We must rethink the role of aid for a new era

The nature of international development co-operation is changing, fast.

It’s time for us to think more about how traditional “aid,” or official development assistance, fits in to the new landscape.

Countries that recently reached middle-income status are taking centre stage, providing “horizontal” or “South-South” co-operation with other developing countries. Yet they also contain most of the world’s poor, so they still need support.

This is one “known known,” to borrow from Donald Rumsfeld, amid much uncertainty. “Known unknowns” are things we know we don’t yet fully understand, like the changing geography of power and poverty.

Will the middle-income countries continue to rise? In the past, some fell back to lower-income status when shocks hit. Could there be a new middle-income trap, in which countries are forced to lower wages to compete, making the step up to higher value production even harder?  

In his famous quote, Rumsfeld neglected to mention “unknown knowns.” By this I mean things we think we know, but we’re actually wrong about. These include key aspects of the dominant (neoliberal) development model, now being challenged more than ever, such as the role of the private sector, the importance of agricultural development, regulation of the financial markets and foreign investment.

As the future of development is unclear, implementing successful strategies is more difficult. So, we must stick to what we know for sure.

First, we need to find a path to growth and development that does not cause irreparable damage to our planet.

Second, generalized poverty, if not extreme poverty, will continue in many countries. We must insist that they guarantee far more than just the very basic rights for their citizens.

Third, development co-operation, including financial aid, can make a positive difference even in countries which do not depend on it. Public money can play a crucial role in complementing the far greater supply of private flows in future.

But how? To fully answer this we need urgent research and debate. It is time to transform our understanding of financial development cooperation for a new era.

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