Policy Analysis No. 65

The Continuing Failure of Foreign Aid

By James Bovard
January 31, 1986

Executive Summary

For 40 years, U.S. foreign aid has been judged by its intentions, not its results. Foreign aid programs have been perpetuated and expanded not because they have succeeded, but because giving foreign aid still seems like a good idea. But foreign aid has rarely done anything that countries could not have done for themselves. And it has often encouraged the recipient governments’ worst tendencies—helping to underwrite programs and policies that have starved thousands of people and derailed struggling economies.

In agriculture, in economic planning, in food assistance, U.S. foreign aid has routinely failed to benefit the foreign poor. In Africa, Asia, and Latin America, the U.S. Agency for International Development (AID) has dotted the countryside with “white elephants”: idle cement plants, near-empty convention centers, abandoned roads, and—perhaps the biggest white elephant of them all—a growing phalanx of corrupt, meddling, and overpaid bureaucrats.

Since 1946, the United States has given over $146 billion in humanitarian assistance to foreign countries. In 1985, the United States provided over $10 billion in non-military aid abroad, ranging from free food to balance-of-payments support to project-assistance and population-planning programs. AID employs over 4,500 employees to administer these programs, many of which have expanded rapidly under the Reagan administration.

Americans have a long tradition of generously aiding the victims of foreign earthquakes, famines, and wars. Before World War II, private citizens provided almost all of America’s foreign assistance. After World War II, the Truman administration decided that a larger, more centralized effort was necessary to revitalize the war-torn economies of Europe. Economic planning was the rage in Washington in the late 1940s, and Marshall Plan administrators exported their new-found panacea. The Marshall Plan poured over $13 billion into Europe and coincided with an economic revival across the continent. The best analysis indicates that Europe would have recovered regardless of U.S. aid, and that the clearest effect of the Marshall Plan was to increase the recipient governments’ control of their economies.[1]

The apparent success of the Marshall Plan led Truman in 1949 to propose his Point Four Program to provide a smaller version of the Marshall Plan for poor countries in Africa, Asia, and Central and South America. Truman declared that Point Four would be “a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of undeveloped areas.”[2]

In the 1950s, the Eisenhower administration downplayed humanitarian aid, concentrating on security assistance to strategic allies. In 1954, Sen. Hubert H. Humphrey pushed the Food For Peace program through Congress, but that was the largest innovation in economic assistance during the decade. When John F. Kennedy took the helm in 1961, the stage was set for a huge expansion of foreign aid. In a special message to Congress, Kennedy called for “a dramatic turning point in the troubled history of foreign aid” and proclaimed that the sixties would be the “decade of development”—“the period when many less- developed nations make the transition into self-sustaining growth.” Kennedy placed heavy stress on the willingness of recipient governments “to undertake necessary internal reform and self-help.”[3] In 1961, AID was created, and the U.S. foreign aid bureaucracy came into its own.

Despite Kennedy’s stress on requiring reforms from recipient governments, foreign aid routinely went to countries pursuing policies destined to turn them into permanent economic cripples. Partly as a result of a widespread perception that such aid was usually wasted, it consistently ranked as one of the least popular government programs with the American public.[4]

From the mid-sixties to the early seventies, South Vietnam received the bulk of U.S. economic aid. In 1973, Congress, concerned about the ineffectiveness of U.S. aid, heavily revised aid-program goals to focus more on social services and less on economic development.

When Ronald Reagan took office in 1981, many observers expected a thorough reform of U.S. foreign aid. Reagan declared in a major speech before the annual meeting of the World Bank and International Monetary Fund, “Unless a nation puts its own financial and economic house in order, no amount of aid will produce progress.”[5] Since then, despite Reagan’s tough rhetoric on requiring reform from recipient governments, little has changed. American foreign aid still suffers the same problems it did when Kennedy took office in 1961. Despite countless reforms, foreign aid is still a failure.

Instead of breaking the “endless cycle of poverty,” foreign aid has become the opiate of the Third World. AID and other donors have encouraged Third World governments to rely on handouts instead of on themselves for development. No matter how irresponsible, corrupt, or oppressive a Third World government may be, there is always some Western government or international agency anxious to supply it with a few more million dollars. By subsidizing political irresponsibility and pernicious policies, foreign aid ill serves the world’s poor.

American foreign aid has often harmed the Third World poor. In Indonesia, the government confiscated subsistence farmers’ meager plots for AID-financed irrigation canals. In Mali, farmers were forced to sell their crops at giveaway prices to a joint project of AID and the Mali government. In Egypt, Haiti, and elsewhere, farmers have seen the prices for their own crops nose-dive when U.S. free food has been given to their countries.

AID cannot be blamed for all the mistakes made in the projects it bankrolls. However, by providing a seemingly endless credit line to governments regardless of their policies, AID effectively discourages governments from learning from and correcting their mistakes. Giving some Third World governments perpetual assistance is about as humanitarian as giving an alcoholic the key to a brewery. Good intentions are no excuse for helping to underwrite an individual’s—or a country’s— self-destruction.

Foreign aid programs appear to be incorrigible. For 35 years, American foreign aid policymakers seem to have learned nothing and forgotten nothing. U.S. foreign aid projects routinely repeat the same mistakes today that were committed decades ago. One telltale ironic report title from the General Accounting Office says it all: “Experience—A Potential Tool for Improving U.S. Assistance Abroad.”[6]

This study focuses on the failure of U.S. humanitarian aid to achieve its goals. It begins with a close examination of one of the most popular foreign aid programs, Food for Peace. Then comes a review of AID’s record in resurrecting the economies of Central America, followed by an analysis of AID’s role in African agricultural development. AID’s achievements in Egypt and Indonesia are then reviewed, followed by an analysis of AID’s role in spurring the development of private business and capitalism in poor countries. The study concludes with an analysis of why U.S. foreign aid has failed in the past and why it will most likely fail in the future. Military aid and security assistance is a different issue and is not examined here.

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James Bovard is a free-lance writer who has written on foreign aid for the Wall Street Journal, Chicago Tribune, and other publications.