Global warming, fair trade, debt relief, aid to Africa...whew what else...

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Ok, this post is about debt relief. I'm just going to post my point of view vs. some competing points of view I've seen brought up. Again, without a crystal ball I don't think there's any way to know which answer will turn out to be correct, so I'm trying to be careful in saying that these are just my opinions, which may or may not be right.

Argument - Africa will lose their credibility and thus opportunity for financial stability if their debts are simply cancelled. While it may be painful for them in the short term, it will be better for their economy in the long run if they tighten belts and pay them off. Also, if debts are simply cancelled they may well just end up with new debts and perhaps even come to expect that these new debts will also be written off. Another argument - they accrued these debts, so they should have to pay them off. That's just justice.

My POV - In less dire circumstances, I might agree. After all, the US decided to repay its debts to Britain after the Revolutionary War when they were a young poor country, in order to establish credibility. In light of the more extreme situation in many African countries, though, I think their situation is a bit different. They have no belt to tighten, no fat to cut. In some cases countries are struggling simply to pay the interest on these debts. This creates a poverty trap where resources cannot be spent on development, they must go towards paying off old debt. As a result, new income is not being generated that could potentially help alleviate this debt. (And Purpleoscar - I'd just like to note that I did not mean the West has caused Africa's infrastructure problems, only that debt repayment is hurting their ability to address these problems). In terms of the fairness of them not paying back their debts, well, my thought is that sometimes we choose mercy over justice. I can't say it's what will be the most profitable financially for the US, but not every decision should be based on that.

I'd also like to add that if we simply write of debt willy-nilly and then stand back and wait for the improvements to roll in, well, we'll be waiting a long time. I definitely think countries should be held to some standards in terms of stable government and attempts at rebuilding their economy before we grant debt relief. Also, there need to be simultaneous interventions here. Debt relief is great but other factors such as infrastructure, trade reform, public health, government, etc., will all have to be addressed as well in order for this to go anywhere. I will admit this situation is tricky and delicate at best, but I believe there is a lot of hope and potential there as well.
 
Thanks so much, Ralphie. I struggled w/ the economics portion of my international development studies so for me, it's always helpful to have relevant case studies. I'm still reading through the following articles myself so I have no opinion or conclusion yet, but after reading your posts I wondered about Uganda, since Bono always cites it as a country where debt relief worked. I Googled this for some insight and here's what I came up with:

2000 IMF release describing debt relief for Uganda
http://www.imf.org/external/np/sec/pr/2000/PR0006.HTM

2002 BBC article stating that the IMF plan failed Uganda
http://news.bbc.co.uk/2/hi/business/2572337.stm

2005 BBC article that touches on what was done and whether it worked
http://news.bbc.co.uk/2/hi/africa/4657139.stm

2006 IRIN News article that gives some basic stats on Uganda's debt
http://www.irinnews.org/report.aspx?reportid=58989

Now I need to read these carefully, but I'm wondering does this really work? Does debt relief fix what WE think are the problems, and maybe not address what native people see as problems (i.e, has it trickled down at all)? Are there any other countries (African or elsewhere) that have benefited long term from this type of debt relief?

Any other examples or case studies to share?
 
Here's a conservative article critical on Debt relief and increased aid to Africa as the solution.


