Delivering Aid Differently—Lessons from the Field

We live in a new reality of aid. Rich countries delivered $3.2 trillion of aid to poor countries between 1960 and 2008, and aid is a $200 billion industry today. Despite disputes and upheavals , the core of the aid architecture—the set of rules governing aid flows—has changed little over the past few decades. Now the new dynamics of aid may be too strong to resist fundamental change. Delivering Aid Differently (Fengler and Kharas 2010) was written at a time when the future of foreign aid is being fiercely debated. On one hand, aid experts (including Peter Singer [2009] and Jeffrey Sachs) support a huge increase in the size of foreign aid budgets, faulting a lack of donor generosity for the continued existence of severe poverty. Their message: aid works; we just don't do enough of it. In scathing critiques of aid, on the other hand, William Easterly (2006) and Dambisa Moyo (2009) argue that by detaching recipient governments from accountability to their citizens, aid has retarded the progress of poor countries. Between these camps, aid practitioners argue that foreign aid works well when it is done right. The key is to learn lessons to improve aid effectiveness. What should we believe when there is such disagreement among experts? If development aid is really so ineffectual, why has it increased so rapidly over the last decade? Why have so many new countries, individuals, celebrities, foundations , and other groups joined in giving aid? Although all sides have some good arguments, we believe that the developments of the last decade have radically reshaped the aid environment and that traditional arguments no longer hold. Today, the main paradox of aid is that despite increasing flows and more players, aid has declined in relative importance in most countries. This new aid environment is characterized by three important shifts that have emerged in the last decade: 1. Strong growth in many developing countries has redefined the role of aid. Several countries (notably in East Asia) have fulfilled the dream of development aid—to make it nearly obsolete. For many years, foreign direct investment has exceeded aid by a wide margin. Developing countries' demand for aid is now increasingly differentiated. Gone is the " third world " as a homogenous block of poor countries in the South. Even in Africa, many countries have been growing fast since 2000. 2. The donor landscape has changed fundamentally over …