Foreign Aid

History

In Western history, the origins of foreign aid can be traced back to when states supported militarily strategic partners, but it is not until the 18th century that foreign aid became more systematic. The best examples are, perhaps, the use of British foreign aid in its rivalry with France or the subsidies of Prussia to some of its allies. The 19th century witnessed the first steps toward foreign aid as we know it today. In 1812, the U.S. Congress passed the Act for the Relief of the Citizens of Venezuela. In the 1870s, the first discussions on the finances for the colonies took place in Britain, [Page 1152]leading gradually to Britain's passage of the Colonial Development Act in 1929, which provided modest government funds to facilitate development in the colonies rather than forcing them to rely on exports of agricultural goods. However, many of the ideas and infrastructure that sustain present foreign aid were born in the postwar period. The Bretton Woods Conference in 1944, the establishment of the United Nations in 1945, the launching of the Marshall Plan in 1947, the creation of the UN Technical Assistance in 1949, and the Development Assistance Committee (DAC) of the OECD in 1961 mark some of the grounds of modern foreign aid. The scale of foreign aid grew bigger with the independence of nation-states in the developing world.

Since its start, modern foreign aid has shifted strategies. The driving forces that lie behind this are to be found in the relationship between foreign aid and development doctrines. Thus, during the 1950s, when belief in industrialization prevailed, foreign aid focused on aggregate large-scale resource transfer to trigger or speed up the Rostovian industrial “take-off.” In the late 1960s, economic dualism between the innovative export sector and a traditional, locally oriented one, as well as human-capital issues such as education and technical training, became relevant to development theories, making foreign aid incorporate more issues such as education and rural development. A further shift took place during the mid 1970s, when development theories began pointing at serious hindrances to economic development related to rural-urban migration, unemployment, and mass poverty. In the 1980s, the deep economic stagnation in Africa and the inability of different political regimes to overcome it were hard to ignore. In this state of things, the successful East Asian economies attracted attention and became the central model in development debates. Based on specific interpretations of this success, foreign aid became more conditional and focused on structural adjustment programs that were supposed to discipline the political and economic systems through market mechanisms. Until the mid 1990s, structural adjustment programs were still the main tool for both development strategies and foreign aid. However, since the late 1990s, it became obvious to many, including the World Bank and the IMF themselves, that if foreign assistance to developing countries was to continue it should retake poverty reduction strategies.

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