Over-reliance on foreign aid as opposed to tax revenue, says Sophal Ear, a leading expert on post-crisis economies, leads to corruption.

Sophal Ear: Well, I’ve studied over the years the problem of aid effectiveness and how foreign aid has become a kind of permanent fixture in so many developing countries.  And the ones where it’s most egregious is really the countries where taxation and overall domestic revenues, how much money the country collects in revenues on its own, is in the low double digits, for example, especially in Africa, but also in Cambodia.  And as a result is not able to finance its needs.  And so it brings in foreign aid to do that, which is the purpose of foreign aid, but you see, if that continue forever, then that means the country is not really collecting the resources needed for its national development.  

When you see corruption being equal to the foreign aid in magnitude, you start wondering what is exactly going on in the minds of leaders and why they’re not collecting taxes.

And I’ve argued that there is a relationship between taxation and accountability, especially if you’re trying to have a democracy.  Because if you are not taxing people, then they are not entitled to representation in your mind or they don’t pay your salary and therefore not listening to them is a result of all this.  And so the length between taxation and accountability is broken and democracy as a result is hurt, which I don’t think is good in the long term for sustainable development and growth.

I think the volume of trade for countries that are able to get into the global commons by participating in the… in global trade, really means a lot to them.  I mean, Cambodia, for example, at one point, exported $3 billion of garments a year and received at most $1 billion worth of foreign aid.  The $3 billion worth of garments represented 350,000 jobs, direct jobs, more than a million people benefited as a result.  So this is far more meaningful and far more sustainable, I would argue, than foreign aid, which is . . . often time comes as a handout, causes problems like corruption and conflict over the aid itself between and among agencies.  

So trade is essential for, I would argue, the sustainable development of countries. 

Directed / Produced by
Jonathan Fowler & Elizabeth Rodd