Community Scoop

Beyond aid versus trade – what’s the combination that gets results?


Josie PaganiJosie Pagani
Council for International Development

I was in an ornate windowless room in Sweden last month with a handful of Social Democratic leaders when German economist Max Roser told them some good news; in 1981 more than 50% of the world population lived in absolute poverty – this is now down to about 14%. ‘Still too many, but good news’. Poverty, he said is now falling more quickly than ever before in world history.

The prime ministers clapped.

And then he showed his next slide; a screen grab of his twitter feed showing people’s responses. Hundreds of them, with  messages like ‘Thank you capitalism’ and ’The free market works!’

Max turned to the leaders and said ‘Why aren’t you guys taking the credit for this?’ The free market left to its own devices isn’t what created this success. ‘Managed capitalism’ and the right policy interventions at the right time made it happen.  Without those interventions, the poorest people in the poorest counties would have remained at the bottom, no matter how successful capitalism was elsewhere.

At the Council for International Development’s annual conference on October 27, we’re going to give the floor to some of the best thinkers in New Zealand and ask them to identify those policy interventions that work when it comes to trade and aid. Not the old way of thinking where aid advocates are pitted against trade advocates, but what is the combination that gets results?

A lot of time has been spent on trying to understand why some countries are poor and others rich.  Sometimes it seems obvious. In the 1970s, Korea and Argentina had about the same GDP, and similar economies built around agriculture. Fast forward forty years, Korea has shot ahead of Argentina. In Korea, governments had invested in innovation, skills and IT and selling high value TVs to the world. In Argentina they stuck to exporting low value beef.

The real challenge is to identify each policy intervention that preceded Korea’s success.

When it comes to aid budgets, we need to understand the role that aid can – and can’t   – play in helping create success stories like this. Aid certainly played a part in lifting Rwanda out of poverty and conflict, for example, to become the tech-hub of the continent today, but what was the most effective use of aid? Maybe at that time it was funding post-conflict programmes to prevent a return to genocide and war, rather than aid funds for trade capacity.

Recent media articles in the UK, including in the Telegraph, have suggested that aid in the United Kingdom might be used as a tool in negotiating favourable trade deals for Britain, post Brexit. This would be a bad use of aid, and nothing to do with supporting the capacity of the poorest countries to trade.

Some things we know: that aid for trade works best when it targets the poorest people where it can have the biggest impact, and when there is a joined up government approach based on both poverty reduction and encouraging economic growth.

Goal 8 of the Sustainable Development Goals (SDGs) explicitly calls for an increase in aid for trade, particularly targeted at the least developed countries. Economic development alone is no guarantee that people’s lives will be improved. But with the right policy interventions, and the right use of aid budgets, success is more likely than not.

Max Roser’s statistics prove it.

This blog has been contributed by a member of ComVoices

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