The Vexed Question of Effective Aid by Gerald McGhie

Gerald McGhie is a former NZ diplomat who cut his Pacific teeth  with a three-year posting to Samoa in 1960. Later postings included Consul General in Hong Kong, High Commissioner in PNG, Ambassador in Moscow and Seoul. He was also Acting HighCom in Zimbabwe and Tonga, and led the NZ component of the ANZ peacekeeping mission to Solomon Islands.  

More recently he has been the National Director of the NZ Institute of International Affairs, Founding Director of the Pacific Cooperation Foundation, Hon.Vice-President of the NZ Institute of International Affairs, and until this year Chairman of the NZ Chapter of Transparency International.  He was awarded  the Queen's Service Order (QSO) in 2004.

Effective development assistance is a complex issue. There are various approaches. Direct financial contributions (as Australia did for post independent Papua New Guinea), selective targeting or the grouping of areas together in a regional package (as the EU does), village level contributions providing aid directly to the poorest members of society (various advocates), civil society contributions at a range of levels etc. 

New Zealand Aid

Currently the New Zealand Aid Programme (NZAP) seems to favour the selective target approach. It sees  

“sustainable economic development” as “a central focus [of its activities] which looks to reduce poverty and contribute to a more secure, equitable and prosperous world”.

The statement adds

“economic growth has the potential to improve the material wellbeing of the people in a developing country, with increased employment and income-generating opportunities. To be sustainable economic development, it must provide ongoing improvements to a country's economy. It requires support through policies that encourage and allow the private sector to grow and invest, programmes and institutions that develop expertise and capability, and infrastructure that supports economic activity. Support focuses on fisheries, agriculture and tourism sectors, and on activities that contribute to trade”.

Related priorities can be picked up on the NZAP section within the MFA website.  They include education, environment, gender equality, health, human rights, humanitarian and emergency response, leadership and governance, peace building and conflict prevention. As Dr Pangloss said, all is for the best in the best of all possible worlds.  But as noted, development assistance is a complex issue.

A Different Approach Sound Government

David Abbott and Steve Pollard see things a little differently. In December 2004, they produced a useful study for the Asian Development Bank (Pacific Department) entitled “Strategies and Priorities for Poverty Reduction”. To them the three pillars of poverty reduction are -

I - Good governance

II - Inclusive Social Development

III - Sustainable, Pro-Poor Economic Growth.

Abbott and Pollard state that:

Three Pillars

“Of the three pillars, good governance is considered to be the single most important, for without good governance it is unlikely that the other two pillars can successfully be established”.

They add that -

“Sound, honest government is the best way to help people out of poverty. Each government has a responsibility to create a balanced regulatory environment that encourages economic growth and the wider provision of goods and services, both in the public and private sectors.

“The private sector and markets must work efficiently to allocate resources to commercially viable, employment-generating investments. Good governance includes sound, responsive institutions and processes built on strong, visionary leadership and a commitment at the highest levels to give priority to the implementation and achievement of equitable growth strategies.

The second pillar supports investment in social services “to increase human capital, improve social protection, upgrade social infrastructure, and build social capital in ways that focus on the poor”. In particular, “initiatives [must be undertaken] to improve technical skill levels, especially among rural people, to meet the demands of private enterprise must be supported”.

The third pillar requires growth oriented, employment-creating strategies

to broaden and deepen both the domestic and export sectors.

The Abbott/Pollard paper is important. Of course responsible states look to economic development. The point is, however, economic development cannot be undertaken in isolation – sort of as a neatly packaged entity sufficient unto itself. Economic development – the market indeed – can only exist within the community. Without the community there can be little “economic development” as such. This is particularly so among the very different cultures of the Pacific.

The “Market” and the Community

We are emerging, I hope, from the era in which the efficient market theory dominated economic thinking and deeply influenced governments.  Clearly the market as such is important, but so are other factors which contribute to the life of a successful community.  Abbott and Pollard say, each government has a responsibility to create a balanced regulatory environment.  Absolutely. But It is here that we rub up against the complex, historically based and interconnected issues of "culture" on the one hand and the aforementioned concept of governance on the other.

Almost by definition those areas where outside assistance is needed are characterized by weak often rudimentary infrastructural support.  But trying to graft a highly developed Western derived infrastructure onto societies with no tradition of the similar structures and, even more importantly, the essential concepts that drive them will not work.  There has to be a sense of genuine enquiry and understanding from donors about what suits the individual community best (culture) as well as a clear commitment to intelligent engagement from all parties involved (particularly donors but also recipients).

Governance: What Does it Mean?

The managerialised, consultant infused, box ticking approach characterized by the  “Washington Consensus” doesn’t work in the Pacific – and much else besides. What is required is cross disciplinary action where the recipient country is given a full opportunity to contribute.

The World Governance Indicators (WGI) initiated by Kaufmann and Kraay in the 1990s provided six broad dimensions of governance including:

• voice and accountability (particularly participation in the selection of government)
• political stability  (absence of violence but outside agencies must be careful to ensure that any action on their part does not work against the reasonable activities of at times robust opposition)
• government effectiveness (the quality of policy formulation)
• regulatory quality (the conditions that allow private sector development)
• the rule of law (this category is quite critical and requires separate discussion -- the question in the Pacific is "which law”?)
• control of corruption (in the Pacific this applies at every level – but particularly to the question of elite "capture" of the State.)

In its list of priorities New Zealand Aid does include leadership and governance but it is well down the list. Perhaps given the dominance of economic development and the inherent difficulties in implementing the package of WGI indicators, policy makers do not wish to become involved in an issue which is shaped by - and itself shapes - local attitudes, expectations and motivations. Getting to grips with governance also means getting involved in “state building”. As far as I can see the New Zealand Aid website does not mention such a concept. 

But to me there can be little sustained economic growth unless the proper state machinery is in place staffed by people who have an understanding of and in the commitment to ensuring the implementation of Government policies. RAMSI (the assistance mission to the Solomon Islands) focuses on three areas (called pillars) – including improvements to the machinery of government, law and justice, economic governance and growth. That is a start. But that is pretty much it – a start.

Ramsi’s true test will not come till the elapse of a decent period of time - say two years - from its eventual departure from the Solomon Islands. By that time millions if not billions of dollars will have been spent and we will have had ample evidence that resurrecting a seriously flawed (if not failed) state is indeed, to paraphrase Fukuyama costly, difficult, risky and time consuming.

Goodwill

One real positive in the New Zealand aid program is a sense of goodwill.  That again is a start but only that.  If a governance programme is to work all parties must have the genuine will to succeed, get the right priorities in place and be prepared to back their judgment (calibrating where necessary) over a period of time.

A brief comment cannot provide a complete prescription but if proper governance programmes are put in place economic progress will emerge. Certainly, the evidence is clear that if soundly based Governance programmes are not in place there will be no sustained economic progress.

What is required is wisdom, demonstrated experience and courage to get to grips with the real elements of governance.

Gerald McGhie

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