If governments live up to their promises, global aid volumes should rise to $125bn a year by 2010. The EU is committed to delivering half this increase to Africa. This can only be welcomed. But since we are now going to put so much more into development assistance, it is a good moment to ask what exactly development is and how this money can best be used.
The first thing to understand is that money does not make you developed; perhaps it does not even make you rich. If money brought development then Saudi Arabia and Angola would be developed countries. If money made a society—as opposed to a few individuals—rich then Nigeria would be rich. In the 16th and 17th centuries, Spain dug money out of the ground in Mexico and Peru, a process which seems to have marked the start of its decline rather than its modernisation. In this period of apparent riches it found itself instead defeated by the Netherlands, a poor country whose main asset was a determined and commercially minded people. The Dutch then went on to become one of the first modern countries and one of the great powers of the age.
It follows that development aid on its own will not make you developed. Is it possible to think of a single country where development aid has played a significant part in development? The explosive growth of China has little to do with the 0.1 per cent of its GNP that comes as foreign aid. Nor have receipts amounting to more than 50 per cent of GNP brought development to Mozambique or Sierra Leone.
Development is a political process. "Economic development" is not exactly an oxymoron but it is a misleading phrase. It focuses on the results of development, not on what it is or how it comes about.
Development involves vast changes in society and in the distribution of power. These are political changes. Tribal leaders, heads of families, religious figures and landowners lose power; entrepreneurs, political parties, elected officials and, above all, individuals gain it. Organising this process needs political skill: too fast and there will be a backlash from those whose position is threatened; too slow and you lose the momentum that encourages people to believe in the future and take risks for it.
Development is also political in a deeper sense. At the heart of development is the creation of the state. There are many differences between developed and less developed countries, but the one that is clearly visible in every case is the quality of the state. Many development programmes concentrate on infrastructure, social programmes, health or education. It is desirable to improve all of these areas in developing countries, but good infrastructure and healthcare are as much the result of development as a cause. For these benefits to be lasting, they must be provided by a well-functioning state, paid for by a well-functioning tax system and operated by honest state employees. A modern economy with good public services is proof that a modern state exists. Spending money on public services as a way of promoting development is like trying to cure an illness by hiding the symptoms. It may do good—and it may be all that can be done—but it does not go to the heart of the problem.
The machine that produces these good things is the capitalist economy. We ought to admire the Soviet achievement in creating a high level of industrialisation and welfare without the capitalist system to help. The effort needed to make something of this doomed enterprise meant that they ruined nearly everything else in their society. The capitalist economy is not, however, about economics; economics may describe how it works and may guide central bankers and other officials in regulating it. But what makes the capitalist economy work is law.
When I go into a bank and hand money over to a total stranger I do so with confidence because I have legal rights and the bank has legal duties. Every economic transaction we perform is backed by laws of contract, consumer protection, banking laws. Having a legal system you can trust, judges that don't take bribes, police that protect the citizen, is vital for almost everything we do. Most of the time we are not aware of what the state does to make the system work since the power of the law has been translated into everyday codes of behaviour. But behind every transaction stand courts, the police and the state. It is thus that trade flourishes and people are willing to invest.
Hernando de Soto's book The Mystery of Capital describes how the inhabitants of shanty towns are disadvantaged by having no formal property rights: the result is that they cannot use their property as collateral and start businesses. Having no rights is similar to having no property. The solution to the mystery of capital is the law. It is the state and its legal system that creates capital and allows the capitalist system to function.
Imagine a poor country with a well-run legal system but not much else in the way of resources. Someone will somehow find an opportunity to make money. In the end, the country will probably grow rich. Examples of such countries are not easy to find but Hong Kong is not far from this model.
Now imagine a country well endowed with natural resources but with an unreliable state and a questionable legal system: guess what will happen. Here examples are easier to come by: Nigeria, Burma or the Democratic Republic of Congo spring to mind, and there are many others.
Development is about law. It is the law that enables us to do business with strangers. This in turn enables the wider division of labour that makes us rich. It is also the ability to do business with strangers that allows the individual to escape from the narrow circle of family, village and tribe. This liberation—which brings with it the discontents of civilisation, loneliness and depression —is fundamental to modernisation. Development is development of the individual but also of the state; since it is the state that provides law, creates the rights that make individuals free and enables the economy to work.
