A new approach to overseas development
The United Nations has a target for developed countries to spend 0.7% of their Gross National Income (GNI) on Official Development Assistance (ODA). The UK had previously set this target, then reduced it to 0.5%, but now targets returning to 0.7% in 2024-2025.
Some commentators criticize the UK, and indeed the USA, for contributing too little to the development of poorer countries, but the amount the two countries give is much higher than the figures show. The statistics only show what governments contribute (£15.2bn), but data from the World Bank shows that £23.6bn is paid in remittances from the UK, with £10.6bn in charitable donations. People who came here as immigrants send money to their families back home, and thereby make a significant impact on their domestic economy. The same is true in the United States.
Furthermore, this direct person to person aid does more economic good than government to government aid. As Professor Peter Bauer pointed out, government aid signals to ambitious people in poor countries that they must turn to the government to improve their lot. People who might otherwise go into business or start businesses themselves, turn instead to seek contracts from government or positions within government. There are also fewer opportunities for corruption and waste in person to person transfers of wealth, although some smaller fraud has occurred. The money goes straight into the local economy and helps to fund things such as education, as well as raising living standards.
There is something else that works. It is the low tax, light regulation model that boosted Hong Kong from abject poverty into first world affluence. It did the same in Singapore, in Taiwan, and in South Korea. It was behind the West German “Economic Miracle” of Ludwig Erhard, and of Japan’s rapid post-war recovery.
The UK should boost development in poorer countries by the two things that we have ascertained work in practice. It should encourage person to person aid transfers from UK people to their relatives in poorer countries. This could be done by giving such contributions the same kind of tax relief that goes to those who make donations to registered charities through Gift Aid. An allowance would be set at such a level as to avoid this generous tax relief being used for tax avoidance or overly advantaging those whose families live abroad.
The UK could also collaborate with poorer countries to have an area, preferably including a port, assigned on a lease of perhaps 30 or 50 years to a consortium, solely at the invitation of the host. It would be a freeport and much more. The governing consortium would set the levels of taxation, and run the area’s policing and judicial administration. They would determine its property laws and its regulatory structure. The aim would be to recreate what Hong Kong and the others did. With the right conditions, property rights and rule of law, international investment would pour in, creating both businesses and jobs locally. Local people would rush to work or live there because of the opportunities.
There is little doubt that untrammelled enterprise would achieve far more than development aid has managed to attain after decades of effort. Combined with incentives to augment person to person transfers, this could set poorer countries on that upward path to affluence and increased prosperity.