Let’s fix foreign aid fiasco

Corruption was long accepted simply as fate. In the West, people began to fight the abuse of political power for private gain once they began to think in terms of inalienable rights rather than privileges granted by some ruler.

The UN’s Convention Against Corruption came into force this year, and the World Bank has appointed Suzanne Rich Folsom as head of its integrity unit, which has begun to name offenders. The Organisation for Economic Co-operation and Development, long on the alert for business co-operation with corrupt Third World practices, has criticised Australian laxity in enforcing clean standards in international business deals, as – coincidentally – the Australian Wheat Board saga of huge underhand payments to Saddam Hussein adds poignancy to a renewed call to clamp down on this evil.

And an evil it is. This is now increasingly recognised around the globe as Western values are spreading throughout the Third World . Young leaders there begin to see corruption as a blight on social stability, liberty, equity and economic growth, and are now doing something about it.

These community leaders, think tankers, journalists and academics are hardly known in the West. Different from jet-setting Third World celebrities, such as Arundhati Roy, regularly on display at chic writers’ festivals and anti-globalisation happenings, they really understand the poor, for they come typically from rural backgrounds or shantytowns. And they certainly do not sing from the Marxist hymn book. They demand individual freedom, secure property rights and transparent government. Corruption is seen as enemy No.1 of the poor, to be tackled head-on if poverty is to become history.

These freedom fighters are now getting help from a club of anti-corruption agencies, Transparency International, a Berlin-based think tank. Part of the effort is the Corruption Perception Index, whose latest estimates were recently published. The index is based on expert assessments of governance practices in 159 countries. It reflects plausibly what is going on.

The index shows that graft is pervasive in poor countries and moderate in affluent democracies, such as Australia . It also shows that the Chinese sage Laozi was right: “The more laws are decreed, the more people will become thieves and bandits.” Countries with low regulatory density suffer less from corruption. And countries with spreading interventionism – such as Germany , France , the US , Malaysia , Venezuela and South Africa – have faced a rising corruption tide over the past 25 years. The evidence also shows that graft is not fate. Singapore , Chile , Estonia , Hungary and South Korea have shown that graft can be controlled, and that more economic growth follows.

Many Third World countries are still trapped in a bleak cycle of corruption, injustice and poverty. The young corruption fighters there have identified one main cause: development aid. The doyen of development economics, Peter Bauer, castigated aid long ago as “transfers of coercively extracted wealth from poor taxpayers in affluent countries to the rich elites of poor countries” and pleaded for not rewarding reckless priviligentsias with handouts. Kenyan economist James Shikwati agrees: “If the industrial countries really want to help Africans, they should terminate this awful aid.” Ugandan journalist Andrew Mwela also agrees: “Aid only conceals the incompetence of our despots.” They and their friends know that genuine democracy has little chance and oppression is easy when half of the budget is foreign-funded, as is the case in many countries in Africa and the Pacific.

The corruption fighters want free trade, not aid. They abhor junketeering Western experts, self-serving pop stars and callous careerist UN agents out to construct elaborate administrations, which the poor countries cannot staff or finance. For them, global initiatives to pump up aid and cancel old debts only prop up oppressive kleptocrats and hinder the emergence of industries that might compete in global markets. Foreign diplomats, who believe they are doing charitable work, are not perceived as their friends.

The international corruption data also points to two other factors behind rampant graft. One is oil and gas wealth. Saudi Arabia , Iraq , Iran , Venezuela and Indonesia have woeful standards of probity in government. The other factor is military intervention. The West has established graft-ridden regimes in Afghanistan , Iraq and East Timor . The reason probably is that military hierarchies only understand command and control; they do not come with blueprints for free-market capitalism. In Iraq , for example, ongoing heavy-handed regulation breeds privilege – and angry young men in the poor quarters.

Aid rarely reaches the poor and is rarely cost effective. Whatever well-paid foreign-aid lobbyists assert, unconditional foreign aid has, more often than not, failed. Because of graft, the $US80 billion ($106billion) going annually to Africa has produced disappointing outcomes, whereas absolute poverty has plummeted in India and China , recipients of little aid.

It is time to listen to the Third World corruption fighters, confine overseas aid to emergencies such as the tsunami, and to tie all aid to stringent anti-corruption controls. And if this is rejected or resented, as Papua New Guinea ‘s Michael Somare keeps doing, we must have the intestinal fortitude to “terminate this awful aid”.

Wolfgang Kasper is a senior fellow at The Centre for Independent Studies and an emeritus professor of economics with the University of NSW . His paper Make Poverty History: Tackle Corruption is released by CIS today and is available from www.cis.org.au.