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Does aid work?

By James Cumes - posted Thursday, 26 May 2005

At the end of World War II, with a great part of the world in ruins, a number of international agencies were established to deliver emergency aid. These included the United Nations Relief and Rehabilitation Administration (UNRRA) and the Commission for the Reconstruction of Devastated Areas in both Europe and Asia - which evolved into the United Nations commissions for Europe (ECE) and for Asia and the Far East (ECAFE).

The World Bank and the International Monetary Fund (IMF), also formed post-war by eminent economists of the day, were very different than they are now. Both were expected to help the major countries - the G7 of the post-war period - to avoid the miseries of the Great Depression of the 1930s, and to achieve full employment and economic stability. The World Bank provided funds for relatively rich countries, such as Britain or Australia, to embark on major infrastructure projects - and so enhance their fixed-capital investment, productivity and production. The IMF enabled the same countries, and others, to maintain stable exchange rates, and free convertibility and non-discrimination in financial transactions.

UNRRA largely succeeded in its work of relief and rehabilitation. The chaos and suffering of the post-war period was cleared away more quickly through the food, clothing, shelter and medical supplies. UNRRA was able to supply to the needy in Europe, Asia and the Pacific.


The World Bank and the IMF were also successful in their original roles. The Bank disbursed loans for developmental projects in ways that were, by and large, financially and economically sound, and which contributed to high and stable rates of economic growth in the post-war period. Between 1945 and 1971 the IMF maintained relatively stable exchange rates, increasingly free convertibility and non-discrimination.

Some major problems did, however, persist after the war for some countries, and especially for the British pound - the world's major reserve currency before World War II. Other currencies in Europe and elsewhere also had difficulties. But, with the strong US dollar as the linchpin of the system, currency disciplines were broadly maintained, exchange rates were adjusted in a relatively orderly manner, and convertibility and non-discrimination enlarged up to the late 1960s.

The success of the World Bank and the IMF was founded on stable economic growth and relatively full employment achieved through implementation of fundamentally Keynesian policies in the developed economies. American policies were founded on President Roosevelt’s New Deal policies, launched in the 1930s.

In Australia, they derived largely from the deliberations of the Royal Commission on Money and Banking of 1936, and from the contribution of such people as Joseph Benedict Chifley to those deliberations. When Chifley became Treasurer and then Prime Minister, Australian post-war stability and growth were founded on the Banking Act of 1944 and the White Paper on Full Employment in Australia of 1945.

National policies were reflected in specialised international agencies, such as the Food and Agriculture Organisation, the International Labour Office, the World Health Organisation and the General Agreement on Tariffs and Trade, which operated alongside and in co-operation with the Bank and IMF. They all came under the umbrella of the United Nations, and centred especially on the Economic and Social Council (ECOSOC) and the Second (Economic and Financial) Committee of the United Nations General Assembly, whose members included eminent economists and policy-makers determined to avoid a repeat of the economic turmoil of the 1930s. Under their guidance, national and the international arrangements were successful, up to the late 1960s. Compared with the pre-war period, the years from 1945 to 1969 were a golden age for the more highly developed economies.

What was the position of the developing countries and how did aid to them evolve?

After UNRRA, came a brief period during which the cleft between East and West was more sharply defined. With the descent of the Iron Curtain and the deepening Cold War, the West directed aid ideologically - to either win friends or discourage their departure to the other side.


During this period, the number of aid programs and the scope of aid expanded enormously. International institutions such as the Bank and IMF tended to focus on developing countries and new programs. Under President Truman, the Point Four and Economic and Technical Assistance to Developing Countries programs were created. In 1950, the (British) Commonwealth launched the Colombo Plan for aid to developing countries of the Commonwealth.

In 1963, when I was Australian Representative on the Second Committee of the UN General Assembly, the UN passed a resolution establishing the United Nations Conference on Trade and Development (UNCTAD). Its purpose was to assist comprehensive development within the developing world, using devices such as trade preferences and measurable goals for development aid. In some ways, that was a high point in both the giving of aid and in the dedication of the developed countries to it. The Second UNCTAD, in 1968, was a disappointment, and signalled the beginning of a long downward trend in aid efficacy.

From July 1969, when the Nixon Administration embarked on policies which introduced the world to stagflation, and especially after 1971, when the US went off gold standard and the IMF ceased to exist in its intended form, both delivery of aid and dedication to it went sharply into reverse. That did not, however, mean that billions of dollars ceased to be spent on aid. In money terms, aid continued to increase, but inflation ate away much of its value. The American addiction to development programs tended to retreat into cynicism about the way in which their earlier efforts had been received. Their passion for giving aid died long before the Cold War did. Despite periodic promises and protestations, it has not recovered since.

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About the Author

James Cumes is a former Australian ambassador and author of America's Suicidal Statecraft: The Self-Destruction of a Superpower (2006).

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