Making Foreign Aid Work for Struggling Nations

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Liane Hansen speaks with Nancy Birdsall, President of the Center for Global Development, about lessons from past attempts to help impoverished countries improve their economies. Birdsall recently co-authored the article "How to Help Poor Countries."

LIANE HANSEN, host:

Next month, the United Nations will hold yet another world conference to address the reduction of world poverty. In advance of the session, John Bolton, the newly named US ambassador to the United Nations, ruffled some feathers by proposing to set aside a call for the world's wealthy nations to significantly increase aid to impoverished countries. That likely will deal a blow to the UN's stated objective to cut world poverty in half by 2015, but it may also prompt consideration of new ways to provide help. Nancy Birdsall, is the president of the Center for Global Development here in Washington, DC. She's the co-author of the article How to Help Poor Countries in the July-August issue of Foreign Affairs. When we spoke with her earlier this weekend, she explained how wealthy countries can best help poor ones.

Ms. NANCY BIRDSALL (President, Center for Global Development): The most well-known approaches to helping poor countries have to do with money, giving aid and with improving their access to markets; the trade approach. And those things are important, but what we concluded in our piece is that what's also important is to tremendously broaden the agenda. The evidence is that, if you're looking for long-term growth, a real transformation of societies, we've got to recognize that aid can only help. It can't be the fundamental driving force. What really matters is the decisions made within those countries and their ability, institutionally, to sustain a good policy environment, accountable government, all of the factors that make it possible for people to improve their own lives.

HANSEN: Give us an example of where this has worked.

Ms.-BIRDSALL: Well, a--very interesting examples that everyone's aware of now include India and China. Vietnam is less well known, but it's a country that has grown tremendously in the last decade at rates of 6 percent, 7 percent a year. So we need to understand why is it that a country like Vietnam, which actually had a trade embargo against it from the US until 1994, has done so well, whereas other countries--we use the example of Nicaragua--have not done so well, despite apparent advantages.

HANSEN: So how can the wealthy nations then best help the poor countries to help themselves?

Ms. BIRDSALL: Well, aid, as I said, can make a difference. Certainly, it can matter for many countries to have better access to our markets. The fact that we have these agricultural subsidies which impede the ability of countries in the poorest parts of the world to sell their agricultural products to us, it does matter. But what needs to be emphasized more, including at the United Nations in New York next month, is a whole set of other issues where the rich world can be, and is, doing harm to the poor world.

A good example is our ...(unintelligible) greenhouse gas emissions. The fact is that global warming is and will be very costly for developing countries. And because they're poorer, they'll have less ability financially and institutionally to adjust to the difficulties that global warming will bring. Think of a country like Bangladesh--is already possibly being victimized by more volatility in weather, more monsoons.

HANSEN: We were in a ga--an age of globalization and there really has been a proliferation of international trade agreements. Do they help? Or do they actually hurt the poorest countries?

Ms. BIRDSALL: It's a mixed bag. They can certainly help the richer poor countries; what we call the middle-income countries. Take the example of Brazil, which has been able in the last few years to do very well in products like soya, in part, because of its ability to exploit expanding global markets. On the other hand, countries like Cambodia and Bangladesh, with the liberalization of trade and the entry of China into the market and the greater access of China to our textile market, they're now suffering because of competition with China itself.

HANSEN: You also talk about the idea of perhaps instituting some kind of temporary worker program that, indeed, allows workers to go to another country with the proviso that they return back to their own.

Ms. BIRDSALL: We could see tremendous gains for many of the world's poor if they had somewhat better access to working in rich countries. You know, the Ethiopian taxi driver who manages to get himself to Italy will see a sixfold increase instantly in his income.

HANSEN: But then there's no incentive for him to go back to Ethiopia.

Ms. BIRDSALL: The trick is to take into account that we actually do need more unskilled labor. Our pension systems could benefit in many ways from having more unskilled--or more workers in societies where fertility is falling. One approach is to think through how to have temporary arrangements with incentives, perhaps managed by the sending country, to--for people to return, so that those who return make it possible for their cousins or the next generation to have more ability to come.

HANSEN: You've spent your professional life working on these issues. Are you hopeful that the lessons that have been learned in places like Southeast Asia and the Asian subcontinent--are you hopeful they can be applied to places like Central America and parts of Africa?

Ms. BIRDSALL: Yes, actually, I am. I think we've seen a lot of healthy change in the last decade. We see countries now in Africa and in Central America where the old bugaboos, like inflation, have been beaten back; where there's a new energy around developing political institutions that are more accountable to people; where democracy is spreading. We see countries eligible for the United States' new program, the Millennium Challenge Account, that many Americans have never heard of probably. Mali, Mozambique, those countries are eligible because they are taking steps to meet the needs of their people, because their governments are reasonably transparent and honest, and because they have quite good, business-friendly setups where the private sector can thrive. That's a big change from 20 years ago. So, yes, I see the chance for progress.

HANSEN: Nancy Birdsall is president of the Center for Global Development. Along with Dani Rodrik and Arvind Subramanian in the July-August issue of Foreign Affairs, she wrote the article How to Help Poor Countries.

Thanks for coming in.

Ms. BIRDSALL: Thank you, Liane.

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