This article was originally presented to the first annual convention for “Armenian Students for Liberty” September 2013
With independence, Armenia found itself inheriting a vast amount of socio-economic problems stemming from the collapse of the Soviet collectivist economy. These problems were further exasperated by the 1988 Spitak Earthquake, the war with neighbouring Azerbaijan over the Karabakh enclave as well hyperinflation of the newly introduced Dram. These alarming conditions lead a concerned Armenian Diaspora to pool its collective economic strength together in order to set up a series of badly-needed emergency funds. This was the birth of the Diaspora-sponsored charity campaign; exemplified by organisations like the “Hayastan” All-Armenia Fund.
The purpose of this paper is to demonstrate how the now wide-spread practice of fundraising and donation-based foreign aid by the Armenian Diaspora, though initially helpful in the early years of Armenian independence, is harming healthy development more than it is helping. Furthermore, It should be argued that a much better approach at promoting financial prosperity and development by the Diaspora would be to invest politically and financially into the institutions of free-markets, and rule of law.
Since Independence, the “Hayastan” All-Armenia Fund alone has collected over a quarter of a billion dollars in direct aid to Armenian infrastructure reconstruction projects. Added to that are the billions of dollars collected by a myriad of charitable organisations, including roughly two billion USD in aid and development assistance by the American Government.
Diaspora generously gives back to to the Fatherland
Economists agree that this sort of “development” aid has been largely wasteful and ineffective in achieving the desired effect. Christopher Coyne, professor of economics at George Mason University argues that: “Those Involved in humanitarian efforts are unable to promote societal economic progress because they suffer from the “planner’s problem,” meaning they are unable to access the relevant knowledge to best allocate resources in the face of a variety of competing, feasible alternative uses.”
Negative socio-economic impact of Aid
The negative consequences of development aid include a deligitmisation of the National Government, perpetuates the sense of learned-helplessness amongst the population, and abets corruption by officials. Since the primary role of Government in Armenia is to preserve the rules of the game by enforcing contracts, preventing coercion, and keeping markets free, yet as the same time the government budget sets aside funds for the construction and rehabilitation of state infrastructure; Diaspora-funded project only serve to remove the responsibility that elected government officials should have vis-à-vis their electorate in regards to the spending of their tax money. This, in turns, allows for irresponsible spending by both the Diaspora organizations, and the government.
The politics of Foreign Aid also has a direct negative impact on the communities they are trying to help by disrupting the organic development of civil society when dealing with issues. Thus, instead of communities forming committees to deal with problems that affect them all on a grass-roots level, they are instead encouraged to simply wait for help from the diaspora.
Foreign aid encourages corruption in Armenia. Diaspora donors act in a very peculiar way when donating to such charities. They essentially allow themselves to contribute to the tax revenues of a country of which they are not a citizen of, and with no say on how the money should be spent; which is ironically the exact same confrontation on which the United States of America was founded (“No taxation without representation”). They do not, in anyway demand accountability, or transparency from the local contractors when funding projects. This has lead to widely publicised scandals where Armenian government officials used a system of kick-backs, bribery and fraud in order to augment their income. Because most development projects usually require cooperation with the local government. This increased exposure amplifies the opportunities for fraud and corruption.
Causations of Diaspora Behaviour
The Diaspora’s Foreign Aid mentality has been shaped by the image of a far-away, desperate Armenia of the 1988 earthquake, as well as five decades of post-colonialist, and structuralist views towards the benefits of Marshal-era Aid policies. The sense of duty towards a homeland, the naiveté of donors towards the on-site partners, as well as the self-gratification when doing good generally has the effect of obscuring the real needs of the target beneficiaries. In many cases, projects can fall pray to corruption, mismanagement and failure to achieve longterm sustainability.
Aside from small-scale, and pinpointed projects, large-scale aid and development projects are simply obsolete. The only true path to sustainable economic development for Armenia, as well as all nations, is good governance. In their book, “Why Nations Fail” (2013) Daron Acemoglu and James Robinson conclusively show that it is man-made political and economic institutions that underlie economic success (or the lack of it). For Acemoglu and Robinson, nations that progress socially and economically usually have states which: “Secure property rights, the law, public services, and the freedom to contract and exchange all rely on the state, the institution with the coercive capacity to impose order, prevent theft and fraud, and enforce contracts between private parties.”
