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Aid, Trade and Reason

9 January 2005

Aid, Trade and Reason

By Gwynne Dyer

It’s good that people have given from their hearts to the tsunami victims in Asia, and that governments (although they don’t actually have hearts) have pledged even larger sums in aid. But the devil, as usual, is in the details.

“I do think there are moments when society realises that we are all in this together,” said Britain’s Chancellor of the Exchequer Gordon Brown last week, claiming (or at least hoping) that the thousands of vacationing Westerners who died alongside the local victims in the stricken Indian Ocean countries had redefined the West’s sense of its relationship to the suffering of other parts of the world. But even if the rich countries have had a change of heart — which remains to be seen — they still need to use their heads.

The immediate contributions of food, water purification equipment and medical and disaster relief teams from around the world certainly won’t go to waste: even the biggest country doesn’t have enough emergency supplies and services to cope with a catastrophe of this scale on its own. As far as outside financial help for reconstruction is concerned, however, India’s Finance Minister Palanniappan Chidambaram was quite right to reject it, arguing that other countries needed it more.

Only about one in a thousand of the population was directly affected by the disaster in a huge country like India. Even in Indonesia, the hardest-hit country, no more than one percent of the population was directly involved, and the proportion in Thailand and Malaysia was even lower. Only in Sri Lanka, and above all in the tiny, low-lying Maldives, was such a high proportion of the population affected that the local economies will have trouble responding adequately and quickly to the demands of reconstruction.

These are not the world’s poorest countries. Even India, whose per capita income is the lowest of the group at around $500 annually, has an economy that has been growing at around eight percent a year recently. It can and will deal with the damage around its southern coasts out of its own resources.

The G8 countries have recommended a one-year debt moratorium for the countries worst afflicted by the tsunami, but there is even reason to doubt whether this is a good idea. Honduras, which was granted a similar moratorium after Hurricane Mitch in 1998, ended up deeper in debt as a result.

Genuine debt relief (as opposed to a mere moratorium) would be helpful to Sri Lanka in particular, but the most useful thing the West could do is to open its markets to these countries’ exports so that they can grow their way out of poverty faster. Oxfam calculates that the United States charged $244 million in duty last year on clothing and textile imports from Sri Lanka, and $426 million on similar imports from Indonesia (while the European Union collected $77 million from Sri Lanka and $180 million from Indonesia).

If the rich countries really want to help, they will dismantle the tariff barriers and accept the political and budgetary costs of some job losses at home. Otherwise, it’s just a charade of help — and the same applies in spades to Africa.

Various experts have worried out loud that the West’s emotional response to the Indian Ocean tragedy may deprive Africa of aid, and it’s true that Western governments have a long tradition of switching aid around to meet newly popular demands without increasing the total amount of aid at all. But the even harsher truth is that most of that government-to-government aid is useless in Africa’s case.

If just throwing money at a problem could solve it, Africa would be rich by now. In the half-century since African countries began to get their independence, about a trillion dollars in aid (in today’s money) have been poured into the continent.

People talk about the need for a “Marshall Plan” for Africa, but the original Marshall Plan, designed to help European countries recover after the devastation of the Second World War, provided around $75 billion (at today’s prices) in American food and supplies over a period of three years to help Europe rebuild. It did rebuild, and has long been just as prosperous as the US. Whereas fifteen times as much money per capita, over fifteen times as long, has left most of Africa poor, chaotic, and miserable.

The basic difference is politics. Europe had a skilled labour force in 1945, but more importantly it had governments that were determined to maintain the education and health services that produced that labour force. Africa’s elites simply stole the money in many cases — both the aid money, and their own taxpayers’ money — and condemned their people to ignorance, violence, poverty and disease. Simply increasing the aid will not change this equation.

There are well-run African countries where targeted development aid can help, like South Africa and Botswana; there are spectacularly corrupt ones like Nigeria and Angola that nobody in their right minds would send development aid to; and there are basket-cases like the Congo where there is no longer any modern economy and only disaster relief has any immediate relevance.

The politics is the problem, and only Africans can fix that. But the best incentive for reform that the rest of the world can offer African countries is fair access to its markets if and when they get their own acts together. Fair trade, not “free” aid, is the key.


To shorten to 725 words, omit paragraphs 2 and 6. (“I do think…heads”;and “The G8…result”)