Monday, August 24, 2009

Current System of Foreign Aid Does More Harm Than Good

Every day, over 20,000 people around the world die from causes stemming from extreme poverty. Infectious diseases continue to ravage Africa and many other parts of the planet, long after they have become mere memories in the West. Half the world's population lives in conditions that affluent people in America, Europe and Japan can scarcely imagine.

Although their exposure to the suffering is mostly limited to images on television, many people in the West are moved by the plight of the developing world and want to help. In 2008, the United States spent about $25 billion in foreign aid to countries in the Third World. The European Union spent even more than that. By some estimates, Western nations have given $2.3 trillion in foreign aid over the last five decades. Entire government agencies and international organizations have been created to focus on the problem of raising the people of the developing world out of poverty, employing armies of well-paid technocrats.

But despite the gargantuan amount of money the West has poured into the developing world since 1945, the people of the recipient nations seems more impoverished today than ever. Why the lack of progress? The sad fact is that the massive amount of foreign aid from the West does nothing to help the people of the developing world. Indeed, it makes the problem worse.

For the people of any nation to be free and prosperous, they obviously have to be able to stand on their own and not be dependent upon the largess of others. Ostensibly, the purpose of foreign aid to to help the people of the developing world become self-sufficient, but in truth it cruelly traps them into a cycle of dependence from which they cannot escape.

Consider the case of a random farmer in Tanzania. In order for him to prosper, he has to deal able to sell his produce at a reasonable rate, so as to provide for his own needs while incidentally helping to feed the nation. But when a development agency from a Western country shows up in his town and starts unloading bags of flour for free, it's quite clear that no one is going to buy the farmer's wheat. Why pay for something you can get for free? Consequently, the farmer is driven out of business and becomes an impoverished person dependent on the very aid that destroyed him. Expand this logic from a single farmer to an entire country, and you have one of the key problems with foreign aid.

Making the problem worse is the blatant corruption that pervades most of governments in the developing world. A huge portion, perhaps the majority, of the foreign aid money from the West ends up in the pockets of well-to-do corrupt officials, with little and sometimes none at all filtering down to the ordinary people who are the intended recipients. It might well be said that one outcome of foreign aid has been providing economic stimulus to the Swiss banking industry.

Another root of the problem is the inefficiency inherent in large governmental agencies being endowed with vast resources, but being given open-ended and effectively permanent mandates. If a government creates a very specific objective, such as getting a man on the Moon or eradicating smallpox, it can often achieve great results. But if it creates an agency and tells it to make the world better, without any real benchmarks or responsibility, the inevitable result is a bloated bureaucracy and a lot of wasted taxpayer money.

Aid agencies also fixate on top-down efforts, when they should be looking at bottom-up solutions. Economists and bureaucrats in New York or London, who may have little or no knowledge of the conditions in the country in question, devise elaborate and complicated plans that look good on paper but which almost always fail in practice. In the meantime, talented entrepreneurs in the impoverished countries themselves, who are undertaking their own efforts to improve their societies, are usually ignored by international aid agencies.

Proponents of foreign aid seem remarkably blind to the utter failure of their policies. Usually, they claim that any shortcomings in their work can be overcome by more massive infusions of cash. Entertainment celebrities (particularly U2 front man Bono, who has become the global face of the effort) are deployed in public relations efforts that largely disguise the inability of foreign aid to raise the quality of life for anyone. Their hearts are clearly in the right place, but their levels of self-deception are so high that they don't see how their efforts are actually harming those they are trying to help.

A few people are beginning to cry out that the emperor has no clothes. The man who has done the most to reveal the failure of foreign aid programs is William Easterly, who wrote two books on the subject, The Elusive Quest for Growth and The White Man's Burden. But considering the appeal of the underlying message of foreign aid proponents and their sophisticated public relations efforts, it will be some time before people come to understand the problems with foreign aid.

Frankly, the people of Africa and other impoverished regions would probably be better off if Western nations simply ceased providing foreign aid money. If Western citizens want to help the people of Africa, they would be well-advised to work through institutions other than the government. One particularly interesting method of assisting the developing is microfinance, which provides small loans to people to help them set up economically self-perpetuating means of supporting themselves.

Thomas Jefferson would have felt his heart be moved by the plight of the impoverished people of the developing world in the early 21st Century. But he would have also insisted that any effort to alleviate it be guided by rationality and common sense. Looking at the failure of big government action on this front, we can easily see that the prevailing approach hasn't worked. Therefore, we should do something else.

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