Don’t mention aid: what’s unsaid in Australia’s economic diplomacy

Written by Benjamin Day

Julie Bishop at a joint media conference with Japanese Minister for Foreign Affairs Fumio Kishida October 2013 (photo: DFAT)Australian Foreign Minister Julie Bishop has just returned from a seven-day trip to Asia during which, in five public appearances spanning three countries, she didn’t mention Australia’s aid program once. This wasn’t too surprising. Trade, as promised, was the undoubted focal point of this trip, complemented by the announcement-friendly New Colombo Plan initiative. And there were strong incentives for Bishop to stay on-message; the Chinese reaction to a recent US-Australia-Japan joint statement which commented on regional maritime security threatened to overshadow the trip. As it was, Australian media coverage of the trip was focused on the feasibility of the delicate strategic balancing act Australia is attempting to perform with our three biggest trading partners. But for those of us still scouring the tea leaves to get a better sense of the emerging shape of Australia’s aid policy under the Coalition Government, Bishop’s choice of Japan to elaborate on her now-familiar refrain of putting ‘economic diplomacy first’ was significant for a different reason.

Japan, of all the OECD DAC members, has been most consistently explicit about using aid to achieve economic and commercial ends. Between 1992 and 2001 – a period when Japan was the world’s largest donor – traditional donors were particularly unnerved by the ‘Japanese model’ of development assistance. Alan Rix, in his 1993 study of Japan’s foreign aid (recently republished) acknowledged that, “first and foremost, foreign aid is fundamental to Japan’s achieving its foreign policy objectives – regional prosperity and security, global peace and an open international economic system.”

The ‘development first’ philosophy propounded by other DAC members was peripheral to the Japanese approach. Instead, Rix finds, Japan saw development co-operation as an important foreign policy tool, deploying it deliberately to deepen economic and political ties in Asia. Japan stressed non-interference in the affairs of recipient states and promoted a ‘self-help’ approach which emanated from its own national experience.

As Japan’s economic woes in the early 2000s led it to dramatically reduce its aid budget, the ‘China model’ displaced the ‘Japan model’ as the primary source of apprehension for Western development experts. While it is no longer the world’s largest donor – in 2012 it ranked 5th in total aid volume – the principles driving contemporary Japanese development co-operation remain fundamentally the same as the 1990s. In her recent study, Carol Lancaster found that commercial and economic objectives still compete for primacy, trumping development objectives. The most recent DAC peer review of Japanese development co-operation reported that Japan “sees international development co-operation as in its own long-term interests and as an important component of its wider foreign policy.” Japan, the DAC recognised, “wants its aid to benefit the Japanese economy in the medium term.”

In Japan, Bishop outlined Australia’s foreign policy repeatedly. In an address to the Japan National Press Club, Bishop explained that “our foreign policy approach in government will be one that puts economic diplomacy first.” This entails “putting Australia’s international assets, including our foreign policy and our international network, to work for the benefit of Australia’s long-term economic prosperity.” Three days later, in an address to the AustCham Business Breakfast in Seoul, South Korea, Bishop described how “we will place economic diplomacy at the forefront of our foreign policy and by that I mean we will align our international assets, including the work of our diplomats and our representatives overseas to work for Australia’s long-term economic prosperity and the prosperity of our trading partners and that of the region as a whole.” And, just to make sure, in a speech at Sungkyunkwan University, also in Seoul, Bishop confirmed that “Australia’s approach to foreign and trade policy is one that puts economic diplomacy at the heart of our international engagement…[This] means putting our diplomatic assets to the service of our economic interests.”

Three things are clear from these statements. First, we should be under no illusions that Australia’s aid program – whether you think of it as an ‘international asset’, a ‘diplomatic asset’ or a component of our ‘international network’– will not be subservient to Australia’s economic interests. Second, Bishop has a very clear idea of at least the general direction in which she wants to steer Australian foreign policy. Third, it is more likely that Australia’s aid program will come to resemble Japan’s than vice versa.

What remains unclear is exactly how Bishop sees the aid program contributing to Australia’s economic diplomacy. One approach would be to view the aid program as a tool to assist Australian exporters and investors to access and profit from foreign markets. The development impact of such an approach is limited. The better approach is to use the aid program to promote an open trading system and help developing countries to effectively tap into it. Not only does this approach promise greater development impact, it also aligns with steps taken by other donors, builds upon existing achievements and allows Australia to legitimately advocate a future of ‘shared prosperity’.

As numerous commentators have pointed out, Australia is not alone in recalibrating its aid policy. In the present uncertain economic environment and global power dynamics, middle powers are increasingly deploying development assistance in ways that give greater priority to their own economic security than to poverty reduction. The norms underpinning the purposes of aid are shifting as increasing recognition is paid to the many ways wealthy nations can help poorer ones beyond simply providing aid.

