THE BUSH ADMINISTRATION is earnestly seeking to reform scores of federal programs after the scandal-ridden Clinton years. But sometimes there is no substitute for a good chainsaw massacre.
Such is the case with foreign aid. The U.S. is now giving $15 billion a year in foreign aid — economic and military — around the world. This is an addiction that first surfaced in the years after World War II and perpetuated itself despite practically no evidence of success.
A good example of the failure of foreign aid popped up in the Washington Post recently. The Clinton administration had acted like a great savior in its relief efforts to former Eastern Bloc nations. The Post revealed that an Agency for International Development (AID) project to teach Poles how to achieve local democracy was a three-star farce:
On the wall of the Warsaw headquarters of the Polish local government project is a sign … that wryly sums up the experience of the last three years. The “Six Phases of a Successful Program” are listed as: 1) Enthusiasm; 2) Disillusionment; 3) Panic; 4) Search for the guilty; 5) Punishment of the innocent; 6) Praise and honors for nonparticipants.
The project seemed far more concerned with enriching American consultants than with benefiting Poles. One Polish consultant told the Post that “dozens of Americans arriving with their wives, dogs, cats, and children caused many more problems than they were able to solve.”
Each U.S. consultant sent to Poland cost AID around $200,000 to comfortably maintain. An audit of the project concluded that “Polish counterparts were able to see that the quality was low and resented, justifiably, that the foreign experts were being paid large salaries and were producing little.”
Former cabinet minister Jerzy Regulski derided the AID project for taking a “colonialist approach,” observing,
The attitude of the foreign experts was, “We have money, we are wise, we know what to do.” But the American experts had never lived under communism. Much of their technical information was not usable in a different political setting.
The AID project actually undermined effective, successful Polish organizations, the Post reported, because it came in and lured away their talent with higher salaries — to work for an organization that did little more than shuffle paper and send progress reports to Washington.
Elsewhere, U.S. aid can bring out the worst in recipient nations. To see an example of how foreign aid from the United States and other nations fueled the fires of corruption and crony capitalism in Russia, see Janine Wedel’s excellent book, Collision and Collusion (1998). The Justice Department is suing Harvard University and several individuals for $120 million for defrauding an AID program in Russia. Wedel notes,
Russian reformers, including many under investigation for allegedly laundering billions of dollars through the Bank of New York, have long been embraced by the Clinton administration and international financial institutions…. The first stage of privatization, which had substantial input from U.S.-paid Harvard advisors, fostered the concentration of property in a few Russian hands and opened the door to widespread corruption….
The Clinton administration consistently backed a small group of self-interested insiders by giving them the “dream team” seal of approval and a blank check in the form of billions of dollars in Western aid and loans, while neglecting to encourage the development of a legal and regulatory backbone for Russia’s nascent market economy.
The easiest measure of the efficacy of U.S. foreign aid is contained in a list of the major recipients:
|Palest. Terr.:||$512 million|
|(From Cox News Service, September 2000)|
There is no country on the list that has both sound economic policies and a good record on human rights. In Colombia, the United States is bankrolling a huge expansion of a civil war. In Russia, the United States is providing windfalls for the Swiss bankers who end up with the money Washington sends to Moscow. In Egypt and Israel, the United States is paying for grossly swollen government bureaucracies that are a pox on the productivity and aspirations of citizens in those countries.
One thing that is almost impossible to discover on any list of major U.S. aid recipients is a nation with sufficiently good policies to attract ample private foreign investment. U.S. foreign-aid programs became entrenched at a time when world capital markets were relatively undeveloped. Nowadays, there is ample capital looking for a home in nations that offer a good return.
There is little that foreign aid can do that private credit cannot do equally well or better. As economist P.T. Bauer notes, “The maximum contribution of aid [to development] is the cost of borrowing that is avoided.”
But the cost of avoiding interest payments on loans is the transformation of imported capital into a pork barrel for recipient politicians. The costs of politicizing aid are greater than the costs of interest payments on private credit.
Going on international welfare is frequently as pernicious to Third World governments as going on Aid to Families with Dependent Children was to struggling American families.
Making things worse with foreign aid
|Outside of the Middle East, Africa has been the primary aid target in recent decades. But the more foreign aid African governments have received, the worse they have tended to perform. As the General Accounting Office noted, “The large number of donors and their administrative requirements place a considerable burden on recipient governments and strain their already weak administrative capacity.” An AID analysis concluded:
Foreign aid has been very effective at inflating the living standards of government employees. Mercedes-Benz automobiles are so popular among African government officials that a new word has come into use in Swahili: wabenzi — “men of the Mercedes-Benz.”Throughout Central America, foreign aid has vastly expanded the size and power of central governments. As Manuel F. Ayau, former president of the Universidad Francisco Marroquin in Guatemala City, observed, foreign aid
Foreign aid is usually money from government, to governments, for governments. Foreign aid will almost always end up swelling either government revenue or government power in the recipient nation. This alone is reason enough to abolish all U.S. foreign aid.Regardless of the political rhetoric of the hour, American foreign-aid programs will still be controlled by politicians eager to buy goodwill and administered by bureaucrats eager to meet their quota of loans, and they will still be received by foreign governments careless of the use of free gifts. As long as the same political, bureaucratic, and economic incentives govern international welfare, the same mistakes will be repeated.
Unfortunately, even conservatives balk at reaching this obvious conclusion. Sen. Jesse Helms, who has fought staunchly against AID abuses over the decades, is now pushing a plan to privatize U.S. foreign aid by giving block grants to private groups such as Catholic Relief Services to do good deeds in the Third World.
But a far better privatization would be for politicians to cease seizing Americans paychecks in order to provide “walking around money,” as foreign aid has traditionally been known, for the secretary of state. The U.S. government has a $5 trillion debt — it has no right to play spendthrift in order to subsidize the therapy of guilt-stricken affluent liberals.
For more than 50 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 derailed struggling economies and providing governments ample means to oppress their subjects.
The Bush administration’s handling of foreign aid will be an acid test of whether “compassionate conservatism” is more than mush. The best foreign-aid program is American citizens’ deciding which foreigners (or foreign governments) are worthy to receive their contributions and purchases. This would be a far better check to waste, fraud, and abuse than anything that AID will ever come up with. And if Americans prefer to spend their money on themselves, their families, or charitable causes close to home, then that is their right.