What is said below contains incorrect assumptions and is mostly a shallow diagnosis of the problems facing Nepal and its people. Essentially, the argument is that with a ranked system of Most Developed to Least Developed, someone has to lose out, and that remittance is a good tactic to improve Nepal’s GDP.
By all accounts Nepal seems to be a country making little-to-no progress. Thomas Bell recently labelled the phenomenon “Nepal’s failed development” in an article posted on Al Jazeera. He cites a number of reasons as to why this is and questions the logic behind continually, and often naively, pumping money into a system which seems immune to its effects.
In a very similar vein to Dambisa Moyo, who I have spoken about previously here, Bell highlights the failings of international donations, and the system that it seemingly perpetuates.
Nepal as an LDC
Bell states that: “Nepal has been receiving foreign aid for over 60 years; generally running at fairly stable levels, currently worth over $1bn a year, contributing about a quarter of the government budget.” Despite this enormous sum of money however, Nepal’s achievements have “fallen far short of what’s been promised.”
In 1991 USAID predicted that Nepal would graduate from the ranks of the UN’s Least Developed Countries (LDC) by the year 2001. 14 years on and Nepal still finds itself in the list. The new target year for graduation is 2022, and Bell states that “on current form, it’s likely to miss that target” too.
This should concern us, but the fact that Nepal looks set to remain a LDC should be seen in context.
In the year 2000, the UN had 48 nations on its LDC list. In 2005 this list had grown to 50. By 2010, it was down to 49, and by 2014, the list had returned to 48 once again. At its most basic reading, this tells us that not a lot of progress has been made, but should we be looking at this a little more critically?
As is the case with any ranking system, there exists lower ranked countries, teams or organisations due to the fact that there must exist higher ones. It is only by having one, that you can have the other. The LDCs exist, quite obviously, because the Most Developed Countries (MDCs) exist. The two are contrasted and compared against one another, and a ranking system is formulated.
In the English domestic football system there are four main tiers. The 20 highest ranked teams, and the best teams, play in the Premier League. These are then followed by the next best 24 teams who play in the Football League Championship. Next are a further 24 in Football League One, and following that there are another 24 teams in Football League Two.
Now any football fan will tell you that they would love to see their team rise through the tiers and progress year after year, moving from the bottom of Football League Two right up to the lofty heights of the top of the Premier League. Even football fans though are aware that such a rise would come at the expense of other teams around them. In order to win games and gain points, other teams will have to lose and not gain any. In order to get promoted from the ranks of Football League Two, a team from Football League One will have to get relegated. This is similar to how I see the ranking system for the LDCs.
In order for a country to graduate from the ranks of the LDCs it would have to go over a certain threshold. The chances are, if it did manage to get over this threshold, another country would fall under it. One country’s advance would be another country’s retreat. This, however, may not be the case. Perhaps the countries will continue to progress, and each year more and more of them will surpass the threshold that has been put in place. In football terms this would mean that more and more teams would get promoted from Football League Two without any teams from Football League One being relegated.
Eventually though, if this were to happen, Football League One would become bloated. With teams being promoted, and nobody being relegated, the league would grow in size and would soon be at odds with the rest of the ranking system. 20 teams in the Premier League, 24 teams in the Football League Championship, 40 teams in the Football League One, and only eight teams in the Football League Two.
As humans are a species of order, taking a liking to formulations, labels and groups, having only eight countries labelled as LDCs would prove a problem. On paper it would seem quite an achievement, but in reality we would know that there were far more than eight countries considered to be the “least developed.” With all the countries ranked in order of development, these bottom eight countries would be given the title of “least developed”, but what about the country that finds itself one place ahead of these eight? The country that is ninth least developed on the list? Would this country not be welcome in the LDCs list?
Here then is a problem. The ninth least developed country in the world could technically not be considered a LDC as it had passed the necessary threshold. The rankings would become bloated with an unequal distribution of countries and so a solution would have to be found, that solution would be to change the threshold. Increasing it so that more countries find themselves in the list of LDCs.
This is precisely what happens. In order to maintain a healthy LDC list, the threshold for graduating is increased year upon year. Meaning that even if the countries were to progress and develop, it may still not be enough to allow them to graduate.
One of the three criteria that is evaluated when deciding which nations belong on the LDC list is that of income. Specifically that of gross domestic product (GDP) per capita. In 2000 “for the low-income criterion, the threshold on which inclusion in the current list is based has been a GDP per capita of $800, and threshold for graduation has been a GDP per capita of $900.” In 2005, the low-income criterion was “based on a three-year average estimate of the gross national income per capita (under $750 for cases of addition to the list, above $900 for cases of graduation).”
