Scrap foreign aid in favour of good old-fashioned capitalism

[♖The Balkan Sobranie♖]

I have just read a rather interesting article in the Daily Telegraph today that suggests that sending lump sums of cash to poor, developing countries has little effect on the receiver and is just a vast waste of money. The article then goes on to suggest that the concept of foreign aid should be replaced by direct investment in the developing countries' infrastructure and more should be done to open up trade and commerce with it, greasing the wheels of the economy. This policy would benefit both countries, the investment would bring jobs and wealth to the region, whilst the surplus would go to the investor. Exploitation, I hear you pinky-liberals cry? Well, it is better than starving or living in slums.


Link to the article: http://blogs.telegraph.co.uk/finance...-in-factories/

Foreign aid is increasingly irrelevant to developing countries. So let's ditch it and exploit poor workers by investing in factories
By Tim Worstall



One of the little political battles going on in the background is over the UK's promise to spend 0.7 per cent of our shrinking GDP on overseas development aid. The truth is that it doesn't really matter whether we keep that promise – because the money is virtually irrelevant.
Have a look at this chart (top) from the World Bank.
Just by eyeballing the chart we can see that FDI, Foreign Direct Investment, is around $500 billion, remittances are $400 billion and rising, portfolio investment (ie, investing in local shares etc) is $200 billion and ODA is $100 billion.
So this much-vaunted official aid, this stuff taken from our pay packets in tax and sent off via the bureaucracy is less – adding all donor countries together – than 10 per cent of the amount that is flowing into those poor countries to drive development.
We can make the obvious points about this ODA. We tend not to think that the Man in Whitehall knows how to develop our own economy, so why do we throw money at him to develop others? Is this some hangover of colonialism? And remember Peter Bauer's remark that foreign aid is taking money from poor people in rich countries to give it to rich people in poor countries.
But the thing to bear in mind is that it's just a sideshow. The Left says this is a moral crusade, that we must send off our tax money to aid the poor in development. I'm all in favour of feeding the starving, clothing the naked and sheltering the homeless. I've no problem at all with emergency aid before during or after a disaster. But development aid doesn't really work – and since we don't do much of it anyway, it doesn't matter.
Consider this for a moment. Using Angus Maddison's figures for historic GDP figures, we can see that in 1978 China had GDP per capita of some $1,000 a year – under $3 per head of population a day, about the same as the UK in 1600 AD. By 2010 it was $6,000 or so, about the same as the UK in 1948. They managed 350 years of economic growth, of poverty alleviation, in under 35 years. They didn't get much official development aid, but they did get and awful lot of foreign direct investment and trade.
Which gives us our policy proposal. Forget sending tax money to be spent on raising awareness of climate change (yes, some of Britain's ODA is indeed spent on just that) and let rip with a bit of good old fashioned capitalism and globalisation. Exploit the poor workers by investing in factories and then exploit them again by buying the things they make.
Hey, it's working for China, so why not?

[Claudius Gothicus]

The difference between direct investment and aid is that the second one can be sent by States, while the first one is usually more effective when done by foreign companies.

And foreign companies usually demand a kind of political stability and legal continuity to make profitable and safe investments that underdeveloped countries usually lack altogheter.

[hellheaven1987]

There are three steps to do it:

1. Invade those poor countries and provide a stable enviornment.

2. Invite foreign investments to those colonies.

3. Profit!!

[Rolling Thunder]

There are three steps to do it:

1. Invade those poor countries and provide a stable enviornment.

2. Invite foreign investments to those colonies.

3. Profit!!

Yes. We called this the British Empire.

[hellheaven1987]

Yes. We called this the British Empire.

British Empire did not really have second step, which was why they lost India.

[Rolling Thunder]

British Empire did not really have second step

Yes, all those roads and mines and railways, many of which India herself is still running on (let alone the African nations)...all those factories and the ilk...didn't happen. Totally.

[SLN445]

There are three steps to do it:

1. Invade those poor countries and provide a stable enviornment.

2. Invite foreign investments to those colonies.

3. ?????

4. Profit!!

Fixed

[Veliky Kaiser Theos]

There are three steps to do it:

1. Invade those poor countries and provide a stable enviornment.

2. Invite foreign investments to those colonies.

3. Profit!!

The West hasn't exactly had a good track record with establishing stable nations in the 21st century.

[MathiasOfAthens]

It would work but politically it is not possible since it is a form of colonialism/imperialism.

[molonthegreat]

The best charity would be to scrap all foreign aid, remove the trade barriers and then let capitalism handle the rest without the interference of foreign aid that screws up the marked for the African farmers.

[fkizz]

Weren't the US foundations based on loath towards the british empire?

[Rolling Thunder]

Weren't the US foundations based on loath towards the british empire?

Considering the British Empire at the time of 1776 consisted of a bunch of islands, some chunks of Indian coastline, the Americas and other odds and ends, I'd say the US was founded mostly on the desire of the Framers to exercise political power over their own geographical area.

[Col. Tartleton]

Weren't the US foundations based on loath towards the british empire?

Not particularly. We just thought the 2.5 million people in America ought to have some say given that Britain only had 6.5 million people. Given we were roughly 1/3rd of the British population we figured it was a bit obtuse that the 13 colonies didn't have their own MPs.

When the Parliament continued to ignore us we ragequit with the Declaration of Independence.

It was the "either lets make this relationship work or lets break it off" ultimatum. We were an ignored girlfriend...

[Condottiere 40K]

Foreign investment is the best way to spur long term development and create political stability, though the best results are if the deals don't favour one side over the other and that while a considerable proportion of the profits can be repatriated, the workers and the resources involved are sustainably exploited.

[removeduser_4536284751384]

Trade is more free today that it ever has been, and private entities can and do invest everywhere suitable. Given that anyone who thinks they could profit from investing in the developing world, does so, how can you increase the amount of direct foreign investment? You really can't. And if a country isn't recieving any, it's usually a sign of violent instability in that country. So "replacing" foreign aid with economic investment isn't possible. If you cut foreign aid, you cut 5% of money flowing to the developing world, with no replacement.

The role of foreign aid is much different from that of direct foreign investment. Direct foreign investment causes great economic growth. Aid usually doesn't. I would love to right an essay on the role of aid, but I don't have the time right now. I'm sure someone else in the thread can take this up from here.

[Claudius Gothicus]

-Direct investment by National States would be perceived as a breach of sovereignity.

-Private investment requires a perception of productive enviroment for safe gains on the investor's eyes.

Both are hard to apply, even moreso in unstable third world countries. Giving them money is not the answer either.

[DarthLazy]

Scrapping aid means there's less money going into the pockets of politicians .

[Condottiere 40K]

If it served some foreign policy purpose, like Chinese aid that is linked to funding infrastructure programmes built by Chinese contractors.

[Big War Bird]

Ideally, the companies doing the direct investment should have a hand in running the government.

[motiv-8]

Ideally, the companies doing the direct investment should have a hand in running the government.

What? No they shouldn't. They assume the risks by going in in the first place. Don't know about the trustworthy or competence of the government? Stay the hell out. But they don't get to interfere in a nation's sovereignty just because they put money into it. It was their choice. Not to mention the massive can of worms this opens up in terms of even further corruption and exploitation. Like when British entrepeneurs in Egypt lost their money because of their own poor business practices, and then got the British government to demand compensation from the Egyptian government at gunpoint.

Jesus it's like the last 200 years of world history never even happened to some people.