Chapter 3

 

British Aid Policy Under the 1974-79 Labour Government

 

This period began with the oil price crisis of 1973-74 and set the scene for the rest of the decade in terms of the general balance of forces between North and South, the catastrophic effects on non-oil exporting developing countries and the ability of the developed countries to sustain aid programmes. The fact that a group of developing countries had been able to raise the price of their main export commodity by concerted action against the wishes of the industrialised North, led to a growing realisation in British political circles of the inter-relatedness of aid, trade and debt. As the Chair of the Select Committee on Overseas Development noted in a House of Commons debate in 1977:

"Let me make plain where the Select Committee stands. We are not solely concerned with surveying the aid programme. We see trade as a vastly more effective instrument than aid in promoting development. That is why we have been studying not only aid policy but the total impact of British trade, investment and aid practices on the economies of the developing countries."[59]

The efforts of the Third World countries to end the recent sharp price fluctuations of their basic export commodities (whilst the prices of Northern manufactured exports climbed steadily), through the Group of 77 and UNCTAD, were brought into sharp relief by the success of OPEC in quadrupling the price of oil. As one MP noted in the same House of Commons debate:

"Some of the schemes which individual producer associations are designing will be designed against us if as consumers we do not join in. The most obvious and important example is oil."[60]

The other important events which set the scene in this period were the major famines in Ethiopia, the Sahel and Bangladesh in 1972-74 which, coming as they did at the end of the first "Development Decade", demonstrated that the "trickle down" model had failed to stop the poorest from starving.

In this context, the World Bank attempted to redefine the development agenda in 1973 by its decision to:

"Shift the emphasis from efforts aimed at promoting simple growth to an attempt to improve the output of the small farmer, principally by increasing those investments that would benefit lower income groups in the rural areas."[61]

A number of left-wing analysts (e.g. Hayter, Watson, Payer and Moore Lappe) have seen the above shift to the small farmer, rather than the landless, as being indicative of a preoccupation with creating a conservative layer of middle peasants which would act as a buffer against social and political upheaval, rather than as a genuine attempt to eradicate poverty. See, for example, Hayter T and Watson C. Aid: Rhetoric and Reality. London, 1985, p152.

The Ministry of Overseas Development had been set up in 1964 under Barbara Castle, who was given a Cabinet position. This Cabinet status was lost in 1967 and was only temporarily restored as a personal gesture to Reg Prentice, who was allowed to remain in the Cabinet when he agreed to take over the Ministry in 1975. The status of the Ministry was further eroded when the 1970 Conservative administration downgraded it from a Ministry to a Department of the Foreign Office. The election of the 1974 Labour Government led to the reinstatement of the Ministry of Overseas Development with Judith Hart as Minister of Overseas Development (for the second time) but without Cabinet status. The Ministry was again down-graded to a department of the Foreign Office, this time by a Labour administration. Looking back on this period, Judith Hart identified her main achievements as being the following:

(i) The shifting of the emphasis away from the "trickle-down' approach towards an attempt to increase the purchasing power of the poorest in the recipient countries based on a Keynesian strategy of creating income generation needed for growth.

(ii)    The increase in the volume of aid as part of an attempt to reach the 0.7 per cent of GNP target. By 1979 the volume of aid was 0.52 per cent of GNP and she regarded this as a major achievement at a time when the IMF had to be called in to help the British economy and public expenditure was being cut.

(iii)    The creation of a rural development department within the ODM. This was never given the leeway to develop by the civil servants according to Judith Hart and therefore did not develop in the way it might have.[62]

The first White Paper emanating from the new Ministry set out a new policy on development which was heavily influenced by the recent shift in World Bank policy mentioned above. Entitled, "More Help for the Poorest," it stated its objectives as being

"a)    to give an increasing emphasis on our bilateral aid towards the poorest countries, especially those in the group most seriously affected by the rise in the price of oil.

"b)    to give a special emphasis to programmes oriented towards the poorest groups within these countries, and especially to rural development".[63]

During the drafting of this White Paper, which was inspired by Judith Hart, a crisis occurred when, in the aftermath of the EEC referendum split in the Labour Government, Wilson reshuffled his Cabinet, removing some of his anti-Market opponents from key Ministries into less important ones. Tony Benn, for example, was sacked from the Department of Trade and Industry, where he had been piloting the controversial Industry Bill through the House of Commons, and was offered the Department of Energy (which he accepted).

Judith Hart was asked by Wilson to move from the ODM (which lost its independent status as a Ministry) and was offered the Ministry of Transport. She was not prepared to be shunted away so soon from a Ministry to which she was so clearly committed, and while she was in the middle of drafting the most important policy shift for decades, to a department which held little interest for her. She regarded the loss of Ministry status as a reneging by Wilson on the Manifesto commitments to maintain the independence of Overseas Development from the FCO. In consequence of this, she refused the Ministry of Transport and resigned from the government. Her resignation statement to the House of Commons said:

 "I regret the Prime Minister's decision to deprive my Ministry of its independence, whatever the change in the status of its Minister. It is my Ministry that is the real loser. Frankly, I can see no reason for the Prime Minister to sack me from my Ministry. I would have enjoyed the opportunity to develop my policies with my colleagues within the European Community."[64]

Despite the fact that Judith Hart was not a member of the Cabinet, while she was Minister for Overseas Development she was allowed, as Minister in charge of a department, to attend Cabinet Public Expenditure meetings to argue her case. She did not feel in any way handicapped by being out of the Cabinet. When she returned to the post in Callaghan's administration, the ODM became a department of the Foreign Office but this was not seen as a major problem:

"When I came back in '76 the Minister for Overseas Development was under the Foreign Office, but that didn't make any practical difference. David Owen didn't interfere. I went on being my own person entirely throughout the '70s. The Foreign Office was not involved unless we were having a little argument about aid to Vietnam or something like that...You could put in a paper and you could come to the Cabinet meeting. I think they thought they had someone slightly formidable and they let me do my own thing – both Harold and Jim were very favourably inclined."[65]

Reg Prentice, a pro-Marketeer (and, like Judith Hart, a former Minister of Overseas Development in the 1964-70 Labour Government), was given the Ministry of Overseas Development and was allowed to retain his existing membership of the Cabinet. He continued to draft the White Paper begun by Judith Hart.

