Foreign Aid FAQs – #10 “Aid money is spent on the wrong things”

Foreign Aid FAQs – #10 “Aid money is spent on the wrong things”

There is a widespread belief that overseas aid money is either handed over to corrupt dictators and never reaches the people it is supposed to help, or is wasted on extraordinarily expensive projects which have little or no benefit for people living in poverty. These are perfectly understandable concerns – all public spending should be scrutinised and accountable to ensure that taxpayers are getting the best possible value for money. But do these accusations hold up?

During an episode of Question Time this January, the UKIP donor Arron banks declared that ‘We have to start working out our priorities. Is it to spend £12 billion [in foreign aid] that is misappropriated by foreign corrupt governments or spend the money on the NHS for people in this country?’[1] Firstly, the idea that we should cut foreign aid in order to pay for public services is tackled in this article. Secondly, the claim that the entirety of the UK’s aid budget ends up in the pockets of foreign governments is simply untrue.

The first thing to understand is how the foreign aid budget is actually spent. The vast majority of the aid budget is not given to foreign governments. In fact, the Department for International Development has committed to ending traditional ‘budget support’ – money given directly to developing country governments.[2] The proportion of the aid budget spent this way has been steadily declining, and in 2014 accounted for just 0.45% of the total aid spend.[3]

Around 40% of the aid budget goes to multilateral organisations – bodies such as UNICEF which bring together various governments, individuals, corporations, and foundations to act collectively.[4] This has both pros and cons. Multilateral organisations have economies of scale, world-class specialist expertise and a large reach, and are also widely seen as independent and politically impartial. However, sending money to multilateral organisations can reduce the oversight which the UK government has over exactly how that money is spent.

The other 60% is spent on direct assistance to developing countries. As seen above, only a very small (and falling) proportion of this is simply handed over to foreign governments to do what they like with. The vast majority is used to fund specific projects which the UK government maintains oversight of, and in fact the Department for International Development is one of the most transparent aid agencies in the world.[5] The bulk of this money is channelled through international development charities which work directly with local communities in developing countries, meaning that their governments don’t get a chance to misappropriate the funds.[6]

By all means let’s have a discussion about how to end corruption around the world. For example, a good start would be closing down tax havens which allow corrupt leaders to hide their ill-gotten gains. But lazily repeating the falsehood that aid spending first and foremost goes to corrupt foreign leaders is both dishonest and unhelpful.

The problems with aid

Overseas aid has achieved incredible things (see this article for some examples), but of course it is not perfect. Examples abound of money from the aid budget not being spent on the most impactful projects, to say the least. For instance, the infamous example of £3.8 million being used to fund the Ethiopian ‘Spice Girls’.[8] An increasing amount of aid money is not even leaving the UK, but is being spent on expensive consultants. The Times newspaper claimed that up to £1 billion a year from the foreign aid budget was spent this way, with one consultant reportedly paid £23,000 to write a 2-page policy brief.[9]

Source: http://www.globaljustice.org.uk/resources/poor-are-getting-richer-and-other-dangerous-delusions

Furthermore, too often the primary purpose of aid has not been poverty reduction, but it has instead been used to secure policy concessions (e.g. preferential trade deals, military support, privatisation of public utilities).[10] Of course, if aid is to contribute to a world free of poverty, this needs to end.

The public debate around foreign aid has been reduced to an uncritical ‘for’ camp and an irredeemably negative ‘against’ camp. Against this backdrop, it’s tempting to gloss over the failings of foreign aid when coming to its defence. However, we won’t build public support for aid by pedalling rose-tinted untruths.

It is perfectly possible to be critical of how the aid budget is spent while still supporting it in principle. If millions of pounds from the health budget were found to have been misspent, this would prompt calls for reform rather than for health spending to be scrapped. Those of us who believe that foreign aid is a good use of public money must put forward a positive vision of what the aid budget should be spent on, rather than uncritically defending it in its current state. Global Justice Now have done some excellent work in this area, releasing the report Re-Imagining UK Aid which sets out such a vision.

The foreign aid budget is not perfect, so let’s reform it. It’s time to move the public debate away from straw-man arguments and oversimplifications and towards a more nuanced discussion around the areas in which foreign aid is failing and the ways it can be improved.

[1] www.insuranceage.co.uk/insurance-age/opinion/2480294/blog-arron-banks-question-time-appearance
[2] www.gov.uk/government/uploads/system/uploads/attachment_data/file/573889/Bilateral-Development-Review-2016.pdf, p. 49
[3] www.gov.uk/government/uploads/system/uploads/attachment_data/file/538878/annual-report-accounts-201516a.pdf, pp. 149, 153
[4] www.theweek.co.uk/63394/how-is-the-12bn-foreign-aid-budget-spent
[5] www.gov.uk/government/news/media-reports-on-uk-aid-projects-setting-the-record-straight
[6] www.theguardian.com/global-development/2013/mar/20/uk-aid-spend-important-works
[7] www.gov.uk/government/uploads/system/uploads/attachment_data/file/573889/Bilateral-Development-Review-2016.pdf, p. 25
[8] www.telegraph.co.uk/news/politics/11228152/The-bizarre-recipients-of-British-foreign-aid.html
[9] www.theweek.co.uk/63394/how-is-the-12bn-foreign-aid-budget-spent
[10] Bruce Bueno de Mesquita and Alastair Smith, The Dictator’s Handbook, ch. 7


The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.

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Foreign Aid FAQs – #9 “They’re poor because they’re lazy”

Foreign Aid FAQs – #9 “They’re poor because they’re lazy”

A common attitude nowadays is that people are rich because they work hard and deserve to be wealthy, whereas people are poor because they are lazy, feckless and incapable. Does this idea hold up?

