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
mm
Simon Gordon
Simon Gordon is a researcher for the UKIP Parliamentary Research Unit, which publishes its output at www.ukippolicyforum.com.
  • The Sage

    Absolutely spot on. I recommend reading Zambian economist Dambisa Moyo on this subject.

  • Landphil

    In the meantime, any costs relating to international freeloading on the NHS or any other direct unpaid costs attibutable to overseas governments (think unpaid parking fines, etc) should be deducted from the aid budget for the respective country. In the longer term the arguments in this article should form a solid basis for the complete overhaul of UK overseas aid.

  • Malcolm

    The government (any government) always loses sight of one simple fact: it doesn’t have any money of its own, only that which it raises from those who elected it through taxation. It therefore owes a primary responsibility towards those people. At a time when we see elderly people in the UK unable to access adequate care because of austerity and cuts, after having paid taxes all their lives, and yet we have sufficient “government money” to distribute foreign aid on a fixed rate and legally binding basis, regardless of either actual need or economic health in the UK, something has clearly gone wrong. Enshrining overseas aid in law the way Cameron’s coalition saw fit to do was, stupid, short-sighted, unfair and wrong. But which politician will be brave enough to withstanding the inevitable screeching from the usual suspects by reforming it?

  • EnglandLaments

    Let’s face it – the 0.7% commitment on foreign aid was nothing other than virtue signalling by our elected representatives, wasting our money on their behalf!

  • beautykinguk

    Agreed – and once interest costs are factored in we are actually spending significantly more than 0.7%, after all, we are running a deficit and this money has to be borrowed to give away. It’s a joke but thankfully a lot of taxpayers are finally waking up to the true cost of the virtue-signalling classes.

  • David davis

    0.7% of GDP per year could either pay down the deficit faster, or buy a lot of nuclear-powered attack-submarines and their overseeing/protective space-based weapons for the RN. Or a bit of both.
    Or it could buy 100 new medium-sized hospitals a year.

    Take your pick.

  • Paul in Eastern Europe

    Cameron put this 0.7% policy in place to demonstrate his ignorance and gullibility.

    The amount of British “foreign aid” is massively above 0.7% of GDP. The £13B directly squandered is just the tip of the iceberg. The UK sees about 0.8 million migrants arriving each year. Assuming a capital investment of £100K per migrant to maintain living standards, that’s £80B required each year. Then the UK foreign trade deficit mostly with the EU sees another £100B of cash sent overseas per year. The 8 million foreign residents in the UK probably send another £20B to £40B per year overseas to aid their relatives.

    Then there’s the cost of schools, Universities, the NHS and the Criminal Justice system all working hard to meet the needs of foreign residents in the UK. Then £18B each year to the EU some of which comes back to the UK as the EU buys influence at the BBC, Universities etc.

    The total cost must be running at well above 10% of GDP. Cameron was and is a PR Spiv not a leader.

  • Derek

    Nigeria is an oil economy with oil revenues of £80bn. The people live in abject poverty because the rich are intensely greedy -even more so than in the West. I wouldn’t give Nigeria a penny because the solution is in its own hands. India has poverty but can afford a space program. I wouldn’t give them a penny because like Nigeria the rich do not give a fig for the people The levels of corruption in the countries our government is giving our money to are such that there will be zero benefit for ordinary people.

    If this money was properly audited their would be a public furore at the waste.

  • King Arfur 1st

    I completely agree with your assessment.

  • Andrew Mitchell

    I love the way they spin this, they always say “we’re giving only 0.7% of our country’s income to aid” which makes people think this money is coming in and their only taking a tiny part of it, that’s a BS line, what they should say is “we’re borrowing 0.7% of our national income, money that we have to pay interest on, and we’re doing it at a time when we’re refusing to buy the drugs that will help cancer sufferers live longer, and as we see sick people being treated in hospital corridors because the NHS hasn’t got the cash to provide more beds” that’s how they should say it.

  • Andy

    It needs to be scrapped immediately. We should use the bulk of it to repair the damage done to defence. Either that or we lop £10 billion off the deficit.

  • ratcatcher11

    The poor in India are usually the untouchables who are often Christians and discriminated against by the majority the same with Nigeria, the Christians are the poorest who are discriminated against by the Islamic majority who in the recent past also committed genocide against them.

x
Like us on Facebook: