Matteo Martini said:
...snip...
Erixon explained the flawed assumptions that underlie the theory of aid:
Countries are not poor because they lack roads, schools or health clinics. They lack these things because they are poor – and they are poor because they lack the institutions of the free society, which create the underlying conditions for economic development. Aid has it upside down.
He continued by contrasting the plight of most African countries with that of Botswana:
Botswana chose to empower its people with inclusive economic institutions instead of pursuing socialism like many of its African counterparts. As a result, it has experienced the world's highest rates of economic growth in the past 30 years, and its people are far better off – with per capita incomes of around $8,000 per year, compared with less than $1,000 in many African countries.
Africa received over $400 billion in aid between 1970 and 2000. Yet, the evidence presented in the study shows an inverse relationship between aid and economic growth – when aid rises, growth falls. In part, this is because aid supplants private-sector investment and undermines savings: there is also an inverse relationship between savings and aid – when aid increases, saving decreases. "
First of all, I'm very skeptical of anyone who claims that financial help to Africa is worthless - are they worried about having to pay the bill? I say that only to put his argument in perspective. Then he uses Botswana as an example, and it's difficult to counter that, because who really knows what happened in Botswana?? Whatever small piece of news that arrives to us might be biased. I don't know enough about Botswana, and I'm not sure what "inclusive economic institutions" mean.
$400 billion isn't that much over a 30 year span and millions of people. Compare that to the 300 billion that the EU spends with agricultural subsidies and the... what, 150 billion the US has spent so far in Iraq?
But it's still a vast amount of money. I do concede that money can be invested unwisely at any scale - people who earn the lottery may end up in poverty later on. What that means is that giving aid is not enough, and in some cases, not appropriate. I don't see how money can be detrimental per se. After all, underdevelopment, in its most basic definition, is lack of capital. So you can't really convince me that capital is bad for an underdeveloped country.
Brazil has experienced its economic miracle in the 1970s - GDP growth of 10%, 12%, 15%, during its military authoritarian regime. It was also a time when the country received vast amounts of loans, which were duly invested in infrastructure and industrialization. I could write 2 billion words on this, but, for short, let's just say that I don't believe that, necessarily, authoritarian regimes are the roots of backwardness.
I believe that democracy tends to foster progress, but then it can very well be a consequence of economic development rather than its cause. When you have a high rate of illiteracy, democracy is a piece of fiction. As poor education is linked to poverty, then you see the conundrum.
What is the economic relevance of Africa right now? How much it answers for the global world trade? What's its strategic importance? The problem is that Africa, in general, is largely irrelevant. An investor has plenty of other countries to choose from, with better competitive edge (in general terms, with little exceptions, maybe what, Nigeria's oil?) and would rather invest in the Asian tigers, China, India, Brazil. Even agriculture needs big investments for efficiency.
If western countries directed money straight into schools and universities (of better, if African leaders did that), soon a middle-class would emerge and they themselves would be able to tackle with weak democratic institutions, corruption, bad governance, dictatorships. But for as long as large portions of the population can barely read or write, if at all, I can't see how governments will ever be held accountable for their deeds.
