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The Failure of Foreign Aid

Posted by Connor on January 28th, 2010

photo credit: Tyler A. Cacek

Almost half the world—over three billion people—live on less than $2.50 a day. The condition of humanity’s well-being is, in the aggregate, a story of poverty, suffering, and deprivation.

Sympathetic Americans have, to their credit, and due to their more affluent position resulting from their relative economic freedom and capitalist system, been a major factor in trying to correct this imbalance. A recent Hudson Institute study (PDF) notes that yearly private philanthropy from individuals in the United States of America stands at an impressive $37 billion.

Contrasted with government aid at $21.8 billion, we immediately can put to rest the erroneous assertion, often made, that people do not donate enough and government can do more. Indeed, as the study further shows, the aid offered by the government pales in comparison to the total financial flow from the USA to developing countries. When the $79 billion of yearly remittances (money transferred by individuals to their families/friends in another country) are factored in along with private investment in these countries, government aid accounts for only nine percent of the pie.

It is without question that the most effective, moral, and efficient method of improving the lives of suffering people the world over is to do so through the vehicle of private, individual, and non-governmental organizations and efforts. This type of aid gets into the hands of those in need, whereas government aid is notorious for enabling corrupt governments and further entrenching the elite establishment who maintains the impoverished class in their state of squalor.

More than 150 countries throughout the world receive government aid from our federal government, with Israel, Egypt, and Pakistan raking in the most money. On top of existing spending sprees, programs like the horribly mismanaged Millenium Challenge Account commit our taxpayer’s funds to whatever foreign governments certain bureaucrats deem worthy of its bestowal.

Consider the example of Haiti, where much of the world’s attention has focused in recent weeks. Approximately $2.6 billion in U.S. foreign aid has been diverted to this country in the past 25 years, and yet it remains the poorest country in the Western hemisphere. Two-thirds of Haitians lived on less then $2 per day before the earthquake, with that number likely being affected by how many have now been killed, displaced, and impoverished. How can this be, if foreign aid is indeed the answer to fixing such problems? (For comparison, it should be noted that Israel is given around this much each year, primarily used for purchasing weapons.)

As foreign aid obviously escalates following large disasters, voices in the proverbial wilderness are calling for the government to stay out of the humanitarian aid business. One example appears in the opinion pages of the Wall Street Journal:

“Haiti needs a new version of the Marshall Plan—now,” writes Andres Oppenheimer in the Miami Herald, by way of complaining that the hundreds of millions currently being pledged are miserly. Economist Jeffrey Sachs proposes to spend between $10 and $15 billion dollars on a five-year development program. “The obvious way for Washington to cover this new funding,” he writes, “is by introducing special taxes on Wall Street bonuses.” In a New York Times op-ed, former presidents Bill Clinton and George W. Bush profess to want to help Haiti “become its best.” Some job they did of that when they were actually in office.

All this works to salve the consciences of people whose dimly benign intention is to “do something.” It’s a potential bonanza for the misery professionals of aid agencies and NGOs, never mind that their livelihoods depend on the very poverty whose end they claim to seek. And it allows the Jeff Sachses of the world to preen as latter-day saints.

For actual Haitians, however, just about every conceivable aid scheme beyond immediate humanitarian relief will lead to more poverty, more corruption and less institutional capacity. It will benefit the well-connected at the expense of the truly needy, divert resources from where they are needed most, and crowd out local enterprise. And it will foster the very culture of dependence the country so desperately needs to break.

One Zambian woman has sung a similar strain of resistance to government “do-goodery” in a book titled Dead Aid, explaining why the constant foreign aid sent to Africa has been harmful. In an interview last year, the author responded to a question of what has held back Africans as follows:

I believe it’s largely aid. You get the corruption — historically, leaders have stolen the money without penalty — and you get the dependency, which kills entrepreneurship. You also disenfranchise African citizens, because the government is beholden to foreign donors and not accountable to its people.

