Poverty - aid, trade and corruption

Since the Live 8 concerts and the following G8 meeting in Gleneagles, poverty in Africa has been discussed in the media through two main viewpoints. On the one hand there are those who argue Africa's problems are principally internal: corrupt governments, inter-ethnic and religious violence and irresponsible economic management.

Proponents of trade justice, on the other hand, argue the problems are largely external: unequal and unfair trade agreements, undue political pressure applied by wealthy countries and ongoing legacies from the colonial past. The arguments have become polarised, each side dismissing the other as they become increasingly expressed through left and right political frameworks. Meanwhile most African countries continue to suffer, many sliding into ever worsening problems.

The question for the world is what global policies will directly assist African people to attain real security against famine and violence, and enable all to live in human dignity? To answer this question we need accurate analysis which identifies all of the factors, internal and external, that continue the cycle of poverty in Africa.

Very few commentators, for example, have focused on the reason African countries have amassed massive debts. A major factor is the ongoing impact and implications of structural adjustment programs that were conditions of government loans to African governments in the 1980s and 1990s. These programs typically included: large “cuts to public spending on health and education, trade liberalisation, privatisation and deregulation.” These neo-liberal policies led to even greater differences in income and wealth distribution in Africa than in industrialised nations, driving already poor people into desperation and violence. People cannot compete in a highly competitive globalised market place if they are suffering from malnutrition and chronic illness.

Developing nations have desperately tried to meet their escalating debts while health and education funds rapidly dried up, and the World Bank has retreated from many such programs. Sources close to the Bank have belatedly recognised that structural adjustment programs have been important factors in turning some African countries from steady development into decline.

Furthermore, policies of structural adjustment have not enabled fair trade. Struggling economies have had to compete with protection policies that protect industry in wealthy economies. Now many critics of such trade policies are calling for “trade justice”. One of the principles of trade justice argues for developing economies to have their own protection policies in order to develop industry and infrastructure to the point where they have the capacity to trade on more equal terms. The Trade Justice campaign also calls for consumers to avoid goods known to be produced through unjust employment and destructive environmental practices.

Africa has extensive resources but in many cases its countries enjoy a small proportion of the benefits of resource exploitation and a large proportion of the burden from environmental degradation. Zambia’s economy, for example, relies heavily on mining. It uses about 300,000 tonnes of chemicals each year, many of them toxic. Pollution of waterways and land is extensive. The Environmental Council of Zambia estimates about 300 tonnes of wastes have been dumped in the country, exposing humans and animals to extreme toxic risk. Zambia lacks the technology or the resources to process these waste products.

The power of local elites and governments is an important factor in this: they allow this unfair state of affairs to grow for their own benefit. This is a significant type of corruption in African countries. In many cases, the methods they use to maintain this state of affairs are military, with those who protest being violently repressed. The conflict in the Sudan, between the southern, largely tribal people and the very militarised elite in the North over control of the oil fields in the south is one such example.

In fact, there is a strong statistical correlation (pdf file 456KB) between violent conflict and resource rich and dependent African countries. While there are many causes of these correlations including poverty, poor governance, and so on, trans-national companies also contribute by sustaining poor governance through:

• corruption and legitimation of unrepresentative and repressive authorities;
• degrading local livelihoods and resource entitlements (forced and child labour, repressive use of security forces); and
• bankrolling belligerents (pdf file 152KB) in local wars making them independent of any possible commercially driven diplomacy.

In many cases there is ample evidence this violence was actively driven by Western intelligence agencies.

While the G8 proposes some support in peace building and partnerships for development, there is no admission of corrupt or dubious practices by multinational companies that have enabled massive capital flow out of Africa and to the West. Policies of market liberalisation are based on the principle that “free trade” is the way to help developing economies to participate in the global economy, thus supposedly driving their development. However, the free market on its own does not achieve socially desirable outcomes, even in western economies, without very careful regulation.

