From Poverty to Power Green, Oxfam 2008 - weman

5 THE INTERNATIONAL SYSTEM AIDreduction of poverty. What is more, the Paris Declaration covers ashrinking proportion of the global aid pie, since it does not apply tonew donors or to private foundations.Like windfalls from oil revenue, large inflows of aid risk underminingthe social contract between state and citizenry.Aid-dependentgovernments often respond more to the interests and desires ofdonors than to those of their citizens. One cross-country study founda ‘robust statistical relationship between high aid levels in Africa anddeteriorations in governance’, arguing that ‘political elites have littleincentive to change a situation in which large amounts of aid provideexceptional resources for patronage and many fringe benefits’. 149This pitfall can be avoided in part if donors also fund civil societyand parliamentary watchdogs that hold government to account.While the volume of aid to such accountability mechanisms is likely tobe dwarfed by flows to the state, it can help to make states responsiveand can be crucial for the active citizen side of the development equation.In the longer term, using aid to fund education and adult literacyprogrammes can strengthen citizens’ movements and spread notionsof rights that can compensate for the potential damage to the socialcontract.Some economists, along with the IMF, argue that large aid inflowscause economic problems in recipient countries, such as rising inflation,appreciation of the exchange rate, and knock-on effects that undermineeconomic competitiveness – a syndrome known as ‘Dutch disease’. 150The fear of Dutch disease, however, seems to be far greater than thereality. A recent survey of aid in seven countries found little evidencethat large scale-ups in aid had actually caused Dutch disease, partlybecause developing-country governments were already used to dealingwith the manifold effects of volatile and unpredictable aid. 151One way to minimise the dangers of aid dependence might be toimpose time limits on aid, as the USA did with European recipients ofthe Marshall Plan and with its aid to South Korea and Taiwan in the1960s. In a manner analogous to the temporary protection of infantindustries, time-limited aid would provide both resources and incentivesto build up alternative revenue streams through taxation or economicdiversification by the time the deadline arrived – another task thataid can support. Such an approach would be politically difficult in367