While foreign aid is also used as a tool to intervene in the affairs of other nations, including Haiti, perhaps the most logical case to be made against our government’s involvement in this notoriously corrupt and inefficient enterprise is that they have absolutely no authority to do any of it. Despite their allegedly noble intentions, the federal overlords using our money however they desire have all broken their oaths to support and defend the Constitution by bailing out foreign governments and citizens. As stated here, the government is denied this power altogether:

The Constitution (including its Treaty Clause) was designed to accomplish–as to limiting the powers of the Federal government–what is contemplated with regard to all governments created by the people as their instruments: primarily to make and keep secure their God-given, unalienable rights (and the supporting rights, notably the right to property) according to the Declaration of Independence. It is a violation of this fundamental law of the people for the Federal government to deprive the people of their property by taxation in order to donate to foreign governments, or peoples, the funds thus obtained, or things purchased with these funds–whether or not sanctioned ostensibly by a treaty; that is, except to the extent that this is authorized by the words “common Defence” in the Constitution’s Taxing Clause: “provide for the common Defence and general Welfare of the United States.” This means that any donation abroad of funds or things, military or any other kind, by the Federal government–in order to be authorized by the Constitution–must contribute substantially and directly to the “common Defence… of the United States,” meaning the national defense: the actual, military, physical defense of the American homeland. Under the Constitution as amended, Congress and the President completely lack any power to act the benevolent role abroad with the American people’s property–money or any other type. This is true as to all so-called “foreign aid”–whether military, economic or financial–however accomplished: by gift, or loan, or by any other device or method, and whether done openly, or by subterfuge. Individuals may, of course, give such aid out of their own property (money) as they please.

Foreign aid—government aid, that is—has failed, never yielding anywhere near the same results as aid donated, managed, and distributed by individuals and organizations operating voluntarily, charitably, and under the constraints of market forces. If a person truly wants to help another country or group of people, then their eyes should look not towards the government, but to their own wallet.

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11 comments so far. Care to chime in?

I agree. It’s a hard topic, but you’re right. We’re not going to be a help to the Haitians if they simply become US dependents. The best thing our government can do for any struggling nation is to stand as an example of how a government should be run, how capitalism should be allowed to operate, while expecting the citizens to, of their own free will, be charitable givers. The corrupt Haitian government has been stealing the good will of our government for years while not using that money to help their citizenry, so giving them more wouldn’t be wise. There are plenty of reputable charities that we can donate to that will do a better job than either our or their government.

#1 a concerned mommy | January 28th, 2010 6:53 PM

Let’s ask Israel to do without the $30 billion we’re giving them to buy more weaponry, and use it to rebuild Haiti.

#2 rmwarnick | January 28th, 2010 9:34 PM

I’ve read numerous books lambasting the aid NGO’s, riding their white SUV’s around the hell holes of the earth, and showing more concern for their own continued existence than the people they come to help. Giving to governments is little better, particularly when the aid to governments is in the form of weapons they don’t need, or infrastructure projects they can’t use, all of which are conveniently mandated to come from the donor country. NGO’s and private aid groups can be helpful in emergencies like Haiti, but without some strong entity to organize and allocate resources, they aren’t going to be effective.

Ultimately long-term aid fails because it does not address the causes of poverty and hunger. Either it maintains a culture of dependency or it enriches despots or both. We now have nations where 2 or more generations have known only handouts and corruption.

The first objective for a destitute nation is to do as much as possible to feed its own people. That means developing an agricultural base that is not dependent on foreign seeds or fertilizers and developing internal markets that can deliver that produce where it is needed. The second objective is security. Small impoverished nations need to be free from attack by their neighbors and from internal actors without using their meager resources to fund armies. That means a sharp and well-enforced reduction in the arms trade, particularly small arms, and a permanent international force that can insure the integrity of international borders in the developing world. Thirdly we need to have an international mechanism that can work to improve human rights. The United States cannot be the international actor that performs these duties because it is not and cannot be a impartial neutral party, even if we had the money to take on this role, which we don’t.

#3 Charles | January 29th, 2010 9:01 AM

I’ve gotta wonder how this amazing involvement of the US in the third world stands up in light of Neocolonialism. One of the reasons we’re still pretty comfortable (and able to have this debate in the first place) is that we’ve done a good job of exporting most of our consumer goods manufacturing processes to third world nations without such hindrances as strict labor laws or minimum wages. Hence our plastic, knickknacks and miscellanei are put together by people without much choice but to work for their own countrymen who exploit them in turn. Globalization does little but to create a grotesque caricature of capitalism worldwide, with the power players calling all of the shots.

The end result is that, like a working mother making $8 an hour to take care of her children who can’t afford to miss a day or jeopardize her job by looking for another, entire countries essentially stay in limbo, scraping off what amounts to a subsistence living so that our calculators and clothes and PlayStations can stay as comparatively cheap as they are. Capitalism doesn’t work on a global scale when people stay desperate but their basic needs are juuuust being met.

