Monday, January 07, 2008

Inadequate Arguments Against Aid - 2

I was at a development related event recently when, during questions after a presentation, a person stood up and made a questionment which went something like this:

Why are we giving aid overseas when 23%* of our own children, here in New Zealand, are being raised in poverty.
Poverty, including child poverty, is a serious issue in New Zealand, but as an argument against giving aid claiming that 'we have poverty here too' is just silly.

It's silly because, while poverty in New Zealand is real, it is - with only a tiny number of exceptions - nothing like poverty in the developing World. According to best available estimates, close to half the World's population live off less each day than could have been purchased in the United States for $2.16 in 1992. They are, in other words, achingly poor. Comparing the $2.16 figure with New Zealand's own official low-income lines (poverty lines) is difficult for a variety of reasons, but my own back of a very small envelope calculations** suggest that our 60% of median low-income line is roughly 5 times higher than the World Bank's $2 a day line. Lant Prichard, a former World Bank economist, has done the actual calculations, creating a poverty line based on the average poverty lines of the World's richest countries. This won't be exactly the same line as our own, but it will still be an appropriate approximate gauge of poverty in New Zealand. Prichett comes up with a poverty line of US$10PPP/day. So, once again, the difference is a factor of 5. Similarly if you compare any of the human development indicators between New Zealand and the worlds poorest countries it becomes apparent that poverty in New Zealand is a totally different creature to that in the developing world. Infant mortality rates are a fraction of those in developing countries. Life expectancy and literacy are much, much higher...

In short, poverty in New Zealand, while real, simply isn't of the same magnitude or intensity that it is in most of the developing world.

The questionment is also silly because it implies that we spend large amounts of money on aid at the expense of our own domestic anti-poverty efforts. But this simply isn't true. The government currently spends less than 1% of tax take on aid. By contrast it spends 72% of tax take on domestic social services. Granted, not all of social service spending goes to the poor, but a significant proportion does. (On top of this, there are also tax take decreasing schemes like Working for Families). Personally, I wish we spent more on tackling poverty in New Zealand; however, it is just wrong to imply that aid spending is stopping us from doing this. Aid spending is trivially low. And we could increase both aid spending and domestic anti-poverty programmes simply by increasing the top marginal tax rate.

I can't speak for the questionment maker and I guess they must feel differently. But I can't see any reason for valuing the life of a New Zealander higher than anyone else on this planet. I'm willing to concede that the nature of our social contract provides a reason for spending more of our taxes on New Zealanders than on people in other countries. But we already do this. Much, much more. And given that there are people in the world whose needs are unquestionably more acute than our own, is it really asking too much to suggest that we offer them a helping hand?

*The actual number given by the questionment maker was 30%. This is a common misconception. During the height of the neo-liberal reforms the proportion of of our country's children who lived in households earning less than 60% of the median income rose as high as 35%. However, it has dropped significantly since and now sits around 23% (source).
**Namely: (1) The fact that the World Bank's line is a consumption poverty line not an income line; (2) The fact that the World Bank's line is corrected for purchasing power parity - to obtain a correct comparison we would have to, rather than exchange rates, use a PPP calculator to change from USD to NZD; (3) Issues with household equivalence ratios. Using the back of a very small envelope, substituting market exchange rates for PPP, and availing myself of of a household equivalence table once given to me by a MSD statistician I get the following:

New Zealand's 60% of median low income line in 2007 per day for a one person household = NZ$25/day
The US$2.16PPP line adjusted for inflation is (according to an internet calculator US$3.08.
Using market exchange rates this = NZ$4.04.
This calculation is is very, very, very rough but it gives you some idea in the difference between our own poverty line and that used by the World Bank (more than a factor of 5).

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