University of Perugia, Perugia
Presentation delivered online on 21 October 2020
The failure of development aid–
The legacy of P.T. Bauer
Szabolcs Pasztor habil. PhD
Economist, Associate professor at University of Public Service (Budapest, Hungary)
About me
• Economist doing research on SubSaharan Africa
• Countries already visited in Africa:
South Africa, Uganda, Kenya,
Tanzania, Ethiopia, Seychelles
• Recent research: new scramble for
Africa & GDP rebasing in SubSaharan Africa
Issues to be discussed…
What is
development and
development aid?
The rise and fall of
Whyaid
did P.T. Bauer
development
start challenging the
basic idea of spurring
development
by aid?
Some
thoughts on
legacy of P.T. Bauer
Summary and
Conclusions
Income disparities
Core
Core
Core
Periphery
Periphery
Periphery
Extreme poverty vs wealth
Extreme poverty vs wealth
Our basic question for today…
billion USD
Net ODA and official aid received
180
160
140
120
100
80
60
40
20
0
Source: World Bank (2020)
Development
• The process of improving the
quality of all human lives and
capabilities by raising people’s
levels of living, self-esteem,
and freedom (p. 828)
Foreign aid
• The international transfer of
public funds in the form of
loans or grants either directly
from one government to
another (bilateral assistance)
or indirectly through the
vehicle of a multilateral
assistance agency such as the
World Bank. (p. 830)
Foreign aid
Types of aid
• Humanitarian or emergency aid
• Charity based aid
• Systematic aid
Foreign aid: public (official) bilateral and multilateral development
assistance and private (unofficial) assistance provided by
nongovernmental organisations
Foreign aid
• From the point of view of the donor its objective is noncommerical
• It is charachterized by concessional terms
• ODA (official development assistance): includes bilateral grants,
concessional loans, and technical assistance, multilateral flows
• ODA grew from an annual rate of under $5 billion in 1960 to $50
billion in 2000 and $128 billion in 2008 and reached $168 billion
in 2018
The history of development aid
• 1960s – industrialization
• 1970s – shift to a poverty focus
• 1980s – the lost age of development
• 1990s – the question of governance
• 2000s – the rise glamour of aid
1960’s the era of industrialisation
• By the beginning of the 1960s – US$100 million in aid
• Greater focus on large-scale industrial projects: roads and
railways, airports
• Longer-term pay-offs
• Examples: Kariba dam
What is wrong with them?
• „In the less developed lands the simple
goal of an expanding production … is
not a satisfactory guide … Leaders have
always known the importance of the
concrete and visible expressions of
national being. These include a decently
glittering airport, suitably impressive
buildings of state, one or more multi-
lane highways.”
Problems with these projects
• Operating costs
• Regional polarization
• Beggar attitude
• Wrongly targeted – not properly used
• Dependence on the implementer
ODA as a share of GNI
Recipient countries
List of ODA recipients and donors
• List of countries
• List of the largest recipients
Why donors give aid?
• There are political, economic and strategic self-interests
• Moral duty
• Many westerners are very charitable
• Political motivations: helping „friendly” countries, curbing the
spread of communism, geopolitical considerations
Political motivations
• Helping „friendly” countries
• Curbing the spread of communism, radical ideas,
the sphere of influence of other countries
• Geopolitical considerations
Economic motivations
• Two-gap model: shortage of domestic saving & shortage of
foreign exchange
• Bridging the fiscal gap: Deficiency of government investments
Why some countries accept aid?
• They want to promote economic growth
• Policians want to maintain their own political systems
• Also, in some places they feel it is the moral duty of the West
Peter Thomas Bauer
• Born in Budapest in 1915
• Studied economics at Gonville
and Caius College, Cambridge
• Spent most of his career at the
LSE
• Died as Sir P.T. Bauer in 2002
• During his lifetime he strongly
opposed foreign aid
Bauer’s main message
Bauer’s main message
Some of his books
What is wrong with aid?
• Aid reduces savings and investment
• Aid can be inflationary
• Aid negatively affects the export sector
• There may be problems with the absorption capacity
• Aid destroys the civil society
• Aid weakens the social capital
• Aid can be the cause of social unrest and civil war
Summary and conclusions
• Foreign aid is like a kind of industry
• Development aid is very far from being a success story
• On the contrary, in many cases it retards development
• P.T. Bauer pointed to the negative effects almost immediatly
• However he is almost unheard of in development economics
• We must listen to his arguments when talking about development
aid
Thank you for
your attention!
E-mail:
szabolcs.pasztor@uni-nke.hu