No Taxation Means No Representation

Over-reliance on foreign aid as opposed to tax revenue, says Sophal Ear, a leading expert on post-crisis economies, leads to corruption. 

What's the Big Idea? 

Sophal Ear has devoted his life to the economic and social well being of developing countries like his native Cambodia. Having escaped the Khmer Rouge as a small child disguised (by his resourceful mother) as a Vietnamese expat, he’s driven by the memory of 1.7 million of his countrymen (including his father), who were killed in Pol Pot’s “revolution.” Ear, who emerged from total poverty to attend Berkeley and Princeton, becoming a professor at the Naval Postgraduate School, studies post-crisis developing economies.

Of all people, Ear seems a likely supporter of foreign aid to struggling nations. Instead, he argues that too many developing countries have become dependent on the kindness of strangers, and that excessive reliance on foreign aid causes political strife and corruption. What countries like Cambodia need, Ear has found, are healthy industries and the infrastructure to support them. The governments that depend most heavily on foreign aid, he says, tend to have the lowest tax revenues. For corrupt leaders, low taxation is politically expedient – it makes them less accountable to their people. Tax the people, and you have a direct incentive to invest in their future. 

What’s the Significance? 

Taxation doesn’t always translate directly into representation, but at the very least it signifies a national government’s commitment to and partnership with its people. Ear isn’t proposing a total cessation of foreign aid – this would obviously be disastrous for the poorest countries whose GDP can’t support meaningful tax revenues. He suggests instead that foreign aid must be “tied to improved domestic and tax revenue performance.” In other words, aid-receiving governments must demonstrate their active pursuit of economic independence. 

Assuming for the moment that even representative governments act primarily out of (in their case, national) self-interest, the Machiavellian question for foreign-aid-granting nations is whether you’re better off with an indentured servant or a partner in trade. At the best of times, managing other nations from abroad is financially and politically expensive. It’s also likely, in the long run, to limit growth and productivity in the emerging nation in unpredictable ways. In the current economic crisis, leading countries can ill afford the short-term costs of heavy, ongoing investment in emerging nations or the long-term, global costs of placing limits on what they can become. 

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