“There is no question that too much aid has gone to plundering dictators like Jean-Bédel Bokassa [ Central Africa Republic], Ferdinand Marcos, and Baby Doc Duvalier [Haiti]”[1]
Aid is a word that has been used for hundreds of centuries since the spring of human civilization. Aid is a word that has failed to fulfill its fundamental meaning of helping people. Aid is a word that has been used by religious and political leaders to justify the enslavement of, and the murder of, literally hundreds of millions of people. Aid and foreign aid, in particular, should be understood as a menace to capitalism and individualism.
For decades foreign aid has been used to promote and conceal political and ideological interests of the powerful governments toward the institutionally weak governments of the world. Indeed, foreign aid has been a powerful weapon in overthrowing governments since the very first moment aid implied consequences for donors and receiving countries.
Clearly, it would be a mistake to vitiate that foreign aid has been also used for hundreds of antipoverty programs in the most poor and chaotic Least Developed Countries (LDC) of the world, or that it has been used to promote democratic governments, private property and the rule of law. As Professor William Easterly mentions, $2.3 trillion dollars have been used over fifty years in foreign aid programs to promote Democracy and fight poverty. Nonetheless, capitalism is still menaced by corruption, statism, collectivism and altruism[2] of foreign aid.
The process of understanding why such a huge amount of money has been misused should begin with an analysis of the governments and institutions receiving aid. In fact, it is not economically viable to help a country and help them fight poverty when not even their own government understands the complexity of what poverty in fact is, and what do their own people need. And this point is one of the main reasons why foreign aid has proved to be inefficient. Thus, a clear lack of knowledge of the needs of the LDC leads to a waste of resources.
Understanding the economical and ethical costs produced by the unfounded transfer of wealth from rich to poor countries shapes a rational understanding of why foreign aid has not worked efficiently and will never do so.
To perceive aid as a mean of helping the poor has spoiled antipoverty programs and the promotion of Democracy in struggling societies. The idea that altruism is good, and that helping the poor helps the rest of the world, has been a terrible mistake that has squandered hundreds of millions of dollars, and has actually damaged poor countries and their citizens.
In addition to foreign aid, which continues to flow to the LDC, another concern is the increasing influx of private aid and family remittances to the LDC. Private aid and family remittances have caused a massive wealth transfer of billions of dollars that has transformed the economies of the LDC.[3]
Measuring the benefits and effects of family remittances and private aid in the context of the whole world is a futile task that leads to misleading data and wrong deductions. For that reason, this essay focuses on the effects of family remittances in Latin America, and particularly in
Guatemala.
Guatemala is a country of 12,293,545 (July 2006 est.) people located in Central America. It borders the North Pacific Ocean, between El Salvador and Mexico, and the Gulf of Honduras, between Honduras and Belize. Guatemala is composed of 23 different ethnic groups in addition to the Mestizo (mixed Amerindian-Spanish) and Caucasian population. The indigenous population of Guatemala amounts to around 40% of the country’s population.
The median age in Guatemala is 23.3 years. The religious affiliation of the population is Catholic (51%), Evangelical Christians (34%), non religious (14%) and Indigenous syncretism followers (1%).
The income of Guatemalans is divided by a high income population (3.2%), a medium income population (35.9%), a low income population (32.1%) and a population in extreme poverty (28.8%). The annual per capita income of the medium class is of around US$2,000.00; while the income of the lower class is of less than US$ 751.00. The bottom line of the population, which amounts to 28.8% earns an average of US$332.46 per year, which means less than US$0.91 a day.[4]
Having established Guatemala’s background, the essay will now analyze the impacts of family remittances on its society. In particular, it will note how family remittances have caused a fantastic increase in education, health and investment in the rural and metropolitan areas of the country.
In 2006, a total of 918,819 Guatemalan homes received an average of US$309.00 a month, totaling a record US$3,435 million sent by 1,413,486 Guatemalan citizens living outside the country.[5]
The exponential effect of those three billion US dollars resulted in benefits to more than 3.75 million Guatemalans, promoted an increase in investment and created a better standard of living. The segments of society which most benefited were mainly the middle and lower income sectors of the country.
