Does Foreign Aid Do More Harm Than free essay sample

Good? Essay, Research Paper The dictionary definition of the term # 8216 ; foreign assistance # 8217 ; is: # 8220 ; The administered transportation of resources from the advanced states for the intent of promoting economic growing in developing countries. # 8221 ; [ Bannock:1988 P.164 ] However, so as non to confound foreign assistance with the investings of transnational corporations or commercial Bankss, many economic experts require foreign assistance to run into two distinguishable standards: 1 ) Its nonsubjective must be noncommercial from the point of position of the giver and 2 ) it should be characterized by concessional footings. There are many ways and agencies of reassigning resources to LDC # 8217 ; s ( Less Developed Countries ) : Multilaterally, as with the many international bureaus such as the World Bank or assorted sections of the United Nations. Bilaterally, which is an understanding between two states for a specific sum or point of assistance. Direct nutrient assistance, or, the granting of discriminatory duties by developed states to Third World exports of manufactured goods. However, the rating of the effects and intents of foreign assistance has become a subjective and value-laden minefield, with many observers merely picking out the facts which suit their peculiar ideological position. In this essay we will measure how the different signifiers of foreign assistance affect LDC # 8217 ; s, examine the opposing theories of dependence and modernisation in relation to development aid, and eventually, inquiry whether the current signifiers of foreign assistance are maximising their public-service corporation. With the Marshall Plan and the dramatic European recovery still fresh in every politicians heads, the thought of foreign assistance began to be attractive to both giver and receiver during the 1950 # 8217 ; s. In this decennary the ex-colonies began to ralize merely how dependent they still were on the former imperial powers. The USA, plus the major European states believed that supplying foreign assistance would non merely let a step of go oning con trol over their former charges, but besides help incorporate the menace of communism. It was in these fortunes, with no uncertainty big sums of selflessness and high hopes for stoping poorness, ignorance and disease, that the assistance merry-go-round began. Figures kept between 1960 and 1986 show that ODA ( Official Development Assistance ) has increased from an one-year rate of $ 4.6 billion in 1960 to more than $ 37 billion in 1986. These figures include bilateral/multilateral grants, loans, nutrient and proficient aid. The statistics, nevertheless, are misdirecting as in existent footings there has been a steady diminution since 1960 in the existent per centum of developed state GNP # 8217 ; s ( Gross National Product ) devoted to ODA, from an overall per centum of 0.51 % in 1960 to 0.36 % in 1986. The United Nations recommends a lower limit of 0.7 % of GNP from developed states towards ODA. In a recent survey of parts to ODA by developed states merely five of the 18 studied ma naged to make and go through this figure. They were, in order of ranking: Norway ( 1.03 % ) , Netherlands ( 0.91 % ) , Sweden ( 0.86 % ) , Denmark ( 0.80 % ) and France ( 0.78 % ) . The United Kingdom was twelth with 0.34 % of GNP devoted to development aid of all signifiers, while the USA came underside of the tabular array with 0.24 % of GNP traveling towards foreign assistance. However, besides Japan, the USA remains the largest giver in existent footings with parts numbering 24 % of all ODA. [ Beginning: Todaro, P.483 ) As pointed out earlier foreign assistance takes many signifiers and constituted approximately one tierce of all capital flows to the LDC s during the 1980 s, the other two tierces dwelling of private bank loans and investing by transnational companies. We will now look at the different signifiers of development aid available to the LDC s. BILATERAL AID Bilateral assistance is the direct transportation of specific resources or money between two states. Many of the industrialised states in the West have their ain functionary development bureaus, the largest being the United States AID ( Agency for International Development ) UK assistance is administered by the Overseas Development Administration. Bilateral assistance is seldom an straight-out grant of money, it is normally a low involvement loan. However, in the bulk of instances it is a tied loan , this means that the receiver of the loan is required to buy goods and services from the donor state. For illustration: the British Overseas Development Administration may make up ones mind to widen a trussed loan to the authorities of Ghana for the building of a steel factory. Under the footings of the understanding the Ghanaian authorities will hold to purchase all the stuffs and proficient aid for the building of the undertaking from British maker s. In the words of a former British curate for abroad development trade follows assistance . MULTILATERAL AID Most many-sided assistance is channel led through the World Bank, the IMF and assorted bureaus of the United Nations. ( The IMF is something of a misnomer here as its loans are seldom concessional, but it is still regarded as an of import adjunct of development. ) The two chief bureaus, the World Bank and the IMF, claim that their international position makes them wholly nonsubjective and so enables them to do value free determinations on the distribution of ODA. Their declared purpose is to advance and implement