Sunday, January 28, 2007

Foreign Aid

Economies are complex open systems which have so many intersecting elements that they are hard to predict, never mind control. One result is that things that work on the small scale may fail dismally on the large scale. Aid that works on the small scale, with one family, one school, or one village may fail on a larger scale.

An example can illustrate this principle. Agricultural aid can help a village to grow a surplus for sale and allow subsistence farmers climb out of exteme poverty. But if local roads are not car-worthy, then the surplus food can reach only the most local markets where the combined surplus of all the local farmers pushes prices down and leaves farmers in the situation of getting no additional income for their extra output, despite the additional input costs of fertiliser and seed required to get the extra productivity.

If agricultural aid is scaled up beyond the village to a district, it only worsens the market conditions.

So, what is the solution when aid fails like this? Do we blame the recipient country? This is exactly what happens when poor countries are labeled 'basket cases'. The better response is to try to see more clearly the range of factors that are operating in the complex open system of world economies and to see what other interventions may be needed.

Mostly, I feel that the complexity of economic systems is beyond my understanding and there are so many conflicting points of view. So it is easy for me to help a good project at the individual level because the benefits are clear. The children who get an excellent education at the School of St Jude are likely to benefit no matter what else is going on in the economy. If I buy a chicken or a goat for a poor family, there will be a direct benefit for the family.

Australians are the second-highest private donors in the world, giving 0.8% of national income to help other countries (and that is before the boosting effect of the tsunami where Australians showed outstanding generosity). Helping others is one of Australia's core values. Internationally, Australians are recognised for their national volunteer organisations and private philanthropy.

But individual philanthropy can go only so far. Poor countries need systemic support to help them work towards good governance and better infrastructure. This kind of help needs to be given on the scale of country to country. This is where the commitments made by developed countries to contribute 0.7% GDP to foreign aid targeted at ending extreme poverty are critical.

The target of 0.7% is not onerous, it is very doable – in fact the Scandinavian countries already give more than this. The Australian government has signed treaties committing to 0.7% but falls way short. In fact, Australia is fourth-last in the ranking of 22 OECD countries and gives only 0.25% GDP as foreign aid. Recent announcements to increase foreign aid by 50% will lift it to 0.36% -- about half the agreed amount. What a pity that our Government does not reflect the Australian ethos of helping others in its actions!

What can I do to encourage my country to honour its promises in this important area? One thing I plan to do is start writing to politicians. I encourage you to do the same. Many voices can make a difference.

Here are some sites with more information about the Australian Government's record on foreign aid.

The Age, April 2006.
Aid Watch
Global Issues

To end extreme poverty, we need to work at both the personal level where individuals help individuals and the systemic level where nations help nations. Do your bit to encourage your government to help in ways that count!

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