Sunday, April 08, 2007



Guest Column: Still Failing the Poor: why New Zealand needs to give more aid

By Terence Wood

We live in a time of unprecedented material wealth: our planet is home to almost 800 billionaires; while there are over 8 million millionaires living in the United States alone. The Sultan of Brunei spent nearly US$30 million on his 50th birthday party, while a single pen was bought at Harrods for US$265,000. Annually the world spends $US40 Billion on pet food [PDF] and the people of Europe spend $US 11 Billion on Ice Cream each year.

At the same time, according to the best available evidence, almost half the world's population lives in utter poverty, surviving on less each day than US$2.56 would have bought you in the United States in the year 20001 - in other words, almost nothing.

This is the sort of grinding poverty that dramatically reduces life expectancy and opportunities. This is the sort of poverty that leads to the deaths of 10 million children every year and which confines hundreds of millions of people to illiteracy.

This is the sort of poverty that is clearly intolerable in a world as wealthy as ours.

The question, then, is what is to be done? And, most importantly, what can we do?

The solutions to global poverty are complex and there is no one magic bullet that will rid the planet of the problem. A fairer global trading regime would help, as would debt reduction for some countries, as would reduced corruption. On top of this, however, more aid is needed. And this, sadly, is one area where – as Idiot/Savant noted – New Zealand continues to fail shamefully in the task of tackling global poverty.

In 1970 the United Nations adopted General Resolution 2626, through which the nations of the developed world committed to devoting 0.7% of their Gross National Product (GNP – now commonly referred to as Gross National Income or GNI) to Overseas Development Assistance (ODA, or aid). This commitment has been reaffirmed several times since but it has never been met. At present, collectively, the OECD donor nations don't even manage to give half this target – in 2006 a paltry 0.3% of GNI was given as official development assistance.

In New Zealand's case the news is even worse: in 2006 we managed to give just 0.27%. Or, to put it another way, our official development assistance amounted to a miserly 27 cents for every $100 dollars we earned.

Over the rest of this blog post I am going to outline 3 reasons why, as a country, we need to do better than this.

The Moral Argument

The moral case for meeting the 0.7% target is straightforward. The amount of money that is being asked of us is very modest – 70 cents from every hundred dollars of national income. Yet, given well, this money can make a huge difference to the lives of people whose needs are acute. Compared to other endeavours such as the invasion of Iraq, estimates as to what would be required to provide primary education, water and sanitation, and improved health care to everyone on Earth are remarkably small. Annually, US$55 billion alone would be enough to meet the Millennium Development Goals' health targets, as well as extend primary education, improved sanitation and safe drinking water to everyone on Earth who currently lacks it. If the OECD donor nations were to meet the 0.7% target almost US$140 Billion dollars of extra aid would be given every year - easily enough to provide sanitation, clean water, education and better health to everyone on Earth. This is something that would save the lives of literally hundreds of millions of people.

In short, the sacrifice being asked of us is so small, and the benefits associated with giving more so great that it is very hard not to see the current situation as being immoral.

Even more so when you consider that colonialism, with its arbitrary map drawing and establishment of extractive institutions [PDF], played a considerable role in the problems that confront the developing world today.

Enlightened Self Interest

No doubt, out there in the New Zealand blogosphere, there will be people to whom the idea that the wealthy are morally obliged to give money to the poor is heresy most dire. But even these people may want to consider supporting increased aid giving. After all giving more aid is in our own self interest.

While living in an increasingly integrated world brings with it many benefits it also brings risks – globalisation means that developed countries ignore the developing world at their own peril. To give you but one example, at present Papua New Guinea is in the early stages of a generalised HIV epidemic; if no action is taken it is highly likely that, within a decade, the economic and social damage wrought by the disease will be similar to that witnessed in Sub-Saharan Africa2. It is also probable – given the region's high risk indicators – that if HIV goes unchecked in PNG it will spread outwards across the Pacific. And if this happens it is highly unlikely that New Zealand, with its strong ties to the region, will escape the impact. This need not take place though: countries such as Thailand have shown that well-planned health programmes can arrest the spread of HIV. Increased ODA could be spent on such programmes in the Pacific – preventing future problems before they arrive on our doorstep.

