New Internationalist

Keeping the patient alive

Issue 082

The Third World has been on the receiving end of foreign aid from Western and Communist nations for over three decades. But with each passing year, debts of the poor world increase and economic self-reliance drifts further away. Wayne Ellwood holds the aid elixir up to the light and asks whether it can ever be the cure for underdevelopment.

Foreign aid is a political football. Attacked by conservatives as a waste of time and money and supported by liberals as long as economic conditions are propi­tious, aid combines the worst of both worlds. The Third World - always scraping together enough to make ends meet - accepts aid with suspicion and resentment. While the aid givers - mainly the industrailized West - are caught in a nasty knot of paternalism, guilt and greed.

The present pattern of aid giving emerged in the mid-1950’s. It was modelled closely on the Marshall Plan for the reconstruction of Europe after World War II. At its height , the U.S. directed almost three per cent of its Gross National Product (GNP) to rebuild the badly­damaged European industrial machine Like most present-day aid, the Marshall plan was essentially an exercise in self­interest. American multinational corpor­ations expanded as never before in Europe and the U.S. sailed through the 1950’s and 60’s on a balloon of prosperity. Europe, too, benefitted from U.S. aid and investment - at least materially. With new capital equipment and re-built factories, countries like West Germany and France got a jump in productivity that quickly re-established them as powerful economic forces in their own right. As an extra bonus for American foreign policy makers, U.S. aid helped check the advance of Communism. People were less likely to complain about their lot when the good life seemed just around the corner.

The logic of the Marshall Plan ap­peared impregnable. If Europe, then why not the newly-emerging poor nations of the Third World? And this time all Western States could pitch in. The goals were the same:

  • vast new sales and investment markets for Western industry

  • secure access to strategic raw mater­ials and minerals

  • greater well-being for the poor

As in Europe, Western leaders were also keen to carve out areas of influence in the poor world to undercut any drift in political sympathies to the left.

But while the formula seemed tried and true the actual impact more than a quarter century later has been less than impressive. The Third World with few exceptions is no closer to economic health today than it was under colonial rule. In fact, there is every reason to believe that the aid `addiction’ has done little but keep the poor world in a sort of semi-comatose state.

With the possible exception of the emerging industrialized countries like Mexico, South Korea, Brazil and Taiwan, the bulk of the poor countries remain almost totally dependent on the export of primary commodites. Apart from the OPEC nations, their exports are under­valued and subject to the schizophrenic boom-and-bust of the international economy. In most cases, reliance on Western capital, whether aid or invest­ment, is not a choice but a necessity.

But if the Third World has gained little from aid, the same can not be said of the West. The commercial benefits of aid figure highly in official Western and Communist aid programmes. About two­thirds of official aid is bi-lateral (arranged on a country-to-country basis). Most of the rest goes through the multilateral agencies of the United Nations. Fifty­three per cent of bilateral aid is still ‘tied’ to purchases of goods and services of the donor country. Most rich nations rely heavily on ‘tied’ aid as a justification to harassed taxpayers for continuing their aid programmes. Eighty per cent of Canadian aid is still tied, 66 per cent of British aid and 75 percent of American.

In 1978, over $1 billion in goods were exported from the US with aid financing. According to the General Accounting Office in Washington, for every aid dollar that leaves the U.S., two to three dollars flow back. That’s certainly aid, but for whom?

Loans by Western governments to developing countries to buy rich world manufacures have increased steadily during the current recession. But these loans are more of a fillip to businessmen than aid to the poor. Debt repayment on these export credits’ accounts for the single largest outflow of capital from the Third World back to the First World - more than $16.2 billion in 1977. In that same year, according to the Organization for Economic Cooperation and Development, total official aid from the industrialized countries -not counting new export credit loans - was $16.7 billion. Although the total amount of aid in grant form is increasing, the growth in export credit loans more than makes up for lower debt from official aid loans.

In addition, loans can have long-term commercial returns and create long­term dependency. A new aid-financed processing factory in Malaysia or a nickel mine in New Caledonia means Third World countries become dependent on donors for spare machinery parts and technical advice and on foreign corpor­ations for marketing their products.

If aid is designed to benefit the poor, why it is that there are such startling discrepancies in per capita aid figures? In 1977, India and Pakistan, two’ of the poorest countries in the world, got res­pectively $1.60 and $9.20 per ‘person. Tanzania got $22.10, Israel $226.00 and the postage-stamp French colony of Reunion $661,00. The degree of poverty of the recipient country doesn’t seem to have been decisive in determining who gets what. Similarly, commercial consid­erations, though important, aren’t the main motive behind aid. If that was the case more aid would go to regions with greater market potential - Latin America rather than Asia or Africa.

Far more important is the political leverage, whether imagined or actual, that aid gives the donor. As the largest aid giver in overall terms, the U.S. offers the clearest example of aid as ‘power politics’. The top U.S. aid clients are Israel, Egypt, India, Bangladesh, Syria and Pakistan. Almost half of U.S. aid goes to Israel, the majority of it as ‘security assitance’. Together, the Middle­East and the Indian subcontinent are crucial to Western foreign policy strategists. The Middle-East has a strangle­hold on world petroleum. And India, Pakistan and Bangladesh would get even less aid if they were not buffer zones to Communist expansion for either the USSR or China. In this sense aid becomes one more ace-up-the-sleeve in the continual game of ‘geo-politics’.

