When It Hurts So Bad, Why's It Feel So Good?

One of the many things that has gotten set aside in the last few weeks amidst the business of moving to a new state and city was a post on Adrian Wood's piece in the Financial Times entitled, How Donors Should Cap Aid in Africa.  Here's the gist:

Ministers from developed and developing countries are gathered this week in Accra, Ghana’s capital, for the latest high-level forum on aid effectiveness. Learning from past successes and failures, reformers are pressing for more ownership by developing countries of aid relationships, more predictability of aid flows and less fragment ation of aid delivery. This agenda is important. If implemented, these reforms would give the taxpayers of rich countries better value for money and increase the benefits of aid to people in poor ones. Aid cannot on its own cause development, but if properly delivered and well used it can be enormously beneficial.

However, one can have too much of a good thing. Some developing countries, most of them in Africa, have had high levels of aid dependence – in excess of 10 per cent of gross domestic product, or half of government spending – for decades. It is questionable whether this has been helpful.

There are various reasons to be concerned about high aid dependence, but the most worrying is the undermining of good governance by distortion of political accountability. Governments that are highly dependent on aid pay too much attention to donors and too little to their citizens. This might not matter if the interests of citizens and donors were identical. But all donors have some non-developmental motives and, even when they seek to promote development, they have their own priorities. The result is confused and shifting policies, volatile aid and spending and, as a result, slower growth.

I therefore propose that donors collectively set an upper limit on the amount of aid they give to any developing country. This limit should be 50 per cent of the amount of tax revenue that the aid-receiving government raises from its own citizens, by non-coercive means and excluding revenue from oil and minerals.

This would keep the governments of non-mineral countries dependent for revenue mainly on their citizens, and thus give them incentives to pay attention mainly to what citizens want, not donors. It would also encourage governments to raise more taxes from their citizens, since every extra dollar of tax raised would attract a matching increase of 50 cents of aid.

Thankfully, the folks at the Center for Global Development blog are keeping an eye on things and they have been following an apparently on-going email conversation concerning Wood's idea amongst a group of leading development minds and are posting excerpts along the way as well as offering their own good commentary - worth keeping an eye on.  I especially appreciated this sentence and wish I heard it more often and from more directions:

"What's needed is an approach to aid that helps, indeed forces donors, to shift accountability of recipient governments away from donors and back to citizens -- allowing for the feedback governments need from their own taxpayers."  

PS - Title inspiration.