Tim Worstall :
An interesting little story here about changes in the Official Development Aid system in my native UK. They’ve finally managed to catch up with economic theory and note that it is trade, not aid, which benefits poor people. As, of course, Angus Deaton, this year’s Nobel Laureate, has been saying for some time now. We don’t in fact want to be shipping off gargantuan sums of money to third world despots. Instead we want to be advising them to not, as in the Washington Consensus, do stupid things that hamper their economies. And once government stops doing stupid things which hamper the development of an economy lo! and behold, that private sector lust for lucre allows the economy to develop.
The specific example here is of solar panels for poor people in rural Africa but that’s what it is, an example, not the important point:
Technological improvements have made it easier to store electricity in batteries, for night use, and greatly reduced the demand of lighting and appliances: LED bulbs use 90 per cent less than conventional ones. The spread of mobile phones in Africa – including the growth of ‘mobile money’ – has made it practicable for companies to collect payment. And there is no shortage of sun, delivered free by nature.
Shapps was convinced by meeting a 62 year-old Tanzanian villager Elizabeth Mukwimba, who he brought to London for the launch. She used to pay $10 a month for kerosene, to light just one lamp: she says even affording matches was hard. Now, she pays half that for solar power from a panel on her roof, provided by a company, that gives her three lights, and charges her mobile phone, which previously she had to get done locally at considerable cost.
Solar power isn’t quite right yet for places that have a grid system in place (although I expect it will be shortly) but it is already the technology of choice for places without a grid. So, yes, install away. But do note what is not necessary. The technology works without subsidy. So, no subsidy need be given from an aid budget. We can leave the private sector to just get on with it.
He hopes that, through initiatives like the campaign, all Africans will have electricity by 2030, half a century ahead of schedule. Unusually, Britain will not be providing much cash, but using its expertise to help governments clear away bureaucratic barriers or import restrictions hindering solar companies’ profits.
Cash isn’t needed: what is is the creation of the correct institutions to allow those private sector actors to get on with it. This brings us back to the Washington Consensus stuff. Don’t do stupid things that hinder the economy’s development. Like, for example, place large tariffs or even any import restrictions upon solar panels. Those solar panels which are going to be the first technology which will give your population electricity, that sine qua non of further economic development.
Or, to emphasise once again, it’s trade not aid which is going to make the poor richer. Clear out the barriers to trade, even if we have to spend our tax money on advising foreign governments how to do this, and stop, as Deaton has said we are, subsidising bad government in those countries by sending vast rivers of cash. Note, of course, that this applies to development aid, not to emergency such.
-Forbes
