Commentary

Trade, Not Aid

When British Prime Minister Tony Blair met with President Bush last week, he urged the United States to increase substantially its aid to Africa. Pressure on Mr. Bush is likely to multiply over the coming weeks as he prepares to depart for the G8 summit in Scotland. Despite political pressures, increasing the U.S. foreign aid budget would be a mistake. The true cause of Africa’s poverty is the continent’s long history of crippling misgovernance—a problem that is exacerbated by rich countries’ trade protectionism, particularly with respect to agriculture.

While advocates of current market-distorting agricultural policies do not intend to harm developing nations, the collective effect of U.S. farm policies is devastating for producers of agricultural goods worldwide. American farm policies might provide short-term benefits for agricultural producers in the U.S., but those benefits are more than offset by the cost to American consumers who pay higher taxes to support the U.S. farmers and higher prices for agricultural products. Meanwhile, U.S. tariffs, quotas, and export subsidies exacerbate poverty in regions like sub-Saharan Africa where people are heavily dependent upon agriculture.

The frustration and despair caused by these policies in turn undermine American security. People who are dependent upon agriculture for their survival often have limited access to information. Unfamiliar with the historical and economic rationale behind U.S. agricultural policies, those individuals perceive U.S. farm policies to fit neatly within a competing narrative crafted by doomsayers who claim that the United States seeks to keep the rest of the world shackled in poverty. Protestations to the contrary from U.S. government officials typically fall on deaf ears.

U.S. agriculture policy undermines U.S. efforts to alleviate poverty because it drives down global agricultural prices, which in turn cost developing countries hundreds of millions of dollars in lost export earnings. The losses associated with cotton subsidies alone exceed the value of U.S. aid programs to the countries concerned. The British aid organization Oxfam charges that U.S. subsidies directly led to losses of more than $300 million in potential revenue in sub-Saharan Africa during the 2001/02 season. More than 12 million people in this region depend directly on the crop, with a typical small-scale producer making less than $400 on an annual cotton harvest. By damaging the livelihoods of people already on the edge of subsistence, U.S. agricultural policies take away with the right hand what the left hand gives in aid and development assistance.

Some want to correct that problem by increasing foreign aid, but transfer payments have failed to stimulate economic growth in Africa where the average income per person is 11 percent lower today than it was in 1960. State-to-state aid is inefficient because it is often based on geopolitical considerations, not on economic criteria. As a consequence, the least deserving regimes often obtain aid. International organizations such as the World Bank are also largely ineffective. In 2000, for example, the bipartisan Meltzer Commission found that the World Bank’s aid projects failed 55 to 60 percent of the time.

The aid is ineffective because of the appalling way in which Africa is governed. In recent decades, of each dollar given to Africa in aid, 80 cents were stolen by corrupt leaders and transferred back into Western bank accounts. In total, Nigerian President Olusegun Obasanjo estimated, “corrupt African leaders have stolen at least $140 billion from their people in the [four] decades since independence.” All that is left when these regimes eventually collapse is a massive public debt.

There is yet another practical problem with the “subsidies plus aid” approach. It forces taxpayers to pay twice—once to sustain the inefficient subsidies, and then again to pay for aid programs to those countries harmed by such policies. William R. Cline, senior fellow at the Institute for International Economics and the Center for Global Development, estimated that global trade liberalization would save the developed nations $141 billion a year and deliver economic benefits worth $87 billion a year to developing countries.

To the extent that U.S. security depends upon the expansion of liberal democratic institutions and free market economics, U.S. policymakers must be particularly sensitive to those policies that exacerbate poverty in the developing world. As Uganda’s President Yoweri Museveni stated during his 2003 meeting with President Bush, “I don’t want aid; I want trade. Aid cannot transform society.”

Development economists have stressed this message for years. U.S. subsidies and protectionism are particularly galling for those countries that have tried to make market reforms work, only to see their producers undercut by subsidized goods in the “free” world market. Even though the United States is hardly the worst offender in the developed world when it comes to unfair trading practices, the United States should lead by example and eliminate its market-distorting agricultural policies. They are damaging to the interests of most Americans, and they render useless U.S. efforts to alleviate poverty in the poorest corners of the globe.

Christopher Preble is director of foreign policy studies at the Cato Institute. Marian L. Tupy is assistant director of Cato’s Project on Global Economic Liberty.