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Foreign Policy

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Foreign Policy

Ending welfare for nations--foreign aid

By Michael Tanner

Foreign aid is little more than welfare for nations -- with the same disastrous effects as domestic welfare programs.

The U.S. currently spends approximately $14 billion per year on foreign aid -- far less than most people believe, but still a substantial sum. Since the end of World War II, the United States has spent more than $400 billion on aid to other countries. But there is little evidence that any of these programs has significantly improved the lives of the people in countries receiving this aid. Instead, foreign aid has typically slowed economic development and created dependence.

Indeed, the U.S. Agency for International Development itself admits, "Only a handful of countries that started receiving U.S. assistance in the 1950s and 1960s has ever graduated from dependent status." In fact, despite massive amounts of international aid, the average annual increase in per capita GNP has declined steadily in developing nations since the 1960s, with many of the Third World's heaviest aid recipients actually suffering negative economic growth.

Tanzania provides a perfect example. Since the early 1970s, Tanzania has received more international aid per capita than any other country. Yet, the country remains the world's third-poorest nation and has had no per capita GNP growth between 1980 and 1992. During the same period, inflation averaged 25% and energy and agricultural production declined dramatically.

A recent study by Peter Boone of the London School of Economics and the Center for Economic Performance confirmed that U.S. economic aid does not promote economic development. Studying more than 100 countries, Boone concluded that "Long-term aid is not a means to create [economic] growth."

There are many reasons for the failure of foreign aid. First, foreign aid has a widespread record of waste, fraud, and abuse. U.S. aid programs have built tennis courts in Rwanda, sent sewing machines to areas without electricity, and constructed hospitals in cities where a dozen similar facilities already sat half empty.

Frequently, the aid is stolen by corrupt foreign leaders. The Agency for International Development admitted in 1993 that "much of the investment financed by AID between 1960 and 1980 has disappeared without a trace."

Even when aid reaches its intended beneficiaries, the results are often counterproductive. Just as domestic welfare prevents Americans from becoming self-sufficient, foreign aid keeps entire nations dependent. According to one internal AID audit, "Long-term feeding programs . . . have great potential for creating disincentives for food production."

Specific examples of counterproductive aid policies are easy to come by. For example, following a devastating earthquake in Guatemala, farmers trying to sell their surplus grain found the market flooded by the U.S. Food for Peace program. As a result, according to the Institute for Food and Development Policy, "food aid stood in the way of development." According to journalist Michael Maren, a long-time volunteer with such groups as the Peace Corps, Catholic Relief Services, and AID, aid to Somalia aggravated the country's famine, disrupted local agriculture, and turned nomadic tribesmen into "relief junkies." Similar results have been documented in countries as diverse as Colombia, Haiti, and India.

Moreover, foreign aid has often been used to prop up failing Socialist economies, preventing countries from moving to free-market economic policies. Yet, an examination of world economies clearly shows that those countries with free markets experience the greatest economic prosperity.

As a result, Alex de Waal, president of the human rights group, Africa Rights, concludes that foreign aid is "structurally bad because it undermines the incentive to take responsibility. The more aid a country receives, the less the government of that country has to answer to the people."

If Americans truly want to help other countries, they can best do so not through failed foreign aid programs, but by improving the U.S. economy, so that U.S. businesses have funds to invest abroad, and pursuing free trade policies. As the Congressional Budget Office recently admitted, "Critics rightly argue that the broad policies of the major Western countries -- trade policies, budget deficits, growth rates, and the like -- generally exert greater [positive] influence on the economies of developing countries than does aid."

Michael Tanner is a senior fellow at the Cato Institute and author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution (2007).


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