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Thursday, 14 July 2011

Foreign 'Aid'

Is always a touchy subject, never more so than when the economy is in trouble and 'cuts' are being made to budgets at home. An article posted at the Cumberland Lodge blog made me think on this and do a little digging. Certainly the European countries, the UK included, make some quite generous payments to a variety of foreign countries in "Development Aid" and other "packages." At the same time all of them are having to make hefty cuts to their own budgets at home.

It does raise the question - just how much of the "Aid" money actually reaches the "client" and lifts people out of the "poverty" it is supposed to be alleviating. Some of the most cynical commentators say it is Zero, but even the most generous estimate that it is anywhere between 20 and 60% - no more. Where does it go then? In fairness a sizable chunk does go in wages and administration, but from experience I can also state that a big slice goes in five star hotels, top of the range vehicles and first class air travel for the people "on the ground" - the front men and women actually in the country supposedly overseeing the delivery.

Some 'aid' packages though never actually reach the county of origin in cash. These are packages where the money is paid to contractors in the donor country to provide a service or deliver a programme in the receiving land. Personally I don't have a major problem with this - expect in the manner it is usually presented, which is a form of double accounting. "We're 'giving' $XX,XXX,XXX to rebuild the *insert service of choice* in *insert country of choice* makes a great headline - except that the workers, the main contractor and the materials are all sourced in the donor country and shipped to the site, then returned home. The money never actually touches the country supposed to be being helped. So just who is actually being 'aided' here? The recipients don't get anything except the most menial jobs and often a service or infrastructure they can't use or maintain - because it is a mismatch with what they actually need. The 'donor' on the other hand gets to recycle the money in their own economy and created a lot of well paid jobs "at home."

Then there is the other kind of "Aid" where the cash is paid over the the locals to build certain things. Great, except that the contracts are awarded to relatives, job creation is still minimal or very low paid and the contractor creams off a huge profit and provides cheap and shoddy goods. Nor does the money stay in local circulation - nope, it soon hits the banks in Switzerland and then the Big Shops in Paris, London ...

Anything the UN gets money to provide suffers badly from this last example, with anything left after all the UN Administrators have finished flying round the world First Class and camping in Five Star accommodation is pretty minimal anyway.

So what is the right way to go about this. As one person put it, it comes down to following the Christian Principle - or saving the Western Way of Life. You can't actually do both. The Christian Principle says I should share my good fortune and wealth in such a way that I help others to improve their lot. Preserving the Western Way, means making sure that Number One is taken care of.

Government tells me that I need to support the Aid Programmes because if I do not the developing nations will fail, their people will rise up and illegal economic migration will get worse. I am also told that raising the economic profiles of these nations will mean fewer births, less poverty and more democracy. I don't see how, because in order to create jobs, my economics professor used to tell me I have to create a demand, which requires an increase in supply. So far, so good - more wealth in a developing country creates a demand for more goods and that means there needs to be more jobs. Or does it?

What really happens is that as demand rises, so do wages. At a certain point it becomes uneconomic to continue manufacturing in the original country, so the factory moves. Country A - a nett Aid provider - loses the 1000 Plus jobs - and Country B - a nett Aid receiver - gets them. Costs in Country A go up, because now there is additional cost to importing what was once made there, so wages rise again. So do taxes, and so does social security costs because more and more jobs move "offshore." Now Country A has a large unemployed group drawing 'benefit' from the tax payer, who is also paying the Aid bill - and Country B has the jobs (at minimal wages still) and the "Development Aid."

To be honest, I'm not at all sure what the answer is to this conundrum. I do know that Christian Principles state that "Charity begins at home." Once I have taken care of the needs of those in my own family, parish, diocese, nation - then I can start giving help to those beyond its shores. What is worrying though, is that we have now developed a society in which Aid is something we feel compelled to give and upon which far to many despot ridden lands depend, and in which a large part of our own society at home lives entirely off the 'benefits' they receive from the State.

At some point, if my understanding of economics is correct, the demand for Aid and Benefit must exceed the ability of the taxpayer to supply it. And I think we may have almost reached that point.

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