The Reality of Aid (I)

10/04/2009 11:06 am ET | Updated May 25, 2011

In their paper Ghost of 0.7%: Origins and Relevance of the International Aid Target, Michael A. Clemens and Todd J. Moss of the Center for Global Development review the rationale behind the determination of the percentage and its significance in today's environment. Clemens and Moss also provide evidence that "no government ever agreed in a UN forum to actually reach 0.7%". Clemens and Moss point out that "the eventual 0.7% target was mostly arbitrary, based on a series of assumptions that no longer are true, and justified by a model that is no loner considered credible".

The Pearson Commission is credited with having set the 0.7% target. Lester B. Pearson was the Canadian Prime Minister when the President of the World Bank Robert McNamara asked him to form a Commission on International Development. It is in the Commission's report where the 0.7 percentage first appears. McNamara was President of the World Bank between 1968 and 1981. The final report entitled Partners in Development concluded that "We therefore recommend that each aid-giver increase commitments of official development assistance for net disbursements to reach 0.70 per cent of its gross national product by 1975 or shortly thereafter, but in no case later than 1980" (Oxfam, 2005). How did the Pearson Commission come up with the 0.7% number? According to Clemens and Moss, former Pearson Commission staffer Sartaj Aziz recalls:

By the time the Pearson Commission met, there was a virtual consensus on the 1% target. From there, the rationale for reaching the 0.70% target for Overseas Development Aid (ODA) was straightforward. ODA had already reached 0.54% in 1961. An increase to 0.6% would have been considered too modest since countries like France had reached 0.72% by 1968. I remember one staff discussion in which we debated whether the ODA target should be 0.70% or 0.75%. Consensus reached was in favor of 0.70%, as a 'simple, attainable and adequate' target.

The 1% consensus was built up during the 1950s and the 1960s and was confirmed by a group of influential economists in the 1960s. According to Clemens and Moss Paul Rosenstein-Rodan and Hollis Chenery, both of whom were Chief Economist of the World Bank at different times, conducted separate calculations on "how much foreign capital would be needed by low income-countries in the early 1960s".

The Make Poverty History Campaign in Canada asks the question "Why should the Canadian government honor the 0.7% of Gross National Income (GNI) targets for foreign aid?" The answer takes the 0.7% target for granted and argues the following:

The Canadian government committed itself to achieving the 0.7% target over 30 years ago but never set a timetable. Increased aid is needed to invest in development projects and public services such as health and education in order to achieve the Millennium Development Goals. In 2006-07, Canada's official development aid was about 0.33% of our GNI, or half of what we should be giving.

Is more aid necessary? Does the amount of additional funding make the commitment to reach the 0.7% a priority? A variety of reports have pointed out the necessity of increasing foreign aid. Reaching the 0.7% threshold is only an intermediate step. The 0.7% has lost its significance in today's environment, very different from that of the 1960s. More emphasis has to be put on how additional funding is spent. We need more aid, but above all we need smarter aid. As a result it is important that countries increase their contribution. It is yet more important that any additional contribution be spent in new schemes that show the recipient country's explicit desire to receive the funding based on an improvement on the country's social and economic fabric. In other words, donors and recipients have to be accountable for the aid dispensed. Aid must have a social return. Its impact must be tracked down and appropriate changes should be incorporated to its allocation in the absence of any social improvement. Aid's time horizon must be a compromise between the short and the long runs.