Many people living in developing countries actually work far harder than their counterparts in the developed world. For example, Mexico and Costa Rica have the longest average weekly working hours of the OECD countries at 42.9 and 42.6 hours respectively. Compare this with the average working week in the United States of 34.4 hours, and in the UK of 32.3 hours.[1]

People living in poverty aren’t in that position because they’re too lazy to earn a decent wage. They’re in that position because their national economies aren’t very productive. For example, poor soil quality and a lack of mechanisation in agriculture mean that many farmers in developing countries have to spend many hours performing back-breaking work just to produce enough food to feed themselves and their families, let alone produce a surplus to sell.

Many people living in the world’s poorest countries have no option but to send their children out to do manual labour, just to earn enough money to eat. The idea that these parents are so heartless that they would put their own children through this misery just out of their own laziness is not only offensive but downright ludicrous.

We tend to lose sight of the role that luck plays in our lives. The lottery of birth is still an extraordinarily powerful determinant of how someone’s life will turn out.

Those of us living in rich countries such as the UK benefit from centuries of history and economic development which we had absolutely no part in. It is because of this history that we have effective public institutions, democracy, high quality education and healthcare, comparatively high-paying jobs, etc. A person born in a rich country has a far greater chance of having a good standard of living than if that exact same person had been born in a developing country.

The concept of natural economic justice – that people are rich or poor purely as a result of their own individual talent and effort – is both dangerous and demonstrably false. The world is full of examples of lazy, untalented rich people who are wealthy because of who their parents were; and intelligent, talented, hard-working poor people who, because of circumstances beyond their control, haven’t had the opportunity to improve their lot in life.

The successful American investor Warren Buffett put it well when he expressed humility at the extent to which his own personal talent was responsible for his success:

I personally think that society is responsible for a very significant percentage of what I’ve earned. If you stick me down in the middle of Bangladesh or Peru or someplace, you’ll find out how much this talent is going to produce in the wrong kind of soil. I will be struggling thirty years later. I work in a market system that happens to reward what I do very well – disproportionately well. [2]

It’s important to recognise that how our life turns out is not only a result of our individual skill and effort, but are in large part down to luck. Donating to international development charities and supporting foreign aid to help those living in poverty overseas is, in part, recognition that if the lottery of birth had turned out differently, we could so easily have been in their position ourselves.

[1] www.fortune.com/2015/11/11/chart-work-week-oecd/
[2] Quoted in Ha-Joon Chang, 23 Things They Don’t Tell You About Capitalism, p. 30.


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Foreign Aid FAQs – #8 “Why has nothing been achieved?”

Foreign Aid FAQs – #8 “Why has nothing been achieved?”

The fight to eradicate global poverty has been going on for decades. Yet despite all the money that has been donated and all the work that has been done, international development charities are still running adverts showing how horrendous the situation is in some countries around the world and asking for money to help. This is understandably frustrating – What on Earth did they spend all that money on if not to solve this problem? you may think, Either they wasted the money or they’re too incompetent to spend it correctly – either way, they’re not getting any more of my money!

The first thing to say in response to this is that an enormous amount has been achieved in the field of international development. For example, below are some key achievements of UK foreign aid since 2011:[1]

  • 11 million children supported into education.
  • 30 million people prevented from going hungry.
  • 7 million malaria nets distributed.
  • 5 million people given access to clean water and sanitation.
  • 67 million children immunised against preventable diseases.
  • 13 countries supported to have freer and fairer elections.

Yet despite all this progress, the task is far from complete. Poverty has not been eradicated, and billions of people around the world still have a standard of living which is far below what most people in the developed world experience.

So why has this issue not been solved yet? Part of the reason is the sheer scale of the problem. More than 60% of the world’s population live on less than $7.40 a day – the amount which it has been calculated is required to achieve normal human life expectancy of just over 70 years.[2] That’s about 4.2 billion people. Each year, rich countries spend around $125 billion on foreign aid, which is an awful lot of money. But divide this by 4.2 billion people and it works out at just $30 each per year, or $0.08 a day. So while the generosity of people in the developed world has meant that a large amount of money is devoted to tackling global poverty each year, unfortunately it is still not enough given the scale of the problem.

Another reason is that global poverty is an ongoing problem. For instance, vaccinating children against preventable diseases is not a one-time fix, but something that needs to be done again and again for each new generation. Lots of work has been done to get developing countries to a stage where they are self-sufficient, for example South Korea was previously an aid recipient but is now not only self-sufficient but is itself an aid donor. However, until this is achieved for every country, some will still require ongoing assistance.

Climate change is undoing some of the good work which has been done over the years, and is creating additional work which needs to be done. Developing countries have been hit hardest by climate change, having to cope with more frequent extreme weather events and droughts, and falling crop yields. They are having to spend a lot of money just adapting to climate change, never mind actually improving their situation. For example, climate change adaptation costs Sub-Saharan African countries a total of $10.6 billion a year.[3]

Progress in eradicating global poverty has not been as rapid as we may have liked because of growing global inequality. The gap between rich and poor has been steadily growing to the point where now 8 billionaires have the same amount of wealth as the poorest half of the world’s population.[4] This extreme level of inequality is a major barrier to developing countries reaching a point where they are self-sufficient.

It’s important to be honest about the limitations of aid. The sheer scale of global poverty means that charity alone cannot solve the problem. Nor can it, when what is given to developing countries with one hand in the form of foreign aid is taken with the other through debt repayments, repatriation of corporate profits, tax avoidance, unjust trade rules, land grabs, etc. (see this article for more information).

Aid and charity have an important part to play in the eradication of poverty, but they must be accompanied by the creation of a global policy environment which supports developing countries and gives them a fair chance at catching up with their rich counterparts, rather than the current policy environment which is rigged in favour of the rich and has allowed an ever greater proportion of global wealth to be concentrated in the hands of a few. Only when this is achieved will we be able to eradicate global poverty for good.

