February 17, 2017

Time to scrap Britain’s aid target

Time to scrap Britain’s aid target

With its origins dating back to the 1960s, the economic foundation upon which the aid target is based has effectively been proven false, warns Simon Gordon.

Britain’s commitment to spend 0.7 per cent of GNI on overseas aid is often critiqued from the perspective of spending priorities. Less discussed is whether it makes sense on its own terms. It doesn’t.

Although it was only enshrined in British law two years ago, the 0.7 per cent target dates back almost half a century. On meeting the target in 2013, the Coalition government fulfilled a commitment first made by the newly elected Labour government in 1974.

But a lot had changed in the intervening decades. By the time Britain met the target, the economic basis for it had effectively been proven false.

The origins of the aid target lie in 1960s development economics. The wisdom at the time held that the reason the economies of poor countries weren’t growing was because they lacked productive capital.

The research suggested that if a minimum capital threshold were met, growth would take off. So aid, it was argued, should make up the ‘financing gap’ between actual domestic savings in developing countries and the capital threshold.

That ‘financing gap’ happened to equate to around one per cent of developed countries’ collective GNI at the time. Since the combined public and private capital flows from rich countries had already reached 0.6 per cent of their GNI in the late 60s, an aid target of 0.7 per cent was adopted at the UN in 1970 as a reasonable political compromise.

But, over the last forty years, that capital threshold has been met many times over. According to one study by economists at the Centre for Global Development (CGD), by the turn of the millennium the actual capital flows to low-income countries were 80 times greater than the ‘financing gap’ model would suggest they needed to be.

Nonetheless, many poor countries have stayed poor. Moreover, those that did take off, lifting millions out of poverty – China, India, and Indonesia, for example – received the least aid per capita, while those that got the most stagnated, or even declined.

Why?

In part, development aid is hindered by the way it is spent. Direct funding of corrupt regimes unsurprisingly doesn’t get much further than official pockets. The administrative costs of aid agencies can be remarkably high. Equally, many donor countries fail to perform thorough due diligence – or use aid more for promoting their interests than reducing poverty.

Aid certainly isn’t synonymous with productive capital.

Yet waste and corruption only tell part of the story. The deeper issue – as the Nobel economist Angus Deaton argues in The Great Escape – may be what aid does to the relationship between the government and the governed.

In Western liberal democracies, there is mutual dependency between the people and the government. The people depend on the government to maintain law and order and public services. The government depends on the people for tax revenue.

But in countries where a large proportion of national revenue is aid, that symbiotic relationship doesn’t exist. Not only are corrupt governments able to sustain themselves without recourse to the people. But people in receipt of foreign aid can survive without relying on a functional government.

Yet functional government is necessary for sustainable growth. In their acclaimed book Why Nations Fail, Daron Acemoglu & James Robinson argue that inclusive, rather than extractive, institutions are the key to long-term prosperity.

If institutions – rather than capital – are the missing ingredient for economic growth, then an aid target for developed countries is not merely unfounded. It may do more harm than good.

That’s not to say that aid is bad per se. Multilateral agencies have been remarkably successful, for example, in eradicating diseases – from smallpox to malaria to polio. Targeted projects that aim to help small groups of people are often very effective.

But it does mean that the idea of a spending target, and the way aid is spent, needs to be rethought. Which is why the latest research paper published by the UKIP Parliamentary Resource Unit proposes a different model for aid.

It advocates safeguarding spending on disease eradication and disaster relief, while reducing the overall aid budget. At the same time, it highlights the importance of abolishing trade barriers to the developing world – which leaving the EU’s customs union allows Britain to do.

We’re not the only ones to be thinking afresh about aid. Ministers are too – although they seem to be moving in a very different direction.

In an attempt to win public backing for the 0.7 per cent target, the Foreign Office is reportedly diverting some of the aid budget into a ‘soft power’ fund to battle Vladimir Putin.

That approach manages to combine the worst of both worlds. Not only does it retain unjustified rises in aid spending. It also promotes less transparency in how it is spent.

Behind this apparent policy shift is a tacit acknowledgement that the aid target is arbitrary, and losing public support. The solution is to scrap it.

5.00 avg. rating (98% score) - 6 votes
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Simon Gordon
Simon Gordon has worked as a speechwriter for Douglas Carswell MP and the Ambassador of Israel to the Court of St. James’s, and as assistant editor of Mosaic Magazine in New York. He writes in a personal capacity.
  • Shadow Warrior

    Hammond is continuity Brown. He is a hand-wringing lefty looking for clever wheezes to raise more tax in ways that people don’t immediately notice.

  • captainslugwash

    I predict the Budget will attempt to show the Left how caring the Tories are, and it will be funded by screwing over the working man.
    If Corp Tax comes down, I bet Divi tax will be going up.
    I would love to be wrong.