Paul and Bono: the magical mystey tour
By Bruce Bartlett
Friday, May 31, 2002
Lately, Treasury Secretary Paul O'Neill has been traveling throughout Africa with rock singer Bono, an outspoken advocate of debt relief and increased foreign aid for Africa. Why O'Neill agreed to this silly tour is a mystery, since it was a virtual certainty that it would only result in increased pressure on the United States -- meaning U.S. taxpayers -- to increase foreign aid. Predictably, Bono berated O'Neill for showing any degree of skepticism whatsoever that increased aid is the sole and exclusive cure for Africa's problems. To be sure, a bit of food and medicine would indeed go a long way toward helping many of Africa's sick and dying. But Bono and others like him are naive if they think that foreign aid alone is the answer to what ails Africa. It is too easy for purely humanitarian aid to become a permanent lifeline. Once started, who is hard-hearted enough to cut it off, knowing that death for the recipient will be almost certain? Thus, one-time aid too often becomes everlasting. Once the prospect of long-term relief is established, it sets in motion forces that virtually guarantee its necessity. For example, food aid to help countries through a temporary famine often drives farmers out of business. How can they sell their produce when wealthy Western countries, often overflowing with subsidy-driven agricultural surpluses, are giving it away for free? Partly for this reason, most nations of Africa have become dependent on food imports, even though they were food exporters not too many years ago. Punitive domestic policies are to blame, as well. It is common throughout Africa for farmers to be forced to sell their production to marketing boards, which pay far less than the world price. This is just a kind of de facto tax that allows the government to reap most of the profit. Not surprisingly, farmers don't like paying this tax. Instead, they farm only for themselves, smuggle their produce elsewhere or simply cease farming altogether. Insecure property rights also discourage farming, as in Zimbabwe, where white farmers have had their land confiscated by the government for no other reason than that they are white. Moreover, rather than distribute this land to the landless, it is often given to friends of the ruling party for their personal enrichment. Still, even with all the burdens placed on African agriculture, it remains an incredibly productive place to farm. Much of the land and climate are ideally suited to growing crops and livestock. Of all the places on Earth, Africa is the least likely to have a shortage of food based on its natural endowments. It is bad government and misguided foreign aid policies that mainly prevent Africa from being the world's breadbasket. If Western governments really wanted to do something to help Africa, the easiest thing they could do is open their markets to African products. The fact is that domestic subsidies and import tariffs prevent Africans from selling much of their agricultural output in Europe, North America and Japan. These nations, it seems, would rather tax their citizens and force them to pay higher prices for food than allow poor farmers in Africa to sell their produce in their countries. This is an insane policy because it hurts domestic consumers as well as African farmers. By allowing African farmers simply to sell what they have produced in the West at market prices, consumers would have cheaper food and African farming would benefit, possibly obviating the need for aid. A recent World Bank study found that full elimination of import tariffs in Europe, Canada, Japan and the United States would raise African exports by $2.5 billion per year. This is a trivial sum in the context of their economies, but it would lead to a major increase in growth for Africa. Most of the gain would come from opening the Japanese and European markets - - precisely those countries most often critical of the United States for insufficient foreign-aid spending. Of course, the United States could also do a lot more to allow in African goods, despite passage of the Africa Growth and Opportunity Act four years ago. Although most African goods enter the United States at low or no tariff, some of Africa's best exports, such as ground nuts and tobacco, are still very heavily protected. On the other hand, Africa could do far more to encourage trade within itself by lowering its own tariff barriers. Almost all African countries have import tariffs far above those in the West. Encouraging trade within Africa would do much to help that continent, even if Western nations continue to resist opening their markets further to African goods. O'Neill should tell Bono (and Congress) that trade, not aid, is the best way to help Africa.


Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
 
Here's another conservative article about how the west became wealthy despite less technology, and no handouts.

Aid to Africa
By Walter E. Williams
Wednesday, July 13, 2005

British Prime Minister Tony Blair is pressuring the rich nations of the world to give more foreign aid to Africa -- to the tune of $25 billion a year by 2010. The U.S. already gave $3.2 billion last year. In the wake of this pressure, we might ask ourselves whether it's foreign aid that Africa needs most for economic development.

A standard myth is there's a "vicious cycle of poverty" that makes economic development virtually impossible for the world's poor nations. This myth holds that poor countries are poor because income is so low that savings cannot be generated to provide the kind of capital accumulation necessary for economic growth. Thus, it is alleged, the only way out of perpetual poverty is foreign aid.


