The Organization for Economic Co-operation and Development (OECD) was formed by 18 European and United States of America along with Canada in 1960 to focus on economic development of underdeveloped countries ( www.oecd.org , 2015). Today, this unique forum of 34 most advanced and emerging countries in the world work together to address the economic, social and environmental challenges of globalization (OECD, 2008). In 1970, these rich countries of the OECD agreed at the United Nations (Resolution 2626) to give 0.7% of their National income as aid to the developing countries (Madeley, 2002). This development aid is known as Official Development Assistance (ODA), which offers a flow of resource to developing countries, territories and to multilateral development institutions (OECD, 2008).

Purpose of development Aid

The principle interests of foreign aid were commercial and diplomatic (Lancaster, 2008). Despite the popular belief that aid is primarily motivated to assist the poor, substantial evidence points to political, strategic, and welfare interests of donor countries as the driving force behind aid programs (Katherine, 2002). Though many donor countries wanted the development aid to be used for improvement of lives of people by reducing half of extreme poverty and achieve primary education by 2015 (Madeley, 2002). At the macro level, only tenuous links between development aid and improved living conditions have been found. At the micro level, only a few programs outlast donor support and even fewer appear to achieve lasting improvements. This is evident as still over one billion people globally are living on less than $1.25 a day in 2011 (World Bank, 2015).

Aid Watch (2008) gives historical aspects of the aid as Britain and other imperial countries exported capital and manufactured goods to colonised countries in return for substantial imports of raw materials. Such trading relationship even continues today. These colonizers wanted to maintain good relation with the developing countries with some assistance.

The major donor, United States, however, uses its resources for creating markets for its goods in developing countries (Madeley, 2002). The US Congress must vet every aid allocation, and therefore large amounts must be determined by political rather than need-based factors. Large OPEC aid disbursements are primarily to neighboring Arab countries (Katherine, 2002). The donor countries have to decide the criteria for giving aids. Their focus has been to alleviate poverty. If aid is focused on the poorer countries that cannot tap private resources, then this should be a diminishing problem (ignoring as a consequence the reality that most of the world’s poor people are in India and China) (Swell, 1999). But these countries have to take steps genuinely towards this mission.

Volume of Development Aid

The donor countries promised to contribute 0.7 percent of their national income to ODA in a UN resolution in the year 1970 as aid. However, they have failed the target as contributed between 0.27% to 0.36% ( http://www.oecd.org ), which is approximately 3.6 Trillion (Shah, 2014). In 1992 during Earth Summit in Rio, Western countries gave 0.33 percent of their national income as development aid (Madeley, 2002). No donor OECD countries except Denmark, the Netherland, Sweden and Norway have been able to meeting their target of 0.7 percent of their national income as official development assistance as aid ( Development Aid, 2000). The U.S. has provided the least, only 0.1% toward aid where the target is 0.7%. Though it is still the highest donor with amount of $22,000 US million, comprises 20 percent of total aid (OECD, 2008). Therese aid is utilised either through bilateral or multilateral way. The bilateral aid is directly implemented by the government or national or intern-national non-government organisations, whereas multilateral aid is financed through multilateral development institutions’ regular budgets (OECD, 2008).

Usages of Development Aid

One fifth of aid has gone to least developed countries and one third to middle income countries (OECD, 2000). The highest percentage of development aid, 39% has gone for social sector followed by economic development (OECD, 2008). The proportion of ODA going to the poorest countries rose from 40% of net bilateral ODA in 2002 to 46% in 2006 (OECD, 2008). One third of world´s 1.2 billion extreme poor people live in India followed by China with 13 percent in Asia (UNDP, 2014). But highest amount of development aid, 41 percent has gone to Africa, followed by 31 percent to Asia including 11 percent to Europe and US (OECD, 2008). Though in the past fifty years, more than $1 trillion in development-related aid has been transferred to Africa, but is this assistance improved the lives of Africans, questions Moyo (2009).

Benefits of Development Aid

United Nations Water estimates that for every $1 invested in water and sanitation in developing countries, the benefit worth $9 to the economy through increased productivity (WHO, 2007 in UN-Water, 2008). UK Parliament estimates the development aid has added about 0.5 per annum to growth in recipient countries (www.parliament.uk). In sub-Saharan Africa, there have been major improvements in child health and in primary school enrolment over the last two decades. To choose one example, between 1999 and 2004, the continent achieved one of the largest reductions in measles’ deaths ever seen.