One of the more famous platitudes about development goes: give a man a fish and you feed him for one day; teach him how to fish and you feed him forever. But it is not enough to know how to fish; one must also have the right to fish. Without some regime of fishing rights, others may drive him away from the lake he uses, or they may join him in overfishing.
The establishment of such rights requires not just the existence of law. There must be one law and one authority to interpret and enforce it. Thus with the establishment of a legal system goes the establishment of the monopoly of force, exercised by an impartial state. Without this, the law is vulnerable to abuse by the rich and powerful.
The function of the state is to provide res publica—public goods. These may include physical infrastructure, education, power and healthcare. Some of these could also be provided by a well-regulated private sector. The indispensable public goods, which only states can provide, are the rules that make all these other activities possible—the law—and the physical security that enforces the law and enables people to go about their business with confidence and trust towards their fellow citizens. Trust and security are the products of the state. The Iraq insurgents know what they are about when they attack police recruits.
The civil wars that have ruined many developing countries are about the establishment of the state: who is going to control it, and what its main characteristics will be. In a sense they are a part of the process of development. Or rather, the settlements that end the wars are a precondition of development. This is not just a matter of arranging a ceasefire. A permanent settlement creating a permanent state is needed. Until such a position is achieved it is difficult to think in terms of development. No one will invest for the long term in a country with a risk of civil war—and that includes its own population. What matters, however, is not just ending the war—though this is a proper objective—but creating a real and stable peace by creating a real nation.
Security and development are inextricably linked, and it must be clear also that nation-building usually involves building a national army. It is odd therefore that development aid is rigorously non-military. Military assistance cannot be counted as development aid in OECD statistics, and the World Bank is unable to give loans that contribute to building military capacities. This leads to slightly ridiculous situations in which donors supply the trucks that move troops or the tents that house them but can on no account assist in their training or equipment.
If the basic function of states is to provide public goods, it follows that corruption is a fundamental issue. Corruption is the exploitation of state power for private purposes: all states live with some degree of it and most still continue to function; but if the primary activity of state employees or of their political masters becomes their private welfare rather than the public good, then we should cease to talk about a state. Certain African states have been described as "neopatrimonial" (see Matthew Lockwood's excellent book The State They're In and his piece in Prospect, November 2005), where the main function of the state is to provide benefits for friends and relatives. Such organisations hardly qualify as modern states: the monopoly of violence is used to exploit people, as has been the case throughout history. Before modernity, this occurred frequently. In modern states, it is characteristic of organised crime; either way, exploitative states offer the reverse of development.
One of the things that makes development political is that it is a collective process. Modernisation involves the creation of communities; this requires a sense of a common good. Although the effect of modernisation is to liberate individuals from the binds of family, church and village, it does so by creating a new society and a wider community based on law. For most of the developed world today this collective spirit has taken the form of nationalism. Somewhere in the process of development, the individual is asked to sacrifice his private gain for the public good. The entrepreneurs of 19th-century Japan could have invested their money more safely on Wall Street than in Japan, but the thought hardly occurred to them. Their governing motive was to put behind them the humiliations Japan was suffering at the hands of the west. This was a national feeling that joined the Japanese of the day together as a group; each individual identified with this commitment and felt it personally.
This collective element in development is an economic as well as a political reality. It is no good an individual becoming modern on his own: you can be modern only in a modern society. If you train as an accountant or a lawyer—both core professions in a developed society—you can function only in the context of laws and accounting standards that make your professional skills and ethics meaningful. Development does not happen to individuals; it happens to societies. And the society must will it collectively. What happens when the will is individual rather than collective is visible all around us. Prospect reported recently that there were more Ethiopian doctors practising in Chicago than in Ethiopia. In Sierra Leone, one entire hospital is run by Médecins Sans Frontières, while many excellent Sierra Leonian doctors work in Britain. A UNDP report on the Arab world shows that the main ambition of young men in Arab countries is to live abroad if they can. The men and women who built modern Japan would never have thought like this nor put personal goals ahead of national goals. For many, development may entail some personal sacrifice. This will not take place unless there is a sense of contributing to the greater good of a national community. This is true for doctors who decide to stay at home and accept lower salaries than they could achieve abroad, and also for state officials whose loyalty to the national project means that they will not accept bribes. If there are enough such people, these commitments to the nation can become the dominant value of the society.
