Trade vs Aid

Trade is a long-term basis for international co-operation. The other partner in a trading relationship is likely to represent an ongoing market for goods or services. So when a developing country has the capacity to engage in trade with another country, there is a strong likelihood that that trade will blossom into an ongoing trading partnership. This will allow a firm basis for a flow of cash or goods into the developing country, largely independently of whether the developed country is doing well or badly economically at a given moment. This can be contrasted to the flow of aid. It tends to be less predictable, both because it is manipulated for political reasons and also because it can be quite ephemeral and so, if the developed country goes through a bad economic time, the aid budget makes an easy target for a reduction in spending.

Trade allows developing countries to retain their dignity. Aid is often seen as quite a patronising concept, no matter how necessary it may be argued to be. It is, like most forms of charity, one party acknowledging its own superiority and aiding the other party not on merit but out of a sense of wanting to help. This can be deeply embarrassing for the receiving country and for its people; indeed this is often cited as one of the reasons why African countries are reluctant to take a full part in international affairs – partly because they feel that their silence or support has been “bought” with aid money. A trading relationship would allow them to be much more equal partners in the international community, and so gain the benefits of inward investment and payment for trade without many of the negative aspects associated with an aid programme.

Trade allows a fair impression of the international order to be created. One of the problems of the current aid system is said to be that it creates an impression amongst receiving countries and their people that the west is a wealthy, free-handed donor which provides what seem like huge sums of money by local standards. The impression can also be that this is given without too much concern about corruption or indeed without moral judgement, since many of the people who administer aid may be seen as morally ambiguous collaborators within authoritarian regimes. This influences developing world expectations of the first world. As well as leading to a sense that there is some sort of right to aid, it can also distort values of openness, self-help and honesty. It encourages many people in recipient countries to consider migrating to the source of this wealth, since they assume that it must be a rich place where all can prosper. When the reality turns out differently, this can cause problems on all sides.

Trade provides developing countries with an important basis for their own improvement. To gear up to be successful trading partners, developing countries often need to go through a number of key changes. As well as developing their own economy and their manufacturing or service sectors, they may need to build trade infrastructure in other ways. For example, increased trade would focus their attention on such things as good governance, the benefits of a broadly stable currency and internal security. Although such developments may come about as a facilitator for trade, in the best case scenario they may be seen as structural changes which will have a trickle-down benefit for the broader society in the underdeveloped country.

Aid money is often mispent, even when handled honestly. By imposing solutions from outside, it favours big projects, ‘grand gestures’ and centralisation – all of which may be inappropriate, only benefit a small number of people, and suffer from intended consequences. By contrast, the profits of trade trickle down to the whole population, giving people the power to spend additional income as they choose, for example by reinvesting it in worthwhile local industries and enterprises.

People naturally want to trade with each other, seeking to turn their particular resources or skills to their advantage. All too often trade is limited not because government action is needed, but because the government actually gets in the way with restrictive rules and statist controls. For example, regardless of their terms of trade with developed nations, developing countries could all become more prosperous if they removed the barriers they have erected to trade with each other. Putting the emphasis on trade rather than aid redirects attention from what developed states should or could be doing for the developing world, to what developing countries can and should do for themselves.