Ranking the Rich 2005

When historians distill the first decade of this new millennium, the relationships between rich and poor nations will be a dominant theme. Which rich countries advanced development? Which ones didn’t? How did national policies affect poor people working hard to improve their lives? To help answer these questions, the Center for Global Development and Foreign Policy teamed up three years ago to create the Commitment to Development Index (CDI) — a measure of how the policies of rich countries help or hinder the poor.

Much has happened in relations between rich and poor since last year’s index. In July, the Group of Eight (G-8) industrialized nations finalized a deal in Gleneagles, Scotland, to drop the debt of 18 developing nations. Days before the G-8 summit began, millions of music fans thronged to "Live 8" concerts organized around the world to encourage the leaders to act. In September, a major U.N. conference is convening in New York to evaluate progress toward the internationally agreed Millennium Development Goals to reduce poverty. And this December, trade negotiators will gather in Hong Kong to wrangle once more over how rich-world agricultural subsidies harm poor-world farmers.

No single event of the past year was more notable than the tsunami that pounded the shores of many of Asia’s poorest countries, washing away whole villages in India, Indonesia, Sri Lanka, and Thailand. Perhaps not since the Rwandan genocide have so many died so quickly. Images of the tragedy provoked an unprecedented $12 billion tide of charity — at once showcasing the West’s generosity and sparking a lively debate about whether, as a nation of unparalleled wealth and power, the United States is stingy or generous.

But how far do such outpourings of charity and sympathy really go? The debt relief deal, though welcome, will only generate $750 million a year in new foreign aid — that’s a 1 percent increase in total aid, assuming governments do not take the money out of the budgets of existing aid programs. As significant as the enormous outpouring of funds was following the tsunami, it merits little more than a footnote in any full accounting of the way that rich countries affect the poor on a daily basis. It is for this reason that the cdi ranks 21 nations by assessing their decisions across seven major domains of government action: foreign aid, trade, investment, migration, environment, security, and technology. The index grades wealthy nations on their policy stance, not their absolute impact. For example, the United States gives far more foreign aid than the Netherlands, but far less when compared to the size of its economy. On the other hand, Dutch trade barriers are higher than America’s — and though they matter less than the barriers to the giant U.S. economy, they are penalized more.

The biggest policy change that this year’s index takes into account occurred on New Year’s Day, 2005, when the United States, the European Union, and Canada abolished their quotas on fabric and clothing imports, as required under the General Agreement on Tariffs and Trade. Textile workers, factory owners, and politicians in North America and Europe worried that the West would soon be flush with cheap clothes from China. That concern was shared by Bangladesh’s workers, factory owners, and politicians, who long benefited from guaranteed, if limited, access to Western markets. Nevertheless, the index rewards these countries’ ending the quotas. Meanwhile, negotiations to revise the World Trade Organization’s rules foundered, thanks in part to squabbles over massive agricultural subsidies and high import barriers in Europe and America, which artificially prop up their domestic farms at the expense of much-poorer farmers elsewhere.

An equally historic event that did not change cdi results was the entry into force of the Kyoto Protocol on global climate change. The event   highlighted the continuing refusal of Australia and the United States, lone among the index’s 21 countries, to ratify Kyoto on grounds that it puts no emissions limits on developing countries, such as India and China. Large developing countries countered that the rich countries that created the global warming problem ought to take the lead in solving it. The result: stalemate on the ground while the nations least prepared to cope with climate change risk huge losses.

Some of these events serve as reminders of the huge power gap between rich and poor countries. Others, more interestingly, reflect new tensions arising from developing countries’ becoming more assertive in the pursuit of their rights. World Trade Organization talks have stalled, for instance, partly because India and Brazil flexed their diplomatic muscle. There is a growing danger that stiffer competition from China and India, along with concern about mounting environmental pollution from these two giants, will raise doubts about the benefits of development itself.

But rich countries should welcome development gains in poorer countries because it is good in itself and because development serves the interests of rich countries, too. Just as it was better for Spain that its northern neighbors escaped the poverty of the Dark Ages, so too would it be better if its southern neighbors in North Africa emerged from their present travails.

Poor countries must take the lead in their own development — only rarely in history have such advances been forced by outsiders. Yet, in many ways, rich and powerful countries control the environment in which poorer countries operate. Smart calls by South Korean technocrats in the 1960s triggered a development miracle. But that miracle would have been impossible without access to the markets and technologies of wealthier nations.

The same is true today. That’s why the CDI focuses on the intersection of actions and policies. And, if one analyzes the crosscurrents of development during the past year, Denmark emerges as the clear winner. The Danes top the index thanks to an ample and high-quality foreign aid program, steady contributions to U.N. and NATO peacekeeping operations, and their declining greenhouse gas emissions. But sadly, in all but three policy areas, even Denmark only earns an average score (near 5.0). That means that no country in the index can rest on its laurels. In the year ahead, every nation in the index can do more to help those most in need.

The More Things Change

The big picture in this year’s index is one of little change. That’s not surprising. Government policies usually change slowly. Trade policy, for example, is mainly the result of painstaking international negotiations and, accordingly, does not turn on a dime.

