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

6 February 2014

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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Show comments
  • lily hidalgo

    In developing countries where poverty and corruption are deeply
    entrenched and pervasive (basket case?),those who hold political power likewise monopolize wealth and vice versa in total mutually exclusive relationship, with the machinery and institutions of governance at their behest. They and their families obtain the best education, are well-placed in the bureaucracy so they can subvert or circumvent national policies/ legislations/other actions of government that may loosen their grip and stranglehold control and monopoly of the country’s resources, or open windows of opportunities for inclusive economic growth. While the governed remain politically immature, as the education available to majority of the population are of poor quality/standards as well as incompatible with the requirements for national economic growth. The few that progress to higher education are limited to employment in a bureaucracy that operates on a patronage system. And employment and life skills acquired are incompatible with other limited employment opportunities….exacerbating outmigration and the unabated human trafficking. While civil society organizations that are visible
    operate largely with the support of the elite. The crux of the matter is … precisely this is the institutional environment/context that official development aid and private investments inevitably need to consort with if they have to work at all in the country (relying upon glossy reports based on GDP rates, aid disbursements
    etc), overlooking who captured the benefits at the end of the line and at the end of the day, or any effect(s) if at all, on the intractable income and growth disparities among the populace and the country. All for global economic growth…regardless? Is it sustainable?

  • DaHitman

    We wouldn’t have austerity forced on us today if this foreign aid was used to pay our debts off

  • Andy

    I can think of better things to do with £11 billion a year.

    • Doggie Roussel

      £100 million towards UK flood relief… £11 billion towards foreign aid; and to countries like China and India… the mind boggles…

      • Andy

        But this is how the political class is – detached from reality. Look at that idiot Lord Smith tell porkies when we all know that had the EA dredged the rivers over the last 15+ years there wouldn’t be floods in Somerset now.

  • OriginalChris

    Farage demonstrates common sense again:
    He is far more in tune with the electorate than our current leaders. Well said, Farage.

  • Smithersjones2013

    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.

    I don’t know about Africa but it does sound a lot like Westminster and Brussels if you ask me?

  • BarkingAtTreehuggers

    Why is everything that’s not going well ‘David Cameron’s’ policy this week? Something’s up here – even Boris got a haircut. Something really is up.

  • Mynydd

    Overseas aid has been spent in the Indian sub-continent on flood defences. Somerset should declare itself independent of England then the Prime Minister will be all over them with aid.

    • HookesLaw

      All the aid in the world will not change the height above sea level of the Somerset Levels.

    • HookesLaw

      A lot of the money we spend on ‘aid’ does in fact go to UK companies providing the service (I’m guessing about £750 million). Aid to India is being stopped, I would have thought it was Bangladesh that needs flooding help.
      Quite a bit of our aid money goes via organisations like the World Bank. If Lawson is suggesting that we should directly handle more of our aid money then I would agree.

  • Hexhamgeezer

    Stop aid to the EU now.

  • MirthaTidville


  • Ron Todd

    Helping third world basket cases isn’t the only point of aid. It is also to make potential voters think the government is a nice government. In practice more likely to make us think they are gullible or less kind stupid.

    • HookesLaw

      You and Lord Lawson talk as if there was not an aid budget before 2010. There was, and assuming that lawson still wants an aid budget then his criticisms must be at the margin.

      • Ron Todd

        No I was referring to any government not just the current one.

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