Is aid or trade the best way to fight Third World poverty?

Published on Friday 9 September 2005 00:09

AID: Stephen Doughty

The sad reality is action is needed on multiple fronts - just ask the poor people of Chikwawa

ANY high-level assault on the chronic poverty faced by millions across the developing world must involve a multi-pronged approach. Urgent resources are needed - for example, to provide safe drinking water and schools - at the same time as longer-term solutions, such as a just and fair international trading system.

On a recent visit to World Vision projects in Malawi, I was struck by the absolute necessity of this approach. I visited the Chikwawa district in the south of the country and saw how many people are facing chronic food shortages, after a severe drought last year, and the impacts of drought in 2002-3 from which they did not really recover. I walked into a village square where an expectant crowd of hundreds waited to receive 50kg bags of maize.

I felt both humbled and embarrassed. The people in the villages of Chikwawa want to be able to produce not only enough food in order to sustain themselves but also to be able to sell and improve their living conditions. At the same time, an urgent need is present: if they are not given food, the people, especially the children, face severe malnutrition this year. The necessity of the situation drives the response. So, aid must be given. This is, however, unsustainable and unjust in the long term. Fair and just international trade is one of the keys to ending the cycle of poverty that require people to need aid like this in the first place.

Unfair trade has many guises, but one culprit is the dumping of subsidised agricultural exports at prices below the cost of production, driving down world prices and costing vulnerable households vital income. In some cases, they also push farmers in developing countries out of local markets.

The latest UN Human Development report, out next week, details a "perverse taxation of the world's poor" in trade policies. Donor countries spend just $1 billion a year aiding agriculture in developing countries but $1 billion a day on domestic subsidies that undermine the world's poorest farmers.

Perversely, the food aid given in emergency situations such as Chikwawa can often be the result of over-production from such subsidies - the same subsidies that prevent farmers being able to compete to promote their own development.

One should, however, clearly still prevent starvation. Poverty is a vicious circle that must be broken in multiple places. It is also a mistake to see all aid as "handouts". The vast majority of aid provided through non- governmental organisations is, in fact, long term - addressing the underlying causes of poverty in communities, reducing dependency and creating sustainable schemes such as micro-enterprise. It's also about taking action now to prevent problems in the future through schemes, such as achieving food security through implementing new farming methods, irrigation schemes and diversification, that will prevent people needing aid in the first place.

It's easy to couch the debate of how to end poverty in "either/or" terms, but the reality is that action is needed on multiple fronts. Action on trade, aid, debt, HIV/AIDS, peace and security and many other issues are inseparable parts of a whole.

In many respects, however, the aid-versus-trade debate may be purely academic.

While there was some progress on aid and debt relief at the G8 summit at Gleneagles Hotel, there was little progress on trade. All hopes now seem to rest on the WTO negotiations in Hong Kong at the end of the year. Today, the attempts of some countries to backtrack on even those commitments made at Gleneagles mean poverty, suffering and early death will remain a reality for millions.

More and better aid or trade justice? One thing is sure: without either, millions face a future with little hope.

• Stephen Doughty is a policy and public affairs adviser for World Vision UK.

TRADE: Fraser Nelson

Treating the symptoms is a heroic mission but only capitalism can get a country off its knees

WE ARE living in a golden age of poverty reduction. Never in the history of humanity have people been lifted out of disease, poverty and starvation faster than they are being today. The reason is found in two words: global capitalism.

There is one glaring exception to this worldwide trend: sub-Saharan Africa. It is going backwards as the world is going forwards. The reason for this is that it is the continent where aid is used over trade.

First, the facts. The World Bank has found that almost 400 million people left absolute poverty between 1980 and 2000. The ratio of absolute poverty was almost halved from 40 to 21 per cent.

Is this because more aid has been flowing around the world? Not at all - the progress is being made by China, India and south-east Asia, where the amount of aid has been the smallest. All of them have gradually, and sometimes painfully, embraced global capitalism.

In China, the number of people living on one dollar a day has plunged from 600 million in 1980 to just over 200 million two decades later. There was no "great leap forward" - it simply embraced market reforms, and started to trade with us.

Africa, by contrast, has remained in the hands of kleptocratic governments who behave more like occupying armies - yet when they reach emergencies, they have been sustained by vast amounts of foreign aid.

Perhaps because of our colonial history Britain has for years sent aid to Africa - via missionaries, charities and now through central government development missions. East Asia has received a fraction of this treatment. Comparing the two is instructive.

In the 1960s, Zambia was almost twice as rich as South Korea - while today South Korea is 28 times as rich as Zambia. This is because we buy televisions, cars and microchips from South Korea, where we buy precious little from Africa.

The mystery is why, after 60 years of trade and aid in various countries, there is even a debate between the two. Africa remains on its knees, while we have stopped pitying India and now fear they are after our jobs.

Almost every serious development economist who has looked at the facts comes to the same conclusion: trade beats aid hands down.

Yet aid is an invaluable tool for politicians who seek to boost their own political profile by spinning a charitable halo around their own heads.

