Live 8. In a throwback to the famous LiveAid concert, lots of famous artists from Madonna to Destiny’s Child donated their time to throw a huge concert that draws tens of thousands. Why you ask? They must be raising money for a cause, right? Well, that would be half right. It’s for a cause, but what they’re raising is awareness. Yes, my audience, awareness is sure to help the starving children in Africa.
The Live 8 concert is in the same vein as the ONE campaign I spoke of earlier. Good intentions, but, in my estimation, totally misguided. It all seems like a bit of a strawhouse to me. Never one to write an opinion without first finding the facts (*cough* — moving on…), I did some more investigation. Consider me a scientist looking to research my hypothesis.
Firstly, let’s start with the point of Live 8.
This is without doubt a moment in history where ordinary people can grasp the chance to achieve something truly monumental and demand from the 8 world leaders at G8 an end to poverty.
The G8 leaders have it within their power to alter history. They will only have the will to do so if tens of thousands of people show them that enough is enough.
So what is the master plan you ask? That’s a good question. Remember it’s about awareness. The point is supposedly that once we achieve a critical state of awareness, politicians and G8 leaders will fly into action to reduce poverty around the world, although, the focus seems to be mainly on Africa. Among the action plan points is doubling aid, cancelling debt, and delivering trade justice for Africa.
I do believe that the cause is noble, but they are missing the point. Again a failure to grasp economics is fairly guaranteeing that a good effort will proceed unsuccessfully. Let’s flush the action plan points out one by one.
The Make Poverty History site goes into more detail on what they are hoping to achieve by doubling aid. While ascribing to the “more money is better” idea (where have we heard this before?), they also hope to maximize benefits by changing the way it is delivered. They want the $50 billion to be focused on health care and education while eschewing the usual economic strings attached. Indeed health care and education are important. However, the problem in these countries begins with poor infrastructure, pervasive corruption, and an abundance of “kleptocrats.” The first problem with aid is that it usually goes through the African countries’ governments. Portions, if not most, are siphoned into private Swiss or Cayman Island bank accounts, with the rest being divided among those who have curried the most favor with the current regime. Little if any reaches the people who need it most. Ostensibly health care and education seem important cornerstones in pulling a country out of poverty, but let’s examine it. Health care saves people’s lives, although the link to the sustainable growth needed to bring a country out of intense poverty is vague at best. Yes, healthy people are good for providing a work force, but once they’re healthy, then what? Infrastructure and a proper incentive system just magically appear? Education — seemingly important as well. Surprisingly, however, its link to sustainable growth in developing countries is arguable. The governments, in their corruption and intervention, create environments where profit opportunities do not lie in helping the country grow, but in perhaps lobbying the government for favors. This all goes back to infrastructure, physical as well as the all important incentive system. As William Easterly notes in his book The Elusive Quest for Growth, “Schooling pays off only when government actions create incentives for growth rather than redistributions.”
The World Bank and the IMF are constantly chided for attaching strings to loans made to developing countries. The strings usually focus on economic changes — privatization a prime example. Live 8 advocates cancelling all such debt. They note, in fact, that institutions like the World Bank and IMF must “stop asking poor countries to jump through hoops in order to qualify for debt relief.” Further:
Rich countries and the institutions they control must act to cancel all the unpayable debt of the poorest countries. They should not do this by depriving poor countries of new aid, but by digging into their own pockets and providing new money.
Let’s analogize this. Joe walks into a bank. His credit is wretched. He has yet to make a single payment on the car loan given him a year ago. He has made no steps toward securing funding, in this case finding a steady job (a condition for the loan). He has made no changes in his life’s structure, yet, he walks in and asks that his car loan be written off and just be given some money. Laughable, right? Indeed. However, this is exactly what Live 8 and Make Poverty History supporters are asking. What has changed in these countries that suddenly giving them free money will fix? Given the kleptocrats in governance, loans (and, thusly, debt relief) miss their marks. What, I ask, are the chances of the corrupt governments magically using the new (free!?!) money with no strings attached to create infrastructure and build an incentivized economy when the strings attached loans didn’t work?
Delivering Trade Justice
Free trade is something I firmly believe in. However, more often than not, when an organization is talking about “trade justice” it is talking about what it calls “fair trade.” Thus, I was immediately skeptical when I saw Live 8 mention trade justice. Unfortunately, my skepticism was well-founded. From the site:
…[W]orkforces are being cynically plundered for cheap labour by powerful, under-regulated transnational companies, leaving thousands open to abuse and exploitation.
Underscoring my argument for free trade is the idea of comparative advantage. A country’s resources are best and most efficiently invested in areas that they have a comparative advantage in over another country. That is the basis for a trade relationship. Developing countries generally have a largely uneducated workforce. And, yes, given their economic status, are a cheaper workforce than that of the United States. However, they are a workforce quite suitable for industries such as manufacturing. Now we have a comparative advantage — the less skilled workforce has a comparative advantage in widget-making. Global companies realize this and wish to make use of such a workforce. Live 8 also notes that the companies are largely under-regulated. Firstly, most of those countries don’t have the governmental or economic structure in place to make such demands on industry. Perhaps this sounds crass, but is a person living below the poverty line really worried about environmental issues? They have bigger problems including making enough money to make it through the day. Also, any governmental regulations in these countries create more bureaucracy which essentially creates more overhead (read: more money spent on government, less on creating a sustainable incentive system) and lessens the amount of aid (remember all that money the G8 is donated as per the wishes of Live 8?) that actually reaches its intended recipients. The most disappointing part of all is that Live 8 was so close to a necessary cornerstone of helping developing countries — one of the keys IS trade. Free trade. Free trade, while seemingly a way to justify exploiting cheap labor, is a basis of income and standard of living growth.
Most importantly, the money they wish to give (and the cancelled debt money), is really the taxpayers’ money. As wise “investors” isn’t it our place to ask questions, demand that we see a return on investment? Are you willing to give away your money in a cause that tosses economics to the breeze? Because I’m not.
Finally, for my donated time writing this entry, where is my $12,000 goodie bag? Oh, right. I wasn’t a performer at Live 8.