Why pro-market solutions to poverty don’t always work

Aid illustration
Illustration by Ben Jennings.

Following recent revelations in the British press about aid money being spent on overpriced consultants, politicians are attacking Britain’s commitment to aid from all sides. Justine Greening, the government’s new international development secretary, has announced that she will personally screen all contracts over £1 million ($1.6 million). And politicians from both Left and Right are rounding on the coalition government’s commitment to direct 0.7 per cent of our national income towards aid, calling instead for cuts to the aid budget.

But debates about cutting aid are spurious, at best. A recent study showed that when members of the British public are asked whether they agree with helping the world’s poorest people, they say yes. In one poll, 62 per cent of respondents thought it was morally right to support developing countries.

When told that Britain currently spends less than 0.6 per cent of national income on aid, and that this will only rise to 0.7 per cent, people are surprised. With all the media attention on the aid budget, most people think the amount is much higher. Forty-seven per cent think we spend between one and five per cent of national income on aid, and a third think we spend between 5 and 10 per cent. And when they are told about some of the key achievements of aid, such as getting millions of children into school, people are generally quite thrilled. Public support for the moral imperative of aid is loud and clear.  

Where things fall down is on how money is spent. It is not hard to see why support for the aid budget might wane when one sees consultants being paid massive amounts to ‘help’ those in poverty.  

But real value for money is less about a few contracts to consultants, and more about the overall direction of travel of Britain’s international development programme.  

In recent years, there has been a growing trend for the department for international development (DFID) to favour private-sector solutions to alleviating poverty. Indeed, it promotes itself as a ‘department that understands the private sector’. Strategies it has used include facilitating the setup of ‘special economic zones’, which give tax concessions to multinational companies and allow them to employ people on wages of less than $1.60 a day, as has happened in Bangladesh. It is also promoting public-private partnerships in the provision of basic services such as health and education, despite this model having been roundly condemned as inefficient when used in Britain.

Under the guise of supporting low-carbon energy, there are plans to spend over £130 million ($206 million) of public aid money to prop up highly profitable private equity investments in energy infrastructure in poor countries. In the documentation to justify this spending, DFID writes that it wants to ‘avoid being perceived as being too developmental in nature because of the risk of otherwise deterring private sector investors who are looking for good financial returns’, and says it will ensure that there will be ‘no public sector interference in decision-making’.

The nebulous policy conclusion that seems to have been reached is that all private growth is good, and any public expenditure is bad. This has not been backed up by evidence. In fact, the World Development Movement’s 2007 research on water provision in developing countries showed that the use of public-private partnerships actually made matters much worse for local people.

There is, of course, a need to support small community-level businesses. But the government’s ideological pro-private sector stance has led to projects which subsidize the private sector for things they do anyway, effectively providing corporate welfare, while taking much-needed resources away from projects that genuinely need support. DFID put over £12 million ($19 million) into a project promoting public-private partnerships in health, at the same time as cutting funding to the Centre for Progressive Healthcare Financing which focused on universal public healthcare.

We need an open debate on whether or not pro-market solutions really provide value for money in achieving poverty reduction. We certainly don’t need cuts to our support to those who genuinely need it most. Aid is our contribution to building a more just and equitable world, something which the majority of the British public fully support.

Deborah Doane is director of the World Development Movement.

Why the G20 must wake up to food speculation

Photo by Larry Blucher / CNN Report

Occupy Wall Street! Occupy the London Stock Exchange! Occupy Frankfurt!  Over 650 cities and their financial centres, at last count, are to be ‘occupied’ on 15 October, 29 days after the Occupy Wall Street movement rose up and challenged the rule of finance over people and the environment.

Their message? That it’s not OK any more for 1 per cent of the US elite to own 40  per cent of the country’s wealth. That it’s not OK to bail out banks and bankers, and cut health care or education or to cause mass unemployment and kick people out of their homes. That it’s not OK for the rich to get out of paying taxes, while financial markets raise debt interest rates, pushing ordinary taxpayers further into debt.

But take extreme inequality inside the US out of the picture for a moment, it’s worth thinking about whether the developing world should seek to ‘Occupy the US’. Inequality levels inside the States are mirrored at the global level as well. North America and Europe have 66 per cent of global wealth, with only 15 per cent of the population. Africa accounts for just one per cent of global GDP, while being home to both 10 per cent of the world’s population, as a significantly higher proportion of the world’s natural resources.

The global day of action on 15 October happens to be the day before World Food Day. The UN established this day to raise awareness of the causes of poverty and hunger. If I were strategizing with the UN, I would be urging them to join the Occupy Wall Street movement:  the finance sector, be it Wall Street or the London Stock Exchange, is at the very heart of global inequality, poverty and hunger.  

