Nigel Lawson

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

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.

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