As a student of development studies, the question of the effectiveness and impact of foreign aid to developing countries has inevitably arisen. Our research suggests this is an important question for the UK public too, with only 10% agreeing that UK Government aid is effective in tackling global poverty and around a quarter thinking too much money is spent on aid [fn]nfpSynergy, July 2012. Charity Awareness Monitor survey of 1,000 adults 16+ in Great Britain.[/fn].
However, studying this question of aid’s effectiveness in an international context, it is clear that many of the same questions that are most difficult when providing aid to a government or beneficiary group overseas apply also to charities helping beneficiaries in the UK. Below are 5 key elements of the aid effectiveness debate worth considering for UK charities too:
1. Coordination
Aid donors are frequently criticised for a lack of coordination in their efforts to provide aid. This is a problem becoming more pronounced with the ‘explosion’ of new aid donors in the form of NGOs and middle income countries such as China[fn]Kharas, H., 2007. The New Reality of Aid. Brookings Institution.[/fn]. For example, James Ferguson[fn]Ferguson, J., 2008. The Anti-Politics Machine. Development and Bureaucratic Power in Lesotho. Reprinted in Chari, S. and Corbridge, S. (eds.), The Development Reader. Routledge.[/fn] points out that despite being a small nation with a population around a quarter of the size of London, Lesotho has received development assistance from 26 different countries, and 72 international agencies and NGOs. Small nations are often swamped by foreign donors who have a strategic interest in providing aid to them, placing enormous pressure on the capacity of recipient governments to coordinate their efforts and comply with the many reporting requirements of each donor. Even larger nations can struggle under the weight of conditions imposed when there are so many donors assisting them: according to the Development Assistance Committee (DAC), a typical African country hosts more than 20 donor missions a week – or four each working day[fn]Action Aid International, 2006. Real Aid. Making Technical Assistance Work.[/fn]- and Green[fn]Green, D., 2008. From Poverty to Power. How Active Citizens and Effective States Can Change the World.[/fn] notes that, according to government data on aid channelled through the central budget, Uganda dealt with 684 different aid instruments and agreements between 2003/04 and 2006/07. Trying to make effective policy alongside administrating and complying with so many grants and loans becomes almost impossible, especially for governments who by definition have fewer resources available.
Furthermore, with so many donors working in each country, Dambisa Moyo, a decided sceptic about aid effectiveness, points out the difficulties in deciding which countries are not spending aid well. It is then difficult to coordinate the withdrawal of support to countries using aid for corrupt purposes or to carry out human rights abuses[fn]Moyo, D., 2008. Dead Aid London. Allen Lane. Chapters 4 and 10.[/fn]. This was shown clearly in the run up to the Rwandan genocide, where foreign donors continued to give aid to a government gearing up for mass violence and only managed to achieve ‘small concessions’ related to human rights violations.[fn]Uvin, P. , 1998. Aiding Violence. The Development Enterprise in Rwanda. Kumarian Press.[/fn]
While aid to individuals or groups in the UK is less likely to involve conditions in quite the same way, the same issue of coordination can apply. If your beneficiaries require support from a number of different services who are not working together to streamline the process, it can take valuable time and energy for beneficiaries to take advantage of all the services on offer. For particularly vulnerable groups who have less capacity to do this, or who lack knowledge about how to access the full range of services, they may simply miss out on provision.
One solution to this coordination issue is for charities working in a similar area to merge, as seen recently in the creation of Age UK from Help the Aged and Age Concern in 2009. Indeed, our research shows that 42% of the public agree that ‘charities of all sizes should merge wherever possible to cut costs and avoid overlap’[fn]nfpSynergy, November 2009. Charity Awareness Monitor survey of 1,000 adults 16+ in Great Britain.[/fn]. While charities in the UK may have good reasons for not merging with others working in the same area, finding ways to coordinate provision of services with other not for profit organisations and public services is an important consideration to improve service delivery overall. Talking to supporters and service users about this coordination is also important. For example, the Cancer Research UK website is clear about their policy of coordinating research activity through a number of institutions and networks ‘to push the boundaries of science and research for the benefit of patients’[fn value="*"]References to be found in downloadable document[/fn]. Similarly the annual report of ABF The Soldiers’ Charity outlines the ways they work in partnership with other veterans charities to provide coordinated services.
