Aid to Africa: Will it Help? BECKER

Accompanied by rock concerts in different countries and a push from activist rock stars like Bono and Bob Geldof, the world's richest democracies, called the G8 nations, met this past week in Gleneagles Scotland to decide how to help African nations. The publicity surrounding their meeting was reduced by the terrorist attacks in London, but they still managed to get considerable newspaper coverage. They committed to $25 billion in extra annual aid to Africa by the year 2010, sizeable debt relief for Africa, trade talks to eliminate agricultural support in the rich nations, and a promise to make low cost AIDS treatment widely available in Africa. The G8 nations are rich enough to easily afford the increased aid committed to Africa. Perhaps for this reason, some of the activists denounced the aid as too small and miserly. But that these countries can certainly "afford" to spend more does not mean that much greater aid will help the millions of poor Africans. Indeed, it is doubtful whether more aid will speed up economic growth, given both Africa's experience with aid during the past half century, and the evidence from other poor nations that internal reforms that produce sizeable and persistent growth are the only really effective way to reduce a nation's poverty. Despite receiving cumulative aid of more than $500 billion during the past several decades from rich countries and international organizations like the World Bank, Africa has had the slowest growth in per capita income of any continent. Slow growth is not the inevitable result of being poor since the per capita incomes of poor nations grew since 1960 about as fast, and perhaps a little faster, that the per capita incomes of rich countries. Obviously, the abundant aid to Africa in the past did not guarantee rapid growth, This aid may even have made growth harder by encouraging greater corruption, by reducing the need to consider drastic economic reforms toward freer economies, and by making it easier to waste resources on grandiose and unproductive projects, such as the Eldoret International Airport in Kenya that almost nobody uses. India is a good example to consider in evaluating the respective roles of aid and self-generated reforms. India probably received more economic aid from international organizations than any other nation during the 40 years from its independence to the mid-1980's. Yet this large and complicated democracy experienced only a slow growth in per capita income during this period-sometimes referred to as the "Hindu" rate of growth, as if Hinduism was an inevitable drag on economic progress. However, a serious macro-economic crisis around 1990 forced India to change its ways, and brought in a reform-minded economist as finance minister, Dr. Manoman Singh. He introduced a series of simple but basic economic reforms during the early 1990's that included sharp lowering of very high tariffs and quotas, substantially reduced regulation of private domestic investments, a little encouragement to foreign direct investment, and the opening of more sectors to private enterprise. With no increase in foreign aid, and very likely a decrease, India's rate of economic growth sky-rocketed after these reforms to above 6 per cent per year, second highest only to China, and a pace of growth that would be the envy of African nations. India and other examples of poor countries that managed to grow rapidly indicate that large scale and general foreign economic aid is not the solution to slow growth. Indeed, general aid might delay the reforms necessary for growth because it can take away the crisis mentality that appears crucial to galvanizing the political will necessary to implement radical economic reforms. I am not denying that Africa has some special and serious problems that may make growth more difficult there, and perhaps provide room for aid for specific projects. Many African countries are located around the equator, and have climates that breed diseases that are highly debilitating and have not yet been conquered. Deadly tribal and ethnic civil wars have ravished many countries and certainly discouraged long-term investments. The AIDS epidemic has been particularly deadly there, with many millions infected, although it is puzzling why more precautions are not being taken by the African men and women at risk. So it is easy to sympathize with the desire to provide aid to reduce some of this misery. As the Indian example (and Chinese example as well) indicates, sustained growth requires economic reforms toward freer markets in a political environment that is not clouded by civil wars and uncertain property and legal rights. However, aid might be helpful if directed toward better health and education-improving projects that would be neglected by African governments. Some examples include vaccination programs of the type favored by the Gates Foundation, the support of elementary schools in rural areas primarily devoted to the education of girls, and subsidizing research in G8 nations on diseases most common in Africa, such as malaria, sleeping sickness, and of course AIDS. If these kinds of projects are politically feasible, they might more than repay the additional investment called for by the Gleneagles Meeting. But these and other projects promoted by aid from rich countries will not stimulate rapid economic growth and widespread reduction of poverty. Rapid growth can only come from major additional internal changes within Africa.

Comments

[N.E.Hatfield]

The "Corey" issue? Perhaps it's the boredom imposed by the syncophantism of an ideologue who can't seem to free themself of trying to stuff five pounds of crap into a two pound Neo-Marxian bag. Yawn! ;)

[Nancy Reyes]

Africa needs basic help with education and medicine (how much HIV was spread thru unsterilized needles or knives used by untrained healers?). They also need roads and an infrastructure.
However, one only has to see how Mugabe, in the name of his Marxist philosophy, has turned Zimbabwe from a vibrant economic system into a place where starvation in rural areas will be rampant in the next few months.

[nate]

On another topic, do you think there is a housing bubble in the U.S.? Globally? Why or why not?

[Corey]

"Perhaps it's the boredom imposed by the syncophantism of an ideologue who can't seem to free themself of trying to stuff five pounds of crap into a two pound Neo-Marxian bag."

So it has come to that eh? Why don't you try holding your hands up to your ears and yelling, "nyah nyah na na nyahhh! I can't hear you!" That's a bit more universal and direct.

You needn't worry, my last post was intercepted and censored from the blog. It seems likely that you will all soon be free to reinforce each others unsupported assumptions without fear of challenge or other crimethink. Isn't that double-plus good!

Three cheers for group polarization!

[ranc]

As an old Chinese saying goes, giving somebody fish is not as good as teaching her how to fish.

