7 SEPTEMBER 1991, Page 11

NO AID AT ALL

Peter Bauer and Anthony Daniels on the folly of subsidising the Soviet Union

NOW that Russia has finally joined the Third World by accepting the Third World's only unifying principle, the need for and right to large subventions from the West, popular sentiment towards it has softened considerably. The Russian bear has become the Russian beggar; and who can so harden his heart as to refuse to give?

No sooner had Mr Gorbachev been tem- porarily ousted from power by hardliners, than there was speculation in the West that the 'real' cause of the coup was the West's refusal to provide Mr Gorbachev with sufficient aid. Economic conditions had deteriorated, not improved, under perestroika; the West had failed to rescue the reforms, and thereby delivered the country to the dinosaurs. The lesson drawn from the coup was that, if disaster were to be averted, there must be aid on a scale commensurate with the size of the country and its problems.

The word aid pre-empts sensible discus- sion. Who can be against giving aid to the less fortunate? Those who advocate giving aid therefore claim a monopoly of compas- sion: indeed, the extent of one's compas- sion can be measured by the amount of aid one advocates.

Alas, we live in an age of euphemism, when words have more power than ever to disguise the nature of things. Aid is not a direct charitable donation to the poor and unfortunate by the rich and fortunate: it is the subsidy of one government by another. And subsidies tend to have lamentable economic and social effects: like certain drugs, they are habit-forming. There are two main arguments in favour of aid, the first moral and the second pru- dential. Here a distinction is granted between Russia and the rest of the Third World. The case for aid to Russia is pri- marily prudential, while that for aid to Africa, Latin America and those parts of Asia which are not about to overtake the donor countries is primarily moral.

The moral argument, where it does not rest upon the open-ended duty of the rich to assist the poor regardless of the cause of their poverty, rests upon the premise that some countries are rich because others are

poor. The rich countries play bourgeoisie to the poor countries' proletariat, extract- ing surplus value from them and con- demning them to constant immiseration, la Marx and Nyerere. Aid, therefore, is restitution, and the poor countries have a right to expect it.

There are so many misconceptions in this argument that only its fulfilment of some deep psychological need could explain its continued popularity among academics and the Lumpenintelligentsia. It relies upon a clear-cut distinction between rich and poor, when in fact there is a con- tinuum of national income and level of development among nations. (Only people fundamentally uninterested in reality could fail to notice the difference between Colombia and Chad, for example.) It ignores the fact that there are many rich• people and groups in Third World coun- tries. It does not explain how some coun- tries have managed, in less than half a century, to move from great poverty to considerable prosperity. It ignores the fact that Latin America as a whole, despite its problems, has become very much richer, not poorer, since the 19th century. It pre- dicts that those countries with the most trade should be the poorest, when the very opposite is palpably the case. In short, the argument is a farrago of guilt-ridden non- sense.

There are very few, however, who would claim that Russia's poverty, in certain respects worse and more intractable than that of Guatemala or Malaysia, is the result of an unjust world economic order. Since it is axiomatic that aid is a Good Thing, in the Sellar and Yeatman sense, the argu- ment for giving aid to Russia is of necessity different. It is the prudential argument: that unless we give aid, it will be the worse for us.

This, of course, is precisely the point Mr Gorbachev was making when he attempted — shortly before the coup — to extort more money from the West. Essentially, Mr Gorbachev reiterated the moral at the end of Hilaire Belloc's `Jim, Who Ran Away from His Nurse, and Was Eaten by a Lion': .. always keep a hold of Nurse For fear of finding something worse.

In this alarming vision, the reactionary communist generals and party functionar- ies played Lion to Mr Gorbachev's Nurse.