The Centre for Global Development’s Commitment to Development Index is an attempt to capture how the behaviour of rich countries affects poor ones. To do so, the index scores rich countries on seven equally weighted linkages: aid, trade, investment, migration, environment, security, and technology. The index ranks Australia second in the trade ‘linkage’, behind only New Zealand. We also score well (4th out of 27) on the investment ‘linkage’, a measure of how our policies “encourage constructive investment in poor countries.” Australia can leverage this credibility by focusing on these issues in our aid program.

With Australia chairing the G20 in 2014, Bishop is also well positioned to influence the G20 development agenda. She could choose an issue to champion, such as labour mobility or trade facilitation or financial regulation or remittances, and actively integrate this with an Australian aid initiative to establish Australia’s thought leadership in this area. (Sue Harris Rimmer has some further suggestions about how Bishop might begin to chart a ‘beyond aid’ agenda here, as does this report [pdf] from the Lowy Institute’s G20 Studies Centre). Australia has an opportunity to insert itself as a broker on an issue that matters to both rich and poor countries.

For now, however, aid has not been adequately coupled to Bishop’s ‘economic diplomacy first’ agenda. In Bishop’s defence, East Asia was not the best place to explain how this relationship would work. Nonetheless, her silence on the matter has served to demonstrate how important it is to begin this discussion.

Benjamin Day (twitter @benjaminsday) is a PhD Candidate in the School of International, Political & Strategic Studies at ANU. He is researching how changes in the international system are effecting how traditional donors use foreign aid as an instrument of foreign policy. 

Benjamin Day

Benjamin Day is an Associate of the Development Policy Centre and a PhD candidate in the Coral Bell School of Asia Pacific Affairs at ANU. His doctoral research examines aid policy change from a decision-making perspective by recreating a series of recent aid policy decision-making episodes in order to uncover the factors that are most salient for political decision-makers.

8 Comments

  • Fascinating post Ben.

    On the ‘don’t mention aid’ topic, I noted a speech on the DFAT website last week from Secretary Peter Varghese on soft power. Interestingly, Australian aid wasn’t mentioned in it at all, even though the speech touched on topics like the success of the Marshall Plan… so basically, how the US has used aid as a tool of soft power. It didn’t dare use the word ‘aid’ to describe this though. It also talked about Chinese soft power without once mentioning China’s development financing and aid program, which to me seemed like an oversight. I’m sure for people in the Pacific, for example, Chinese aid projects have shaped their views of that country more strongly than the Beijing Olympics.

    From the Varghese speech, it doesn’t sound like Australian aid is being considered or viewed as a tool of soft power. And from your post, it doesn’t sound like it will be softly leveraged if it is going to meet these big economic diplomacy and trade goals. So I very much agree with your final point–if we are going to see hard-nosed change, it’s a bit of a worry that we are still so soft on detail.

    • Hi Ashlee.

      I agree – very interesting that aid wasn’t mentioned in Varghese’s recent speech, especially given its focus on soft power. Thanks for pointing it out.

      For me, it further confirms that development assistance is not being connected to the bigger picture of Australia’s foreign policy. Another example is the lack of attention paid to the role of development assistance in the Australia in the Asian Century White Paper. And just to pick one small issue, surely the attention paid to affixing Australian logos to aid-funded infrastructure implies development assistance is relevant to public diplomacy?

  • That’s what happens where you hold two portfolios–Minister for Foreign Affairs and Minister for Development. You tend to remember that foreign strategic policy comes first.

  • Ben,
    An interesting post. I don’t however agree with the assertion that this is proof of shifting norms underpinning aid. Most serious development professionals including AusAID practitioners have long advocated for greater use of the aid program to stimulate and support initiatives such as labor mobility, access to markets and trade deregulation, not as you say just simply ‘provide aid’.
    However those who push the Japan style approach to Aid are also the same who support protectionist and nationalistic approaches to trade and labor issues. For the government to get serious on this issue it would need to implement its election promises on aid for trade and labor mobility as a start.

    • Thanks Latitude.

      I agree with you that development professionals have long been aware of the importance of economically driven initiatives such as labor mobility, access to markets, trade regulation etc. However, the fact that states like Australia, the Netherlands and Canada no longer feel they need to centre their development policies on poverty reduction, and are instead actively promoting more self-interested economic objectives of aid, is the norm that I see as shifting. This has happened quite quickly. Only a couple of years ago, these states made sure they were at least seen to be ‘good global citizens’, which entailed having development programs focused on poverty reduction.

      Now, as Jean-Michel Severino and Olivier Ray predicted, the reality is that ‘Global Policy Finance’, seems to be a better term for ODA. Their Working Paper, ‘The End of ODA: Death and Rebirth of a Global Public Policy’, can be found here: http://international.cgdev.org/publication/end-oda-death-and-rebirth-global-public-policy-working-paper-167

  • Hi Ben,

    Thanks for this thought provoking blog. I was not inspired by your proposition that it is more likely that Australia’s aid program will come to resemble Japan’s than vice versa! A depressing thought.

    The opportunity, however, is to contribute to the thinking about how aid will mesh with Bishop’s ‘economic diplomacy first’ agenda.

    You suggest that the better approach is to use the aid program to promote an open trading system and help developing countries to effectively tap into it. Good work to start getting some concrete options on the table.

