Priti Patel, the newly appointed Secretary of State for International Development, has advocated an aid policy that is ‘mutually beneficial’ to both developing and developed countries. Whilst Patel claims that her objective is challenging and changing the global aid system so that it properly serves the poorest people in the world, it is questionable whether aid can really be mutually beneficial. Is such aid beneficial for the developing country in reducing poverty, or is this aid merely perpetuating what Marx believed were inherent qualities of capitalism in which strategic interests are prioritised whilst ‘barbarian and semi-barbarian countries’ remain ‘dependent on the civilised ones’?
Patel believes that the way to end poverty is via wealth creation created by people, not the state. To promote economic growth and thus reduce poverty, DFID maintains that developing countries need to increase investment to be able to graduate from aid dependency. Patel’s proposed reforms to official aid would allow a wide variety of private sector instruments to be used as vehicles for development, meaning that aid could be used to invest in, or give loans to, private companies. In promoting private sector investment, productive employment, especially access to jobs, which is a main vehicle for poverty reduction, could be increased. At the micro level, the process of moving from unemployment to employment can yield a wage that lifts employees above the poverty line. At the macro level, having a high share of the workforce in salaried employment and jobs characterises more developed countries with less poverty. The success of private sector investment in ameliorating poverty rates is demonstrated in Ethiopia which has been the largest recipient of aid in Africa. The unemployment rate has decreased from 7.5% in 2000 to 5.2% in 2011 whilst foreign direct investment has increased from 0.909% of GDP in 2000 to 1.961% in 2011 and poverty rates reduced from 44% to 30% in that period. Whilst further case study analysis would be needed to demonstrate a positive correlation between private sector investment and poverty reduction, from the case of Ethiopia, a relationship seems to exist.
Although private sector investment may be beneficial in reducing poverty, if the design of incentives and boundaries of action are not well-specified then a public-private partnership could foster corruption – remember for example that crony capitalism is a form of such a partnership. Africa’s economies lose more than £46bn a year through corruption and tax evasion and the UK government has given no indication that it intends to implement policies to restrict corruption despite criticisms from the Independent Commission for Aid Impact (ICAI). Whilst corruption is tough to curb, Priti Patel needs to also commit to transparency within DFID to prevent tax dodging and embezzlement which drains poorer countries of revenues for services that ultimately reduce poverty rates. In addition to this, the Times reported that an analysis of more than DFID’s 70,000 financial transactions revealed that consultancy spending had doubled to £1bn a year since 2012, with some consultants receiving £23,000 to merely write a two-page policy brief. Patel has claimed she will not tolerate the profiteering for those who have created an industry out of the suffering of the world’s poorest and to act on this, she must commit to investigating the finances of DFID.
Evidence suggests that private sector investment promotes economic growth and thus poverty reduction. However, such investment may not necessarily reduce aid dependency. The Commonwealth Development Corporation, founded in 1948, has been privately financing pioneering investments in the poorest places in the world. However, the countries that receive such investment are still aid dependent and depend on such investment to boost economic growth. This begs the question of whether private sector investment really does reduce dependency. As with any private investment, the investor receives some financial gain (otherwise they would not enter the market to begin with) so, to continue obtaining such gains, they may not prioritise strategies to reduce dependency.
It may seem absurd to suggest, but what if Marx was correct and the UK (alongside other Western countries) wants to keep developing countries aid dependent so as to benefit from the relationship and exercise their hegemony? Without donating aid, the UK would lose a platform on which to negotiate – for example trade deals that Patel has stated we should not exclude from the foreign aid agenda. Although Patel may not have been referring to trade generally, using the UK’s aid budget to promote post-Brexit trade deals with other countries defies the foreign aid agenda, which should revolve around poverty reduction in developing countries. Whilst trade deals might financially benefit developing countries, DFID must make sure that the aid budget is not used on projects primarily aimed at promoting the UK’s national interests and instead focus on addressing the structural causes of poverty and inequality.
The proposal to use the UK’s £12bn aid budget to help deliver new trade deals, is arguably a form of tied aid which was banned by government in 2001. Tied aid has been known to create a dependency trap and favour rich countries at the expense of poor people. The government’s attempts to revive the discredited aid programmes of the past will divert focus from poverty reduction. Foreign aid is meant to cut poverty, not bribe poor countries to do business with British companies and other private investors. Aid dependent governments can lose the space to design and implement their own policies as donors insist on implementation of their own policy priorities. As such, many developing countries cannot sustain themselves without assistance of Western countries. Patel must reassess the agenda of her international development department so that it focuses on poverty reduction and she should aim to take a more modest, coordinated approach that takes the wishes and knowledge of recipient governments and their people into account.
Britain’s development muscle must not be used explicitly in the UK’s national interest as doing so may have harmful effects in developing countries. Patel must focus on poverty reduction as the sole agenda for international development, not a mutually beneficial transaction, and put efforts into reducing corruption and carefully implementing private sector instruments to promote poverty reduction. If this is achieved, in the long term the East will no longer be dependent on the West as Marx hypothesised, and the aid transaction will ultimately benefit the developing country.