A Short History of International Aid (part 1/2)

Part One of Two: From World War II to the turn of the century

Balloon Ventures has been invited to participate on a panel at the upcoming Bristol International Development Conference (February 6th, 2016). The panel’s topic is ‘The Future of Aid: Are we doing more harm than good?’. In preparation for this discussion, we have put together a short piece on the history of international aid. Knowing where we have come from will be critical in understanding where to go next.BIC imageWhile many sources have been used in putting together this two-part series, ‘Aid and Development: a brief introduction’ by Myles Wickstead was a considerable source of inspiration and deserves special mention. It is an excellent account for anyone seeking to better understand the evolution of international aid.

Key Summary Points:

  • Aid was heavily politically charged at its inception (in many cases deliberately) and only through conscious policy changes has this begun to change
  • Aid has evolved from a somewhat ‘command and control’ paradigm to a more inclusive and consultative approach
  • The focus has broadened from economic concerns to a much wider focus on social inclusion, equity, justice, and crucially the environment
  • The nature of aid has matured from basic hand outs to a broader focus on the systemic view (e.g. international trade, strengthening local governance, empowering approaches, etc.), with traditional aid shrinking considerably in terms of total resources dedicated to emerging economies
  • The landscape is incredibly complex and therefore change happens slowly building on each previous step in the right direction. Change has been brought about through evolution rather than revolution 

Where it all Started

As the second devastating war of the 20th century drew to an end, Allied Forces turned their attention to the establishment of institutions to provide an effective framework for a new political and economic order. On the political front, in 1945, the UN Charter set an ambitious goal related to international development: ‘to employ international machinery for the promotion of the economic and social advancement of all peoples’. Regarding the economic front, 1944 saw the creation of The International Bank for Reconstruction and Development (IBRD – later the World Bank), and the International Monetary Fund (IMF), two of the biggest players in international aid and development today.


Signing of the UN Charter

There is much debate about political motivations of current international aid. In the 1940s, political motivations were clearly stated. The role of the IBRD was to provide financing for governments of creditworthy countries which was less expensive than borrowing from commercial banks. The IBRD’s first loan was to France in 1947. However, in order to qualify, France (at the insistence of the US) was required to remove the communist element of its coalition government. Similarly, US President Harry Truman, appealed to congress for $400m in order to provide assistance to the Balkans over fears that Greece and Turkey might yield to communism. This ‘Truman Doctrine’ set the tone for US foreign policy (which did all it could to stop the spread of communism) until the fall of the Berlin Wall.

The tools used in modern international aid were also defined in this era (and remain broadly unchanged). In 1947, Truman’s Secretary of State George Marshal launched the European Recovery Programme with the same objectives as IBRD lending, the UK (26% of expenditure), and France (18%) were some of its major beneficiaries. The operational provisions included two instruments. Firstly, capital aid, which was concessional financial support. This could take the form of soft loans (loans with favourable terms), or grants. It is worth noting that much of this capital was tied to spending back in the US (e.g. purchasing raw materials to be used in production). The second mechanism was technical assistance – the transfer of skills rather than money.

A New Focus on Development

The period between 1948 and 1952 (the exact period of the Marshall plan) was the fastest period of economic growth in European history. A fact which many took to be an indicator of the success of aid mechanisms. Based on this, as Europe recovered, donor countries began to look to ‘poorer’ countries as beneficiaries of aid. In 1961 the Organization for European Economic Cooperation (set up to coordinate Marshall Plan assistance in Europe) became the Organisation for Economic Cooperation and Development (OECD), signalling the new emphasis on international development.

Throughout the 1960s, the focus of these early international efforts surrounded the colonial powers helping to ensure that constitutional and administrative systems and structures in former colonies continued to operate effectively. The two aid mechanisms which came to the fore in the 1940s formed the main elements of support. Financial aid was given mainly in the form of grants for specific projects. However, this was often tied to project related expenditure in the country providing the assistance. Similarly, the beneficiaries of this support were typically better off members of society (e.g. people in positions of power). Leading to questions surrounding the effectiveness of aid as well as corruption. A debate which is still on going today.