To the extent that famine and economic chaos in Russia might result in a Bourbon restoration, or in a massive efflux of refugees, or in a violently xenophobic regime, Mr Gorbachev had a point. The transition from a planned to a market economy is bound to produce dislocations and hardships, including unemployment and abrupt price increases (previously dis- guised by overmanning and shortages). No one wants to see the Russian people, who have suffered in this century almost as no other, face yet another famine. There is, therefore, a good case for short-term dona- tions of food and other essentials, to allevi- ate the inevitable suffering caused by the transition. These donations, however, should as far as possible avoid official channels, and they should be stringently conditional upon the genuine implementa- tion of reform. On no account should they be used as a means of buying time for the old system and methods.

The provision of relief from a crisis, how- ever, is a far cry from development aid as normally conceived. The latter is ostensibly designed to help countries whose economic problems are thought to result from a shortage of capital for investment. With . . and so to conclude my little talk on being an anaesthetist. regard to Russia, figures of $30 billion a year for five years have already been bruit- ed with abandon by everyone except the people who will actually contribute the money, i.e. the taxpayers of the West. Such discussion as there is concerns only the amount of aid to be given, not the worth of aid per se, which is assumed to be, like man's right to life, liberty and the pursuit of happiness, self-evident.

A moment's reflection, however, is suffi- cient to demonstrate that the worth of development aid is not self-evident. Pover- ty is not caused by lack of capital: if it were, men would still live in caves. More- over, countless individuals and numerous societies have, over a few decades, become rich starting out from poverty. All that was necessary for them was incentive, inclina- tion and opportunity (that is to say, a lack of obstruction, especially by governmental policy). The international economic peck- ing order is not immutably fixed by the current presence or absence of capital: if it were, how could large parts of Asia and West Africa have moved from grinding poverty to appreciable wealth in the rela- tively few years from the end of the 19th century to the middle of the 20th without aid?

But even if an external source of capital were required for a society or country to make economic progress, the worth of intergovernmental subsidies would still not be established, for there are other sources of capital — direct private investment, for example, or commercial loans. It is com- monly asserted that such sources will not fund the expensive infrastructure necessary for economic development, but this is surely to misunderstand the nature of the relation of infrastructure to the rest of the economy. No country develops by estab- lishing an infrastructure and then finding an economic use to which to put it. In nor- mal circumstances, the infrastructure grows organically, pan i passu with the rest of the economy. The world is replete with giant infrastructural projects without eco- nomic justification, many of them financed by development aid. Such projects are not merely useless, they are harmful.

Those who advocate development aid surely have a duty to examine its practical consequences. In an increasingly psycho- therapeutic cultural milieu, little distinc- tion is drawn between doing good and feeling good; but it is as well to remember that what are small sums for rich govern- ments may be huge sums for poor govern- ments. It is not sufficient to assume that aid, whose few billions the rich countries will not miss, can do no harm and may do some good. Casual sentimentality among the rich can devastate the poor.

The pauperising effects of subventions to poor countries are seen in sharpest relief in Tanzania. For many years, aid has provided Tanzania with more than twice as much foreign currency as its own exports. Satire is redundant where Tanzania and its Western (notably Scandinavian and World Bank) supporters are concerned: the reali- ty is truly Swiftian.

It was aid which made possible the resettlement at gunpoint of a considerable proportion of Tanzania's rural population within two years, with many millions of poor peasants herded into villages against their will to the hosannahs of the compas- sionate of Uppsala, Copenhagen and Sus- sex University; it was aid which paid Nyerere and his self-appointed elite to extend their ruthless control over every aspect of life in Tanzania; it was aid which built the factories which, at immense expense, not only failed to produce any- thing, but drained the rest of the economy; it was aid which paid the deficits of the state-owned agricultural procurement cor- porations whose position of monopsony made it uneconomic for the peasants to grow produce for export; it was aid which allowed the gross over-valuation of the Tanzanian currency, to the great advan- tage of the rulers, and their favoured groups who had access to dollars at the official exchange rate, and to the detri- ment of everyone else; and it was aid, and only aid, which made possible the continu- ation of policies for 20 years which were predictably disastrous even before they were implemented.