In the last six months of 2010 alone, 44 million people were pushed into extreme poverty by rising food prices. And it is speculators from stock exchanges around the world who are at the heart of why food prices are going up.

Driven by greed, financial speculation on food prices is seen by investment banks and hedge funds as an opportunity to make a quick buck. In 2010, drought in Russia and a reduced wheat crop were blamed by the media and financiers alike for the spike in wheat prices. In fact, there was still plenty of wheat in the world, with the US, in particular, having produced a bumper harvest. It was speculative money, flooding into wheat commodities, betting on prices going up, that caused the spike.

Aggressive lobbying by the finance sector to deregulate prices in the 1990s set the stage for the vultures to do their work. Between 2002 and mid 2008, the number of food commodity contracts increased by more than 500 per cent. It wasn’t enough that banks, like Goldman Sachs, had hit the average US consumer hard through the sub-prime mortgage crisis and practically brought down the global economy. They continued on their spree, and made a killing betting on food, with Goldman Sachs alone deriving $1 billion of their profits in 2009 by pushing people into poverty.   

The impacts, of course, are devastating. In the global north, we typically spend 10 to 15 per cent of our income on food, but in the south, poor households spend anywhere between 50 and 90 per cent. So when prices go up, people may have to take their children (usually starting with the girls) out of school, or sell off their basic assets, or forego so-called ‘luxuries’ like health care, as well as suffering long-term malnutrition.  

The G20 finance ministers are meeting this week to deliberate, among other things, this very issue. They’ll be drawing from a report written in June, by international organisations including the IMF, concluding that ‘too much speculation can cause frequent and erratic price changes’ in futures markets. A high level panel of the Food and Agricultural Organisation called on regulators to increase transparency in agricultural commodity markets, and set limits for finance sector involvement, as a first set of important measures. 

Amid all this techno-speak is the reality that is being articulated by the Occupy Wall Street movement: that the other 99 per cent, whether it is in the US or elsewhere, has woken up. Let’s hope the G20 wakes up too. 

Deborah Doane is director of the World Development Movement.

Time to make good on broken promises

While most of us were in some dismay at the results of both the Copenhagen and Cancun climate talks, there has at least always been an acknowledgement that richer countries, primarily responsible for rising emissions, will ultimately have to help poorer countries adapt to the impacts of a changing climate. In 2009, a fund was set up by the UN, to do just that, with nearly $500 billion being pledged for adaptation and low carbon development. For campaigners, it was a tiny glimmer of light in the midst of the otherwise bleak outcome of the negotiations.  

Cameron, Clegg and Mitchell - no debt!

But the light didn’t glimmer for long, as the fund remains virtually empty. Delegates to the UN Adaptation Fund are sitting in Bonn today to discuss the ailing fund. The UK government is one of the key countries holding back much-needed financing. Although they offered £1.5 billion ($2.4 billion) between 2010 and 2012 towards climate finance,  they have so far refused to give a single penny to the UN-led fund, instead choosing to give the cash to our old friend, the World Bank, replete with its history of dodgy deals.  

The current chair of the UN fund, Farrukh Iqbal Khan, said recently: ‘to date, we have received nearly 20 projects for financing. This shows that the demand for adaptation financing is enormous. [However] the fund is constrained to remain cautious in its approach due to limited funds at its disposal.’ Unsurprisingly, proposals being discussed in Bonn this week include how to limit how much money goes to individual countries.

As the World Bank-led funds dominate, our alarm bells go off. Funds given by the discredited institution will be more likely to be attached to myriad conditions, and most worryingly be given in the form of loans rather than grants, locking the poorest countries into further levels of unfair debt. The Bank is notoriously undemocratic, biasing a Western policy and trade agenda over locally derived solutions. Furthermore, it is one of the world’s biggest financiers of fossil fuels – a huge contradiction to its supposed climate-friendly face. In sum, it’s the last thing poorer countries need at their time of crisis.

While the UN fund is far from perfect, let’s not throw the baby out with the bathwater. It is a fairer and more democratic vehicle for transferring money to the developing world. With appropriate resources, it could be made to work effectively and efficiently.

The World Development Movement (wdm.org.uk) has been working to expose the latest in a long line of climate travesties. It’s enough that poorer countries have to deal with the impacts of climate change, but let’s make the financial response more just, by rejecting the World Bank and supporting our UN system. Join WDM's campaign for Climate Justice

 Deborah Doane is Director of the World Development Movement.


Climate Justice Campaign

UN Adaptation Fund

Department for International Development policy document on how much money it has spent on climate change finance.

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