Trade vs Aid
Should the developed world focus on enabling trade or donating aid as a way to help the developing world?
Please cast your vote after you've read the arguments.
You can also add to the debate by leaving a comment at the end of the page.
Trade is a long-term basis for international co-operation. The other partner in a trading relations...
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.
Aid is linked to need not the ability to engage in trade. Trade rewards those who are able and willing to engage in trade. This involves a number of elements – as well as having the rights sorts and quantity of goods and services and being willing to sell at the desired price, a country may need to meet certain other criteria of a purchasing country. For example, that country may make demands in terms of corruption, human rights, political support at the United Nations, or any other of a large number of possible preconditions for a trading partnership. This will suit some countries in the developing world. But for others it will act as a bar to trade. They will therefore not receive the redistribution of wealth that is claimed for the global trading web. In this way, trade can distribute its benefits very unevenly. By contrast, aid can in theory be more evenly distributed and can be targeted against identified need rather than against the ability to compete in a trading marketplace.
Trade allows developing countries to retain their dignity. Aid is often seen as quite a patronising...
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.
Not all countries are able to trade successfully. Some countries lack the ability to trade, for example because they do not have the raw resources or materials in quantities that make their exports viable. In the absence of deep government coffers, they would be the first to fall were other countries to engage in a trade war to keep their exports out. So the basic assumption of the international trade argument – that trade is open equally to all countries – does not reflect the reality of the situation.
Trade allows a fair impression of the international order to be created. One of the problems of the...
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.
Aid allows for money in a given country to be allocated well against need. At the micro- level as well as the macro, trade is an inefficient distributor of resources in a developing country. Under it, most if not all of the benefit of the trade will stay with a small elite of people who are often amongst the richest in the country in the first place. They may then move the money offshore again. Alternatively, if it remains within the developing country, it may well simply be used to buttress their own position in a way which further entrenches their social and economic position. So, the benefits of trade flow to few people and often they are the least needy. Aid, by contrast, may be targeted against specifically identified groups or areas on the basis of need, often being given through local groups, such as churches, mosques, health clinics, etc.
Trade provides developing countries with an important basis for their own improvement. To gear up t...
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.
The opportunities for trade are severely limited because of barriers imposed by the international system. The arguments made by pro-trade proponents are often couched in the rhetoric of market economics. Yet the international trade arena represents anything but a free market. Instead, tariffs, taxes, subsidies, regulations and other restrictions operate to disadvantage some countries. Because of their weaker bargaining and economic power, it is typically developing not developed countries that are on the losing end of this equation. The agricultural protectionism of the EU and USA, in particular, means that developing countries are unable to compete fairly.
Aid money is often mispent, even when handled honestly. By imposing solutions from outside, it favo...
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.
Exposing fragile developing economies to free trade is very risky. There is a short term danger that a flood of cheap (because of developed world subsidies) imports will wreck local industries who are unable to compete fairly. In the longer term economies may become dangerously dependent upon 'cash crops' or other commodities produced solely for export (e.g. rubber, coffee, cocoa, copper, zinc), rather than becoming self-sufficient. Such economies are very vulnerable to big swings on the international commodity markets, and can quickly be wrecked by changes in supply and demand.
People naturally want to trade with each other, seeking to turn their particular resources or skills...
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.
Trade does not exist in a vacuum. It needs a wider infrastructure to support it, e.g. roads, railways, ports, education to produce capable civil servants to administer trading rules, etc. Without foreign aid, developing countries are not able to develop this kind of support, and so cannot participate effectively in international trade. Aid is not always in the form of money - it may also be given through expert advisors who help countries prepare for the challenges of globalisation.
What do you think?