Cameron should focus on free trade rather than foreign aid
15 July 2009
SUGGESTED
Economic Theory
13 July 2009
Government and Institutions
21 July 2009
Government and Institutions
The development economist Peter Bauer famously observed that “Aid is the process by which poor people in rich countries subsidise rich people in poor countries.” Indeed there is a wealth of evidence, both theoretical and empirical, that foreign aid is largely counterproductive.
In particular, aid may help to sustain kleptocratic elites that feed off such infusions. Indeed, income is frequently diverted to buy weapons to suppress internal dissent, typically through the oppression of minority ethnic groups.
Foreign aid also tends to distort markets by creating unfair competition and crowding out local suppliers. Currencies may also be artificially inflated, harming exports. And let’s not forget the negative economic effect of extra taxation on donor countries, which in turn harms their poorer trading partners.
Politically, dependence on foreign aid may breed a bureaucratic, centrally planned, top-down approach to economic development issues, when what is really needed is a framework of basic institutions (such as private property) within which entrepreneurship can thrive. Accordingly, it is very difficult to find an example of a country that has achieved long-term economic development through foreign aid.
Yet despite the overwhelming evidence, and notwithstanding the UK’s worst-ever peacetime fiscal crisis, the Conservative Party has announced that if elected it will ring-fence Britain’s overseas aid budget and meet the UN target of spending 0.7% of GDP on aid by 2013.
David Cameron also wants to change the way aid is delivered to make it more effective. But it is surely naïve to think that, despite repeated attempts to solve this problem, aid can somehow be better targeted so that it doesn’t fall into the hands of corrupt elites. Third World politicians and bureaucrats will simply find different ways of siphoning off money.
If the Conservatives really want to help developing countries they should focus on removing trade barriers, particularly those imposed by the European Union, rather than adopting the failed policies of international socialism.
However, let’s suppose for the minute that Cameron is looking for a practical policy on aid which might bring some benefits. It is bizarre, and would be unrecognisable as a sensible approach to anybody in business, to say “we’re going to spend 0.7% of GDP but try to spend it better.”
Instead, why not start with the assumption of a zero aid budget and then consider whether there are fruitful ways to spend money. If there are, they should be considered on their own merits and justified on a project-by-project basis. We should not slavishly stick to an aid spending target when we know that the evidence suggests that it will damage the world’s poorest people.
In particular, aid may help to sustain kleptocratic elites that feed off such infusions. Indeed, income is frequently diverted to buy weapons to suppress internal dissent, typically through the oppression of minority ethnic groups.
Foreign aid also tends to distort markets by creating unfair competition and crowding out local suppliers. Currencies may also be artificially inflated, harming exports. And let’s not forget the negative economic effect of extra taxation on donor countries, which in turn harms their poorer trading partners.
Politically, dependence on foreign aid may breed a bureaucratic, centrally planned, top-down approach to economic development issues, when what is really needed is a framework of basic institutions (such as private property) within which entrepreneurship can thrive. Accordingly, it is very difficult to find an example of a country that has achieved long-term economic development through foreign aid.
Yet despite the overwhelming evidence, and notwithstanding the UK’s worst-ever peacetime fiscal crisis, the Conservative Party has announced that if elected it will ring-fence Britain’s overseas aid budget and meet the UN target of spending 0.7% of GDP on aid by 2013.
David Cameron also wants to change the way aid is delivered to make it more effective. But it is surely naïve to think that, despite repeated attempts to solve this problem, aid can somehow be better targeted so that it doesn’t fall into the hands of corrupt elites. Third World politicians and bureaucrats will simply find different ways of siphoning off money.
If the Conservatives really want to help developing countries they should focus on removing trade barriers, particularly those imposed by the European Union, rather than adopting the failed policies of international socialism.
However, let’s suppose for the minute that Cameron is looking for a practical policy on aid which might bring some benefits. It is bizarre, and would be unrecognisable as a sensible approach to anybody in business, to say “we’re going to spend 0.7% of GDP but try to spend it better.”
Instead, why not start with the assumption of a zero aid budget and then consider whether there are fruitful ways to spend money. If there are, they should be considered on their own merits and justified on a project-by-project basis. We should not slavishly stick to an aid spending target when we know that the evidence suggests that it will damage the world’s poorest people.
13 thoughts on “Cameron should focus on free trade rather than foreign aid”
Comments are closed.
SHARE
Agreed. As far as we are concerned, all we can do is “trade not aid”; but more important is what these countries can do for themselves – namely “good governance” (without which trade is mighty difficult, though not impossible). The best example of “good governance” is Somaliland (autnomous/breakaway region of Somalia), which the West then stymies by not giving it legal recognition.
