When the rich talk aid, the poor don't always get it

Posted: 7 May 2003

Author: Nancy Birdsall and Moisés Naím

Political leaders in the world's richest nations frequently proclaim their fervent desire to end poverty worldwide and boast of their spending on foreign aid to poor nations, reports the International Herald Tribune. Their aid efforts - which add up to about $58 billion a year - are praiseworthy. But grandstanding over foreign aid obscures the critical influence that rich countries' other policies have on the development of poor nations.

The Commitment to Development Index, created by the Center for Global Development and Foreign Policy magazine, ranks some of the world's richest nations according to how much a wide range of their policies help or hinder the economic and social development of poor countries. The inaugural edition of the index ranks 21 nations: Australia, Canada, Japan, New Zealand, the United States, and most of Western Europe. The results will surprise many.

Japan and the United States, which provide the highest absolute amounts of foreign aid to the developing world, bring up the rear in the index. The Netherlands emerges as No. 1, thanks to its strong performance in aid, trade, investment and environmental policies. Denmark and Portugal follow in second and third place. Norway, usually regarded as a model global citizen, comes in a disappointing 10th.

The index measures how well rich countries contribute to development in six areas: aid, trade, environment, investment, migration and peacekeeping.

'Quality' test

The index considers the quality, not just the quantity, of foreign aid. For instance, the index penalizes "tied aid" - financial assistance that recipient countries are required to spend on services from the donor nation. Denmark tops the aid ranking, followed by Sweden, the Netherlands and Norway. These countries are among the world's most generous and only a small proportion of their aid is tied. Japan and the United States rank 20th and 21st in the aid category.

Barriers to trade in developed economies cost poor nations more than $100 billion per year, roughly twice what rich nations give in aid. The index measures rich countries' barriers to exports from developing countries, as well as the income denied to poor countries because their products are squeezed out by subsidized products from rich nations. Among the most protected industries in high-income nations are agriculture, textiles and apparel - the very areas where poor countries are most competitive.

In the index's trade ranking, the United States finishes first, followed by Australia and New Zealand. Norway ranks a distant last because of its high tariffs against agricultural imports from poor countries.

The index reflects the belief that poor nations will struggle with any effects of climate change, such as drought, flooding and the spread of infectious diseases. So which rich countries have signed the Kyoto Protocol on climate change? How much money have they contributed to the Montreal Protocol Fund, which helps developing countries phase out ozone-depleting chemicals? And are developed nations advancing state-of-the-art, environment-friendly energy technologies?

Environmental performance

According to these measures, Switzerland ranks highest in its environmental policy, thanks to hefty government investment in clean-energy research and development, low emissions of atmosphere-disrupting pollutants and no fishing subsidies. Australia, Canada, and the United States rate among the worst environmental performers, largely because of their high per capita greenhouse gas emissions.

Foreign direct investment can bring jobs and foster economic growth to developing countries. The index's investment score gives dominant weight to the amount of direct investment (as a percent of gross domestic product) flowing from each rich country to developing countries. But the index "corrects" investment flows by considering the propensity of corporations from rich nations to rely on bribes overseas, as measured by Transparency International's 2002 Bribe Payers Index. Four countries stand out as sources of "healthy" direct investment: the Netherlands, Portugal, Spain and Switzerland.

The freer movement of people, like the freer movement of goods, generally enhances development. The easier it is for a Vietnamese laborer to work in Japan, the more Nike will have to pay her to sew clothes in the company's Vietnamese factories. Migrants also send home sums large enough to constitute a major economic force in many developing countries.

The migration scores in the index are surprising. Both Switzerland and Japan have reputations for xenophobia, yet Switzerland finishes near the top and Japan near the bottom of the migration ranking. Why? In Switzerland, noncitizens face great difficulty gaining citizenship; by contrast, everyone from doctors and nurses to nannies and janitors can easily obtain legal entry into Switzerland to work - the indicator the index actually measures.

Peacekeeping benefits

The inclusion of peacekeeping in the index reflects the belief that domestic stability and freedom from external attack are prerequisites for economic development. The index thus rewards financial and personnel contributions to multilateral peacekeeping operations. Greece ranks No. 1 for contributing 2,000 personnel to peacekeeping in nearby Bosnia and Kosovo - a large number for such a small country. Switzerland ranks last because it has historically hewed to neutrality and avoided membership in international organizations.

The index shows that the Netherlands, Denmark and Portugal currently lead the world in tackling the challenge of development. But with a combined population smaller than that of Tanzania, these countries can hardly lead alone. The Group of Seven nations - Canada, France, Germany, Italy, Japan, Britain and the United States - must assume the responsibilities commensurate with their power and economic might.

The G-7 nations engage in more trade, more aid, more peacekeeping and more pollution than any other group of nations. Yet, among them, only Germany ranks in the top half of the index. These nations must reform their policies with an eye toward aiding development, as a matter of both morality and enlightened self-interest. If these countries step forward, they will help improve the lives of millions of people who deserve better than they now have - and build a more stable world in the process.

Nancy Birdsall is the president of the Center for Global Development. Moisés Naím is the editor of Foreign Policy magazine, in which a longer version of this article will appear (see links below).

Source: International Herald Tribune, April 29, 2003.

Related links:

The Index is featured in the May/June issue of Foreign Policy. Read the full article.

Center for Global Development