Wednesday, 27 July 2011

When having a strong economy is not enough...

Harold Mitchell is the chairman of CARE Australia.

THERE is a lot of fuzzy thinking about Australia's foreign aid. It is time to be much clearer about what aid can and can't achieve.

Hugh White, on this page last Tuesday ("Economic growth, not foreign aid, is overcoming long-term poverty in the world"), asked why Australia was increasing its aid program when poverty was actually being beaten by economic growth.

...Papua New Guinea has seen strong economic growth over the past five years, but it is not clear that it is being translated into lower levels of poverty.

Economic growth needs to be coupled with effective government institutions, a vibrant civil society and with a population that can take advantage of the opportunities that economic growth may provide.

Aid has played an important role in enabling poor people to take advantage of economic growth. About 80 per cent of children in developing countries now get basic vaccinations. About half these vaccinations are funded through aid programs. Millions of children are studying in schools funded by aid, with school books delivered by aid programs. These children often eat school lunches funded by aid, too. This aid often leverages greater efficiency and effectiveness in government resources through better tender processes and improving policies.


...Without basic healthcare and a decent education, economic growth passes you by.

About 60 per cent of aid from all donors goes to support these basic improvements in the living standards of ordinary people who just haven't had the chances Australians take for granted.

About 22 per cent of all aid goes to support economic growth by providing infrastructure, improving agriculture and so on. A further 12 per cent responds to humanitarian crises, such as the current terrible drought and famine in east Africa.


First, let's remember that economic growth is powerful, but it takes a long time. If a country's economy grows by 7 per cent a year for a decade, then its economy will double. If your population grows at the same time, say around 3 per cent, then the resources per person won't double and it might take 15 years or more for this to happen. So for a country such as Indonesia, with a GDP per person of around $3000, it will take many decades of sustained economic growth for it to reach Australia's level of $55,600. In the meantime, I think it makes sense for Australia to make a contribution to help the Indonesian people overcome poverty.

Second, economic growth is never distributed evenly. Government policies need to promote growth and at the same time provide services to everyone. Poor countries with very limited resources just can't do this; nor can poor families. That is why many poor families in developing countries don't send all their children to school. It is usually the daughters who stay at home doing housework or helping on farms or in shops. When they miss out on even a basic education, they are set up for a lifetime of disadvantage. By focusing our aid on those who are most disadvantaged, particularly women, they are more able to seize the opportunities of a growing economy.

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