  • skynine

    We really need to look at tax credits, in particular in work tax credits that encourage people to work part time to preserve the benefits. 45% of women work part time and I would hazard a guess that tax credits are the main cause. This leads to low pay, low skill work in supermarkets and the retail sector including coffee shops. The government needs to get back to the employer paying people to do a job for economic reasons rather than to get onto the tax credit ladder. Like all government benefits it distorts the market and diverts government expenditure into non productive areas.
    The refrain that the government has cut expenditure is not true, it increases every year as more and more goes into welfare.

  • MrVeryAngry

    fat chance

  • MrSauce

    So, when wouldn’t we want a ‘budget for growth’?

  • Rob

    I note that the UK Government has just slapped on a 25% tax charge for anyone moving abroad and wishing to move out their private pension from the UK.

  • SonofBoudica

    The Remoaners will do their utmost to sabotage the Government’s negotiating position. They do not want a successful outcome; they want a failure. They want to be able to scream “Told you so!” from the rooftops.

  • EnglandLaments

    Thank goodness for Andrew Neil, the one media hack who scares the pants off the established politicians. He was spot on with Heidi Allen!

  • joshuafalken

    I had a very long, hard, studied and considered look at the hope, care and aspirations of all Europeans, before I voted to get the UK out of the toxic grasp of Brussels.

    The European Union and it’s charge of “ever closer union” has borrowed and spent its way to oblivion, whilst enslaving the working and middle classes in debt.

    The central control mantra of the unaccountable Brussels ruling elite, delivered through a mixture of socialism, globalism and corporatism is entirely responsible for the populist revolt by the millions of “Just About Managings” across Europe.

    We must remember the ultimate goal of socialists, globalists and corporatists is control, not prosperity. see https://mises.org/blog/goal-socialists-socialism-—-not-prosperity.

    Social equality and economic growth always fail under central control and fighting against the Brussels doctrine on behalf of all Europeans is why I voted for Brexit.

    Britain has a long history of helping Europeans depose tyrants and Brussels is just the latest incarnation.

    Britain is the most racially advanced and accepting society on the planet. We welcome those in need and those that can help us with open arms and a smile; that will not change.

    We are also one of the most innovative, talented and open societies in the world, which why everyone wants to live here. However, we cannot fit everyone in, so we have to have clear, balanced and fair immigration policy which is where the arguments start between the monetarists and humanists will never be reconciled.

    I thought long and hard before coming to the conclusion that leaving the EU was in the best interest of all Europeans, as Brussels is toxic and cannot be reformed from within.

    Also, I find it insulting that people who voted Remain have insufficient faith in British ingenuity, compassion and skill to get a good deal for us and see the Europe that we love get a better deal from Brussels and the reform that European people deserve. https://mishtalk.com/2017/03/29/bad-brexit-deal-better-than-no-deal-mathematical-idiocy-odds-of-no-deal/ and https://www.worldheadlines.info/2017/03/after-brexit-9-reasons-to-be-bullish-on-great-britain/

    The politics of left verses right are dead because neither have delivered the promised economic growth and social mobility for anyone, but themselves. The populists are not selfish per-se, they just want to take back control of their own destiny that left/right politicians have freely given away and/or exploited for their own ends. In my constituency, the local residents group are taking over the councils as politicians ignore voters, so Westminster should beware of the well-organised, local resident independents at the next election. This is a peoples revolution which should be shouted from the rooftops, but liberals remained deafened by the socialist, globalist and corporatist “vested interests” that have spectacularly failed us and are obediently crying foul and fake.

    There will be an initial unpalatable inflationary cost to fighting globalism and rolling back central control that few appear to have factored in, but dismantling failed left/right vested interests should eventually free libertarian socially-conservative capitalism from the shackles of TBTF corporatism to feed economic growth and social mobility.

  • agdpa

    The EU usually makes the wrong decision – on immigration, on freedom of movement, on the euro, on the Ukraine, etc. etc. Little hope it will get Brexit right.

  • brownowl

    Eh? Reference please!

  • Neil2

    Sod caring. Screw the spongers and breeders. Kill HS2. Stop all “green” subsidies. Slash “foreign aid” and walk away from the EUSSR with immediate effect.

  • Rob
  • John C

    What a confused article. It conflates surveillance by the security services with poor defences against fraud.

  • John C

    Err, it’s the UK that’s leaving the EU, not vice versa.

  • John C

    Me, now. ‘Growth’ is a manic obsession.

  • La Face Nord

    Mr Redwood – are you aware of the Biased BBC website? It’s been exposing their agenda for a long time, but I imagine you’ve been well aware of the BBC’s agenda for quite some time…

  • Contact Rvtech

    The post is great

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