Saturday, September 23, 2006

Free Trade Not Aid

My fellow blog combatants from the right will be surprized that I agree with them.

Aid is not the anwer; economic freedom is says Damination, which by the way is one of the better Blogging Tories. Thoughtful and insightful articles can actually be found here, even though I disagree with them. As I will here.

It is a review of Wayne Easterly's book which the neo-liberal CATO Journal has also reviewed.

The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good
by William Easterly
Reviewed by Prakash Loungani
Cato Journal
An Interdisciplinary Journal of Public Policy Analysis
Volume 26 Number 2, Spring/Summer 2006

In 1982, Peter Bauer coauthored an article with the title “Foreign Aid
Isn’t.” This title could serve as an apt summary of William Easterly’s new
book. In “Development Aid: End It or Mend It” (International Center for Economic Growth, Occasional Papers No. 43, 1993), Bauer railed against calling it aid because “it promotes an unquestioning attitude. It disarms criticism, obscures realities, and prejudges results. Who could be against aid to the less fortunate? The term has enabled aid supporters to claim a monopoly of compassion and to dismiss critics as lacking in understanding and sympathy”
Bauer then went on to note the more substantive criticism that “the term also clearly implies that the policy must benefit the population of the recipient countries, which is not the case.” Easterly agrees: “ The West spent $2.3 trillion on foreign aid over the last five decades,” he
writes, adding that he feels like “a Scrooge” for pointing out that all this “well-meaning compassion” has brought about little improvement in the lot of the world’s poor.

We can look at Canada's foreign aid as an example it has been aimed at prop up Canadian trade with the developing world. The money goes to governments who then purchase goods and services from Canadian businesses. It is another corporate subsidy. For instance our much lauded aid to Afghanistan is perfect example of this.

Afghan mission cost: $3.5B or far more

Documents tabled in the House on Monday also listed the top 20 highest-value contracts issued in connection with the Afghanistan deployment. The single largest line item was a $200-million contract for logistic support at the Canadian base in Kabul, awarded to a joint venture of Quebec engineering firm SNC Lavalin and California-based Pacific Architects and Engineers (PAE).

The government has also spent $92.4 million for Nyala armoured patrol vehicles made by General Dynamics Land Systems, and $37.9 million on howitzer artillery pieces from BAE Systems in the U.S. and Britain.

Two foreign companies, based in United Arab Emirates and Monaco, were paid more than $10 million to provide accommodations and food for Canadian troops in Kandahar.

And it is by far the largest aid package that Canada is giving to any developing country. It is in short war profiteering as much as it is Aid for development. See my; Foreign Aid Or War Profiteering

No country in the world receives more foreign aid from Canada than Afghanistan. Ottawa is committing $100 million a year until 2011. Earlier this year, the United States turned over responsibility for a large part of Afghanistan to NATO, which includes Canada. Under American leadership, Senlis said $82 billion US was spent on military operations in Afghanistan, compared with $7 billion US on development since 2002. Development a slow road in unstable Afghanistan

NGO's themselves are the new form of business which fail to actually use business practices because they are in the compassion business. Whether directly state funded or charities their record is one of too little too late, and a complete failure to follow good business practices. Which is why so much international aid fails to reach those that need it. One merely needs to reflect on recent crisises such as the Indonesian Tsunami or the earthquake in Pakistan to see the failure of international AID. And its corruption. In the latter case funds to Pakistan for aid were diverted to Muslim terrorists.

The failure of this mode of business can be seen in Afghanistan.

A fact-packed report issued in June 2005 by Action Aid, a widely respected NGO headquartered in Johannesburg, makes sense of the workings of that world. The report studied development aid given by all countries globally and discovered that only a small part of it - maybe 40% - is real. The rest is "phantom" aid; that is, the money never actually shows up in recipient countries at all.

Some of it doesn't even exist except as an accounting item, as when countries count debt relief or the construction costs for a fancy new embassy in the aid column. A lot of it never leaves home. Paychecks for American "experts" under contract to USAID, for example, go directly from the agency to their US banks without ever passing through the to-be-reconstructed country. Much aid money, the report concludes, is thrown away on "overpriced and ineffective technical assistance", such as those very hot-shot American experts. And a big chunk of it is carefully "tied" to the donor nation, which means that the recipient is obliged to use the donated money to buy products from the donor country, even when - especially when - the same goods are available cheaper at home.

The US easily outstrips other nations at most of these scams, making it second only to France as the world's biggest purveyor of phantom aid. Fully 47% of US development aid is lavished on overpriced technical assistance. By comparison, only 4% of Sweden's aid budget and only 2% of Luxembourg's and Ireland's goes to such assistance. As for tying aid to the purchase of donor-made products, Sweden and Norway don't do it all; neither do Ireland and the United Kingdom. But 70% of US aid is contingent upon the recipient spending it on American stuff, especially US-made armaments. Considering all these practices, Action Aid calculates that 86 cents of every dollar of US aid is phantom aid.

In 2001, Andrew Natsios, then head of USAID, cited foreign aid as "a key foreign-policy instrument" designed to help other countries "become better markets for US exports". To guarantee that mission, the State Department recently took over the formerly semi-autonomous aid agency. And since the aim of American aid is to make the world safe for American business, USAID now cuts in business from the start. It sends out requests for proposals to a short list of the usual suspects and awards contracts to those bidders currently in favor. (Election-time kickbacks influence the list of favorites.) Why it's not working in Afghanistan

As I wrote here Marx also agreed that trade was essential to the development of capitalism within the rotting structure of old fuedalist nations like India. But that was not all that was required. Any more than trade and aid and reconstruction will create a capitalist economy in Afhganistan.

