STWR - Share The World's Resources

February 2006, Nina Strenitz ~ STWR

More than fifty years into the development battle, some progress can be reported: The percentage of people living in absolute poverty as measured by the World Bank's $1 a day poverty line fell from 1987 to 1998 by four percentage points to 24%; and currently 83% of children in Latin America and the Caribbean region complete primary education. Despite these improvements, significant inequalities in the access to medication and the distribution of income remain between regions, nations and even citizens within the same nation states.

A closer investigation of global poverty indicators reveals that improvements are concentrated in a few countries, such as India or China. Some nations were able to realize the potential gains from an increasingly globalized world, while others are still struggling and sometimes even fall back through net losses in trade, civil wars or natural disasters. A recent report by the WHO and UNICEF revealed that in Kenya every year, 34000 children die of Malaria (about 90 percent of the global figure), a disease that can be successfully treated with appropriate medication. In short: much, if not more than ever, remains to be done.

Development Aid

In an encouraging speech on September 24, 2003 at the Hilton Foundation Conference "Humanitarian Intervention Today", Professor Jeffrey Sachs held that "the world is passing these places by, but for reasons that are understandable, identifiable and correctable". He then outlined that $25 billion a year from the rich world to the poor, the equivalent of one thousandth of the rich countries annual income, could save eight million lives per year through 49 basic live saving interventions.

The importance of sharing the world's resources through humanitarian aid to developing countries is not debateable, especially as aid levels are falling. Figures on development aid are similarly disappointing with total Oversees Development Assistance (ODA) contracting by 6% to USD 53 billion in 2000. Today, only Denmark, Norway, Sweden and the Netherlands donate more than the UN set country target of 0,7 % of GDP. The US currently donates 0,1% and the EU 0,31% of its combined GDP. Outlooks after the Monterrey Conference are promising. It remains yet to be seen whether the promised increased aid levels will be realized.

However, even if these required aid levels were provided for, there still remain several other problems. An analysis of aid destinations reveals that a country’s level of need is not the most important factor in determining aid allocation. In 1999, Central and Eastern Europe and Eastern Asia received the largest portion of ODA with $19.5 billion as compared to $8 billion allocated to Sub- Saharan Africa. Similarly, in 1998, the UK donated £54 million to Ghana while Zimbabwe, arguably in larger need, received £15 million. In addition, this development aid is mostly tied to policy reforms, which are, despite large protest, to a significant degree still directed by the North. Due to the "one- dollar- one- vote" voting structure in the World Bank and IMF, the combined weight of Northern votes amounts to about 60%.

If aid levels were raised and allocation prioritized according to a country's level of need, would development aid be able to set countries on the path to sustainability? Evidence confirms that the sharing of one's surplus through the provision of developmental aid is not the most effective way to foster sustainable development in the long run. Though precise econometric ratios are still debated, recorded long term reductions in poverty and inequality are largely attributable to economic growth.

Economic Growth

Early developmental belief held the view that providing financial aid to boost growth levels is the key to economic development. Empirically however, the pure link between investment and sustainable economic growth is less straight forward. Some argue that aid reduces domestic savings; others hold that it has only been effective in countries where sound management and "good governance" were in place first, which today provides the basis for the US Millennium Challenge Account (MCA). Historically however, although the success stories (such as South Korea, Taiwan or Malaysia) were recipients of financial aid, a detailed analysis of their tale reveals that aid per se could not have been the trigger that lifted millions of people out of destitution.

Developmental wisdom has changed over the years. In the 1980s, international developmental agencies embraced the free market paradigm, including for example the full liberalization of trade and inflows of foreign direct investment. In the 1990s, due to substantial failures and criticism, the "Washington Consensus" has been augmented to include the need for sound institutions and good governance. This is an important step forward, but still ignores other factors for success. The original basis of these policy "recommendations" remains with donors pressing recipient countries to open up their markets. After all, an open market is "known" to sort things out for everyone, even for the poorest. But is it really? And have successful countries followed this path?

'Fair' Trade

Arguably, international trade has never truly been liberalized, not even by its strongest proponents- the developed world and especially not with regards to product markets that are of significant importance to developing countries. The recently reformed European Common Agricultural Policy (CAP) guarantees European farmers steady subsidies until 2013. Such subsidies immunize European farmers from world commodity price fluctuations and, through lower production cost, allow them to export cheaply and suppress international prices for agricultural products.

Farmers in developing countries, on the other hand, do not enjoy similar subsidies and, already disadvantaged through inferior technology, must compete on the international market. Similarly, subsidies per head of cattle in the EU amounted to an estimated $436 and those in the US to $152 in 1998, which ironically implies that, unlike 1.3 billion people, the majority of all European cattle live above the World Bank's $1 a day poverty line.

What often gets out of sight when looking at development as a phenomenon of numbers and applying rational economic textbook policies, is the fate of individuals in developing countries. Recently, newspapers have been swamped by articles of high suicide rates among farmers in Andhra Pradesh or other regions in India. Farmers are driven into desperation because of their inability to repay government loans and to feed their families after years of draught, soil exhaustion and falling international prices for grain. The Indian example does not stand alone. In these situations, implementation of the principle of sharing by the international community would require not only to support these farmers in the short run but also to recognize that unfair competition cannot be the basis for sustainable development in the world's poorest regions.

For developing countries to catch up, reach economic sustainability and become equal beneficiaries of the potential gains from globalization, they must industrialize as history shows. Agricultural products are unlikely to provide the basis for sustained growth as demand for their products is inelastic. Already in the 19th century, List has pointed out that for a country to gain from international trade it must first reach a similar level of industrialization as its trading partners. Though all successful late developers have experienced their individual path to industrialization and no sweeping generalizations can be made, there are some patterns of similarity. Common success factors in South Korea, Taiwan or Malaysia were trial and error investments into mid- technology industries, knowledge acquisition from abroad, large plant sizes that allowed for economics of scale and some diversification in their investment portfolios to spread financial risk.

As Ha- Joo Chang shows in his important analysis "Kicking away the ladder", counter to mainstream policy believes, no country be it the UK, the US, or more recently South Korea, Taiwan or Malaysia, has successfully industrialized without some form of infant industry protection. Such initial protection allowed for the development of economic competitiveness through economics of scale before the opening of borders to international trade. Of course, such protection, when carried too far can also be harmful and the right balance must be found. The financing of such industry investments, which necessarily involves failure rates, remains a challenge for developing countries that have already fallen far behind. Internal savings are low, debt service levels are high and surplus creation through primary goods export and agricultural production are limited. Agricultural trade on fair terms could at least provide for the right basis.

The Principle of Sharing

By viewing international development through a historic lens and adopting a long term perspective, it becomes clear that effective development aid and resource sharing requires more than donating one's own surplus, which has earlier been secured through asymmetric trade realities. As such, sharing the world's resources must be understood as giving countries the freedom to develop socially, politically and economically. Following historical examples, granting this freedom might also mean allowing developing countries to not only trade their goods at a fair price but to also provide them with the time to develop their own sustainable growth engines. Ultimately, the implementation of the principle of sharing requires the transformation of the international economic and political environment, which today is still heavily biased toward the world's rich.

Subscribe to this comment's feed

Write comment