Family remittances are an engine for development in the LDC and, in this case, in Guatemala. They have been used to pay for goods, savings, investment, educational costs and health expenses. To be precise, 50% of the family remittances sent to Guatemala have been used for the consumption of goods, 14% has been used for investing in entrepreneurial activities, and 36% has been placed in saving accounts in the private banking system.[6]
In addition to improving the welfare of society, family remittances have spurred development in the LDC private banking system. The increase in savings accounts has made it feasible to lower interest rates, creating investment incentives. Family remittances have become an almost miraculous recipe to surpass economic stagnation and institutional deficiencies. It should not be forgotten that the main reason immigration has occurred and continues to occur, is the limited opportunities found in the LDC resulting from the near crisis states of the governing institutions. Of course, underpinning the immigration flow are immigration-friendly policies made in developed countries. The economic benefits of family remittances have clearly shown to be more efficient than foreign aid. They not only have created economic vitality, but have also reduced the inefficiencies in LDC governments and institutions. Nonetheless, corruption and bureaucratic expenditure remain dangerous, social conflicts continue to emerge and the LDC is not yet stabilized. Even though family remittances have somewhat solved some of the foreign aid deficiencies, they have not been enough to completely eliminate poverty in the LDC. The reason is found in the failure of LDC institutions and governments to guide the economies of their respective nations. Family remittances are just a small part of the overall economic evolution.
If the goal of either foreign aid or family remittances is to completely eliminate poverty, it will not work. As it is impossible to avoid the continuing influx of foreign aid from the developed countries to the LDC, it is clear that economic losses and resource waste will continue to grow and magnify. Although it is important to understand the deficiencies of foreign aid, it is also important to understand that is no actual way of eliminating it because of its geopolitical importance as a resource for political pressure. Therefore, as best as possible, the effects of the wealth transfer of foreign aid should be used to promote Democratic institutions and government democratization. Meanwhile, family remittances will continue to evolve into a more dynamic economic catalyst. Basic economic principles explain that economic activity will grow because of the creation of wealth and because of innovation in dynamic societies. Wealth creation and innovation will be more easily achieved in the LDC by a growing and continuing to transfer money by the means of either foreign aid, which should be maximized in its use to promote democratic institutions and reforms even though it has proved to be economically inefficient, or by family remittances, which will continue to be used for entrepreneurial activities, the creation of wealth and more jobs. The main problem that should be discussed is the altruistic intentions that silently have taken charge of the developed world. There is no question that wealth and happiness are some of the highest goals of human existence, but the means currently being used to achieve those goals may, in the end, undermine liberty and individual rights. These altruistic activities, undertaken because of an irrational interpretation of aid as the ultimate moral value of human kind, have already demonstrated how it manifests as a menace for a wealthier and happier human civilization. There is no question about positive effects of family remittances and the unavoidable inefficiencies of the transfer of wealth by the means of foreign aid. What should be discussed are the moral foundations of those activities. Right now most think of altruism as the ultimate form of aid, and not of aid as a component in the creation of wealth. Ayn Rand wisely understood that the matter is not about the difference between giving a dime to a beggar or sack of change to a Least Developed Country with famines and healthcare deficiencies.
“The issue is whether you do or do not have the right to exist without giving him that dime. The issue is whether you must keep buying your life, dime by dime, from any beggar who might choose to approach you. The issue is whether the needs of others is the first mortgage on your life and the moral purpose of your existence. The issue is whether man is to be regarded as a sacrificial animal. Any man of self-esteem will answer: No. Altruism says: Yes.”[7]
[1] Steven Radelet statement at the online debate “The Effectiveness of Foreign Aid” held by the Council of Foreign Relations. November 30, 2006. Information retrieved on November 30, 2006 at http://www.cfr.org/publication/12077/effectiveness_of_foreign_aid.html?breadcrumb=%2Fpublication%2Fby_type%2Fonline_debate
[2] In this paper, altruism is defined by Ayn Rand who expressed that “the basic principle of altruism is that man has no right to exist for his own sake, that service to others is the only justification of his existence, and that self-sacrifice is his highest moral duty, virtue and value.” Faith and Force: The Destroyers of the Modern World. Philosophy: Who Needs It (1982). 74; pp 61.In other words it must not be confused as an expression of kindness and good will.
[3] “According to the World Bank’s Global Economic Prospects 2006, in 1990 remittances to middle- and low-income countries amounted to about US$31 billion. Fifteen years later, they are estimated to have reached US$167 billion. Workers’ remittances now account for about 30 percent of total financial flows to development countries (table 1), are more than twice as large as official development assistance, and represent the equivalent to 2.5 percent of the gross national income of the developing world.” Pablo Fajnzylber and J. Humberto López [4] United Nations Development Program (2005). Informe Nacional de Desarrollo Humano. Guatemala,
Central America.
[5] International Organization for Migration (2006). Encuesta sobre Remesas 2006: inversión en salud y educación. Guatemala, Central America. p19.
[6] Álvarez, Lorena (October 27, 2006). Remesas sostienen a 918 mil familias. Newspaper El Periódico. Guatemala,
Central America. p33.
[7] Rand, Ayn (1982). Faith and Force: The Destroyers of the Modern World. Philosophy: Who Needs It. 74; pp 61.
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