These small stereotype forms of social organism (the village community .ed) have been to the greater part dissolved, and are disappearing, not so much through the brutal interference of the British tax-gatherer and the British soldier, as to the working of English steam and English free trade. Those family-communities were based on domestic industry, in that peculiar combination of hand-weaving, hands-spinning and hand-tilling agriculture which gave them self-supporting power. English interference having placed the spinner in Lancashire and the weaver in Bengal, or sweeping away both Hindoo spinner and weaver, dissolved these small semi-barbarian, semi-civilized communities, by blowing up their economical basis, and thus produced the greatest, and to speak the truth, the only social revolution ever heard of in Asia. Karl Marx

Industrial production was also required in fact Marx criticized the monopoly of British Imperialism and its failure to create a competitive mode of production, because it was not in the interests of the monopoly capitalists of his day, in this case the Dutch East India Company. Anymore than it is in the interests of the international monopolies today. Who use the state and its trade agreements to further their own profit and power. American corporations like Archer Daniels Midland and Cargill for example, who are the new Ductch East Indian Companies of today. Who live off subsidies at home and preferntial trade deals abroad.

That production rests on the supreme rule of capital. The centralization of capital is essential to the existence of capital as an independent power. The destructive influence of that centralization upon the markets of the world does but reveal, in the most gigantic dimensions, the inherent organic laws of political economy now at work in every civilized town. The bourgeois period of history has to create the material basis of the new world — on the one hand universal intercourse founded upon the mutual dependency of mankind, and the means of that intercourse; on the other hand the development of the productive powers of man and the transformation of material production into a scientific domination of natural agencies. Bourgeois industry and commerce create these material conditions of a new world in the same way as geological revolutions have created the surface of the earth. Marx

The inherent logic of free trade and the idea of creating productive capitalism in Africa and other non industrialized developing countries is counter intuitive to those who would maintain their monopolies. In other words large Transnational corporations and banks are not interested in development perse, because it would lead to competition against their own interests.

Nearly all of Easterly’s conclusions serve to highlight the prescience of Bauer’s work.
While the book’s main targets appear to be Jeffrey Sachs, the United
Nations, and bilateral aid agencies, international financial institutions
(IFIs) such as the World Bank and the IMF that make loans to lowincome
countries also come in for strong criticism. Though these loans
are made conditional on countries carrying out agreed reforms, Easterly
questions how effective this “intrusive and complex conditionality” turns
out to be in practice. One reason why conditions are ineffective is that
“each loan is an attempt to engineer paradise rather than do piecemeal
The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good

An example of how Transnational corporations distort the market can be found in China's newly developing Fordist economy. Privatization of state enterprizes is a local phenomena while the state capitalist controled industries are becoming Private-Public Partnerships (P3's) with global multinational corporations.

Huang, Y. (2003) Selling China: Foreign Direct Investment during the Reform
Era. Cambridge: Cambridge University Press. finds that overseas Chinese capital has been an important means though
which the non-state enterprises have overcome the distortions in China’s capital markets.
By contrast, the direct investment by foreign multinationals has gone mainly to SOEs.
Much of this capital has been misappropriated. The multinationals retain ownership of
nearly all technology. They also provide the marketing outlet for most of the industrial
exports from the non-SOEs, which have become processing centers of multinational firms.
For an enthralling account of how multinational investments to modernize state enterprises
have failed, see Crissold, T. (2004) Mr. China. London: Constable and Robinson.
The Economist (2004) “ Growth Spreads Inland.” November 18: 13.
(2005) “Special Report: China’s Champions.” January 8: 59–61.
Deepak Lal
A Proposal to Privatize Chinese Enterprises and End Financial Repression
Cato Journal
Volume 26 Number 2, Spring/Summer 2006

Over and over again we see that the only alternative to Aid is not trade, free or fair because trade and aid are two faces of the same coin.

he U.S. approach to globalization has been ad hoc, relying on the bilateral influence of the U.S. Treasury and private financial firms, such as Moody's and Standard & Poor's. European policymakers, in contrast, have sought to create new rules for the international system and empower international organizations, such as the EU, OECD, and IMF, to enforce them. French policymakers invented the doctrine of "managed globalization" as an alternative to U.S.-centric ad hoc globalization. A handful of French policymakers—all of them socialists, paradoxically—first liberalized France and then, upon taking leadership roles in international organizations, sought to organize and manage the process of globalization with new jurisdictions and rules.The vast majority of capital flows not from rich to poor countries, but rather among the rich countries of the EU and OECD. With a few exceptions, China, India, and Brazil among them, most developing countries have little access to financial globalization. How Europe Wrote the Rules of Global Finance

What is necassary for the development of capitalism is industrialization in particular Fordism. The creation of mass industrial production in the cities. This can be supplemented by localized craft and agricultural production. But in reality these can never replace the need to create jobs in the cities. Capitalization of industry is not on the agenda for the WTO, IMF or any other form of bilateral or multilateral trade agreements. And it certainly is not the focus of international aid.

The reality is that State Capitalism was never implemented successfully in the vast majority of the Third World despite the nationalist struggles against colonialism for the last four decades. Like Zimbabwe these regimes are pure and simple autarky. Despite their left wing rhetoric. Only where State Capitalism existed in countries like Viet Nam, China, Iran. etc. have the preconditions been met for the development of an industrialized economy. As I have said before it is because State Capitalism in all its forms (the Soviet model, the fascist model, the Roosevelt model and the Keyensian model) is the historic development of capitalism in the late 20th Century. It is required for the centralization of capital in the nation state.

As Marx said;
That production rests on the supreme rule of capital. The centralization of capital is essential to the existence of capital as an independent power.







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