How the developing world can reform

From the bustling markets of Marrakesh to the telecommunications experts of Nairobi, the dynamism and entrepreneurial flair of businessman and traders in the developing world is clear. However, too often their growth is smothered by a toxic mix of corruption, red tape and protectionism. The recent debate over the ring fencing of the international development budget is distracting from the supply-side reforms that we should be encouraging. Reforms such as trade liberalisation, deregulation and privatisation have been a proven success but they are ignored whilst aid money is too often used to fatten already bloated bureaucracies in developing countries.

Taking an axe to the EU’s Common Agricultural Policy, eliminating the hugely wasteful and burdensome system of subsidies and enabling free and therefore fair trade would be a major step in helping thousands of businesses in the developing world. Assuming however, that at least in the medium term, the eurocrats and producer interests conspire to prevent such reform, there are still policies that those of us who support free trade and free markets can support to help lift millions of people out of poverty and indignity.

Firstly, serious questions should be asked as to why for example in the Republic of Congo it takes on average 235 days to legitimately set up a business when in Rwanda it takes only 3 days. The UK could make non-emergency government transfers conditional on the recipient governments reducing unnecessary and burdensome regulations on setting up businesses. Essentially, pay them to cut red tape.

Secondly, efforts should be made to encourage developing countries to learn from India’s remarkable success in trade liberalisation. From 1991, when it underwent a period of tariff reduction and FDI liberalisation, research shows that in liberalised industries there was aggregate productivity growth of 16% with consumers benefiting through lower wholesale output prices. The UK government could use its aid budget to partially offset short term falls in revenue resulting from tariff reduction.

Thirdly, the UK could provide expertise on the privatisation of industries such as telecommunications and banking, a policy which has had considerable success in numerous developing countries already. Helping to free such markets from the dead hand of the state would go a long way to increasing the underlying trend rate of economic growth. Such steps would help realise the potential of the developing world, greatly improving living standards over the long term.

Adam Memon won second place in the 2011 Young Writer on Liberty Awards.