Syria's economy needs remittances even more than it needs aid

The cost of rebuilding Syria could run into hundreds of billions of dollars. AP

Many around the world are keen to help Syrians as their country enters a post-Baathism era. There is much talk of foreign aid, but its demonstrable effectiveness has always been highly contentious. A potentially more productive area of focus could be to help make it easier for Syrians to work abroad in markets where their skills are needed, and for them to send money back home, while their country’s economy rebuilds.

Decades of mismanagement and war-induced destruction have left Syria’s economy in ruins. Fortunately, Syria remains historically rich in human capital, offering its citizens plenty of light at the end of the dark tunnel they are currently traversing. People around the world are rightly confident that – with the right investment and government oversight – the country can regain its status as a Middle Eastern commercial and intellectual hub.

Tempering this optimism is the fact that the world’s recent track record in helping struggling countries fulfil their economic potential can be euphemistically described as “mixed”. The default option is foreign aid, which involves richer countries providing grants to poorer ones. The policy origins of this option are a geopolitical version of someone helping their embattled friend by giving them a financial helping hand until they get back on their feet.

But at the country level, this tends to go awry for several reasons, chief among them being the receiving country’s government either lacking the capacity – or, in the case of corruption, the will – to distribute the grant in an economically productive manner. This has often led to two alternative approaches: direct grants to those in need that bypass the government, or conditional aid that requires the government to demonstrate sufficient levels of competence and integrity.

Unfortunately, a more depressing factor in accounting for the ineffectiveness of foreign aid in any guise is that the interests of the assisting government are sometimes poorly aligned with those of the targeted recipients. Sometimes, a donor’s strategic priority is using foreign aid to favourably influence local politics more than to put the country on the road towards economic independence and prosperity. The most obvious illustration is the USSR’s disastrous export of communism in Eastern Europe during the Cold War, but its western adversaries also have an extensive rap sheet when it comes to using financial aid in Latin America and the Middle East.

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Sometimes, a donor’s strategic priority is using foreign aid to favourably influence local politics

Equally concerning is the fact that even a well-intentioned donor country often trips up because the civil servants in charge of aid disbursement are so far removed from the on-the-ground problems they are seeking to solve that they end up making poor allocation decisions. The international development landscape is full of white elephant projects that invoke a combination of ridicule and frustration from the hapless “beneficiaries” left wondering what might have been had they been properly consulted regarding their needs.

Fortunately, a highly effective but under-the-radar alternative to foreign aid has been operating for decades, taking the form of remittances from migrant workers. In countries such as Bangladesh and India – both of which have been rapidly ascending the living standards ladder – the capital inflows from their citizens working abroad and remitting income home have played a pivotal role in economic development.

Remittances’ superiority to government-mediated foreign aid lies in several factors, the most important of which is that the person sending the money – the expatriate worker – is intimately familiar with the needs of the person receiving it – their family. None of it gets siphoned off by corrupt civil servants or non-governmental organisations charging overhead, allowing it to be allocated to educational investments for children, housing upgrades for the family, startup capital for microenterprises or simply covering critical living expenses. Moreover, it is precisely tailored to the beneficiary’s needs, rather than being some crude, country-level program.

Today, increasing numbers of Bangladeshis and Indians are shunning economic migration in favour of working in their home countries because good government policy supported by decades of remittances have created attractive domestic economic opportunities. Scholars struggle to find comparable success stories in the foreign aid realm beyond the post-Second World War Marshall Plan, which is more than 75 years old.

The signing of the Bretton Woods Agreements in July 1944. The Bretton Woods era and the Marshall Plan set the stage for the post-Second World War economic order. Getty Images

An added benefit of remittances is that they constitute a more dignified form of assistance than handouts. The remitter justifiably feels that they earned the income they are sending home, rather than suffering the indignity of being viewed as a recipient of a charitable donation.

Syrians – like people from every country in the world – want to live in their home country if suitable economic opportunities exist therein. While the Syrian government tackles the immense task of creating those opportunities, during a transitional period, prospective donor countries may do more good by considering favouring Syrians in their guest worker programmes and other temporary employment regimes. It is morally incumbent upon those who favour foreign aid to study the history of international development assistance before insisting on such an approach. As the economist Milton Friedman once quipped: “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”