The idea that we richer people should help those poorer than us seems morally sound. It’s even economically sound as a basic theory – we’re capital rich and they’re capital poor. That’s what it means to be rich and poor really. So, we can invest in their economies and we gain higher returns on our capital. They also gain as the gains from the output of the new production plants are vastly greater than the profits flowing back our way. As with so much about economic growth its a win/win situation.
That basic economic point then goes rather awry when we start to talk about aid, especially government aid. Not because there’s a moral problem with it – even though Lord (Peter) Bauer was largely right when he called it taking money from poor people in rich countries to give to rich people in poor countries. And do note his experience base was West Africa. The problem being that the aid organisations are employing Milton Friedman’s fourth method of spending money. Other peoples’ on other people. This also applies to government contracts as here of course.
This is the least efficient method of spending money:
[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] The $280-million Takoradi-3 (T3) thermal plant in the Aboadze Power Enclave in the Shama District in the Western Region has been left idle for about six years due to operational failures. After its inauguration in April 2013, the plant worked for about six months, generating between 60 and 70 megawatts (MW) of power, before it broke down and has since not been fixed. Constructed to generate 132MW, the plant has since the breakdown not added a single megawatt to the national grid. [/perfectpullquote]So, a terribly successful project then. And yes, government to government:
[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] The government took over the T3 project following successful completion work financed by the Canadian Commercial Corporation (CCC). Its breakdown resulted in a tussle between engineers of the national generator, the Volta River Authority (VRA), and the traditional leaders of the area who allegedly claimed the gods were angry because the plant was sited at the resting place of the gods of the land. It was later realised that the breakdown was due to the feeding of the plant with unfit fuel, which resulted in a problem known as hot-gas corrosion. That development led to a tussle between the Ghana government’s technical team and the contractors, who kept shifting blame as to who provided the off-spec fuel for the plant. The T3 project was a deal between the Government of Ghana and the CCC. [/perfectpullquote]It’s not a good look there, is it?
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The full Bauer quote for those who may not be familiar:
Above all, Lord Bauer argued, there would be no concept of the third world at all were it not for the invention of foreign aid. Aid politicised economies, directing money into the hands of governments rather than towards profitable business. Interest groups then fought to control this money rather than engage in productive activity. Aid increased the patronage and power of the recipient governments, which often pursued policies that stifled entrepreneurship and market forces. Indeed, aid had proved "an excellent method for transferring money from poor people in rich countries to rich people in poor countries."
Peter Tamas Bauer (1915-2002), quoted in "The Economist"