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AusAID: why Australia and the world’s poorest need it


Laura Mulligan

By

September 30th, 2013


Is Australia pulling its weight when it comes to foreign aid? Laura Mulligan investigates reasons for the government’s decision to scrap AusAID.


On September 18 Prime Minister Tony Abbott announced the government’s decision to effectively abolish AusAID by integrating it into the Department of Foreign Affairs and Trade (DFAT). He cited ‘confused responsibilities, duplication and waste’ as reasons for the merger, and suggested that now the ‘aid and diplomatic arms of Australia’s international policy agenda are to be more closely aligned’. The decision elicited a concerned response from NGOs and others involved in the aid sector, who defend the existence of AusAID on the grounds that foreign policy and development issues are not the same thing, and should not be treated as such.

AusAID – its history and responsibilities

AusAID has existed under various names since 1974. Since 2010 it has been an executive agency operating within the DFAT portfolio. This executive status gave the aid agency more autonomy and seems a reasonable arrangement given that the primary aim of AusAID is to “help people overcome poverty” whilst DFAT pursues quite different objectives. DFAT list their core mission as “[advancing] the interests of Australia and Australians internationally… working to strengthen Australia’s security, enhancing Australia’s prosperity and helping Australian’s overseas”.

The predominant work of AusAID is to provide financial aid to developing countries (mostly Indonesia and Australia’s other south-east Asian neighbours), giving financial support to non-profit organisations working in the aid sector, and the coordination of poverty reduction strategies in aid-recipient countries. Specific objectives involve disaster risk reduction, food security, improvement of water, sanitation, health and education, and the resettlement of civilians after displacement. Response to acute humanitarian disasters and advising the Minister for Foreign Affairs on development policy is also an important part of AusAID’s work. The importance of its existence should be unquestioned given that two-thirds of the world’s poorest people live in close proximity to Australia.

Criticisms directed at AusAID

AusAID has suffered from increasing criticism in the past few years, generally from those in other areas of the aid sector. The most common claims are that the agency is inefficient, weighed down by bureaucracy, that executive staff are overpaid and that a number of aid projects implemented by AusAID were hugely expensive yet resulted in little real benefit.

In 2010 the government responded to these claims by ordering that an independent review of AusAID’s activities be carried out. This resulted in a 2011 report which concluded that the agency did a good job, but that it could do better. A number of issues were highlighted including a lack of clear cohesive strategy which may be undermining the aid effort and contributing to inefficiency. Also identified was a lack of transparency and, at times, poor “value for money” in terms of the execution and selection of aid projects. It seems that not all of the aforementioned independent findings were rectified since the release of the report, and this was a major contributing factor in the decision to severely cut funding to the agency and minimise its role. Granted, Tony Abbott has not hidden his desire to trim the fat from the public service, promising pre-election to cut 12,000 jobs over the next four years, saving $5 billion. The question is: should foreign aid be one of the first casualties of his agenda? And what message does this convey about the government’s attitude towards assisting those who reside in countries that aren’t as affluent as Australia?

Criticism of ‘foreign aid’ as a concept

Foreign aid as a broad concept has also been the subject of criticism for a number of reasons. Many claim that we already give so much, yet the effectiveness of aid is questionable given that poverty still remains. People who hold this view generally perceive the problems of the developing world as too large to be fixed, and therefore don’t see any point in trying. There is also the issue of corrupt governments misappropriating donated money, and the argument that foreign aid simply results in overpopulation which in turn increases poverty levels. These two latter criticisms suggest that foreign aid may actually worsen a developing country’s situation. Still others claim that foreign aid simply makes a country dependent on handouts and does not incentivise them to become self-sufficient.

The critics appear to forget that before a developing country can achieve self-sufficiency, basic infrastructure must be in place to allow for a commercial sector to grow, ideally to a level where trade with other nations is possible. It is an unfortunate fact that when it comes to international trade the invisible hand cannot be completely relied upon to deliver fair and Pareto optimal outcomes. Barriers to trade, including tariffs and protectionist subsidies, often result in developing countries being ‘blocked out’ of trade deals between nations. Developing countries are also generally the providers of low-cost commodities to the rest of the world, and in turn wages in these sectors tend to be extremely low, contributing to poverty prevalence. Aid is essential to ensure a minimum standard of wellbeing for citizens in countries who cannot trade, or trade very little due to lack of access to markets.

