by Leila
Foreign aid is not the solution to global poverty given its colonial overtones and limited effectiveness. Neither, however, are microloans equipped to address poverty. Ultimately, Microcredit and Foreign aid are birthed from the same ideological foundation and so are similarly handicapped in terms of effectiveness and morality. Foreign aid and microlending both focus more on bringing development to the poor and serving the donour’s interests than on truly relieving poverty.
Peter Bauer argues in Equality, the Third World and Economic Delusion that the granting of foreign aid is motivated by Western guilt. Western guilt, he says, is based upon the false perception that the West is responsible for the poverty of the Third World – be it through unequal trade, exploitation of labour / resources, or disruptive social practices, such as slavery. Bauer explains that when we adhere to ideas of Western guilt we, “patronize the Third World by suggesting that its economic fortunes…are determined by the West,” and that its future depends “largely on Western donations.”
Bauer claims that the discourse of Western guilt is of Marxist-Leninist origin, and therefore claims that foreign aid is a Marxist-Leninist phenomenon. This analysis misunderstands the politics and theoretical inspirations of Foreign aid. For example, Bauer points out that Marxist-Leninist critique has characterized foreign investment as exploitive and neo-colonial. It is then logically inconsistent for Bauer to claim that Marxist-Leninism would advocate Foreign aid as this often occurs in the form of foreign investment. In truth, rather than support foreign aid, Marxist-Leninist ideology is more likely to criticize its structure as colonial. Strangely, while launched from an opposing political viewpoint, Marxist-Leninist analysis would most likely share Bauer’s sentiment that Foreign aid is patronizing in its suggestion that the “Third World” needs Western donation in order to advance.
Foreign aid is rooted in modernization theory. Modernization theory understands the “underdeveloped” nations of the world as traditional societies. At some point in history all societies were “traditional. ” These societies were able to progress to modern social organization through innovation and technological growth, particularly within a capitalist system where capital is privately owned. Capitalism encourages the individual to constantly strive toward improving her product. Growth is promoted by this push for out-performance, while costs are minimized and efficiency promoted. Therefore, just as modernization and capitalism push a nation to modernity, the poverty of the developing nations can be attributed to their failure to innovate, resulting in technological and therefore economic deficit, and a consequent inability to modernize.
Modernization theory plots the organization of the world’s societies along a two-pole continuum. The traditional society, characterized as redundant and stagnant, is at one pole, while modern society, understood as rational and profit driven, is at the other. As modernist stage theories make clear, such as the one Walt Rostow outlined in 1960, identifying the five phases of the progression from traditional to modern, modernism views the societal continuum as unidirectional; nations begin as traditional and progress to the superior modernized form. The stages do not allow for any type of societal evolution other than modernization.
Since the world’s modernized countries have already transitioned to modernity, it is then the task of these nations to assist traditional, underdeveloped nations to modernize. In order to lend a helping hand technology should be exported while financial institutions provide funding for the “economic development of the poor” and capital is invested (Isbister 30-41).
From here, it is not difficult to see where the concept of Foreign aid is derived. Foreign aid, understood as a means to improve the conditions of life in underdeveloped nations, is couched within modernist thought. It is the practical expression of the theoretical premise that modernized nations are morally obligated to assist other nations to transition to modernization.
In historical origin, foreign aid is colonial. The practice of granting Foreign aid began long before the 20th Century with empires investing in their colonial outposts so as to develop, among other social elements, transportation and local economy. The type of investment changed with the particular interests of the empire but all were designed to bring “civilization” to the “primitive” colonies (Ortiz). These sentiments and practices have lived on in modernization ideology and contemporary Foreign aid. Although “empires” and “colonies” are no longer recognized as such, the practice of rich countries investing in poor, need-stricken countries reiterates the colonial power dynamic. The discourse of Foreign aid’s benevolence has also changed little: now disguised as bringing “modernization” to “traditional” societies, the same idea of “civilizing” the “primitive” societies, for their own good, lives on.
Foreign aid is rarely given freely. In its conception Foreign aid is inherently directive. It is loaded down with an ideology that dictates a Western approach to poverty erradication and understands development as a linear trajectory, with inferior and superior models of society at its extremes. Given the diversity and plurality of the world’s many societies, it is at best narrow to allow for only a two set expression of society; at worst it is deeply neocolonial and exploitive to grant aid money in a directive way that mandates a certain type of social change be achieved. The situation is particularly perverse when actual local needs are considered. Take for the example the indigenous villages of Chiapas, Mexico. In these villages running water is a rarity, education beyond the primary years virtually unheard of and hunger a staple of life. To offer money to those who live the harsh reality of poverty, and then to bind it to a predetermined development scheme, is to manipulate the choices of the world’s most disadvantaged in order to fulfill a personal political agenda; not to offer aid.