[1] www.gov.uk/government/uploads/system/uploads/attachment_data/file/538878/annual-report-accounts-201516a.pdf
[2] www.theguardian.com/global-development-professionals-network/2015/nov/01/global-poverty-is-worse-than-you-think-could-you-live-on-190-a-day
[3] www.healthpovertyaction.org/wp-content/uploads/downloads/2014/08/Honest-Accounts-BRIEFING-webFINAL.pdf
[4] www.theguardian.com/global-development/2017/jan/16/worlds-eight-richest-people-have-same-wealth-as-poorest-50


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Foreign Aid FAQs – #6 “Their own government should help them”

Foreign Aid FAQs – #6 “Their own government should help them”

It is without a doubt true that governments should help their own people. However, this phrase is often used to mean that the welfare of people living overseas is a problem for their own government to deal with and no-one else.

The problem with this idea is that the concept of each government having absolute responsibility for taking care of their citizens only really works if each state is equally capable of doing this. In reality, because of accidents of geography and the course of history, some states have more capacity to look after their citizens than others.

For example, in 2009 the UK was able to collect the equivalent of $13,806 in tax per person. Compare this with even a relatively affluent developing country like Brazil which – with an almost identical tax rate – collected just $3,957 per person.[1] This enormous difference in tax receipts means that the UK is far better placed to take care of its citizens than Brazil is. The point of foreign aid is to get all countries to the stage where they can collect enough tax to ensure the welfare of all their citizens.

In many cases, developing countries are struggling to overcome poverty because of the actions of developed countries such as the UK. Climate change, disproportionately caused by developed countries, is disproportionately affecting developing countries. Climate change adaptation is already a significant cost for many developing countries, costing Sub-Saharan African countries a total of $10.6 billion a year.[2] It seems only fair that the UK assists with this cost.

Furthermore, the present wealth of the UK is built on the profits of imperialism, which held back the development of many present-day developing countries. Foreign aid is not just an act of charity, but well-deserved compensation for these wrongs.

There are also pragmatic reasons why the UK should continue to send aid to developing countries. It is an excellent way to improve foreign relations and, after all, the aid recipients of today are the trading partners of tomorrow. Helping other countries to develop also contributes to the creation of a more stable world, as states plagued by poverty and inequality are much more likely to be unstable.

Additionally, it is a way to reduce immigration. People born in poor countries are driven by the perfectly natural impulse to seek out a better life for themselves and their family, which often leads them to attempt to move to a wealthier part of the world. Improving the quality of life in their home country therefore reduces the incentive for them to emigrate.

“But what about corrupt dictators and despots?”

Given the examples of Robert Mugabe and other dictators dripping in wealth while the majority of their population struggles to get by, it’s tempting to think that if only these tyrants were toppled, their countries’ problems would be solved. However, more often than not they would simply be replaced by an equally corrupt dictator and these countries would still be poor. Dictators don’t just occur because of individual immorality, but because there are structural factors in place in poor countries which allow dictatorships to easily take hold.

The leader of a poor country essentially has two choices as to what to do with the limited amount of public money at their disposal: use it to improve the lives of their citizens (building roads, hospitals, etc.) or use it to enrich themselves and their key supporters. A good leader would of course use it for the former, but these kinds of leaders tend not to last long. All money spent on helping the public is money which an opportunistic rival can promise key supporters should they replace the current leader. If all dictators around the world were immediately deposed and replaced with benevolent rulers, there would still be plenty of rivals waiting in the wings to take the reins of power – and the opportunities for self-enrichment that come with them.

Part 1 (clip ends at 4.30)

Part 2 (clip ends at 13.30)

When we talk about ‘rich’ and ‘poor’ countries, it doesn’t refer to how much currency they have. Rather, it refers to how productive their economies are. Developed countries like the USA and Japan are rich because their economies have a large proportion of high-productivity industries such as manufacturing, which produce a comparatively large amount of value in a short period of time. This means that workers receive higher wages and the government collects more tax which it can then invest back into the economy.

Developing countries are poor because a greater proportion of their economies are occupied by low-productivity industries such as textile production, agriculture and mineral extraction. One of the objectives of foreign aid is to help developing countries to transition from low-productivity economies to high-productivity ones.

Improving the productivity of developing countries’ economies can actually help to reduce the chances of despots hoarding the nation’s wealth for their own benefit. In a relatively poor country which relies on a few low-productivity industries (e.g. oil or mineral extraction), rulers can get by just keeping the small number of people which run these industries happy. As economies become more productive and therefore reliant on a greater number of industries, rulers must keep a greater number of people happy in order to remain in power, and are therefore set on the path from dictatorship to democracy.

By giving developing countries the nudge they need to reach this productivity threshold, foreign aid can pave the way to democracy and bring about a world where every government is willing and able to help their own people.

[1] fusiontables.google.com/DataSource?docid=1cWAzCSaIBlgUpWJBFXslH31NLh6bCfrn6mvtCA#rows:id=1
[2] www.healthpovertyaction.org/wp-content/uploads/downloads/2014/08/Honest-Accounts-BRIEFING-webFINAL.pdf


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Foreign Aid FAQs – #5 “Foreign aid fuels overpopulation”

Foreign Aid FAQs – #5 “Foreign aid fuels overpopulation”

Concerns about overpopulation, or the ‘population explosion’ as it’s sometimes called, are widespread at the moment. The logic surrounding these concerns is understandable – it seems as if there aren’t enough resources to go around in developing countries, therefore sharing them out amongst more people is only going to make the problem worse.

From this perspective, it appears that overseas aid is fuelling the problem of overpopulation by ‘artificially’ keeping people alive whose environment can’t support them, who then go on to have even more children whose environment can’t support them, and so on.

However, aid spending is actually helping to reduce the number of children being born per family rather than increasing it.

