Reflections on the politics of foreign aid

These are few initial thoughts for a study on the politics of foreign aid in post-colonial Sri Lanka.

Sri Lanka is an interesting example for understanding politics of foreign aid for two reasons. First, it is a recipient of foreign aid from countries with diverse ideological orientations. Second, its post-colonial history is quite interesting and exploring the politics of foreign aid in that context can provide lessons that are relevant beyond Sri Lanka. 

During what is popularly known as the Cold War period, the Sri Lankan state received foreign aid from both capitalist and state socialist countries. After the inauguration of a more liberal period of capitalist transition in 1977, which gave prominence to the private sector, markets and openness to global capitalism, foreign aid came largely from the developed capitalist countries of the West, Japan and multilaterals. The picture has been changing in recent times, when new centres of capitalist growth, such as China and India, have come into prominence. The current global context can be characterised as a world of global capitalism and major power conflicts. These changes have had an impact on foreign aid flows to the Sri Lankan state. 

Foreign aid is always a part of the foreign policy of donor countries. This is irrespective of the source and purpose for which foreign aid is given. It is a part of economic statecraft, where economic means are used by donor countries to pursue foreign policy objectives. This is called ‘soft power’ in international relations literature. States play a role in managing multilateral aid agencies. In this process their foreign policy interests become important. In studying foreign aid, it is always necessary to keep the foreign policy objectives of donor countries in mind. Often the use of the term ‘aid’ masks them. 

Foreign aid from states is not only transferred to achieve economic objectives. It aims at other changes in recipient countries. In the post-Cold War period when a neoliberal political project began to dominate the world, the focus has widened to include many areas of social transformation. These objectives vary from donor to donor. They depend on the hegemonic worldview that dominates in the donor country. It is important to keep this factor in mind when studying the politics of foreign aid in the current global context.

Finally, it is important to remember that foreign aid is not being imposed from outside. The political elite that control recipient states play a key role in making decisions about the flow of foreign aid to recipient countries. Their political and economic interests, and ideological orientation, play a crucial role in deciding what type of foreign aid is received. This means two key political forces – the foreign policy interests of donor countries, and the political, economic and ideological orientation of the political elite who control the state, play a role in deciding what type of foreign aid is received.

Foreign aid in the context of post-colonial Sri Lankan history

Many analyses of foreign aid begin from the policy agenda of donors and try to see whether the policy objectives of donors have been achieved or not. This is true of macro-level analysis or consultancy work that often focus on the project level. The major problem of this type of instrumentalist analysis is that it does not give adequate emphasis to the specific histories of recipient countries that have a relative autonomy irrespective of what foreign aid is trying to achieve. Any analysis of foreign aid in post-colonial Sri Lanka has to take into account the process of state formation in post-colonial Sri Lanka. 

Donors always tend to understand recipient states through what can be called a conventional approach. The conventional idea of the state looks at it as a concrete self-contained entity that has attained a final status. The geographic space covered by the state is securitised. When it comes to discussions on security, state security becomes the focus. The spatial unit of the state is objectified in maps, and borders are drawn to demarcate it. A whole paraphernalia of rituals, histories and symbols has been developed – not only to promote this idea, but also to convey the eternal character of the state. Those who control the state, and their ideologues, always try to convey this notion. The notion of sovereignty, which came to dominate the world after the Second World War, strengthens this idea.

In contrast to this, states have to be seen as a product of historical processes – the same as other social phenomena. They are formed under certain specific historical conditions. They continuously undergo changes in critical areas, such as the institutional structure of the state, its identity and public policies. Under certain circumstances states can even totally disappear. A cursory glance at the history of the world will show this. Therefore, the subject of analysis should be the historical process of state formation, and not the state.

In understanding the state formation process it is crucial to focus on strategic state-society relations. Depending on specific histories of state formation, certain state-society relations become strategic. Some strategic state-society relations can have a spatial dimension, and this can become crucial in the state formation process. Strategic state-society relations can be managed either through consent or coercion. A consensual approach means developing policies that manage these strategic state-society relations peacefully. Coercion means using the coercive power of the state to manage these relations. The latter results in social costs, and certain sections of society become victims. Managing strategic state-society relation through consent is the foundation for a strong state. 

The conventional idea of the state makes it difficult to bring about the reforms that are necessary to manage strategic state-society relations through peaceful means. These reforms cover the institutional structure of the state, its identity and relevant public policies. Although the liberal democratic political system can provide more space for relevant reforms of the state, entrenched ideas about the state among the population can be a hindrance. 

State formation always takes place in a global context. The global context consists of a system of states, organisations formed by these states, global capitalism, and societal and environmental processes that cut across the boundaries of states. The global system changes over time – this, in turn, has an impact on the state formation process of individual states.

The post-colonial Sri Lankan state was constructed under British colonialism. Under British colonialism the entire geographic space of the island was covered by a single unit of territorial power controlled by the British. The weakening of the British Empire since the First World War, and political agitation within Sri Lanka, led to the construction of the post-colonial state. 

This territorial unit of power has been undergoing a process of state formation during the post-colonial period. Two strategic state-society relations have been critical in this process. First, relations between the centralised state inherited from the colonial period and minority ethnic and religious groups. This had a spatial dimension, with implications for the state formation process. Second relations between the state and Sinhala majority in a context of politics of capitalist transition. During the post-colonial period, conflicts and violence have been a feature in managing this strategic state-society relations.

Capitalist transition is a process that involves changing institutions, or the ‘rules of the game’, so that markets become the primary mechanism for resource allocation. These changes must be legitimised at an ideological level. When institutions to establish markets are successful, they become ideas that seem to be natural and common sense, creating a hegemony. The establishment of the hegemony of markets in capitalist transition is a political process rather than a technocratic one. Since the benefits of capitalism get distributed unequally in society, conflicts and struggles are always a part of this process. This has been the case during post-colonial history of Sri Lanka.

Specific policies to continue the process of capitalist transition during the post-colonial period depended on the interests of the political elite who controlled the state. Sri Lankan post-colonial history has seen a mixture of state capitalism, supported by various economic ideologies and economic nationalism, and a more liberal form that emphasised the private sector, markets and openness to global capitalism.

A key issue in the Sri Lankan state formation process was the generation of adequate economic resources to manage the state’s critical needs and strategic state-society relations, either through consent or coercion. The Sri Lankan state had to secure these economic resources within global capitalism. Being a state with underdeveloped capitalism foreign aid could become an important source of economic resources. The critical question in relation to politics of foreign aid is whether foreign aid contributed to managing both strategic state-society relations through consent, or did it strengthen the coercive approach. 

What this short article tries to show how a study of politics of foreign aid during the post-colonial period takes us to a world where two critical processes interact. These are the foreign policy interests of donor countries with diverse ideological orientations and the politics of the state formation process. This will certainly provide a rich empirical base for us to analyse. Lessons that can be learnt from this will certainly be relevant beyond Sri Lanka.