2018-02-14
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The developing countries have long pleaded for "trade, not aid" to improve their international position. The NIEs' (Newly Industrialized Economies) experience supports the view that access to markets in the developed world is critical to economic growth in the Global South. However, market access has become increasingly difficult because domestic pressure groups in Global North countries have lobbied their governments to reduce imports of developing countries' products that compete with their own industries. Trade may be preferred to aid, but political barriers often prevent it.
Aid no longer offers a promising means for developing countries to increase wealth either. The end of the Cold War has propelled many former donor countries to oppose what some foreign aid critics see as "international welfare". Smith Hempstone, U.S. ambassador to Kenya, put the opposition's argument caustically when he opined in 1995 that with "the Soviets out of the game, we can no longer be blackmailed into giving money to projects which we know are not beneficial to the countries concerned“.
Foreign aid comes in a variety of forms and is used for a variety of purposes. Some aid consists of outright grants of money, some of loans at concessional rates, and some of shared technical expertise. Although most foreign aid is bilateral - meaning the money flows directly from one country to another – an increasing portion is now channeled through international institutions such as the World Bank, and hence is known as "multilateral aid".
The purposes of aid are as varied as its forms. Security objectives are typically pursued through military assistance of one kind or another, but economic aid is also used for these purposes. The United States, for example, "paid" for military base rights in many Third World countries during the Cold War with both economic and military aid. In addition, America continues to target Israel and Egypt as major recipients to symbolize friendship, maintain a balance of power, and influence the Middle East peace process.
While disaster relief and other humanitarian purposes are also addressed through grants and loans, the economic development of the Global South has been a primary aim of most foreign aid since World War II. The assumption that development will support other goals, such as Arab/Muslim solidarity, commercial advantage, free markets, and democratization, rationalizes most donors' assistance programs. Today, however, some of these traditional justifications are under widespread attack in many donor countries, particularly in the United States which, until recently (when overtaken by Japan) provided more bilateral aid and more resources to multilateral institutions than any other donor. "The poor economic performance of many traditional aid recipients (and some aid agencies) has tried the patience of supporters of aid programs and increased skepticism about the effectiveness of aid" (World Bank 1996).
Virtually all Global North states (plus several Arab countries) provide large sums to developing countries each year. Nonetheless, the volume of aid has largely declined since the end of the Cold War. Meanwhile, the number of recipients has increased as Russia and the other countries in transition have switched from being donors to recipients. Commonly stated goals that might give foreign aid new life include poverty reduction, human development, environmental protection, reduced military spending, enhanced economic management, development of private enterprise, enhancement of the role of women, and the promotion of democratic governance and human rights. Existing practice in Russia and Ukraine suggests that disarmament – specifically dismantling and storage of chemical and nuclear weapons – may also be facilitated with foreign aid support.
In all, however, the shift to market-oriented models has led many donors to conclude that foreign aid is no longer as needed, or even desirable. The emergent climate of opinion, moreover, has spawned "conditionality", demands that recipient countries must meet to receive aid. The result is that after growing for a number of years to its peak in the early 1990s, concessional assistance from official sources has been declining. "The poorest countries are not being protected from these declines, and the prospects for aid flows in the next few years appear dim. The decline is particularly worrisome at a time when many low-income countries lack access to capital markets and need assistance to better integrate their economies in the world economy, and when increasing democratization makes the prospect of poverty-reducing growth patterns more likely than ever before" (World Bank).
Developing countries have long chafed under the conditions or "strings" attached to donors' aid, believing that aid is their right and an obligation of rich countries in repayment for years of unequal exchange perpetrated through colonialism and imperial rule. Consequently, they often view foreign aid as an instrument of neocolonialism and neoimperialism and have been especially critical of the conditionality imposed by the International Monetary Fund and other multilateral institutions in recent years.
Faced with the reality of diminishing foreign aid dollars, rich and poor states met in Copenhagen in 1995 at the UN Summit for Social Development, determined to find a way to stretch scarce resources. Although the neocolonial/neoimperial charge lurked in the background, the developing countries demonstrated pragmatism as they quickly supported a proposed "20:20 compact" for human development: Foreign aid donors would be asked to earmark 20 percent of the aid dollars for human development efforts, including meeting basic human needs; and in return, recipient nations would be expected to devote 20 percent of their own resources to similar efforts. Thus they recognized that without conditions, foreign aid might cease altogether.
The prevailing mood within the Global South has been a renewed search for other economic ways to escape deprivation and stagnant economic growth. Instead of relying on development assistance from the Global North, many Global South countries have sought to increase their export earnings and gain a share of global trade by seeking foreign direct investment (FDI)[1]. The goal of an FDI strategy for growth is encouraging private enterprise and multinational corporations to invest capital in domestic business ventures. The strategy has always been controversial, because with foreign investment has come external control, the erosion of governments' sovereignty, and, potentially, the removal of profits abroad. However, despite the risks, many developing countries have relaxed restrictions in order to increase foreign investors' activity. As World Bank records show, this has stimulated a surge in the flow of $938 billion of private capital to the Global South between 1990 and 1997. The impact has been substantial and has paved the way for the emerging markets of the Global South to expand their rates of economic development. Nonetheless, local industries in the Global South's domestic systems, which are threatened by the competition, maintain resistance as do those who point to the disruptions and income inequalities that these investments are causing within their homelands. These fears and consequences notwithstanding, an intensified push among the Global South developing countries to compete for investment capital in order to liberate themselves from dependence and destitution seems likely.