In making its case for the shift in British aid policy, the White Paper outlines, in greater detail, its general objectives. It speaks about the need for:

"...equitable and fair distribution of wealth... increased agricultural production... a balance between individual consumption, investment and improvements in communal social services... the need to minimise the displacement of labour... greater emphasis on projects to benefit... small farmers and labourers."[66]

The White Paper was debated at length in both Houses of Parliament which, as several members noted, were the first such debates on Overseas Development for three years.

The Commons debate was characterised by a large degree of agreement across the party spectrum, although the attendance was described as "appalling" by one MP and the debate was dominated by a small group of MPs with a special interest in aid and development. There was no one present from the anti-aid lobby, either from the Right or the Left, and the main area of strategic discussion was between those defending the "trickle down" model and those defending the "basic needs" approach of the White Paper, but even here the debate was not characterised by any sharp differences of opinion. Rather, it was a question of one or two MPs being concerned that the formidable difficulties of getting aid through to the poorest might lead to a slower rate of disbursement than if the money was disbursed for more easily realisable projects which would, in turn, release resources within the recipient countries for rural development. The attack from the anti-aid lobby on the White Paper came from outside Parliament in a number of press leading articles, notably The Daily Telegraph, which said that the aid "will be largely wasted by politicians and bureaucrats."[67]

The White Paper was generally well received in both Parliamentary debates. However, a number of telling criticisms were made by a number of MPs and Lords.

Sir Bernard Braine, the Chairman of the Commons Select Committee on Overseas Development, made a series of criticisms which went right to the heart of the problems within the White Paper and are, therefore, worth quoting in some detail. Firstly, he drew attention to the ambivalence of the White Paper on the criterion of recipient country need versus the political and commercial interests of Britain as the donor, quoting a number of passages to illustrate this problem. He made the point that, despite the fact that paragraph 6 of the introduction to the White Paper stated that, "the criterion used by Her Majesty's Government's aid policy is primarily that of need," it also went on to state that there were other, "wider considerations", which, more specifically, included, "political and commercial factors....whose significance will, of course, vary with time and circumstance."

Later on, in paragraph 13 of Chapter 1V it further stated that:

"Other relevant factors (for example, political or commercial arguments) have to be given their proper weight."

Sir Bernard commented that:

"Those factors are not discussed in the White Paper. As a result, we are given no concrete indication of the extent to which the British political and commercial policies are likely to conflict with the criterion of need, nor how much weight will be given to need where there is such a conflict...What does this mean? Perhaps the Minister will tell us?"[68]

Sir Bernard's second point was that the White Paper failed to state specific targets for the proportion of British aid which would go to the poorest countries which would have given substance to the claim to a "changing emphasis", although he recognised the difficulty of providing targets for sectors. When the Minister intervened to remind him of the figure he had given in his earlier statement to the Commons in the course of the debate, Sir Bernard replied:

"I heard the Right Hon. Gentleman say that, but I am criticising the White Paper, which had to be agreed between Ministers. It does not mention the figure. I have no doubt where the right hon. Gentleman's heart lies in this matter. I should have preferred to see the proposition stated in the White Paper. I should like to see the Minister standing up there with a White Paper which represents everything that he and the rest of the House stand for, because 90 per cent of us are completely with him on this."[69]

An even more telling criticism related to "local" and "recurrent" costs. Sir Bernard referred to the following passages in the White Paper.

Paragraph 8 of Chapter III stated:

 "Aid programmes designed specifically to help the poorest sections of the community are likely to involve a high proportion of projects where most of the money involved has to be spent on local wages and local materials and equipment."

Paragraph 10 went on to say:

"It is also likely that many projects aimed at helping the poorest sections of the community will involve recurrent costs."

In contrast to this, in paragraph 9 of the White Paper it said:

" We are ready to consider allowing in exceptional cases a limited part of our financial aid to meet local costs of individual projects."

And in paragraph 10 an even bleaker prospect was painted for recurrent costs:

"Most donors...are normally unwilling to provide local costs to cover recurrent expenditure."

Sir Bernard concluded from this that:

"It seems clear to me that on both local costs and recurrent expenditure the right hon. Gentleman has lost a battle with the Treasury. Unless he can regain that lost ground, his efforts to devote more aid to the rural sector and to the poorest groups generally are likely to be frustrated."[70]

The significance of this lay in the fact that the Treasury had the final say so on something which was crucial to the whole "Changing Emphasis" approach. Evidently, balance of payments considerations, always uppermost in the priorities of the Treasury, dictated that funds for local and recurrent costs, which would have no return in terms of orders for British firms, would be largely excluded.

His final criticism relates to the failure of the Minister to include in the White Paper his frank recognition in the Commons debate of the "pitifully inadequate" contribution which Britain makes in terms of the volume of its aid.

None of these points were answered by the Minister or his Parliamentary Private Secretary who replied to the debate on his behalf.

Some of Sir Bernard's criticisms were echoed by Lord Reay, a recently retired Permanent Secretary in the Ministry of Overseas Development, in the debate in the Lords several months later. These are again worth quoting at length because they went right to the heart of the problems within the White Paper. On the question of targets for the "Changing Emphasis" strategy, he had this to say:

"There are no concrete illustrations either of how this new strategy – and it is, after all, the whole argument of the White Paper that a new strategy has been adopted – will affect the distribution of aid as between countries and/or sectors within different countries. Without this, one is left in the dark about the practical consequences of adopting this new strategy."[71]

Approaching the question of the effects which a switch to rural projects would have on British commercial interests from a slightly different angle to Sir Bernard Braine, he nevertheless points to the same balance of payments dilemma:

"There is no indication, either, of what effect the adoption of this strategy will have on the practice of the tying of bilateral aid. For example, will a concentration on rural development projects – which is one of the themes of the White paper – mean that less aid is tied to the purchase of British goods which might on the face of it be likely since aid is tied to capital goods purchases, and these are more likely to be required for capital-intensive projects which, of course, rural development schemes are designed not to be?"[72]

In addition, Lord Reay raised a further criticism of the White Paper in relation to debt and the lack of any figures for the interest payments paid by developing countries on past loans from Britain. He concludes by criticising what he calls a political error of presenting the objectives in a grandiose, "imperial" style raising expectations which the slender resources available cannot fulfil.

