The Great Debate UK

Financial crisis might make opportunity for poor countries


John Meadowcroft
- John Meadowcroft is Lecturer in Public Policy at King’s College London. He contributes to the Institute of Economic Affairs blog. The opinions expressed are his own. -

The present financial crisis may be understood as the hangover that inevitably follows a long period of excess. The contraction of world trade that it has brought is bad news for the citizens of least developed countries (LDC) who have not enjoyed the party but may now be required to share the costs.

It is also likely that as public spending is squeezed among the richer nations, development aid to LDCs will be cut. Here, however, the crisis may be a blessing in disguise if LDCs can use this as an opportunity to free themselves from the shackles of development aid.

The late development economist Peter Bauer famously described development aid as a “government to government transfer”; aid inevitably reaches the government of a country before it reaches its citizens. In a poor country, this means that the government acquires financial resources not possessed by others and the power that goes with the ability to distribute those resources. Hence, aid increases the salience and power of the state relative to civil society.