Commentary

Exploiting the Asian Disaster to Increase Foreign Aid

Is the United States stingy? When Jan Egeland, the head of the UN’s humanitarian relief operations, suggested so in the wake of the Asian tsunami catastrophe, he was only the latest foreign aid advocate to judge the effectiveness of aid by its intent, rather than by its actual impact.

But disaster aid of the kind required in Asia is quite different from development aid. Egeland’s “stingy” statement was sadly the first of a series of calls by those using the crisis in Asia to advocate increases in worldwide development funds. Writing about the disaster, the New York Times described Washington’s overall non-military aid as a “pitiful amount.”

It is a mistake to conflate emergency aid and long-term development assistance. The goals of each are different, and emergency aid accounts for a small amount of the total. Of the $69 billion that rich countries gave to poor countries in 2003, for example, only 8.5 percent was for emergency and distress relief according to the Organization for Economic Cooperation and Development. The bulk of aid still goes to promote traditional aid objectives such as growth and poverty reduction.

Unfortunately, foreign assistance has a poor record at promoting development. There is in fact no correlation between aid and growth and few experts inside or outside lending agencies are satisfied with the performance of aid. In practice, much aid has been inimical to growth because it has supported governments whose policies keep people impoverished in the first place. The result has been debt, not development.

The World Bank’s list of 42 heavily indebted poor countries that cannot pay back their loans — most of them in Africa — is a serious indictment of the foreign aid process. Ninety-seven percent of that long-term debt is public or publicly guaranteed. Even though the World Bank acknowledges that aid has often been an “unmitigated failure” and that aid that goes into a poor policy environment doesn’t work, the Bank’s soft loan branch in recent years increased its lending to countries with poor policies.

Nor is aid generally effective at promoting reforms in recipient nations. Post-soviet Russia and dozens of countries around the world — including heavily indebted ones — are evidence that countries promise necessary reforms but ignore aid conditions once the money is received. By the end of the 1990s, the World Bank acknowledged what has also become a consensus among development experts: there “is no systematic effect of aid on policy.”

One of the reasons for aid’s disappointing performance is that “rich countries don’t hold the managers of aid institutions accountable for their long record of failure,” according William Easterly, a leading development economist formerly at the World Bank. Indeed, aid agencies rarely cut off recipients who misuse those funds, something of which all recipients are well aware. Largely because the lack of accountability hasn’t changed, Easterly opposes increases in foreign aid.

Yet for the foreign aid establishment, the amount of money moved is still a prominent measure of success. Thus, Washington is ungenerous because it transfers 0.15 percent of its GDP to poor countries — less than other rich countries. Thus also, the World Bank is calling for a doubling of worldwide aid flows. The UN regularly cites its own arbitrary level of desired aid, set in the 1970s at 0.7 percent of rich counties’ GDPs. In practical terms, that would mean that worldwide aid flows would almost triple to more than $190 billion. For the United States, it would mean more than quadrupling the 2003 aid level of $16.2 billion.

The truest measure of generosity, however, is how much individuals and private organizations voluntarily give. Former U.S. Agency for International Development official Carol Adelman found that U.S. private aid to those abroad far exceeds Washington’s official development assistance. A few years ago, her “conservative estimate” put private foreign aid at three-and-a-half times U.S. development aid.

The rise in aid from private U.S. entities includes foundations, churches, corporations, and private voluntary organizations like the YMCA and the Red Cross. It is safe to say that U.S. private aid still accounts for between three and four times official aid. U.S. remittances alone amounted to at least $30 billion in 2003, nearly double U.S. aid.

And because private aid tends to be less bureaucratic and gets to the people it intends to help, it also tends to be much more effective than official assistance. According to Adelman, moreover, the United States contrasts sharply with the “Europeans and the Japanese [who] continue to give primarily through their governments.”

In this sense, the United States is, if not the most generous country in the world, very near the top of the list. And its aid is surely more helpful to the world’s poor than that of other countries. It’s a shame that the Asian tsunami disaster is being cynically exploited to advocate massive increases in aid that doesn’t work.

Ian Vásquez is director of the Project on Global Economic Liberty at the Cato Institute.