Disadvantages of Foreign Aid for Less Developed Countries
Foreign Aid is a term we hear a lot in the news, especially now with all the talk of the United States stopping the distribution of foreign aid to certain countries. However it’s something a lot of us don’t have a clear understanding of, moreover, many people believe that the money their country sends over to foreign nations isn’t being utilized to help said nation.
I feel that this is an important issue that divides people even though, many don’t know the specifics of it. Many people argue in favour of Foreign Aid while many other call for that money to be spent on their country’s economy. I want to talk about this issue because I enjoy researching about money, economies and trade. It is a topic that I’m fond of. I will look at the positives and the negatives of foreign aid and whether or not we should send more of it or whether we should consider a different option to help those who desperately need it.
The first major foreign aid plan was the Marshall plan in the late 1940’s, the purpose of which was to help rebuild Europe after the Second World War, which was very successful. A study in America found that the average civilian guessed that 28% of the U.S federal budget goes to other nations in the form of foreign aid, while the actual figure is less than 1%.
Many people think that the way to help decrease poverty in struggling nations is to give them large sums of money to help improve the economy, and this was the dominant thought in economics for decades until very recently. Many modern economists are now suggesting that financial aid hinders economic growth in developing countries. There are many reasons as to why this could happen. Many developing countries are ruled by dictators and when foreign aid comes in, they have a habit of keeping a large portion of the money to themselves. Moreover, if a country keeps on getting money whenever a disaster hits, their rulers may not want to improve the defense mechanisms and emergency services so the money keeps on coming to them. $50 Billion dollars, worth of aid goes to the continent of Africa annually yet there aren’t any major improvements in living conditions. Reports from the World Bank showed that of the 700 Million people who were taken out of poverty between 1981 and 2010, 89.6% of those were from China, which receives much less aid than Africa comparatively.
In 2013, the leader of South Africa, at the time was Jacob Zuma. It was found that he spent about £12.9 Million upgrading his private property by adding a swimming pool, amphitheater and more, while claiming the money was used for security upgrades. This is a prime example of a corrupt leader, who is using money meant for the people, for himself. There is nothing stopping a dictator from using money from other countries on himself.
Every leader needs their citizens’ support to get re-elected, or more commonly in developing countries, avoiding a revolution. A leader needs their citizens’ taxes, in exchange for implementing policies that help the people, the problem starts when a leader gets regular money from other countries, he then no longer needs the taxes as much and therefore, doesn’t need to listen to his people. He can spend the money as he pleases and people won’t care because it’s not their taxpayer money. The more foreign aid a dictator gets, the less he needs to listen to his citizens and the more freedom he gets, which usually doesn’t end favourably for the civilians.
There are two possible solutions to the problem depending on the situation: One for if there is a dictator and another for if there are corrupt politicians.
If there is a dictator then the best strategy is to not give the money upfront in large amounts but instead in smaller amounts over time and with restrictions. E.g., we will give you money if you help the people build disaster-proof houses. So either the dictator doesn’t help the people but doesn’t get money or he helps the people and gets some money but not enough to be independent of the taxpayers.
The other solution for corrupt politicians is to tax the money and give much harsher punishments for those using the money for their own good. There was a study in Nepal, in which an article about a corrupt politician who used money not meant for himself, for half the participants, the money was from foreign aid, for the other half, the article said that it was taxpayer money. People wanted much harsher punishments when they heard that it was their taxpayer money being used. Giving much harsher punishments will also add another layer of certainty that the foreign aid or charity will indeed go to the people. This could also apply to other forms of aid, such as food, water and medicines, extra accountability is always better.
I used to believe that giving money to poorer countries was always a good thing, however, after looking at the facts, learning about economics and some politics, I see that it isn’t always beneficial. My opinion started to slowly change throughout the project. I now believe that aid should be given in lesser amounts, or more strategically to help the people who desperately need it. My opinion is the complete opposite of what it was 5 weeks ago. My opinion isn’t that we should stop sending aid, I just think that we need to restructure it and fix it.
After looking at both sides, I can say now that aid, in its current state, does not help countries in the long term. It hinders economic growth and if in the hands of a dictator, may hurt civilians. The current system must be overhauled if we are to continue sending money, using the solutions outlined previously.