During the Commons debate, Frank Hooley MP made a useful contribution which compared the proposals in the White Paper with the demands of the Third World countries represented by the Group of 77 in a number of recent international fora and, in particular, the Special Session of the United Nations in April 1974, at which the Group of 77 put forward the idea of a new international economic order. The issues discussed included control over its members' resources, producer associations to control raw materials prices, industrialisation, the transfer of money and technical resources from richer countries to poorer ones and a bigger share in the control of the international monetary system. In making these comparisons he presented the Commons with a means of gauging the extent to which the White Paper met these demands.

Mr Hooley pointed out that on the question of trade, the White Paper accepted the case for access to Northern markets and supported, with reservations, the Generalised Scheme of Preferences worked out by Common Market members. On stable commodity prices, it supported the Commonwealth proposals in the McIntyre Report for commodity agreements supported by buffer stocks, production controls, quotas etc and stressed the need for compensatory financing for the poorest countries. It was silent on the McIntyre proposal for indexation of the price of raw materials to preserve their purchasing power against the general trend of prices and international inflation.

The White Paper's support for Stabex, the recently instituted compensatory financing facility under the Lome Convention, was regarded as insufficient because it was too small and because:

"The Stabex scheme is narrowly conceived in terms of the raw materials it covers. It rules out all minerals except iron ore. It would be much more sensible to throw our weight and resources behind a more full-blooded expansion of the IMF compensatory financing scheme, so that the whole of the Western world – not only the members of the Community... could join in a more comprehensive and genuinely international scheme for stabilising commodity prices..."[73]

In the area of transfer of real resources and reform of the international monetary system, Mr Hooley pointed out that while the White Paper supported the 1974 UN Special Session's advocacy of greater resources to be made available to the poorest countries hit hard by the oil crisis, via the IMF and World Bank, and for an expansion and liberalisation of the IMF Compensatory Financing Facility, it did not make any commitment to the UN target for Official Development Assistance of 0.7 per cent of GNP. On the question of food and agriculture, Mr Hooley said that while the White Paper was fully in accord with the UN Special Session's proposals for a rapid expansion in food production in developing countries, for adequate supplies of fertiliser to be made available, for access to Northern markets for cash crops to be guaranteed, for attention to the importance of food aid and for grain stocks to be maintained at a minimum of 30 million tons, there would be conflict between the desire to implement all of this and the limitations imposed by exigencies of the Common Agricultural policy:

"We have already seen the ferocious battle which went on over the relatively minor matter of sugar... We have seen the episode when the Community authorities cut off imports of beef from other countries. The ink was hardly dry on the Lome Convention before Botswana was bitterly complaining of discrimination by Community authorities against beef imports which they had solemnly promised to accept." [74]

The reaction of the Select Committee on Overseas Development to the White Paper came in a report in April 1976. Whilst this report welcomed and supported the White Paper, it was also critical of the cautious approach which they perceived the Ministry to be adopting in its implementation. The use of the word "faltering" to describe the Ministry's approach was given emphasis in the press at the time (for example, The Times, 14.April 1976, p6):

"In general, ODM seems to have taken a first, rather faltering step in the direction of trying to reach the poorest people with its aid... (the) ODM is too ready to hide behind the difficulties of implementation... This point is greatly strengthened by the evidence given on the small proportion of British aid going to rural development, namely some 2 per cent to agriculture and an estimated and somewhat notional 10 per cent to rural development, if the rural content of items like roads is included. Even an increase to 20 per cent would require much than a doubling of the present effort... Your Committee recommend therefore that the ODM should... set a target for the proportion of aid that can be used for rural development over the next five years."[75]

The Minister's Observations on this stated that:

"The constraints on aid to rural development are not so much financial as managerial. For example, projects are often complex and take time to prepare. Many involve relatively small amounts of money. The amount we can spend on rural development will vary from country to country depending in part on how far we can succeed in securing the cooperation of the recipient government. We think it better to concentrate on measures to increase the aid we can give to rural development in each country, rather than set an overall target. A recent analysis shows that... in 1974 about half our bilateral project aid (which is about 30 per cent of our total aid programme) went on projects to help the rural poor."[76]

The Times commented that a weakness in the presentation of the Select Committee Report's criticisms on this score lay in the fact that it:

 "…does not quantify the sort of increase in (rural) aid it thought was necessary... The Chairman of the Select Committee added that they felt aid for rural development should be doubled."[77]

The Report also took up the question of sovereignty and the Minister of Overseas Development's concern about possible "neo-colonialist" infringements of independent countries' internal development strategies by a British Government over-zealously trying to implement the new "poverty" orientation.

This is obviously a very important political problem which, however, the committee felt the Minister was nonetheless "hiding behind":

"Your Committee regard the Government as being unnecessarily cautious. In saying this we are not advocating some form of neo-colonialism... However, every donor has to make proposals as to how its tax-payers' money should be directed. Furthermore, the general preferences of donors do have a major influence, both on the sort of projects presented for foreign assistance and on the general emphasis of development strategy within the national governments... While... the new policy will be easier to implement where national governments are sympathetic to it, it can also be implemented elsewhere, provided that the ODM exercises to the full the scope it has for making its preferences known."[78]

In the Minister's observations on the report, while acknowledging the need to make better known the preferences of the British Government, it was stated that:

"... We believe that the Committee may have underestimated the problems of succeeding with the new strategy without the full cooperation of the sovereign governments concerned.