A major landmark came in 1970 when many OECD countries agreed a commitment to devote 0.7% of their GNI to official development assistance (ODA) (while seemingly small, only a few countries have in practice ever reached that target in 2013, the UK became the first of the G7 to do so). Despite this, it was a sizeable resource to the recipient countries. This gave donor countries huge leverage over recipients which lead to great resentment as the recipient countries became subject to (mainly) western ideologies and demands. In 1974 after increasingly intense debate, a Resolution was adopted in the UN General Assembly in support of the establishment of a New International Economic Order. The Resolution noted ‘it has proved impossible to achieve an even and balanced development of the international community under the existing international economic order’. It recommended a revised system which involves the active, full and equal participation of the developing countries in the formulation and application of all decisions that concern the international community’. While there is still much progress to be made, the inclusiveness of the sustainable development goals (see part two) can be traced back to these early calls for a collaborative approach.

Returning to the question of aid effectiveness and political motivations, the 1980s saw a step backwards in both these areas via decisions of Margaret Thatcher and Ronald Reagan. Thatcher, issued a policy document stating that aid would increasingly be used to support political and commercial objectives. Reagan also moved US development assistance even closer to ensuring that US companies benefited as much as possible. This is not to say that aid did not achieve anything during this period, but it would have been even more challenging to focus on issues such as poverty given the additional restraints.

A New Era: governance and broader goals 

The fall of the Berlin Wall at the end of the 1980s had profound implications on the aid landscape. A raft of new agencies and provisions (e.g. the European Bank for Reconstruction and Development) were established to support eastern European countries undertaking reform. The end of the East-West ideological split, also signalled an end to the proxy wars being fought in the South. Without a major sponsor, parties which allied themselves with the communist philosophy quickly receded. Perhaps more significantly, one of the key reasons for turning a blind eye to corrupt and dysfunctional governments (i.e. to keep them on the right side of the political divide) no longer applied. This paralleled with the economic and political reform undertaken in East Europe brought a new focus in international aid: governance. In Kenya for example, donors to multilateral aid programs, for the first time refused to make new aid pledges until the government had taken action to address serious corruption issues.


The final days of the Berlin Wall, 1989

The 1980s and early 1990s saw an increased international awareness of the importance of development, alongside sustainability issues. This was brought about by key reports of the Brandt Commission (North-South A Programme for Survival, and Common Crisis), and the Brundtland Commission (Our Common Interest). In 1996 this culminated in the International Development Targets (IDTs) which were a number of milestones against which progress was measured. The themes included economic wellbeing, human development, and environmental sustainability, moving away from the myopic view that development focussed solely on economic priorities. The idea of poverty elimination had begun to seem like an achievable goal, rather than an idealistic notion.

In the UK the incoming Labour Government in 1997 used this as a catalyst for a change in direction: future support would take the form of grants rather than loans, and UK aid would no longer be tied to the provision of UK goods and services. The international institutions also changed tact. Recognising that low income countries in Africa faced unsustainable debt (which in part had been incurred to pay for arms imports during the Cold War), the IMF and World Bank launched the Highly Indebted Poor countries Initiative in 1996. This aimed to provide debt relief, however countries had to first develop a Poverty Reduction Strategy which highlighted how they would address a range of poverty issues (a far cry from the earlier doomed Structural Adjustment Programs). While there were a number of critiques of this approach, it no doubt signalled a greater focus on poverty and especially governance. These developments set the tone for the current approach to international aid.

The continuation of this blog (part 2/2) can be found here.

This piece was written by Nicholas Andreou. Nicholas leads the Insight & Impact function at Balloon Ventures. He holds a PhD from the University of Nottingham and has previously held research positions at Harvard University and the World Health Organization as a student.