Can Sending Aid to Poor Countries Have Adverse Effects on Them?

Is it good to send free rice to hungry people in Haiti? Certainly, it is a good thing after a natural disaster like an earthquake. But when we send free rice to Haiti for 20, 30, 40 or more years, guess what happens! We put all of the rice farmers in Haiti out of business. How can they or anyone compete with free rice?

Similarly, if we send our old clothing to Kenya, for example, eventually the clothing manufacturers there will also go out of business. No one can compete economically with a source that can access its materials for free. It is therefore very important to connect our good intentions with sound economic principles.

There are charities, churches and NGO's whose staffs and leaders are paid (and in some cases paid very well) to organize efforts to send rice to Haiti, clothing to Kenya and other similar endeavors. Does this make sense? Should I collect money for the poor, use some of it to pay my salary (and the European sports car I drive) and then send what's left to Haiti, Kenya and elsewhere to eventually (and unintentionally) put people there out of business and create dependencies there that might last decades?

If this line of thinking strikes a chord with you, then I encourage you to watch the movie Poverty Inc. Poverty Inc. is a production of The Acton Institute, a think tank in Grand Rapids, Michigan which focuses its efforts on educating people to connect good intentions with sound economic principles.

What’s the Harm?

Back in 2007, one of the world’s largest charities, CARE, withdrew its annual $45 million in federal funding because they believed that, along with the inefficiencies of American food aid, this “help” was producing the opposite effects of their seemingly well-intentioned goals. Their decision created division among the world of food aid and received a lot of backlash. They explained that selling American farm products in African countries created competition that local, struggling farmers just couldn’t keep up with. George Odo, a regional director for CARE at the time, put it this way – “If someone wants to help you, they shouldn’t do it by destroying the very things that they’re trying to promote.”

Other charities begged to differ, saying that CARE was mistaken. Charities like World Vision and many others involved in fighting poverty argued that this system was actually a good thing because it kept hard currency in poor countries which helped to prevent food price spikes. Despite this defense and others like it, criticisms of the practice have grown over the years.

Some contend that, within the sphere of agribusiness and other aid-providing entities, political clout and self-interest play a big part in the continuation of these practices. If you put it into perspective, it is doubtful that a country would provide aid without considering its own concerns and priorities in one way or another. But at the same time, donors are certainly capable of exhibiting solidarity and generosity towards international causes and crises such as natural disasters and humanitarian issues.

Whether out of self-interest or pure altruism, aid given to impoverished countries has always had mixed purposes and the balance between the two will vary from country to country. This wide spectrum shows that donors’ decisions aren’t black and white and that there are economic and social objectives to be considered.

The well-known shoe company, TOMS, has been put in the spotlight on this issue. Their one-for-one charity model meant that if you buy a pair of their shoes, they will send another pair to help someone in a developing country. Sounds like a great idea, right? Well, it turned out that this model caused major disruption in local governments and, consequentially, created a substantial amount of dependency within these impoverished nations. In a Fast Company article, it was pointed out that this model didn’t solve a social problem, but instead operated more like colonialism, essentially rushing in to these local economies to find a solution, rather than listening to their problems first-hand to figure out a sensible solution. The idealistic thought of “giving away free stuff” disregards the long-term effects on the economies of developing countries and the negative impacts it could have.

A better and more sustainable way to handle these problems would be to understand the root of the issues facing the developing world. Companies like TOMS that mean well often create a band-aid to a much larger problem that needs a more functional solution. Marketing campaigns such as TOMS appeal to a person’s sense of compassion, but innovative business models are more practical if we want to make progress in deprived countries.

Corruption and Dependency

Another problem with the inefficiency of foreign aid lies in the recipient countries themselves. Weak policies, fragile institutions and corruption can unfortunately play a role in the ineffectiveness of foreign aid. Corrupt regimes can cause problems with political and social accountability, making it a difficult task to combat their push for governmental bureaucracy.

Donor countries have been persistent in attempting to overcome this corruption by introducing various programs and developmental measures meant to spark reform. Nevertheless, these regimes’ sometimes reckless behavior has proved to be a challenging obstacle, preventing the creation of necessary conditions to make change. Supporters of this view assert that tyrannical regimes in recipient countries have great disregard for human and civil rights. The absence of uncorrupted administrations and leaders has manifested in the inability to use aid effectively.

American economist, Charles Kenny, provides his thoughts on this matter. He mentions donors such as USAID and World Bank having so much focus on cracking down on corruption, that it’s actually hurting aid. He argues that strong programs have been abandoned because “some money went missing” and that governments viewed as being corrupt are ultimately cut off from foreign aid. In Kenny’s view, donor groups are spending more of their money trying to detect fraud than measuring whether the aid has improved the lives of those receiving it.

Angus Deaton is an accomplished Nobel Prize winner and economics professor at Princeton University who has studied poverty in South Africa and India. Deaton worked at the World Bank for decades and received his prize for his research on how poor people save and spend their money. Some might find his opinion on world aid somewhat provocative. He holds that, by trying to help those in poverty-stricken countries, the wealthy world may actually be playing a part in corrupting those nations’ governments and slowing their growth. Deaton’s main criticism against aid lies in the issue of these governments not being accountable to their citizens. Governments rely on their people for taxes in order to be sustainable and provide services to their people. When governments receive all of their money from aid, they may deprive their people of these services, which Deaton describes as “corrosive”.

Another drawback is the increased dependency on foreign aid that has reduced poor countries’ efforts in bringing about market reform that will lead to public production and income taxes in different sectors. The repetitive use of aid to finance government expenditure and non-productive consumer sectors has had lasting consequences and has been referred to as a “vicious cycle.”

When aid is used as a long-term strategy, intentionally or not, it can inhibit development and progress towards the goal of building  a stable economy with the potential to flourish. Market demand will gradually decline and, in turn, hurt local business owners who have no other way to provide for themselves in places where quality education is inaccessible, and resources are scarce.

What Can We Do Moving Forward?

My intention in this article is not for you to oppose aid to countries who need it, but to look at both perspectives and understand that this topic is not an easy one to develop a firm opinion on. Sometimes, our emotional side may get the best of us and can cause us to jump to conclusions that aren’t always right.

Many people strive to be self-sufficient, and sending free stuff to those living in poor countries for an extended period of time can have detrimental effects in the long-run. Striking a balance between wanting to lend a helping hand and providing what is essential is crucial for these countries to be able to thrive and foster self-reliance.

There are many great charities all over the world that strive to lift people out of poverty and fight injustice. The key is to do it in a way that enables economies to grow and provide incentives for people to make a good life for themselves. Sadly, corruption lurks in every corner of the world. It’s important to fight the abuse of aid in the developing world and to ensure that aid is being sent to countries where it can be used efficiently by leaders who are eager for change.

An effective way to send aid is in the form of resources that can be utilized by those who need them to build a stronger economy and provide people the necessary services to be productive.

Sources:

Charities Finds That U.S. Food Aid for Africa Hurts Instead of Helps

Lack of Foreign Aid Effectiveness in Developing Countries Between a Hammer and an Anvil

Is Corruption Really a Big Problem In Foreign Aid?

Why Trying to Help Poor Countries Might Actually Hurt Them