Food Aid as Industrial Policy

It’s understandable that Americans would see malnourished people in other countries and want to help. Despite our recent economic woes, we are still relatively wealthy, and our instinct is to make the world a better place if we can.

The role of the government in any such issue is debatable. But not surprisingly, once the government gets involved, the original purpose gets distorted. In practice, after becoming a government program, the idea of giving food to poor people has been turned into an industrial policy tool. Instead of simply giving money to people to buy food from the cheapest source, the U.S. government buys food from U.S. producers and requires that it be sent overseas on U.S. ships.

Thus, government turns aid for the foreign poor into a domestic jobs program. As a result, the percentage of food aid money actually spent on food for the hungry is significantly reduced, as some of that money is now diverted to subsidizing domestic agricultural and other interests. (That, of course, is the problem with all industrial policy: it reduces overall welfare in order to help a favored few.)

Hopefully, that may change soon.  From the Washington Post:

The Obama administration has proposed the first major change in three decades to the way the United States supplies food aid to impoverished nations, significantly scaling back the program that buys commodities from U.S. farmers and ships them to the needy overseas.

Under a proposal in the White House budget released Wednesday, nearly half of $1.4 billion in requested funds for the aid could instead be spent to purchase local bulk food in countries in need or to distribute individual vouchers for local purchases.

Reducing the government’s requirement to purchase U.S. food, most of which by law must be shipped on U.S.-flag vessels, will save enough money to feed an additional 4 million children, according to Rajiv Shah, administrator of the U.S. Agency for International Development (USAID).

Although the United States is the biggest provider of food assistance in the world, it is the only donor nation that continues to require national purchases and shipment. Government and academic studies in recent years have described the U.S. system as both wasteful and inefficient.

The proposed changes won’t completely get rid of the industrial policy aspect: “the new proposal stops well short of doing away with Food for Peace and guarantees that 55 percent of food assistance funds will still be used to purchase and transport U.S. commodities.” But it would be a start.

Of course, these kinds of programs generate support from interest groups who benefit, and who resist any change:

Attempts by previous administrations to change the program were opposed by farm-state lawmakers and the agricultural and maritime lobbies, which argued that it provided economic benefits and jobs at home. In a February letter to President Obama, 21 senators from both parties said the existing program, called Food for Peace, was “important to American farmers and shippers and developing nations around the world.”

The bottom line: If we are going to try to help the poor through government programs, let’s make sure those programs are designed to help the poor, not special interest groups.