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The basic problem with foreign aid

Summary:
One of the slightly odd things about the modern world is that we've all become rather better at emergency aid and rather worse at development aid.Emergency aid now tends to work with the grain of the economy. For example, in times of famine send in money - then let the market, incentivised by the cash, deliver the food. Instead of the ridiculous idea of loading ships with food which takes 8 months and more to arrive, neatly not feeding the starving but still destroying the market for the next crop. Development aid is more often than not the application of those policies which we've rejected at home. Planned economies, for all the nonsense spouted by the likes of Momentum, are rather out of fashion in the rich countries. So all those who would play with the lives of others by telling them

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One of the slightly odd things about the modern world is that we've all become rather better at emergency aid and rather worse at development aid.

Emergency aid now tends to work with the grain of the economy. For example, in times of famine send in money - then let the market, incentivised by the cash, deliver the food. Instead of the ridiculous idea of loading ships with food which takes 8 months and more to arrive, neatly not feeding the starving but still destroying the market for the next crop. 

Development aid is more often than not the application of those policies which we've rejected at home. Planned economies, for all the nonsense spouted by the likes of Momentum, are rather out of fashion in the rich countries. So all those who would play with the lives of others by telling them what to do are off in the aid agencies.

Yes, certainly, we exaggerate, but not by all that much. Oxfam these days insists upon peasant farming as the long term solution for Africa's ailments, just as one example. Fortunately, officialdom is realising this error:

Foreign aid risks making Third World countries dependent on handouts by prioritising “short-term and immediate results” instead of “lasting change”, an official review warns.

The Independent Commission for Aid Impact warns: “The Department for International Development’s results system is not currently oriented towards measuring or reporting on long-term transformative change – that is, the contribution of UK aid to catalysing wider development processes, such as enhancing the ability of its partner countries to finance and lead their own development.

One way of putting this is that we should be aiding them to do things themselves, not doing things for them. Instructing, say, on institutions - the tolerable rule of law, reasonable taxes - and even paying for such if necessary. Rather than telling them where to put the steel plant they don't need nor want.

At which point a modest proposal. The official development aid budget is some £11 billion a year we believe. Almost all of what is spent upon development, rather than emergencies, being wasted (Ethiopia's Spice Girls comes to mind). So, why don't we not waste it?

We know very well what has caused the largest reduction in absolute poverty in the history of our species, this neoliberal globalisation of the past 40 years. Trade, not aid, that is. So, let us trade more.

We declare unilateral free trade to the world. This benefits us in aggregate, benefits the poor out there individually and in aggregate. But there are those here at home who would lose from it. Those currently protected by our own import barriers to such trade. It's also a standard part of economic thought that when an overall increase in wealth is possible, as free trade would bring, it is possible for those who gain to compensate those who lose leaving all truly better off.

Excellent. We use that currently wasted foreign development budget to compensate (through retraining perhaps, that sort of thing) those at home who would lose. We combine the most effective poverty reduction program known, that neoliberal free trade thing, with not wasting the development budget and compensating those few who would lose from this most efficient of all possible plans.

The only problem is that it seems to be politically impossible. But then that's not stopped us in the past if we're honest about it. 

Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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