economic policies favorable to development. To this terminal, particularly during the 1960 s and 70 s, many of the their loaning policies were directed towards the economic substructure of a state, such as the development of conveyance, communications and power systems. Predating and following the publication of the Brandt Report ( 1980 ) there was a noticeable displacement, particularly by the World Bank, in policies associating to development aid. The purpose was to airt the accent of international assistance off from capital intensive undertakings in order to assist the rural and urban hapless. To this terminal a higher proportion of World Bank financess was spent on agribusiness, instruction, wellness and the proviso of proficient aid. The IMF and the World Bank are held in great esteem by private loaning establishments and have been referred to as the police of development . Other official and private loaners tend to impart or non ot lend harmonizing to whether the authorities in inquiry has the blessing of these two bureaus. This gives them a great sum of purchase when negociating economic policy determinations with developing states. FOOD AID AND FAVOURABLE TARIFFS The United States AID ( Agency for International Development ) , through its Food for Peace programmes, is the chief purveyor of the direct export of nutrient to developing states. This policy has been criticized in certain quarters as some observers believe that it creates a dependence civilization, distorts the local markets and provides a disincentive to agricultural programmes for greater autonomy. Another facet of nutrient assistance is the green revolution where intercrossed strains of nutrient harvests have been developed by some western states so that the cereals would turn faster and be more productive. Duty: The last signifier of assistance, and the least used, is the pattern of allowing discriminatory duties to LDC s, this enables Third World maker s to sell their merchandises in developed state markets at higher monetary values than would otherwise hold been possible. This pattern represents a net addition for LDC s and a net loss for developed states, nevertheless, this is a pattern which is seldom used. Before traveling on to critically analyze the motivations and effects of the Western assistance programmes, in relation to thedependency and mordenization theories, we will briefly sum up the the signifiers of ODA available to freshly industrialising states ( NIC s ) and the LDC s. All developed western states have bureaus for overseasassistance, these bureaus enter into understandings with LDC s, normally based on a tied-loan strategy. Multilateral bureaus are funded by developed states and involve themselves in big graduated table programmes and funding operations frequently motivating important changes in the economic policy and construction of the recipient state. Food assistance is the direct cargo of nutrient to severely developing states, the European Community and the United States are major participants in these strategies. Discriminatory duties on manufactured goods are highly good to LDC s but seldom used. The OPEC ( Organization of Petroleum Exporting Countries ) group of states besides participate in ODA, but on purely bilateral lines. As the OPEC states have no important industrial or agricultural base, their aid takes the signifier of direct hard currency loans or grants and is normally limited to the less developed states of the Arab universe. Equally good as the many national and international bureaus for the proviso of foreign assistance there are a figure charitable organisations which provide alleviation and proficient aid throughout the Third World. All of these bureaus are the chief channel for the transportation and distribution of economic resources to the less developed states of the universe. The raison detre of ODA is to ease economic growing by supplementing investing chances and get the better ofing restrictive constrictions in the domestic economic system. In macroeconomic footings foreign assistance performs two maps: it adds to resources available for investing and it augments the supply of foreign exchange to finance imports. [ Eatwell:1987 P.140 ] In this following subdivision we will analyze two diametrically opposed sentiments which come out steadfastly against foreign assistance, albeit for wholly different grounds. The first is championed by Professor Bauer, who believes that ODA distorts the domes tic market, while the 2nd sentiment is a merchandise of the dependence school and argued instead articulately by Teresa Hayter. Professor Bauer was the earliest and most fierce critic of development assistance. His hypotheses refutes the recognized impression that comprehensive cardinal planning, plus significant sums of ODA, could interrupt the barbarous circle of poorness, low nest eggs and low investing and therefore establish a state into sustained economic growing. Bauer points to the fact that virtually all of the industrialised states have achieved prosperity without cardinal planning or foreign assistance and that given stable economic and political conditions, even really hapless states could bring forth productive nest eggs and investing chances. Basically Bauer is an advocator of supply-side economic sciences, and strongly believes that assistance inhibits growing while strenghtening the authoritiess control over the economic system, necessarily taking to premature indust rialisation behind high trade barriers and advancing caustic influences in political and economic life. Here is a characteristic statement of Bauer # 8217 ; s place: # 8220 ; Foreign assistance # 8230 ; can non appreciably advance the growing of national income. It promotes the black politicisation of life in the Third World. Peoples divert their resources and attending ( because of assistance ) from productive economic activities into other countries , such as trying to forecast political developments, placating or bribing politicians and civil servants, and operating or evading controls.