A short comment piece by me has just been published on the Global Herald site on the hoary issue of ‘trade versus aid’. In it, I suggest few really believe that the choice is a stark one between the two. Rather, what is required is ‘smarter aid’ and ‘smarter trade’ – i.e both working together in poverty reduction.
Aid clearly can work – major improvements in health, for example, have been funded by aid (often in conjunction with private sector actors). And even where it has not been successful, or has failed dramatically, trade too has as patched a record as a means for reducing poverty and vulnerability.
The current Eurozone crisis is highlighting the significance of aid. Where there is no trade, what is the alternative? Labelled ‘stimulus packages’ in the rich industrialised countries of the global north, aid for developing countries provides an alternative to declining foreign investment, and to offset falling revenues from lowered imports as demand in Europe drops.
If what is required in Europe is pro-growth investment from the state, the same is true for developing countries, here in the form of ‘aid’. Aid can be the one thing (or the most significant) that keeps economies functioning during the global financial crisis. Moreover, it can help developing countries restructure to mitigate the impact of future economic shocks, and to be ready for when trade picks up again. Rather than reducing aid as donor economies contract and stutter, this is precisely the point at which commitments to increasing and maintaining higher aid levels should be a key priority.
It is a difficult argument to make, politically, especially with the economic news in Europe pointing to a bleak outlook. In many donor countries, the public are voicing increasing opposition to increased international aid. But it is an argument that needs to be made, not just despite the Eurozone crisis, but because of it.