Poverty and corruption
Adam Smith Blog
By Alister McFarquhar on Globalization
After decades of failure to make projects and grants work, we seem to have learned little about poor countries. The Chancellor is currently in Africa, but a week will leave him no wiser. It takes years at grass roots level to understand how a poor country works, especially in Africa. There is an enterprising spirit, but it struggles in a sea of corruption. No medicine in hospital is given without a consideration for the nurse. No entitlement at the end of a queue is dispensed without a bribe. When Nigeria decided to give farmers free fertilizer, the farmers still had to pay the bureaucrats to get it. No rent remains uncollected in efficient local markets.
Poor countries, following their previous colonial administrators, are quite capable of crippling their own trade. For long periods in W Africa the export tax on cocoa was around 90% of export price. The farm gate price is seldom more than 1/5 of export price. Work out how much the grower received compared with what government took.
In Sri Lanka when the price of tea went up by 1p on world markets the government took it all as tax - a 100% marginal rate. Similar rates applied to rubber, coconuts, palm products and other farm products in the mid-eighties.
In corrupt countries aid cash goes into a black hole, often via Swiss bank accounts. Many countries remain poor because they are corrupt. It is not aid cash they lack, but good government. Adam Smith wrote of the need for peace, easy taxes, and a tolerable administration of justice. The lack of tolerable justice thwarts property rights, contract enforcement, and much that is essential for wealth-creation.
We can fund the fight against Aids and Malaria, and help with access to clean water. But please, no more talk about development aid. It is more useful to negotiate bilateral deals which erase corruption in return for trade access. That's the way to reduce poverty. |
