The burden of foreign aid

The burden of foreign aid
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First Published: Wed, Jan 20 2010. 09 54 PM IST
Updated: Wed, Jan 20 2010. 09 54 PM IST
Just give cash,” former US president George W. Bush told Americans keen to respond after the devastating earthquake in Haiti. “Cash is king,” a television reporter in London told his viewers moved by the plight, but unsure if they should open their wallets—or hunt for things in their attic that they could send to Haiti.
The logic for cash is powerful: In times of disaster, aid agencies on the ground know what the local needs are. If you second-guess them, you may send stuff they don’t need. They know if the victims need bread, canned soup, blankets, fans, medicines, or shoes, and how much. Aid experts, journalists and diplomats can narrate anecdotes of well-intentioned people sending used clothes that could be culturally insensitive (post-tsunami, some Europeans sent skimpy swimwear and lacy lingerie to Sri Lanka); products that are outdated (medicines have been sent past their expiry date, rendering them useless, if not dangerous) or unnecessary (cholera medicines were once sent in areas with little risk of the disease even after the disaster); and winter coats in the tropics.
Send cash instead, and the locals will know what to do. But here’s the difference: not the local people necessarily, but aid agencies on the ground. And therein lies part of the problem. The mantra of the day is to procure goods locally, for that would inject cash in a shell-shocked society, providing liquidity to jump-start the economy. To be sure, economic recovery is important to reduce long-term dependency: The question is, what sort of an economy?
Given the enormity of a humanitarian crisis, response needs to be swift, but the international community’s priorities sometimes conflict with one another. On the one hand, immediate relief is needed. On the other, a lasting economy needs to be built. But providing immediate relief may rebuild status quo ante, which would mean propping up what remains of the economic infrastructure, including businesses. But building a self-reliant economy means remaking the universe—and nobody, not the United Nations (UN), not the donor countries, not local authorities, and certainly not the victims, can wait for too long. And so, the old returns as the new—this isn’t what Joseph Schumpeter meant when he talked of creative destruction. When seen at close quarters, the reality of post-quake Haiti is messy and ugly, and human misery has little to do with it. Look for greed instead.
Haiti is the poorest nation in the western hemisphere, prone to coups, with armed gangs on the streets looting, if not intimidating, the law-abiding folks. Food price rise has led to rioting. The UN peacekeepers often end up doing basic policing.
How did that happen? Foreign Policy magazine, which publishes the Failed State Index, ranks Haiti 12th out of 177 countries (the lower the figure, the more unstable the state). While the presidential palace crumbled during the quake, the government had disintegrated long ago.
A government so weak that it can’t police its streets is not going to be able to enforce rules for business either. And in the World Bank’s index for doing business, Haiti ranks 151st out of 183. Poor governance is one reason; widespread corruption is another. A small coterie of elite families controls many local monopolies. They have become rich, making Haiti an unequal society. Corruption is widespread in countries with artificial economic controls, and surveys of Transparency International, the Berlin-based anti-corruption watchdog, ranks Haiti 168th out of 180 countries.
Haiti’s foreign trade is also skewed—it is not only aid-dependent, it is also import-dependent, and the local elite control several importing monopolies. When it is cheaper to buy abroad and easier to sell dearly at home, those businesses have no incentive to create value-adding jobs in Haiti. Result? The island remains overwhelmingly dependent on imports.
Even if kind-hearted foreigners opened their wallets ignoring these fundamentals, there are economic consequences to consider. When too much money chases limited amount of goods, prices escalate. Between 2007 and 2008, inflation doubled from 8.5% to 15.5% —though that was down from the 2004 figure of 37.8%. Local production has stalled, the infrastructure shattered, and what’s available is sold at exorbitant prices, if it is not already stolen. Inflation is inevitable: It is bad for everyone, worse for the poor.
Even if aid agencies try to buy food locally, it may not be available. Haiti’s small and marginal farmers cannot meet domestic demand even in normal times. The cash aid agencies seek from foreigners may then go back, paying for the goods foreigners were told not to send. That’s movement; it is circular; but does it take Haiti forward? Promoting local business is a worthy goal; propping up the collusive economy is not. It will keep Haiti poor, dependent on aid and charity.
Haiti needs business, not business as usual. Haitians can emerge out of the physical debris, as they have done after many hurricanes. But who will clear the socio-political barriers in their path?
Salil Tripathi is a writer based in London. Your comments are welcome at salil@livemint.com
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First Published: Wed, Jan 20 2010. 09 54 PM IST
More Topics: Here | There | Everywhere | Salil Tripathi | Haiti |