Let's examine the "vicious cycle of poverty" myth and whether foreign aid is a necessary ingredient for economic development. The U.S., Britain, France, Canada and most other countries were once poor. Andrew Bernstein of the Ayn Rand Institute wrote in an article titled "Capitalism Is the Cure for Africa's Problems" that pre-industrial Europe was vastly poorer than contemporary Africa.

A relatively well-off country, like France, experienced several famines between the 15th and 18th centuries as well as plagues and diseases that sometimes killed hundreds of thousands. In France, life expectancy was 20 years, in Ireland it was 19 years, and in early 18th-century London, more than 74 percent of the children died before reaching age 5.

Beginning in the late 18th century, there was a dramatic economic turnabout in Europe. How in the world did these once poor and backward countries break the "vicious cycle of poverty" and become wealthy, without what today's development experts say is absolutely necessary for economic growth -- foreign aid handouts, World Bank and International Monetary Fund loans, and billions of dollars of debt forgiveness?

The answer is simple: Capitalism started taking root in Europe. Capitalism is an economic system where there's peaceable, voluntary exchange. Government protects private property rights held in goods and services. There's rule of law and minimal government regulation and control of the economy.

Check out the Washington, D.C.-based Heritage Foundation's "Index of Economic Freedom." Heading its list of countries with the freest economic systems are: Hong Kong, Singapore, Luxembourg, Estonia, Ireland and New Zealand. Bringing up the rear as the countries with little or no economic liberty are: North Korea, Zimbabwe, Angola, Burundi and the Congo. It's not rocket science to conclude that economic liberty and the wealth of a nation and its peoples go together, not to mention greater human rights guarantees.

Some economic development "experts" attribute Africa's troubles to its history of colonialism. That's nonsense, because some of the world's richest countries are former colonies, such as the U.S., Canada, Hong Kong and Australia. In fact, many of Africa's sub-Saharan countries are poorer now than when they were colonies, and their people suffer greater human rights degradations, such as the mass genocide the continent has witnessed.

One unappreciated tragedy that attests to the wasted talents of its peoples is that Africans tend to do well all around the world except in Africa. This is seen by the large number of prosperous, professional and skilled African families throughout Europe and the United States. Back home, these same people would be hamstrung by their corrupt governments.

The worst thing that can be done is to give more foreign aid to African nations. Foreign aid goes from government to government. Foreign aid allows Africa's corrupt regimes to buy military equipment, pay off cronies and continue to oppress their people. It also provides resources for its leaders to set up "retirement" accounts in Swiss banks.

What Africa needs, foreign aid cannot deliver, and that's elimination of dictators and socialist regimes, establishment of political and economic freedom, rule of law and respect for individual rights. Until that happens, despite billions of dollars of foreign aid, Africa will remain a basket case.




Dr. Williams serves on the faculty of George Mason University as John M. Olin Distinguished Professor of Economics and is the author of More Liberty Means Less Government: Our Founders Knew This Well.
 
Here's an article that slaps me in the face for calling Bono a hypocrite, but it does so in a way I feel glad to be wrong ;)

Kudos for Bono
A lesson for all on how incentives really work
By David Strom
Monday, January 8, 2007

The Nobel Peace Prize nominee and recently knighted “Bono,” lead singer of the band U2, took a hit to his reputation as an antipoverty crusader a few months ago. U2 Ltd—the band’s publishing company—moved its operations out of Ireland to reduce its tax burden. U2 now shares the same finance company as the famed band the “Rolling Stones,” which incorporated in Holland in 1972.

One of the band members defended the move by noting “Of course we are trying to be tax efficient. Who doesn’t want to be tax efficient?”

Critics from both the left and the right cried “foul.” Liberals complained that Bono—who has been an outspoken advocate of government aid to the underdeveloped world—set a poor example by choosing profit over morality. Conservatives snickered at Bono’s hypocrisy—asking others to contribute more to the world’s poor by paying higher taxes while refusing to do so himself.

It’s easy to smile at the hypocrisy of one of the world’s crusading left-leaning artists—but utterly unconstructive. Taking Bono down a peg might give small satisfaction to those of us who are tired of being lectured at by moralistic celebrities, but the feeling is fleeting.