2. Volatility
Aid flows to developing countries often show high levels of volatility, creating problems for planning and for developing long-term strategies for service delivery. Kharas suggests that the impact of fluctuating aid flows or ‘aid shocks’ is ‘comparable in size and frequency to major global economic shocks faced by developed countries, such as the Great Depression, the two World Wars, and the Spanish Civil War (and perhaps the current global recession).’[fn value="*"][/fn] This is a serious charge indeed! Kharas notes that some donors are particularly bad at providing smooth flows of aid; by contrast, the UK Department for International Development has been commendably transparent in publishing its planned aid spending for the next 5 years, now available to explore on the Guardian website’s data blog.[fn value="*"][/fn]
In a UK context, volatility of funding has different consequences- beneficiaries of charities are not likely to be planning healthcare provision for a nation- but it remains important to be transparent and wherever possible consistent in the provision of services and support. Economists remind us that uncertainty makes it more difficult for individuals to calculate the best decisions to maximise their utility in the long run, and leads to costly strategies to manage risk. Charities should therefore aim to reduce the risk their beneficiaries feel that services could suddenly be withdrawn.
This is all very well in theory, but how feasible is this in a context where many charities are experiencing considerable cuts to their funding from national and local government? The Compact, the agreement between the British Government and Civil Society Organisations, recognises the need to avoid volatile funding patterns wherever possible: funders should ‘commit to multi-year funding where appropriate’ and ‘give a minimum of three months notice in writing when changing or ending a funding relationship or other support, apart from in exceptional circumstances’. However research by the anti-cuts website False Economy; reported on the BBC this August[fn value="*"][/fn], estimates that 2,000 charities have experienced funding cuts or a withdrawal of support altogether by local councils.
While charities cannot do much to counter this fall in funding from statutory sources in the current economic climate, they can help matters by pursuing a diversified fundraising strategy and ensuring the organisation is not overly reliant on a single source of funding, whether statutory or voluntary. In order to avoid volatility, charities also need to consider the range of services they are providing and ensure they are not overextended based on their capacity to deliver the services in the long-term.
3. Fungibility
While the first two objections to aid can be overcome with the right mechanisms and commitments from donors in place, the issue of fungibility- the fact that aid revenues can be misspent, or provision of services by donors can free up funds for undesirable activities by beneficiaries- is harder to avoid. It is routed in the principal-agent problem at the heart of what charities do- donors as ‘principals’ may have one idea about how aid should be spent, while beneficiaries, modelled here as ‘agents’ receiving funds from the principal, have another preference that is ultimately hard to insure against. Indeed, the extreme example of Rwanda shows that without good policy this power can be used in anti-developmental ways- Uvin (1998) notes that prior to the Rwandan genocide, aid donors unintentionally supported ‘processes of exclusion, inequality, and humiliation’.
Placing conditions on the provision of aid, either ex-ante (choosing countries with good policies in place to receive aid) or ex-post (requiring evidence that aid is being spent in certain ways), has been attempted to prevent aid being used for purposes that do not promote development. However due to problems of coordination, aid being given by donors not just for development purposes, and the difficulty monitoring how money is spent, fungibility remains an issue. The spending of aid money is a particular driver of the negative public perception of aid mentioned above: the UK public are most likely to mention corruption as the cause of poverty when asked spontaneously, and just 9% agree they are happy with how UK Government aid is spent.[fn value="*"][/fn]
For many UK based charities too, the issue of fungibility is likely to be at the heart of how they provide support: often avoiding direct cash transfers and providing support through goods and services to beneficiaries. For the public, the most common encounter with this problem may be when supporting people who are homeless: many prefer to donate to established charities that can provide sustainable solutions or buy food or hot drinks rather than give money directly to individuals who could use the money in harmful ways. When the public donate to charities, the question of fungibility also arises- they, as the ‘principal’, want to be sure that their money will go directly to the cause and not be swallowed up in spending on administration or fundraising by the charity as their ‘agent’.