It’s important to understand why people in some developing countries tend to have lots of children. Because there is little or no welfare or pension provision in these countries, people have to rely on their children to look after them if they become too sick or old to work. Because so many children die before they reach adulthood, these parents need to have lots of children to guarantee that enough of them will reach adulthood to be able to look after their parents. For them, having lots of children is both an economic burden and an economic necessity.

The way to encourage people living in such countries to have fewer children is not simply to tell them not to have as many babies. By improving child health and economic security, foreign aid is helping to remove the incentives to have so many children.

The UK went through a similar process in its history. During the 18th century around 4-6 children were born per woman but only 2 of these survived to adulthood. As healthcare and living standards improved, fewer children died and there was therefore less of an incentive for families to have lots of children, leading to the stable birth rate the UK has today. Present-day developing countries have been able to achieve the same results in a fraction of the time. For example, 7 children were born per woman in Bangladesh in 1970. By 2012 that figure had dropped to 2.2, the level required for a stable population.[1]

By helping developing countries to move through the same process that the UK did in previous centuries, and which Bangladesh did between 1970 and 2012, foreign aid is not fuelling population growth but is actually helping to slow it down.

[1] data.worldbank.org/indicator/SP.DYN.TFRT.IN?


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Foreign Aid FAQs – #4 “Overseas aid charities are fraudulent”

Foreign Aid FAQs – #4 “Overseas aid charities are fraudulent”

We’ve all been there – you’re walking down the high street and someone in a brightly coloured t-shirt stops you to ask for donations to help people living in poverty overseas. A nagging doubt appears in your mind: How much of my donation will actually go to the people who need help?

These doubts have been fuelled by recent newspaper articles claiming that international development charities spend a lot of money on wages and so hardly any of the money actually gets to where it’s supposed to. What a scandal! you may think, These charities are frauds, taking money that was meant for those in need. I’ll never donate to them again!

However, these claims are based on a fundamental misunderstanding of what overseas aid charities actually do. In general, these charities do not operate as cash transfer schemes. When you donate £10, that money isn’t put on a plane and flown over to be given to a family living in poverty. Why? Because while this would alleviate some of their problems in the short-term, international development charities aim to achieve much more than that. International development is about asking questions like ‘Why are these people poor in the first place?’ and tackling the root causes so that poverty can be not just alleviated but eradicated.

The issue of global poverty is much more complex than simply giving poor people money. If it were that simple we would have solved it by now. That’s why overseas aid charities carry out research to understand more about the problem so that they can tackle it more effectively; they engage in political lobbying and campaigning to try and change the rules that keep poor countries poor (e.g. tax havens and unjust trade deals); and they invest donations into projects in developing countries (e.g. irrigation and sanitation) which will have a long-term impact far in excess of what would have been achieved simply by handing over a lump sum.

When people donate to an international development charity, all of this is what their donation funds. You can think of it as like donating to a cancer research charity – that money isn’t sent directly to people with cancer, but instead funds an ongoing process aimed at permanently eradicating the problem.

“But charities waste so much money on fundraising and staff wages”

This is a completely valid concern; no-one wants any amount of their donation to be wasted. The vast majority of charities are also concerned with getting as much impact from their donations as possible. That’s why they are governed by trustees – professionals who voluntarily give their time to ensure that the charity is efficiently and effectively run.

Any business that doesn’t invest in its future is doomed to not be around for long. The same is true of charities which don’t invest in fundraising. It may leave a bitter taste in the mouth to think that a portion of your donation is paying for an advertising campaign or for the wages of the annoying person who just stopped you on the high street. But if the portion of your donation which is invested in fundraising encourages another person to donate, then you’ve essentially doubled your impact, and surely that’s worthwhile?

Charities make use of volunteers as much as possible to keep their running costs down, but there are some tasks which require a qualified person to be working on them full-time; and this means that they need to be paid. Charity workers have been portrayed in the media as dodgy and shameful, dipping their hands into funds which were meant to go to the needy. Again, this is based on a misunderstanding of what international development charities actually do. As discussed above, their workers do so much more than process donations. They don’t just enable charitable activities to happen; often their work is the charitable activity.

Sure, charity CEOs probably shouldn’t be getting 6-figure salaries, but there’s nothing dodgy about charity employees getting paid for the work they do. They have bills to pay like everybody else and join the charity sector knowing full well that they will get paid less for doing the same job than if they worked in the private sector. It may be uncomfortable to think that when you donate to charity, that money is going to pay someone’s wages. The truth is, whenever you spend money you’re paying someone’s wages.

When you hire a plumber you’re paying their wages; when you buy milk you’re paying the farmer’s and the shop assistant’s wages; when you buy an iPhone you’re paying a whole host of people’s wages – all the way from the Apple store employees to the people mining the raw materials. The point is that you’re happy to pay their wages because you want the product or service that they provide. The question is whether you think eradicating global poverty is a service which you want to be provided.

Charities have been accused of becoming ‘an industry’ or ‘too corporate’. The fact is that the modern corporation has proven to be a highly efficient and effective structure for getting things done. Just look at the enormous global reach and influence of companies like Microsoft and Coca Cola, and imagine what a charity with that kind of power and influence could achieve. If we’re serious about ending global poverty as soon as possible, surely it makes sense for charities to become as ‘corporate’ as possible, and harness this enormously powerful structure to do something good.


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Foreign Aid FAQs – #3 “We send too much money abroad”

Foreign Aid FAQs – #3 “We send too much money abroad”

Given the significant amount of coverage which the UK foreign aid budget receives in the press, in political discussion, and in charities’ external communications, the public would be forgiven for thinking that the UK sends vast swathes of money overseas. The UK does spend a significant amount of money on international development – in fact it was the first G7 country to meet the UN’s 45-year old aid spending target. The current foreign aid budget stands at approximately £12 billion which is around 1.6% of government spending.