On a more positive note, ultimately, aiding the developing world ought to aid our own economy. Today's aid recipients can become tomorrow's export markets. This has been the case with South Korea whose economic lift off was assisted by aid and which was, as of 2004, New Zealand's sixth largest export destination.

International Standing

As a small country New Zealand relies on multilateral institutions and agreements to advance our interests. Yet when we fail to meet our own international commitments we undermine our own ability to argue that other countries should meet theirs.

Until recently, New Zealand's low ODA levels were afforded some cover by the fact that many other OECD nations were poor givers. This is no longer the case: New Zealand's ODA as a proportion of GNI is now the 6th lowest of the OECD donor nations, and we are well below the OECD donor country average of 0.46% [PDF].

If we don't rectify this situation, if we continue to fail to meet our commitments, how can we argue that other countries should meet theirs?

Giving more would be the morally right thing to do, what's more it is in our own interest, the question then is why on Earth don't we do so?

One possible answer, and one which is trotted out regularly by aid's critics, is that aid doesn't work. Another is that it is trade, not aid, that is needed. A third response is that the developing world is poor because it is corrupt and that aid can't do anything to help this.

In my next post in this series, I'll have a look at these counter arguments and explain why they are mistaken.

Footnotes:

1. These numbers come from the World Bank's global poverty measurement project and are reproduced in Peter Singer's book One World. With regards to the World Bank's poverty lines several things should be noted: first, they are not exactly US$1 and US$2, they are US$1.08 and US$2.15; second, they are purchasing power parity dollars, this means that they take into account the fact that US$1 will buy you more in a developing country than it will in the US; third, they are inflation adjusted 1992 dollars – Singer provides an updated line for 2000 which is the basis for my $2.56 figure; fourth, they are arbitrary constructs taken by averaging the poverty lines of a bunch of poor countries (for more discussion see here [PDF]) - they are not constructed around any meaningful needs set and the US$1 a day line is so low as to be almost meaningless – as detailed in one of the articles here [PDF] the two dollar a day line is probably closer to a minimal set of health needs); fifth, World Bank figures most probably understate the level of global poverty (see Sanjay Reddy's article here [PDF]).

2. I have found no better illustration of the impact of HIV than this moving chart (click on the play button) plotting the fate of one of Africa's onetime success stories, Botswana.

19 comments:

While I agree we should give more aid, as with others, you've failed to take note of one key thing. ODA, as far as I'm aware covers a multitude of things. Some kinds of loans (they need at least 25% grant I believe to be considered ODA) are considered aid and as I understand it, the entire loan is considered aide and is not counted as negative aide when paid back. Indeed if I'm not mistaken if a load is converted into a grant it may also be considered aide. ODA also includes tied aid. Tied aid requires that the money be spent in the country it originates from. This means that the country receiving the aide has significantly less choice on both the sorts of good and services they can buy with the aid and their ability to negotiate for the best price. (Tied aid may also be loans)

Of course loans and tied aide are complicated issue and I'm not suggesting they should not be counted. However I do think that tied aide is less effective and should not be considered as significant as untied aide. Similarly, loans should not be considered as singificant as grants.

Also, I'm not sure if any form of free consultation, labour etc provided to countries, whether locally or in that country is counted as aide either.

My point is therefore that while we should give more, simply comparing percentages is unfair and misleading. It risks encouraging donor countries to increase the amount of tied aide and loans. This IMHO would be a bad thing. Loans in particular of course serve a purpose. I'm not suggesting they be abandoned. (I don't think tied aide should continue and there are attempts to abandon it) But shouldn't a country which gives 0.30% of GNI in grants be considered more generous then a country which gives 0.30% of GNI in loans covered by the ODA?

(It's my understanding BTW that Australia is one that gives a lot of tied aide.)

Posted by Anonymous : 4/09/2007 06:05:00 AM

Perhaps a chart to show where the billions and billions of dollars that have already been provided for aid to poor countries have gone would alliviate the fears of the donors that aid money just disapears down a invisible hole due to corruption, nepotism, etc..

My guess is that donors around the world are sick of seeing their donations not making a dent in the poverty.

How to get rid of the mugabes of Africa and the corrupt governments?