Beyond the political agenda fulfilled by Foreign aid, aid also serves the economic interests of Western countries, most explicitly through the use of "tied aid." Tied aid refers to aid given with the stipulation that foreign firms and economic interests be represented in its use. For example, the Marshall Plan, the inspirational Foreign aid scheme which was signed into existence with the Bretton Wood agreement and which distributed US$13 billion across 16 European countries in the wake of World War II, successfully rebuilding post-war Europe, was designed in accord with US political and economic interests (Ortiz). As the US government’s congressional record notes, the Marshall Plan was designed to be of benefit to the American economy; the money granted in aid to Europe had to be used to buy products from the United States and these goods had to be shipped to Europe using American vessels. Furthermore, the record explains that the plan was an unprecedented success because of its political implications. It “stopped the spread of communism” while it simultaneously recapacitated Europe.
Tied aid accounts for virtually all of the aid granted by developed nations . This form of aid is less concerned with maximizing assistance than with guaranteeing the return of funds to the donour country’s economy and ensuring its political goals. In Africa, tied aid means that foreign experts are contracted to design railways rather than local professionals, inflating project costs. It also means that African governments are obligated to purchase U.S. brand name HIV/AIDS medications rather than generic products, thus spending almost $15,000 USD per year more for each patient. Politically, aid delivered to African nations through the African Growth and Opportunity Act has meant that African countries receiving aid from the U.S. were effectively mandated to support the Iraq war (Deen). Iraq itself is another example of politically tied aid. Billions of U.S. dollars have been poured into the country since 2004 with the political objective of developing capitalist federalist democracy. USAID, the American agency for Foreign aid, openly says of itself that it “[USAID] is a key element of the United States plan for victory in Iraq.”
Granting aid in order to serve the political and economic interests of the donor country is economically and morally problematic. In a colonial fashion, it allows the donour country to mold the recipient country so as to serve its own interests. As in the case of eastern Europe and the Marshall plan or Iraq in the wake of the Iraq War, this may mean directing aid money so as to stomp out particular political movements (communism) or to institute other political models (federalist democracy.) This is a violation of the national right to political liberty and autodetermination. Furthermore, the type of political limits that are placed on countries, not to mention the economic ones, can have very real impacts on the effectiveness of aid money. The tying of aid money in Africa has reduced the value of the funding by 25-40% because it has obligated the nations to buy products at inflated prices from the donour nations (Deen). This means that a large chunk of the aid money is directly returned to the countries that originally donated it and that fewer people in the recipient countries benefit. As is concisely expressed in the article Puppets on Purse Strings, as long as aid is tied “rich countries like the U.S. continue to have a financial lever to dictate what good governance means and to pry open markets of developing countries for multinational corporations.”
Microcredit, which offers small loans to impoverished people, is an alternative approach to poverty relief. It has been overwhelmingly popular; 2005 was named the year of Microcredit by the United Nations and in 2006 Muhammad Yunus, the pioneer of the microcredit boom, was awarded the Nobel Peace Prize. Microcredit is a personal, feel-good kind of Foreign aid. Overwhelmingly granted to women, Microcredit loans create success stories that are heart touching portraits of families raised from poverty through their own hard work. Microcredit is complimented for its ability to help the poor help themselves, promoting self-empowerment and self-sufficiency. Favorable statistics show that as many as 50% of microloan recipients (who borrow from Yunus’ bank, the Grameen) are able to raise themselves from severe poverty (Bruck).
Microcredit is, however, yet another type of Foreign aid. Its theoretical inspirations are firmly placed within modernist ideology and it is not nearly as benevolent or successful as it initially appears. The idea of microloans is perhaps so heartily received because it addresses what is understood as the root of the transformation from poverty to affluent modern capitalist organization in modernization ideology: it provides funding to the individual to promote small risk taking and upstart capitalism. In theory, this initial production should stimulate competition and the increasing quality and efficiency of the product. Growth, new technology, wealth and the end goal of modernization follow. The exit from poverty, just as in traditional Foreign aid, is understood as being facilitated by financial support and the idea that the “economic development of the poor” will ultimately liberate them.
In this process of development, the women who receive Microcredit are not financially empowered; they are used as guarantees on the loans. Women are the recipients of Microcredit not because it’s beneficial to them but because they have been shown to be more financially responsible, thus ensuring a more likely return on the investor’s money. In fact, research has shown that lending money to women has no significant impact on women’s wages, while those of men and children are boosted (Neff).