    In relation to the G20, I fully endorse your proposition that Bishop should choose an issue to champion and integrate this with an Australian aid initiative to establish Australia’s thought leadership in this area through the G20.

    While, we all mourn the passing of AusAID – the government has signalled the change – and our challenge as a development community is to help the government shape the change to contribute to the thinking about how aid will mesh with Bishop’s ‘economic diplomacy first’ agenda.

    Maybe the Development Policy Centre can convene a forum, virtual or otherwise to solicit bold ideas on this topic?

    • Thanks Jane.

      I agree 100%. Like you say, our government has clearly signalled this change, so the development community’s responsibility is to “contribute to the thinking about how aid will mesh with Bishop’s ‘economic diplomacy first’ agenda” while still generating development outcomes.

      The Coalition did raise a couple of ideas in their 2013 Election Policy. They promised to build on an earlier commitment to the OECD ‘Aid for Trade’ initiative and to examine the Pacific Island guest worker program.

      But right now most of these these ideas (including the few I suggested) are largely in thought-bubble form and not practically thought through for application in our context. Given that, I think your suggestion of having broader discussions is a great idea.

      • A few thoughts to get the ball rolling….

        • Social Development Remittance Scheme: Remittances more than double official ODA funding flows globally. Remittances are not only the lifeblood of many Pacific families, but also a source of foreign exchange and tax revenue for governments. Remittances can contribute to poverty alleviation, provide a stable income, increase savings, investment and education, and lead to better housing, health care and nutrition. Aid can further leverage this funding through concessions, subsidies and schemes to direct remittances to savings accounts that can only be used for health care, including maternity services (as an example).
        • Development Impact Bonds: use private investment flows to provide upfront rosk capital for development programs, only calling on donor funding to pay the capital (plus a potential return) once clearly defined development outcomes are achieved
        • FDI leveraging – investing in building the trade capacity of a country so that it is better able to engage in firstly regional trade which has been shown to correlate with economic capacity development.
        • The Enterprise Challenge Fund, an aid initiative begun under former foreign minister Alexander Downer, which offered incentives to businesses, on a matching basis, to extend their operations in ways that benefited the poor. The fund’s pilot phase began in 2007 and it ends later this year. For the most part, it has been evaluated favorably. It, or something like it, would be a good candidate for adoption by the Coalition if it wants to signal its intent to shift the aid program in the direction of focusing on the private sector and growth.
        • The The Business Innovation Facility (BIF) is funded by the UK Department for International Development and was designed as a 3-year project (2010 to 2013) to pilot this new approach to supporting the role of business in the development of low-income countries. The Business Innovation Facility (BIF) helps the development and uptake of inclusive business models by companies in developing countries. The term ‘inclusive business’ refers to profitable core business activity that has high development impacts; creating jobs, integrating local farmers and entrepreneurs in international supply chains and providing quality and affordable services to low-income consumers.
        • Public Private Integrated Partnership: A Public Private Integrated Partnership (PPIP) is an innovative PPP in which the government enters into a long-term contract with a private operator to build, design, operate and deliver a full range of clinical services to a population. This model harnesses private capital and management expertise, while retaining public ownership and oversight of health services. An evaluation report by Boston University, (the Final report for the “Endline Study for Queen Mamohato Hospital Public Private Partnership,” September 2013), shows substantial improvements in clinical quality, use and patient satisfaction compared to the baseline. The death rate fell by 41%, the maternity death rate fell by 10%, the paediatric pneumonuia death rate fell by 65% and the patient satisfaction rate grew by 22%. Access to health services improved significantly. Inpatient admissions were 51% higher, as were outpatient visits, including filter clinics (126%) and hospital deliveries (45%). The report provides a demonstration of how transformational in quality and access a PPIP arrangement can be in a low income setting.
        • Private Health Sector Development: The informal economy is often a ‘survival economy’ where millions of people and their families live in poverty. There has been a dramatic spread of informal health markets over the past couple of decades, through which the poor obtain a large proportion of their medical care and that reach into all but the most remote areas. These are dynamic market driven services. Investment in practical programs geared to improving the quality of the informal health sector and making the markets work better has the potential for significant health returns.
        • Demand-side mechanisms Bangladesh’s maternal health voucher and cash transfer program (providing vouchers for ANC, facility or home delivery, as well as transport subsidies and cash upon delivery); FP voucher program in Madagascar that reimburses providers through mobile money. Population Council is conducting a five-year prospective evaluation of RH voucher programs in 5 countries (Bangladesh, Cambodia, Kenya, Tanzania, and Uganda) – will end in late 2013.
        • Medical Savings Accounts (MSA) build on the concept of commitment savings, which encourage low-income households to save for a specific health purpose or goal. One of the most innovative MSA products is offered by RCPB, a microfinance institution in Burkina Faso. Two key examples of schemes that have piloted MSA-insurance hybrid products include Medisave in India and the New Cooperative Medical Scheme in China. Abt’s study of Kenya-based Changamka identifies a number of factors to improve the efficiency of this IT-based medical savings account platform.

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