Despite the growing interconnectedness of the world, inequality between countries and regions remains a major issue. It is important to examine the ways in which developed and developing nations interact with one another in order to overcome such an issue. Thus, this blog post will explore whether aid or trade is a feasible solution to poverty reduction.
Although the amount of aid donated to developing countries continues to increase, the issue of poverty remains a major concern, raising the question of whether aid is a feasible solution to effective poverty reduction. This year the UK aims to spend 0.7% of gross national income (GNI) on foreign aid, meaning the UK’s official development assistance (ODA) will rise to £11.3bn. The target of developed countries to spend 0.7% of GNI on foreign aid was formally introduced as a common goal in a 1970 UN resolution, however very few countries have managed to uphold this target. Many even argue that this target is now outdated and irrelevant. Nonetheless, the amount that developed countries spend on foreign aid continues to increase, and often to no avail. There are several reasons for this, most notably the fact that well-intentioned aid is often mishandled and not distributed correctly. This is highlighted in Aid and Other Dirty Business: How Good Intentions Have Failed the World’s Poor by Giles Bolton (worth reading if you have time). With issues such as widespread corruption within many developing countries, the question of whether aid or trade works best in achieving sustainable development and eradicating poverty remains a highly contested issue.
Africa is arguably the richest continent in terms of its resources, however when images of emergency aid being dropped from planes are propagated to people in the developed world, it can lead to a loss of dignity to the recipients of said aid, as well as create a distorted image of Africa as a continent. Although poverty is most definitelya major concern, those suffering from absolute poverty are often still capable human beings; willing to make a living for themselves if given the opportunity. However, incessantly giving aid can create a sense of dependency, and continuously broadcasting images of impoverished and seemingly helpless people can lead to the dehumanisation of a people.
This is why many argue that improving trade relations is a more feasible solution to poverty reduction. Trade allows developing countries to retain their dignity, and challenges the notion that developing countries are incapable of developing their own economies. In order for countries to trade successfully, they must first build the correct infrastructure, which means focusing on issues such as good governance and transparency for investment. Making such improvements inherently benefits a country by enhancing internal security. Furthermore, as trade helps to create a long-term basis for international co-operation, trade partnerships can improve alliances on both an international and regional scale.
Most importantly, positive trading relationships allow developing countries to be viewed as equal partners in the international community, as opposed to being viewed merely as passive recipients of aid. Improving South-South trade relations, specifically in Africa, can unlock the region’s full potential; building markets and new opportunities for growth, job creation and improved living standards. Using the strengths of one country can compensate for a neighbour’s deficiency, thus creating conditions for developing countries to better protect and utilise their shared wealth in natural resources. Hence, improving regional trade between developing countries is vital for any long term poverty reduction as it can create more competitive and diversified economies.
On the other hand, it can be argued that such claims in favour of trade are idealistic; not all countries have the ability to trade successfully. Some developing countries do not have sufficient resources in order to trade, other countries might lack the correct infrastructure. Moreover, institutions such as the World Trade Organisation, responsible for regulating and monitoring international trade, have been blamed of creating an unfair trading environment whereby many developing countries do not have the opportunity to trade as successfully as more developed countries.
To further complicate the debate, it is also important to note that there is a misconception that aid is always delivered in the form of money; aid can also be provided in the form of expert advisors, who are at times considerably important to the development strategy adopted by a country. For example, expert advisors can offer developing countries support on how to effectively develop and maintain the correct infrastructure for trade and further development. An additional argument in favour of aid is that aid coming from the World Bank or in the form of government grants can be spent directly on critical areas in need of development, such as public health services and education, in a way that trade cannot.
Thus, the concept and practice of aid should not be completely disregarded. Most notably, donating aid to developing countries is essential during times of crisis, such as in the aftermath of a natural disaster. It is important not to forget that even the United States has been the recipient of humanitarian aid from the UAE on several occasions over the past few years. After a tornado in Joplin Missouri, the UAE donated $500,000 to help rebuild schools. Additionally, the UAE spent $5 million to build an intensive-care unit at a hospital in Joplin. More recently, the UAE pledged $5 million to the Hurricane Sandy relief fund. Hence, the practice of countries aiding one another during times of need is still imperative, and holds a great humanitarian and diplomatic significance.
Therefore, as with most issues related to the field of international development, the solution is not clear-cut. It appears that the answer to this debate is neither strictly aid nor trade, but perhaps a pragmatic combination of the two. It is still imperative for developed countries to spend a certain percentage of GNI on foreign aid, however the promotion of transparency is essential in order to reduce the widespread corruption that is currently present within the aid industry. Additionally, aid should be spent on creating the right environment for long term development that is sustainable. It is important to note that internal stability within developing countries is not the only issue that relates to creating a positive environment for trading partnerships to succeed; reducing trade barriers and tariffs is essential to ensure that there is a level playing field. Thus, throughout the ongoing debate of trade vs. aid, it is imperative to remember that without the correct regulations in place, both routes have the potential to fail the developing world.
So who are the winners and who are the losers? When it comes to long-term aid, it can be argued that developing nations are the losers given the culture of dependency that aid can create. In the case of trade, every nation has the potential to be a winner, given that the correct infrastructure and regulations are put in place. What do you think? Do you think that trade is a feasible solution to poverty reduction, or is it an idealistic dream within the current global political economy? Are there any other alternatives?
Deena Abdo (Dubai Campus)