Overall, rich countries send a total of around $125 billion in foreign aid to developing countries each year.[1] Now that is a lot of money, and governments of wealthy nations use this as evidence of their generosity. However, the dominant ‘aid narrative’ glosses over the various ways in which rich countries extract wealth from developing nations, effectively taking back their aid contributions. Below are some examples of how this is achieved:

Debt

In the olden days (pre-1980s), the responsibility was on lenders to make sure that their loans would get repaid. Lending to riskier countries (e.g. those in the developing world) offered a higher rate of return, but carried with it the risk that the borrowing country would default on its loan and the lender would lose out.

This all changed in 1982 when Mexico defaulted on its loans. The US Treasury and the International Monetary Fund, rather than incurring the huge losses which this would have entailed, decided to step in. Instead of letting the loan default, these organisations rescheduled the debt in exchange for Mexico’s adoption of certain economic policies which opened the country up to foreign interests and which are widely regarded to have damaged the Mexican economy, making it more difficult for them to repay.

This treatment, known as ‘structural adjustment’, then became standard. The result has been that the amount of debt owed by developing countries has spiralled as more and more interest was piled onto loans which should have been defaulted on while new loans had to be taken out to cover the repayments, leading to debts many times larger than the original sum. In many cases, so much interest is accrued that the original debt is repaid several times over. For 2015, the debt service paid on external debt by low and middle income countries exceeded $800 billion.[2]

Tax Avoidance

Tax avoidance is theft, plain and simple. Multinational corporations take full advantage of public spending on infrastructure, education, law enforcement, etc. in the countries in which they operate, and then don’t pay for it. Unlike theft, however, for the most part tax avoidance is perfectly legal and carried out through a process known as trade mispricing.

Let’s say that I own an internet search provider – let’s call it ‘Moogle’ – operating in the USA, the UK, and the British Virgin Islands. Now, profits have been good this year and Moogle US and Moogle UK have both made $10 million. However, Moogle British Virgin Islands, since it really only exists on paper, has no profit at all to show. Before the end of the tax year I decide that what the US and UK branches need is a snazzy new logo, so they each pay Moogle British Virgin Islands $10 million for this important work. And would you look at that, hey presto! When the taxman comes round to Moogle US and UK, they unfortunately haven’t made any profit to be taxed on. Perhaps they should take a leaf out of the British Virgin Islands branch’s book where there is $20 million awaiting significantly more ‘business-friendly’ tax rates.

Tax avoidance in developing countries effectively constitutes a transfer of wealth from the public purse to the private coffers of multinational corporations by and large headquartered in the rich countries. In 2012, developing countries lost approximately $991 billion in illicit outflows – greater than the combined foreign aid and foreign direct investment they received that year.[3]

Of course, tax avoidance does not just benefit multinational corporations based in the West, but also wealthy companies and individuals within developing countries who wish to conceal their profits from the tax authorities. However, large-scale tax avoidance is only possible because of the existence of tax havens, the vast majority of which are controlled by a handful of Western countries. For instance, the largest network of tax havens has the City of London at its centre, which controls secrecy jurisdictions throughout the British Crown Dependencies and Overseas Territories.[4]

Trade Rules

Global trade rules can be highly varied, but the most important are those concerning tariffs and regulation of foreign investment. Tariffs are taxes which countries put on foreign goods in order to give an advantage to their own industries. For example, when Japan’s car industry first started out it couldn’t compete with foreign imports, so the Japanese government introduced tariffs which allowed the domestic car industry to grow and nowadays it is one of the best in the world. Regulation maximises the benefit which developing countries get from foreign businesses operating on their soil – for example, requiring them to transfer technology or buy materials from domestic suppliers.

The main thrust of international trade agreements in recent years – primarily as a result of pressure from rich countries – has been to reduce tariffs on manufactured goods (by and large produced in developed countries), and to reduce regulation. Reducing tariffs means that emergent manufacturing industries in developing countries are outcompeted by more established rivals in the developed world, meaning that developing countries are stuck in low-productivity industries such as agriculture and textile manufacture. Reducing regulation means that corporations based in the developing world are able to exploit cheap labour or extract natural resources in a developing country, send the profits back home, and contribute little or nothing to the country’s economic development.

It’s difficult to give an exact figure as to how much these unfair and one-sided trade rules have cost developing countries, but economist Robert Pollin of the University of Massachusetts has estimated the cost at $500 billion a year.[5]

Conclusion

A recent report by Global Financial Integrity which comprehensively examined international financial flows found that for every dollar in aid received by developing countries, $24 is lost through other means.[6]

Of course foreign aid is not the only money which developing countries receive from their wealthy counterparts. In 2012, developing countries received a total of $1.3 trillion from aid, foreign investment, remittances, income from abroad, etc. At the same time, $3.3 trillion flowed out of them, meaning that they experienced a net loss of $2 trillion that year.[7] That’s $2 trillion that could have been spent on combating poverty, improving healthcare, developing industry, or adapting to climate change. Far from being recipients of enormous swathes of cash, overall developing countries are net creditors to the rest of the world.

Source: http://www.globaljustice.org.uk/resources/poor-are-getting-richer-and-other-dangerous-delusions

The fact that the UK spends billions of pounds each year in aid to developing countries is common knowledge. However, the vast amount of money that rich countries receive back from developing countries is not nearly as well known. Perhaps public attitudes towards foreign aid would shift if more people knew that, far from sending too much money abroad, the UK and other rich countries currently do far more harm than good in the developing world.