Bodies such as the ACCC and ASIC in Australia and the SEC in the US are crucial to maintaining integrity of the market. In such economies, it is well accepted that the tendency of the market left to itself without such protections is not towards competition, innovation and higher efficiency but to controlling and monopolising power. The profit motivation often eclipses other human values, leading to frequent and notable unethical practices such as collusion, insider trading, dishonest accounting.

The OECD estimated that in 16 major cases of cartel activity, collusion cost a total of $US55 billion. In June of 2002, WorldCom admitted to $US3.9 billion false report of profits, followed by a discovery of a further $US3.8 billion worth of false accounting. Its collapse cost 17,000 jobs. In the first two weeks of June, 2004, illegal corporate activities cost US companies $US3.85 billion, not to mention Enron and Australia’s own One.Tel and HIH among many others. There are more than enough corporate raiders in the free market willing to take advantage of the vulnerability of African countries.

Charles Abugre, a development activist from Ghana, currently with Christian Aid, refers to the policy of aid providers of encouraging “poor countries to reduce tax obligations on foreign investors”. Across Africa governments have offered mining companies tax holidays of up to 35 years, so tax revenue that could be assisting the development of economies is absent. In addition, foreign exchange earnings of many companies are denied to African economies as capital is sent to tax havens across the globe. The Tax Justice Network suggests that the stock of capital held by tax havens, a large part of which is from developing countries, exceeds $US11 trillion.

The “make poverty history” campaign and its proponents view the problems of poverty in Africa as largely external, and argue that capitalism and globalisation continue to reinforce poverty in Africa. While many economists are now arguing that this is certainly true, it is not the whole picture. What happens internally - in the way that African governments have responded to external pressures - is important in understanding all of the issues., This is particularly so in the case ofgovernment agendas in the West, where those governments have provided aid, and some also arms, beyond the cold war period.

By explaining everything in terms of external agendas, the role of governments and local elites is ignored. There is no doubt unequal power has developed in response to free markets - it is part of the very dynamics of the free market to create such inequalities as engines of economic growth. How governments respond to the needs of their citizens is a further question. Not enough analysis is done beyond the images of poverty in the developing world, particularly as such images stand in stark contrast to the wealth of the developed world. An external focus does not account for the manipulation of bureaucracies, the use of armed forces against citizens or the response by governments to both internal and external pressures and struggles.

The call for increased aid to address poverty by Live8 and others also needs careful thought. There are many African countries where increased aid is needed to alleviate the immediate crisis of poverty and there is no doubt aid is crucial especially in times of war and famine. However, foreign aid that does not involve the development of partnerships with local organisations serves to undermine the development of local economies and industry and reinforces unequal structures that already respond to a market economy.

On the other hand, aid tied to requirements for better governance is particularly problematic, because better governance really amounts to restructuring systems of taxation and investment that will target economic and social development of the poor. Aid-directed governance, argues Charles Abugre, leads to reverse accountability where governments account to donors rather than to their own citizens.

Human rights abuses and the extent of real deprivation in countries where local elites and governments have the power to address inequality are issues that should not be ignored. However, let’s be honest in recognising the continuing impact of globalisation. Governments in Africa have perpetrated human rights abuses against their populations. But so have western companies in their exploitation of cheap labour, their use of harmful and unfair marketing practices, their undue pressure on governments for a range of advantages, and their legacy of severe long term environmental degradation.

By many accounts, the G8 rhetoric and Live 8 images stress empowerment and change for Africa. However, this aid money was already largely committed. In addition, aid tied to policies of liberalisation will provide the developed world more profits from African resources, specifically through the further push toprivatise and commodify water, energy, health care, education, and suchlike.

The impact of massive foreign debts upon the developing world is already well known. Those who argue corruption is the only problem need to show why many countries with no evidence of corruption have to make hard decisions about whether to pay foreign debts or reduce their spending on health, education and infrastructure. Foreign debts escalated from compound interest as developing economies struggled to repay loans. There is nothing magnanimous about the West dropping the debts of the developing world. Free trade in an unequal world will maintain the global status quo and unless all of the factors of structural inequality are addressed, Africa will remain in poverty.