Dont know, but I do think that future aid donations will diminish even further until proper channels for aid distribution are established.

Posted by Gerrit : 4/09/2007 06:05:00 AM

I agree that more should be done, but it seems that we are pouring billions down the sink as nothing seems to have changed in our most poorest areas. It seems we need t educate the countries we give aid to first before committing any funds to it.

India as an example has its own space programme and yet so many of its population are living in poverty. African countries have high ch militaries and yet have problems with running water.

President Bush had an approach by targetting specific projects and funding them directly, rather than giving a large amount to cover "poverty" in a region. This corporate approach meant that projects got completed, one at a time. Of course I suspect that because Bush was behind it you guys will disagree with it :)

Posted by Heine : 4/09/2007 06:51:00 AM

Not that any of the following means you should not 'give more' but...

1) Money is not 'real' and it doesn't behave exactly like a 'real' thing would. We could declare lets say Bob to be a trillionaire and as long as he spent those trillions on expensive pens and ice-cream it might not really effect us at all.

What is real is resource allocation, and money is just a method for facilitating resource allocation. So if the trillionare decides to buy all the food in Africa you have a problem.

The problem is that creating a trillionare out of nowhere might actually hurt no one, and taking his money and giving it to everyone else MIGHT just make that money disappear (not that that is a disaster). Not that we cannot redistribute - but we should understand the nature of the problem a bit better than most people seem to.

2) A fairer global trading regime
might help - although it is quite likely that those who propose this really mean a LESS fair system. and one that is more prone to corruption and quirky income/ resource allocation disparity between neighbors.

3) debt reduction for some countries might help but it is hard to see why it would beat aid. The problem is that if you don't want to pay your debt you don’t have to - you just declare yourself to be defaulting. The 'banks' then get revenge by 'not lending to you' but was not the whole exercise about you NOT wanting to be borrowing money?

If your response to getting debt relief is to borrow more money then probably all you are getting is a new palace efficiently laundered via your system.

4) "The amount of money that is being asked of us is very modest"

One issue could be that if you were to give that money to poor in NZ there would be a 'trickle up' effect (taxing at each step) and effectively you get to spend the same money many times. If you give it overseas you don't, it just keeps adding up.

5) "Even more so when you consider that colonialism"

On that level colonialism probably improved an old system (i.e. it replaced a system of tiny tribal areas with vague boundaries with countries). So blaming colonialism is like hating religious charity system because we now know what a social welfare system is.

6) "Papua New Guinea is in the early stages of a generalized HIV epidemic"

Is anyone really proposing a workable plan to stop that? remember PNG is a different kettle of fish to Thailand. It is rather more like southern Africa where strategies have apparently failed entirely. And are people looking to solve the problem or just to continue it at the same level?

What would inspire donations is if the UN started working from, let’s say Ivory coast slowly fixing one state at a time on the way. That way you could see the progress happening and manage any slipage. You could solve their aids problem ensure every village has fresh water armies were paid to disarm (or whatever) etc. of course if they CAN’T solve those problems with all the world's charitable resources focused on a single tiny country then er... maybe the problem is pretty damn big.

Posted by Anonymous : 4/09/2007 07:38:00 AM

anon 1: I'm not 100% sure but I think you'll find that only a small proportion of New Zealand's official ODA goes as loans. Also, NZ has a very good track record when it comes to 'tied aid' (aid that is tied to purchases in New Zealand), we untied all aid several years ago and, since then, as I understand it, the proportion of aid money spent on NZ goods and services has been decreasing.

Generally, however, I agree with you the quality of aid matters. But I don't think that that's an argument for not giving more. Indeed, as New Zealanders, knowing that much of our aid is high quality ought to spur us into wanting to give more in my opinion as we know we are getting bang for our buck (if I lived in the US for example I think I'd be making just as much noise on improving aid quality as increasing its quantity).

Thanks for your comments.

Posted by terence : 4/09/2007 08:48:00 AM

Gerrit,

I'll deal with your comment more fully in my second post on the matter but just quickly: you wonder why all that aid money has failed to dent poverty. The thing is 'all that money' really hasn't been that much. Steve Radlet, debating William Esterly on Cato Unbound makes the following point:

Let’s start with the claim that the West has spent $2.3 trillion in five decades with precious little to show for it. $2.3 trillion! Wow! What a huge number! Except…it’s not.

