Commentary

Kill “Foreign Assistance”for American Companies

Foreign aid is good for America, or so goes the argument. Just as patriotism is said to be the last refuge of the scoundrel, business is proving to be the last refuge for supporters of a program that was once thought to be doomed by the 1994 election. The GOP-controlled Congress has responded by doing little more than trimming foreign aid.

The World Bank, one of the chief targets of criticism, has run a series of newspaper ads touting U.S. contributions to the International Development Association (IDA), which makes de facto grants to poor nations, as “a good investment.” Why, claimed the Bank, American companies earn a dollar for every dollar provided by Washington.

The U.S. Agency for International Development (USAID) makes much the same case for its budget. Declares one propaganda piece, “Close to 80 percent of USAID’s grants and contracts go directly to American firms and nongovernmental organizations.”

Even more fervent has been the pitch that foreign assistance generates exports. National Security Adviser Anthony Lake touts Washington’s international largesse as “expanding and opening markets for American goods and services.”

How?

Declares USAID: “Trade opportunities do not simply materialize; the ground must be prepared first,” through the transfer of U.S. taxpayers’ money. Sens. Nancy Kassebaum, R-Kan., and Richard Lugar, R-Ind., make a similar case for IDA, arguing that “a small contribution … today will pay off in the future by helping build markets.”

Naturally, businesses that sell these products have rallied to the aid cause. The American Seed Trade Association, Professional Services Council, and other business interests have created the Business Alliance for International Economic Development, which recently testified before the Senate Appropriations Subcommittee on Foreign Operations and is touting its new study, “Foreign Assistance: What’s In It for Americans?”

Plenty, claims the Alliance: “fully 80 percent of the foreign assistance budget is spent right here at home, on American goods and services.” Moreover, claims the exporters’ lobby, aid also helps poor countries develop the institutions necessary to “foster trade, and to attract private investment - the very things that make possible American exports.”

Yet these arguments are all deeply flawed attempts to justify equally flawed programs. First, one should treat the numbers supplied by aid dispensers with great skepticism. John Thibodeau, Director of Research at Probe International, a Canadian environmental group, has found the World Bank’s figures regarding IDA to be wildly inaccurate. (Link to this Cato study)

“Contrary to World Bank claims, the United States receives only about 23 cents in contracts for each $1 it contributes to IDA,” he writes. As a result, he calls IDA an economic “black hole” consisting of “bad projects and pork-barrel contracts for a few American firms.”

Not that contributions to IDA - or USAID, for that matter - would be an economic boon even if the official figures were correct. After all, the United States doesn’t have to send money to foreign governments to have it spent in America. All Washington need do is leave the dollars with the taxpayers who earned them. Indeed, the very premise of the argument is ridiculous - that money spent on foreign assistance has no alternative use, that people would, say, flush their cash down toilets if the government did not send it to Kinshasha, New Delhi and other Third World capitals.

Similarly defective is the contention that aid promotes trade. Of course, economic growth naturally begets trade. But this begs the most important question: Does foreign aid promote economic growth?

If so, the evidence is hard to find. Even USAID admitted in 1993 that “much of the investment financed by U.S. AID and other donors between 1960 and 1980 has disappeared without a trace.”

There is no correlation between aid levels and economic growth, nor is there evidence of causation in the few cases where rapid growth has occurred. To the contrary, what causes growth, as even many formerly socialist governments now admit, is good, domestic economic policies. But aid deserves no credit for them. For decades, bilateral and multilateral aid subsidized regimes that were simultaneously authoritarian and collectivist. Governments that are now moving toward market economies are doing so despite, not because of, foreign aid.

There is an even more basic issue. Why does business have the right to tap the public till to boost its sales and profits? If there is a case for foreign aid, it should be the interest of America, not American business. If Congress is going to cut welfare, it should slash subsidies for wealthy corporations as well as poor people.

After 50 years of failure, foreign aid nevertheless retains a coterie of devoted supporters. But international assistance has promoted neither growth abroad nor prosperity at home. The enrichment of corporate America is no better reason to throw more good taxpayer funds after bad. Voters should instruct candidates to be their congressmen to take the ax to so-called foreign assistance.

Doug Bandow is a senior fellow at the Cato Institute. He served as a special assistant to President Reagan.