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The Effects Of Charitable Ngos On The Development Of Countries

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We may define development as progressing towards a better state of being. For this discussion, I will be discussing the effects of charitable NGO’s, Governmental Economic Management and how their actions impact the development of countries. The first problem presented is the “Trade – not aid” issue. Professor Angus Deaton won the Nobel prize for economics for successfully arguing, with extensive measurement and evidence, that most aid is damaging to the long-term prospects of the recipient. The second problem presented will be how Geography can impact development. It will be addressed in terms of an interesting paradox known as the “Resource Curse”. If you approach this from a moralistic point of view. To claim that charity and aid is damaging the recipients is a controversial argument. If you approach this with cold-hearted, ruthless logic, it makes some sense. Are you trying to foster dependency or independence?

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“Give a Man a Fish, and You Feed Him for a Day. Teach a Man To Fish, and You Feed Him for a Lifetime” is an old proverb that may apply. Part of the argument is that foreign aid can undermine accountability and often props up autocratic regimes. Equally, if for example, something like education is being provided by international aid agencies. This would mean the country does not actually have to develop an education system itself. An example of this is Cambodia, a country that has received vast amounts of aid per capita since the 1980’s. While all nearby Asian countries have been developing rapidly, Cambodia remains among the poorest in Asia. The government used the aid to placate the population, while slowly turning authoritarian. Despite receiving the most help in recent decades, it remains one of the least developed countries in the world, outside of Africa. It was a failure of aid to produce sustainable long term development. In the reading material by the Levin Institute, it discussed the top 5 countries in the world, from Human Development Index, 2010 rankings. I lived in three, visited one and the other is nearby. Figuring out why these countries developed so successfully intrigued me. Two of them seemed to owe some of their success to a deep adherence of market principles, productivity and their economic structure (the United States and Ireland). New Zealand is generally a well-governed country. The final two were mainly resources fuelled wealth (Norway and Australia). Countries with lucky geographies. Oil in Norway and bulk commodities with Australia. But aren’t these outliers too? It is far more common for countries with vast resources to remain underdeveloped.

Venezuela has the biggest oil reserves in the world yet is now the poorest country in South America. Russia has advantages from its landmass and vast natural resources yet remains chronically underdeveloped. Much of the Middle East is likely to fall off an economic cliff, if they don’t eventually diversify their economy’s away from dependence on the oil industry. These are not passive observations, it’s a well-known paradox called the “resources curse”. Norway’s oil industry, like most commodity’s, is highly cyclical. During the 1970’s, Norway initially blew much of its windfall from oil revenue. When the inevitable bust came, costs were bloated, debt levels too high and a full-on economic collapse transpired. Norway learned from this and enshrined into law countercyclical spending measures. Forcing successive governments to be prudent during booms and channel revenue into the sovereign wealth fund, which would be used to smooth out the bust periods. Russia also appears to have learned from its default and crisis in 1997, which was also partly impacted by a previous oil boom, followed by a bust. They now maintain low debt levels and high foreign currency reserves to fend off a future crisis. With regards, the effectiveness of aid, some of the solutions are already in play. Over time aid itself has evolved, to become less focused on handouts and more focused on empowerment. Think about some of the topics that have cropped up so far in our readings and case studies. Microfinancing, M-Pesa, IFI’s insuring risky ventures, infrastructure, and technologies that allow people to thrive. Even this University may fit into that category. This is the type of help that is most beneficial. Certainly, there is a place for emergency relief, but it would seem long-term handouts, apart from not helping, are probably making things worse. A Nobel prize for economics was awarded based on this being successfully argued. Clearly, this is not final, and our thinking will continue to evolve. I suspect with even more emphasis on empowerment. In this conclusion, the second problem is being used as a basis for arguing the first and vica versa. Why is it that countries with no resources to speak of are often far more developed and successful than those with vast reserves?

The resource curse is a well-known and established phenomenon that fosters complacency and lack of meaningful economic development in many resource-rich countries. This is the “adversity builds character” argument. When a country has an easy source of wealth, it generally doesn’t properly develop other parts of its economy. Difficult decisions are avoided. The government tends to be bloated. Productivity and efficiency remain low. A solution could be countercyclical money management or using the funds to develop other parts of your economy. These issues tend to be far more complex than this. My conclusion is not to say these are the reason. It is to suggest that these are factors or problems which may be hindering development.

29 April 2020

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