Monday, July 04, 2005

2 Cents on Live 8, Debt and Development

Trade not Aid

The ultimate irony to this past weekend's Live 8 concerts is how they represent the movement of what was once the counter-culture to the mainstream. Geldof and Bono were members of bands (Boomtown Rats and U2) that once offered an alternative to the status quo and now have become the status quo. The purpose of the original Live Aid 20 years ago was to raise money from the people to give directly to the people in need. This year's model was to get the attention of the G-8 political leadership to ask for government programs to "help" the people, eg, more of the same government programs that havent worked in the past.

In fact the first-generation working class punk rock movement in Great Britain, from which U2 and the 'Rats grew, was a reaction to the economics of living on the dole at the time and the need to fight against big brother's control of the economy and make something of yourself. So much for DIY (Do It Yourself).

Asking for debt forgiveness for the governments of the world's poorest on the surface might seem a good idea. But scratch the surface and you find its not. The way the debt forgiveness is worked-out in detail is that for all the debt the World Bank forgives, their coffers will be refilled dollar-for-dollar by the governments that fund the the Bank. In other words, the taxpayers of the member countries will just be asked to poney-up so that again the Bank can lend foolishly. The Bank's loans go directly to governments, not the people, of the poor countries. The World Bank is the ultimate example of the axiom that aid 'takes from the poor in rich countries and gives to the rich in poor countries'.

Forgiving this debt is like giving new credit cards to those who cant manage their money. You and I both know that the minute someone gets out of bancruptcy, or pays off their credit card debt to the point they can afford more, they are given a plethora of new credit card offers at (what seems at the surface) sweet deals. Same thing with debt forgiveness to the governments of poor countries. Only worse.

Because this World Bank debt is offered at below market rates, the governments are encouraged to borrow more than they can invest prudently, and investments are made without adequate returns to cover the debt service payments. Again the taxpayers in both the poor and rich countries are stuck with unintended consequences of a government program whose aim is to 'help'.

Same thing with the Live 8 calls for more rich country development spending. This spending does not go to the people but goes to the governments of the people. And let's be honest, how many of these countries have real representative government and real rule of law that ensures the governments spend money for the good of the people and not for the good of the government leadership itself?

In over 50 years of development spending there have been very few countries that have graduated to developed, or rich, country status. Those that have have embraced free trade and free markets, not international welfare, as the way out of poverty.

Rock stars with their hearts in the right place is a good thing, what is less hopeful is that in this case they have forgotten the ideals that got them where they are. (Fame as a commodity may be said to be priceless). The original Live Aid was DIY philanthropy; a call to the rich country finance ministers to open their borders to the poor world's products would be a better, more DIY, way to help.