[1] www.oecd.org/dac/stats/aidtopoorcountriesslipsfurtherasgovernmentstightenbudgets.htm
[2] www.data.worldbank.org/indicator/DT.TDS.DECT.CD?end=2015&locations=XO&name_desc=false&start=1970&view=chart
[3] www.gfintegrity.org/report/2014-global-report-illicit-financial-flows-from-developing-countries-2003-2012/
[4] www.theguardian.com/global-development-professionals-network/2017/jan/14/aid-in-reverse-how-poor-countries-develop-rich-countries
[5] www.aljazeera.com/indepth/opinion/2013/04/201349124135226392.html
[6] www.theguardian.com/global-development-professionals-network/2017/jan/14/aid-in-reverse-how-poor-countries-develop-rich-countries
[7] www.theguardian.com/global-development-professionals-network/2017/jan/14/aid-in-reverse-how-poor-countries-develop-rich-countries


The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.

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Foreign Aid FAQs – #2 “Foreign aid should be cut to pay for public services”

Foreign Aid FAQs – #2 “Foreign aid should be cut to pay for public services”

In any given episode of Question Time, especially during episodes in which the NHS funding crisis is discussed, there is a high chance that at some point someone will suggest that a simple way to raise money for public services would be to cut the foreign aid budget.

For one thing, the foreign aid budget isn’t the eye-wateringly large amount of money which people seem to think it is. For 2015 it stood at £12.1 billion. That’s just 1.6% of government spending, about the same as what the government spent on the railways.[1]

Secondly, it doesn’t seem right that reducing assistance for the world’s poorest people is always the first suggestion for where we should source extra public money. The UK’s aid budget is portrayed as this vast, wasteful sum of money that is inexcusable given the cutbacks in other areas of public spending. What is hardly ever mentioned is the enormous amount of money which the UK government spends on corporate assistance, or which is lost through cuts to corporation tax and corporate tax avoidance. Below are some examples:

  • £44 billion in corporate tax breaks.[2] For example, capital allowances which allow businesses to write off billions spent on machinery, vehicles, IT and office equipment against corporation tax.
  • £35 billion on legacy costs of the bank bailouts.[3] Much of this cost is interest payments on long-term borrowing which was used to fund the bailouts following the 2008 financial crash. The government is effectively retaining the ‘bad’ parts of the banks taken into public ownership following the crash, and selling off the ‘good’ parts at a net loss. Furthermore, the banks are protected somewhat from regular market mechanisms and assessments of risk because the UK government effectively guarantees to underwrite these risks.
  • £16 billion in wage subsidies.[4] In-work tax credits effectively subsidise businesses by allowing them to pay their workers less than they need to live, safe in the knowledge that the government will top up their wages. Similarly, housing benefit allows landlords to charge rents far above what their tenants can afford, inflating the rental market.
  • £15 billion in hidden transport subsidies.[5] Airlines do not pay tax on fuel, corporation tax on their ‘economic activity’ within the countries they operate in, or VAT on ticket sales. Train companies enjoy lower duty on fuel.
  • £15 billion lost through procurement from the private sector.[6] The government spends a total of £238 billion (one third of total spending) on procuring services from the private sector. It has been estimated that it could save £15 billion if some services were instead run by the public sector. This is due to the costs involved in drawing up contracts, monitoring projects, project overruns, and picking up the pieces when private sector companies fail. The government also has to pick up additional costs in benefit payments and/or tax credits when workers are laid off or paid less when private companies take over the running of a public service.
  • £14.5 billion in subsidies and grants.[7] These include subsidies to agriculture, train companies (separate from the hidden subsidies mentioned above), the nuclear industry, and the defence industry. Additionally, grants are given to businesses to encourage them to invest in a certain area or to prevent them from collapsing.
  • £12 billion lost to corporate tax avoidance.[8] This is technically legal, as opposed to tax evasion which is illegal, and almost exactly matches the UK aid budget.
  • £5.4 billion lost from cuts to corporation tax since 2010.[9] These tax cuts mean that businesses are paying nearly £8 billion less in corporation tax per year. This could potentially result in more inward investment, but it has been estimated that it will result in a net tax loss of £5.4 billion. The UK already has by far the lowest corporation tax rate in the G7.
  • £3.8 billion in energy subsidies.[10] These subsidies benefit providers of electricity, gas, and oil. They also include legacy nuclear costs – primarily post-production clean-up.
Source: http://www.globaljustice.org.uk/resources/poor-are-getting-richer-and-other-dangerous-delusions

This is not to claim that all of the spending mentioned above should immediately be scrapped, or that none of it has any beneficial impact. The aim of this is to illustrate that there are far more areas of government spending than just foreign aid which could be reviewed when considering what, if anything, should be cut to generate more money for public services.

For those who benefit from the aforementioned subsidies – and for the politicians who represent them – it suits their interests to divert public attention away from the huge amount of financial assistance they receive from the public purse. Much better to encourage people to criticise the relatively small amount of money spend on the foreign aid budget. It’s a classic diversionary tactic, as cynical as it is effective.

So next time a public figure is eager to highlight the foreign aid budget as an easy source of money to pay for public services, ask people to think about if they have any vested interests and if they are trying to divert attention away from the vast sums of money which the UK government spends on corporate assistance. Why are the poorest always the first to pay when money is tight?

[1] www.ukpublicspending.co.uk/uk_budget_detail_16bt12015n_306065#ukgs303
[2-8] www.speri.dept.shef.ac.uk/wp-content/uploads/2015/07/SPERI-Paper-24-The-British-Corporate-Welfare-State.pdf
[9] www.ft.com/content/c0afbfc4-02af-11e4-a68d-00144feab7de
[10] www.theguardian.com/politics/2015/jul/07/corporate-welfare-a-93bn-handshake


The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.

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Foreign Aid FAQs – #1 “Charity begins at home”

Foreign Aid FAQs – #1 “Charity begins at home”

The original meaning of this proverb was that a person’s first responsibility is for the needs of their own family and friends. However, nowadays the ‘home’ referred to is frequently not an individual household, but the UK as a whole. When discussing overseas aid, this phrase is often used to argue that the UK should tackle its domestic problems before spending money to help those in need abroad.

