Development Aid: A Very Brief Introduction

How did Western development aid develop during the 1960s and -70s?

In the 1960s Western development aid was simple, seemingly. Concepts and strategies were shared by OECD member countries. The main doctrine was investment and transfer of knowhow. Real capital was supplied, and local managers were trained. It happened in the form of development projects.

A project was an exemplary activity. Ideally, for every foreign expert there should be a local counterpart who would disseminate skills and knowledge to others. Later, local savings were supposed to pay for investment in more machinery and equipment. The expected result was sustained economic growth and the abolishment of poverty. 

During Western industrialization increased levels of investment did in fact go hand in hand with technology transfer. By the middle of the 20th century the American economist Walt Rostow raised the idea that all economic modernization followed the same path. An increased rate of investment was decisive. Another economist, Alexander Gerschenkron, claimed that backward countries could move quickly ahead. When they applied known robust solutions, they could skip trial and error.

That didn’t work in the development projects of the 1960’s. The gap in capital and skill resources between many former colonies and the developed world was wider than between England and continental Europe in the 19th century.

Technology transfer back then took place between profit-driven market economies propped up by the state. Post-colonial development assistance was different. The new independent states were short of many resources, including efficient and committed leaders and civil servants.

Big sums of money were spent on investment, but there was a lack of complementary structures, and the sense of commitment and ownership to projects wasn’t strong enough.

Donors carried a responsibility as well. For managers and staff, it was hard to admit in front of politicians and taxpayers that projects didn’t go the way they were supposed to.

Nevertheless, by 1970 it was clear that problems were serious. Also, renewed anticolonial feelings and the demand for a new international economic order generated pressure on the aid system. The request for pattern-breaking change was translated into the notion that investment should be directly aligned with people’s basic needs.

More attention was now given to infrastructure and utilities: clean water, better roads, physical planning, basic health service. These were not new items, but priorities were shifted. Aid from wealthy nations could help fill out a serious gap, start virtuous circles and empower ordinary people.

With more direct access to useful resources, people’s lives would be better. They could more easily engage in market-related economic activities such as creating businesses or supplying labour. It was hoped that the problem of missing ownership to projects could be reduced.

This was sound thinking. Yet many difficulties persisted. A clear effect of aid on overall development failed to appear. The result was so-called donor fatigue.

The heavy debt incurred by developing countries while growth rates remained low undermined faith in the capacity and political will to govern responsibly. The scene was now set for a new donor strategy: the promotion of good governance.

Third World leaders did not admit systemic dysfunction or own policy failure. They were more inclined to demand compensation for the global economic downturn, high energy prices and massive inflation in those days. It was a deadlock. Indeed, the 1980s later became known as the lost decade for development.

What were the main reasons for Denmark to engage in this field?

Denmark had multiple motives for taking part in the development effort. In the 1950’s there was a desire to put Denmark on the map. The process of decolonization was underway, and Denmark saw an opening. As a small nation, Danish influence was nil. But now, by multilateral diplomacy and contributions to aid, Denmark might be noticed.

It was first imagined that the best channel was the United Nations. Here, Denmark could earn prestige and project a nation-brand. At the end of the 1950’s, the idea matured of including a bilateral dimension. This meant to carry on in the UN, yet also establish a program of direct assistance to specific countries. This required expansion of annual funds and a more elaborate administrative apparatus. After little hesitation, it was put into practice. A decade later, the Danish government began to aim for a place at the top of the donor hierarchy in terms of aid funding as a percentage of gross national income.

Real humanitarian concern was in fact present among politicians and opinion makers. They felt there was a need and an obligation to eradicate poverty and create a more equitable world. This consideration co-existed with a feeling that if no action were taken, global instability might arise. However, less idealistic motives were present as well.

Development programs and projects were a showcase for products, services, and ideas that Denmark hoped to export on commercial terms. For the moment, it would either be given away or financed on favourable terms. But to a large extent aid was tied to goods and services provided by Danish firms and organizations.

There was, in other words, an important return flow. There was no guarantee of future profits. Still, development assistance represented a potential. And even if net earnings never materialized, one part of the sunk cost stimulated the Danish private sector economy. Development aid enjoyed support from business circles.

Popular movements and NGOs were in favour too. The Government had set up institutions where they would be heard. For that reason, it was easy to mobilize expertise for giving inputs and participating in the practical execution. This led to professionalization. NGOs became dependent on the system for financing projects. Young activists found an appealing way to move into a career. The state found a new way to bring talented people into the fold.

Those serving as agents abroad in development programs would bring back knowledge about the greater world. As they moved into other spheres of activity, they arrived there endowed with useful knowledge. The process of globalisation was getting under way, so the timing was good.

In conclusion, the Danish engagement in the international push for development served several purposes: traditional foreign policy, nation-branding, export promotion, formation of human capital, and the adaptation of Denmark to a globalising world. There was also the good feeling of doing the right thing by helping others. Whether the assistance brought about development in a real sense became a relatively minor issue.