Foreign aid funds corruption new study reveals

A new report released today, Make Poverty History: Tackle Corruption (download PDF from the Centre for Independent Studies website), examines the correlation between foreign aid and corruption in developing countries. After analysing data from 2005 Corruption Perceptions Index, economist and emeritus Professor Wolfgang Kasper reveals,

‘A major cause for the rising tide of graft is foreign aid. Aid rarely reaches the poor and is rarely cost-effective. Despite assertions by well-paid foreign-aid lobbyists, unconditional foreign aid has failed. Thus, huge aid flows to Africa have only rewarded incompetent despots and kleptocratic elites, whereas absolute poverty has plummeted in India and China, countries which have received comparatively little foreign aid. In countries which derive over half their national budget from foreign aid transfers -- as is now the case in many African and South Pacific countries -- genuine democracy has no chance.’

Kasper continues, ‘My analysis shows that entrenched corruption occurs in countries with poorly protected private property rights, over-regulated markets, and a poor rule of law. In addition, two other factors contribute to the rising tide in bribe-taking: oil and gas wealth; and Western military intervention in Afghanistan, East Timor and Iraq resulting in highly corrupt regimes –– and with it many angry young men and hence political instability.’

Countries that have the least amount of corruption have high standards of probity in government, writes Kasper. Examples of these countries include Singapore, Estonia and Chile, and Australia. Some countries -- including the United States, France and Japan -- have had some corruption, but poor countries tend to be more corrupt than affluent countries. ‘Many Third-world societies are still entrapped in a bleak cycle of corruption, injustice and dire poverty,’ says Kasper.

He observes that there is hope for reducing corruption: ‘Many young people are now becoming freedom and corruption fighters, who no longer share the fatalism of their fathers in the face of corrupt officials, oppression and poverty.’

‘It is time to listen to Third-World corruption fighters, confine overseas aid to emergencies, such as Asia’s tsunami in 2004 and Pakistan’s earthquake in 2005, and tie all aid to stringent conditions of corruption control,’ Kasper concludes.