12 April 2018

Foreign aid can work. Free trade always works


Penny Mordaunt, the International Development Secretary, has announced an overhaul to the UK’s international aid budget. In an attempt to justify its growing budget, Mordaunt will argue that international aid should work to benefit the UK economy. Aid money will be used to help African companies raise debt in local currencies through the City of London, and to facilitate British companies selling and directly investing in less familiar markets. Dfid’s aim is to facilitate pension funds’ investment in emerging countries by helping to smooth regulations and to make companies creditworthy.

This is a welcome shift. For far too long, government largesse has been used to fund schemes which have nothing to do with eradicating poverty such as anti-smoking programmes in China and helping the Ethiopian Spice Girls in their bid for stardom. Moreover, the shocking revelations about the abuse of some of the most vulnerable people in the world by Oxfam employees — an organisation which now frequently acts as a Momentum-style pressure group — called into question how taxpayers’ money is being spent.

The UK is a rich country. It is also an incredibly generous country. And so it is right that we are concerned about helping the poorest people on the planet to escape poverty. International aid, especially in the aftermath of war and natural disasters in one way in which the UK can help the developing world. Done properly, international aid can play an important role in helping to eradicate poverty around the world.

However, international aid is not the most effective way to help the developing world to move from poverty to prosperity. There is another way which would lift the poorest out of a life of grinding poverty and subsistence while also bringing about Mordaunt’s goal of boosting UK business: free trade.

As the UK prepares to leave the European Union, the government an unprecedented opportunity to examine its trade policy and to forge new free-trade-based relationships with the EU and with the rest of the world. Free trade has brought economic prosperity and lifted millions of people out of poverty in a way which is unmatched in human history. Free trade not only benefits all countries involved economically.  but also promotes peace and goodwill between those countries. Therefore, the UK should aim to pursue free trade with countries all over the world.

However, the UK might face opposition in the form of protectionism. If such a situation were to arise, the UK should pursue a policy of unilateral free trade with less economically developed countries. Free trade brings economic prosperity to all parties involved. If the UK removed all tariffs on its imports from developing countries, this would be incredibly beneficial for some of the poorest people on the planet.

Progress has been made over the years in abolishing tariffs on imports from developing countries into the EEA. However, there are still barriers to entry in the form of regulatory standards which can make it difficult for individuals and businesses in the developing world to export goods. Leaving the EU and the Customs Union gives the UK the opportunity to be even more generous towards these countries by adopting a more liberal approach to certain standards.

Pursuing a policy of unilateral free trade with the developing world will open up new markets in the UK for producers from these countries. Rather than simply selling raw materials, they will be able to add value to their produce and create ever more specialised and sophisticated products. This will create more jobs and increase prosperity in these countries. Embarking upon unilateral free trade will help to lift some of the world’s poorest people out of poverty and will help to bring prosperity and stability to developing and fragile states. It is the morally right thing to do.

Removing barriers to entering the UK market will encourage producers in these countries to export more of their products to the UK. This will result in cheaper goods for consumers and businesses. As a result, people in the UK will be better off. They will have more money to save and to spend on other products. Lower prices on imports — and the increase in consumer spending which would result — would also be very good news for UK businesses. It would allow them to hire more staff, thus reducing unemployment. It would also allow them to spend more money on research and innovation meaning that they create new products which people in the UK — and the rest of the world — want to buy.

The fact that the government wants to help the poorest people around the world in a way which also benefits the UK should be welcomed. It can do this by removing barriers to entering the UK market from the developing world.

Ben Ramanauskas is a Policy Analyst at the Taxpayers' Alliance.