This was plenty evident during the Live 8 agenda, when Labour was on a post-Iraq credibility drive. The G8 summit in Gleneagles produced nothing of any use for the poor - but it produced a lot of good publicity for a lot of politicians.

Aid does, indeed, put food in starving stomachs.

It can house the homeless, build schools where none exist: these have long been the heroic missions of Scottish charities - for generations.

Both aid and trade are valuable tools to use when helping the world's poor.

The difference is that aid just treats the symptoms of global poverty.

Trade attacks the disease itself. Anyone serious about tackling injustice should place emphasis on the latter.

Your Views

Twin essentials

The author Jeffrey Sachs, whose research into poverty has taken him to 100 developing countries, makes it clear that both better aid and trade justice are essential to deal with the global problem.

Without better aid, it is not possible for the billion poorest people on earth to reach the first rung of the ladder that leads up from absolute poverty. At this point, they will benefit from just trade rules, from which all can benefit.

BILL DONALDSON, Edinburgh

Three-point plan

In my view, it's not an either/or; rather it's a both/and. On aid, it's time the UK signed up to contributing 0.7 per cent of GDP to international development. Free and fair trade should be bolstered immediately. All debt should be immediately cancelled, no strings attached, for all heavily-indebted countries.

RONNIE CRICHTON, Edinburgh

Change the rules

At times of crisis, such as we are witnessing in Niger, aid is hugely necessary. But no-one wants to be on the receiving end of handouts all the time - being able to work your way out of poverty gives a person dignity and hope.

Trade is obviously the key to helping developing countries to escape from poverty. Poor people could have the chance to work their way out of poverty if trade worked well.

Unfortunately, international trade rules benefit the rich more than the poor countries. Through loan and trade agreements, poor countries are being prevented from supporting their struggling industries and farmers. This makes it almost impossible for them to compete with the much better developed and technologically advanced countries. Even their own farmers are being undercut in local markets by imported and subsidised (and, therefore, cheaper) food.

There seems to be too much emphasis on free trade, and not enough on fair trade; it's like a primary school football team playing Rangers or Celtic - it's not really a level playing field.

Poor countries need aid to help develop infrastructure and strengthen their capacity to complete in world markets, but the international trade rules need changing to make this competition fairer.

MARJORIE CLARK, Christian Aid Scotland

Fair trade is the key

Aid is great, and debt relief even better. But they not very good in the long term on their own. Trade reform needs to happen now so everyone can have the same opportunities, and unfair subsidies need to stop. Fair trade is paramount.

NANCY NAIRN, WWF Scotland

Faith in dead Scot

Like Churchill said of democracy, capitalism is a rotten system ... but it's the best we've got. What I find remarkable, living as a foreigner in Scotland, is that we have put the fate of millions in the developing world in the hands of a long-dead Scot. Let us hope that Adam Smith's model of free-market economics was elegant indeed. It's our best hope.

ALEXANDRA HAMMOND, Edinburgh

End poverty scandal

Aid without reform of trade rules will do little to end the scandal of poverty which kills a child every three seconds. We urgently need more and better aid, the cancellation of poor countries' debt and reform of trade rules which force poor countries to open their markets to competition from subsidised American and European goods.

In July, the G8 announced a small increase in aid, and debt cancellation for 18 out of more than 60 poor countries. But it did nothing about trade rules. The result? A child will die every 3.5 seconds by 2010.

MARGARET ANN McSHANE, Scottish Catholic International Aid Fund

Complex issue

The question is surely over- simplistic. The answer is a combination of trade and aid, plus the "long game" of improving the quality of governance and the human rights record of some Third World countries.

Pouring in endless millions or billions for aid does nothing to tackle the very real problems that often exist on the ground; self-sufficiency has to be a long-term aim, however remote it may seem in the short term. On the other hand, standing back and refusing aid until the quality of government or human rights improves is like waiting for Godot - it might never come. The answer, unlike the question, is highly complex and requires trade, aid and an awful lot of compassion and patience.

DAVID CAMERON, Musselburgh, East Lothian

American model

If you asked the same question with regard to the situation in the south of the United States instead of the developing world, the answer becomes clear: both aid and trade are required. Each has a prominent part to play in tackling severe poverty.

When poor populations are struck by sequences of natural disasters or civil unrest, they require substantial amounts of aid and organisational help to recover. It is only when there is recovery and stability that trade can take over and help.

GEORGE McBEAN, Edinburgh

Strike a balance

We need to strike a balance between trade and aid. Trying to trade with some developing countries just now would be pointless, as they don't have the infrastructure to deal with complex global trade.

Aid still has a place and will certainly be needed in sub-Saharan Africa over coming months if famine predictions come to pass. But aid cannot be without regulation - it needs to go to local organisations who know where the real need lies. Outsiders can't be expected to get it right. In light of the UN oil-for-food investigation, we need to look at who is benefiting from aid and make sure it is going to the right people.

Trading with developing nations is really the only way forward, but trade must be fair and not conform to what developed nations perceive as "free" trade. Like many things in life, it comes down to finding a balance.

CRAIG JOHNSON, Nairn