What if we turn the equation around, and instead of focusing on Bono as a hypocrite, we exalt his case as an example of the working of economic incentives in the real world?

Personally, I don’t doubt Bono’s passion for alleviating the suffering of the world’s poor; in fact, I tend to think that Bono has done more good than harm by campaigning relentlessly to focus attention on the intractable poverty of people in third world countries. Unlike many celebrities, Bono has actually done some real work to put his principles into practice.

More importantly, the recent move of U2’s publishing operations to Holland help to point out the opportunities and limitations of government solutions to social and economic problems.

Instead of looking at the band's choice to reduce their tax burden as an example of human frailty, we should view it as an example of the inevitable limitations on government’s ability to tax and spend its way out of a problem.

Even as genuinely caring a guy as Bono—the recent bestowal of his knighthood was based largely on his dedication to doing good works for others—cannot be taxed without limits. All the best intentions in the world cannot change the fact that human beings and human institutions respond primarily to incentives, not just good intentions.

Looking at and thinking about the human universe in terms of people’s intentions is a fool’s errand. Intentions are essentially mysterious—they occur inside people’s heads and are only available to inspection through what people say and do. In the end, what matters most to the rest of us is not the “why” of how people act but the effect of their actions on the rest of us. And the best way to change outcomes in the real world is not to change people’s intentions—make them “less selfish,” for instance—but to change the conditions under which they make their choices to act. Incentives, not intentions, are the dominant determinant of human behavior.

In our day to day lives the intentions of others take on significance—we often judge the individual actions of our friends and neighbors based at least partly on what we believe they were thinking at the time. But when you are talking policy and politics—about the behavior of vast numbers of people whose intentions and expectations are necessarily opaque to the rest of us—it is far more reliable to think about the incentives we are creating to achieve or discourage a given outcome.

Bono and U2 chose to move their publishing business when Ireland changed its laws in a way that would substantially increase their tax burden. It’s no surprise they did so—and even if they hadn’t, it was entirely predictable that some substantial number of similar actors would do so. Ireland made it more expensive to be an Ireland-based artist, and artists responded by changing their behavior. Decrying the “selfishness” and “hypocrisy” of the artists who did so is about as useful as complaining about the effects of gravity on our ability to flap our arms and fly.

It may be satisfying for a moment to smile at Bono’s apparent hypocrisy in having his business moved to Holland for tax purposes, but conservatives should resist the urge. Bono is doing exactly what free-market economists would predict. We should embrace his example to demonstrate to the economically illiterate the importance of having the right tax structures and incentives to ensure economic growth.

Oh, and that Nobel Peace Prize Bono was nominated for in 2005? It went to Muhammad Yunus, founder of the Grameen Bank, which pioneered the idea of extending micro-loans to individuals in poorer countries to help them start their own business. Yunus has done more to alleviate real poverty in the third world than any foreign aid program ever could. How? Yunus and the Grameen Bank have harnessed the power of the market to help individuals lift themselves out of poverty and build their own wealth--an important lesson on the power of incentives in the real world.



David Strom is the President of the Taxpayers League of Minnesota.

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Ok, rolling several responses into one here:

Here's a conservative article critical on Debt relief and increased aid to Africa as the solution.
Paul and Bono: the magical mystey tour
By Bruce Bartlett
Friday, May 31, 2002

Thanks for locating all of these articles, Purpleoscar! I agree with half of this article (as I'm sure you guessed!), the latter half where trade reform is discussed. I find it a bit frustrating that they make reference to Bono's campaign as being all about foreign aid and debt relief when Bono has also endorsed the ideas they mention in the second half of the article. It surprises me how many journalists go with their general impression rather than taking the time to research someone's actual history. Anyway, minor point. My general analogy for this article would be that of "The Blind Men and the Elephant", where each feels a different part of the elephant and adamantly insists that this is what an elephant "is", when in fact it is comprised of all these parts. Debt relief is one part. Foreign aid is one part. Trade reform is one part. Just my opinion.