† [Mosley:1987 P.241] However, one could suggest that Professor Bauer was merely pickingout certain facts to support his own ideological viewpoint. There are many instances of governments becoming heavily involved in the running of the economy, often with great success: Costa Rica, Brazil, Taiwan and South Korea to name but a few. Certainly, some aid programmes have crowded out domestic investment, raised internal prices and distorted the labour market to the detriment of the local producers, but the long-term benefits of, for example, a road-building programme, could be construed as outweighing its short-term costs. There is also the point that private investors, whether domestic or foreign, would not want to get involved in many of the public programmes that are funded by ODA, and that governments in the very poor countries could not af ford to borrow on commercial terms to fund these projects. Finally, Bauer’s assertion that foreign aid stifles local entrepreneur’s and leads to the corruption and centralization of political life is a claim that is difficult to substantiate with any hard empirical evidence. Indeed, both India and Bangladesh, who were recipients of substantial amounts of foreign aid during the 1970’s, actually privatized parts of their industrial sector, liberalized controls on foreign trade and dismantled some marketing boards. To sum up, Bauer believes that all foreign aid is simply the avoided ‘cost of borrowing’ which leads to essentially unproductive, inefficient practices, and displaced social goals. The modernization process is disrupted by the suppression of the informal economy, the curtailment of import-substitution and the general fostering of a social and political atmosphere in which ODA discourages domestic entrepreneurship. However, Bauer’s vie w is essentially narrow, and does not take into account the benefits accrued from foreign aid inputs into education, health, social welfare and general infrastructure programmes, which the private sector cannot supply. Thereby leaving a government with limited financial resources no other option but to seek help from abroad in order to develop its domestic economy. Therefore, we can conclude that ODA, according to Professor’s Bauer’s criteria, is more positive than negative. While the modernization theories highlight the adverse effects of foreign aid from a domestic, microeconomic perspective, Hayter and other dependency theorists believe that ODA is used on a global scale to advance the interests of the core industrialized nations at the expense of the periphery. Hayter’s view is that foreign aid is given by donor countries because it is in their political, strategic or economic interest to do so. Ever since the 1950’s American economic and military aid has flitted all over the globe, contriving to prop up shaky and often brutal regimes in an attempt to halt the threat of communist expansion. The Soviet Union and China have also indulged in these political/strategic practices as to a lesser extent have France and Britain. Aid is seen as a means of punishing enemies, rewarding friends and enticing non-committal governments into the Western fold. However, it is the economic justifications of providing aid to the Third World which take on the most sinister motives. The bi-lateral loan-tied schemes, which are the most common form of aid between a developed and undeveloped nation, are viewed primarily as a means of opening up new markets and/or selling otherwise uncompetitive products. Once a recipient nation has imported a piece of capital equipment, which may well be inappropriate to its needs, it will invariably need continued technical assistance and spare-parts from the original donor. Furthermore, aid can be used as a means to su pport uncompetitive tendering from a foreign firm in the domestic market of an LDC, where otherwise the materials and skills would have been provided by local sources. Evidence for this was provided when Bharat Heavy Electrical (BHEL), India’s state-owned power station contractor, was overtaken by GEC due to the fact that the UK Government subsidized GEC’s bid with a grant of money. [Source: Hayter 1990 P.242] Likewise, the policies pursued by the World Bank, of installing economic infrastructures such as transport, communictaions and power systems, could be cynically viewed as being necessary for the profitable operation of a multinational taking advantage of cheap labour, or foreign mining companies and agribusinesses exploiting natural resources. It would seem,therefore, that â€Å"the export of capital thus becomes a means for encouraging the export of commodities.