European regional aid

President Thabo Mbeki is a big fan of the European system of financial transfers used to redistribute tax revenues from rich to poor regions of the European Union (EU). These financial transfers, he asserts, encourage "social and economic development and modernisation" and "ensure the even and balanced development of all EU communities."

Mbeki says these European "resource transfers" should serve as blueprint for addressing African poverty. Foreign aid has a dismal record of helping the poor to develop, says Marian L. Tupey of the Cato Institute, and that is true of intra-European aid as well.

When the EU's regional aid programme began in 1975, 44 percent of the EU population lived in regions that qualified for the subsidies; by 1997, more than half (52 percent), lived in the poorer region.

But Ireland, one of the poorest EU countries in 1973, increased its growth rate as aid fell in proportion to the size of its economy, and by 2001 had one of the highest per capita incomes among EU countries.

Ireland moved from poverty to prosperity by slashing tax rates, says Tupey. Taxes in Ireland were 31 percent of gross domestic product in 1999, compared with an average of 46 percent of GDP for the rest of the EU.

Still, Mbeki wants more aid, such as the White House's proposed $15 billion Millennium Challenge Account and other "revamped" aid schemes, which promise not to make the same mistakes as before.

Source: Marian L. Tupy, South Africa President Takes (Wrong) Cues From the EU, Investor's Business Daily, July 2, 2003.

For more information http://www.investors.com
For more on Western Europe http://www.ncpa.org/iss/int/

FMF Policy Bulletin/ 8 July 2003