Is Foreign Aid a Sham? Yes – Conservative Article
Foreign aid does not help receiving countries; it is a sham from top to bottom.
To be clear, I am referring to development aid, not emergency aid. Emergency aid is far more effective and discussing it would require a separate article entirely.
For aid to ‘work’, it would need to help poor countries grow faster and lift people out of poverty. But it doesn’t do this. Doucouliagos & Paldam, who surveyed the entire literature on foreign aid since 1970 “concluded that aid is entirely ineffective in creating growth”. Studies finding positive effects tend to be led by researchers with close ties to donor organisations.
This is also replicated in British politics. The Independent Commission for Aid Impact sums it up depressingly: “[t]he Department for International Development’s results system, is not currently (2018) oriented towards measuring or reporting on long-term transformative change”. This is wasting hundreds of millions of pounds.
So, why doesn’t it work?
Capital flight is one reason. The economist Peter Bauer described aid as “an excellent method for transferring money from poor people in rich countries, to rich people in poor countries”. But money put into, or generated by, developing countries doesn’t stay there.
Between 1970 and 2015, 30 African countries lost a combined total of $1.4 trillion through capital flight. This vastly exceeds the debt owed by these countries as of 2015 ($496.9 million). These countries lose more in capital flight, that they receive in aid. The talent of these countries’ people is squandered by self-serving leaders and multinational companies.
Another reason is the dependence that aid has created. Essentially, we should be helping developing countries fend for themselves. But this isn’t the case when supplying them with aid. President Akufo-Addo of Ghana recounted “we can no longer continue to make policy for ourselves in our continent on the basis of whatever support the western world can give us”, and he’s right. If developing countries should develop autonomously.
A sceptical side of me thinks that aid is working just fine for unilateral or multilateral donors: soft power. It may not directly be ‘money for power’, but the threat of removing a lifeline may achieve just that. Aid is a regional influence, political clout at the international level. Furthermore, many aid loans are ‘tied’, meaning that their giving is conditional upon the recipient meeting the wishes of the donor country or organisation. This here really is ‘money for power’.
I don’t think that we should let others rot, that we should leave developing countries to their own devices and spectate their struggle. If we are going to call it ‘aid’ (rather than diplomacy), it may as well work.
The greatest reduction of absolute poverty in the history of humanity occurred in the last 40 years. Trade, not aid, achieved this. So let’s trade some more. Yet, for this to work, trade dividends must predominantly stay within developing markets.
This idea’s issue is the institutional framework in developing countries. I agree with Tim Harford when he identified institutions as a “key explanation of poverty in developing countries”. Working well and trust are integral to an economy. Who signs contracts, or buys property, if contractual and property rights are not being enforced? If costs and red tape make opening a business impossible, who would open a business?
To achieve this, we should give expertise from one government to another. Expertise cannot be squirrelled off into a Swiss bank account — you’d need a pretty big safety-deposit box to hold an economist — and it can improve institutions.
To me, aid should be about benefitting all. Should the developing countries’ situations improve, everyone benefits. Through realising the potential of under-achieving populaces, our bodies of scientific knowledge, our international markets, and the poorest among us, all benefit.
Yet, should tens of developing countries become prosperous, that would certainly upset the applecart that is the international status-quo. I can’t imagine too many current powers being joyous about that.
Written by Senior Conservative Writer, Alexander Dennis
Point of Information
Foreign aid starts with changing institutions at home – Labour response
I fully agree with the points made in this conservative article about the issues plaguing foreign aid, but it lacks explanation as to why the discussion about efficiency is currently critical.
As the race accelerates for a Covid-19 vaccine, not only do billions of vaccines need producing, but also distributing globally to avoid creating a ‘virus reservoir’. Paul Stoffels acknowledges this, saying that low-cost “not for profit” distribution methods are being considered, to ensure vaccines’ global availability.
Sincerely I am highly sceptical of how equitable vaccination access is globally, or how “not for profit” it will be. Pharmaceutical monopoly and the lack of successful vaccine competition means that winners will set the price – probably a high one.
