Last month British Prime Minister Tony Blair launched the report of his Africa Commission, which is just one of a number of global initiatives to spur development and reduce poverty in Africa. Aid initiatives are popular among many donor and recipient governments. However, from the Nepad Council we hear the voice of reason. The Council has asked the international community to stop offering aid to Africa, saying it was no solution to the continents poverty and asked instead for increased investment in their countries firms. Dr Birahim Seck, President of the Council, said that 50 years of massive aid flows had not reduced poverty on the continent.
This article suggests a possible solution. Non-governmental aid could be created by rich-country governments giving tax breaks to corporate and individual taxpayers for investments and philanthropy in designated developing countries. Donor nations could leverage earmarked aid funds by multiples of three or four, and the efficiency of the aid by similar multiples, merely by changing the method of delivery. If a rich-country government gives a 25% tax break on $4 million of investment or philanthropic spending in a developing country, the taxing country loses $1 million in taxes but the recipient country gains the $4 million
Experience tells us that a very small slice of the $1 million would be left and spent wisely if taken in taxes by the rich country and passed through the bureaucracy of both donor and recipient governments. Ask the citizens of developing countries what they think and they will certainly opt for the citizen-to-citizen option. Government-to-government aid is arguably the most inefficient way for the citizens of one nation to set about assisting the citizens of another.
In order to attract citizen-to-citizen funds, governments of recipient nations would have to behave a great deal better. They would have to adopt investment-friendly policies and give proper protection to philanthropic initiatives. They could not, as some do now, demand that richer nations support them because their countries are poverty-stricken poverty they have very often created by squandering resources and frustrating the efforts of their people to support themselves.
Poverty relief, if made by private organisations and individuals, would be real, identifiable and quantifiable. Investments in recipient countries and donations to deserving causes would go directly to areas where they would make the most difference in providing jobs and relieving poverty. Bureaucrats would not absorb a large percentage of the funds in administration costs. Buying guns with donor money would be out of the question.
Private investors and donors have a personal interest in ensuring that their investments are productive and their donations used for their intended purposes. They would consequently oversee the process more efficiently than governments are capable of doing. Investors would invest their capital in viable businesses producing goods and services that the consumers of the developing countries want. Tax breaks would reduce the investment risk and provide incentives for them to do more of it.
The Millennium Development Goals (MDGs) list eight goals and eighteen target objectives to reduce poverty, malnutrition and ill health. A global partnership is envisaged, coupled with the exhortation that while success depends on the actions of developing countries, which must direct their own development, there is also much that rich countries must do to help. MDG 8, which is the last goal on the list, is mainly aimed at developed countries and calls for an open, rule-based trading and financial system, more generous aid to countries committed to poverty reduction, and relief for the debt problems of developing countries. The goal also calls for co-operation with the private sector to address youth unemployment, ensure access to affordable, essential drugs, and make available the benefits of new technologies.
Such plans continue to be formulated despite the fact that government-to-government aid has failed abysmally. Despite billions of dollars spent, it has not brought about the outcomes contained in the rhetoric used by both donor and recipient nations to justify it. Notwithstanding this failure, the goals continue to expect governments to be the primary agents for ridding the world of poverty, disease and all the social ills that accompany them. There is no recognition that it is private firms and individuals that are, always have been, and always will be, responsible for reducing their own poverty and that of others.
The private sector, meaning all people not in government, provide all the jobs, all the money governments spend, all the essential drugs, all the new technologies, and everything else required by consumers. If governments were to concentrate on their legitimate core functions and leave the business of business to the people, economies would function better, consumer needs would be met more effectively, and poverty would be rapidly reduced.
The most effective way to address all the MDGs is therefore to leave the delivery of aid in the hands of private firms and individuals from developed countries. Citizens of developing countries, on their part, must develop institutions such as property rights, the rule of law, and freedom of exchange to sustain wealth-creation, which is the other side of the poverty-reduction coin.
Given the right conditions and incentives, private citizens of rich countries will reach out to the less fortunate of Africa to help them create the necessary institutions needed to support poverty-reduction. They will co-operate with the citizens of Africa for mutual benefit and will lend an empathetic hand to alleviate the worst consequences of African poverty. All that governments of both developed and developing nations need do is create the incentives and conditions necessary for people-to-people aid to start working.
Author: Eustace Davie is a director of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the authors and are not necessarily shared by the members of the Free Market Foundation.
FMF Feature Article/12 April 2005 - Policy Bulletin / 13 October 2009
Eustace Davie is a director of the Free Market Foundation.
Publish date: 20 October 2009
The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.