† [Hayter:1981 P.73] The structural adjustment loans provided by the multilateral agencies are seen as an attempt to lock the developing countries into the world-wide capitalist system and ensure their markets remain open to exports of manufactured goods, while inhibiting nascent industrial bases which would benefit from some measure of tariff protection. To sum up, the theories put forward by Hayter are nothing short of a global conspiracy theory. The industrialized countries, through their own aid programmes and the multilateral agencies, help to maintain a world economic and political order which is subordinate and necessary to their own survival. Through the judicious dispersal of aid money, Third World elites are kept in power who can pursue, or are forced to pursue, policies favourable to the West. Even development assistance which has contributed to the rise in health care, education and social welfare, is seen as an attempt to quell local unrest and halt any undue movement towards a revolutionary socialist government which would nationalise the factors of production. However, it is difficult to see how these aims are ultimately to benefit the industrialized nations. The declining prices of commodities, in relation to manufactures, will eventually kill the ‘goose who lays the golden egg’. Many LDC’s can also choose from a plethora of donor nations, each eager to gain a foothold in the recipient’s country. Due to fungibility, and the Byzantine workings of Third World bureaucracies, the multilateral agencies find it almost impossible to dictate the exact destination and outcome of their investments. In fact, as long as the LDC’s agree in principle to the demands of the World Bank, or the IMF, they have great freedom in how they spend the aid and run their public sector’s. This, of course, is not an indication of whether the aid does more harm than good, it is more an indication that foreign aid cannot be used solely to further the interests of the industrialized nations to the detriment of the recipients. Th erefore, we can reject the supposition that ODA is simply a form of neo-colonialism, designed to perpetuate the dependency of the former colonies within the capitalist-imperialist system. Rather, it has become a transfer of resources which serves many aims and many masters, which inevitably detracts from its utility. In this essay we have examined two arguments which come out firmly against foreign aid. Professor Bauer believes that ODA creates a dependency culture which disrupts the natural modernization processes, and so hinders an economies ability to compete effectively in the world market. While Teresa Hayter argues that the foreign aid is just one weapon in the armoury of the advanced nations used to continue the dependency relationship, which can only be ended by the LDC’s removing themselves from the capitalist system. These theories have evolved from the many criticisms levelled at foreign aid since its inception during the 1950’s. Development assistance has b een accused of solving old problems only to create new difficulties in their place. For instance: Policies of industrialization appeared to succeed in boosting industrial output, but did so by increasing capital intensity which gave rise to intolerable unemployment rates. The so called ‘green revolution’ increased agricultural output but at the cost of the small peasant farmer, who was forced off his land and so created more unemployment and poverty and fuelled the stream of rural migration into the cities. The transfer and proliferation of inappropriate technology led to a constant demand for spare-parts and also added to the LDC’s energy requirements. The projects, equipment and loans granted bilaterally also reflected the conflict of interest on the part of the donor, who wanted to assist the recipients economic growth while achieving objectives of foreign and commercial policy. While the programmes offered by the multilateral agencies often rested on the asum ption that â€Å"western systems can be grown in, or imposed upon, any culture and that the effective transfer of wealth from North to South requires little more than a bank operation.† [May:1981 P.194/198] Undoubtedly, the ‘backwash’ effects of certain foreign aid programmes and projects have damaged, or even retarded, some sectors and economies in the developing world. But, to use a medical analogy, because a patient doesn’t respond to a certain remedy, a doctor will not just stop the treatment. He will look around, try different cures, until something does work.Therefore, the greatest strength of ODA, and the bestreason for its retention, is the ability of its administrators tolearn from their mistakes and mould policy accordingly. This abilitywas highlighted by the Pearson and the Brandt Reports, which recognized that the existing policies of capital intensive economic growth were creating more problems than they solved. Thus the emphasis changed and p olicies were adopted to increase employment opportunities and to secure greater equity through the distribution of income. The value of foreign aid has also been damaged by the expectations and claims of its adherents; ODA is not, and never can be, a universal panacea for developmental problems, it can only be part of a much wider process. A process which seems to have succeeded in many parts of Asia and Latin America but yet to have much impact in Africa. Finally, how do we assess whether foreign aid has ‘done more harm than good’ in the Third World; to do so we would have to accept an all-embracing set of values and goals. This is extremely difficult, as there are as many reasons for giving and accepting foreign aid, as there are academics willing to interpret the motives and consequences against their own ideological yardstick. To sum up therefore, it is best to retain a minimalist and objective perspective. â€Å"Stripped to its bare essentials, the case for develo pment aid is that it increases growth rates in some developing counries, improves the living standards of some poor people, and offers the propect of doing better in the future on both counts. That is all.†