January 3, 2017

The Swiss government spent CHF 25.5 billion (almost US$25 billion) in international development aid during the first 15 years of this century, reports a new study from Zurich-based Atlas Network partner the Liberal Institute (LI), but recipient countries continue to decline. Rather than continuing to funnel money into endless redistribution programs, LI argues, it’s far more important to focus on ending international protectionism and fostering free trade so that developing countries can grow.

Since 2000, when 89 United Nations countries adopted the Millennium Declaration and its plans to combat poverty, assistance to developing nations from donor countries has increased by 83 percent. Results of the aid, LI argues, have been disappointing. Of the 40 countries that received aid from the Swiss federal government in 2015 that totaled at least CHF 15 million, 26 countries lost economic ground according to the Fraser Institute’s “Economic Freedom of the World” annual reports.

“Looking at the absolute index values, the result looks more sobering: Only six of the 34 studied recipient countries could be improved in the said period by more than one point in the Index of Economic Freedom,” write study authors Christian Hoffmann, LI’s research director, and Olivier Kessler, LI’s vice president (translated from German). “By contrast, seven countries worsened their absolute index values in spite of the aid monies. ... The remaining 21 countries languished, without making significant progress — despite (or perhaps because of) the significant aid amounts that poured into the countries.”

The LI study notes that aid contributions often fund corruption and expansive bureaucracies in developing countries, bolstering political regimes and their allies rather than helping the struggling population — and leaving policymakers with less incentive to reform. Insisting instead on opening developing borders to increased international trade would allow capital to flow from richer to poorer countries, facilitating new functional infrastructure and a consistent rule of law.

“If industrialized countries want to provide development aid worthy of the name, they should commit to supporting free trade, even unilateral,” Hoffmann and Kessler conclude. “Ultimately, however there is no escaping the knowledge that the structural and institutional frameworks of a country are the pathway out of poverty. Development cooperation, such as consulting or technical exchange, can be used to work toward an improvement of these conditions. In addition, developed countries should reduce agricultural protectionism rather than distributing billions in aid payments. This would not only be a more promising solution, but also more equitable and more effective for taxpayers in industrialized countries.”