A former government economist said aid was “almost irrelevant” to solving the problems of developing countries.
Countries that have experienced rapid growth and declining poverty, such as Bangladesh and Ghana, do so through their own wealthy elites, not outside aid, says Stefan Dercon.
In his new book, Gambling on Development, Dercon, former chief economist at the former Department for International Development (DfID), says successful growth requires “a development market” – a commitment from a country’s elite.
Dercon attributes growth in countries like China, India, Vietnam, Indonesia and Rwanda not to enlightened leadership but to wealthy elites motivated to bring about change. His argument is that aid will bring little or no return to countries that have none.
“If you look at the big picture of change, aid has been almost irrelevant,” he said. “That certainly wasn’t the cause of the change. Take a country like India: it has never had more than 1.1% of its GNI [gross national income] as help. China has very little. That said, there are countries [with a committed elite] where aid has played a constructive role, and if you think of Ghana and Bangladesh, aid has worked well.
Dercon, a professor of economic policy at Oxford University and director of its Center for the Study of African Economies, was until earlier this year policy adviser to Foreign Secretary Liz Truss, effective the day before the merger of DfID with the Department of Foreign Affairs, becoming the Foreign, Commonwealth and Development Office (FCDO).
Arguing that a political and economic elite has far more agency than institutions, Dercon adds: “Many of the success stories described in this book did not necessarily have strong institutions at the time of take-off. Think of Bangladesh, with its unstable rent-seeking politics, and seemingly a “hopeless case”, as Henry Kissinger’s advisers called it.
“Even China, after the Nationalist and Maoist eras, had few solid institutions to ensure the kind of take-off it achieved after 1979.”
Ghana succeeded because political elites “quickly learned [in the 1990s] respect democracy, which has created a lot of stability”.
Ethiopia also performed well, but ‘missed out’ after being ‘declared by the IMF as the fastest growing economy in the world between 2010 and 2019’. “Ethiopia’s progress was amazing in that time,” Dercon said, but somehow they didn’t bring the elite together, so the bet fell through.
“The political deal underlying the elite bargain for development, that balance in Ethiopia, has disappeared.”
In contrast, Nigeria and Malawi remained poor. “If you look at Malawi, there is no objective reason for it to be as poor as this. He had 60 years of peace. They have a democracy and do power transitions, but all the time you get more or less the same people back into the elite, and the only thing they care about is, more or less, the status quo.
Poverty in Nigeria and the Democratic Republic of Congo has, he said, been exacerbated by access to easy financial returns from oil and minerals to fund the elite, offering little incentive for them to engage in the more difficult pursuit of development.
Dercon, who said he wrote the book not as an academic but as a practitioner, has hope for the future of Senegal, Ivory Coast, Kenya and – more recently – from Tanzania and Zambia.
“We probably don’t support countries enough where they really want to do development, and we probably support countries too much where nothing is happening.”
He said he had not been concerned about the demise of DfID. “I don’t think the merger itself is the problem – the vilification of DfID is probably not something that ends up being hugely appreciated internationally because people respected it.
“Of course, the biggest damage was caused by the vast reduction in aid: the merger became much more difficult to manage because of the double whammy of things that we had to deal with.”
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