Even the so-called ‘apolitical’ multi­lateral organizations of the United Nations, and the World Bank, are subject to political considerations (see page 10). The much-documented case of Chile is illustrative. World Bank loans plungd dramatically when Salvador Allende assumed power in 1970, determined to control the outflow of profits from foreign multinationals in his country. Loans resumed only after a coup which ousted Allende and restored a military regime favourable to foreign investment.

Over 25 per cent of World Bank loans in 1978 went to four countries known for their illiberal and anti-democratic governments - Brazil, South Korea, Indonesia and the Philippines.

On the face of it , that may not be so surprising. All four countries have Govern­ments that strongly favour and en­courage foreign investment. The pros­pects of them paying their debts are good. But economic clout does not necessarily equal development. The real income of Filipinos under the rule of Ferdinand Marcos has declined steadily since 1972. Unions are outlawed and workers earn an average of $2.00 a day.

And what kind of development has occured in a country that receives so much foreign aid? Since 1971, the share of national income of the poorest 40 per cent has fallen from 11.7 to 11.2 per cent while the top five per cent has increased from 24.8 per cent to 32 per cent.

In Indonesia, the World Bank sees manufactured exports leaping by 20 per cent in each of the next five years. But the poorest Indonesians are no better off than a decade ago. Although exports have increased eightfold since 1971, export industries support 60,000 fewer jobs today.

According to the Wall Street Journal one American business executive said of Indonesian workers:` They’re cheap, but machines are less of a headache.’

Loans from multilateral agencies can also contribute to the increased debt burden of the poor. In 1977, the World Bank disbursed $2.6 billion to the Third World and $1.9 billion came back in debt repayments - a net transfer of only $0.7 billion. The cost of previous loans, in other words, ate up 70 per cent of the Bank’s new aid. Despite the obvious political and economic benefits of foreign aid to the rich world, the total volume of ‘Official Development Assistance’ has dropped steadily over the last decade. Governments have seen aid cuts as a method of appealing to populist, conservative sentiments. In 1960, aid programmes accounted for .53 per cent of the West’s total GNP. In ‘1977, the figure was .29 per cent. Predications are that aid will continue to decline as the global economy totters from crisis to crisis in the 1980’s. Both the World Bank and the International Monetary Fund (IMF) believe that ‘developing nations increasingly will have to look to their own resources and initiatives’. Brave words. But pointless advice as long as the West remains adamant in its refusal to re-structure the international economic order to steer more wealth to the poor nations.

Looming default

Movement towards the much-vaunted New International Economic Order has ground to a halt. As exports stagnate and official aid is cut back, the Third World has to bridge the gap more and more with loans. For those countries with collateral, multinational banks cash-rich with OPEC oil dollars are more than willing to step into the breach. But the options for the vast majority of poor nations are few and far between. Both the World Bank and the IMF have been pressing Western contributors for more funds to stave off wholesale bankruptcy and consequent default of loan payments by the hardest-hit nations. The Bank and the IMF insist that more cash is needed to keep the poor nations afloat - and more importantly - to keep the global economic system ticking over. It’s at this level that foreign aid falls into place, not as a magic elixir to build a strong and self-reliant Third World, but as a stop-gap remedy just to keep the patient alive.

In particular cases, where natural disasters or political wrangles bring human suffering, aid can save lives. In Kampuchea, for example, after four years of disastrous rule under the Pol Pot regime (backed by the West and China) immediate aid could save hundreds of thousands of starving people. But even relief aid must be used in rational and moral ways, or like some food aid it can do more harm than good. (see page 22, Food Confusion)

However it’s not the principle of aid helping the poor that is in question. What is in question is the probability of any change in the present form and overall purpose of foreign aid.

In his far-sighted ‘Arusha Declaration’, Tanzanian President Julius Nyerere endorsed what he termed `catalyst aid’ - development assistance which can be used by poor nations to create more self-reliant societies. The rub though, is that few Third World leaders are genuinely interested in independent development.

Most are still fascinated with the high­technology, fast-growth model of the West. Those countries that have attempted a different route, to re-distribute wealth and bring more of their citizens into the development process, have. run into a storm of opposition. Thailnd prior to the 1975 coup, Chile under Allende and

Prime Minister Michael Manley’s Jamaica were all forced to knuckle under to the hard realities of a global economic system controlled by Western market economies. Even Mozambique’s President Samora Machel, an outspoken critic of Western aid, quickly changed his tune after independence from Portugal, when foreign exchange reserves dropped to dangerously low levels.

If the West really wanted to help the poor nations, there are many more effective routes than aid. A short list is simple:

  • increased and stabilized prices for Third World commodities

  • lower tariffs on Third World processed and semi-processed goods

  • a stepped-up programme of writing off past debts

In the meantime - and it may be a long wait - Nyerere’s catalyst aid is the best alternative. Though even that kind of aid must take into account the impediments which Third World leaders and wealthy elites throw up. Aid which is more than disguised welfare has to con­front the political and economic structures that maintain poverty and underdevelopment.

While the impetus for the domestic change must finally lie with the poor themselves, we in the West can work to ensure our aid is accurately directed towards peoples and projects that try to change those underlying inequalities - or else we’re in great danger of com­pounding them.

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