Here's an awkward truth: many of the Australians most concerned about the prospect of a Chinese military base in the Solomon Islands are the same people who supported massive cuts to Australia's foreign aid budget. Welcome to the consequences of your decision.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
Continued cuts to Australia's aid budget by successive governments of both political persuasions have reduced Australia's ability to project influence in the Pacific. Australia is far from being a global superpower. But the Pacific has always been a huge opportunity for Australia to be the custodian of a region whose strategic importance throughout history has often far outweighed its size in both economic and population terms.
Being seen as the custodian of the Pacific would increase Australia's global importance in the same way Indonesia's and South Africa's importance is enhanced by being seen as the custodian of ASEAN countries and the voice of Africa in forums like the G20, respectively. Make no mistake: Australia's failure in the Solomon Islands doesn't just weaken our relationship in the Pacific, it weakens our relationship with the big global players, particularly the United States who now see Australia as a bystander, not a leader, in Pacific affairs.
None of this is the fault of the Solomon Islands. The simple reality is that developing countries need external financial support to reduce poverty and save lives. When a significant chunk of your population is living below the poverty line - as is the case in the Solomon Islands - you aren't going to care where it comes from.
If Australia and other western countries are unwilling to provide financial assistance, these countries will quite rightly look elsewhere. And this is exactly what has been happening. Today, developing countries owe more money to China than they do to the "Paris Club" of rich countries, combined. This is a remarkable turnaround in global economic history.
So, why did Australia cut foreign aid when the strategic risks of doing so were so high and so obvious? Two main reasons were put forward, both political, neither compelling.
The first argument was that the government should be spending money on needy people in Australia rather than overseas. This might be a reasonable argument up to a point, depending on your values. But surely that point was crossed long ago. Ask yourself: what ratio of foreign aid to domestic spending would you be comfortable with? Perhaps 1:20 such that we spend 20-times more at home than we do abroad? What about 1:50? or 1:100? Is that enough?
If you think any of those numbers sound reasonable then I've got news for you. The actual ratio is 1:150 - we spend 150-times more at home than we do on foreign aid. This ratio is increasing. And don't forget: the money we spend on foreign aid has a much bigger bang-for-buck in alleviating human suffering than it does at home. Foreign aid saves lives at a pretty low cost. Data from the Australian Bureau of Statistics shows that disadvantaged people in Australia need much more financial support, and much more than just financial support, to help overcome their challenges.
People in the developing countries, on the other hand, are much cheaper to help. It only takes a small amount of assistance to help them get a foot on the ladder. If you believe all people are equal - or even if you believe that a foreigner is at least worth more than one 150th of an Australian - then you support a more generous foreign aid program.
MORE ADAM TRIGGS:
The second argument made to justify Australia's cuts to foreign aid was that foreign aid doesn't work. This is a bizarre argument. Asking whether foreign aid works is a bit like asking whether government spending works. It's an odd question. Whether government spending "works" or not depends on how you spend the money and what you are trying to achieve. The same is true for foreign aid. The correct question to ask is not whether foreign aid works, but under what circumstances foreign aid achieves its development objectives.
The argument that foreign aid doesn't work often stems from what economists call the micro-macro paradox. The paradox is that foreign aid is often highly effective at a micro (project-by-project) level when well targeted to clear development objectives. But at the macro (whole-economy) level, we struggle to see a strong relationship between how much foreign aid a country receives and the overall development of that economy.
This might be surprising for some. For macroeconomists, it is not surprising at all. It's often very difficult to find one-for-one relationships at the macro level. This is because economies are complex, correlated, and have lots of moving parts. Finding relationships is always difficult. Macroeconomists posit, for example, that there is a negative relationship between inflation and unemployment (the Philips Curve) and that there is a level of unemployment below which inflation starts to increase (the non-accelerating inflation rate of unemployment). Economists are rarely able to prove either of these relationships exist empirically, yet Australia's monetary policy is set with these relationships in mind.
The other reason for the macro-micro paradox - which should sound alarm bells for foreign aid over the coming years - is that much of the world's foreign aid was historically not motivated by poverty reduction. Rather, a big chunk of the world's foreign aid was provided during the Cold War to prop up governments and shore up geopolitical support. It's no wonder we struggle to find a relationship between foreign aid and poverty reduction when, for much of it, poverty reduction wasn't even the objective.
Geopolitically-motivated aid is the risk the world currently faces. The battle between China and the West to win political favour with the world's developing countries will almost certainly see a decline in the quality of foreign aid. Australia shouldn't fall into this trap. Using foreign aid to prop-up governments and win geopolitical favour instead of reducing poverty is short-termism at its worst. The people who watched the USSR and United States fund the dictators and despots who ruled over them don't generally have favourable views of either country.
Australia's foreign aid needs to be bigger and smarter in the Pacific. Targeted development programs based on rigorous econometric evaluations is only the first step. Our aid program should also include macro-financial supports like bilateral currency swap lines to help stabilise financial systems and boost fiscal space. Supporting regional reforms and frameworks to reduce the cost of remittances, including through crypto currencies and promoting improved cooperation between financial institutions of both countries, is another way to help countries help themselves.
Australia needs to do better. If one good thing can come out of the Solomon Islands debacle, it is hopefully this: that Australians can finally put to bed the idea that foreign aid is a waste of money.
- Adam Triggs is a Director within Accenture Strategy, a visiting fellow at the Crawford School at the Australian National University, and a non-resident fellow at the Brookings Institution.