Agreed. As far as we are concerned, all we can do is “trade not aid”; but more important is what these countries can do for themselves – namely “good governance” (without which trade is mighty difficult, though not impossible). The best example of “good governance” is Somaliland (autnomous/breakaway region of Somalia), which the West then stymies by not giving it legal recognition.
Mark – The example of Somaliland is an interesting one. I wonder why the “international community” is so unwilling to allow African countries to break up into smaller (and potentially more successful) units.
Mark – The example of Somaliland is an interesting one. I wonder why the “international community” is so unwilling to allow African countries to break up into smaller (and potentially more successful) units.
Aid is the way in which aid organizations divert tax payers money to provide good employment for rich people to work in poor countries.
You are correct that free trade will resolve the 3rd worlds economic problems, but you miss two important benefits of free trade.
Free trade increases affluence in countries and regions reducing conflict both within countries and between countries. That would substantially reduce the 1st world’s cost of being the world’s policeman.
Perhaps David Cameron is more interested in providing employment to his voters than resolving the problems of the 3rd world. Someone has to pay the price. Not only tax but in the body bags returning home
Aid is the way in which aid organizations divert tax payers money to provide good employment for rich people to work in poor countries.
You are correct that free trade will resolve the 3rd worlds economic problems, but you miss two important benefits of free trade.
Free trade increases affluence in countries and regions reducing conflict both within countries and between countries. That would substantially reduce the 1st world’s cost of being the world’s policeman.
Perhaps David Cameron is more interested in providing employment to his voters than resolving the problems of the 3rd world. Someone has to pay the price. Not only tax but in the body bags returning home
Pope Benedict’s new encyclical seems to hit this target fair and square. ‘Caritas’ without ‘veritate’ descends to mere sentimentality. This I know as a schoolteacher. Any activity designated as ‘for charity’ is exempt from any process of rational evaluation of methods or benefits. Pretty much like Westminster.
Pope Benedict’s new encyclical seems to hit this target fair and square. ‘Caritas’ without ‘veritate’ descends to mere sentimentality. This I know as a schoolteacher. Any activity designated as ‘for charity’ is exempt from any process of rational evaluation of methods or benefits. Pretty much like Westminster.
Surely in the most serious financial crisis a British government has probably ever experienced in peacetime there should be NO sacred cows. It’s unfortunate, to put it mildly, that the government is starting from such a bloated position. But given the pressures of democratic politics, neither the government nor the official opposition seems willing or able to say what reductions in government spending are desirable; and the government even has the nerve to say there won’t be a scheduled Spending Review until after the forthcoming general election. This is simply irresponsible: even a dysfunctional family could probably manage its affairs better. Whatever happened to Prudence?
Surely in the most serious financial crisis a British government has probably ever experienced in peacetime there should be NO sacred cows. It’s unfortunate, to put it mildly, that the government is starting from such a bloated position. But given the pressures of democratic politics, neither the government nor the official opposition seems willing or able to say what reductions in government spending are desirable; and the government even has the nerve to say there won’t be a scheduled Spending Review until after the forthcoming general election. This is simply irresponsible: even a dysfunctional family could probably manage its affairs better. Whatever happened to Prudence?
Quite right!
My heart sank when I heard of Cameron’s plans – which at best must be seen as a gimmick to please the Hampstead set and at worst as an unaffordable expense that will:
– retard growth here through higher taxes
– leave unjustifiable trade barriers intact (thus leading to higher commodity prices here)
– benefit corrupt elites in recipient countries
Why can’t he simply pledge to dump the EU’s crazy protectionism (anyone for some Italian rice?) and give poor countries the access to our markets that they deserve?
Quite right!
My heart sank when I heard of Cameron’s plans – which at best must be seen as a gimmick to please the Hampstead set and at worst as an unaffordable expense that will:
– retard growth here through higher taxes
– leave unjustifiable trade barriers intact (thus leading to higher commodity prices here)
– benefit corrupt elites in recipient countries
Why can’t he simply pledge to dump the EU’s crazy protectionism (anyone for some Italian rice?) and give poor countries the access to our markets that they deserve?
The liberal elite who rule this country just don’t have a clue; they have no idea about how much poverty there is in this country. Several years ago when I was doing voluntary work I was in the office when a woman came in and a few minutes later fainted because she hadn’t eaten for three days…then there was the man walking fifteen miles a day to attend college because he couldn’t afford the bus fare…and of course, there’s myself, diagnosed with chronic bronchitis three years ago because for ten years I couldn’t afford to heat the house properly during the winter.
Charity begins at home Mr. Cameron…mind you, your family doesn’t need any.