NationStates Jolt Archive

So I've been arguing with a friend of mine over whether foreign aid helps third-world countries. Now, I'm of the opinion that it does and he countered me with this (http://www.cato.org/event.php?eventid=5917) video.

Now I know it's a Libertarian but the video's point is that foreign money is either squandered, stolen, or completely ineffective and we should contribute by building constitutional governments and protecting property rights, thus allowing for dependent nations to develop on their own, economically.

Thoughts? I'd really be interested to get more voices to weigh in on this. Is foreign aid useful? Even if debt-free? If not, what would be useful?

Giving money to corrupt governments mostly results in corrupt government officials having money.
As for the Debt I would prefer we kept that. When things get really bad one of the few ways we can make a dictator stop slaughtering people is by offering a more favorable term on their debts.

Here's his argument laid out in full.



I don't actually know enough about economics to know if this is true or not.

I would basically say that it is accurate. Outside flows of to much money into an economy can offset the balance. Look at Spain with the influx of gold from the new world. Even China during it's growth spurt could be pointed to as an example.

Here's his argument laid out in full.



I don't actually know enough about economics to know if this is true or not.

It is actually true. We found this out in 1918. What happened was the US had doubled its gold reserves during WWI. In response the US doubled its currency float as it now had more gold to back it. However, the production of the US did not double from the year before (impossible). So the number of dollars relative to units of production doubled. This caused price levels to double.
All that massive foreign aid in dollars does is inflate the currency while giving the local government a greater claim on units of production. (same thing happens now with inflation in the US)

Sorry, here's a different version of his argument, only slightly longer and with better grammar.

Here is my position:

Each country has its own economy, right? Dependent on the productivity of the citizens involved and the level of taxation, as well as about a thousand other variables.

The US economy, for instance, is very strong because we have a good laissez faire tradition. The Chinese economy, while recovering, is very poor due to years of Communist mismanagement and totalitarian control....

Having said that, we can agree that African and other third-world countries suffer from poor economies;
hence the discussion on how to remedy them. I state that the best action we, or anyone else, can take is simply to establish a rule of law that protects property rights and allows for free markets and voluntary exchange to occur.

The influx of new currencies in the country, even WITHOUT corrupt politicians, is a detriment for 2 reasons:

1) It distorts market signals in those countries that are used to understanding their own price systems and balance of goods. When a new money, of such magnitude as our monetary "benevolence" is, enters the scene, it takes time for the nation to accept it and readjust the market to accommodate it. And,

2) It creates rapid inflation due to a ... larger currency supplanting the native fiat money, and market signals are further lost and distorted.

Thus hampering the ability to conduct trade freely and easily and worsening the condition for the citizens of that country.

There's a large hole in your friend's argument though. Each country does indeed have it's own economy, however:

Unless you're North Korea, your economy will be intertwined with the global economy and rich nations (I.e. the US) have a tendency to play for keeps and have no problems using the free market to squash poorer countries.

Said rich nations also have caused a lot of the problems in said third world nations. Empires didn't end all THAT long ago and we caused a lot of damage to the development in many areas that it is difficult for a natural free market economy to develop in the first place.

Foreign aid generally saddles poor countries with mountains of debts, enriches despots, and leaves the countries no better off than they were before.

The problem is, most foreign 'aid' generally come with strings attached. :mad:

The problem is, most foreign 'aid' generally come with strings attached. :mad:

"Most?"

And even if it didn't come with strings attached, it still wouldn't help.

So, we're talking about "direct" aid then, and not "indirect" aid?

Foreign aid is a scam. In international trade, for some countries to end up in credit others have to be debtors. You throw money at a third world country, while maintaining protectionist policies on the agriculture sector which is very important for their economies, the fundamental balance of trade is hardly altered. They then have the debt to pay back on top of their pre-existing economic difficulties. What we need is a Clearing Union as proposed by Keynes to maintain a balance of trade and stop the accumulation of overly large deficits and surpluses. Anything else is just tinkering round the edges and will do jack shit.

There was a lady interviewed on The Colbert Report a week or two who'd written a book about this - you can probably still find the episode in Comedy Central's archives, but IIRC the thrust of her argument was that putting money into Third World economies is a waste, since decades of experience has shown us that it doesn't work much. Her alternative solution was to build up the economies of third world nations, through direct financing of local entrepreneurs and buisnessmen. Basically a bottom-up approach, favouring the local economy, rather than a top-down approach, which favours the big multinationals.

There was a lady interviewed on The Colbert Report a week or two who'd written a book about this - you can probably still find the episode in Comedy Central's archives, but IIRC the thrust of her argument was that putting money into Third World economies is a waste, since decades of experience has shown us that it doesn't work much. Her alternative solution was to build up the economies of third world nations, through direct financing of local entrepreneurs and buisnessmen. Basically a bottom-up approach, favouring the local economy, rather than a top-down approach, which favours the big multinationals.

Well that would make the most sense. The reasons that we have poor people in the world are the same reasons why we have poor nations. Policies are intentionally crafted to work against them. Want to figure out why you already did in your last sentence.

A large percentage (if not all) would obviously go to corrupt governments with corrupt politicians, therefore making corrupt politicians corrupt and wealthy...

Foreign aid isn't necessarily a bad thing, but it can be done badly.

Sorry, here's a different version of his argument, only slightly longer and with better grammar.

Obviously your friend is not very conversant with history or (s)he would know that forcibly implementing free market principles doesn't always work in terms of developing local economies.

they did an episode of Panorama (http://www.youtube.com/watch?v=CAXR6jlygwM) for this which had among other things UN projects to get farmers keeping bees only the money gets stolen along the way and officials who will arrest you for asking too many questions (so kinda like Gordon Brown)

then we can look at countries such as India which though receiving aid for trivial things like clean water and food can somehow afford to send men into space and look towards getting a man on the Moon which is something the British government is too skint to do