Why Third World aid is no solution for poverty

Following John Blundell s Capitalist Manifesto Against UK Poverty last week, he now puts his analysis of the cure for Third World Poverty

I USED to find that if I expressed misgivings about Third World Aid I was regarded as hard hearted. How could I be so insensitive?. Let me be blunt and not so much hard hearted as hard headed and clear eyed. The bulk of overseas aid, official or voluntary, is positively harmful. This is offensive both to common sense and to our charitable instincts. Surely, we think, the word and the thing are the same. Aid sounds kindly and benevolent. How can aid not help? Politicians jostle to show their compassion with our money.

Hilary Benn MP now carries the flame previously carried by Clare Short. He has an entire Department of State. I do not denigrate either him or his colleagues personally. They have simply not understood the subtle nature of the gross problems we lump together as Third World Poverty.

The late Professor Peter Bauer made a lifetime’s study of aid and concluded in all but a tiny proportion of cases it was always pernicious. Yes, it damages those in the recipient nations. He came up with the penetrating formula: “Aid is the process by which the poor in rich countries subsidise the rich in poor countries.” He means most of the aid billions goes to the governments of the Third World or their agencies. Whole societies that once traded become politicised and militarised as those in power will do anything to stay in office and keep the gravy coming.

Aid, then, is mostly a lubricant for the planet’s greater tyrants, bullies and thieves. It may be argued that Robert Mugabe’s Zimbabwe is too easy a target but at least we can all agree by any measure the economy of this well-endowed place has been destroyed by its leaders. It is not a few hundred white farmers who have been degraded. Everyone, save a small cadre around the presidency, is starving or fleeing. What is Mugabe’s main source of income? Tobacco, maize, or lignite? No it is aid, much of it not with the faintly sanctimonious glow of UK official gifting but from Libya and China. Zimbabwe’s Torture State is only sustained by subsidies.

I am not arguing that the methods of appraising projects be beefed up and the more vicious regimes abandoned. Tweaking aid programmes may make some marginal differences but much of it will still end up in the Swiss bank accounts of kleptocrats. We know from our own welfare state that making people dependent on aid is not the best hand-up. Hand-outs are not hand-ups.

The misery territories – most of Latin America, almost all of Africa and too much of Asia – lack the subtle but essential tools to nourish prosperity. They lack what we regard as assumed. They do not have the rule of law. In its absence, markets cannot evolve. We can resolve disputes. Contracts are honoured. If they fail we have recourse. We may all groan at the ability of lawyers to make disputes complex and expensive but basically we trust our law givers.

In the lands we define as needing aid you will observe nobody has recourse against the corrupt or thieving agencies of their governments. Do you suppose the citizens of Equatorial Guinea, Haiti or Myanmar can be assured of simple civil rights we take for granted? Every reader of The Business owns property, either real estate or paper claims to pensions or shares. The tissue of these relationships compose our prosperity. Third Worlders have no such discernible property rights. Many even do not own their own labour. They are effectively serfs – or slaves.

Hernando de Soto, the noted Peruvian economist, has blazed a trail criticising the processes by which the poor remained dispossessed – precisely because they are denied possession. Hundreds of millions farm on land which they do not own. This means they cannot trade it or bequeath it. They cannot borrow against it. It is not profitable to improve it. In Third World urban landscapes only the minority enjoy ownership in the sense we can own – the ability to consign or to use as security.

We all saw Robert Mugabe’s cohorts bulldoze through the shanty towns of Bulawayo and other towns. Those film clips struck me as a perfect cameo of the truth of the Third World – the state can drive through and crush humble homes for no good reason and the people have no recourse or redress. Who funded the Zimbabwe bulldozers? Yes, they were aid gifts.

It is my impression that the Bauer or de Soto perceptions are no longer marginalised. Everyone knows aid is too often now only a squalid and corrupt collusion with evil. The beautiful cinematography of the film “The Constant Gardener” is taken to illustrate the depravity of pharmaceutical plcs. To me it showed the emblematic flaws of the Kenyan state.

There must have been a time when Britain was recognisably a Third World place. The Roman accounts portray us as blue-dyed warriors practising human sacrifice and worshipping trees and with minimal agriculture as we preferred to hunt over land owned by nobody. It was a slow process by which we accrued the blend of rights we now call the rule of law. Henry Sumner Maine, the distinguished jurist, described this as an evolution “of rules of status to rules of contract”.

The tormented former French colony of Haiti strikes me as a perfect laboratory of how not to run a society. So close to Miami, where human beings flourish, Port au Prince rots. Its people starve despite ample sunshine and rich soils. What does Haiti lack? It has not got the security or peace of laws – rules of just conduct.

This is not to say the people of Dade County Florida are better – more dextrous or more intelligent – than Haitians but that they can form much more diverse and complex relationships: contracts which permit pricing and markets to engage and to enrich everyone.

There is a huge well of sympathy or compassion that seems to me to be deflected into cruel error by the Third World lobbies. I exempt disaster relief. If a volcano explodes or a tsunami engulfs then air-freighting food, fresh water and tents is appropriate. Gifting money to the minister of finance in a remote capital is to do nothing to help. Rather it is to keep the corrupt in power.

Here is the tragedy. In the past we knew nothing and saw nothing. Now broadcasting can show us the horrors of Ethiopian starvation. Yet sustaining the bandits in authority in Addis Ababa is no solution. They are the problem. It is now 20 years since Michael Buerk’s heart breaking BBC reports of a human catastrophe of “Biblical proportions”. Yet do Ethiopians now enjoy clearer security to their land? Are their markets open and free? The answer is no.

We have all seen the central government in Khartoum orchestrating its ethnic cleansing programme across Sudan. What is the main source of the Sudan regime’s funds? Yes, you guessed correctly.

Some argue there is now a need to impose an enlightened version of the “white man’s burden” and resume control of these blighted places. I understand the instinct but I believe in the power of ideas and here there is hope because all the young talents of what we term the Third World are being educated in the West. When I meet them at university audiences I find they want to bring affluence to their homes and they know that this needs sound laws and functioning courts. As Friedrich Hayek would say, it will be their influence which will prevail and the politicians will follow. Capitalism, the fruit of fair laws, is what the Third World needs. Aid merely nurses cruelty.

John Blundell is Director General of the Institute of Economic Affairs.