In 2010, the low-income “criterion, based on a three-year average estimate of the gross national income (GNI) per capita, with a threshold of $905 for possible cases of addition to the list, and a threshold of $1,086 for graduation from LDC status.” And now in 2015, “the threshold for inclusion is based on a three-year average of the level of GNI per capita, which the World Bank uses for identifying low-income countries. The threshold for inclusion in the LDC category will be $1,035 in the 2015 review. The threshold for graduation is set at 20 per cent above the inclusion threshold. It will be $1,242 in the 2015 review.”
Here we see the difficulty in graduating from the LDC list. Even if a nation were to raise its GDP per capita from $800 a person in 2000, to $1,200 now – an increase of 50% in 15 years – it would still find itself on the LDC list. To put that in to perspective, the UK’s GDP per capita in 2000 was $26,296.45, and at the end of 2013 it stood at $41,787.47. This represented an increase of 59% in 15 years.
This would mean that in order to graduate from the list of LDCs, by the UN’s own definitions, one of the least developed countries in the world would have to secure an increase in GDP per capita at roughly the same rate as that of the UK, one of the most developed countries in the world. A seemingly impossible task.
Furthermore, due to the fact that LDCs only exist because of MDCs, simply matching the growth and progress of the GDP per capita of MDCs is not enough as this will only maintain the status quo. LDCs need to close the gap on the MDCs and this would mean that their progress in terms of GDP per capita would have to be better than that of the MDCs. A seemingly impossible task becoming that much more difficult.
Corruption and the failure of international aid
From the reading that I have done on the topic of international aid, and from the limited experience that I have of it also, it’s clear that the biggest obstacle to a truly successful aid system is tackling the corruption that is within it.
In echoes of what Moyo speaks of in her book Dead Aid, Bell also highlights the rampant corruption within the system, and that despite this corruption “the donors continue to pour money in.” Bell notes that the United States, the European Union, and the United Kingdom have all recently announced major increases in aid to Nepal. This is in spite of the fact that Nepal has “plummeted down the Transparency International corruption table”, finding itself ranked joint 126th out of 175, below China, Sierra Leone, and Vietnam.
In no other arena of human activity would rampant corruption and meagre successes bring about an increase in funding, yet in international aid, this is exactly what happens. Corruption, poor results, and a lack of accountability are rewarded by ever greater sums of money being transferred to the country year after year. It is this problem which Moyo attempts to rectify with her suggestions in Dead Aid, though I believe that her suggestions are in fact just as dangerous.
An key tactic in the battle against poverty, which is often overlooked, is the issue of remittance. Moyo comments on it briefly but does not take her argument to its logical conclusion, instead deciding to highlight its benefits, before moving on to something more complimentary to her own poverty alleviation strategy.
In Bell’s article we also hear of the positive effect that remittance has in Nepal. Bell states:
“The main reason for recent progress in poverty alleviation is clearly remittances from migrant labourers, which have risen rapidly to be worth around 25 per cent of GDP. Nepali workers go abroad because the domestic economy is ruined, and the money they send home is spent on private health and education, because the donor-supported public sector is useless.”
It is this remittance effect that I believe is the greatest tactic to poverty alleviation. It is something I spoke highly of in a previous article, where I suggested that aid should take a more remittance-like approach in its methods of work. Charities like Give Directly are showing just how beneficial peer-to-peer direct giving can be. The opportunity for corruption is removed, the most needy receive money directly allowing them to decide what would be the best investment, and the overheads are kept to a minimum as very little staff or organisational costs are needed to be covered.
Until I see evidence to suggest otherwise, I believe that remittance-style direct giving is the greatest tactic that can be used in the fight against poverty. A poverty that will never be defeated entirely, because as I made clear earlier, there will always be LDCs and MDCs, but a poverty that is at least a lot fairer than what we have now.
Those at the front of the pack, the ones leading the charge, are the nations who are most developed, and largely free from poverty. Instead of continuing to run off into the distance, perhaps we should slow down and help some of our fellow runners, in particular the stragglers at the back. They do not need targets to be set and milestones to be reached, they need a helping hand. And if we weren’t so caught up in the race to be the best, perhaps we could supply that to them.
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This article was originally published on CulturedVultures on 08/04/15