Indeed, the overall efficacy of microloans is up for debate on all fronts. Thomas Dichter, a prominent international development thinker, points out that much of the evidence in support of Microcredit is anecdotal and questions the methods used to count it successful, such as borrowers’ ability to repay loans. “[…] Does this automatically mean that Microcredit is a useful intervention in poverty reduction?” he asks. He goes on to say that while Microcredit may marginally affect the lives of the poor, it is a giant and unrealistic leap to then claim that selling, for instance, tamales door to door will allow for entrance into the global economy and ultimate liberation from poverty. A closer examination of the Grameen bank’s success rate reveals the same theme: if 50% of families are relieved of poverty, then another 50% are not. Half of families who receive loans are no better off than before – or have been plunged into debt. Of the half which have graduated from severe poverty, many are still poor and struggle to survive, as graduation is defined only as having very basic needs met (Bruck). Furthermore, the jobs that microfinance create (such as selling tamales) are not sustainable, but rather low-level and labour intensive tasks that do not afford upward mobility (Neff).
While families struggle to create business and repay loans, microfinance companies charge exorbitant interest rates, a practice justified by the phrase, “the poor are accustomed to expensive credit” (Bruck). Yunus’ Grameen bank charges are on the low end at 20%, while ProMujer, a major microfinance institution operating in Latin America, charges an annual interest rate of 84%. The microcredit company Compartamos, active in Mexico, charges an annual rate of 105%. Compartamos’ CEO, Carlos Labarthe explains this common practice: “The only way to have massive impact is to do it profitably” (Bruck). It is not difficult to imagine, however, that even 20% interest could make it impossible for the very poorest individuals to repay their loans, thus further embedding them in poverty. While this may be profitable for the lender, the lender should not be the primary concern. This common practice of charging inflated interest on microcredit loans is contrary to poverty reduction efforts and contributes to microlendings limited efficacy.
Finally, although microlending may incite an individual to work harder in order to free herself from poverty, it can be criticized for holding the world's poorest inhabitants responsible for relieving their own poverty (Neff). The poor's own labour must free them, although hard work is no guarantee of actual relief. If the individual's effort fails, they are left with deeper poverty and debt. In this way microlending assuages the conscience of lending agencies and governments alike, the first of whom can reap the rewards of high interest rates and the second of whom is freed of the responsibility for the ultimate outcome of poverty alleviation.
Both Foreign Aid and Microcredit programs, to the detriment of those in need, are overly invested in the welfare of donours and lenders. Foreign aid infringes on national liberty in colonial fashion by pushing development schemes and imposing political goals convenient for donour nations. The value of the aid money is significantly reduced by restrictions which mandate that the money be spent in the donour country’s economy; restrictions which concern themselves with the donour’s prosperity, not poverty relief. Microcredit economically privileges lenders over the poor. Women are used as loan guarantees, lending agencies profit from high interest rates while poverty is only marginally improved, if at all, and governments are excused from responsibility. Meanwhile, modernization rhetoric continues to glorify the existence of microcapitalist initiatives as a means to development.
Anti-poverty programs inspired by modernization ideology are incapable of fundamentally altering global poverty. They work from the false and oppressive assumption that modernist development is necessary to reduce poverty. They also never distance themselves from the economic interests of those who provide the aid and therefore have only marginal impact. In order for true change to be achieved the very premises of modernization must be challenged. The morality of extreme richness existing in tandem with extreme poverty, understood within modernist discourse as capacitating the exit from this poverty, must be questioned. Limits upon natural and human resources should be considered as well as the destruction that money may reap. Furthermore, the responsibility for poverty, which modernization theory places upon the poor themselves, needs to be reevaluated
Having come full circle, we now return upon Peter Baeur’s idea of Western Guilt. While Baeur was wrong to argue that Western Guilt is an inspiration for foreign aid in Marxist-Leninist ideology he may be right that (1) Western Guilt inspires foreign aid and (2) that the ideas which he ascribes to Western Guilt are promoted by Marxist-Leninsts. While guilt based action gets us nowhere, and we should not be so patronizing as to claim that the “Third World” is dependent on Western nations to liberate it, we do need to closely examine the ways in which Western policy may be actively creating poverty in other regions of the world.
Poverty relief programs based in modernist thought are not relieving poverty in a substantial manner. It is time to challenge these programs at their ideological roots and reevalute the ways in which poverty in the world is both understood and addressed.
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