Economists see aid to poor nations as ineffective

[GaryC 7]

It seems that just giving the poor money doesn't work for countries any better than giving to our own poor. (welfair)

The real solution is capitalism. Spur economic growth through funding business and the country will do better. There is a lesson here.

WASHINGTON (Reuters) - Aid to poor countries has little effect on economic growth, and policies that rely on such claims should be reexamined, two former International Monetary Fund economists wrote in a paper released this month.

"We find little evidence of a robust positive correlation between aid and growth," wrote Raghuram Rajan, who stepped down as IMF chief economist at the end of 2006, and Arvind Subramanian, who left the IMF this year, said.

"We find little evidence that aid works better in better policy or institutional environments, or that certain kinds of aid work better than others," they added.

Rajan is now teaching at the University of Chicago, while Subramanian joined the Washington-based Peterson Institute for International Economics.

"Our findings suggest that for aid to be effective in the future, the aid apparatus will have to be rethought."

The paper comes as rich nations struggle to meet global poverty-reduction targets set out in 2000 as part of the United Nations Millennium Development Goals.

The economists sought to adjust for unusual situations that could skew the data, like times when donations rise following a hurricane or earthquake, which can stunt economic growth. They found similar results regardless of the type of aid.

"One of the most enduring and important questions in economics is whether foreign aid helps countries grow," they wrote.

"There is a moral imperative to this question: it is a travesty for so many countries to remain poor if a relatively small transfer of resources from rich countries could set them on the path to growth."

But if there is no clear evidence that aid boosts growth, then handing out more money makes little sense, they said.

In a telephone interview, Subramanian said the aid money would be better spent on a research and development fund to get the private sector to make products to help poor countries.

Private companies have little financial incentive to develop a malaria vaccine, for example, but if rich nations pledged to buy the product for impoverished countries, firms would be more inclined to invest in the research.

"The challenge is, how do you harness this good intention and good motives into better results?" Subramanian said.

http://news.yahoo.com/s/nm/20070718/pl_nm/aid_growth_dc

[Trumplestiltskin 5,791]

Capitalism isn't the answer in countries which are being or have been destroyed by war or genocide; or indeed if there's ####### all there... like Afghanistan. What sort of businesses do you see setting up there? Can't do business without a viable infrastructure.

...aid money would be better spent on a research and development fund to get the private sector to make products to help poor countries.

Not without some sort of regulatory framework. Certain private industries (say... the pharmaceutical industry and major food producers) have made quite a bit of money out of African poverty. In some case's this hasn't improved the lot of the local people much at all.

Nestle got into hot water some years ago for aggressively marketing powdered milk for bottle-feeding babies in Africa and parts of the Indian Subcontinent. Problem is none of their marketing took account of the fact that knowledge about basic formula preparation was lacking, or that the lack of availability of clean water that the formula would be reconstituted with represented a significant health risk to the children. There were deaths... and Nestle's reputation still hasn't recovered as a result.

Similarly pharmaceutical companies have for years tested their products on the world's poor (Africa and India). How many of the HIV/AIDS combination drug treatments available to victims in the US are available to sufferers in the Africa. Moreover, who do you think the first human test subjects of these drugs are? In essence - they're using the world's poor as guinea pigs for drugs intended for sale in the US and Europe.

[GaryC 7]

It's obvious that hand-outs are not making them better, it's only making them a dependent class country. All we are doing is throwing money at it and getting no results. Aid is good after a disastar but as a way of life it will never work.

[one...two...tree 2,762]

There are many variables to consider...

What was to be the form of aid?

Financial aid will, in principle, be untied. While it may not be possible to untie assistance in all cases, developed countries will rapidly and progressively take what measures they can … to reduce the extent of tying of assistance and to mitigate any harmful effects [and make loans tied to particular sources] available for utiliziation by the recipient countries for the purpose of buying goods and services from other developing countries.

… Financial and technical assistance should be aimed exclusively at promoting the economic and social progress of developing countries and should not in any way be used by the developed countries to the detriment of the national sovereignty of recipient countries.

Developed countries will provide, to the greatest extent possible, an increased flow of aid on a long-term and continuing basis.

— International Development Strategy for the Second United Nations Development Decade, UN General Assembly Resolution 2626 (XXV), October 24, 1970, para. 45-47

The aid is to come from the roughly 22 members of the OECD, known as the Development Assistance Committee (DAC). [Note that terminology is changing. GNP, which the OECD used up to 2000 is now replaced with the similar GNI, Gross National Income which includes a terms of trade adjustment. Some quoted articles and older parts of this site may still use GNP or GDP.]

ODA is basically aid from the governments of the wealthy nations, but doesn’t include private contributions or private capital flows and investments. The main objective of ODA is to promote development. It is therefore a kind of measure on the priorities that governments themselves put on such matters. (Whether that necessarily reflects their citizen’s wishes and priorities is a different matter!)

Almost all rich nations fail this obligation

Even though these targets and agendas have been set, year after year almost all rich nations have constantly failed to reach their agreed obligations of the 0.7% target. Instead of 0.7%, the amount of aid has been around 0.2 to 0.4%, some $100 billion short.

Furthermore, the quality of the aid has been poor. As Pekka Hirvonen from the Global Policy Forum summarizes:

Recent increases [in foreign aid] do not tell the whole truth about rich countries’ generosity, or the lack of it. Measured as a proportion of gross national income (GNI), aid lags far behind the 0.7 percent target the United Nations set 35 years ago. Moreover, development assistance is often of dubious quality. In many cases,

* Aid is primarily designed to serve the strategic and economic interests of the donor countries;

* Or [aid is primarily designed] to benefit powerful domestic interest groups;

* Aid systems based on the interests of donors instead of the needs of recipients’ make development assistance inefficient;

* Too little aid reaches countries that most desperately need it; and,

* All too often, aid is wasted on overpriced goods and services from donor countries.

