ECONOMIC ORTHODOXY AND THE POOR: THE CASE OF AUSTRALIAN AID

PCDForum Column #24,   Release date December 5, 1991

by Janet Hunt

As do most aid giving countries, Australia maintains that poverty alleviation is the driving motivation behind many of its international trade and aid policies. In line with prevailing orthodox economic theory these policies view external trade as the driving force of economic growth, which in turn is believed to be the engine of poverty alleviation. Aid is viewed as a complement to trade policy in funding investments that remove structural barriers to growth, target the poor, and fund emergency relief assistance.

A recent study on poverty alleviation released by the Australian International Development Assistance Bureau (AIDAB) places 60 percent of Australia's aid in the category of growth-oriented investment, about 35 percent in the poverty-targeted category and the remaining 5 percent in emergency relief. A clear relationship between economic growth and poverty reduction is implicitly assumed.

NGOs, especially those funded from official assistance, often feel reluctant to suggest that government policies, especially aid, may do nothing for the poor. We do not want to be aligned with those who would cut off aid for selfish reasons and attempt to isolate Australia from the problems of the world's poor. Yet the reality is that in many instances Australia's growth, trade and aid policies bypass the poor and contribute actively to the widening gap between rich and poor being experienced in almost every country of the world, including Australia itself. The following examples illustrate my concern.

Consider the kind of development promoted in Fiji by the type of trade liberalization, foreign investment, and export promotion policies supported by Australia. In March 1989, the South Pacific Regional Trade and Economic Cooperation Agreement was amended to give textiles, clothing and footwear produced in the Pacific Islands preferential access to Australian and New Zealand markets. Between 1986 and 1988 Fiji's garment exports increased from F$4.7m to F$31m, mostly to Australia and New Zealand. The numbers of garment worker jobs increased, but mostly at sub-standard wages and working conditions. In 1990, 83 percent of garment workers received less than A$0.50 (US$0.41) per hour, some received as little as A$0.09 (US$0.07). Workers attempting to unionize face reprisals or intimidation. Industry linkages to the local Fiji economy are so limited that basic clothing items, like school uniforms, are not available in Fiji at reasonable prices. Meanwhile the foreign garment producers remain highly mobile and may move elsewhere once their tax holiday in Fiji expires.

A major item in the growth promoting portion of the Australian aid budget is the Development Import Finance Facility that finances large construction projects implemented by Australian contractors, such as the new aircraft hanger recently constructed for the government of Bangladesh. This is really aid to Australia's ailing metal trades industry.

Another major item under growth promotion is budgetary support for Papua New Guinea's (PNG) government. From 1981 to 1989 debt service was the fastest growing item in PNG's budget, nearly doubling from 11.6 to 22.3 percent. Meantime the budget share devoted to social services dropped from 15.5 to 11.3 percent. Official development in PNG consists largely of government equity participation in foreign mining concessions. A classic example of extractive enclave development, PNG's mining sector employs 1 percent of PNG's work force, imports all its capital needs and most of its expatriate management staff's consumer goods.

Australia is among the industrial countries that profess commitment to advancing democratization--while actively promoting arms exports to Third World countries to enhance export earnings. Often the main use of such arms is to suppress the domestic discontent experienced in places such as Fiji and PNG by people who see no benefit for themselves from the current development model. Australia is also the only country that gives de jure recognition to Indonesia's annexation of East Timor and plays down human rights violations there, a policy motivated by Australia's desire to ensure itself a supply of oil into the next century as its own reserves dwindle. The Timor Gap Treaty signed with Indonesia gives Australia access to oil which is in Timorese territorial waters.

Orthodox economic theory makes it easy to rationalize that policies supportive of the short-term commercial interests of influential international firms and our propensity for wasteful consumption also serve the best interests of the poor. Reality is often quite different. I believe NGOs in Australia and elsewhere must publicly acknowledge this contradiction and speak out openly in support of policies that put fair trade ahead of free trade, constrain the arms merchants, support true democratic participation, and promote broadly based economic development built on indigenous economic enterprises producing for the needs of local people.

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Janet Hunt is director of campaigns and education for the Australian Council for Overseas Aid (ACFOA), GPO, Box 1562, Canberra ACT 2601, Australia; and a contributing editor of the People-Centered Development Forum. This column was prepared and distributed by the PCDForum based on her paper on Australia's national security interests.

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