Historically, development and modernisation have been inseparable from nationalism. The modernisation of Europe in the 19th and 20th centuries took place amid the creation of new states and the growth of national consciousness in old ones. Germany, Finland, the Netherlands and Japan tell the same story in different ways. So does China today. Nationalism can be a positive as well as a negative force. The weakness of national feeling—not to mention the lack of a settled idea of the nation—may be one of the factors holding back both Africa and the Arab world.
Perhaps it is more difficult to be a nationalist today than it once was. Not only is nationalism out of fashion, but the temptations of individualism are much greater. Our postnational, postmodern societies are more welcoming to Ethiopian doctors or Japanese intellectuals than they were 100 years ago. We offer an easy option for dynamic individuals. In earlier times they might have felt driven by rejection abroad to return to their own countries to force them into modernisation. If globalisation is a barrier to development it may be less through the power of corporations than because more open societies offer a soft alternative to the people who might otherwise drive modernisation forward in their own countries.
The political nature of development partly explains why aid does not bring development. It is difficult for outsiders to intervene in the political life of other communities. Politics, like poetry, is the part that doesn't translate. Outside interference doesn't work not because it is badly designed—though this can also be the case—but because it comes from outside. The leadership that enables change in society cannot be provided by foreigners. The constitutional compromises necessary to create a functioning state cannot be achieved or sold by outsiders; nor can outsiders mobilise the collective national will to overcome the difficulties together. All these are political questions and the meaning of politics is precisely that the solutions must come from within.
Development theory has gone through a series of evolutions since it was first formulated. In the 1950s, Britain and France thought their possessions in Africa would be a trump card. The groundnut scheme in Tanganyika was going to combine the modern miracles of management and margarine. As empire dissolved in the 1960s, theories were invented to explain how the newly independent states could achieve WW Rostow's "take-off." At different times there have been varying fashions for dealing with problems of commodity prices, encouraging investment, reducing population growth, restructuring economies, eliminating debt burdens and encouraging rural development. Mao's Great Leap Forward was a communist equivalent. All were proposed as magic solutions. None delivered take-off. (The history of these theories and of their failure is brilliantly set out in William Easterly's The Elusive Quest for Growth.)
The idea of take-off is nevertheless appealing. It may not happen in the same way everywhere—the process was much slower for countries like Britain that were inventing industrialisation. But there do seem to be bursts of energy in the history of some countries—Germany and Japan some 100 years ago, China and perhaps India today—when a nation unites in a collective effort for change. The trouble with development theories has been their attempt to find a mechanical way of inducing this birth when the key lies in the mysteries of politics and leadership.
Today the fashion is for "governance" and "ownership." Governance is the thought that development requires a decent, not excessively corrupt administration. Ownership represents the recognition that nothing will work unless the people involved believe in it and want it. Both of these buzzwords half-recognise the political nature of development, but omit the vital ingredient of political responsibility. Thus ownership often seems to mean that aid recipients should want, or should pretend to want, what the aid donors want them to want. Implicitly it is a recognition that conditionality has not worked well. It turns out to be difficult to force people to do things they don't want to do, even when financial incentives are attached. In many cases they take the money and forget the conditions—about half of IMF and World Bank programmes end up being renegotiated. In the striking case of Argentina, the country not only forgot the conditions but did rather well as a result. Ownership is an anaemic recognition that people have to decide what they want for themselves; governance is an anemic version of politics. Neither will prove a panacea. What is required is a political process involving the poor themselves and not the donors. People develop themselves: outsiders cannot do it for them.