Take a closer look: $2.3...[trillion] over 50 years is $46 billion a year, a modest amount for any global capital flow. And only about half went to low income countries, with the rest to middle-income countries like Israel that didn’t need it. So we have around $26 billion a year for all the low income countries. This works out to be a rip-roaring $14 per person per year in low-income countries. Much of that goes to consultant reports or is tied to purchases in donor countries where it gets much less bang for the buck. As a result the recipients actually get far less than these figures indicate. So let’s cut the grandstanding. It ain’t much. In Easterly’s judgment, based on his opening vignette, because poverty still exists in Ethiopia after it has received all of $14 per person in aid per year (Ethiopia happened to receive exactly the average amount), “aid doesn’t work.” Please!


I agree with you entirely that aid is no panacea, but it can help, part of the reason why we have seen so little evidence of this in the past is simply because we have given so little. (the full answer's more complicated than this and will have to wait until my next post).

Posted by Terence : 4/09/2007 08:56:00 AM

Heine,

Refer to my response to Gerrit for your first point. With regards to your point about space programmes and the militaries of poor countries, you are perfectly correct that *some* poor country governments waste money on things like tanks (which they usually by from western arms firms) when they should be spending the money of their own poor (note that I said 'some' here because it certainly isn't all). The question is, do you really want to punish the most vulnerable people in these countries for the actions of their (often unelected) elites? Trust me, just how to engage with repressive and repulsive governments is something that aid workers worry a lot about, but it is almost certain that the answer to the dilemma is not: "let the poor suffer". Moreover, aid programmes give us some leverage to push for governance reform too. (once again this is something that I'd like to talk more about it my next post).

Looking at the track record of the Bush administration's reconstruction efforts in Iraq I think that it's brave of you to site George W as an example of someone who practices best aid practice ;) however you do touch on a bonafide debate in aid practice: does one go for a broad sector-wide approach working with the government in question or does one aim to work one project at a time. I don't have time to discuss this fully here except to say (surprise surprise) that there are problems with both approaches and that the answer is mostly "it depends on the context".

Posted by Terence : 4/09/2007 09:10:00 AM

Anon2:

Sorry – I really don’t understand your first point, could you please rephrase it.

A fairer global trading regime
might help - although it is quite likely that those who propose this really mean a LESS fair system. and one that is more prone to corruption and quirky income/ resource allocation disparity between neighbors.


No, primarily what development campaigners are calling for is an end to subsidies in the EU, Japan and the US. Agricultural subsidies, in particular limit the potential for development significantly. My untilmate preferred model for a global trading regime is slightly more complicated than this, I have to confess. I may try and write about it some more on my own blog in the near future.

debt reduction for some countries might help but it is hard to see why it would beat aid. The problem is that if you don't want to pay your debt you don’t have to - you just declare yourself to be defaulting. The 'banks' then get revenge by 'not lending to you' but was not the whole exercise about you NOT wanting to be borrowing money?

Once again I’m struggling to get your point here. I agree that debt relief won’t ‘beat aid’ but it for some countries it ought to provide considerable domestic fiscal space for tackling poverty. Part of the trouble with the way that money is lent to countries (as opposed to private individuals) is that countries can not simply stop paying the money they owe and declare bankruptcy like a private individual. On paper at least they are saddled with every bit of debt they ever incurred. They can default in the short term, true but this can be a recipe for capital flight and all sorts of other nasty things so it’s hardly a solution.

If your response to getting debt relief is to borrow more money then probably all you are getting is a new palace efficiently laundered via your system.

Not true because debt relief can come accompanied with conditionalies that stipulate how money is to be spent (also it’s worth noting that often quite good governments can pick up the debt of the despots that preceded them and may have no desire to spend on palaces).

One issue could be that if you were to give that money to poor in NZ there would be a 'trickle up' effect (taxing at each step) and effectively you get to spend the same money many times. If you give it overseas you don't, it just keeps adding up.

I think South Korea is a pretty good example of a international ‘trickle up’ if such a phenomenon really seems so important to you.


