January 03, 2005


Setting aside the emergency relief being rushed to tsunami survivors, which is vital and absolutely necessary, foreign aid has, in general, not been very effective. Indeed, if the aid industry's effectiveness was judged by its success in poverty alleviation, it would have been shut down years ago. . . .

Aid is only a part of the development picture. For instance, while ODA flows stand at about $US63 billion ($80.8 billion), foreign direct investment has in recent years been twice the level of aid flows. Even remittances from workers employed abroad are worth about $US80 billion to the developing world. Moreover, most capital accumulation comes from domestic sources rather than from abroad. Indeed, economic growth is largely about freeing up local equity and getting locals to invest locally.

The true insignificance of aid is revealed by the fact that trade contributes almost $US1.7 trillion to the developing world, making free trade an imperative hence the emergence of the slogan "trade, not aid".

Yes, emergency relief is necessary, but long-term aid is often destructive. In that light, it's worth reading this piece from the San Francisco Chronicle, too:

According to a recent study by the World Bank, 2004's growth reflected "an expansion without precedent over the past 30 years." Equally encouraging, the report notes that "the rapid growth of developing economies ... has produced a spectacular, if not historic, fall in poverty."

Amazingly, the World Bank report did not get much coverage in our mainstream media. It seems the press was more interested in covering the evils of globalization than in taking notice of how world trade -- which grew by an astounding 10.2 percent this year -- is driving economic growth. . . .

It is undeniable that 2004 was a great year for the poor. The World Bank's prediction that global poverty will continue plummeting is particularly encouraging. But if we are ever to wipe poverty from the face of the Earth, our next generation of leaders must first understand what makes the global economy tick -- the fundamental relationship between free trade and economic growth.

Read the whole thing.