Saturday, April 28, 2007

Why Foreign Aid Doesn't Work

Steve Chapman points out the supremely counterproductive policies behind foreign aid:

Affluent nations often make it impossible for Third World exporters to participate in the world economy. Third World producers trying to export to rich countries face tariffs averaging nearly 13 percent, nearly four times higher than the duties encountered by producers from rich countries.

Poor countries that might sell agricultural commodities in the West also face another hurdle—government subsidies to farmers in rich countries, which amount to $1 billion a day and serve to discourage imports. Textiles and apparel, where poor countries often excel, are still tightly restricted in the United States and other advanced economies. We want developing nations to compete in the world economy—but without inconveniencing our own producers, thank you. All these barriers cost poor countries about $100 billion a year, which is twice as much as they get in assistance.

"The biggest request we are making of Western countries is to open their markets," Ugandan President Yoweri Museveni said recently. "Debt relief has saved us some money, but the real money will come from trade. Give us the opportunities, and we will compete."

Of course, Africans aren't exactly helping themselves either. As Nick Kristof points out, the staggering amount and complexity of red tape only perpetuates economic stagnation and dependence on handouts:

[O]f the 20 countries in the world where it is most difficult to do business, 17 are African, according to the [World Bank] study, "Doing Business in 2006." Niger ranks 150th, followed by Sudan, Chad, Central African Republic, Burkina Faso and—the very worst place to try to do business—Congo.

Take a simple construction project—building a warehouse for books. In Niger, obtaining the necessary licenses would involve 27 procedures over half a year. And in either Nigeria or Zimbabwe, the licenses would take nearly a year and a half to obtain. . . .

The minimum wage is set at $35 a month in Niger, higher than the local market level. Employees are allowed to work no more than nine hours a day, weekend work is basically prohibited, and women are not allowed to work evenings at all. Layoffs are usually not allowed.

How does any of this relate to the war on terror? Tom Friedman connects the dots:

Wouldn't it have been wise for the U.S. to take the initiative at CancĂșn, and offer to reduce our farm subsidies and textile tariffs, so some of the poorest countries, like Pakistan and Egypt, could raise their standards of living and sense of dignity, and also become better customers for U.S. goods? Yes, but that would be bad politics. It would mean asking U.S. farmers to sacrifice the ridiculous subsidies they get from our federal government ($3 billion a year for 25,000 cotton farmers) that make it impossible for foreign farmers to sell here. . . .

The Pakistani farmer we've put out of business with our farm subsidies then sends his sons to the Wahhabi school because it is tuition-free and offers a hot lunch. His sons grow up getting only a Koranic education, so they are totally unprepared for modernity, but they are taught one thing: that America is the source of all their troubles. One of the farmer's sons joins al Qaeda and is killed in Afghanistan by U.S. Special Forces.