6. This apart, poverty focussed and rural projects often take time to prepare and disbursements are likely to start only slowly... But we expect the implementation of the policy to gather momentum first in agreement with recipient governments and then in disbursements."[79]

The general economic situation of the country began to deteriorate in this period, and loans from the IMF resulted in a substantial round of public sector cuts in July 1976. The period leading up to this was rife with speculation, in Parliament and the press, that the aid budget would not escape the cuts. Rumours of the impending resignation of the Minister, Reg Prentice, were reported in the press (he had resigned from the same position in the last Labour Government in 1969 over a similar issue).[80]

The controversy which this unleashed provides an insight into the opposite extremes of thinking on development in Parliament at this time. At a time when Britain was borrowing money, it was felt by some MPs, who were not well disposed towards aid at the best of times, that development aid was now a luxury which Britain could no longer afford. In Switzerland, a recent referendum on aid had produced negative results and this further spurred on the anti-aid lobby. On the other extreme, in early July 1976, over a hundred Labour MPs put down an early day motion which called for a reversal of downward trends in aid and "in no circumstances to worsen it". It "noted that the percentage of the country's wealth devoted to overseas aid had declined from 0.52 per cent in 1964 to 0.38 per cent in 1975 and that the proportion of the budget spent on aid had fallen from 2 per cent to 0.89 per cent in the past 15 years with dismay."[81]

During the week before the public spending cuts were due to be announced, a series of questions put to the Minister of Overseas Development in the Commons give some idea of the extremes of thinking on this subject. After answering two initial questions from Mr Canavan and Mr Renton about when the Minister expected the UK to reach the international targets on aid as a proportion of GNP to the effect that this would depend on the rate of Britain's economic recovery, the following exchange took place:

"Mr Canavan: In view of the insane proposals for further massive cuts in public expenditure, will my right hon. Friend give an assurance to the under-developed countries that he will resist any Treasury moves to cut back our already inadequate overseas aid programme, otherwise we shall never reach the United Nations target?"[82]

To which he received an assurance that the Minister would "play his full part" in the discussions on the cuts in the Cabinet. The opposite point of view was presented in the following questions during the same debate:

"Mr. Onslow: Has the right hon. Gentleman thought of copying the example of Switzerland and having a referendum on the expenditure on aid, or is he afraid that it might produce the same result in this country?"

To which the Minister replied:

" Mr Prentice: I hope that a referendum in this country would not produce the deplorable result of the recent one in Switzerland. I hope and believe that the majority of citizens in this country would have sufficient sense of the moral issues and long term self-interest involved to give a different verdict."

"Mr Ian Lloyd: Irrespective of moral judgements or hypothetical referenda, in our present economic circumstances would it not be an excellent idea to publish our overseas aid not only as a percentage of our gross national product but as a percentage of what we are borrowing?".

The Minister replied that this would militate against the international commitment which Britain had to try and reach the United Nations target as soon as possible.[83]

In the event, the substantial public spending cuts announced that week left the aid budget untouched on that occasion. It was cut at the next budget five months later, however, in December 1976, by £100m over two years. Reg Prentice resigned a week after the announcement of the cuts. His reasons for resigning, however, were more complex than the issue of just the cuts in the aid budget. He argued that the priorities in the public spending cuts had been wrong on a series of fronts: the defence cuts were too high, the government had failed to curb the rate of increase of the index-linked welfare benefits, which meant that the "overlap" between state unemployment benefits and wages was not removed. As The Times editorial commented on the day after his resignation:

"His criticism goes beyond his objection to the cuts in overseas aid. His connections on aid go deeper and are longer standing than those naturally to be expected from a minister with that departmental responsibility. He resigned office because of cuts in overseas aid before, in October 1969, and it was known that he was prepared to consider doing it again if aid had been slashed in an earlier round of cuts this year. But it is the whole balance of these latest cuts that he is attacking now."[84]

In his Commons resignation statement he said:

"I believe the cut in aid was excessive, not only judged against the moral duty which those of us in the richer one-third of the world have in the fight against poverty in developing countries but judged also against our self-interest and in terms of the North-South dialogue."[85]

Frank Judd, who replaced him in the capacity of Minister of State for Overseas Development, was quickly succeeded by Judith Hart in February 1977, when, as a result of the death of Anthony Crosland, Callaghan reshuffled his Cabinet. Judd was promoted to the FCO.

Once again the cuts question produced a series of articles and letters to The Times which indicated a number of distinct and counterposed schools of thinking on the subject of aid within the British "establishment". Mr Christopher Brocklebank-Fowler, Conservative MP and member of the Select Committee on Overseas Development, as well as being a frequent contributor to House debates on development issues, wrote an article in The Times making a number of points about the cuts. He said that, although it was undeniable that public spending cuts were inevitable, "there are powerful arguments for increasing British efforts in stimulating development in the Third World, not least because their economic growth leads to larger markets for the export of British goods and services." Many aid critics did not understand "... the extent to which aid expenditure, quite apart from generating employment in recipient countries, helps produce export orders for British industry worth substantially more than official aid disbursements.. .indeed, Britain enjoys a balance of trade surplus with the majority of Third World countries..."[86]

Mr Brocklebank-Fowler's article received a stinging response from Martin Bendelow of the Centre for Policy Studies, a Thatcherite "think-tank", which reflected the "no moral case for aid" school. In response to the argument that aid generates exports, Bendelow claimed:

"If exports are bought with the proceeds of aid, they are given away or subsidised. To suggest that this benefits the British economy is akin to saying that the store owner benefits from burglary because some of the proceeds of the robbery are spent at his store."

He further suggested that:

"All exports have an import content and if they are bought with the proceeds of aid, this may damage our balance of payments. And... if aid creates employment in Britain, what happens to those productive industries at home from which taxes are levied? – the burdens of taxation increasingly strangle their own job creating abilities."

Finally, Bendelow challenges the notion that aid is effective:

"... to say that aid increases the productivity in the recipient countries naively assumes that its effects are favourable. There is much evidence to show that this is more often than not quite the contrary. Besides which it overlooks the probably more productive uses of the resources at home. This can scarcely increase world income..."[87]

The above exchange illustrated very clearly the distinct, if not counterposed views on aid within the Conservative party. Both shared the aim of furthering the interests of British industry, but through completely, opposed policies on aid. The former, however, would also, no doubt, claim that this consideration was secondary to developmental criteria (the question of whether the practical record of British aid in this period would bear out such a claim remains to be considered).

An article giving a quite different reaction to the cuts appeared, by way of contrast, in The Times shortly after, written by Michael Lipton, a leading academic in the field of development studies. It reflected the "More Help to the Poorest" approach and used the opportunity, afforded by interest in aid engendered by the recent cuts, to analyse the problems in the way of implementing this approach.

