Aid caught in the crossfire, but trade works

Remember the famous 1985 Live Aid concert? It was supposed to end (forever, we were told) the problem of starving Ethiopians.

Just about everybody, including myself I may add, felt good about this initiative.

There were a few dissenting voices at the time who said that food aid gets stolen by whatever military group has a vested interest in feeding its own faction, but nobody listened to them.

However, evidence from Somalia at the start of the 1990s showed about 37% of humanitarian food shipments were looted.

More recently, two distinguished economics professors, Nathan Nunn, and Nancy Qian, from Harvard and Yale respectively, produced a seminal paper on the actual effects of food aid. Their main conclusion is that "an increase in U.S. food aid increases the incidence, onset and duration of civil conflicts in recipient countries."

More precisely, they observed that "increasing food aid by 10% increases the incidence of conflict by approximately 1.14 percentage points."

Finding this result is not a straightforward matter of just looking at food gifts and seeing if conflict follows. It might be that food follows when conflicts arise. This is the classic chicken and egg problem, also known as a causal loop. How do you disentangle the effect of one on the other?

To get around this problem the authors exploited a little know fact about U.S. food aid: When there a bumper crop of wheat, some of it gets automatically stockpiled and sent off as aid the next year.

The automatic nature of this aid cuts conflict out of the causal loop. Mother Nature generates a U.S. bumper crop and no matter what levels of conflict there are, some gets skimmed off and sent as aid. The trick then is to follow this particular aid and see whether conflicts increased in areas that received it.

The authors focused on food aid and not on broader development aid, as it followed the theory that food is easier to steal by armed factions. They found that food aid increased conflict most in countries with few roads. The fewer the roads, the easier it is for bandits to set up roadblocks and rob trucks laden with food, the study found.

None of this means food aid to the poor people of poor countries is never useful or justified. I'm sure there are cases where it's the right thing and, possibly, the only thing to do. But it does mean that we should not be naive about the real net effects that some of our "good intentions" have in the recipient countries.

I think it is pretty clear that our aid money sometimes end ups in the Cayman bank of dictators and can even to go help various ruthless militias in their evil actions.

This is why opening our doors to the agricultural products of poor countries (which is often the only thing they have to offer) remains the best long-term course of action if we truly want to help them rather than just feel good about ourselves with flashy interventions in times of crisis.

In fact, this would help alleviate two problems at the same time. It would cut dictators and their entourage out of the loop because they would not be getting aid money. It would also bring a needed boost to the expansion of the agricultural sectors of developing countries – a necessary step not only to have enough food to eat, but also to accumulate the capital for the development of other industries.

Wouldn't it be great if we could do something concrete to empower the poor of Africa and help them earn a proud living, with the added bonus that we get agricultural goods that we value in the exchange?

Foreign aid is clearly not as helpful as we used to think. On the other hand, trade is almost always a win-win situation.

Michel Kelly-Gagnon is President and CEO of the Montreal Economic Institute. The views reflected in this column are his own.
* This column appears in Sun Media newspapers, published both in several of Canada's key urban markets (Toronto, Ottawa, Calgary, Edmonton, Winnipeg and London) and in its 28 community dailies.

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