10 December 2007

Notes about foreign aid

I was reading a book called ‘The soulful science- what economists really do and why it matters’ by Diane Coyle (2007). There is a chapter about ‘How to make poverty history’. It questions the nature of the evidence available on the causes of poverty and whether the discipline of economics currently agrees upon how to detect poverty and what policy it recommends. I think it has made some reasonable, logical points about poverty. Here are some interesting things about poverty that stand out to me:
  • People in poor countries have reasonably low expectations about future prospects so they are unwilling to invest in setting up businesses (p. 68). They are also unwilling to invest in child’s education as they don’t believe they will recoup the cost of schooling and income loss. Education might be a new thing for the family, so why would they try something new instead of sticking to working if you can’t see the immediate rewards (p.68)?
  • The banking system is inadequate so poor people can’t invest in education.
  • There are issues with the system of title to property so it can’t be used for collateral
  • It takes a long time to set up a business. I remember reading some statistics about this. They say in Australia it takes 2 days but in some countries it takes years, and bribes.
  • The presence of important natural resources such as oil and diamonds is a curse. The profits and royalties go to elite, corrupt officials only in an undemocratic country. I never thought about this but I suppose this makes sense.
  • Some guy called Lord Bauer said aid was ‘transferring money from poor people in rich countries to rich people in poor countries’ (p. 78). I was sitting there delivering an aid program and at that moment I experienced concern because in front of me at that moment it seemed true. This guy also said ‘if external subsidies were indispensable for economic advance, mankind would still be living in the Stone Age’ (p. 78). I think this might be what is happening with so called ‘fair trade’. Some people mess around with prices and subsidies without analysing the full consequences.
  • Another guy called Branko Milonovic raised the point that more than a third of Brazilians are richer than poorest 5% of people in France. Therefore there is a 10% chance that aid is transferred from a poorer to a richer person (p.68).
  • There are incentives for corrupt officials to keep the country poor because the poorer the country is, the more aid they will receive and the more opportunity they have to take money. I can see that it this certainly isn’t an incentive to move things along quickly. Similarly, in here they have a system of per diem payments that all NGOs pay if they want people to attend their meetings and seminars. I personally think this results in more than optimal meetings and seminars. Often someone not necessarily the most suitable person try to go to a meeting try to go to as many of these types of meetings as possible.
  • Agricultural subsidies in Europe and North America don’t give poor countries reasonable access to their agricultural markets (p. 90). These figures are scary- EU gives agricultural subsidies of over 300 billion euros per year which is the GDP of sub- Saharan Africa (p. 91). They say that’s enough to fly all of Europe’s cows around the world first class (p. 91). This makes me pretty angry- it just results in bad expensive food for them!

More about subsidies- I was reading an article in the Economist I liked because it was about cheese, which I love. In Switzerland they subsidise dairy farming a lot because it looks pretty everyone because it is the Swiss thing to do. This means that way too many people produce milk. The cheese is expensive because the milk they use to make it expensive. No one wants to buy the cheese because it is so expensive in Switzerland. Out of pride or something, they don’t want to lower the price of this cheese in Switzerland. Therefore they dump the cheese on the Italian market at a bargain price. Swiss people then go over the border to Italy to buy the Swiss cheese. I find this stuff crazy.

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