The aid curse

Democracy suffered a string of setbacks in 2007, many thanks to oil. Gushing Oil revenues helped Vladimir Putin consolidate authoritarian rule in Russia, Hugo Chávez expand populism in Venezuela and Mahmoud Ahmadinejad confront the West. All the while, an analogous force was at work in Pakistan. For more than 50 years, Pakistan has reaped its own unearned manna, which has filled its coffers and kept its fragile state afloat. In this case, however, the money didn’t come from the ground, but from massive military and other forms of aid, largely from the United States, China and Saudi Arabia. Yet while the source may be different, the impact of all this cash on Pakistan has been just as destructive as oil wealth elsewhere: bloating the military and creating a culture of violent instability, in which assassinations like that of Benazir Bhutto are sadly inevitable.

It’s impossible to understand Pakistan’s current woes without examining the massive volume of aid it’s amassed over the past half century — and that aid’s deeply corrosive effects. Since its inception, Pakistan has strived desperately to counterbalance India, cultivating ties with any state willing to help it. This has never been hard: in the 1950s, Washington contributed generously in exchange for Pakistan’s anti-Soviet military stance. Then, beginning in the 1960s, China, which also saw India as an enemy, came calling. Still more money flowed in from rich Middle Eastern governments, especially Saudi Arabia’s.

The 1980s brought the Afghan war against the Soviets, with Pakistan as the main conduit for supplies and support to the mujahedin; the United States alone chipped in $5.3 billion during this period. The CIA and Saudi intelligence also poured money and sophisticated technology into Pakistan’s ISI, or Inter-Services Intelligence agency, helping turn it into the most notorious and destabilising actor in the country. Altogether, Pakistan accumulated a whopping $58 billion in foreign aid between 1950 and 1999, allowing it to become one of the biggest military spenders in the world. After 9/11, Washington’s generosity redoubled; it’s since given Pakistan more than $10 billion in assistance.

The consequences have been devastating, for reasons similar to those at work in the so-called natural-resource curse. Extensive research shows that when governments luck into unearned cash (which economists call ‘rents’) from oil or other resources, the healthy links that bind them to their citizens are often severed. Freed from relying much on taxes, governments spend the money arbitrarily. Citizens, left untaxed, feel less motivation to monitor things carefully. The result is corruption, misrule and a host of other ills.

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