Why do donor countries choose to deliver aid by engaging with recipient governments in some instances, but opt to bypass those governments and channel aid through nonstate actors in others? This central question motivates Simone Dietrich’s excellent States, Markets, and Foreign Aid, which expands on and synthesizes some of her earlier published work. Simple scatterplots in chapter 1 highlight the core puzzle: donors’ choices of government versus bypass channels varies widely across individual recipient countries where the risk of aid capture—“the mismanagement of aid in the recipient country, either by intentional diversion through corrupt authorities or the waste of aid due to weak institutions and/or lack of absorptive capacity” (p. 58)—is constant.
Dietrich’s explanation for divergence in donor practices points to the “institutional rulebooks” (p. 9) of donor aid organizations that constrain how officials within those organizations can engage (or not) with recipient governments in weighing concerns about aid capture. Dietrich is careful to emphasize that her argument is not directly about ideology per se, but rather about how ideology shapes institutions in ways that constrain aid policy for decades to come. In countries like the United States, the United Kingdom, and Sweden, neoliberal ideology—which “internalizes a market-based rationality and creates rules and practices that reflect the culture of private firms” (p. 50)—permeates aid institutions to incentivize officials to respond to the perceived risk of aid capture by bypassing recipient governments. Conversely, statist countries that are “organized around more traditional public sector ideas” (p. 26) (e.g., Germany or France) tend to locate the underlying causes of risk in weak state institutions. As such, these donors largely continue to support recipient governments even when the risk of capture looms large. Dietrich devotes chapter 3 to outlining and tracing the historical development of core organizational patterns and managerial practices in five major donor countries (the United States, the United Kingdom, Sweden, Germany, and France) to demonstrate convincingly that aid institutions do differ meaningfully across donors.
To evaluate the core implications of her argument and rule out alternative explanations, Dietrich combines cross-country statistical analysis with original interviews and public opinion surveys. Using data from the Organisation for Economic Co-operation and Development’s Credit Reporting System, chapter 4 shows that neoliberal donors are more inclined than traditional donors to shift the allocation of their aid toward bypass channels in response to poor governance in recipient countries. Yet the most compelling evidence for Dietrich’s argument comes from her surveys of aid officials in six major donor countries (the United States, the United Kingdom, Sweden, Germany, France, and Japan), the analysis of which she presents in chapter 5. Here, important differences in officials’ responses to how hypothetical corruption and weak institutions ought to factor into aid delivery decisions emerge across the neoliberal (the United States, the United Kingdom, Sweden) versus statist (Germany, France, Japan) divide. Evidence from open-ended interviews helps separate Dietrich’s institutional argument from alternative arguments about individual-level beliefs. One Swedish official laments that “[m]y official role today requires me to work around the state more often than I would like” (p. 180). Chapter 6 uses original public opinion data from the United States and Germany to show that there is a gap between aid officials and citizens when it comes to preferences for how aid delivery should shift in response to poor governance. In establishing that the preferences of aid officials more closely match actual patterns in aid allocation across donors, Dietrich offers some assurance that public opinion is unlikely to be driving the relationships she documents in chapter 4.
Overall, Dietrich’s book offers a powerful explanation for a hitherto understudied dimension of donor behavior. However, as Dietrich points out, the study of aid channels is in its infancy (p. 39). As such, many questions remain. First, while the theory explains why neoliberal donors may prefer delivering aid through bypass channels, it has less to say about why those donors often continue to direct at least some funding through recipient governments. The theory suggests that there should be little advantage to directing aid through government channels for neoliberal donors, so future work might address the trade-offs involved and explain some of the residual variation. One possibility is that other determinants of bypass will heighten or mute the impact of donors’ aid institutions. For instance, trade intensity and a donor’s major-power status emerge as significant predictors of bypass in the statistical analysis in chapter 4. Theorizing how these and other factors may condition the effects of donor political economy type on channeling decisions seems a promising avenue for follow-on work.
Second, it is worth exploring in future work the extent to which differences in channeling are driven by suspending government-to-government aid versus reallocating toward bypass channels. Early on, Dietrich uses an embezzlement scandal in Uganda as an illustrative example of how donors of different political economy types exhibit varied responses to corruption. Yet here the shift toward a greater share of aid being delivered through bypass channels among neoliberal donors was caused by “the immediate suspension of all government-to-government aid to Uganda” (p. 17). Although the consequence for the distribution of aid across channels is the same, an increase in the bypass ratio that results from cutting government aid without reallocating is qualitatively different from one that results from reallocating government aid through bypass channels. This is important for the conclusions that one may draw about the relevance and implications of the findings for debates about aid effectiveness.
Third, there is great potential for exploring how variation across aid bureaucracies and how the interaction of aid bureaucracies with other national policies and dynamics in donor countries shape aid decisions. For instance, do aid bureaucracies vary substantially in terms of the extent to which they are insulated from external political influence? Dietrich details how the Obama administration expressed a preference for shifting aid delivery practices within the United States Agency for International Development (p. 82). Even though those aims were mostly unfulfilled, taking seriously the possibility that institutional rulebooks shift and evolve over time in response to political pressure in ways that matter for channeling decisions is one interesting entry point for extending or refining Dietrich’s theoretical framework. Additionally, one might consider whether or how rotation in national political leadership shapes the selection of individuals tasked with leading aid bureaucracies, and how this in turn matters for the relationship between aid institutions and allocation decisions.
That these questions remain is by no means an indication of shortcomings with the book. Rather, it points to the many ways in which Dietrich’s shift toward thinking about the microlevel in aid decision making and its implications for aid channeling decisions is likely to serve as a rich source of inspiration for future research. Dietrich helpfully points out many such possibilities throughout the book. And, although States, Markets, and Foreign Aid is first and foremost a major contribution to the literature on aid decision making, Dietrich’s argument about the institutional legacy of ideology puts her in conversation with various other major research agendas. Indeed, the book is an essential read not only for those interested in understanding donors’ aid channeling decisions but also for anyone interested in donor coordination, aid effectiveness, and the domestic sources of foreign policy more broadly.
