More Evidence that Foreign Aid Throws Dollars Away for Nothing

The Obama administration celebrated its “leverage” from foreign aid to Egypt, and then demonstrated Washington’s complete political impotence. Now the United Nations’ Millennium Development Goals have been found to have no effect on economic development.

Nations are poor because of bad policies, not inadequate cash balances. This makes economic reform, not foreign aid, the key to growth. Unfortunately, politicians continue to take money from poor people in rich countries and give it to rich people in poor countries in the name of development.

In 2000, the usual assemblage of global leaders adopted the United Nations Millennium Declaration. The Millennium Development Goals were supposed to reduce extreme poverty by 2015.

Alas, the record of more than six decades of government-to-government transfers is failure. Foreign “aid” turned into foreign hindrance, creating long-term dependency while reinforcing self-defeating collectivist economic strategies and subsidizing authoritarian political systems.  

Aid agencies eventually claimed to have developed new, smarter approaches to uplift the poor. Since 2000, total assistance from industrialized states alone has more than doubled, going from $53.9 to $125.6 billion last year. The results, explained the UN, indicated “unprecedented progress” and “remarkable achievements.”

Nevertheless, the UN does not believe its work will finish in 2015.  Last year, the UN established a 27-member “High-Level Panel of Eminent Persons on the Post-2015 Development Agenda.”  

In May the group issued its report: “The Panel came together with a sense of optimism and a deep respect for the Millennium Development Goals (MDGs). The 13 years since the millennium have seen the fastest reduction in poverty in human history.”  While economic growth and better policies also played a role, noted the group, “it would be a mistake to simply tear up the MDGs and start from scratch.” The goal now is to “finish the job that the MDGs started” by “eradicating extreme poverty from the face of the earth by 2030.”

That is a laudable objective. But it turns out the MDGs have not even reduced extreme poverty.

Columbia economist Howard Steven Friedman, also with the UN Population Fund, analyzed the impact of the MDGs. Earlier this month he published a working paper that concluded:  “The general result was that there was no trend in statistically significant accelerations in the MDG indicators after 2000.”

Why are poor nations doing better? For this answer we must look the marketplace, not structural economists, central planning, aid bureaucracies, government-to-government transfers, or the MDGs.  

As I point out in my latest Forbes Online column:

“Of course, grave injustices persist in many of these lands. Those with influence continue to manipulate political systems to win economic favors.  However, more often than not, foreign aid turns into yet another resource for the well-connected to exploit. Aid encourages a further concentration of already dangerously centralized power.

Rather than hope more international communiqués and funds will eliminate poverty, Western states should reconsider policies which hinder developing countries from taking full advantage of the global marketplace. For example, protectionism, especially in agriculture, is an costly barrier. Trade agreements which attempt to impose unrealistically expensive environmental and labor standards on what remain poor societies is another. Political “aid” which strengthens regimes that, like Egypt, actively hinder economic and political reform also impedes development.”

The cup again will be passed to cash-strapped governments to fund the MDGs and whatever replaces them in 2015. But governments should stop wasting their citizens’ hard-earned cash when the only result will be to add to the fiscal tsunami threatening their children’s future.