Source: The Globe and Mail, Monday, Jun. 01, 2009 07:09AM EDT
By Paul Collier
Our aid program should focus on meeting new infrastructure priorities in the country.
In 2008, three decades of unprecedented global prosperity came to an abrupt end. During this period, countries such as China and India rose out of poverty and moved into the rich world. But others, with a population of more than one billion inhabitants, stagnated.
The central challenge of foreign aid is clearly lifting this bottom billion out of poverty - the countries that missed out on development.
The Canadian opportunity to assist this effort lies in Haiti, where Canada is the second-largest aid donor, and which is a classic country of the bottom billion. What's more, much of the heavy lifting has already been done - the Brazilians have provided 9,000 peacekeepers, ensuring stability, and the Americans have provided Haitian exporters privileged market access, opening new economic opportunities.
The government of Haiti has recently decided to seize this rare chance to create jobs by attracting foreign firms into light manufacturing. The key bottleneck to this effort is infrastructure, without which firms cannot produce competitively.
Is private finance queuing up to provide this infrastructure? No, it is looking to public agencies to provide the necessary finance and guarantees that would make the remaining risks acceptable. To do so, they need immediate outside financial support. They need strategic aid. And here is where Canadian aid can play an immediate, tangible role.
Bureaucracies hate change and are good at avoiding it. But either the Canadian aid program is speedily refocused to meet the new infrastructure priorities of the country it is intended to assist, or it is business as usual disguised by a fog of well-meaning words.
There is a simple reason why aid matters for fragile, impoverished countries: They are extremely short of capital, and private finance is reluctant to take the risks. During the 1990s, the World Bank scaled back lending on infrastructure in Africa on the expectation that private finance would fill the gap. Instead it was filled by the government of China on contractual terms that were opaque and potentially disadvantageous. On three different measures the rate of return on private investment shows up as being higher in Africa than any other region of the world, yet even at the height of the global boom private capital inflows were modest. Now is the time for public capital.
The case of Canada in Haiti provides an ideal example of the modest but serious role that foreign aid can play. Put simply, it is to reinforce positive local forces for change.
It has happened before. In the aftermath of the Second World War much of Europe was in ruins, economically and politically fragile. Thankfully, the American and Canadian governments did not say to Europe, “Good luck, you're on your own, just use the capital markets.” They used the full range of policies. Trade policy was used to open North American markets to European exports. Security policy was used to stabilize the peace. Governance standards were set to help Europe to avoid populism and autocracy. And yes, aid was recognized to be part of the solution.
There is no doubt that aid as it has been organized to date has fallen far short of its potential and has sometimes done real harm. Until the end of the Cold War aid was basically geopolitical so nothing much could be expected. Since then it has been in a learning phase during which big mistakes have been made. Donors have been too prescriptive in trying to set policies, and too pusillanimous in not insisting on clean governance. In the aid-giving countries citizen understanding has been so limited that aid policy has sometimes been the plaything of political gestures. But now is not the time to declare failure; it is the time to get serious, and get it right.
Coinciding with the recently announced reforms to the government's development policy, now would also be an ideal time to start a wider conversation about the role and future of Canadian aid.
As critics are quick to point out, we need to recognize past failures in foreign aid. But this is not a reason to declare the whole idea a failure, but to instead recognize that aid needs to become radically more strategic. Canada, in Haiti, has an opportunity to do just that.
Paul Collier is professor of economics at Oxford University and author of The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It.