Brendan O'Connor (Gorton, Australian Labor Party) Share this | Link to this | Hansard source

Mr Deputy Speaker, I hope I am not interfering in your conversation with the previous member, but I understand your sentiments. Can I turn to the matter before me and the grievance I have to raise this evening. This week is Anti-Poverty Week and tomorrow is the International Day for the Eradication of Poverty. Therefore, it is timely to assess the effectiveness of the Millennium Development Goals. They are, of course, noble and well intentioned, but looking at the progress towards those targets I have to say it is very unlikely that any of them will be reached by 2015. Some say that is partly because not enough support is provided, and that may well be true. This might have some validity, but we need to challenge the types of solutions proposed. Don’t get me wrong—I join with others who, in debating a private member’s motion today, were criticising the shortfall of support provided by the Howard government, but I think it is important that we get the prescriptions right. Let us dispassionately determine the best approach.

When measuring the likely success of the Millennium Development Goals we must apply some simple economic principles. In my view, it is an application requiring a soft heart and a hard head. I am not convinced of the economic prescription of, for want of a better term, the Geldof–Bono bunch, but they have an important role: they highlight the plight of the poor and the starving throughout the world, they inspire citizens of wealthy nations to acts of generosity and tell them its their problem as much as anyone’s. But it is far more important that the actions of Australia and of the international community are guided by hard-headed analysis and by an honest look at the evidence.

It must be said that sub-Saharan Africa’s progress towards the MDGs is lagging behind with respect to every single goal. Food insecurity is still high, universal primary education is the exception for many children and the health situation is inadequate, especially for birthing mothers and young children. This poor overall performance can mainly be explained by the poor economic performance in many African countries. In the 1990s the region experienced a decline in GDP per capita of 0.6 per cent per year. Even improved government regulations and policies cannot accomplish the task of reaching the MDGs with this weak economic performance.

It is therefore crucial to face up to the possibility that foreign aid as it stands and the way that it is delivered might not be a sufficiently effective means of achieving MDG1. The growing consensus is that there is no relationship between foreign aid and economic growth. That raises three interesting issues. Why does aid fail? Why has the World Bank persisted in describing aid as growth oriented and what do we make of that persistence? And do the MDG aims or goals in some way avoid aid failure? Aid fails—insofar as there is no detectable systematic relationship between aid and growth—for several reasons. Aid can fail because of corruption. Aid can fail because it is of the wrong type. Thus no-one expects emergency humanitarian aid to effect economic growth. Similarly, no-one regards the massive US aid to Israel as having anything other than US foreign policy objectives.

According to the Geldof-Bono view, aid fails because it has not been tried—that is, the reason for the failure of aid is that its magnitude has been grossly insufficient. But that last explanation really is unconvincing. There are many countries, for example Bangladesh, for which aid has been massive and sustained, and the development impact has been negligible. Finally, aid fails because aid is fungible—that is, it is interchangeable with similar items. I will use an example to illuminate that contention. Imagine that the recipient government intends to build a school. Imagine that the aid donor bears the cost of that. That frees government resources to, for instance, buy tanks and guns so that, in effect, the aid finances the purchase of the tanks and guns. More generally—and this remark applies particularly to program aid—aid might leak into tax cuts or lower tax effort, or into non-developmental programs and objectives.

Second, why has the World Bank persisted in describing aid as growth oriented and what do we make of that persistence? The World Bank has focused its activities this past dozen years around a proposition, statistically buttressed by a now famous 1996 study, which seemed to show that, while aid fails on average, this average relationship conceals a pattern where aid works when accompanied by good governance and good economic policies and it fails badly when these conditions are not met. The truly disastrous news for the World Bank is that this complacent approach has been fundamentally and fatally undermined. The key statistical result is not robust to small variations in the data or in the method of measuring governance or policies. It is not robust. It is not reliable. It is, in retrospect, appalling that the World Bank based its activities so heavily on such a flawed foundation.

Finally, do the Millennium Development Goals in some way avoid aid failure? There is good news and bad news here. The bad news is this: there is much in the statements surrounding the MDGs which attempts to elude the aid-growth problem and to assuage ‘Chicken Little’ environmentalists by saying that the goal is not growth but poverty reduction. I believe that is patent nonsense. As an aid community, we have no means of targeting income inequality in developing countries. We have never had any means of doing so. Growth is the only game in town. The only way in which you will get substantial numbers of people out of poverty is by growth. There are, to my knowledge, no historical counterexamples. Advocates of the view that this objective can be achieved through poverty reduction and not growth do a grave disservice to the aid effort with their claims to the contrary.

The good news is this: imagine that we admit that aid is not always the best tool to produce economic growth. That is fine; we need other means. But what that argues for is a thoroughgoing reorientation of aid as a vehicle of international economic statecraft. We should stop trying to promote growth with aid and instead turn aid to the other MDGs, especially clean water, better healthcare, lower infant mortality. Carefully targeted and well-managed aid can improve these problems substantially. It is just not so good, apparently, at provoking sustained economic growth.

I must raise the question of debt. There are circumstances in which international debt might constitute a debt trap. And there are circumstances in which it might be immoral to insist on debt service, particularly when debts were incurred by corrupt, oppressive, undemocratic regimes and when the funds were stolen by the regime leaders rather than invested for the benefit of the population. But it is important to apply sensible economic principles in the analysis of the role of debt cancellation. Three arguments can be made which indicate that debt cancellation might be of secondary importance.

First, debt cancellation is weak aid. Debt cancellation is analogous to program aid, and program aid is probably the least effective form of aid. It is analogous in that debt cancellation frees resources for other uses in precisely the same way that program aid does. It is least effective because it carries the broadest scope for fungibility—that is, the interchangeability with similar items. I raised the example before about the way in which aid can pay for a school and governments then go on to spend that money on arms.

Second, debt is not always bad. There is a compelling but utterly unconvincing analogy with personal debt which is made in much of the anti-poverty proposals—that is, that debt servicing is a drain on resources. But the analogy is not always convincing. PNG is a resource-rich, capital-poor country. To develop those resources requires access to a pool of capital. That pool is not generated domestically in PNG. Of necessity, PNG development requires international debt or some equivalent claim on part of the future stream of output. We see nations like PNG running up debt. That does not imply exploitation. It does not mean that resources are being wasted on debt service. The debt service is the price to be paid for the development which it permits.

Third, debt is an imperfect resource allocation indicator. Development resources and effort should be guided by need and by scope or capacity for success. These things do not necessarily or even approximately correlate with indebtedness. The volume of foreign debt is a bad method to decide the allocation of resources between countries.

It is an important week and it is important for us to assess the real methods we should use to eradicate poverty in this world. (Time expired)