Policy Analysis No. 226

A New Aid Policy for a New World

Executive Summary

Since 1945, Washington has disbursed generous amounts of U.S. foreign aid in attempts to achieve a variety of foreign policy goals ranging from political influence to economic development. Today, the poor record of foreign assistance programs is widely recognized. Many countries receiving the aid are more impoverished now than when U.S. assistance began; the few that are making progress are doing so in spite of, not because of, foreign aid.

The Clinton administration’s proposal to “reform” U.S. aid does little to change the way foreign assistance is spent. Traditional lending programs have simply been renamed, and new spending priorities are no more likely to promote sustainable development. Even aid for humanitarian purposes continues to be used for nonhumanitarian ends.

Some Republican proposals to reform foreign aid are more encouraging because they envision cutting programs that have clearly failed or serve no national interest. But the Republican proposals should be viewed only as a starting point. In the post-Cold War world, developing countries are moving away from the type of central economic planning that U.S. aid has financed in the past. The United States should encourage that trend by zeroing out foreign aid. That includes foreign aid programs intended to promote free-market reform; even that type of assistance tends to delay, rather than accelerate, liberalization.

Washington can do much to help poor nations by abolishing the U.S. Agency for International Development and most of its functions. Instead of disbursing foreign aid, the United States should open its market to the developing world’s goods.

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Doug Bandow is a senior fellow at the Cato Institute. He is the author or editor of several books, including U.S. Aid to the Developing World: A Free Market Agenda andPerpetuating Poverty: The World Bank, the IMF, and the Developing World.