On that level colonialism probably improved an old system (i.e. it replaced a system of tiny tribal areas with vague boundaries with countries). So blaming colonialism is like hating religious charity system because we now know what a social welfare system is.

Have a read of the Daron Acemoglu paper that I linked to under ‘extractive institutions’. Some of the countries that are poorest now were some of the wealthiest pre-colonialism. Also read any history of Africa and tell me again that the conflict that has wrecked the continent since independence doesn’t have it’s origins in the colonisation process.

Is anyone really proposing a workable plan to stop that? remember PNG is a different kettle of fish to Thailand. It is rather more like southern Africa where strategies have apparently failed entirely. And are people looking to solve the problem or just to continue it at the same level?

Yes, that same plan that has worked (in modified forms and to varying degrees) in countries as diverse as Brazil and Uganda. Get access to anti-retrovirals. Get access to condoms (recently I read a crazy statistic some thing like ‘there are fewer condoms in Africa at present then there are sexually active men – supply is a major issue). Get education. And stop stigma. No one is saying it will be easy, but I can guarantee you one thing: the odds of it happening without aid are very, very small.

maybe the problem is pretty damn big.

I agree.

Thanks for your comments.

Posted by Terence : 4/09/2007 09:33:00 AM

Terence - interesting post. I agree with the thrust of your argument, that NZ should up its game on ODA, but provided that aid projects are small-scale, practical, targeted at genuine local needs (e.g., a well for clean drinking water), and relatively simple to maintain (i.e., villagers can maintain projects themselves, rather than needing outsiders to come in periodically).

I also thought that the way you tied ODA to practical benefits for NZ (AIDS in the South Pacific) is a good way of couching the argument. People are more likely to accept the virtue of ODA if there is a 'pay back' for NZ in some way.

Like one of the earlier commentators, I am skeptical about OECD aid statistics - I know from personal experience in the Pacific that some large countries provide aid that is large-scale, grandiose, and cannot be maintained by the local people once the aid workers have moved on. The target you mention is a good starting point, but the emphasis should be on quality of projects as opposed to quantity of money being spent.

Posted by Strategist : 4/09/2007 09:55:00 AM

Strategist,

Thanks for your comments. I agree with you and the other commentor who noted that aid quality matters. I am also agree up to a point with your description of what good aid might look like. I'd just add though that this is something that has been debated and debated and debated in development, and is something that the better aid agencies (New Zealand's included) already take on board (and where aid agencies don't take this information onboard it's often for political reasons rather than a lack of knowledge). There is a caveat to the small and sustainable is beautiful line of thought though. And that is that there are instances when it does pay to think big - working with a sympathetic government to fund and reform its health service may ultimately have more benefits than a thousand wells. As may building a large road that connects rural provinces to a central port (even if that road subsequently becomes run down).

I guess what I'm trying to say is that best practice in aid delivery isn't always clear cut.

Posted by Terence : 4/09/2007 11:55:00 AM

Anon1: The Center for Global Development produces an annual Commitment to Development Index which factors in things like loans, tied aid, trade and immigration (and, ironically, kicking over poor countries for the benefit of the rich). New Zealand does rather well on it because our aid is considered "high quality" - we give grants, not loans; we don't use it as corporate welfare for NZ companies by tying it; and we don't pretend we're helping people by giving them tanks and guns. OTOH, our score moved backwards last year - though not as fast as some other countries, so we still have a long way to go.

Gerrit: one common way of delivering aid in countries with corrupt governments is to work around them; rather than give directly to the government, give through an aid agency which will actually deliver in the field. This doesn't solve the whole problem, but it does make some of the more obvious abuses more difficult.

Strategist: I think the moral argument holds water, but obviously, not everyone agrees. But the enlightened self-interest one is fairly strong as well. The Australians talk a lot about the "arc of instability" in the pacific, and the danger of that instability affecting Australia and Australian interests. Ensuring that the inhabitants of Pacific countries are healthy, educated, and have a clear future is a good way of preventing that.

