The government has ringfenced overseas aid, but is that the right thing to do? Former development secretary Clare Short debates the issue with economist Ha-Joon Chang
At a time when almost all budgets are facing cuts, the Chancellor has ring-fenced 0.7% of GDP for foreign aid. Was he right to do so? Economist Ha-Joon Chang and the UK's former international development secretary Clare Short discuss. Aida Edemariam listens in.
Clare Short: The UK spends about £8bn on aid. We spend more than £40bn on defence and £600bn on public expenditure, so £8bn is a tiny part. You've got to have funds for famines and crises – and beyond that, Britain massively exploited its colonies in Africa and elsewhere. Funding that helps countries speed up their development is just about decency, and also about the world being safer and more secure in the future.
Ha-Joon Chang: In all the recent debates on aid, there is an implicit assumption that aid more or less doesn't work. However, there are many examples of aid working. My own native country, South Korea, is a great example. In the 1960s, it was one of the poorest countries in the world; now it is a donor. In certain periods, foreign aid played a critical role in allowing us to build infrastructure, resolve housing crises, build particular fertiliser factories and so on – if you use it well, aid can be a very good thing. So let's talk about how to make it better rather than talking about getting rid of it. One thing that has really worried me is this decision to get rid of aid to India, which still a very poor country.
CS: Forty-two per cent of Indian children are stunted. That means 42% of little bodies and little brains are not getting enough nutrition and clean water to grow – and we say: "Oh, India's rich, we'll walk away."
HC: India is the country with the largest number of poor people in the world. Simply because India's average annual income per head has grown from $900 to $1,100 per year, you cannot completely wash your hands of the country, especially given Britain's colonial history.
Aida Edemariam: One figure I've seen is that Africa in the past 50 years has received $1tn of aid. Most African countries just don't compare to South Korea in terms of progress.
CS: Africa has just had its best decade since independence. The millennium development goal about halving the proportion of people living in extreme poverty has been met; there's been a massive increase in children in primary education, which is a long-term investment and lifts a country as those children grow up. It's not perfect, there are things that can be done better, yet there is massive, measurable achievement and progress.
HC: Aid can be misused, and it has been, both by receiving countries and donor countries. Donors typically add conditions that mean the money comes back to their own country rather than ending up in the recipient country. The World Bank, when giving aid, insists that countries need to abolish all subsidies. Abolishing fertiliser subsidies in some countries in Africa has been a disaster. We need to fix that, but let's not throw the baby out with the bathwater.
AE: In some countries, a big percentage of the government's budget is from aid.
CS: If you put money through government budgets – with supervision, because then you get a say in making sure the money's well spent – you speed up the number of children who can go to school, who are immunised and so on.
AE: Supervision can be problematic. Many countries are grateful for Chinese investment, for instance, because it doesn't come with a lecture attached.
HC: As someone from a developing country, I have a problem with rich countries thinking they can tell us anything, simply because they are giving money. I'm not opposed to some minimum conditions, especially if they are set in consultation with the recipient country. The problem begins because conditions are intrusive. Imagine if I go to a bank and try to borrow money as a small businessman, and the bank manager says: "Well Mr Chang, you are spending too much time with your family. You need to work 14 hours a day to pay off your debt and see your family for one hour a day." I'd hit the guy and leave the room. There are lines you shouldn't cross, and frankly, some countries have crossed them.
CS: There's no doubt that it works best when both sides have an agreement about what wants to be achieved. And there has been a shift in this, to partnership and agreed objectives, and to some external scrutiny of both sides.
AE: Conditions are often about transparency – and yet, as this paper reported this week, UK aid money is being funnelled into public-private investment funds and offshore tax havens in places such as Mauritius.
HC: The two issues need to be separated. Why do tax havens exist? Because rich countries allow them to. If the US came down on tax havens in the same way they come down on countries that trade with Iran and Cuba, we'd have no tax havens in the world. I'm not, in principle, against private involvement in the aid business – in fact, if aid money can be a seed or a catalyst to bring in more money, why not? The danger is that if you don't monitor it properly, the private sector can actually destroy the nature of the original programme.
CS: These instruments were set up during my time in government. They are designed to encourage a country's own savings to get invested in infrastructure. They are heavily structured and supervised, and they have been very successful. But when we set them up, along came advice from the City that, for tax reasons, we need to put them out of Britain. They suggested Mauritius or Dublin, and I said, this is a major UK development instrument – how can it be in another country? And I had to get a special exemption from the Treasury. It took me a couple of years to negotiate it, and that is ludicrous. The right thing is to change the law on tax havens.
HC: Could we not introduce a kind of tax exemption for aid-related money? Why do we need to ship it out of the country?
AE: It seems as though every Christmas now we're enjoined to buy a goat for someone in Africa. Is that kind of aid useful?
HC: Well, you need to do so many things to pull these countries out of poverty. Giving individuals a goat is a good thing, but it's not enough, so I don't want that kind of aid to be considered a replacement for building infrastructure, installing sanitation systems and so on.
CS: I don't think food banks are the answer to poverty in Britain. But in the meantime, I think it's a good thing that people are giving aid. Giving a goat is a bit of human generosity, and what's wrong with that?
HC: Unfortunately, with the austerity drive, Britain is becoming a bit of a Scrooge. This country used to be very decent, and now it's become narrow-minded and stingy.
Clare Short takes part in the Intelligence Squared and Google+ Versus debate "Don't give a goat for Christmas. The aid system does not work", on Monday at 7pm.
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