[fullymubbed]

Corey,

Honestly, I wish the $24 billion in remittances worked that way in India. Sadly, it doesn't..
India has amongst the largest gold in the world, not as reserves - in personal bank vaults and on Indian women as jewellery - in a form where it cannot be included in the 'total reserves;!!

I will keep my limited knowledge in other issues to myself!!!

[N.E.Hatfield]

Corey, I think all the prrof necessary has been provided. Hopefully, an epiphany has or will occur. Ahh..., the joys of applied Philosophy.

[michael persoon]

As usually happens around comment 20, the discussion has degraded.

As an attempt to restart a dialogue let me put this forth:

1) "We" (the industrialized North) have a prescriptive vision of what improvements can be made to better the overall (socio-politco-economic) quality of life for Africans.

2) "We" need to create incentives for Africans to pursue those goals (creating incentives towards "desired" action seems to me to be a base level inquiry in economic thought).

3) Without a proper infrastructure, no incentives will allow for the successful pursuit of the goals incentivized (word?).

Based off of this, I think any direct aid should go towards building the infrastructure that will allowincentives to operate, e.g. lending institutions, insurance, individual property rights, electricity, and telecom. Note that this does not have to be centralized, e.g. wireless phones have an immersino rate of 7/100 whereas land lines hace an immersion rate of 4/100 in SS Africa. Energy production can be localized. Lending can be localized (group savings, micro-lending). THis is not to claim that a centralized process could not work better.

Once an infrastructure is created, then incentives can be applied--not only to Africans, but also to foreign industry and investment (kill all agri-subsidies and tariffs on finsihed goods).

Let's talk about how to channel money so that it builds infrastructure, and let's talk about how to incentivize behavior towards these goals.

Sorry for the length.

[N.E.Hatfield]

Mike, I agree that the basis for economic development begins at the infrastructure level i.e. "food, shelter, clothing, sanitation transport-logistics, communications and agricultural-land reform". The problem is that the prior 500 billion or so has not gone to that in most countries and the reason why is social, political and military in nature. Before anything can be done, these issues need to be straightend out. Which is the province of the United Nations, which hasn't done much in this regard. The question is, "Why not?"

[michael persoon]

What issue needs to be straightened out?

The $500 billion or so is GONE, either in private accounts of corrupt leaders, doled out in nepotistic contracts, or sent back to lenders in the form of debt service.

I realize there should be some reflection so that past mistakes are not repeated, but let's get moving. There are ways that aid/investment can be narrowly directed to the task of building a real infrastructure. The people on the ground will make progress if the funds get to them. So get the funds to them, e.g. microlending.

Pay some contractor like Halliburton $2 billion to go in and set up a power grid, train 500 locals on the maintenance and operation, leave behind a group of 50 people on US payroll, and get out.

Fund a group of 500 law students to go to take a 25 gps equipped PDA's and 25 laptops with GIS and record people's land title's.

There is a shortage of trained tool and dye operators in the US. Go set up a tool and dye factory and train people in how to work it.

Stop dumping subsidized grain and cotton.

Open up Northern markets to value added goods so there can be some economy other than exporting raw materials.

Go start a mango farmer's co-op and open a juice bottling plant.

There are steps we can take that don't involve shaking our heads at the result of three decades of irresponsible lending. The money is gone.

[nate]

Amartya Sen, in a book callled "Development as Freedom", has related information on education of women in developing nations. If I interpreted the table in his book correctly, historical literacy rates for women in the least-developed parts of some developing nations (including sub-Saharan Africa) are noticeably lower than rates for men.

[richard]

africa needs hands-on type help.a liberal trade policy is obviously imperative.
outsiders must come in to make a difference and achieve results.
settlements of peace-corps type volunteers willing to spend five years or more would help surrounding african areas.youth from these settlements can be of tremendous help travelling across the country.
these idealistic young people would then go back home to be replaced by other volunteers.
i am confident that more funds would then be forthcoming from the rich nations.they would see that the money is being put to excellent use.
this idea would be part of a larger plan that includes a large civil-service made up of outsiders.
are we short of the young and idealistic?
perhaps we can start with edinburgh.

[nate]

"The Elusive Quest for Growth" by William Easterly has interesting content related to this topic.

[Tino]

"So, $2 a day is better than $1 a day, but they are both slave wages. ...both are crimes."

"...exploitation..."

The wages paid in Africa reflect productivity. Partly the productivity of the unskilled workers, but more so the low ability to be productive in the horrible economic environment (the same workers earn more in the US)

How do we know the wages represent productivity and not theft/exploitation? There is a simple test. If exploitation was the cause firms producing in Africa would earn massive profits, for above the risk-adjusted return on capital. Where else would the money go?

Is anyone here stupid enough to think profits are dramatically higher in Burkina-Faso than the US? Why are you leftist not investing in Africa?

The third world is poor not only because of itís leaders, but because of the illogical socialist ideology the intellectual leftist have sold to Africa for 50 years. Galbraith and Frisch are as responsible for Indian poverty as Indira Nehru and Indira.

[richard]

tino is absolutely right galbraith and nehru have a great deal to answer for.the whole nehru family has been a huge disaster for india.
yet the intellectually bankrupt galbraith is still lauded by the likes of the bbc and cnn.

[Nayak S.D.]

Whatever you ( WEST) may do, please do not charge hefty "consultation fees", hence forth.

[richard]

if you will permit further comment on the subject.nigeria has just invited farmers expelled from zimambwe to farm in the country.
first crops have already been planted.this is surely the way forward.outsiders coming in and taking an active part in africa's economy.
the times of london 22/7/2005

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