Why pro-market solutions to poverty don’t always work

Following recent revelations in the British press about aid money being spent on overpriced consultants , politicians are attacking Britain’s commitment to aid from all sides. Justine Greening, the government’s new international development secretary, has announced that she will personally screen all contracts over £1 million ($1.6 million). And politicians from both Left and Right are rounding on the coalition government’s commitment to direct 0.7 per cent of our national income towards aid, calling instead for cuts to the aid budget.

But debates about cutting aid are spurious, at best. A recent study showed that when members of the British public are asked whether they agree with helping the world’s poorest people, they say yes. In one poll, 62 per cent of respondents thought it was morally right to support developing countries.

When told that Britain currently spends less than 0.6 per cent of national income on aid, and that this will only rise to 0.7 per cent, people are surprised. With all the media attention on the aid budget, most people think the amount is much higher. Forty-seven per cent think we spend between one and five per cent of national income on aid, and a third think we spend between 5 and 10 per cent. And when they are told about some of the key achievements of aid, such as getting millions of children into school, people are generally quite thrilled. Public support for the moral imperative of aid is loud and clear.

Where things fall down is on how money is spent. It is not hard to see why support for the aid budget might wane when one sees consultants being paid massive amounts to ‘help’ those in poverty.

But real value for money is less about a few contracts to consultants, and more about the overall direction of travel of Britain’s international development programme.

In recent years, there has been a growing trend for the department for international development (DFID) to favour private-sector solutions to alleviating poverty. Indeed, it promotes itself as a ‘department that understands the private sector’. Strategies it has used include facilitating the setup of ‘special economic zones’, which give tax concessions to multinational companies and allow them to employ people on wages of less than $1.60 a day, as has happened in Bangladesh. It is also promoting public-private partnerships in the provision of basic services such as health and education, despite this model having been roundly condemned as inefficient when used in Britain.

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Under the guise of supporting low-carbon energy, there are plans to spend over £130 million ($206 million) of public aid money to prop up highly profitable private equity investments in energy infrastructure in poor countries. In the documentation to justify this spending, DFID writes that it wants to ‘avoid being perceived as being too developmental in nature because of the risk of otherwise deterring private sector investors who are looking for good financial returns’, and says it will ensure that there will be ‘no public sector interference in decision-making’.

The nebulous policy conclusion that seems to have been reached is that all private growth is good, and any public expenditure is bad. This has not been backed up by evidence. In fact, the World Development Movement’s 2007 research on water provision in developing countries showed that the use of public-private partnerships actually made matters much worse for local people.

There is, of course, a need to support small community-level businesses. But the government’s ideological pro-private sector stance has led to projects which subsidize the private sector for things they do anyway, effectively providing corporate welfare, while taking much-needed resources away from projects that genuinely need support. DFID put over £12 million ($19 million) into a project promoting public-private partnerships in health, at the same time as cutting funding to the Centre for Progressive Healthcare Financing which focused on universal public healthcare.

We need an open debate on whether or not pro-market solutions really provide value for money in achieving poverty reduction. We certainly don’t need cuts to our support to those who genuinely need it most. Aid is our contribution to building a more just and equitable world, something which the majority of the British public fully support.

Deborah Doane is director of the World Development Movement.