baldwin 1985), including supporting political and military allies and promoting national commercial interests. In the most skeptical view, aid in some historical cases could be considered a form of bribery, with donors transferring resources to other states as a means of securing some political concession (Morgenthau 1962). To examine the motivations underlying donor aid choices, many studies have applied a donor interest versus recipient need framework often attributed to McKinlay and Little (1977) to determine whether the geographical distribution of aid flows reflects strategic and economic considerations of donors or whether aid allocation decisions instead respond to the objective development needs of recipient countries. A common and straightforward conclusion from research in this vein has been that aid programs reflect a mixture of self-interested and altruistic motivations: most donors provide aid to address some combination of diplomatic, economic, and development-oriented goals. Studies of geographical aid allocation patterns have noted that large donors, including the United States, Japan, and France, have tended to provide aid to protect military or commercial interests abroad (Maizels and Nissanke 1984; Schraeder et al. 1998), while Nordic donors have primarily given aid for humanitarian reasons as evidenced by their attention to poverty, democracy, and good governance (Alesina and Dollar 2000; Alesina and Weder 2002; Neumayer 2003). These studies highlight important cross-national differences in donor motivations for providing aid. However, this line of research does not attempt to explain where donor motivations originate. That is, such studies do not account for why commercially oriented aid policies or poverty reduction oriented aid policies are stronger or weaker in any given donor country.

Another strand of the aid literature focuses on the foreign aid programs of individual donors, outlining the objectives, characteristics, and structure of development cooperation and key issues facing donors at a particular point in time (Hoebink and Stokke 2005). While large donors have received a great deal of attention at the case level (Schraeder 1995; Ruttan 1996; Stein 1998; Eyinla 1999; Cumming 2001), the uncommon generosity of the Nordic countries and the Netherlands has stimulated interest in these cases as well (Pratt 1989; Stokke 1989). Studies focusing on these ‘like-minded’ donors have suggested that their strong support for international redistribution is essentially a reflection of “dominant socio-political values … underpinning the welfare state ideology” (Stokke 1989: 284). Lumsdaine’s (1993) prominent study of donor aid policies from 1949 to 1989 reinforces this point, since he argues that high commitments to development assistance are fundamentally a projection of domestic egalitarian values.

Lumsdaine’s work provides an empirically rich account of the rise of aid as a policy instrument and is an essential reference point in the literature on donor aid politics for several reasons. First, Lumsdaine identifies shortcomings in applying the realist approach to international relations to the study of aid, arguing among other things that the international system cannot completely determine the goals states choose to pursue, that change in the nature of the system can result from changes within states, and that ideational factors, such as unifying ideals, may represent a source of strength for a state. Second, Lumsdaine offers an explanation for donor generosity that emphasizes the domestic origins of aid choices. Finally, Lumsdaine attempts to evaluate the policies of all DAC donors on the same terms, highlighting the correlation between levels of social spending and aid outlays to argue that differences in attitudes toward domestic redistribution and preferences for international redistribution go hand in hand.

There are also limitations in Lumsdaine’s analysis, however. One of Lumsdaine’s central claims is that there has been a steady and seemingly inevitable progression in the acceptance of norms of providing assistance to developing nations and in the improvement of the quality of that assistance throughout the industrialized world. Yet the cross-national differences that Lumsdaine identifies suggest that there has been substantial variation in the degree to which states have accepted or internalized benevolent development assistance norms. Though Lumsdaine asserts that humanitarian concerns for the world’s poor increased in the whole of the donor community over time, many donors have pursued aid cutbacks. One prominent example is the United States, initially the world’s leader in aid provision, which witnessed a long-term decline in aid provision from the 1970s through the 1990s. While many governments may make pronouncements in favor of reducing poverty globally, the uneven resource commitments to aid indicate that the moralistic impulses Lumsdaine associates with generous aid allocations have often not triumphed over other national preoccupations.

