Aid: In favour of zero-tolerance

May 27, 2011

By Laurance Copeland

After one year, the progress report on the Coalition reads “Moving in the right direction, but with a lot more to do”.

Nonetheless, it is a prisoner of its commitment at the outset to leave two departmental budgets untouched: the NHS and international aid. It is not simply the amounts of money involved (colossal in the case of the NHS, relatively small for aid). It is also the signal it sends that there is such a status as sacrosanct, which immediately begs the question from policemen, firemen, teachers, the legal system, the armed forces: why isn’t our budget sacrosanct too?

This week we learned that Dr Liam Fox is opposed to fixing in law Britain’s aid budget at 0.7 % of GDP.  I can understand his disquiet, but I would feel far more sympathy if he favoured instead enshrining in law a more sensible level for international aid – say, 0.0%, or thereabouts. It is not really a question of what we can afford – personally, I would be quite happy to see 0.7% of GDP set aside in a fund to support international disaster relief (think of the 2005 Asian tsunami or the Haiti earthquake) – it is simply that ongoing international aid is at best a waste, at worst it actually damages the poor people it is supposed to help.

The justification for aid is, presumably, that it is intended to alleviate the suffering of those at the bottom of the income distribution in countries which are themselves too poor to be able to help.  However, when you actually look at the list of recipients of aid from the UK, you find that it includes a number of countries which ought to be capable of providing a tolerable standard of living for their own population without outside assistance e.g. Angola, with its vast natural resources (oil, gas, diamonds etc) and, unbelievably, Russia, which is even better endowed both with raw materials and with billionaires.

It was reported a few weeks ago that HMG was considering crossing countries like these off its gift list – not before time, you may think – but that leaves on the list a number of other recipients whose status might well be questioned, notably India.

On the one hand, even after a decade or so of rapid growth, India still probably holds the greatest concentration of misery on the planet. Yet at the same time India feels able to afford not only one of the world’s largest and best-equipped armed forces, with a well-developed nuclear capability and delivery systems to match, but also maintains a gift list of its own, including among its clients Myanmar, Afghanistan, Bhutan and a number of African countries.

What on earth is the point of this merry-go-round? If India is rich enough to afford world class armaments and has enough left over to support countries poorer than itself (and richer ones like Sri Lanka too), I can see no reason for it to have any moral claim on the generosity of British taxpayers.

It is not as if aid actually does much good. For decades, India languished in the grip of the socialist planning mentality bequeathed as Britain’s toxic parting gift to Nehru and his successors, while India’s entrepreneurs emigrated to build their businesses in Britain, North America, East Africa, the Middle East – everywhere except at home in India. The influx of aid from Western countries and the World Bank simply served as an endorsement of the Licence Raj imprisoning Indians in poverty.

Now that, at long last,  a partial liberation of the Indian economy has allowed it to race ahead, aid is an irrelevance, and should be stopped. Moreover, if we are unwilling to stop aiding India and our many clients in Africa, then at the very least, we should make our aid conditional on them liberalising their markets, removing the network of licences, quotas and permits whose only function is to entrench corruption, sustain the flow of bribes and increase the power of patronage, while distorting the economic life of the country.

So is there nothing positive we can do to help the Third World? Of course there is. We should take meaningful steps to help struggling primary products producers stand on their own two feet. Aid is essentially a sop to our own consciences, because we are unwilling to do the things which would really make a difference: open our own markets (especially our agricultural markets) to producers outside the EU, so that they can export their way out of poverty. Trade expansion would provide far more of a boost to poor countries than all the aid they receive from Western donors.

Nor is it a zero-sum game – their gains would be accompanied by net beneficial effects in Europe. Of course, there would be winners and losers – there always are, for any economic policy change – but the net effect would be positive, as it always is when trade increases.

As things stand at the moment, the EU’s Common Agricultural Policy forces us to buy red peppers produced in the Netherlands, oranges from Spain and olives from all over Southern Europe, when they could all be sourced far more cheaply from the far side of the Mediterranean and beyond, a crazy situation which reflects the political power of European farmers and nowadays of the Green Lobby too. Its implication is that, in order to protect “poor” European farmers, we stop Third World peasants from selling in our markets – but, guiltily, we make sure to offer their governments a few million pounds of aid.

Even when the aid does not go straight into the bank accounts of the local strongman or to buy Scotch for the army brass who keep him in power, it is a shabby, shameful deal, and one which should weigh on the conscience of those who sustain it.Instead, alas, they swell with pride and self-satisfaction at their own contribution to building a better world.

Events have overtaken Europe’s politicians however. At long last, China and now India are following Japan and South Korea along the path to prosperity, in the greatest liberation from poverty in history, a miracle which owes everything to trade and absolutely nothing whatever to aid.

For the other Third World countries, the option of exporting primary products to the West is still largely closed off, so they must either export raw materials to China or industrialise – or, best of all, use the proceeds of the former to fund the latter, as Brazil is doing.

So the good news is that there is nowadays some hope for the Third World – in spite of the efforts of our politicians.

Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own.

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