This phrase is bandied around as if it’s some kind of universally acknowledged truth – like ‘practice makes perfect’ or ‘scissors beat paper’ – which automatically trumps any other argument. Really, it’s just a group of words which doesn’t make that much sense if you encourage people to think about it for a while.

The point of charity is to help those who need it most. Imagine if someone’s house burned down, and their next door neighbour refused to help because they had rising damp in their walls and so needed to sort that out first because, after all, ‘charity begins at home’. Only the most heartless person would do that, right? The scale and urgency of need must surely be taken into account when deciding where charity is deserved.

Those of us living in the UK are very fortunate that our collective ‘home’ has wealth in abundance. It may not feel like it at times – to someone on a zero-hours contract struggling to pay the rent it must feel like a kick in the teeth to be told they’re fortunate to live in a rich country. The truth is, there is an enormous amount of wealth in this country which could be put to use solving domestic problems if only the British public would vote for policies aimed at tackling economic inequality. In much of the developing world, no matter who they vote for (if they even get to vote) they will still be poor.

It’s hard to even imagine the hardship which exists in some parts of the world. The scale and urgency of their problems make ours seem small by comparison. In the UK it is (quite rightly) a national scandal that so many people are reliant on food banks; in Chad, people routinely starving to death doesn’t even make the headlines. Here, the NHS is experiencing a funding crisis; in Malawi, there is no universal healthcare and medical services are struggling to cope with an AIDS crisis. Here, it is claimed that the ongoing Brexit debate is tearing the country apart; in Colombia, lives, families and communities have been torn apart by decades of civil war.

We have the resources in this country to tackle our domestic problems and help those in need overseas. It doesn’t have to be a choice. Many countries around the world have significant and urgent problems which they need help to solve. If the UK abandons foreign aid because ‘charity begins at home’, we are no better than someone refusing to help their newly homeless neighbour because of their own troubles with rising damp.


The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.

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A Defense of British Foreign Aid

In recent years, the attitude towards Britain’s vast foreign aid budget has been defined by growing derision and suspicion. In this article, Matthew Peacock looks at the arguments being put forward by those against the budget and whether their claims are factually viable. 

Britain’s commitment to foreign aid has been a pillar of governmental policies for decades. On leaving office in July 2016, the former Prime Minister David Cameron stated that his “proudest achievement” was the increase and distribution of foreign aid under his premiership.  In 2014, we were the first G7 nation to meet the UN target of contributing 0.7% of GDP on foreign aid, spending around £11.7bn in that year alone. However, this commitment has never been more under threat. With Cameron resigning from office and the rise of more right-wing leaning elements in the Conservative Party as well as the United Kingdom Independence Party (UKIP), xenophobia, protectionism and contempt towards foreign aid ideals is rife.

The predominate argument made by opponents of mass foreign aid, are that the sizeable majority of the British population do not want to see their taxes be spent on other countries. This was summed up by former UKIP MP, Mark Reckless in 2014, where he stated to fellow Members of Parliament that “members would do well to realise that the extent of the disconnect between what they want to do and what their constituents want is nowhere higher than in the area of overseas aid”. It’s an argument that certainly carries weight; it would be in contempt of democracy if MPs consistently ignored the views and wishes of their constituents. But is this opposition to foreign aid truly widespread? Whilst Reckless used a 2013 YouGov poll which found that 66% of respondents wanted to decrease the foreign aid budget to support his arguments, a 2015 Eurobarometer poll found that 67% of respondents supported the pledge to increase the foreign aid budget. Consequently, it is too simplistic to claim that the British population collectively want to diminish or undermine foreign aid. In fact, there are sections of the electorate that actively want it increased.

DFID/Creative Commons License
DFID/Creative Commons License

So why do those that oppose the foreign aid budget have an overwhelming sense of scepticism towards it? Well, it is largely drawn from the perceived notion that it is being mis-managed and instead of going to those who really need it, it is instead going to corrupt governments and greedy non-governmental organisations. This was supported by Jonathon Foreman, a senior research fellow at Civitas, in an interview with the BBC in 2013, in which he claimed that the response to dealing with humanitarian issues “should not just be a matter of boosting the overall aid budget or of handing more money to institutions that we know are likely to steal it, waste it or give it to the wrong people”. This claim is highly contestable, as well as generalising developing countries into corrupt and inefficient regimes. Whilst it is clear that some are, many are improving their infrastructure through economic development and foreign backing from countries such as the UK. It is a firm favourite, though, of Right-wing Establishment newspapers, such as the Daily Mail and the Murdoch titles, to find outrageous stories of foreign aid calamities which may have some ties to our aid budget and undermine the progress being made. Stories emerge of British taxpayers funding Morrocan water-parks and Ethopian “Spice Girls”, with the true story so twisted and muddled by the media that foreign aid appears trivial and abused. Naturally, these stories dominate the headlines.

DFID/Creative Commons License
DFID/Creative Commons License

But no economic system of distribution is perfect, without inefficiencies slipping through the net. The benefits that the billions of pounds of foreign aid bring about far outweigh the misspent money that represents a minute portion of the aid budget. Furthermore, there have been steps made to combat the money being sent out unnecessarily. Jonathan Tanner, a media and public affairs manager at the Overseas Development Institute (ODI), stated in 2013 that there is now “an independent aid watchdog that produces regular reports on whether the effectiveness of aid spending puts pressure on decision makers to get things right.” It is an understandable frustration from skeptics of aid in a time of austerity to see taxpayer’s money being sent abroad. With increasing checks and scrutiny on where the money is actually going, hopefully one of the most significant qualms that many have with foreign aid can be diminished.