Here's another conservative article about how the west became wealthy despite less technology, and no handouts.
Aid to Africa
By Walter E. Williams
Wednesday, July 13, 2005

Again, I think this depicts one aspect of the big picture very well, i.e... "elimination of dictators and socialist regimes, establishment of political and economic freedom, rule of law and respect for individual rights". Again, my humble POV is that all of these things are intertwined with the other factors I've mentioned in my posts. This is the way I envision it - say a person is in a terrible accident with multiple injuries. These injuries go on to cause further complications - infection, blood loss, organ failure, shock. That person isn't getting any better if only a few of the issues are treated. No matter what the original cause, once you have multiple factors that play into one another, you cannot address one without also addressing the others. While capitalism can be the end goal, I think you first have to create conditions where capitalism can exist.

I also think it's a bit unfair to compare Africa to countries that had a wealth of resources, easy access to ports and trade, and entered the global market at a different time under very different conditions.

Here's an article that slaps me in the face for calling Bono a hypocrite, but it does so in a way I feel glad to be wrong
Kudos for Bono
A lesson for all on how incentives really work
By David Strom
Monday, January 8, 2007

I don't have much to say about this article, except thanks for posting it. I agree that U2 did what made the most economic sense for them, and I've never taken issue with the tax thing, so that issue is neither here nor there for me.



I also want to say thanks to you, Liesje, for posting those great articles! I want to respond to those as well but I need a little time to read and digest, so I will be back when I've managed to absorb them properly!
 
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purpleoscar said:
Here's an article that slaps me in the face for calling Bono a hypocrite, but it does so in a way I feel glad to be wrong ;)

Kudos for Bono
A lesson for all on how incentives really work
By David Strom
Monday, January 8, 2007


:drool: :applaud:

that's a great article!
 
I guess one thought I had is that it's really easy to get pessimistic when you let all the bad keep canceling out the good. For example, generally speaking it's true Africa is worse off that it was decades ago. However, you can't deny that new programs like the African Well Fund, ALAFA, etc have made a difference. Kids have came back from starvation and people have gained access to clean water and good jobs because of programs like these. Lives HAVE been saved. I think the solutions will come from examining these microcosms of what IS working and doing more of THAT, rather than only considering the aggregate "Africa" as a single economic unit.
 
Liesje said:
I'm still reading through the following articles myself so I have no opinion or conclusion yet, but after reading your posts I wondered about Uganda, since Bono always cites it as a country where debt relief worked. I Googled this for some insight and here's what I came up with:

2000 IMF release describing debt relief for Uganda
http://www.imf.org/external/np/sec/pr/2000/PR0006.HTM

2002 BBC article stating that the IMF plan failed Uganda
http://news.bbc.co.uk/2/hi/business/2572337.stm

2005 BBC article that touches on what was done and whether it worked
http://news.bbc.co.uk/2/hi/africa/4657139.stm

2006 IRIN News article that gives some basic stats on Uganda's debt
http://www.irinnews.org/report.aspx?reportid=58989

Now I need to read these carefully, but I'm wondering does this really work? Does debt relief fix what WE think are the problems, and maybe not address what native people see as problems (i.e, has it trickled down at all)? Are there any other countries (African or elsewhere) that have benefited long term from this type of debt relief?

Any other examples or case studies to share?

Sorry I took so long to reply! My general feeling after reading those articles is that aid is not good or bad in and of itself, but needs to be applied very carefully. I think there are examples in Uganda where it has gone wrong and it has gone right, and I like to hope and believe it is going right more often now than in the past. I think people are really starting to get savvy to what works and doesn't work when it comes to aid and debt relief and it's being considered more and more when these policies are set. Unfortunately foreign aid now has a long trail of failures in its wake that make a lot of people understandably doubtful, but I think these issues are coming under more scrutiny as time passes.
 
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