The solution to Tanzania's pauperisa- tion is, of course, more aid, as advocated recently by Mr Perez de Cuellar. This neatly demonstrates the tendency of aid to reward impoverishing policies: the worse everything gets, the better for the aid agencies.

It might be argued that the effects of aid in Tanzania are peculiar to it, and that elsewhere the effects have been different. But this is not so. Aid goes to and through governments, and therefore increases the powers of patronage of politicians, civil servants and their associates — a patron- age which is at the very heart of the prob- lem of countries ranging from Peru, where state enterprises lose the equivalent of an eighth of the annual GNP, to the Soviet Union, arid from Mozambique to India. The resultant politicisation of life diverts the energies and resources of people from economic activity to politicking, and raises the stakes — for both winners and losers — in the struggle for power. People's eco- nomic and even physical survival comes to depend on the outcome of the political struggle and on administrative decision.

Furthermore, aid in practice provides no worthwhile political leverage: there is no country whose government is so vile, so incompetent, so callous in its disregard of the welfare of its people, so anti-Western, that it has not received aid from the West, whether bilateral or multilateral. While Assad was gassing the people of Hamaa and blowing up civilian aircraft, his gov- ernment received large subventions ($1,736 million between 1986 and 1989). The same is true of Mengistu while he was engaged on a near-genocidal war and behaved with insensate brutality ($2,941 million between 1986 and 1989). Burma, whose vicious military socialist government has reduced its country to the nadir of poverty, has not been starved of funds ($1,455 million between 1986 and 1989). Zaire, the fortune of whose president is said to equal the external debt, received $2,288 million in the same period. Even Saddam Hussein's Iraq, despite its military excesses and wasted oil revenues, received $139 million during those four years.

There is thus no reason to suppose that subventions will help Russia climb out of the pit of Lenin's making. If it consistently and unequivocally pursues market-orientat- ed policies, it will be able to attract direct investment and to raise loans; if it does not, no amount of aid will rescue it. Indeed, aid might then be harmful, for it would rein- force the policies that made aid allegedly necessary in the first place.

Intergovernmental subsidies are demon- strably neither necessary nor sufficient for the creation of prosperity. It is not possible to prove conclusively that they have done, or will do, harm in every case; but they have done enough harm in enough cases to raise serious doubts about them.

In the light of these doubts, it is curious to note the virtually unanimous acceptance of the benefits of aid. Such near unanimity invites enquiry as to its cause, although such speculation cannot in itself shed light on the value of aid.

In the first place, there are powerful interest groups, both in the public and pri- vate sectors, in favour of aid. There are large bureaucracies who administer it, both at home and overseas. Jobs depend upon the continuation and, if possible, the expansion of aid. As the black American professor of economics, Thomas Sowell, puts it:

To be blunt, the poor are a goldmine. By the time they are studied, advised, experimented with and administered to, the poor have helped many a middle-class liberal to attain affluence with government money.

And since much aid is granted on condition that it is spent on goods and services from the donor's country, contractors may bid without fear of foreign competition.

But there is something deeper than mere financial interest at stake. The argument that poor countries are poor because the rich are rich satisfies the widespread crav- ing for personal transcendence in a post- colonial and post-religious age. If Western civilisation can no longer be considered the fount of all that is good in the world, it can at least be considered the fount of all that is bad. For many, it may be more satisfying to be had on a cosmic scale than to be merely insignificant.

As to Russia, it is gratifying for some to think that this great country, with its highly talented people, needs us for its redemp- tion. But it is surely presumptuous and condescending to imagine that people who crave material progress cannot achieve it without our handouts. We would help them more by opening our markets to their pro- duce than by turning them into our pen- sioners.

Professor Peter Bauer FBA is Professor emer- itus of development economics at the LSE. His latest books are Reality and Rhetoric (Weidenfeld & Nicolson) and The Develop- ment Frontier (Harvester Wheatsheaf).

Anthony Daniels is a doctor who worked for two years in Tanzania. His latest book is The Wilder Shores of Marx (Hutchinson).