It is strange that we do not think more of our own history when we think of development. The gradual increase in growth rates in the last two centuries in Europe mirrors the growth of the state. The gradual elimination of poverty reflects the growth of political power among the poor. And for all of us the state began with the establishment of a single authority and the gradual extension of law. Health and education came later. In all cases these processes were home-grown, although each of us learned from our neighbours: England learned from Holland; Voltaire reported on what he found in Britain; German reformers admired the French state. More recently Meiji Japan copied European institutions and other Asian countries have copied Japan.
Against this unpromising background, what should we spend aid funds on? It would not be bad to start with some realism and modesty. We cannot spur development by spending money. If we want to assist development, the only way is to find a country that has chosen to develop and to help it in accordance with its own wishes and programmes. (This would be real ownership.) In such circumstances there is a good chance that money will be well spent, since some sort of state, with some legitimacy, exists to organise the programmes. Usually a government will be able to find projects that suit the disposition of the lender; it can use the money thus saved for some of the dirtier jobs, such as buying out the losers in the development process, dealing with warlords, landlords or the lords of the church, if they stand in the way. Such countries have less need of aid since they will be able to attract private investment, but there will still be large needs in terms of infrastructure, education and creating a decent civil service. But cheap loans will certainly be useful provided the donors do not make too much of a nuisance of themselves. It is a sign that India has really begun to develop that it has started to refuse aid.
Helping countries where there is a legitimate government working on behalf of the people whose country it governs is the easy part. The problem is what to do with countries where the state is weak or exists mainly to look after those who control it.
There are many difficulties in spending money well in foreign countries where the state cannot be trusted. Give food to help the hungry and you may ruin local farmers. Give cheap loans and you may ruin the banking system. Give money to governments and you may encourage corruption and corporatism. Work on security and justice to try to build the state up? But how do you ensure the loyalty of soldiers and the honesty of judges and the legitimacy of governments? If you are working in a badly flawed state you have to expect flawed results. The "humanitarian" school thinks we can escape this dilemma by helping local institutions directly, but once you have decided to intervene in a country there is no escaping politics. Who gets scarce resources is a political question and givers of aid cannot avoid political choices. "Do no harm" is a good rule. We can try, but it is not easy.
Campaigns such as the Make Poverty History movement (or on a governmental level, the millennium development goals) do much good by raising consciousness and mobilising resources. But we will not make poverty history by our own efforts. Poverty is eliminated by the creation of functioning states; and only the poor nations themselves can do that. We should help those who are on the road—and we should be more ready to put money into making political and security solutions work. But we might as well recognise that for the most part we give aid not for development but to mitigate the evils of non-development. The objective is charitable: to help the poor survive, if possible with some dignity.
There is nothing wrong with that. It is not in our power to transform poor countries. We should suppress our imperial longings not so much because they are morally bad as because imperialism doesn't work. There is still much we can do to make people's lives less nasty and brutish. It is usually possible to find dynamic individuals with a sense of the public good and a commitment to their country, and you can work with them. The ministry of education may be no good but there are still teachers who want the best for their children; appalling military juntas may sometimes have a half decent health minister; central government may be corrupt but in the villages there is still a sense of solidarity.
Aid may not bring development, but that does not mean it cannot produce value. In Africa 60 per cent of the people now have clean drinking water; in 1970 it was 25 per cent. The enrolment rate in secondary school has gone up from 5 per cent to 30 per cent. Vaccination campaigns have all but eliminated smallpox and polio. Roads provide a stimulus to trade; micro-credit projects have changed the lives of countless women. Here and there we have helped to stop wars and rebuild societies. And even where the difficult local conditions (notably a corrupt state) make it difficult to spend money well, we should remember that money spent on the poorest of the poor, even if it is spent inefficiently, will produce a better return than adding to the excesses of the rich.
Where the conditions for development do not exist we should think of helping people rather than transforming states, societies and economies. Charity is like containment. We cannot solve the big problems, but we try to protect people from the worst effects of the condition of non-development. And we may be able to prepare the ground a little. If people slowly become healthier, stronger, better educated, somewhere the spark of modernity may catch, and they may turn themselves into a developed country.
What is development? The answer is not so different from the answer to Immanuel Kant's question "what is enlightenment?" It is man's escape from self-imposed dependency. Except that enlightenment is personal and intellectual, whereas development must be collective and political.