The average CDI score, when adjusted for changes in the index over time, has climbed just a tenth of a point a year since the index was launched in 2003. The scores of 14 countries rose between 2003 and 2005, while the scores of only four declined. Several pieces of good news are behind the gains. Britain, Greece, Norway, Switzerland, and the United States are giving away more aid. Canada, the European Union, and the United States ended quotas on imports of textiles and clothing. Belgium, Denmark, Spain, and Sweden curtailed prohibitions that prevented pension funds from investing in developing countries. Many countries continue to phase out ozone-depleting substances. Austria, Italy, and Portugal, among others, adopted policies aimed at limiting illegal tropical timber imports.

The United States saw a large gain in its security score, but not because of the war on terror. Rather, the multibillion-dollar arms sales to Saudi Arabia that were common in the late 1990s receded into the past, and the CDI gives less weight to older arms exports. In fact, one factor that did not elevate the American and British tally was the conflict in Iraq: The CDI only rewards military actions that are approved by an international body such as the U.N. Security Council or NATO.

A Tidal Wave of Tariffs

Last December’s Asian tsunami produced spellbinding television clips, striking awe in millions of people living in rich countries thousands of miles away. As awe turned into empathy, private charities raised nearly $5 billion in aid for tsunami victims, while governments pledged more than $6 billion.

Yet, the tsunami was little more than a blip in the ongoing saga of international development. Otherwise preventable deaths caused by HIV/AIDS, childhood diarrhea, and other diseases found mainly in poor countries take a death toll equivalent to last year’s tsunami every month.

Pledges of foreign government aid (even assuming these promises are met) should be kept in perspective. Last year, the United States Treasury raised $1.87 billion in revenue from tariffs imposed on imports from the four major tsunami-affected countries — India, Indonesia, Sri Lanka, and Thailand. That is twice the $908 million in aid the U.S.

Congress approved in May. In effect, the United States will recoup its entire aid package to tsunami victims within six months. If rich countries really want to commit themselves to improving the lives of citizens in tsunami-affected nations, they should end these taxes and other protectionist barriers as part of the current Doha Round of international trade negotiations.

Exporting Conflict

Putting weapons in the hands of despots can increase both repression at home and the temptation for military adventures abroad. When the weapons are sold instead of handed out, they siphon money that could be better spent on, say, teachers or transit systems. Of course, arms exports are not always bad. Countries need guns as well as butter — arming a police force, for instance, can strengthen the rule of law. So the CDI only penalizes arms exports to governments that are deemed undemocratic and heavy military spenders, and exports to the poorest countries are penalized most.

Eight rich nations can claim perfectly clean hands, including Japan, which exports no weapons to developing countries. The largest arms dealers to poor nations are Britain, France, and the United States, the countries that have done the most to arm the Middle East and South Asia, shipping weapons to such places as Egypt, Jordan, Oman, Pakistan, Saudi Arabia, and Turkey. These countries’ neighborhoods are dangerous, and some argue that nations there need weapons for self-defense. But does arming local despots make a neighborhood safer? More likely, it reduces regional security, retards investment, and undermines the billions of dollars in traditional development aid flowing to these countries.

Sparing Change

The CDI rewards countries that encourage charitable donations through tax deductions and credits. In all index countries, even the United States, public giving dwarfs private giving. This chart compares government aid and private giving on a daily, per person basis in select nations.

Trusting Church or State

It’s often said that one should love thy neighbor as one loves oneself. The CDI measures whether rich states fulfill this commandment. Interesting enough, countries where fewer people go to church score higher in the index. Or, in other words, where there is more preaching, there is less practicing. Just 3 percent of Danes, who rank at the top of the CDI, attend church at least once a week, according to the World Values Survey, which tracks social and cultural changes worldwide. In second-place Netherlands, church attendance stands at 14 percent, while in third-ranked Sweden, a mere 7 percent of the population goes to church once a week. At the opposite extreme is Ireland, which ranks 18th out of 21 CDI countries, but where church attendance stands at 65 percent.

The source of this pattern may be where people put their faith — whether in government bodies or religious institutions. The Netherlands and Nordic nations are small and homogeneous, and they maintain small gaps between rich and poor domestically. As a result, citizens seem to place more trust in elected officials to represent their interests, and, in turn, have a more activist development agenda. They rank highly thanks in no small part to generous foreign aid programs — and an apparent faith in their government’s ability to do good.

Workers Needed, Not Wanted

From Britain in the 18th century to China in the 21st, economic development has always entailed large movements of people from poor, rural areas to prosperous, urban ones. According to the United Nations, 175 million people worldwide — 1 in 35 — are migrants, meaning they no longer live in the country where they were born.

The CDI rewards openness to migrants (particularly the unskilled), who take up residence elsewhere to work, send home money, pick up skills, and, sometimes, return home with new ideas. But how prepared are rich nations to accept migrants? Not very, according to the World Values Survey, which shows that immigrants often flock to where they are least welcome. In this year’s index, the two countries that "imported" the most unskilled labor for their size, Austria and Switzerland, are also among the most concerned about the impact of immigrants. Eighty percent of Austrians and 71 percent of Swiss agreed that, when jobs are scarce, employers should give priority to nationals over immigrants.

For now, economics appears to have trumped cultural prejudice in Western Europe, whose aging societies increasingly depend on new arrivals to fill jobs in child-care, construction, and other industries. Many Europeans may oppose that trend, but stopping the flow of migrants would cause great economic harm. Just look to Japan, which is the least sympathetic to immigrants in the World Values Survey, and whose economic stagnation may very well continue thanks to its aging workforce and tight borders.