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Government Aid: The Reality Behind the Rhetoric


January 1, 2004
By Pulp & Paper Canada

No, not handouts to corporations, but contributions from the “rich” economies to the poor economies and toward the well being of society. Data from the Center for Global Development [CGD], a Washingto…

No, not handouts to corporations, but contributions from the “rich” economies to the poor economies and toward the well being of society. Data from the Center for Global Development [CGD], a Washington think-tank, suggests a surprising scorecard, with smaller European countries at the top and the larger economies at the bottom of a composite index. However there are useful messages in the index subsets indicating performance in areas of trade, environment and investment. Getting behind the rhetoric provides another perspective to the soft side of trade, branding and corporate or national image. Consumers may pay more attention to this picture when making choices — especially considering the messy outcome from the recent Doha Development Round of trade negotiations.

My attention was piqued by a recent report on national generosity, but this time with data behind the rhetoric [see Table]. Here, CGD attempts to rank 21 rich countries by averaging their scores in six development-related policies: aid, trade, environment, migration, investment and peacekeeping. While the US is a big aid donor in absolute terms, it is the stingiest as a % of GDP. Canada scores well on trade and migration, but poorly on everything else. Commentary on individual countries can be accessed from the CGD website

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In both theory and construction, the best components of the index are aid and trade. The CGD study not only adjusts countries’ ratios of foreign aid to GDP, but also adjusts it to capture both quantity and quality. It strips out the principle and interest repayments made by poor countries, because a lot of “aid” is in fact low-interest loans, not gifts. It also discounts “tied aid,” which must be spent on goods and services from the donor country. In trade, the CGD measures trade policy by combining information on tariffs, non-tariff barriers and domestic subsidies. The US scores the top mark on the trade index because its economy is most open; Norway, Switzerland and Japan come in last. The environmental index attempts to capture how rich countries deplete global environmental resources; e.g. by measuring greenhouse gas emissions per head. It also looks at their contributions to clean technology and commitment to environmental treaties. Its authors acknowledge the CGD index as not perfect, but at least a first step in trying to measure the broad topic of aid to the poor. Most importantly, it highlights that aid alone is a poor measure.

A last note to this study may be the growing economies of the BRIC group [Brazil, Russia, India and China]. According to a study by Goldman Sachs, these economies will swamp most of the leading countries in the 21-list above over the next few years — and so become new donor candidates? In fact, China is poised to overtake Britain and Germany around 2005, having already overtaken both Italy and Canada.

Why is this important?

This is a topic that perhaps may not have caught the eye of many in our industry, but closer inspection is warranted. Certainly our industry has a stake in the trade, environment, investment and migration issues that are described in the CGD analysis. In the ever-complicating world of global trade, this could be important. These issues represent soft-value assets and a new area for competitiveness that can be assigned to global brands and corporate culture.

Alan R. Procter provides strategic consulting services to organizations looking for new competitive capabilities. He can be reached through www.alanprocter.com


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