Ill-effects of Development Aid

This development aid has been marginal change in the lives of those people. This has neither benefited the developing countries nor its poor people. What’s wrong with foreign aid? Many policymakers, aid practitioners, and scholars have been questioning the ability of aids to increase economic growth, alleviate poverty, or promote social development (Gibson, 2005). There are some reasons perceived, which are 1) either the development has been misused by respective government/ political system as corruption, 2) this development aid has not been used effectively or used for the vested interest of donor agencies. Many such countries have overreliance on aid and trapped in a vicious circle of aid dependency, corruption, market distortion, and further poverty, leaving them with nothing but the “need” for more aid (Moyo, 2009), 3) excessive exploitation / encroachment (taking away land, environment degradation etc) of industries from developed countries. Lancaster critisied as the aid increases, there is lack of transparency and corruption, fragmented nature of aid and absence of overall framework (Lancaster, 2008).

Major ill effects of development aid on the developing countries

• Under development in Africa : Although huge amount of development aid has been given to the developing countries, it has not been beneficial for neither for people and not those countries. For example – Africa is major receiver of development aid of worth $ 1 trillion (Moyo 2009) with Official development aid per capita is 52.8 dollar in 2013 (World Bank, 2013). The poverty in Africa has high poverty rate, with 47.5 percent of the population living on $1.25 a day (by about 9 million) for the first time in history. They account for 30 percent of the world’s poor. Africa has the lowest human development indicators, with one in 16 children dying before their fifth birthday and UMR is 122 per 1000 (World Bank, 2013). In spite of developed aid, it is unlikely that the remainder of the MDG will be reached by 2015 at the global level or in many regions; sub- Saharan Africa and the Pacific still show the least progress.
• Over Dependency : Aid does not significantly increase investment and growth, nor benefits the poor as measured by improvements in human development indicators, but it does increase the size of government (Boone, 1995). Many countries receive development aid of 25 percent to 50 percent of their national budget. How could those countries be democratically accountable to their people? (Madeley, 2011). Moyo has written in her book called Dead Aid: Why Aid is Not Working and How There is a Better Way For Africa that “aid has not merely failed to work, but has compounded Africa’s problems” (Myers 2009).
• Undermining Democracy : The bulk of increased aid flows has not involved the genuine transfer of resources into the economies of developing countries. Most of the increase in aid was debt relief, not programmable aid (IEA, 2014). Moyo has assessed the associations between governments and society, identifies that in many African nations, the government has “abdicated their responsibility” (Moyo 2009). This leads to an undermining of democracy in these democratic countries.
• Promoting Corruption : Aid helped rich people of the poor country; it might change the distribution of incomes in poor countries. However, a recent study by Dirk Herzer and Peter Nunnenkamp finds no evidence of such a positive effect. Instead, when comparing 21 countries across a long period of time, they find that countries receiving more aid develop a more uneven distribution of income, consistent with Bauer’s claim that aid mainly helps rich people in poor countries (IEA, 2014). The elite political, business leaders and mediatory agencies exploit and take away huge money from large projects, resulting failure of the projects.
• Market Exploitation by donor countries : The aid is waste as the recipient countries are forced to buy over priced goods and services from donor agencies forces. It is found that more than half of total development aid every year ($69bn) goes for buying goods and services from the donor countries, which is known as “boomerang aid”. The same in case of the World Bank as 67% of the contract rewarded to companies belong to 10 donor countries in 2008 ( http://www.theguardian.com , 2011). Rich donor countries find the market of recipient countries but don´t give them equal access for the product of their countries (Shah, 2014). Though there is increase in development aid, who would get the benefit? Many times, the donor agencies sanctions project without consulting people, in result, it becomes a nightmare for them rather their development. For example, the farmers of Andhra Pradesh state in India travelled to British’s house of parliament to urge to stop the aid under the scheme of Vision 2020 to their state as it would it would displace 20 millions of farmers from their land in 20 years (Madeley, 2002).

Way forward for Development Aid

First, I would suggest that the donors should stop giving aid if such vested interests continue. However, donor countries with genuine interest for the development of people of development countries may focus on the following aspect/s.