Thus, the Armenian Diaspora needs to shift its focus from providing relief aid, and large-scale infrastructure development aid, to ensuring the development of healthy, transparent, and inclusive institutions. This would mean pushing for a government which secures basic individual liberties, does not obstruct the free exchange of goods, services and ideas.
This can be done in the following ways:
Diaspora aid organisations could change their focus from donations to venture capital management. They could contribute rationally to sustainable development by promoting good business practices in Armenia, and to finance the Armenian private sector in the country. Such groups could hire on-site risk management professionals who could analyse the business plans for local entrepreneurs, while helping those who’s ideas need to be further cultivated with sound business consulting.
Furthermore, in order to protect the interest of Diaspora, repatriate, as well as foreig ninvestors who could potentially breath fresh air into the the country’s business sector, against government provocation, harassment, nepotism and kickbacks. they can also engage in reverse-lobbying in Armenia. In other words, as Armenian Diaspora organisations revamp themselves as investment groups, they can threaten to withhold funds from the cash-strapped government until it submits to a number of legislative changes which would help create a link between : These would include abolishing the customs agency, reducing personal income and corporate taxes to a 15% flat tax rate, create tax-free zones in the provinces to encourage foreign direct investment, to form an independent judiciary branch, and to severely cut down the size of government.
This would protect the interest of Diaspora or repatriate, as well as foreign investors who could potentially breath fresh air into the the country’s business sector, against government provocation, harassment, nepotism and kickbacks.
Such emphasis on laissez-faire policies would allow the armenian economy to shed its soviet legacy of inefficiency, while kickstarting a vibrant and competitive economic presence on the world market. With such policies, Armenia would become a very attractive place for investors, and could find its competitive advantage, while building a niche for export products and services.
Armenia should be encouraging high-skilled, high-income repatriation
The Armenian Diaspora could also pressure the Armenian government to greatly simplify the repatriation process, especially for investors, by allowing for alternate military service, tax breaks for certain types of professionals, and so on.
For the Diaspora organisations adamant on preserving the Benevolent/development-oriented nature of their organisations, it is also possible to transform the organisation into a sort of independent (form the RoA government) development foundation, providing grants and real support to social-business start ups and so on; following a structure similar to the US-Government-funded “Enterprise Development & Market Competitiveness Project”
Since funding massive aid projects is an obsolete way of solving Armenia’s problems with economic stagnation, oligarchy, corruption and emigration, the main goal that the Armenian Diaspora should be more invested in implementing the right conditions for long-term, and sustainable socio-economic growth in Armenia, by lobbying for what Coyne describes as “The conditions underpinning economic freedom—protection of property rights, private means of production, and free trade in labor and goods—provide an environment free of coercion in which people can engage in the process of discovery and experimentation necessary for economic development. This process is messy and will often appear misguided to outsiders, but it is the only way to achieve society-wide development.”
“”HAYASTAN” ALL ARMENIAN FUND | Www.himnadram.org| Rural and Infrastructure Development Projects in Armenia and Artsakh. Schools, Hospitals, Roads. Charity. Donate Now.” “HAYASTAN” ALL ARMENIAN FUND | Www.himnadram.org| Rural and Infrastructure Development Projects in Armenia and Artsakh. Schools, Hospitals, Roads. Charity. Donate Now. N.p., n.d. Web. 25 Aug. 2013.
2 “From Relief to Development.” USAID / Armenia :. N.p., n.d. Web. 25 Aug. 2013.
3 Coyne, Christopher J. Doing Bad by Doing Good: Why Humanitarian Action Fails. May 2013 Print.
4 “The Role of Government in Education,” by Milton Friedman. From Economics and the Public Interest, ed. Robert A. Solo, copyright 1955 by the Trustees of Rutgers College in New Jersey. Reprinted by permission of Rutgers University Press.
5 Acemoglu, Daron, and James A. Robinson. Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York: Crown, 2012. Print.
6 “EDMC.” www.EDMC.am Web. 25 Aug. 2013.
7 Coyne, Christopher J. Doing Bad by Doing Good: Why Humanitarian Action Fails. May 2013 Print.