Aid in reverse: how poor countries develop rich countries

Added: 07-17-2018

In this article Jason Hinkel uses new research to combat the ingrained narrative that ‘developing countries’ are benefiting from aid inflows. He explains that the outflow of debt and resource loss in ‘developing countries’ ($3.3 trillion in 2012) is far greater than the total charity flowing into these countries ($1.3 trillion in the same year). 

mistaken debt trade narrative cancel aid payment interest corporate social responsibility (CSR) flow illicit capital outflow invoice

Type Reading Time Author Date Source
article 5 minutes JASON HINKEL 01-14-2017 https://www.theguardian.com/
Type Reading Time
article 5 minutes
Author Date
Jason Hinkel 2018-07-17 00:00:00 UTC
Source
https://www.theguardian.com/
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Key Takeaways

  • More money, about three times as much, flows out of ‘developing countries’ than it does into them annually.
  • We must write off colonial era debts and penalize bankers facilitating illicit outflows of money.

Summary

This article in the Guardian by Jason Hinkel sets out to explain how the typical narrative that the rich help the poor is actually backwards. Hinkel explains that the outflow of debt and resource loss from what he calls ‘developing countries’ is far greater than the total charity flowing into these countries.

He uses data from the Norwegian School of Economics in 2012 that shows ‘developing countries’ received a total of $1.3 trillion, including all aid, investment, and income from abroad. But that same year some $3.3 trillion flowed out of them.

These totals included not just aid, foreign investment and trade flows, but also non-financial transfers such as debt cancellation, unrequited transfers like workers’ remittances, and unrecorded capital flight. Capital flight refers to unrecorded outflows of capital through the international trade system. Basically, corporations will report false prices on their trade invoices in order to spirit money out of ‘developing countries' directly into tax havens and secrecy jurisdictions.

Hinkel identifies large debt payments, $4.2 trillion in interest payments alone since 1980, as a leading cause of this. He also mentions oil and mineral extractions by western companies like BP and Anglo-American as key sources of capital flight. But the largest one he argues is unrecorded capital flight through corporate loopholes and ‘trade misinvoicing.’ Global Financial Integrity research shows that 'developing countries' have lost a total of $13.4 trillion through unrecorded capital flight since 1980.

He concludes that ‘poor countries’ don’t need charity. They need justice. We could write off the excess debts of 'poor countries' and penalize bankers and accountants who facilitate illicit outflows of capital from these countries. Eliminating incentives with heavy taxes on corporations would also support a change in this system problem he argues.