Simon Lee: Why it boosts Britain's interests to help other countries

THE Government provoked anger in last month's Comprehensive Spending Review by promising to increase the budget for foreign aid in the face of severe spending cuts at home.

Politicians of all parties have declared they are behind the move to increase overseas development assistance to 0.7 per cent of national income, but critics question whether we should spend more fighting poverty abroad when it continues to grow in the UK.

Surely charity begins at home?

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A distinction needs to be made between absolute and relative poverty.

While the former – widespread in low-income countries but rarely experienced here – entails a lack of access to basic necessities, including shelter, food and water, UK households are considered below the poverty line when their income falls below 60 per cent of the national average.

So although relative poverty undoubtedly causes serious economic and social exclusion, it is clearly of a very different nature to the extreme poverty experienced in countries that receive foreign aid. Any responsible and compassionate government has a duty to respond to both.

It is also important to understand the indirect – yet profound – role the UK has played in influencing the fate of many low-income countries over the past thirty years or so. Fuelled by an oil boom in the 1970s, western banks lent heavily to low-income countries that sought to play economic catch-up through government investment in infrastructure and industry.

When steep global inflation led to interest rates being increased in the late 1970s, those debts became unmanageable and were transferred to the International Monetary Fund (IMF) and World Bank, both controlled by high-income countries, including the UK.

The conditions that came with the new loans forced debtor countries in Africa, Asia and elsewhere to open their borders to cheap foreign imports – sending many indigenous companies out of business – while making deep cuts to public services that makes those announced last week look positively timid.

This caused their economies to shrink further, making repayments more difficult and so increasing and prolonging their indebtedness. This was obviously unsustainable and became increasingly difficult to justify, leading ultimately to the historic debt cancellation for the least developed countries at the G8 summit in Gleneagles in 2005.

Conversely, developing countries that were free from IMF control – China being the most notable example – used globalisation to their advantage, making clever investments and limiting imports to support the development of key industries.

In the face of their growing success, the continuing insistence of international institutions that free markets provide the most effective solutions to poor countries' problems appeared driven more by dogma and political ideology than good evidence and common sense. For our government and others to have supported their erroneous policies appeared at best incredibly nave, at worst cynically exploitative.

It is therefore far too simplistic to say that extreme poverty in other countries is not our problem. Debt cancellation was a symbolic and significant first step towards putting it right, but the focus now must be on protecting foreign aid, as the Government has pledged to do. It now needs to make a strong case to the public to justify why it is doing so even as the pain at home starts to bite.

On the international stage, it should reject the false dichotomy between laissez faire and isolationism, instead recognising and advocating the role of government in supporting economic development, just as it has done in its plan for domestic growth.

This is not only in the interests of others, but also Britain's. Impoverished, unstable countries are certain to provide fertile breeding grounds for the extremists of the future – reflected in the Government's decision to increase the focus of aid spending on conflict resolution and weak states. Conversely, stability and growing wealth overseas should ultimately provide larger markets for our exports, creating new jobs in the long run as Nick Clegg recently pointed out.

Ensuring all countries are able to pursue growth strategies that are appropriate to them will therefore not only help build a more just world, but also better trading partners.