No, Deaton’s Nobel prize win isn’t a victory for aid sceptics
16 October 2015
A lot of fuss has been made this week about the latest winner of the Nobel prize in economics, British-born economist Angus Deaton, and his apparent aversion to foreign aid. Predictably, much of the press has taken his victory as a vindication of their suspicions on aid.
It’s worth getting a few things straight though. Deaton did not win the Nobel prize for his criticism of aid. He was awarded the prize for his analysis of inequality and creation of better tools with which to analyse living standards amongst the poorest people in the world.
Deaton is, in fact, more of a critic than an opponent of aid. In the same way that a film critic doesn’t hate all films (although it sometimes seems they do), Deaton doesn’t hate all aid. Like a film critic who would rather see some films never made but touts the joys of others, Deaton would rather certain types of aid are used and others discarded.
His main concerns are to do with the potential impact of aid on political accountability in developing countries, and its inability to stimulate economic growth. On both counts though, it doesn’t seem like he’s delivered a knockout blow to foreign aid.
First, Deaton has made several assertions about the negative impact of aid on developing country governments and their incentives to mobilise tax revenues and develop mechanisms for accountability. These all sound plausible. However, for the moment, they are just assertions.
There still isn’t conclusive evidence that aid has had this affect across developing countries. Some studies paint a positive picture of the relationship between aid and governance. Other studies remain uncertain. Deaton himself admits that it is unlikely anyone will ever be able to definitively measure aid’s impact on institutions. It remains merely a theory.
So, while we can’t definitively claim that aid has no negative impact on governance and institutions, Deaton can’t definitively prove that it does.
Second, Deaton repeatedly questions the notion that aid stimulates economic growth. He finds that aid as a share of a recipient country’s gross domestic product (GDP) is negatively correlated with growth. This may be perfectly true, although he also admits that this may largely be because aid is often – rightly – sent to countries experiencing negative growth shocks, due to conflict or humanitarian crises, for example. While it is unlikely that aid can substantially improve economic growth, criticising aid on this front doesn’t amount to a debunking of aid.
Growth is great. But it isn’t everything. Despite soaring economic growth in developing countries in the past 20 years, social progress, particularly in Africa, has lagged significantly behind. ODI’s recent SDG Scorecard highlights how, despite major economic growth across many countries in sub-Saharan Africa over the past two decades, social progress indicators, such as poverty reduction, access to electricity, or sufficient nutrition, haven’t kept up the pace. It is a similar story across South Asia. Even the likes of Deloitte have recently warned that economic growth alone is not nearly sufficient to achieve the Global Goals by 2030.
International aid is best used when it tackles the problems that economic growth fails to address. It is rarely sent with the intention to drive growth, and is usually related to much more specific objectives. Aid can act as the stimulant that drives social progress, and even governance, when growth fails to do so.
Deaton has urged advanced nations to provide technical assistance aid to developing country governments on governance, public policy and trade negotiations. This doesn’t sound at all like the anti-imperialist withdrawal from developing countries some claim he seeks. Such technical assistance is already a major part of aid spending, at around $7 billion a year globally. And much of this technical assistance supports governments to improve their tax collection, the very thing Deaton argues aid helps to weaken.
In terms of social progress, aid plays a major role in improvements in areas such as health, nutrition, poverty reduction and climate change adaptation, at a local, national and regional level. Analysis of 40 case studies of country-level development progress showed that aid was a key driver of progress in 43 per cent.
A huge international aid effort to reform Afghanistan’s public health system after the fall of the Taliban saw average life expectancy jump dramatically from just 42 in 2004 to 62 in 2010. Deaton has identified the impressive success of aid in tackling health problems such as smallpox, river blindness, polio, HIV and malaria, agreeing that aid has saved millions of lives in poor countries. He is also an advocate of cash transfers to the poorest people.
So, while many jump for joy at the thought of an aid-sceptic being awarded a Nobel prize, it's worth taking a look at his statements in more depth before declaring a victory. Most people working in aid already agree with many of Deaton’s theories on where aid is and isn’t effective. Hopefully we can all agree that awarding a Nobel prize to an economist preaching an increased focus on inequality and leaving no-one behind can only be a good thing.