At Large

Money Won’t Cure Global Poverty

G8 nations should stop bickering over aid money and start enacting meaningful reform.

By 7.10.08

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Leaders of several underdeveloped African nations came to the Group of Eight summit in Japan this week and delivered a pointed message to the heads of the world's leading economies: Give us our money.

In 2005, the G8 pledged to double development aid to Africa by 2010, but in the three years since that commitment, only $3.9 billion of the promised $26.1 billion in aid to Africa has been dispersed, according to a report put together by the poverty alleviation non-profit ONE.

This is hardly surprising. Every year the G8 addresses poverty. Every year its leaders are told that they are not doing enough. Every year is like a dreaded dentist's appointment.

Even when countries do receive more aid, the effectiveness of this money is heavily disputed. Every development program claims to be new and innovative, but many are still just handing out mosquito nets and vaccinating babies. Humanitarian -- yes. Leading to sustainable change that will allow the people of the continent to exist without handouts? Unlikely.

Since the 1980s Africa has received over $450 billion in development assistance. The Marshall Plan only designated $13 billion (about $110 billion to $140 billion adjusted for inflation) to rebuild a large percentage of Europe after World War II. While aid to Africa may not be useless, it certainly hasn't had the lasting, monumental effect everyone is hoping for.

How could it when many developed nations are taking as much or more money from developing countries as they are handing out?

Burkina Faso received $10 million in development aid in 2002, according to the National Center for Policy Analysis. The country lost $13.7 million in export earnings because of depressed cotton prices. Togo received $4 million in aid and lost $7.4 million. Once again -- export earnings. The depressed prices and export losses are the fault of agricultural subsidy programs in first world nations, including the United States. Clearly, this is a structural issue that needs to be resolved more than Burkina Faso needs another $2 million in pledge money.

And it isn't only national governments that need to be restructured. On the international scale, the World Trade Organization's Trade-Related Intellectual Property Rights (TRIPS) agreement forces poor nations to adhere to the intellectual property laws of more developed countries, making it illegal for many countries to produce cheap copies of expensive drugs. Not good for countries that are fighting a losing battle with AIDS and malaria.

To bicker over which country is giving how much aid to whom when the system itself is fundamentally flawed is ridiculous. Our nation's first concern should be implementing and maintaining structural changes to level out the international playing field. Then we can concentrate on aid, but of a different caliber.

IF MAINTAINING STRUCTURAL inequalities in our system is having such a drastic effect on money and development in the Third World, how would a system of aid look that slightly shifted the paradigm in the other direction?

Scholars Justin Muzinich and Eric Werker tackle this question in the latest issue of the Hoover Institution's Policy Review. In "A Better Approach to Foreign Aid," the authors argue that the current focus on money misses the point.

Individuals and corporations in America sent $600 billion to developing nations last year, as opposed to the government's $104 billion. Using government policies to encourage this type of private investment and donation would be much more effective than digging into public funds every year.

Not to mention that of the $600 billion sent to developing countries $220 billion of it is sent in remittances -- that is, workers in America sending money home to their families. What better way to ensure that aid money gets to the poor than policies that encourage and support remittances? There is no middleman, no agency, and no corrupt government skimming off the top. There is a cab driver sending money to his sister and her kids in Ethiopia.

Both of these solutions, fixing our current system to make it more fair and changing structures to encourage private aid to Africa, will accomplish something monumental. We will no longer have these tedious, largely useless sessions where rich presidents meet with poor presidents and haggle back and forth to each other over dollar amounts. Once in place, the structures will continue to enhance development without any need for further conversation or donation.

If there is any hope of reaching the United Nations Millennium Goal of halving extreme poverty by 2015, leaders need to stop bickering over pledge money and start enacting real, sustainable changes in our political economy.

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About the Author

Erin Wildermuth is a graduate student at the London School of Economics.