Commentary

Foreign Aid Costs Us More and Gains Us Less

This article appeared in Copley News Service on March 10, 1997.

In yet another display of how the Clinton administration intends to use bipartisanship as a cover to fleece U.S. taxpayers, Secretary of State Madeleine Albright traveled to Texas to win the support of former President Bush for increased spending on foreign affairs. “There is a stupid feeling in some quarters that we don’t have any more threats in the world,” complained Bush.

Yet the administration’s request for a 1.2 billion increase for the State Department and the Agency for International Development obviously has nothing to do with foreign threats.

Indeed, if international threats had anything to do with the foreign affairs budget, it would have been cut radically after 1989 when the Berlin Wall fell. Cuba’s Fidel Castro, North Korea’s Kim Jong Il and Serbia’s Slobodan Milosevic are all poor substitutes for the Soviet Union.

Instead of dropping, however, international affairs outlays have been growing. According to Bryan Johnson and Brett Schaefer of the Heritage Foundation, expenditures rose steadily from 1987 through 1994, before dipping slightly. The State Department’s budget is more than a quarter larger today than in 1985.

And now the State Department is demanding even more money. Of course, Washington has opened embassies in the any new countries that arose out of the ashes of the communist bloc. However, America has no pressing need for a large diplomatic presence in nations like Armenia, Georgia and Slovenia.

Anyway, as Johnson and Schaefer point out, “There is plenty of money in wasteful and ineffective economic development aid and other nonessential accounts to cover the cost of these new operations.” Since World War II the United States has spent nearly $1 trillion (in 1997 dollars) on foreign aid. The result is debt, dependency and poverty.

Even many advocates of foreign assistance have been disappointed by the results. For instance, USAID admitted in 1993 that “much of the investment financed by USAID and other donors between 1960 and 1980 has disappeared without a trace.” USAID administrator Brian Atwood admits that in the case of Zaire, “the investment of over $2 billion of American foreign-aid served no purpose.”

Decades of experience demonstrate that government-to-government transfers do not generate self-sustaining economic growth.

Virtually every Third World state has received significant amounts of foreign aid, yet the majority have stagnated economically, indeed, many nations have been losing ground. Fully 70 developing countries are poorer today than they were in 1980; 44 are worse off than they were in 1960. Nowhere do aid levels correlate with economic growth.

Many of the biggest recipients of foreign assistance, such as Bangladesh, Egypt, India, Sudan and Tanzania, have been among the globe’s worst economic performers.

Peter Boone of the London School of Economics reviewed the experience of nearly 100 nations, concluding that “Long-term aid is not a means to create growth.” As Boone explained, “Poverty is not caused by capital shortage, and it is not optimal for politicians to adjust distortionary policies when they receive aid flows.”

An even more comprehensive study is “Economic Freedom of the World: 1975-1995,” by economists James Gwartney, Robert Lawson and Robert Block.

Two particularly important lessons emerged from their study:

  • First, economic policies matter. Countries earning a rating of A or B averaged real per capita GDP growth of 2.4 percent from 1980 to 1994. In contrast, the economies of the 27 countries graded an F actually shrunk. Explain the authors: “No country with a persistently high economic freedom rating during the two decades failed to achieve a high level of income. In contrast, no country with a persistently low rating was able to achieve even middle income status.”
  • Second, economic reform yields economic growth. According to the study, the 17 nations with the greatest increases in economic freedom enjoyed an average growth rate of 3.1 percent from 1985 to 1994. Per capita GDP declined in most of the 16 nations with the largest drops in economic freedom.

The world remains a dangerous place, but as threats to the United States fall, so should Washington’s spending on international affairs. Republicans should not allow the Clinton administration to play them for useful idiots, assisting in the continued impoverishment of the American people.

Doug Bandow is a senior fellow at the Cato Institute.