Dark side of foreign
aid and remittances
It does not require a genius to associate oneself
with the laundry list of things that are wide off the mark in the
country. Yet it would seem not altogether futile to bring into focus
one of the most grotesque things about the country – the attitudes
that colour and control the management of the nation’s production
It is hard not be repulsed by the stubborn refusal
of the Treasury – both bureaucrats and their political overlords
- to concede the moral superiority of capitalism, when history has
made plain that the non-capitalistic ways of managing a nation’s
production of wealth can bring down whole cultures and lay them
in ignoble ruin.
If it were true that the underlying attitude of
the Treasury continues to be marked by a blatant disregard, bordering
on contempt, for the expansion of economic liberty, why hasn’t
the Treasury learnt from either history or experience?
The answer, at least part of it, is easily found
in the role which both foreign aid and the remittances we receive
from exporting the poor play in the economy. They make such practices
as deficit spending, politicization of monetary policy and the imposition
of high taxes and duties possible for the Treasury to indulge in
- and to do so without the associated risk of making Sri Lanka another
Foreign aid and remittances, economists say, are
like taxation without representation, or unearned “incomes”,
or lottery winnings. Such “easy money” creates a situation
that is not dissimilar to the one created by the abundance of natural
resources in politically and intellectually backward societies.
The effect is the same - the strengthening
of statist and despotic tendencies.
Thomas Friedman, the author of The World Is Flat,
writing in this month’s issue of Foreign Policy, brings into
sharp focus the effect of “easy money” on political
and economic progress:
“Professional economists have, for a long
time, pointed out in general the negative economic and political
impacts that an abundance of natural resources can have on a country.
This phenomenon has been variously diagnosed as ‘Dutch Disease’
or the ‘resource curse’. Dutch Disease refers to the
process of de-industrialization that can result from a sudden natural
Friedman continues: “The ‘resource
curse’ can refer to the same economic phenomenon, as well
as, more broadly speaking, the way a dependence on natural resources
always skews a country’s politics and investment and educational
priorities, so that everything revolves around who controls the
oil tap and who gets how much from it – not how to compete,
innovate, and produce real products for real markets.”
With remittances from the exported poor expected
to exceed US$ 2 billion this year, covering nearly 80% of our trade
deficit, it is very unlikely that the Treasury would be impelled
to take head on difficult issues like budget deficits, depoliticization
of monetary policy, and tax and tariff reforms.
There is nothing to prevent the citizens from
being made playthings of either the corrupt or the mediocre with
grandiose dreams who imagine that central planning, more than the
markets, could cause the wealth of the nation.
In this, the corrupt and the mediocre are amply
aided by foreign aid, which buttresses not just economic deficiencies
and failures but also the Treasury level hubris and self-deception.
For, we must not forget that the donor countries and agencies are
too entrenched in cultural relativism to be forthright enough to
insist on reform.
Thus, it is difficult to imagine how there could
be any loss of the Treasury’s destructive power anytime soon.
Taxes and duties will continue to be imposed in increasing rates
and in contemptuous disregard for the burden of such an imposition.
The expropriation of the fruits of labour by way
of taxes, duties and tariffs will make business even more mercantilistic
and less heroic - and tax collection will soon have to be carried
out under the pain of imprisonment. The cronies will continue to
be favoured with contracts and tax exemptions and more money will
This was probably what one of the towering economists
of the Left, John Kenneth Galbraith meant when he urged, “the
state must everywhere step in.”
Clive Crook, writing in the National Journal says of Galbraith who
died at the age of 96 on April 29, “Was any American economist
of comparable esteem so wrong -- so comfortably and contentedly
wrong, and for so many years -- as Galbraith himself? I cannot think
of a rival.”
And this from the same article on Galbraith to
end our simple musings on the causes of poverty:
“The book he sometimes said was his best
was The New Industrial State, published in 1967. Its thesis was
that big companies were growing so powerful that consumers no longer
had any say. The basic mechanism of supply and demand was broken.
Consumers just did as they were told. All power resided with mighty
corporations -- such as General Motors. Long before Galbraith died,
and probably even at the time he wrote the book, the falsity of
this idea was plain. (What would General Motors have had to say
these past 20 years about the impotence of consumers?) Galbraith
never saw the need to adjust his worldview.”