Poverty - aid, trade and corruption

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.