• Creating Sustainable People’s Development Model: As there has been aid flowing from donor countries to developing counties for improving standard of living of people. It would be great if the donor countries work together for creating a time bound Models of holistic regional Development. For example one region (whole nation or at least a state/ province) can be identified and all-round development, which would result in substantial improvement (at the standard of global best) of all indicators of HDI. The process should result in empowering people, increasing their economic status, creating community assets, etc. The benefit should be for individual as well as community, short term as well as long term. For an example, Government of India has implemented massive livelihood rights – National Rural Employment Guaranty Act (NREGA), where each family gets job for at least 100 work days with minimum wages as per their demand (GoI, 2005). Rather than giving any kind of work, government has used for creating assets in rural areas (Dhananjaya , 2011) by digging pond, building roads, tree plantation for forest, etc. This has given employment opportunity for people as well as created assets for the community like pond (used for fishing), forest (used for fuel wood and livelihood using non-timber forest products). There would be many successful programs, such threads can be connected to achieve overall development of a developing country. This should (Em) Power to people. People (not the political leaders or vested interest group or intermediary agencies) should be given freedom for preparing their long term outcome based plan. Provide resource as per their requirement/ need rather pre-conceived baggage of donor agencies. Particularly the young people, the future of the community and the country, should be empowered by enchanting their leadership, providing relevant skill and creating social entrepreneurs. These self-sufficient rather dependent on external agencies would play vital role for overall development of the country by taking larger responsibility.
• Increase people to people contact : Enhance more interaction with people from countries to country or region to region. Encourage some key local leaders from the successful region to visit the new region, to share their knowledge, experience, to co-create the model with people (in the new region) and work together in implementing a model successfully. This will not only create confidence among local leaders in planning and execution of models but also will be recognition to their contribution.
• Integration of Society with Business: In this globalized world, market plays critical role in the development of people. World Bank (2013) supports to governments (for example in India) to strengthen the collaboration between corporate business strategies and national development priorities. Many corporations of the donor countries have presence in the developing countries (where the aid is given). The donor countries should encourage these corporations to engage with such holistic development model in those countries. The corporations can play key role and come up with products for the benefit of people like nutritious food for improving condition of malnourished children. The corporations should facilitate creating social entrepreneurship among the local youth/ leaders by sharing their business acumen and strengthening (handholding) them. In result, these social entrepreneurs would create products and services for the benefit of their society in one hand, but become self-sustainable through the profits the other hand. For example –designing low cost renewal energy like solar lights, Ayurveda medicine for better healthcare, technology based solutions to the local problems including satellite education, fly ash brick (to address pollution and meet the local demand). Finally, the young entrepreneurship, from job seekers would turn out to be job providers.
• Effectiveness of Development Aid: The donor agencies should introspect and improve their internal standards. There should be effectiveness in strategizing, planning and execution including critical monitoring and evaluation system. There should be more focus on program execution (more resource should go for program and less for administrative). There should be social audit by people to measure the outcome of the program. Such reports should be made public for scrutiny. This will enhance participation of people in planning, execution, and giving them autonomy to use the resource.
• Coordination among development agencies : The proportion of harmonised work (close coordination among the donor countries) varied from 12% to 80% (OECD, 2008). The Paris Declaration (March 2005) and the Accra Agenda for Action (September 2008) thus mentioned aid coordination as one of the key mechanisms to be mobilized with a view to enhancing aid effectiveness (Bourguignon, 2014). The development agencies should share their best practices among each other to avoid any duplication and leading for better and quicker replication of successful models.

Reference

• Aid Watch, 2008: http://www.aidwatch.org.au/stories/a-brief-history-of-aid/ dated 15th December 2014
• Development Aid, 2000: Organisation for Economic Cooperation and Development. The OECD Observer, pp. 90.
• BOONE, P., 1996: Politics and the effectiveness of foreign aid. European Economic Review, 40(2), pp. 289-329.
• BOURGUIGNON, F. and PLATTEAU, J., 2014: The Hard Challenge of Aid Coordination. World Development,
• Dhananjaya K, Prathibha M., 2011: Role of Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) in Rural Asset Creation in India –An Analysis, Journal of Global Economy (ISSN 0975-3931), Volume 7 No 4, October-December, 2011
• GIBSON, C.C., ANDERSSON, K. and SHIVAKUMAR, S., 2005: The Samaritan’s dilemma: the political economy of development aid. OUP Catalogue, .
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• SEWELL, J.W., 1999: The politics of aid and development in a globalizing world, Development, 42(3), pp. 31-35.
• World Bank, 2015: Ending Poverty and Sharing Prosperity, Global Monitoring Report 2014-2015, A joint publication of the World Bank Group and the International Monetary Fund, International Bank for Reconstruction and Development / The World Bank, Washington DC
• UNDP, 2014: The Millennium Development Goals Report-2014, United Nations, New York