Foreign aid in Australia – are we meeting our responsibilities as a developed country?

Source: The Guardian

Currently Australia spends only 0.29% of GDP on foreign aid, approximately half of the OECD agreed target of 0.7%. As the graph above illustrates, we were spending up to 0.65% of GNI on aid in the 1970s, and at that stage we were considered one of the world’s most generous donors. The government is planning to further reduce foreign aid by $4.5 billion. As it stands, Australia’s contribution to aid as a percentage of GDP falls well below that of countries who are not as economically sound as us, including the United Kingdom (0.48%), Spain (0.43%) and France (0.38%). Australia enjoys one of the highest standards of living in the world and has for a long time. Yet the attitude that our paltry aid budget and AusAID’s demise displays is that our wealth is hard-won and therefore should not be shared.

Where to from here?

The effects of the absorption of AusAID into DFAT have yet to completely play out, so it remains to be seen how the move will influence poverty alleviation efforts in developing countries. Unless the stated objectives of DFAT change dramatically, and away from primarily protecting Australia’s interests, AusAID’s efforts will probably be suppressed and eventually rendered ineffective. A potential compromise could be DFAT acknowledging the importance of the welfare of our neighbouring countries as being equal to Australia’s. An aid sector within DFAT which focuses more on impact evaluation of aid projects rather than just donating money and implementing projects could also be a positive move. It would not be as easy as simply sending funds overseas, but impact evaluation ensures that aid funds are being spent appropriately, and effectively addresses the economist’s constant fight against scarcity of resources.

 

 

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

  • http://collinli.com.au Collin Li

    A few comments:

    1. How did the first developing country emerge without the aid of other developed countries?

    2. Just because everyone else does it, doesn’t mean that it works / is right (at one stage every country was an autocracy, recently every country was against gay marriage, etc.)

    3. Is this a positive economics argument, or is this a normative argument?

  • Kim Liu

    Excellent measured article Laura. Will be interesting to see how much more “fat” will be trimmed by the new management and from where.

  • Christine Li

    The global trade environment into which modern developed countries first entered is a vastly different place less developed countries now find themselves in; not least because of unfavourable terms of trade, globalisation, and debt overhang from colonial legacies.

    On the other hand, it is certainly naive to put much hope into foreign aid for long run growth. At any snapshot in time, conditional convergence still places economies at different growth rates and output levels, and on more cynical days I often think of aid merely as a feel-good antidote to this inevitable economic inequality. Though of course given transparent and conditional budgeting, some countries/partnerships/initiatives can and have been well placed to make effective use of foreign aid, like the worldwide trade capacity building projects run by USAID.

    Philosopher Zizek has some counter-culture things to say about the whole aid and charity enterprise!: http://www.youtube.com/watch?v=hpAMbpQ8J7g

  • Laura Mulligan

    First of all I must apologise for my tardy responses to your comments, I have been a bit snowed under with thesis work over the past week! Thank you all for the comments though.

    Collin, I would say that 80% of my article is positive and 20% is normative. I think that when you talk about the ‘first developed country’ what I think of are the effects of the industrial revolution, where economic growth occurred in different countries at vastly different rates. Some countries sped ahead in terms of development while others were very much left behind. I’m not sure how to answer the question “how did the first developing country emerge without the aid of other developed countries” but I suppose colonialism played a large part.

    Christine, I completely agree with you that it’s naive to expect that aid will lead to long term growth. Yet I still believe it has a place and it’s importance is even more pronounced given the increasing growth in income inequality between nations. It all comes down to the fact that the marginal cost for us to spend dollars on aid is tiny compared to the marginal benefit that could be achieved from that spending, for me anyway. I really believe that economists who work on impact evaluation studies in developing countries can maximise the benefit that is achieved as well. Perhaps I’m too idealistic but that’s how I feel, and what I hope can happen.

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