The history of foreign aid is littered with good intentions and bad outcomes. Even the world's hyperpower was unable to take advantage of substantial foreign aid in the aftermath of Hurricane Katrina. Granted, it is not moral quibbling to question taking charity from poorer nations, but the United States allowed donations to be ruined by the elements while needy people went without.
Given the failure of the United States to effectively harness foreign aid, it is unsurprising that most poor countries don't use it well either. But after decades of experience in the post-WW2 period, wealthy donor countries haven't figured out how to make the system work. Foreign aid doesn't even result in warm feelings these days. Developing countries have a highly developed sense of sometimes justified exploitation, and just as understandably, many rich nations don't feel like giving billions to help the less fortunate if all they receive in return is a public relations black eye.
Foreign aid fails because one-time donations aren't used to invest in the future. It's not surprising to economists that behavior doesn't change when the underlying incentive structure doesn't alter one bit. Yet one-time gifts are unlikely to change incentives because they only influence the present. Tying future gifts to specific goals being reached is the economic prescription, but the political reality is that rich countries won't want to give to countries that are getting along fine on their own, and poor countries can't get big projects going without substantial start-up capital.
Giving foreign aid from a long-term perspective is the only way to actually leverage change, but long-term foreign aid is not particularly desired by anyone.
Ironically, only an iron-fisted dictatorship that is capable of forcing unpalatable changes down the throats of unwilling poor people is likely to make good use of foreign aid. Of course, depending on the good will of dictators is a losing strategy as well.
The only reliable course to economic growth is for a country to help itself. Sadly, the sorts of changes required will be sufficiently unpopular that poor people are almost always going to be unable to help themselves.
Showing posts with label Developing World. Show all posts
Showing posts with label Developing World. Show all posts
Tuesday, June 12, 2007
Monday, June 4, 2007
NAFTA's Effects on the Environment
Proponents and opponents of NAFTA have so hardened views of the treaty that it can be hard to gain a balanced view of its overall effect. One of the the areas of disagreement has been the treaty's effects on the environment.
On one hand, NAFTA established a norm of cooperation and created new institutions that can deal with the environment. The treaty prompted the consolidation of environmental legislation in Mexico from its formerly piecemeal implementation. With enhanced public participation, the treaty championed new initiatives. While many of the new standards were voluntary and heavily dependent on self-regulation, citizens gained a complaint mechanism and tools for dealing with persistent non-enforcement.
On the other hand, NAFTA demonstrated the ineffectiveness of governments outside of their jurisdictions. Many of the new institutions were underfunded and budget cuts in Mexico caused enforcement to lag. The dispute resolution mechanism is so poorly designed that its use actually seems to have discouraged future progress. Incomplete compliance and lack of sanctions have reinforced the reality that outcomes will not be transformed anytime soon.
At the end of the day, NAFTA's greatest effect on the environment will come about through the wealth effect on Mexico. The treaty has driven the dramatic rise of the export industry in Mexico and created millions of jobs in spite of the Peso Crisis and intense Asian competition. Increased industrialization actually led to a sharp increase in pollution, but the long term trend is likely to be precisely the opposite. The world's wealthiest countries are also the world's cleanest, because people are unwilling to live in a dirty environment if they can afford to clean it up.
On one hand, NAFTA established a norm of cooperation and created new institutions that can deal with the environment. The treaty prompted the consolidation of environmental legislation in Mexico from its formerly piecemeal implementation. With enhanced public participation, the treaty championed new initiatives. While many of the new standards were voluntary and heavily dependent on self-regulation, citizens gained a complaint mechanism and tools for dealing with persistent non-enforcement.
On the other hand, NAFTA demonstrated the ineffectiveness of governments outside of their jurisdictions. Many of the new institutions were underfunded and budget cuts in Mexico caused enforcement to lag. The dispute resolution mechanism is so poorly designed that its use actually seems to have discouraged future progress. Incomplete compliance and lack of sanctions have reinforced the reality that outcomes will not be transformed anytime soon.
At the end of the day, NAFTA's greatest effect on the environment will come about through the wealth effect on Mexico. The treaty has driven the dramatic rise of the export industry in Mexico and created millions of jobs in spite of the Peso Crisis and intense Asian competition. Increased industrialization actually led to a sharp increase in pollution, but the long term trend is likely to be precisely the opposite. The world's wealthiest countries are also the world's cleanest, because people are unwilling to live in a dirty environment if they can afford to clean it up.
Thursday, May 31, 2007
Are Multinational Corporations Good for the Developing World?
Multinational corporations obviously have many effects both for good and for ill on the developing world. Nonetheless, it is unlikely that these cumulative effects are precisely neutral.
Given the significant technology gap between the developed and developing worlds, multinational corporations have a clearly positive contagion effect that spreads innovation quickly around the world. And even if these corporations don't directly share their expertise with anyone, the increased competition probably encourages domestic firms to be more efficient. Multinationals have greater access to worldwide capital markets, so they bring capital into the economy. They pay their workers higher than prevailing wages and provide management skills not locally available.
Taken together, these benefits clearly ensure that at least some multinational corporations are a force for good.
Yet, multinationals are also capable of exploiting their workers, maintaining control over their fiscal and intellectual resources, and preempting local development. The culture gap also introduces products that aren't appropriate because multinationals can't accurately understand local culture. And even if that doesn't occur, human rights abuses have been repeatedly documented by corporations that drop to local standards rather than rising to expectations.
A real danger for many developing countries is that multinationals create a net capital outflow, actually remitting more profits to their home country than they initially put into the local economy. When the multinationals use inappropriate technology for the country's level of development, they can actually drive many out of work and retard local development.
On balance, multinational corporations are neither an unmitigated good nor a force for evil. Rather, these corporations have numerous disparate effects, both intended and otherwise, that need to be evaluated on an individual basis. Still, the history of multinational development provides significant hope that the benefits from technology transfer outweigh most other considerations under most circumstances.
Given the significant technology gap between the developed and developing worlds, multinational corporations have a clearly positive contagion effect that spreads innovation quickly around the world. And even if these corporations don't directly share their expertise with anyone, the increased competition probably encourages domestic firms to be more efficient. Multinationals have greater access to worldwide capital markets, so they bring capital into the economy. They pay their workers higher than prevailing wages and provide management skills not locally available.
Taken together, these benefits clearly ensure that at least some multinational corporations are a force for good.
Yet, multinationals are also capable of exploiting their workers, maintaining control over their fiscal and intellectual resources, and preempting local development. The culture gap also introduces products that aren't appropriate because multinationals can't accurately understand local culture. And even if that doesn't occur, human rights abuses have been repeatedly documented by corporations that drop to local standards rather than rising to expectations.
A real danger for many developing countries is that multinationals create a net capital outflow, actually remitting more profits to their home country than they initially put into the local economy. When the multinationals use inappropriate technology for the country's level of development, they can actually drive many out of work and retard local development.
On balance, multinational corporations are neither an unmitigated good nor a force for evil. Rather, these corporations have numerous disparate effects, both intended and otherwise, that need to be evaluated on an individual basis. Still, the history of multinational development provides significant hope that the benefits from technology transfer outweigh most other considerations under most circumstances.
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