However, in both the international and UK context there is a need to question the assumption that it is the donor who is the ‘principal’ with the ultimate say in how money should be spent, and the recipient or beneficiary who is the agent. In part due to this question, there has been a move towards ensuring greater national ownership of international aid in recent years, ensuring that money provided by donors is used to fund programmes and plans drawn up by the recipient governments themselves, rather than donors having the final say and ignoring the will of (more or less) democratically elected governments. We see the counterpart to this in the increasing importance of participation for beneficiaries of UK based charities: for example, young people who are receiving support from a children’s charity setting their own objectives for what they want to achieve from those services. In the situation where donors and beneficiaries want different things, charities face the difficult task of balancing accountability to their funders and to their beneficiaries: research can play an important role in providing the necessary hard evidence about what the priorities of beneficiaries really are.
4. Incentives
If fungibility is not a big enough challenge to overcome when providing aid, the way aid affects the incentives of those who receive it is also a consideration. A number of scholars have noted that highly aid dependent governments have little incentive to develop effective tax systems, a key mechanism for citizens to hold their governments to account. If all government funding is provided by external donors and none from tax revenues, governments have no need to go back to citizens to fund their policies and citizens are less likely to engage in the process of holding governments to account. This may leave governments even less likely to choose good policies or spend the aid money in developmental ways. The provision of aid based on need, can also create perverse incentives to exaggerate the problem, and create dependency situations in which beneficiaries consider themselves better off remaining eligible for support. Indeed, charities working with individuals and groups in the UK must also ensure their support does not encourage dependency among their beneficiaries and encourage sustainable solutions to the difficulties their beneficiaries face wherever possible.
5. Aims
Finally, some of the strongest sceptics of overseas aid call into question the motives of those providing assistance, arguing that aid is often used for economic purposes, to access natural resources and emerging markets for exports, or for foreign policy purposes. A brief glance at the major recipients of US aid supports this view, with most money going not to the lowest income countries in greatest need of aid but middle income allies in the Middle East such as Israel and Egypt (which between them absorb one out of every four US aid dollars).[fn value="*"][/fn] The continued existence of tied aid (70% of US aid continues to be tied to the purchase of American goods or services[fn value="*"][/fn]) suggests that aid programmes are often designed according to commercial self-interest rather than need alone.
Even when donors have developmental aims in mind, their policy choices of donors can be unhelpful. This points to how important it is that there is a sense of national ownership about how aid is spent and accountability from donors to recipients. Donors can be subject to fads and fashions in their thinking about development. For example, the global focus on tackling HIV/AIDS has in some cases been to the detriment of support for other key aspects of health provision. In recent years Rwanda received $48million each year for HIV/AIDS programmes, affecting 4% of the population, with only $1million available for maternal and child health programmes.[fn value="*"][/fn] Where aid donors can do little to tackle the real problem for development in a particular area, there may be a tendency to re-characterise the situation so that donors seemingly provide the solution. Ferguson’s anthropological study of donors in Lesotho argues that while a 1975 World Bank Report described the country as ‘basically, a traditional subsistence peasant society’, in fact, rural household incomes were much more reliant on migrant labour, with many men working in mines and factories in South Africa. As a result, policies tackling the structure of the labour market in South Africa were much more relevant, but less feasible for donors to achieve, so instead attempts were made to introduce commercial farming of livestock, a policy which resulted in considerable resistance (2008;p324).
A final challenge to the aims of donors comes from Dambisa Moyo, who argues that aid agencies in donor countries have a particular interest to distribute aid, whether or not the money will be used effectively, because their jobs depend on their ability to spend their budget[fn value="*"][/fn]. This points to the need for UK and international charities to ensure they are ready to put themselves out of a job if the opportunity arises to solve or eradicate the need they have been set up to address, and avoid any tendency towards temporary solutions or continued dependency. They must also be ready to advocate for their beneficiaries at a local, national or international level if the problems faced by their beneficiaries are ones they cannot directly tackle through providing services.
In conclusion, the debate about aid effectiveness reveals some of the key challenges facing almost all charities, regardless of their area of work. While the international context of aid for development and the role of governments in providing and receiving aid exacerbates many of these challenges, the challenges are worth bearing in mind for the UK context too, given the volatility of public trust in charities and the focus of public concern on charity spending as much as charity fundraising[fn value="*"][/fn].