One of my greatest frustrations is being complicit in this system, which relies on most of us (including myself) neither thinking about it too much nor caring enough to buy more expensive locally-produced goods. What’s the aggregate drain on developing countries as we leech them for labor? Probably more than 37 + 21 billion. We mean well I’m sure, but with a $14.2 trillion GDP it’s more than apparent that we’re cleaning up in the long run.

#4 Clumpy | January 29th, 2010 11:19 AM

Nice stats on private vs. government giving, Connor. I, similarly, feel very strongly that the U.S. government should not be in the business of giving foreign aid. U.S. presidents should take the lead and encourage citizens to give to private charities of their choice, not make contributions on their behalf.

I like the thoughts of Dudley Hafner, former CEO of the American Heart Association, on this topic:

“The other thing I think that is unique about these United States is the fact that charitable giving is as much a force in the freedom of democracy as the right of assemblage or the right of vote or the right of free press. It’s another way of expressing ourselves very, very forcefully.” (Full quote at http://richardkmiller.com/298 .)

When government redistributes our wealth, we’re denied the ability to choose which causes to support. When citizens give, non-profits have to compete for their attention and money, a sort of free-market competition within the non-profit world.

Also, if government’s stated goal is to aid 3rd-world countries, it’s ironic that we erect trade barriers. We have historically subsidized wheat and taxed sugar, depriving sugar-exporting countries of our markets, a financial opportunity that would be far more enriching and sustainable than handouts. (And the merits of sugar over high fructose corn syrup could be an entire other debate.)

#5 Richard K Miller | January 30th, 2010 11:36 PM

It’s interesting that Richard raises trade barriers as a concern. One of the key effects of neoliberal trade policy over the last several decades is the destruction of local agriculture in the developing world. The markets in poor countries, pried open by trade deals, are flooded with American products – corn, wheat, beef, etc. at prices local farmers cannot match. This ends up bankrupting local farmers and decimating the local farm-to-market mechanisms, leading families to desert the farms for the cities to find work.

One of the key goals for any developing nation should be food sovereignty – having the ability to produce and bring to market as much of the food its people consume as possible. Placing locally grown food stuffs in competition with US corporate food distributors breaks down those internal markets and makes it more likely that the country will need aid in the future should calamity strike.

#6 Charles | January 31st, 2010 11:49 AM

Krista Tippet and the NPR program “Speaking of Faith” Ran a great program about this subject on Sunday.
http://speakingoffaith.publicradio.org/programs/2010/different-kind-of-capitalism/

One of the things her guest mentions is an interesting psychological-economic reason why entrepreneurship and micro-credit works where Aid doesn’t.

If you give someone a free gift, it’s unlikely they’ll tell you what’s wrong with it. They’ll probably pretend to be pleased and put on an act to demonstrate their “gratitude.” On the other hand, if you try to sell them something, suddenly they become a tough customer, they’ll tell you exactly what they want and exactly what’s wrong with what you’re selling.

#7 Josh Williams | January 31st, 2010 2:26 PM

Charles, interesting insight. I’d love to see more research on that subject.

#8 Jeffrey T | February 2nd, 2010 1:42 PM

Clumpy, who says a mother is worse off working for $8 to make a calculator for you? She certainly has the option of doing whatever it was she or her ancestors did before the “evil” of capitalism. Bottom line is it’s a voluntary thing. If someone thinks they’re better off working in some sweat shop in India, they will do that, and be grateful for it! Wage slavery is a thing so full of holes that I have to try hard not to laugh outright when discussing it with people. Is it fair that I work for $12/hr and some banker gets millions and someone in another country gets pennies on the hour? It may not be “fair” depending on what your measure of fairness is, but is it fair that ALL THREE of us are better off, that is not working all day every day just to harvest enough food for the year?

My measure of fairness is quite simple, has someone taken your life or degrees thereof, your liberty or degrees thereof, or your property or degrees thereof? If not then *that* is fair, regardless of whatever differing results and levels of prosperity ensue.

#9 vontrapp | February 10th, 2010 5:11 PM

Interesting and spot on as usual, Connor. I’d add to it some things that I’ve read, namely William Easterly’s (formely with the World Bank) The Elusive Quest for Growth where he talks about the foreign aid that was and the economic growth that wasn’t. He relates many studies as well as personal anecdotes about how goverment aid has not helped much, and in some instances has made matters worse.

Also, this article I love to quote by Arthur Brooks who, at one point in this speech, said that the day we let government take over our giving and our charity is the day we all become poorer and less happy, etc.

#10 Travis Buhler | February 13th, 2010 1:17 AM

Here is yet another reason to stop foreign aid.

#11 Connor | February 17th, 2010 5:02 PM

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