New School Politics

Foreign Aid In Vein

Ryan | 18 02 2008

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From Obama’s website:

Obama will embrace the Millennium Development Goal of cutting extreme poverty around the world in half by 2015, and he will double our foreign assistance to $50 billion to achieve that goal. He will help the world’s weakest states to build healthy and educated communities, reduce poverty, develop markets, and generate wealth.

Of course we are also used to hearing the clamoring of a myriad of inconsequential celebrities for more funding for the third world. And its not only liberals like Obama who trump up foreign aid. Remember that President Bush pledged $30 billion more in AIDS funding for Africa in the coming year.

Normally the foreign aid debate is casted as those altruists who care about the prosperity of the third world against the thrifty, America-centric who rather the money be kept at home. That’s conventional wisdom, but perhaps conventional wisdom is not always correct. At least in this case it appears not to be, as the same foreign aid that Obama proposes doubling has historically done little good to jump start the economies of the world’s poor.

From Michael Beran, regarding foreign aid to Africa and also addressing the Millennium Project that Obama endorsed:

From Walt Rostow and John F. Kennedy in 1960 to Sachs and Tony Blair today, the message, [NYU economist William] Easterly says, has been the same: “Give more aid.” Assistance to Africa, he notes, “did indeed rise steadily throughout this period (tripling as a percent of African GDP from the 1970s to the 1990s),” yet African growth “remained stuck at zero percent per capita.”

All told, the West has given some $568 billion in foreign aid to Africa over the last four decades, with little to show for it. Between 1990 and 2001, the number of people in sub-Saharan Africa below what the UN calls the “extreme poverty line”—that is, living on less than $1 a day—increased from 227 million to 313 million, while their inflation-adjusted average daily income actually fell, from 62 cents to 60. At the same time, nearly half the continent’s population—46 percent—languishes in what the UN defines as ordinary poverty.

Yet notwithstanding this record of failure, the prosperous nations’ heads of state have sanctioned Sachs’s plan to throw more money at Africa’s woes. In July 2005, G-8 leaders meeting in Gleneagles, Scotland, endorsed Sachs’s Millennium thesis and promised to double their annual foreign aid from $25 billion to $50 billion, with at least half the money earmarked for Africa. This increased spending, the Gleneagles principals proclaimed, will “lift tens of millions of people out of poverty every year.” No doubt, too, Africans will soon be extracting sunbeams from cucumbers.

Once again, the notion that charity would actually hurt Africans in the long run is unconventional, but it is nonetheless all given evidence supports it. But if we dig deeper down and logically examine the incentives that the foreign aid creates we have no trouble rectifying theory and reality. This is what I wrote in a newspaper editorial (October issue, page two) on the subject back in the fall:

Charity demonstrates bad causation to Africans. In a simple economic sense it says: we will give you money because you are poor. At the same time organizations, like the Heifer Club, may say that they only will continue to supply funds for the needy if they show good behavior or meet some set of standards. To be sure, that is a more intelligent approach, but at the same time it does not eliminate the primary incentive which says, ‘we will give you money because you are poor.’ Hence the result is a confused myriad of incentives which occasionally set good standards on one hand, but always require minimal productivity on the other.

Let me also add, as I did later in the column, that aid only temporarily bolster the status quo, making the current regimes more acceptable, and does nothing to fix society’s foundational ethic and establish rule of law and defend property rights.