Essay on State's Role in Economic Development: Neo-Liberalization & Globalization

Introduction

The state is the main agent for development in every country. This role has been changed over time by the dynamics of neo-liberalization and globalization. The relationship of the state and the economy translates into infrastructure development, the advancement of the legal framework, capital formation, and legal frameworks that need to be performed. The non-governmental organizations that form the second engine of the country's economy have a great role to play (Singer, 2009). In times when the state is not able to serve the citizens to satisfaction, donors come in to offer these primary services in the form of loans, aid, and grants. This paper evaluates the impact and significance of foreign aid on the economy of developing countries.

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Developing Countries and Foreign Aid

Foreign aid that is extended to developing countries is primarily meant to help them develop and fulfill their development projects (Riddell, 2008). The foreign aid is mostly acquired from former colonial powers that are meant to strengthen bilateral relationships between the colonial states and their colonies. Foreign aid comes in Africa in several forms that include support for infrastructural projects, budget support, debt relief, and technical support of numerous projects (Acemoglu & Robinson, 2012). It may be offered as a grant that may not need repayment, a loan to be paid at a low-interest rate over a long duration, and financial contributions from UN institutions as well as regional banks.

The loan is classified in thematic areas that include people-centered investment and support to the environment conservation and support extended to non-governmental organizations that are involved in food security, migration, and human development practices. The aid may be directed to the local population to support them in health, housing, and education. The aid to civil society organizations promotes good governance practices, human rights protection, and conservation of natural resources.

Views on Foreign Support

Several entities have criticized foreign aid to developing countries because it has been viewed as a strategy for exploitation and self-enrichment (Acemoglu & Robinson, 2012). The elite people in these areas are the big beneficiaries leaving the intended parties in the same squalor conditions. Liberals believe that donors have hidden interests in their attempt to support impoverished nations where some assets are donated to these nations that are incapable of lifting them from poverty. As such, the nations are put in a state of rotation where donor funding is received every year, but no tangible progress is achieved on the ground.

According to Riddell (2008), foreign aid is not only incapable of reducing poverty but fosters dependency. There was a little change slightly three decades ago through economic neo-liberalism that demanded democracy, and every nation was required to embark on the journey of political reforms that would make institutions adhere to good governance and uphold respect for human rights. These are conditions that would encourage development and ensure self-reliability for the populace. As such, the political orientation of every nation was a key determinant of the amount of aid it could receive.

Therefore, the aid could only be extended to nations that went above board in ensuring fair elections and multiparty systems that advocated for a democratic atmosphere. The foreign aid was also prioritized to nations that had experienced wars, genocide, and longtime conflicts to speed up initiatives of peacebuilding and empowering new political formations as well as civil society organizations (Singer, 2009). Other factors that were considered for aid funding include present security threats not only because they undermine the ongoing projects but also derail the interest of donors in developing countries (Acemoglu & Robinson, 2012). It is very easy for nations to receive funding towards stopping environmental threats, human trafficking, and gender-based violence because they have a connection with poverty and lack of development.

Exploitative Foreign Aid

Abundant literature has given several sources that indicate foreign aid has failed. A common concern is that foreign aid is a short-term venture that does not offer a long-lasting, sustainable solution. Several factors, both internal and external, have made it impossible for foreign aid to focus on people's welfare but a scheme to enrich the few elites (Acemoglu & Robinson, 2012). Former colonies and western superpowers have imposed the models of political structures in Africa. As a result, some quarters believe that it will take the initiative foreign nations to set priorities that encourage African development for these economies to flourish.

Foreign aid remains the last resort for most developing countries because its procurement has not commendable outcomes. Kumar (2019) observes that foreign aid will only be beneficial if it positively impacts the investment of developing countries. Therefore, foreign aid should help developing countries to import capital goods, acquire new technology, and should not affect the rate of saving. The impact of foreign aid depends on the nature of political institutions put in place because it is viewed to decrease returns.

The mode of foreign aid disbursement is also a hindrance because it is too lengthy and fails to meet the set deadlines for projects in developing countries. This is the reason we have projects running into years without completion so that it can positively impact society. The flow of foreign aid is also unpredictable, and this does not encourage good governance, hinders articulate government expenditure, and development of institutions that are accountable in developing countries (Acemoglu & Robinson, 2012). The high-interest rates hurt the growth of countries being funded because even after long term relationships with the IMF, several African countries like Ghana heavily depend on gold export and cocoa.

Even though foreign aid has necessitated access to social amenities like health and increased school enrollment, the quality of services in these facilities is wanting. Foreign aid is supposed to solve various challenges, but in most cases, it has been difficult to be factored into long term budgeting because of its unpredictability and volatility. Donors have shown a tendency to release funds meant to solve specific problems other than government priorities that are set within the financial year as per the schedule of the government. This reactive act to calamities in developing countries has failed to set up progressive projects that ensure an improvement in the state of living of these citizens.

It has been taunting to pinpoint where foreign aid has achieved tangible outcomes. It enhances poverty eradication and increases the flow of cash even though it does not benefit the needy directly (Acemoglu & Robinson, 2012). Foreign aid is not evil perceived to economies of developing countries, but it should focus on strengthening national currency, lower the rate of inflation, and reduce devaluation of the economy. Foreign can only yield positive results if it focuses on improving the lives of the poor by supporting various empowerment programs. It should support the government in creating employment opportunities that will, in return, improve the living standards of the citizens (Acemoglu & Robinson, 2012). Foreign aid lacks in many areas. There is a need for donors to work together with governments to achieve tangible results, grow the economy, and create employment.

References

Acemoglu, D. & Robinson, J. (2012). Why nations fail: the origins of power, prosperity, and poverty. New York: Profile Books. doi: 10.3326/fintp.36.3.

Kumar, R. (2019). The business of changing the world: how billionaires, tech disruptors, and social entrepreneurs are transforming the global aid industry. Boston: Beacon Press. Retrieved from https://books.google.co.ke/books?id=BvqPDwAAQBAJ&pg=PR4&lpg=PR4&dq=The+business+of+changing+the+world:+how+billionaires,+tech+disruptors,+and+social+entrepreneurs+are+transforming+the+global+aid+industry.+Boston:+Beacon+Press.&source=bl&ots=QxCNDuXwou&sig=ACfU3U1pi9C0SZq-bPPdhuPvswiBkzbGWg&hl=en&sa=X&ved=2ahUKEwj-vOi02N3nAhW0olwKHaIoDCsQ6AEwB3oECAoQAQ#v=onepage&q=The%20business%20of%20changing%20the%20world%3A%20how%20billionaires%2C%20tech%20disruptors%2C%20and%20social%20entrepreneurs%20are%20transforming%20the%20global%20aid%20industry.%20Boston%3A%20Beacon%20Press.&f=false

Riddell, R. (2008). Does foreignally work? Oxford: Oxford University Press. Retrieved from https://www.cambridge.org/core/journals/ethics-and-international-affairs/article/does-foreign-aid-really-work-roger-c-riddell-oxford-oxford-university-press-2007-536-pp-35-cloth-foreign-aid-diplomacy-development-domestic-politics-carol-lancaster-chicago-chicago-university-press-2007-288-pp-50-cloth-20-paper/9D4A3294BB92510293CDD38FC28A9B9F

Singer, P. (2009). The life you can save: acting now to end world poverty. New York: Random House. Retrieved from https://www.researchgate.net/publication/333671123_Book_Review_Peter_Singer_2009_The_Life_You_Can_Save_Acting_Now_to_End_World_Poverty_New_York_Random_House_1