Note: This article was written by Miguel A. Rozo on the online magazine IdeasXChange following a panel discussion he moderated on international development in Vancouver, BC. To see the full article and recap of the panel discussion and collaborative workshop click here.

What is the problem with international aid?

Some argue there are problems with Western aid programs for the developing world. They argue that aid may have worsened poverty and encouraged corruption. Meanwhile, others have taken a different approach to alleviate poverty by supporting local talent through entrepreneurship. This is a model that supports programs such as social enterprises and microfinance, instead of seeing individuals in the developing world as incapable of finding local solutions to local problems.

Legacy of colonization and dependence on primary commodities (raw materials)

Poverty and economic stagnation – a prolonged and slow period of economic growth – in the developing world is complex.  It is the result of historical events, external factors, and dysfunctional economies and government institutions. All of these factors put developing countries in a position of disadvantage which doesn’t allow them to compete fairly at the international scale with higher-income countries.

The legacy of colonization affects development. European colonization led to the reorganization of:

Human capital – skills, knowledge and experience possessed by an individual or group of people, viewed in terms of economic value.

Financial capital – economic resources measured in terms of money used by businesses to buy what is needed to make their product or provide their services.

Natural resources – substances or materials such as minerals, water, forest and last that occur in nature and are used for economic gain.

Once many of these former colonies gained independence in the 20th century, many of them became reliant on a few resources, generally raw materials without an added value.

Added value is the money gained at every step of a production of a good – for instance, people profit when trees are cut, when they are processed into planks, when the wood is ultimately turned into furniture and when it is sold in a store. Generally-speaking, those that profit the most are closer to the finished products, which are often times in higher-income countries.

As a result, poorer countries become dependent on the flow of money from these higher-income countries to sustain their economies since they don’t have finished products themselves to sell.

Aid can worsen poverty and lead to corruption if not administered responsibly

Some argue the legacy of dependence from the higher-incomes has continued into the 20th century through international aid. Aid has not always taken into account the local needs of the communities they are working in. According to economist Dambisa Moyo, nearly a trillion dollars in international aid to Sub-Saharan Africa in the 20th century has in fact, worsened living conditions in the continent and encouraged corruption.

This is because aid is often times not monitored and because governments are not compelled to provide essential services for their people. Instead, NGOs and other Western organizations take care of that, which perpetuates a vicious cycle of poverty and doesn’t lift developing countries out of poverty.

Supporting local entrepreneurs and local talent to alleviate poverty

As a result of these policies, some have taken a different approach to international development. An approach that takes into account the needs of local communities by working in partnership with locals by supporting social enterprises and microfinance.