Thanks to AusAID's Michael Carnahan for his contribution to our debate about the aid budget

This strand of the debate began with my claim that it was a mistake to keep spending more on aid when the purpose of our aid program was unclear. I'm not arguing against aid as such. I'm saying that the aid program needs to be judged by the extent to which it achieves its objective, just like any other program of public spending. That objective must therefore be clear, and so must the way in which the program is intended to achieve it.

Some would say the objective of the aid program is clear enough. Michael restates it in the words the Government used in its response to last year's Aid Effectiveness Review: 'The fundamental purpose of Australian aid is to help people overcome poverty'.

But it is much less clear how the aid program is supposed to do that. I've argued that poverty is overcome by economic growth, and aid doesn't contribute much to that. Moreover, the complex forces that do drive growth are in fact overcoming poverty around the world, especially in Asia. So how is aid supposed to be help 'overcome poverty'?

Michael's first point is that, despite all the growth in Asia, there is still a lot of poverty around. Of course that is right. To some extent this is simply because, while Asian economies are growing fast, they haven't yet grown far enough to lift all their people out of poverty. But it's hard to see how aid can do much to remedy this problem, if you agree that aid does little to drive economic growth – and I think Michael does agree with that.

However, Michael goes on to make a second, deeper point. He says that, to overcome poverty, it is not enough for a country's economy to grow; the growing wealth needs to reach the poor. So, wealth distribution is just as important as wealth creation. He suggests that aid can help overcome poverty by helping ensure that enough of the increasing wealth of growing economies is distributed to the poorest people.

This would be a compelling argument if it is true that aid can indeed change the distribution of wealth within a country. But is that true? At the very least, it needs to be demonstrated, because it is not self-evident. To me the odds seem stacked against it.

The distribution of wealth in any society is one of the most fundamental – in some ways the most fundamental – features and functions of its social and political order. There is scant evidence that aid can do anything at all to change the underlying order in recipient countries. When that order changes, it is as a result of very deep realignments of social and political forces, often driven by economic changes themselves. The idea that Australian aid can engineer what we in Australia regard as desirable changes in the political and social order of a country like, say, Indonesia seems to me to be immodest.

So I suspect that Australian aid can do nothing to change the way Indonesia's wealth is distributed among Indonesians. The only way we can change the distribution of wealth there is to distribute some of our wealth to people who are not getting much of Indonesia's. If so, we are not helping to overcome poverty, we are merely helping to alleviate its effects.

But here Michael offers a third argument. He suggests that if and when our Asian neighbours do decide to redistribute wealth to the poorest, our aid can help make sure they do it effectively. In other words (and these are my words, not his), even if aid cannot change the social and political determinants of wealth distribution, it can improve the bureaucratic mechanisms. He speaks of 'helping build expenditure and accountability mechanisms'. Well, maybe. But this brings us back to the starting point of our debate, which is the trajectory of the aid budget. Do we need to quadruple the size of the aid budget to $8 billion over a decade to help fast-growing countries work out how to spend their fast-growing budgets more efficiently? The case is yet to be made.

Photo by Flickr user cactusbones.