Marshall Aid for Asia?

Seizing the moment of pity and guilt created by the East Asian tsunami, the British government has launched an ambitious ‘Marshall Aid’ plan for the poorest countries in the world. It consists of three elements: debt relief, trade reform, and aid. As well as cancelling poor country debts owing to them, the wealthiest nations would pay the debts owing to the IMF, the World Bank and the African Development Bank. They would cut the export subsidies which wreck the rural economies of poor countries. Capping it all, they would make available additional aid of $50bn. a year for 10 years through an International Financial Facility. The new Marshall Aid would be targeted on sub-Saharan Africa.

Certainly, Africa could do with a helping hand. It’s by far the world’s poorest continent. Of the 2.8 billion of the world’s population living on less than $2 a day, 500 million are in Africa out of a total population of 800m. 80 million Africans don’t go to school, 25 million are infected with HIV/AIDS. Life expectancy at birth is only 46 years. Its external debt is 61% of its GDP. On average it is poorer than it was twenty-five years ago.

The ambitious British package to overcome this mass of poverty suffers, however, from two flaws.

The first is technical The British plan calls for an increase in total aid of $66bn. a year. This represents about 20% of the total GDP of all African countries, and much higher for the poorest of them. The effect of such a large influx of money will be to raise inflation or the exchange rate (depending on the exchange rate regime), making it more difficult for African nations to export. This is similar to the familiar ‘Dutch disease’ of oil-producing countries. Manufacturing growth in Russia, for example, is hindered by the high rouble exchange rate brought about by the high oil price.

Much more serious is that the British plan fails to address the problem of governmental capacity. Much of Africa is governed by corrupt and incompetent dictators whose conduct makes economic development impossible and pushes their countries into civil war. What these countries need is not much more money, most of which will end in Swiss bank accounts, but better government. All informed writers agree on the crucial importance of good government for economic development. In his book, The Wealth of Nations, the economic historian David Landes summarises the chief ‘growth and development’ requirements as: secure private property rights, personal liberty, enforcement of contracts, and stable, responsive, honest, and efficient government. Regimes of this type are much more likely to experience both foreign investment and domestic capital formation. They are almost entirely lacking in sub-Saharan Africa.

So what is to be done? Certainly sub-Saharan Africa should be relieved of its debts –it will never repay them. It’s also high time that the EU and the USA abolished agricultural protectionism: their farmers can survive without it. Moderate amounts of aid may also do good in fighting disease, in expanding primary education, in training Africans abroad. But Africa has had money in the past and has either not used it properly (hence the debt problem) or misused it for the benefit of a few.

The historian Niall Ferguson argues that the only effective development strategy is for western countries to take in hand, for temporary periods , the effective government of Africa’s failed states. He accepts that this will mean a new colonialism, no doubt decked out in the language of UN ‘protectorates’ . But the alternative will be further retrogression, with its accompaniments of mass starvation and mass murder. In short successful Marshall Aid for Africa requires imperialism in Africa. This thesis will command increasing support in the years ahead.