Authors: Nancy Birdsall, Dani Rodrik, and Arvind Subramanian
This article, published in the issue of Foreign Affairs dated July/August 2005, questions a lot of current ideas about foreign aid and about the ways to "help poor countries". One of the interesting things from this article is the fact that one of authors work for the International Monetary Fund (IMF) who is associated with the neo-liberal paradigm, but this article critiques that paradigm.
The main interest of this article is that it questions whether foreign aid is the provision of resources from one country to another including trading opportunities, which are usually considered as the most efficient tools to promote development of poor countries. Such aid has only limited effect on the long-term development of these countries. The authors argue that the success of these countries relies mostly on internal factors, such as the development of their economic, political and social institutions, which enable them to make an effective use of the opportunities and challenges they face. They claim that "development is something largely determined by poor countries themselves".
There are many interesting things to explore in this article. The first is institutions. This article emphasizes the importance of internal factors such as history and political institution. The study of economic development underscores the role of institutions in the economy growth or development. We can see in the work of Daron Acemoglu (2012) and other authors who emphasize the role of institutions. Acemoglu stresses the importance of political institution because the economic institutions do not exist in a vacuum.
However, from a critical perspective, the question will arise because institutions are the product of history and the result of socio-economic and political forces within society. In the context of developing countries, genealogy institutions should be examined because they don’t have similar experiences with wealth countries.
Several studies about decentralization also critic the New Institutionalism arguing that institutional reforms does not necessarily provide a democratic space in which broader political participation creates more efficiency in economic development. In reality, what happens is the decentralization of corruption and bureaucratic inertia in managing public services.
However, the authors of this paper also said that the role of agency or leaders is also important. They emphasize the need for rules and regulations that constraint a leader. This opinion is quite interesting because it insists on regulation of policy-making positions.
Second, this article’s critiques of the policies of the IMF and the World Bank (WB) or commonly known as the Structural Adjustment Policy (SAP) are also very appropriate. Chile, China, Vietnam, and other Asian Tigers, are examples of countries that violate recommendations of IMF and WB but still managed economic reform.
In terms of economic reform, the order matters or the sequence in the implementation of economic reforms is essential but not discussed in this paper. For example, in the context of China and several post-socialist economy countries, they started from the liberalization of the agricultural sector allowing farmers to save money and still be involved in the subsistence economy. This step simultaneously provides enough surplus food to urban communities as well as meeting the supply/ demand of new labor for industrialization.
Third, this paper also talks about the importance of developed countries to assist developing countries in technology development. Still, technology transfer is difficult for developing country. There are many issues about copyrights, corporations, and the role of the state in facilitating technology transfer. The authors focused discussion about copyright as one aspect in technology transfer that is a burden for developing countries.
Fourth, there is an interesting point on page 147 which states: "But with increasing democratization, the situation may be starting to improve." I don’t agree with this opinion. The most important thing is not a democracy, but the consolidation of democracy whether the country will not only be able to conduct the elections, but also to protect the citizen rights and to deliver public goods and services. These aspects are also related to the importance of increasing state capacity to be involved in the process of economic policy-making and professional bureaucracy for the purpose of providing public services for citizens.
Fifth, one aspect that should be criticized in this paper is the role of aid. Hubbard and Duggan (2009) warned that aid could be harmful to the developing countries because it can trap them into a vicious cycle.
There are two views about aid. One view is that development assistance should help to accelerate economic and institutional change in developing countries. The idea emphasizes that temporary support from outside can be a catalyst for permanent changes in developing countries. The leading advocates of the current aid system are celebrities like the rock star Bono, The Columbia economist Jeffrey Sachs, and Bill Gates through his foundation.
On the other side, aid can be a burden for developing countries. Those who criticize aid are George Ayittey (Africa Unchained), William Easterly (White Man's Burden), and Dambisa Moyo (Dead Aid). They said that in the past forty years of development aid involved spectacular failures. But the failures were not inevitable, and it does not need to continue. A global vision of sustainable development may prevent the aid epidemic from continuing.