The main shortcoming in Lumsdaine’s analysis is not that it fails to account for general trends in individual cases where aid giving practices may not closely conform to his expectations, but that Lumsdaine does not identify how domestic values and historical traditions of egalitarianism and altruism are translated into the policy choices he seeks to explain through the development assistance policymaking process itself. Lumsdaine instead finds evidence for the domestic values hypothesis in the observation that states with higher commitments to domestic poverty reduction through social compensation also tend to have higher commitments to international redistribution. This argument suggests that aid choices as well as domestic welfare choices reflect a long-term continuity in national values and have an automatic quality. Studies following this line of argumentation emphasizing the causal role of welfare state institutions also tend toward historical determinism without explaining how the legacy of egalitarian institutions locks in foreign policy choices (Noël and Thérien 1995; Thérien and Noël 2000).

These studies are useful because they suggest that there are institutional differences among donor countries that influence commitments to foreign aid. However, whether welfare state institutions in and of themselves drive donor aid choices can be questioned since welfare states order social relations at the domestic level and create political cleavages that reflect the level of social protection accorded to various groups within the domestic political economy (Esping-Andersen 1990). Groups that mobilize to protect their interests within a state’s welfare regime do not necessarily mobilize to support redistribution in the international economy. Moreover, given that welfare states have also been perceived as a mechanism for cushioning domestic publics from international market volatility (Cameron 1978; Katzenstein 1985; Rodrik 1998) and contain a national protectionist dimension (Myrdal 1960), the link between domestic solidarity and international solidarity is not self-evident.

The humanitarian values and welfare state hypotheses suggest that aid policies are either a natural extension of underlying characteristics of a country’s population or an extension of a set of policies designed to compensate domestic actors from the vagaries of the market. Invoking these explanations as determinants of aid choices deprives aid policy of a politics unto itself.⁶ Yet aid policymaking does display a set of dynamics that distinguishes this issue area from other domestic and foreign policy problems, and it differs from welfare policymaking in fundamental respects. For example, aid policy is largely formulated out of public view while welfare policies attract the attention of the broad public. When aid is provided to alleviate poverty abroad, its beneficiaries are foreigners with little to contribute to the re-election campaigns of legislators, whereas the ability of legislators and governments to address domestic welfare demands is more likely to have electoral consequences. Finally, policy areas differ with respect to the nature of the governmental actors that are most actively involved in policy formulation. To provide one obvious example, development aid agencies have little input in determining how wages are indexed or how industrial production is regulated, but do contribute to defining and implementing development policies.

This book proposes that in order to understand why aid policies differ across national settings and why they change over time, it is important both to identify the actors who favor increases in the quantity and quality of aid distributed and to examine the nature of the obstacles they face in advancing their policy goals. While Lumsdaine does identify advocates of generous aid policies—leftist parties, religious organizations, and relief agencies in particular—his analysis does not situate the experience of these actors in promoting a pro-poor agenda in a broader political context where other actors also compete for resources and have the power to shape national priorities. Policymaking processes comprise repeated interactions between actors with diverse interests operating within a given set of political institutions. In the aid policy process, some advocates have succeeded and others have failed to win state support for the transfer of resources to the world’s poor. There are religious and voluntary associations across donor countries that are similarly interested in helping vulnerable populations, yet in some settings public policy appears to bear the mark of these humanitarian-oriented groups to a larger degree than in others. Inattention to the policymaking process signals a neglect of the obstacles actors encounter in their efforts to shape policy, whether these obstacles come in the form of the countervailing interests of other actors or in the form of structural barriers to securing influence that stem from the way a given political system is organized. The characteristics of domestic aid constituencies and the nature of their policy demands represent a key starting point in analyzing aid choices. However, in order to understand variations in aid commitments across countries and over time it is also necessary to take the characteristics of the governmental actors that supply aid into account and to identify how political institutions shape the interactions between actors demanding aid and those supplying it.

Several scholars have recently emphasized the relevance of domestic influences on foreign aid choices. Building on a theoretical framework common to studies examining the domestic determinants of trade policy, Milner and Tingley (2010) h...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• List of figures and tables
• Acknowledgments
• List of abbreviations
• 1 Development aid as a policy instrument
• 2 Aid and domestic politics
• 3 Consensus and aid generosity in Denmark
• 4 The cautious humanitarian: aid politics in Switzerland
• 5 The long shadow of the past: aid politics in France
• 6 Fragmentation and micromanagement: US aid politics
• 7 Concluding considerations for development advocates
• Notes
• References
• List of interviews
• Index