Aid or trade?

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Last updated on March 6th, 2018 at 12:30 am

Don D’Cruz points out the disadvantages of the former, and the benefits of the latter:

Setting aside the emergency relief being rushed to tsunami survivors, which is vital and absolutely necessary, foreign aid has, in general, not been very effective. Indeed, if the aid industry’s effectiveness was judged by its success in poverty alleviation, it would have been shut down years ago.

For example, according to World Bank figures, despite spending $US100 billion in aid in sub-Saharan Africa between 1970 and 1999, about 17 countries experienced a decline in real per capita gross national product.

There is a disconnect between how effective the public thinks its aid contributions are and the reality of aid. Western governments, which to a degree evaluate their own aid funding, are aware of its frequent failures. This explains, in large measure, the donor fatigue felt by Western governments. They are not just aware of aid’s ineffectiveness; they are also aware of how aid, even emergency relief, when channelled into conflict zones, serves to feed armed conflict and undermine the ability of local economies to recover …

The true insignificance of aid is revealed by the fact that trade contributes almost $US1.7 trillion to the developing world, making free trade an imperative—hence the emergence of the slogan “trade, not aid”.

Posted by Tim B. on 01/04/2005 at 02:41 AM
    1. A large effect is that, eg., free food bankrupts local farmers, who cannot compete with it.  So you won’t have local farmers.

      Posted by rhhardin on 01/04 at 02:51 AM • #


    1. It should be noted that the more labour intensive the industry, the better.

      Australia’s Jan 1 tariff reductions for the very labour intensive textile, clothing and footwear industry will do a lot to help the third world.

      Posted by 2dogs on 01/04 at 05:27 AM • #


    1. rhhardin, you fail to grasp the essence of the problem with local farmers: They complicate the aid situation enormously. They’re just in the way.

      Posted by Aarrgghh on 01/04 at 06:35 AM • #


    1. The aid industry relates to the conundrum of the Welfare State -vs- small government & Free Enterprise.

      Posted by rog on 01/04 at 08:15 AM • #


    1. As the figurs above indicate, govt to govt aid has been a disaster almost on a par with the socialist experiment itself. The recently deceased Peter Bauer was for decades a critic of the system but was marginalised in the Third World debate because he was a free trader and a non-mathematical economist.

      Posted by Rafe on 01/04 at 08:21 AM • #


    1. Don D’Cruz also co-authored this article on how aid can be counter productive

      Posted by rog on 01/04 at 08:34 AM • #


    1. Somebody wise said, “Foreign aid consists of taking money from poor people in rich countries and giving to rich people in poor countries.” The solution is trade in conjunction with the rule of law and property rights. Throwing money at a problem never solved it.

      Posted by Tommy Shanks on 01/04 at 10:46 AM • #


    1. A lot of compassionate people campaign against foreign investment in third world countries on the basis of human rights, “sweat shops” etc.

      Compassionate people dont ask the locals if they want to be deprived of the opportunity to increase their income.

      Nobody asks these compassionate people if they would like to work in these industries if they were returned to home shores.

      Posted by rog on 01/04 at 12:23 PM • #


    1. Then again, these same compassionate people beleive the poor third world locals should just abandon the cities and go back to their holistic lifestyles in the country.  Many were so disappointed that the Kyhmer Rouge thing didn’t work out.

      Posted by Mr. Blue on 01/04 at 12:59 PM • #


    1. I favor aid for the short term only. For the long term, I’d rather not give aid but encourage local businesses to take root and thrive.

      Posted by CJosephson on 01/04 at 04:51 PM • #


    1. This argument is tied up with the post-colonial and ongoing disaster of poor government. When “colonialism” became so unfashionable in the post WW2 period, many things went off the rails.
      European powers were made to feel that they were parasites on the body of any country they administered. They felt by the seventies that getting out was the only course left, since they copped so much flack.
      The naive at best (monsters at worst) and in many cases communist backed “patriots” who wanted to overthrow the colonialists and set up their own utopian socialist states, have proven over time to be incapable of serving their people adequately – in many cases they were criminals who killed and embezzled rather than govern for the good of the people. They are still around, in some notable cases.
      In some instances, such as Indonesia, what were abitrary dividing lines such as between east and west Timor, or more controversially, West and East Papua/New Guinea (the latter delineating the divide between the Dutch administered west and the Australian administered (since WW1) east, became a phony claiming line – it is this accident of history which led Indonesia to be able to claim rights to West Papua, as it was formerly administered by Holland along with the rest of the neighbouring archipelago known as the Dutch East Indies – now Indonesia.
      We are now seeing the breakdown of the post-colonial experiment which gave small countries independence before they were equipped to handle it.
      The Pacific is not alone in this. The Africans of many nations have suffered from the same problem. The middle east is also continuing to suffer from lack of developed mechanisms for guarding the public’s welfare and wise use of national resources. Tribalism is rampant here as well as in Africa.
      Aid will not change any of this, unless it is participatory aid mixed with money. The participation of experienced and capable western democracies is essential to the development of the institutions which make a modern nation cohesive and viable.
      Lack of it ensures continued tribalism, strong men ruling with brutality, avarice and corruption unchecked.

      Posted by blogstrop on 01/04 at 08:20 PM • #


    1. I did a Master’s on the question of aid.  Most people who take a serious academic interest have known since the 70’s that aid largely doesn’t work.  But there’s a huge bureaucracy and bunch of interest groups with a vested interest in ignoring it.  The only countries which benefit from aid are those that need it least – with good institutions and infrastructure and other worthy stuff.

      Posted by PJ on 01/05 at 10:02 AM • #


  1. It must be transference, you hear of a disaster, imagine yourself in that situation and take steps to alleviate your suffering.

    Posted by rog on 01/05 at 04:45 PM • #