Let them eat cake! Those words were the infamous words of Queen Marie Antoinette after she was told that the people of France were starving. This ambivalence to the mechanisms of poverty by those in power has continued from the revolutionary times in France to the present day. A lack of understanding on how we ourselves became wealthy coupled with apathy and ignorance has fostered an insidious monster capable of far more damage than ever thought before: Foreign Aid. Its ability to crash markets, create dependency, and depress cultures are just now being realized.
Amounting to more than 184 billion dollars, if foreign aid was its own country it would be the fifty-fifth largest nation in the world by GDP, larger than Ukraine by four billion dollars (World Bank). If two billion people live under the poverty line, that averages out to ninety-two dollars per person (World Bank). For someone living under the poverty line, meaning they make less than one dollar a day, foreign aid can comprise up to twenty-five percent of their annual income. With yearly totals like that, poverty should be eradicated; yet, it persists. Unemployment is at an all-time high across the bottom 10% of the third world; jobs are just not there. Agricultural productivity has fallen across the third world every year since 1985. The United Nations reported that the average farm productivity of less developed countries is seven percent of North American farms. That means for the same amount of effort as a first-world nation, these countries make 93% less food that a North American farmer (United Nations). The question now becomes obvious, why do the poor nations stay poor?
Meet Claude. Claude is a rice farmer from northwest Haiti. His farm generates twenty dollars a day in profit. From that twenty dollars, Claude hires ten farm hands at a dollar a day. Each of the farmhands supports five dependents. During the nineties shipments of hundreds of tons of US AID rice was sent to Haiti. Soon after, trucks of rice were pulling into cities across the Haitian countryside. Every village received bags of rice. Anyone and everyone could come and get the free rice. No one is buying Claude’s rice anymore because they can get it free from the aid truck. Claude is forced to layoff all ten of his farmhands without any salary to pay them. This brings direct unemployment in this situation to eleven. If each of the eleven people had five dependents, fifty-five dependents are now incomeless and chained to foreign aid. Claude’s story is one of the thousands across the third world. Cases of aid killing jobs markets is not restricted to food, it is like this for every domestically produced product. Foreign aid ruined Claude’s life; let us take a deeper look at why.
Supply and demand dictate everything; from what you make to how much of it you produce. In economics, if demand exceeds supply, prices rise and people are hired to produce more product. This occurs naturally in an economic system. As in all self-regulating systems, eventually, production catches back up to normal levels. This point is called equilibrium. Sadly we are never in equilibrium long because producers start producing more than equilibrium. This influx of extra products into the market lowers prices forcing manufacturers to lay off workers. This in turn causes shortages later requiring the hiring of workers to fill the gap. This is called the business cycle. It is the natural cycle of booms and busts that every single organic economy experiences. Where the problems start to occur is when the cycle is artificially manipulated. When massive quantities of outside product flood a local market, the local market experiences the repercussions of the supply; lower prices, without the benefit of producing it themselves, jobs. This throws the whole system off balance. Normally in a system there is a counterweight to the decrease in price, an increase in employment. But now that the counterweight is gone and the entire system will crumble. That was the supply side, one of two pillars that props our economy up. On the demand side, we see a similar picture. No one will pay for something that they can get for free.
Economies are beautiful. They allocate scarce recourses to those who value them the most. When that good is no longer a scarce resource, it no longer retains the value that scarcity once gave it. No one purchased Claude’s rice when rice was everywhere. Responsible, effective aid has accomplished some amazing tasks. What is important is advocating social and economic responsibility when donating aid to prevent causing a crisis.
If the danger aid presents to less-developed nations is clear, why does it continue to come? American efficiency is the reason. The United States has achieved what was considered theoretically possible, but for all practical reasons considered impossible. The nation has become too efficient thanks to GMO crops, mechanical harvesters, and fertilizer. So much food is made with such little effort that surpluses have skyrocketed. Thirty-one percent of all United States agricultural products are shipped abroad (Exporting Goods). Instead of letting the surplus sit in our own economic system plunging prices into free fall, we pump it out of our nation to let it collapse others. A quick point to note is this idea is based on the assumption the country receiving the surplus produces the item being sent. Monsanto’s greed is the fuel of this fire. They have lobbied the government to increase aid so that the farmers will not stop producing more. With a guaranteed buyer, the United States government, farmers have no incentive to trim production to equilibrium. This guarantees Monsanto will never run out of customers for its seeds and pesticides. This system is inherently evil but disguised as a good intention. Taxpayers and impoverished nations are the victims here while corporations and politicians are the winners.
To clarify one last time, not all aid is bad! If the first world would learn from our mistakes and adjust our giving accordingly, it could help the third world build itself and construct a freer, more equitable world. Going Lazzeis-fare could help less developed countries the most. Singapore, a former British Colony, was abandoned by the British. Think about that for a second. The British, the guys who were hell-bent on colonizing the world, gave up territory because it was so bad. A British naval officer called Singapore a worthless, hellhole malarial swamp. Today that “cursed” disease-riddled swamp is the third richest nation in the world behind Luxemburg. How did this magnificent rags to richest transformation occur? No taxes, no red tape and complete transparency were its top priorities. Foreign companies rushed there employing thousands of people. The local companies were able to become more competitive globally now that they were not restricted by burdensome government intervention. What is ultimately best for the long run is Africans employing Africans. A lot of people claim, “LDC’s cannot build an economy if they are starving.” The rebuttal to that is, “ They will build an economy to eat.” This is how the third world will move forward.
Do not think of this essay as an attack on generosity. Please take the information from this post to make your giving more effective and in turn create a better world.
Soursces:
Beattie, Alan. 2002. “A measure of good intentions.” Financial Times. March 11. p. 23
Burnside, Craig and David Dollar, “Aid, Policies, and Growth,” American Economic Review 90(4) (September 2000): pp. 847–68.
“Exporting Goods.” United States Department of Agriculture. United States Department of Agriculture, n.d. Web. 23 Jan. 2015.
“Myths About Aid.” Giving What We Can. N.p., 10 Mar. 2012. Web. 23 Mar. 2015.
Nations, United. The Least Developed Countries Report 2013. New York ; Geneva: United Nations, 2013. United Nations Development Confrence. United Nations, 2013. Web. 11 Feb. 2015.
“Poverty.” Poverty Overview. World Bank, 7 Oct. 2014. Web. 22 Mar. 2015.
“Ukraine Data.” World Bank. World Bank Group, n.d. Web. 20 Mar. 2015.