"By 1978-79, Britain's development aid will be slashed by 20 per cent... gloom prevails because growth and development have done hardly anything for the poorer half of the Third World's swelling populations."[88]

After arguing at length that this is because of the "urban bias" in traditional aid programmes and the large "hardware" projects that go with them, he considers the question of Third World country sovereignty as an obstacle to shifting the emphasis to the rural sector. The difficulties of implementing the shift to the rural poor relate to the fact that, whereas large urban "hardware" projects are easily monitored in a short space of time on completion, and are accessible within easy range of the "best hotel" in the towns and cities, rural projects need long term monitoring in less comfortable rural surroundings:

"Few Third World governments will welcome such activities by unsupervised outside donors; but many will want resources to enable an independent national agency to do the job, for their own projects as well as the aided ones."[89]

Arguing that donor countries cannot intervene in the process of selection and monitoring of projects by Third World governments, he thus concludes that the way forward is to encourage Third World governments to set up their own indigenous institutions and develop their own indigenous expertise. The alternative, he argues, would be to hastily set up lots of rural projects which would be badly managed and which would fail through lack of management expertise, the effect of which would be to discredit the whole approach. He further argues that within the Ministry of Overseas Development there is a section of the staff consisting of the accountants, the project specialists and the older staff who are opposed to this approach and are sitting back to wait for it to "discredit itself". The younger staff, the economists and country specialists, who are generally in favour of the shift to rural poverty, should not allow their enthusiasm to run away with them.

The points made above do actually echo the reasons given by Prentice in reply to the accusation, mentioned above, by the Select Committee on Overseas Development, of "faltering" progress being made in implementing the shift to the rural poor – i.e., lack of trained management personnel, and the sovereignty problem. However, the danger of creating a "vast expansion of hastily planned rural projects" does not seem real in a context in which "local costs" restrictions by the Treasury would appear to have ruled that out in any case. As Judith Hart pointed out to the Select Committee on Overseas Development in relation to a controversial proposal to supply cargo ships to India in early 1978, which was seen as contradicting the "More Help for the Poorest" approach:

"... it is not a matter of the incapacity of the Government of India to identify projects in the rural sector. It is basically because we ourselves are extremely restricted in the local cost element of what we can do in India.

136. (Mr Brocklebank-Fowler) By whom? – (Mrs Hart) By us.

137. (Mr Brocklebank-Fowler) That is an important point? – (Mrs Hart) It is absolutely crucial. It is Government policy. I think that you have had evidence in the past about local costs... That is a very severe constraint on our ability to identify major projects in the rural sector because so many rural projects involve a considerable degree of local cost."[90]

In fact, Judith Hart had to "fight battles" for projects involving local costs with the Treasury who would, as she put it, "fuss and bother". She claims that this point was eventually won and that the opposition to local costs relaxed. The figures in the chapter on quantitative aspects of British aid indicate that an increase in local costs did take place in the late 1970s, and early 1980s towards the end of the Labour administration, and in the period afterwards when projects agreed under Labour were still being implemented. By contrast, there was a steady decline in the mid and late 1980s under the Conservatives so that by 1990 spending on local costs was approximately 10 per cent of the 1981 figure. According to Judith Hart, this reflected the growth of rural development projects under Labour and the consequent shift towards commercially-orientated projects afterwards under the Conservatives.[91]

The problem was not so much a question of the discrediting of the rural poverty shift through a "vast expansion of hastily planned rural projects", but rather one of underspending within the aid budget because of restrictions on "local costs". This left funds available which were increasingly being spent on grandiose "urban hardware" projects. The deal to supply cargo ships to India fell within this category, as did a similar deal to sell cargo ships to Vietnam shortly afterwards, a subject to which we will return later.

However, despite these problems of implementing the rural poverty shift, another important development of this "basic needs" approach was opened up in mid-1977, when a Working Party within the Ministry of Overseas Development produced a paper on intermediate technology which recommended that more emphasis should be given to this approach in the aid programme.[92]

This recommendation was accepted by Judith Hart, and in July she announced that £500,000 would be set aside for initiatives within this category for the next three years[93]

The initiative for the setting up of the Working Party came from a series of research papers from Strathclyde University which were analysing in detail the choice of techniques and the effects of scale for different industries. Cost benefits and wide available choices in small scale operations had been shown. However, only 1  per cent of the aid budget was being devoted to intermediate technology, according to The Times, in an article by their technology correspondent who was analysing this new development:

"But... growing interest by the practitioners may not be shared by their (Third World) governments who may be suspicious of the concept. They may regard it as an attempt to impose second-hand or old-fashioned technologies on the developing world."[94]

However, this approach has to be seen as an important development of the "More help for the Poorest" policy, however modest in scale. As the above article pointed out, intermediate technology did not figure greatly in British exports and, despite the efforts of the ODM to stimulate interest in the idea among British firms through the opening up of an intermediate technology centre, it is clear that it would never have the same attraction to British exporting firms as the big, high-technology hardware projects.

Parallel to this interest in intermediate technology within the ODM, another, in many ways opposite, trend was developing within Whitehall as a result of the lobbying of British exporters. As has been very well highlighted by Clark and Toye in a recent memorandum to the Select Committee on Overseas Development, these firms were complaining that the British Government was:

"…standing idly by while foreign countries were using overseas aid money to give their national firms an unfair advantage in developing country markets. They accordingly petitioned the British Government to eliminate that unfairness, by devoting part of its aid in the financial support of specific British bids for business in developing countries".[95]

The CBI suggested, in evidence to the Select Committee on Overseas Development in this period, that:

"Aid might usefully be combined with trade by using it as a means of softening commercial credit terms for British exports to LDCs, when the benefits to Britain's trade would be large and apparent disadvantages small."[96]

By July 1977, an outline plan to institute a scheme for "mixed credits", emerged within Whitehall through the use of up to 5 per cent of the aid budget to supplement subsidised credit from the Export Credit Guarantee Department. The DTI saw this as a defence of exporters from unfair foreign competition; within the ODM, Judith Hart saw it as a bargaining counter in negotiations with the Treasury over increasing the overall size of the aid budget. In October 1977, the aid budget was in fact increased by £20 million. This increase was extracted at the price of the Aid for Trade Provision (ATP). According to Judith Hart, this took place in the following context:

"On the Aid and trade thing, one was dealing (a) with the Department of Trade and (b) with the Treasury – two very powerful sets of people. Neither of them were at all keen on increasing the aid programme, as you can imagine. This was a sort of tacit, not spoken, but tacit bargain: alright you can have this Aid and Trade thing, but I want my increase in the aid programme. I have my list of the actual things I approved under the Aid and Trade Provision. I could justify every one of them now – they were developmentally sound. Since then they've been a bit dodgy. They had to satisfy development criteria and we were applying the development criteria pretty strictly. I didn't have any terribly deep resistance to the concept. The French were getting away with it all the time under credit mixed. And they were sort of snaffling contracts here and there under crédit mixte, which we felt we ought to have got. I was also on the National Executive of the Labour Party and Chairman of the industrial policy committee and the rest of it and I felt that if we could do things that helped our industry that were legitimate developmentally you know OK. I really did. I remember Joel Barnett quotes me in his book that I said to him at one point 'Its all very well but you can't persuade the Indians to buy ships if they don't want them,' but I was trying to help our own industry and our own people's jobs – I didn't think there was anything wrong about that. So you have to take it against that sort of background. I wouldn't have done it, have agreed to it if it hadn't been a way of persuading the Department of Trade particularly not to resist the increases because I was getting very substantial increases, it was absolutely phenomenal when I look back at it. At a time of cuts I had guaranteed a 6 per cent aid increase for the next three years. It was really quite out of proportion".[97]

The circumstances in which the scheme came into existence within Whitehall would appear to be shrouded in a certain amount of confidentiality. The existence of an inter-departmental Whitehall committee on trade and aid became known to the Select Committee on Overseas Development in the aftermath of the publication of their Report "Trade and Aid." in December 1977. When they asked Whitehall to enlighten them on the terms of reference of this committee they were told that a Whitehall "convention" prevented Ministers from discussing such matters.[98]

The extent to which this inter-departmental committee made the decisions on aid and trade policy, the Aid for Trade applications, and which department of the Government played the leading part in deciding these questions, were all questions which remained to be answered.

The criteria and guidelines which governed the use of the scheme would appear to have remained unpublished until they were presented to Parliament by the subsequent Conservative administration some five years later in 1982. There is, however, no guarantee that these guidelines were identical to those in operation when the scheme was first instituted by the Labour Government.[99]

The conditions under which this provision could be disbursed excluded countries with a per capita income higher than $1,000 in 1972 and those infringing human rights. The commercial purposes which the scheme was supposed to serve were described to Parliament in 1982 and have been summarised by Clark and Toye as:

"a) facilitating entry into a new market or sector; b) establishing or maintaining technological links; c) retaining a traditional market temporarily endangered; d) combating the aggressive use of aid by trading competitors; e) helping UK industries "'secure orders of commercial importance'".[100]

As Clark and Toye point out in their analysis of these guidelines, objective (d) is obviously designed to meet the CBI's complaints about unfair competition. However, objective (e) goes beyond this and allows aid to be used for commercial purposes irrespective of aggressive and unfair competition by foreign firms. Thus it would appear that, under these objectives, it is not necessary that unfair foreign competition should exist for ATP resources to be used.

They also point to an obvious potential conflict between commercial criteria and development criteria, which, under the "More Help for the Poorest" policy, place the emphasis on rural development projects which, in turn, require little in the way of export orders for British industry.

The first consequences of this trend in aid policy were manifested in February 1978 when a commercial bid by British Shipbuilders to supply India with cargo ships undercut Dutch competitors and secured the contract for the British firm. This Indian deal was met from unspent country allocation. It accounted for £52.8 million – of the country allocation for the year of £136 million! This caused something of a furore in which the Dutch shipbuilding firms complained of unfair competition, the General Council of British Shipping complained that subsidising the Indian shipping firms would lead to unfair competition with them in cargo carrying, and the "More Help for the Poorest" lobby, inside and outside Parliament, claimed that this deal went against ODM policy and wasted 20 per cent of the aid allocated to India, in two consecutive years, on a project which had nothing to do with helping the rural poor. A similar deal to supply ships to Vietnam, but on this occasion from the Aid for Trade Provision, rather than the country aid allocation, quickly followed this and poured further petrol on the fire. In this case there was the embarrassing fact that the amount devoted from the ATP budget for this deal equalled in magnitude the whole of the modest level of funds devoted by Britain to war-devastated, newly-unified Vietnam in Non-ATP aid, while Holland had provided ten times this sum to Vietnam in its aid allocation.[101]

In the Commons, the affair was discussed within the Select Committee on Overseas Development and in a short Commons debate. As has already been stated, the deal was defended by Judith Hart on the grounds that the aid allocated to India had been underspent as a result of local cost restrictions by the Treasury, which had limited the number of rural development projects, and that the money had to be allocated in some way.

Looking back on this deal, Judith Hart observed:

It saved a hell of a lot of jobs in the North East shipyards for two or three years... (the Indian Government) were constantly coming up with their proposals for industrial things and so on you see. And of course the Indian programme was our biggest – in my time £120-130 million, I don't know what it is now, but it was the biggest single bilateral programme and so it mattered, you know. I mean we got to a point where we weren't even agreeing with the Indians enough ways to spend the programme allotted to them. Now we got some things accepted: I remember we did the Dry Areas Research Institute, we did a lot of help in the Green Revolution stuff to Institutes of Technology and we were working on that kind of thing. We did this very good thing which I persuaded them into – a medical service to go out into the villages from the centres, sort of buses we equipped to do minor operations and with doctors which went out to the villages and so on. But it was a big effort to get them to accept that, you know. And so the ships deal was just one of a number of essentially industrial, commercial proposals that they were putting to us. And this was one that helped our folk, our industry, our workers."[102]

It should be noted that this assessment differs from, and is in fact contradicted by, the earlier statement quoted above to the Select Committee on Overseas Development. Here the accent is put on the reluctance of the recipient government to propose poverty-focussed projects; in the earlier quote it is put on the problem within the donor country of insufficient local costs. A similar problem was identified by future ODA Minister Timothy Raison:

Many people say that the problem in aid is not finding money; the problem is finding worthwhile projects to spend it on – that's the difficulty. And there was a boom, the last Labour Government in the late 1970s had a spell – I forget how long, but I mean a year or so – a very high aid programme comparatively, but I think the people looking back at that would say that the sudden rush to step up its aid programme led to a number of projects of fairly questionable value. The difficulty is finding really worthwhile things to do in the field. The public, for very respectable motives, doesn't understand that."[103]

The reaction to the underspent budget motivation for the ships deal came from Malcolm Rifkind, who opened an attack on it in the Commons debate as follows:

"That may be true and it may be very regrettable that that is the case. I suggest that that is no argument for directing the funds available to a purpose for which they were not intended. if it is proving difficult to spend the sum allocated, that suggests that too much money has been allocated to Indian development, or that the criteria in the White Paper might need to be revised. But in the absence of the two factors, the Government's action is clearly indefensible."[104]

The other reason given by Judith Hart for the project was that it would create jobs in the depressed north-eastern shipyards. Rifkind's reply was the following:

"That may be a worthy cause, but it is a gross and indefensible abuse of the aid voted by this House for development purposes overseas."[105]

Replying for the ODM, John Tomlinson, Judith Hart's Parliamentary Private Secretary, stated that:

"... to say that there is no benefit to the people of India is to ignore the fact that the creation of a stable asset which is wealth-creating inside India will give the Indian Government the self-capacity and the additional resources themselves to assist the poorer people within their own country."[106]

When Mr Rifkind pointed out that the "More Help for the Poorest" White Paper had stated that the policy was not just to build up the economy of the recipient nation but to directly assist the most poverty-stricken people in that country, Mr Tomlinson replied:

"The Hon. Gentleman is trying to read into the Government's White Paper a precision that was not written into it. My interpretation of it...is that it emphasises a change of direction. It does not produce an absolute objective and say that all aid will be in this form. It produces a change of emphasis and of direction and a new area of concentration and new objectives that we should be looking at."[107]

This, of course, was perfectly true. Nevertheless, it has to be said that the use of 20 per cent of the aid budget of Britain's largest aid recipient, on a single project such as the Indian ships deal, in two consecutive years, was an indication of how far there was still to go in making a shift of emphasis. It was an indication, to be more specific, of the extent of the constraints which local-cost restrictions, by the Treasury, placed on rural projects, of how large and unresolved, either through lack of experience or the absence of will within the ODM bureaucracy, were the problems of effecting the revolution in management and monitoring techniques necessary to implement poverty-focussed rural projects, and of how powerful were the commercial pressures siphoning-off resources unspent as a result of these constraints. A further point concerning the above two ship deals relates to where the initiative came from within Whitehall for the projects. In the case of the Indian deal, as we have already seen, an underspent country allocation left funds available which the Ministry of Overseas Development earmarked for the ships deal. However, this was not the same with the other case:

"(Mr Tomlinson) The initiative in this case concerning ships for Vietnam was taken by the Department of Industry and the Department of Trade and not by the Ministry of Overseas Development. In this case the aid will be quite small – about 20  per cent of the total cost – and would come from the Aid/trade contingency provision which I mentioned earlier."[108]

This was to become the method of initiation for Aid for Trade applications in the future. The important point about this method of initiation was that it often gave the Ministry of Overseas Development very little time to assess the projects on developmental grounds; in many cases there would simply not be enough time. The possibility of the loss of a contract through delay would mean that the ODM would increasingly be unable to do its assessment properly.

It is appropriate to conclude this chapter with an analysis of what were the practical results and lessons of the "More Help for the Poorest" policy. Paul Mosley has summarised these in a number of articles and reports.

The outcome of the "More Help for the Poorest" policy shift was an easing of aid terms, the initiation of the Joint Funding Scheme with the NGOs and projects aimed at rural development were begun. Unfortunately, very few evaluations of the impact of these projects on redistribution of income have been undertaken, so it is difficult to draw any definite quantitative conclusions.

Aid ought to be concentrated on goods and services in the rural and shanty-town areas where the poor are concentrated. In providing the skills and assets relevant to the poor it is important to consider technological options which are appropriate to them. For example kerosene and wood are used more easily and effectively by the poor than energy generated by hydro-electric or coal-fired power stations. Roads can be constructed by employment-generating, labour intensive methods instead of high-tech methods. Mosley mentions a project initiated in the 1970s in relation to this – the Kenyan Special Road Development Programme and its continuation as the Rural Access Roads Programme funded by the World Bank and other bilateral donors including Britain. The interesting thing about this project was that it switched from high-tech to labour-intensive methods in mid-project. Other examples are aid projects aimed at tractorisation of agriculture. Tractors displace labour – such projects in the early 1970s were discontinued. This sort of thing exemplifies the need for evaluation during the whole cycle of the project. Technology must be appropriate to the basic needs of the poor and not make them worse off, and continuous evaluation can prevent mistakes from becoming institutionalised in aid projects.

Another issue raised by Mosley is the need for aid to provide what the market does not provide. Rural poverty exists because the market does not provide the goods and services which the poor need; it does not provide agricultural research on the needs of more marginal land for better seeds – most of this is confined to irrigated good land. Many poor farmers are not considered credit-worthy by the commercial banks and have to resort to loan-sharks at exorbitant interest-rates. Handicrafts in remote villages do not easily find a market for their sale. Aid should attempt to provide an institutional answer to these needs, not just "throw money" at the problem. Mosley mentions the Grameen Bank Project initiated in 1976 as an example of the kind of self-financing rural credit institution developed to meet such needs – which also exemplified the need for sustainability of the project when the external finance is curtailed.

