05/08/2014 13:18 BST | Updated 05/10/2014 06:59 BST

It Is Time to Disband DfID

This country needs a foreign policy, but increasingly it has two. One is NATO summits, and conference calls with the White House: a global player, but whose star is on the wane. The other is as a self-declared aid superpower. DFID appears as a new Colonial Office whose role is to manage relations with poor countries.

It is rather curious that William Hague's recent departure as foreign secretary has been treated as a demotion. Hague retains his title of first secretary of state, has been put in charge of 2015 election planning, and still remains a senior member of the Cabinet. (Even more strangely, Michael Gove's departure from education has been spun as a demotion too. If House of Cards taught us anything it is that chief whip is a position that any pure politician would covet. It seems that political power now gets confused with relative opportunities for media exposure.)

What people mean when they say that Hague has been demoted is that he effectively announced an end to any ambitions to lead the Conservative Party again, and is planning to leave Parliament at the next election (Hague's accountant is unlikely to characterise this as backwards career-step.)

What was curiously missing from the analysis of Hague's departure was the suggestion that Hague was giving up a Great Office of State, in the same way that stepping down from home secretary or chancellor would be. As I say, Hague keeps an empty title and remains in David Cameron's words his 'de facto political deputy' (which actually means party deputy - Osborne is still the strategist when it comes to the election.) Hague also remains as UK special representative for Sexual Violence, on which he has gained real international traction and credibility (he also gets to keep taking long plane trips with Angelina Jolie, which is presumably an extra perk.)

This is all by way of saying that the Foreign Office may not be quite the prize it once was. Sure, regular crises such as Ukraine and Syria give the foreign secretary a lot of exposure; and being included regularly on calls with Obama and Putin must puff one up a bit, to the point where constituency surgeries and debates in the house on the Fixed Odds Betting Terminals Bill must seem positively quotidian.

What accounts for the reduction in the FCO's lustre? A rise in the so-called Presidential Prime-Ministership, especially attributed to Tony Blair, but evident under Brown and Cameron, means that a lot of foreign policy (or at least a lot of the foreign policy that makes the news) gets conducted at Head of State level: think Iraq under Blair, the financial crisis under Brown, and Syria and Libya under Cameron.

I would like to suggest one other trend over the last two decades: the rise of the Department for International Development as a strategic rival for the Foreign Office. Since 1997, DFID's budget has ballooned from equal to the FCO's, to twice the size a decade ago, to four times that of the FCO currently. True, part of this has been a commitment to protect the real-terms increase in the aid budget at the same time as major cuts in every other department, including the FCO, but the increase in DFID's budget has actually accelerated during the Coalition government.

This is difficult terrain for me to write about, as a lefty former development worker. My observation of the 'industry' (and be in no mistake, that's what aid is - with its own lobbyists and cartels) is that it does incredible work on disaster relief and humanitarianism broadly, has an honourable but mixed record on producing the sort of research and evidence needed on how much of a difference it is making, cheerleads for particular causes (such as gender equality and HIV/AIDS) even before these become politically fashionable, but does the 'development' bit of development (that is, making poor people richer) too inefficiently as to justify the money government and the public give it.

What concerns me most about this last point is that despite all evidence to the contrary development agencies, and particularly their marketing departments, insist on categorising what they do as 'poverty reduction' when it is no such thing (the last report from the UN Millennium Campaign attributed the contribution of non-humanitarian aid to raising incomes as negligible compared to investment from China, Brazil and others, and especially to high commodity and land prices, and finally some progress on value-added to raw materials). Development agencies have become effective at (sometimes) intervening in crises to prevent the vulnerable from becoming critical, but are less good at preventing vulnerability in the first place.

However, this £8bn-odd that is spent on foreign aid is a bit misleading (and just to confuse the picture, about £1bn is spent by the MoD and DECC rather than DFID.) Only £4.5bn is spent on bilateral assistance (giving money directly to poor countries) with the other £3.5bn given to multilateral agencies such as the UN, EU and World Bank. Of this £4.5bn, only one tenth of this goes to budgetary support (what most people think of as aid) with the rest of the money spent on DFID's projects themselves, debt relief, and administration.

In other words, DFID only spends slightly more than the FCO's budget on 'development' work; the rest is spent on activities that are traditionally the purview of foreign policy, or on administration. Furthermore, DFID's budget, only a small part of which goes to what people imagine constitutes aid, is only one part of what is actually counted in the total package of development assistance, what is called in the parlance the Other Official Flows (OOF) that make up how we also support poor countries. Instruments such as foreign direct investment (£25bn a year), export credits (£1bn a year) and bank lending (£4bn a year), all subsidised or in some way underwritten by the state, go to make up foreign aid, including support to Crown Dependencies overseas. And in each of these cases, foreign policy, as much as development policy, determines who gets what.

Thomas Piketty's already totemic Capital in the 21st Century makes the important point that while the advanced economies have vast foreign holdings, they are now so interconnected that they, counter-intuitively, have close to zero net foreign assets. That is, although Britain has many large companies that have holdings around the world, it is also a very attractive place to invest which mostly balances these out.

So, the reason that OOF dwarfs ODA, and especially the minority of DFID's budget that goes to direct budgetary support, is because it is protecting these foreign assets, and most importantly oiling the wheels of international capital management, which is of prime concern. It is this interconnectedness that governments are keen to protect, and it is for this reason that I say these functions belong more within the purview of the Foreign Office than DFID (they are actually split between several more departments too; but it is the Foreign Office that should be the ring-master.)

If we are to have a global foreign policy, and maintain global influence (our 'soft' institutions such as the BBC, monarchy and City of London suggest we can) then we need the tools to match. Subjugating our foreign policy to aid policy for half of the world's population is not only patronising, it is increasingly wrong about our place in the world. A situation where DFID essentially becomes the political wing of British NGOs should be as much of concern to liberals and internationalists - those who typically stand up for DFID - as the Ministry of Defence becoming the political wing of BAe.

This country needs a foreign policy, but increasingly it has two. One is NATO summits, and conference calls with the White House: a global player, but whose star is on the wane. The other is as a self-declared aid superpower. DFID appears as a new Colonial Office whose role is to manage relations with poor countries through the medium of ODA. This has effectively pigeon-holed half of the world's countries (and the one's getting richer too) as countries that we do things to and where foreign policy is second to aid policy.

As an ambitious politician in Africa or Asia, who would you rather speak to on the phone: the aid representative whose help you increasingly can do without, or the foreign minister who will respect your appropriate diplomatic rank and whose national interests (and yours) will be discussed plainly? Disbanding DFID and giving the Foreign Office its mojo back may actually be a better way to engage with the rest of the world, both rich and poor.