The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.

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FGM: is action finally being taken?

FGM: is action finally being taken?

It’s cutting season. With the UK summer school holidays, hundreds of girls could be at risk of being sent abroad and subjected to Female Genital Mutilation (FGM). Claire Dale asks if the world is finally starting to take action to prevent this act.

According to the World Health Organisation, FGM ‘comprises all procedures that involve partial or total removal of the external female genitalia, or other injury to the female genital organs for non-medical reasons.’ Medical complications, as well as the psychological and sexual trauma that this practice causes, remain with girls who are forced to endure it throughout their lives.

Despite being illegal since 1985 in the UK, FGM is still believed to be widely practiced on UK-born girls, at home or abroad. A landmark study by City University and Equality Now published a week and a half ago estimated that 137.000 women are affected by FGM throughout the UK.

©Cabinet Office/Creative Commons License
©Cabinet Office/Creative Commons License

The report also states that almost one in twenty women in the London Borough of Southwark are believed to have been subjected to FGM.  Despite the incidence being lower in other parts of the country, the report finds that no locality in England and Wales is free from FGM.

Despite the efforts of NGOs , such as Daugthers of Eve or Forward uk, to change the mentalities of communities and families about FGM, the practice remains very much a reality in the UK. Until recently, it seemed that the Government’s commitment to eradicating FGM remained largely rhetorical. For instance, even though since 2003 anyone taking a child out of the UK to be cut faces 14 years in prison, there is yet to be a single prosecution.

©UK Home Office/Creative Commons License
©UK Home Office/Creative Commons License

It seems that the Government was reluctant to deal with what was perceived to be a ‘cultural practice’. According to the Huffington Post,  ‘historically, UK doctors and social services have been hesitant to intervene when they see suspected FGM, for fear they would be called racist.’ However, as Plan UK, one of the largest children’s charities in the world, reminds us, not only is the practice carried out for  ‘reasons with absolutely no basis in fact or evidence’, but it also ‘predates all major religions and is not specified in any religious text.’ FGM is not a cultural practice, nor is it a religious one. It is a violation of human rights. The UN goes so far as to define FGM as a form of torture.

This year, however, seems to be marking a turn in the fight against FGM in the UK. It seems that the Government is, finally, no longer willing to accept that cultural sensitivity should prevent fighting child abuse.

The Serious Crime Act 2015 that came into force last month allows judges to issue protection orders when concerns are raised about a girl being at risk of FGM. The Act also allows judges to remand people in custody, order mandatory medical checks and instruct girls believed to be at risk of the practice to live at a particular address so that authorities can check on whether they have been subjected to FGM.

Under this new Act, for example, a father has been forbidden from taking his three daughters aged 6 to 12 to Nigeria, as their mother claimed that they were to undergo FGM there. Bedfordshire police also seized the passports of two young girls who were believed to be set for the same fate. The Government is also looking into making it mandatory for medical professionals and teachers to report concerns about FGM where this involves minors.

The UK’s toughened stance towards FGM seems to be part of a global commitment towards eradicating the practice.

In France, not only is FGM punishable by 10-20 years in prison for the author of the practice as well as for the legal parent of the child, but any citizen (including professionals) is also legally obliged to report any concerns about a risk of FGM. Failure to do so is subject to criminal prosecution.

Further abroad, an increasing number of countries, including Bangladesh, are starting to change the legislation on FGM and in May this year, Nigeria made FGM illegal. However, even outlawing FGM is often not enough to change a community’s outlook on the practice. In Somalia, for example, despite FGM being illegal, over 97% of Somali girls are believed to be affected by the practice.

Plan UK states that FGM is ingrained in communities because it is believed that the practice equates purity, cleanliness and a necessary requirement for marriage.

©DFID/Creative Commons License
©DFID/Creative Commons License

UNICEF (link in French – see End FGM EU for an English list of the reasons for FGM) underlines that FGM is often perceived as indispensable for social cohesion and used as a means to control female sexual appetite. This is why community outreach and the training of social, medical and professionals in education are so crucial.

The UK is finally on the right track and the rest of the world seems to slowly be moving in the right direction. However, as Leyla Hussein, the co-founder of Daughters of Eve, an NGO that protects girls in FGM-practicing communities, claims, forcing people to report FGM, as long as there is no mandatory training for frontline professionals to deal with FGM, will yield little results.

FGM is a radical act of gender-based violence. It may even be the most extreme illustration of gender inequality, since it entails the mutilation of what precisely makes a woman a woman. The reality is that until we achieve gender equality in all areas of life, girls will not be safe from this intolerable practice both abroad and in the UK.


The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.

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The state of homelessness in France: a British perspective

The state of homelessness in France: a British perspective

Encounters with homelessness are a part of life for city dwellers around the world. However, since the recession of 2007 the numbers of Europeans directly affected has intensified. Ruth Mattock, who is currently living in Paris, compares how homelessness is being tackled by British and French organisations.

 

Paris
© Klovovi/Creative Commons license

On 18 March 2014, a small crowd gathered in the centre of Paris to remember the 453 homeless people who died on the streets of France in 2013. They are unknowns – remembered by a first name, a nickname or only a street number – but the collective Les morts de la rue hopes the ceremony will draw attention to premature death caused by living on the streets, a trend that has accelerated over the last few years.

Coming from the UK, I was struck by the situation in Paris. Homelessness is prevalent in the UK, but the visible population generally has at least a basic level of physical health, and I had never seen a child on the street. In Paris, there are people begging on every corner, sleeping in every metro station, lying on hot air vents in winter and rummaging in rubbish bins. They are very old and very young: families with small children sleep on the pavement at night, and encounters with mental illness and alcohol abuse are routine. Some are well presented; others have been severed from society too long, and live in rags and cardboard. Keep reading →


The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.

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