Kill “Foreign Assistance“for American Companies

Distributed by Copley News Service.

Foreign aid is good for America, or so goes theargument. Just as patriotism is said to be the last refuge of thescoundrel, business is proving to be the last refuge forsupporters of a program that was once thought to be doomed by the1994 election. The GOP‐​controlled Congress has responded by doinglittle more than trimming foreign aid.

The World Bank, one of the chief targets ofcriticism, 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 goodinvestment.” Why, claimed the Bank, American companies earna dollar for every dollar provided by Washington.

The U.S. Agency for International Development(USAID) makes much the same case for its budget. Declares onepropaganda piece, “Close to 80 percent of USAID’s grants and contractsgo directly to American firms and nongovernmentalorganizations.”

Even more fervent has been the pitch thatforeign assistance generates exports. National Security AdviserAnthony Lake touts Washington’s international largesse as“expanding and opening markets for American goods andservices.”


Declares USAID: “Trade opportunities donot simply materialize; the ground must be prepared first,“through the transfer of U.S. taxpayers’ money. Sens. NancyKassebaum, R‑Kan., and Richard Lugar, R‑Ind., make a similar casefor IDA, arguing that “a small contribution … today will payoff in the future by helping build markets.”

Naturally, businesses that sell these productshave rallied to the aid cause. The American Seed TradeAssociation, Professional Services Council, and other businessinterests have created the Business Alliance for InternationalEconomic Development, which recently testified before the Senate AppropriationsSubcommittee on Foreign Operations and is touting its new study,“Foreign Assistance: What’s In It for Americans?”

Plenty, claims the Alliance: “fully 80percent of the foreign assistance budget is spent right here athome, on American goods and services.” Moreover, claims theexporters’ lobby, aid also helps poor countries develop theinstitutions necessary to “foster trade, and to attractprivate investment — the very things that make possible Americanexports.”

Yet these arguments are all deeply flawedattempts to justify equally flawed programs. First, one shouldtreat the numbers supplied by aid dispensers with greatskepticism. John Thibodeau, Director of Research at ProbeInternational, a Canadian environmental group, has found the WorldBank’s figures regarding IDA to be wildly inaccurate. (Link to this Cato study)

“Contrary to World Bank claims, the UnitedStates receives only about 23 cents in contracts for each $1 itcontributes to IDA,” he writes. As a result, he calls IDA aneconomic “black hole” consisting of “bad projectsand pork‐​barrel contracts for a few American firms.”

Not that contributions to IDA — or USAID, forthat matter — would be an economic boon even if the officialfigures were correct. After all, the United States doesn’t haveto send money to foreign governments to have it spent in America.All Washington need do is leave the dollars with the taxpayerswho earned them. Indeed, the very premise of the argument is ridiculous‐ that money spent on foreign assistance has no alternative use, thatpeople would, say, flush their cash down toilets if thegovernment did not send it to Kinshasha, New Delhi and otherThird World capitals.

Similarly defective is the contention that aidpromotes trade. Of course, economic growth naturally begetstrade. But this begs the most important question: Does foreignaid promote economic growth?

If so, the evidence is hard to find. Even USAIDadmitted in 1993 that “much of the investment financed byU.S. AID and other donors between 1960 and 1980 has disappearedwithout a trace.”

There is no correlation between aid levels andeconomic growth, nor is there evidence of causation in the fewcases where rapid growth has occurred. To the contrary, whatcauses growth, as even many formerly socialist governments nowadmit, is good, domestic economic policies. But aid deserves nocredit for them. For decades, bilateral and multilateral aid subsidizedregimes that were simultaneously authoritarian and collectivist. Governmentsthat are now moving toward market economies are doing so despite,not because of, foreign aid.

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

After 50 years of failure, foreign aidnevertheless retains a coterie of devoted supporters. Butinternational assistance has promoted neither growth abroad norprosperity at home. The enrichment of corporate America is nobetter reason to throw more good taxpayer funds after bad. Votersshould instruct candidates to be their congressmen to take the axto so‐​called foreign assistance.

Doug Bandow

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