339 Carlisle Column: The Romantic Tale of Foreign Aid and Western Saviorism
By Abigail Marconi, Columnist
The United States spends a whopping $50 billion on foreign aid each year! Spending this amount on developing countries is a feat to behold, but do we really know where this money is going? It is estimated that the World Bank has participated in the corruption of $100 billion worth of loan funds intended for development, and more often than not, the money ends up lining the pockets of dictators and bureaucrats. Some economists and political activists suggest that foreign aid is essential to helping countries develop economically and eradicate poverty. The stark reality is, however, that aid has repeatedly failed – and often harms those we intend to help.
Regardless of whether foreign aid has had any success, it is important to recognize the many times it has dismally failed. Despite Africa receiving at least $1 trillion in aid over the past 60 years, GDP per capita (which is used to measure standard of living) in sub-Saharan Africa is less than it was in 1974, having declined 11 percent. A nonprofit charity compiled examples of foreign aids’ harmful effects, ranging from driving local farmers out of business to discouraging outside investment. Parade Magazine released its rankings of the world’s 10 worst dictators in 2009, from Zimbabwe’s Robert Mugabe to Sudan’s Omar al-Bashir, and shockingly, every single dictator’s regime received foreign aid from Western countries. Foreign aid has a track record of supporting corrupt governments, like Malawi’s former President Bakili Muluzi and Zambia’s former President Frederick Chiluba, both of whom embezzled millions of aid dollars away from development into their personal funds. Rather than helping the poor, foreign aid is rife with unintended consequences and ends up assisting crooked elites.
The question becomes: can foreign aid be reformed in such a way that it actually begins to help the targeted recipients? If the goal of aid is to help people rise above the international poverty line of $1.90 a day, then foreign aid is most certainly not the solution. It is important to realize that economic growth occurs when the fundamental economic problem is solved – which is how to best utilize limited resources. Economic theory suggests that this problem is solved when people are guided by prices in a market, where buyers and sellers meet to freely exchange goods. This is because profits and losses help people determine which resources are valued most and into which activities those resources should be dedicated. Without a market and local arrangements to protect property rights, resources become horribly misallocated. This, in turn, exacerbates poverty.
This is exactly why foreign aid fails to help countries achieve long-term economic growth. It’s because aid programs like the Gyandoot Project dump computer kiosks in rural India and do not realize that the area has neither the electricity nor demand for them. While this might seem like an obvious mistake, the problem comes down to the fact that Western countries can never effectively plan how to dole out resources, let alone foresee the unintended consequences they may cause. Without prices to guide profit and loss, no one can know where resources should go, to whom they should go, and in what quantity they should be delivered. It is a modern fantasy to believe that Western countries have ultimate knowledge and can inject billions of dollars into failing governments and unaccountable agencies to eliminate poverty. Even worse, those same funds become less pleasant of an idea when they are spent in ways that are not only wasteful, but harmful.
The most foreign aid can ever do is provide short-term relief. Foreign aid can try to reduce malaria or provide food to crisis areas, but it is important to recognize these as band-aid solutions that require a significant amount of bureaucratic planning. Even this kind of aid often has unintended consequences, such as a health program in Egypt that ended up causing higher rates of hepatitis C. Certain programs, like the President’s Malaria Initiative, have had success in providing short-term assistance. However, it is worth considering whether this money should be directed towards nonprofit charities providing the same services without all the bureaucratic sluggishness. Either way, such programs will never be the instigators of long-term economic growth.
It’s time for America to stop patting itself on the back for sending $50 billion overseas hoping it will solve global poverty and start thinking critically about how economies actually develop: through the establishment of private property rights and markets. This solution is not easy or clear-cut, but as it turns out, life’s most worthwhile endeavors usually aren’t.