— Pekka Hirvonen, Stingy Samaritans; Why Recent Increases in Development Aid Fail to Help the Poor, Global Policy Forum, August 2005 [bullet list formatting added]

http://www.globalissues.org/TradeRelated/Debt/USAid.asp

[GaryC 7]

Economic aid hasn't solved any problems. Name me one country that we gave handouts to that have finally stood on their own feet after a while. Africa is still starving even though we have given trillions of dollars to them. All it does is line the pockets of a few corrupt people. Unless someone is advocating invading a country to put a different government in place that will take care of the people aid is just something that makes us feel better.

[Trumplestiltskin 5,791]

Then in effect we should do nothing - because its all pointless anyway?

I don't think you can look at any impoverished 3rd world country and say that there is a single, magic solution to its problems - certainly not capitalism. Like putting a shark in charge of an aquarium.

[one...two...tree 2,762]

Economic aid hasn't solved any problems. Name me one country that we gave handouts to that have finally stood on their own feet after a while. Africa is still starving even though we have given trillions of dollars to them. All it does is line the pockets of a few corrupt people. Unless someone is advocating invading a country to put a different government in place that will take care of the people aid is just something that makes us feel better.

It's a complex issue, Gary. Economic Aid can include investments that actually benefit the rich country providing the Aid.

...developing countries made the sixth consecutive and largest ever transfer of funds to “other countries” in 2002, a sum totalling “almost $200 billion.”

“Funds should be moving from developed countries to developing countries, but these numbers tell us the opposite is happening…. Funds that should be promoting investment and growth in developing countries, or building schools and hospitals, or supporting other steps towards the Millennium Development Goals, are, instead, being transferred abroad.”

— Kofi Annan, Development funds moving from poor countries to rich ones, Annan says, United Nations News Centre, October 30, 2003

And as Saradha Lyer, of Malaysia-based Third World Network notes, instead of promoting investment in health, education, and infrastructure development in the third world, this money has been channelled to the North, either because of debt servicing arrangements, asymmetries and imbalances in the trade system or because of inappropriate liberalisation and privatisation measures imposed upon them by the international financial and trading system.

This transfer from the poorer nations to the rich ones makes even the recent increase in ODA seem little in comparison.

http://www.globalissues.org/TradeRelated/D...UnequalTradeetc

[Trumplestiltskin 5,791]

Not forgetting 3rd world debt of course.

[GaryC 7]

It's a complex issue, Gary. Economic Aid can include investments that actually benefit the rich country providing the Aid.

The question still remains. Is there any country that we have given aid to that has gotten back on it's feet and no longer needs it? It looks like once aid is started it is a bottomless pit and the poor still remain poor.

[Trumplestiltskin 5,791]

It's a complex issue, Gary. Economic Aid can include investments that actually benefit the rich country providing the Aid.

The question still remains. Is there any country that we have given aid to that has gotten back on it's feet and no longer needs it? It looks like once aid is started it is a bottomless pit and the poor still remain poor.

Well... they would be if they're still paying off national debts owed to first world countries and taxing their citizens to pay for it.

This sounds rather like that old argument against welfare assistance that it makes indolent and lazy even more indolent and lazy. I'm not sure that line of thinking can be applied to a discussion of entire countries.

[GaryC 7]

It's a complex issue, Gary. Economic Aid can include investments that actually benefit the rich country providing the Aid.

The question still remains. Is there any country that we have given aid to that has gotten back on it's feet and no longer needs it? It looks like once aid is started it is a bottomless pit and the poor still remain poor.

Well... they would be if they're still paying off national debts owed to first world countries and taxing their citizens to pay for it.

This sounds rather like that old argument against welfare assistance that it makes indolent and lazy even more indolent and lazy. I'm not sure that line of thinking can be applied to a discussion of entire countries.

Ok so what? Continue to throw money at it knowing full well that it changes nothing? What sense does that make?

[Ban Hammer 13,334]

am i seeing things or did gary change his name again?

[Trumplestiltskin 5,791]

It's a complex issue, Gary. Economic Aid can include investments that actually benefit the rich country providing the Aid.

The question still remains. Is there any country that we have given aid to that has gotten back on it's feet and no longer needs it? It looks like once aid is started it is a bottomless pit and the poor still remain poor.

Well... they would be if they're still paying off national debts owed to first world countries and taxing their citizens to pay for it.

This sounds rather like that old argument against welfare assistance that it makes indolent and lazy even more indolent and lazy. I'm not sure that line of thinking can be applied to a discussion of entire countries.

Ok so what? Continue to throw money at it knowing full well that it changes nothing? What sense does that make?

I'm not sure this is a debate that we could or should boil down into "socialism Vs. capitalism". At least - that's not a debate I want to get into, as it will invariably won't come up with anything new - just using an external issue to justify the same old partisan divide.

Edited July 19, 2007 by Number 6

[GaryC 7]

am i seeing things or did gary change his name again?

Just changed it back to what it was in the begining.

[Ban Hammer 13,334]

am i seeing things or did gary change his name again?

Just changed it back to what it was in the begining.

just when i'm getting used to the old name

as for throwing money at a problem, i think of the movie starship troopers: "that which is given has no value!"