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Coffee House

Nigel Lawson: David Cameron’s aid policy is doing more harm than good

6 February 2014

12:58 PM

6 February 2014

12:58 PM

Earlier this week, George Osborne named Lord Lawson as one of the economic thinkers who had influenced him. But the Chancellor’s mentor isn’t quite so impressed with some of his policies. Here’s his letter from this week’s Spectator on the ‘anomalous aid policy’ that the government is pursuing:

Sir: I was glad to see the excellent Acemoglu and Robinson article (‘Why aid fails’, 25 January) and your endnote recording that David Cameron has just declared their book, Why Nations Fail, to be one of his favourites. It is indeed an important book, which is why I quoted from it extensively in a House of Lords debate on overseas development aid in 2012. So it is a pity that he persists with the UK’s anomalous aid policy, which sees that area of public spending increasing while all others are being cut back. It cannot be stressed too much that government policies need to be justified not by their intentions, which in the case of aid are irreproachable, but by their results, which in the case of aid are on balance harmful. As Acemoglu and Robinson demonstrate, economic development depends crucially on having the right institutional framework; and the principal effect of official UK development aid, which goes overwhelmingly to countries in sub-Saharan Africa, is to help perpetuate the existing malign institutional framework in those countries. This far outweighs any short-term benefit that aid might bring.

It is true that Acemoglu and Robinson do not help public understanding of this by their somewhat obscure classification of institutional frameworks in the developing world as either inclusive (good) or extractive (bad). What this means in plain English is that the crucial requirement for economic development is a separation between the political and the economic spheres. So long as the route to individual wealth is via political office, government becomes a means of extracting (to use their term) wealth for the benefit of those in government (and their families) at the expense of the governed. And the notion of facilitating economic development by providing conditions in which the governed can escape from poverty by their own efforts is conspicuous by its absence. Hence the futility — or worse — of official development aid, and of the present government’s aid policy.
Nigel Lawson
House of Lords, London SW1

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