what is the debt crisis?
- Rich countries started giving loans to poor countries due to modernisation theory.
- This served capitalist interests in the short term.
- Economic crash in the 1970’s / 1980’s meant rich countries couldn’t afford to buy as many goods or as much oil.
- Poor countries lost income and couldn’t pay debts
- Consumerism encourages sustainable debt for individuals too.
- Many debts would be written off if countries adopted IMF and World Bank rules and agreed to change their economy / tax structure.
- Private investment (encouraged by neoliberalists led to poor countries being sued for non-payment.
- This led to increased aid from rich countries, essentially the citizens of rich countries paid off private loans on behalf of those they were meant to have helped.
- Private companies got rich at the expense of all involved, come suggest this is due to their government ties (Seagar and Lewis, 2007)
what are the six boomerangs?
environment= forced by debt to exploit natural resources
unemployment= Jobs have been lost for lack of markets.
migration= Many flee poverty by moving to the north.
drugs= Demand for drugs in developed countries creates a new market.
taxes= People in developing countries pay taxes to write off bad debt.
war= Debt creates social unrest and can lead to war.
what are types of aid?
humanitarian aid= Provided for humanitarian purposes, typically in response to humanitarian crises including natural disasters and man-made disasters.
bilateral aid= Aid given from one government directly to another.
Multilateral aid= International organisations like the World Bank, United Nations and International Monetary Fund, providing aid to LEDC nations.
tied aid= Foreign aid that must be spent in the country providing the aid (donor country) or in a group of selected countries.
describe the debt aid cycle
- IMF / World Bank give investments to build trade.
- Many LEDCs don’t spend it well and default.
- Trade sanctions / war / etc. are imposed.
- Aid is given to allow debt repayment using MEDC middle class taxes.
- Rich get richer (no “trickle down” effect).
- Both trade and aid can be said to increase dependency and “kick away the ladder” from countries wanting to develop.
- This is an example of a marxist theory
- Socialist theories like Samura (2008) highlight several common reasons why aid doesn;t often help development. He claims the issue is that non-democratic governments or criminals get the money rather than the people it was intended for.
what are samuras criticisms?
- Undemocratic or corrupt governments wasting aid through inefficiencies of theft. (Afghanistan)
- Aid is too often used to strengthen armed forces, as recipients are usually in politically unstable regions.
- Projects are chosen without good research. (Iraq, before 1990)
- Projects often damage the environment to make money, so aid is a false economy for MEDC’s. (Brazil)
- Rich foreign “experts” often decide where money goes, without ever visiting or understanding the needs “on the ground”. (Kenya)
- Projects send items / money where they will be abused:
what are alternatives to traditional aid?
- crowdfunding
- individual investment
- Neoliberal, market-driven solutions
what is sole-rebels trade?
- Appropriate technology
- Sustainable development loans go to business and not government
- Introducing comparative advantage
- Benefits the locals / workers
what are the arguments for aid?
- Sachs (2005), argues for a big push of large-scale, focused and integrated aid to lift developing countries out of poverty.
- Collier (2007), estimates that over the past thirty years, aid has added one percentage point to the annual growth rate of the countries in the “bottom billion”.
- Bauer argued that third world countries are responsible for their own poverty (this has been challenged on ethical grounds).
what are the arguments against aid?
- Neoliberals argue that aid creates dependency
- Neo Marxists view aid as imperialism
- Aid can encourage corruption
- Social Democrats believe that aid can work, but is often inappropriate or inefficient. There have been many examples of aid which has not contributed to development:
