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targets, some donors will therefore choose to “by-pass” the government
bureaucracy altogether and set up their own administra� ve network with
be� er salary incen� ves (Brau� gam, 2000). Empirical data demonstrates
that salaries in aid-sponsored projects are usually considerably higher than
salaries available through government employment. In Kenya, for example,
monthly salaries from a donor-funded agricultural project ranged between
$3,000 and $6,000. When compared with the average government salary
of about $250, it is easy to see how capable local talent in aid-receiving
countries would be a� racted to staff the resident offi ces of aid agencies and
NGOs rather than taking up government posi� ons (World Bank, 1998). This
erosion of talent leaves the government bureaucracy in the hands of less
qualifi ed, untrained, unmo� vated, or completely incompetent offi cials and
therefore erodes the quality and eff ec� veness of government ins� tu� ons.
Foreign aid and renter state
Aid as a source of government revenue parallels other types of rents.
According to Adam Smith’s classic defi ni� on, rents are “unearned incomes
or profi ts reaped by those who did not sow.” Economically speaking, rents
are “unearned incomes” because they exceed all relevant costs, and are
therefore akin to a monopoly’s supernormal profi ts. In context of the state,
rents are incomes generated from external sources–such as foreign aid, or
perhaps mineral export revenues–rather than extracted from the surplus
produc� on of the popula� on through taxa� on (Karl, 2004).
Experts warn that if rent windfalls, like foreign aid, coincide with the early
stages of state forma� on, they can distort the ins� tu� onal development
of the state. This happens because aid infl uxes provide an easy source
of government revenue, and thus reduce the need to build an eff ec� ve
bureaucra� c mechanism to oversee the extrac� ve and administra� ve
func� ons of the state. The limited extrac� ve capacity, in turn, tends to
deepen the government’s dependence on rents, and consequently creates
a “ren� er state” eff ect. This theory is highly per� nent in the case of Sub-
Saharan Africa, because the emergence of independent African states
in the 1960s and 1970s coincided with high and growing volumes of aid
transfers from their former colonizers. Ostensibly, this contributed to
undermining the crea� on of a robust administra� ve and fi scal bureaucracy
and other ins� tu� onal capaci� es necessary for the forma� on of an eff ec� ve,
capacious state. Essen� ally, the infl ux of easy money allowed many newborn
governments to “subs� tute aid dollars for state cra� .”
The renter state eff ect not only has serious implica� ons for state capacity,
but also for the quality of democra� c ins� tu� ons. This pathology stems
from the fact that renter states are less accountable to their popula� ons
because they are less dependent on taxa� on as a source of state revenue.
Ross iden� fi es a “taxa� on eff ect” commonly associated with the renter
state, whereby the government uses its rent revenues to essen� ally buy
acquiescence by relieving social pressures that might otherwise lead to
demands for greater accountability and representa� on. He also fi nds
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Changing paradigms of aid eff ec� veness in Nepal