A classic lesson learnt in the late 1970s was the need to avoid overloading the recipient country's administrative structure. Examples of this cited by Mosley were the Integrated Rural Development Projects, such as the Kosi Hills Rural Development Project in Nepal, begun by the ODA in 1979. It sought to attack rural development from a variety of fronts, but the Nepal Government coordinating ministry lacked the authority to implement many of the aspects of the project. It had to be scaled down to a more modest size. The World Bank has subsequently sought to get round this problem by having an independent authority to implement such projects.[109]

In a separate contribution Mosley, after analysing a number of other case studies, concluded that there are a number of paradoxes inherent in a poverty-focussed policy which have implications for aid policy:

a)     that such projects, because of the difficulty of replicating them in different Third World settings, inevitably take on a somewhat experimental character and thus "increase the uncertainty of the beneficiaries' incomes in precisely the environment where this is least desirable." Mosley argues that this can be minimised by avoiding vast integrated rural development programmes and sticking to small projects which are more reliably replicable.

b)     that the very poorest communities are unable to pay an economic price for the services once the projects have been implemented and thus the donor is faced with either the collapse of the project or with subsidising the "recurrent costs" on an ongoing basis, with all the neo-colonialist connotations of dependency which this entails. He suggests that this can be reduced by designing, where possible, what he calls "composite" projects which benefit better-off consumers as well as the poorest so that a differential rate can be charged and thus enable the poorest to be subsidised by them.

c)     Because poverty-focussed projects are not very often initiated by the people they are aimed at, there is the problem of "paternalism" especially when recurrent costs are being paid. He suggests that this can be overcome to some extent by collaboration with voluntary agencies and by giving greater financial discretion to donor-government field-staff. As Mosley says:

"... it is not the least of the paradoxes of poverty-focussed aid programmes that... their effective implementation involves in many practical details reversion to a 'neo-colonial' budgetary relationship."[110]

Nevertheless, as Mosley points out, in many cases there are situations where there are no "better-off consumers" to subsidise the poorest communities and there is really no alternative to donors paying recurrent costs. There is, in addition, the point made by Michael Lipton, already mentioned, that as far as possible indigenous agencies and institutions should be created to administer such projects and there would appear to be no reason why they should not also oversee the distribution of recurrent finance from external donors. There is a much greater danger, which we have already seen highlighted by the Select Committee on Overseas Development, of donors "hiding" behind problems of sovereignty and paternalism to avoid providing local and recurrent costs when the real reason may well have more to do with balance of payments considerations and the relative absence of export possibilities in such finance. The implications of all of this for British aid were summarised by Mosley as follows:

"1)          Aid should focus on agriculture and cottage industries. Mosley recommended that the money devoted to renewable natural resources should be raised from 18.8 per cent (at the time of writing in 1986) of the British Aid Programme to 50 per cent.

2)  Aid should provide the skills which the poor are capable of using. The present test of technical feasibility should be replaced by a test of technical optimality. Local cost limits should be eliminated to allow local technological options to be implemented as needed.

3)          There should be a test of political feasibility as part of a process of consultation with the beneficiaries. If powerful, rich elite interests are likely to thwart the poverty focus of the project then a strategy has to be found to overcome this problem. One possibility is to make them minor beneficiaries of the project to buy their acquiescence to the poverty-relieving aspects of the main part of the project.

4)          Avoid overloading of the recipient government administrative structure by increasing the size of the NGO Joint Funding Scheme although there are limits to what it can do.

5)          Mosley also argued for programme aid to be conditional on the implementation of poverty relieving policies such as land reform and progressive taxation as well as on macroeconomic policy. Mosley regarded this as a less blunt instrument than the Dutch aid policy of prioritising countries which were regarded as being redistributive."[111]

Point three is clearly an abhorrent but pragmatic response to a very difficult problem. It does indicate the limits to the possibility of reforms in the kind of fundamentally unequal societies commonly found in the Third World. The violent conflicts over land reform in North-East Brazil and elsewhere indicate the nature of the problem. Aid to the poorest is premised on a sometimes naive assumption that elite interests will allow the poor to be aided. Buying-off the rich is one possible strategy, although not a very satisfactory one. The "solidarity not aid" alternative is to assist the poor to assert themselves politically in order to achieve genuine land reform from below through their own self-organisation.

Point five confuses conditionality for redistribution with conditionality for macroeconomic policies which do the reverse although Mosley also argues in favour of "adjustment with a human face". There is a profound contradiction running through this view. As with any kind of conditionality, whether it is "green" conditionality or "redistributive" conditionality, there are strong overtones of neo-colonialist paternalism which Mosley himself recognises. It is fundamentally hypocritical also for Northern official aid agencies to assume the right to lecture the South about the environment or redistributive policies when their own governments' records are so abysmal on these questions.

It is more conceivable to propose that future Northern Governments, implementing redistributive and green policies of their own, might then have the right to propose the implementation of some kind of co-funding arrangement: matching, doubling, or whatever, new funds devoted to poverty relief as a result of voluntary redistribution of internal resources by Third World Governments. This should be without strings of any kind, however.

Aid conditionality, which was to be such a strong feature of aid in the 1980s, was less prominent under the 1974-79 Labour Government. As Judith Hart put it:

"We didn't have it. It only emerged in the '80s. It happened because of this whole sea change in attitudes. We had a bit of human rights conditionality, but not terribly much. We cut off aid to Uganda under Amin and Chile under Pinochet. If you really disliked what a country was doing it was quite likely that its bilateral aid would not go up the next year, but that was subtler – it wasn't formally linked to conditionality. I took the view, and still do, that if you are going to be concerned about human rights, a whole lot of that is linked with stages of development, and if you want people to be more civilised then you'd better help them to make a bit of social progress. No conditionality. Had the IMF tried to impose any of its present conditionality while I was there, they would have got short change, very short change."[112]

Paul Mosley, commenting on this assertion that there was no conditionality linked to policy reform under Labour, cites another form of conditionality which did take place:

"She may be right in the sense that Britain in those days didn't ask for policy changes as a condition of aid. On the other hand she would certainly have asked for aspects of the project environment to be as the British Government wanted them. For example, if the British Government was giving aid to a power corporation then it would have wanted to be satisfied that the charge made for electricity was going to be sufficient to enable the electricity company to maintain its capital and so forth. So those kinds of conditions I'm sure existed even during Judith Hart's time."[113]

This review of the lessons of poverty-focussed projects in the late 1970s leads on to the question of what happened to this approach under the subsequent Conservative administration. This will be discussed in the next chapter.