Foreign aid doesn’t help poverty

“Foreign aid is a process by which poor people in rich countries help rich people in poor countries.” – (Peter Bauer, British development economist)

President Michel Martelly of Haiti recently called for the international relief system to be fixed. “We don’t just want the money to come to Haiti. Stop sending money,” he said.

Three years ago a similar sentiment was echoed by Rwandan Anglican Bishop John Rucyahana when he said that the Rwandan people were “… no longer getting excited by aid”.

Ghanaian software developer Herman Chinery-Hesse gets straight to the point: “I have never heard of a country that developed on aid… I know about countries that developed on trade and innovation and business. I don’t know of any country that got so much aid that it suddenly became a first world country… So the track is wrong; that track ends to nowhere.”

To be sure, herculean charitable and relief efforts like those after the devastating earthquake that stuck Haiti are necessary. We are morally obligated to help in such situations. However, simply shovelling money to governments in poorer countries is not the best way to go about poverty alleviation.

People rise out of poverty through, among other things, business and enterprise. The problem is, in poorer countries getting a business up and running is extremely difficult. In his book The Mystery of Capital, Peruvian developmental economist Hernando de Soto describes the back flips and somersaults aspiring entrepreneurs in poor countries have perform to obtain a business license.

Governments in these countries do not enable, but frustrate the very thing that can help improve their people’s lot.

Even when a licence is obtained, local businesses are further disadvantaged when they end up competing with foreign “aid”. Kenyan entrepreneur Eva Muraya explained how second hand clothing from Europe and North America negatively affected the clothing and textile industry in Kenya. It led to layoffs and eventually the closing of factories.

Are enough people going to buy locally made Kenyan T-shirts to support and sustain that industry when they can get them much cheaper or free via foreign “aid”?

Similarly, Haitian rice farmers had to compete with rice farmers in America who were heavily subsidised. President Clinton lamented that they got it wrong when he testified before a Senate Committee on Foreign Relations in March 2010.

“It may have been good for some of my farmers in Arkansas, but it has not worked,” Clinton said. “It was a mistake. I had to live everyday with the consequences of the loss of capacity to produce a rice crop in Haiti to feed those people because of what I did.”

What developing countries need is an environment that enables business at every level, not having their local businesses undercut by the flooding their markets with products under the guise of “aid”. They definitely don’t need top-down government control of their economy.

There is a direct correlation between economic freedom, material lack and a country’s rank on the World Bank’s “Ease of Doing Business” list: Singapore (1), Hong Kong SAR, China (2), New Zealand (3), United States (4), Denmark (5), Barbados (88), Haiti (174), Central African Republic (185) and Chad (184).

If you had to move from Barbados tomorrow, I would bet my last dollar that you will choose a country near the top of that list for you and your loved ones to work and play.

— Adrian Sobers

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