Posted by Idiot/Savant : 4/09/2007 11:58:00 AM

Terence - re. 'thinking big' - yes, on reflection, what you say on this is sound. But whether a project is big or small, sustainability is critical. There's no point building a road or helping set up a health programme if these fall apart after the donor government and its aid workers leave. If you can get local people/contractors doing the work, and if you can provide effective training as part of the aid project, so much the better.

Posted by Strategist : 4/09/2007 01:12:00 PM

> but this can be a recipe for capital flight

er - you mean capitalists might be scared you won't pay your loans? the capital markets will do what rationally protects their capital. The good news is you can take all their property open your markts up again and as long as you are credable a totally new set of investors will come flooding in.

> debt relief can come accompanied with conditionalies

then it is aid. cool. Im just concerned one might end up relating aid positively with the degree of incompetence of the government.

> I think South Korea is a pretty good example

Is south korea producng a lot of aid money? If so then yup it is. Sth Korea was always going to be a economic power (and it isn't finished yet). Not everywhere is a Sth Korea.

> Some of the countries that are poorest.

Not sure what the point of that is. collonialism redistributed resources rather like the invention of the spear or of agriculture. rich get poor, poor get rich etc. Overall people were more connected to the rest of the world and started thinking of themselves in larger groups and distributing resources.

> but I can guarantee you one thing: the odds of it happening without aid are very, very small.

yes of course. And we definitely need more condoms. Lucky for Thailand they make half of them.

I get the feeling AIDS need a huge effort more than chipping at the edges effort.

Posted by Anonymous : 4/09/2007 02:33:00 PM

Strategist,

Agreed re. sustainability.

Anon,

Read up on the Asian financial crisis some time. Trust me international capital flows are not the most rational of creatures. And short term capital flight can do a heck of a lot of damage.

While you're in the history section of your library please read any book you can find on colonialism. The damage it caused was considerable and hardly in dispute.

Posted by Terence : 4/09/2007 10:20:00 PM

I think we should remember that NZ is a lot poorer, especially in raw currency as opposed to PPP terms than a lot of the countries in the OECD.

A lot of development aid gets spent on things like decent housing; sealed roads; clean water; adequate sewerage. There are places in NZ that lack for all of these. Kids in rural NZ suffer from diseases of poverty that have been more or less eradicated elsewhere.

That isn't to say that we shouldn't be giving more external aid but I think that we also need to deal with our internal problems as well.

Posted by Rich : 4/10/2007 09:00:00 AM

"Bush had an approach by targetting specific projects and funding them directly" - which would be great if the number of projects he funded was multiplied by a thousand, and they didn't all consist of promoting abstinence.

Posted by Commie Mutant Traitor : 4/10/2007 11:58:00 AM

Rich,

yes but we are also a lot wealthier than the countries that need our help, and the amount being asked for is *small*.

I'm all for dealing with poverty in our own country, but I really don't see this as an either or.

cheers

Terence

Posted by terence : 4/10/2007 12:10:00 PM

Oh - and if anyone is interested - Regarding talking the AIDS epidemic, I got this comment emailed to me from a friend who works in the area:

...Thailand's case needs to be cautiously used. They did well with the 100% condom approach - but only focussed on sexworkers, and to some degree this has been let-up a little recently. They now see a rise in HIV in Married women. There are issues with access to ARVs there also. Uganda was also a good case in relation to education, access to condoms and reducing stigma - probably a better case than Thailand in some ways. But remember that they now have increasing rates of HIV infection - probably - but not proven - to be due to the President's [I don't know whether the president in question here is Bush or Museveni) embrace of abstinence only. Any push to address HIV should include strengthening the health system as a whole, and providing access to holistic SRH information and services.

Posted by Terence : 4/10/2007 12:15:00 PM

I/S: I wouldn't put too much store by the Commitment to Development Index. It's a good idea in theory to look at more than just aid levels when assessing a rich country's contribution to development. But it's pretty difficult to do in practice, and although I haven't looked at the CDI's methodology lately, it has been pretty dodgy in the past. For example, the US tends to come out really well on trade. WTF? This is the same country that subsidises its own farmers to the hilt while at the same time pressuring poor countries to open their markets and remove protections for poor farmers. And the US was also getting props in the CDI for 'keeping the international sealanes open' or some such nonsense.

Posted by Ewan : 4/10/2007 09:20:00 PM