International aid is critically needed now for this – not just as an ‘altruistic gesture’ but as part of the global fight against this miserable virus. International cooperation is a must.
Due to this matter’s urgency, governments and NGOs must make sure they are fully efficient if this is to work.
Alex’s article highlights the issue of capital flight but also refers to the gross tax evasion by multinationals in the Global South.
Like many institutions, Alex does not highlight the extensive impacts that these corporations are having on developing countries. While Alex thinks increasing trade is the way forward, I think this is more complex than suggested.
Yes, the greatest reduction of absolute poverty has happened in the last 40 years. But so has the global increase in disparities between rich and poor. The burden of an improved economy and better trade has usually fallen on the poor in developing countries. Chained to exploitation, international aid then tries to help them- a vicious loop.
Take, for example, the British multinational trading and mining company Glencore. Based in Switzerland, this corporation has come under much investigation for its tax avoidance. Glencore invested $4 billion in Zambia since 2000, which is one of the reasons, as Alex suggested, why developing countries benefit from trade. But due to the company’s tax evasion, Zambia loses £76 million per year. This is more significant when considering that the country earns most of its foreign exchange through copper exports.
The big bucks arriving into the Swiss bank accounts from cheated developing countries shows how benefits of trade can go sour very easily.
Unsurprisingly, the health and environment damages in and around mines are also a distressing issue. Dangerous emissions of sulphur have been reported from the Mopani Copper Mines owned by Glencore; many locals suffer from respiratory problems and the consequences of toxic rain.
Ironically, UK foreign aid for Zambia is £42 million, with £12.2 million dedicated to health systems combating issues like caused by copper mines. This is alongside the UNICEF clean air campaign aiming to combat respiratory-related deaths in children, many suffering from industrial emissions.
So, trade is increased, but so are local damages requiring more foreign aid to combat.
Alex suggests increasing trade as the solution, but nothing to combat exploitative, corrupt, and dangerous trading powers.
Transparency and accountability of multinational corporations need increasing and adding to the list of remedies for aid to be successful. Governments and organisations, including the Monetary Fund (IMF) and the World Bank, must take harder approaches to ensure trade is carried out fairly, and that dividends stay in the developing country.
Written by Guest Labour Writer, Giulia Valentina
We’re missing the point. It’s not foreign aid that’s the problem, it’s the economic system foreign aid is subject to – a Liberal response
Alexander’s article captures the sceptical discourse around foreign aid, namely that it is ineffective and prone to exploitation. This is somewhat true. I also approve of his suggestions. But the idea that increasing trade between the UK and Burkina Faso, for example, could enhance Burkina Faso’s emerging domestic markets needs further thought.
What I do not agree with is the idea foreign aid doesn’t work
Foreign aid has led to 700 million lives being saved in the last 25 years, 400 million children a year vaccinated against polio by the UK alone, and an increase of 1% of GDP in educational aid resulting in an increase in school enrolment of up to 5%. Providing aid isn’t wasting money.
The reasons Alexander provides are the global economic system’s problems, not the problems of foreign aid. Institutional structures are stopping aid from reaching its full potential by determining how it is implemented.
Dependency depends on the strings we attach, and this is a policy choice. We could choose to treat foreign aid like aid and provide it autonomously. After all, study after study presents direct cash transfers as (unsurprisingly) the most effective way out of poverty.
Additionally, arguments concerning capital flight are simply misplaced.
Capitalist imperatives to exploit low production costs and taxes causes capital flight, a much larger structural problem in our global economy. Economic decisions need to be democratically accountable to stop the continuous reinforcement processes intensifying inequalities.
Foreign aid, when used as aid, can eliminate global poverty. This utopian ideal has been within reach for decades.
With the ability to stop 22,000 children dying every year, we shouldn’t be critiquing foreign aid, we should be critiquing the institutions preventing foreign aid from doing just this.
Written by Guest Liberal Writer, Abby Milnes