Is Foreign Aid a Sacred Cow? | by Victor V. Claar

Below is a commentary written by Victor Claar and published by PovertyCure’s parent organization, the Acton Institute. The commentary addresses a letter written by leaders of the ministry and NGO world that urged the United States Congress to protect federal funding for foreign aid from budget cuts. Several PovertyCure friends and partners signed this letter. Our hope in posting this commentary is to kindly remind them and our readers why entrepreneurship, economic growth, and a focus on the creative capacity of the poor, not foreign aid, is the best path forward to realizing a world without extreme poverty.

Our aim is not to promote nor defend any particular legislative agenda. Our aim is simply to add our view to the larger conversation about the merits and deficiencies of foreign aid.


In case you missed it – understandably – in the barrage of news stories and Saint Patrick’s Day posts last week, a group of 106 faith leaders have collaborated on a letter they have signed and sent to the Democrat and Republican leadership of both houses of Congress. The letter implores Congress not to reduce the size of the U.S. International Affairs Budget, and was occasioned by President Donald J. Trump’s proposed budget for the coming fiscal year.

Since the final passage of the Budgeting and Accounting Act of 1921, the president has been charged with delivering a proposed budget to Congress no later than the first Monday in February. Far from final, this “executive budget” usually serves as a starting point for budgetary discussions and negotiations.

In Trump’s proposed budget, he asks Congress for a $10.9 billion reduction – roughly 28 percent – of the funds currently allocated to international diplomatic and aid programs, and channeled through institutions such as the State Department and the United States Agency for International Development (USAID). Though these numbers sound large, keep in mind that the overall federal budget lies north of $3 trillion, making the share of federal budget funds devoted to international affairs – currently around $50 billion — less than one percent of total spending. Along with proposed cuts elsewhere, the suggested reduction in the portion of the budget designated for international affairs would be reallocated to Trump’s proposed increases in national defense.

The president is not the first to suggest that cuts to international affairs spending might be worth considering. Late last year the nonpartisan Congressional Budget Office (CBO) specifically evaluated reductions in international affairs funds as one of several options aimed at deficit reduction over the next ten years. In their proposal, international affairs funding would be reduced by 25 percent: not far off from the president’s own proposed reduction, albeit with a different goal.

In weighing costs versus benefits of such a cut, the CBO cites a June 2016 Congressional Research Service report that concluded, “In most cases, clear evidence of the success or failure of U.S. assistance programs is lacking, both at the program level and in aggregate.” The report explains why in its summary:

… historically, most aid programs have not been evaluated for the purpose of determining their actual impact. Many programs are not even evaluated on basic performance. The purpose and methodologies of foreign aid evaluation have varied over the decades, responding to political and fiscal circumstances … Persistent challenges to effective evaluation include unclear aid objectives, funding and personnel constraints, emphasis on accountability for funds, methodological challenges, compressed timelines, country ownership and donor coordination commitments, security, and agency and personnel incentives. As a result of these challenges, aid agencies do not undertake evaluation of all foreign aid activities, and evaluations, when carried out, may differ considerably in quality.

While the Congressional Research Service and the CBO humbly confess they simply do not know whether, or to what extent, international aid results in better outcomes – either for us or for the rest of the planet’s population – the 106 faith leaders mentioned above appear quite certain in their claim that, with a mere one percent of the federal budget, “the International Affairs Budget has helped alleviate the suffering of millions; drastically cutting the number of people living in extreme poverty in half, stopping the spread of infectious diseases like HIV/AIDs and Ebola, and nearly eliminating polio.”

These are bold claims — especially given the ambivalence of the CBO and the Congressional Research Service regarding the alleged impact of initiatives like direct aid.

While many of the world’s politicians would like to take credit for cutting extreme global poverty in half in just 20 years, and the aforementioned faith leaders seem quite ready to thank politicians for their achievements, the source of this success is far simpler: economic growth. As the Economist magazine has put it, “ … the biggest poverty-reduction measure of all is liberalising markets to let poor people get richer. That means freeing trade between countries … and within them.”

It hasn’t been aid that has lifted people out of poverty, but trade and access to markets.

And such economic growth normally occurs most easily in places that possess a few essential elements that provide a fertile environment in which economic growth can take hold: rule of law; private property; free association and exchange; access to markets; a culture of trust; and a vital network of churches, communities, and cultures that encourage respect for the dignity of the human person.

This is not to say that there is no role for foreign partners, whether private or public ones, in helping the remaining “bottom billion” forge a pathway out of poverty. For example, in an NBER working paper prepared for the World Economic Forum, Elsa Artadi and Xavier Sala-i-Martin identify some of the key factors that continue to hold back many African nations, including “low levels of education, poor health, adverse geography, closed economies, too much public expenditure and too many military conflicts.” We will need to think far more creatively, and be far more patient, as we work to overcome obstacles like these that lie along the pathways out of poverty for much of Africa.

Let me be clear: I am not arguing either for or against the president’s proposals regarding international affairs. I am merely pointing out that the faith leaders’ claim that the U.S. International Affairs Budget has cut global poverty in half grossly overstates what government aid alone can accomplish.

 

Header image used under Creative Commons license (CC BY-SA 2.0), some modifications made.

Victor V. Claar is professor of economics at Henderson State University, the public liberal arts university of Arkansas. He is a coauthor of Economics in Christian Perspective: Theory, Policy, and Life Choices, and author of the Acton Institute’s Fair Trade? Its Prospects as a Poverty Solution

2 replies
  1. David Barber
    David Barber says:

    Professor Claar is absolutely right to question the claims of the faith leaders. And PovertyCure is to be commended as one of the very few members of the aid community who are standing out against Official Western Aid in its present form. But to go back to the claims of the faith leaders, Western aid made little contribution to the claimed 50% reduction in extreme poverty because most of it came from China, over which Official Western Aid has had virtually no influence.

    Furthermore, the World Bank, the official arbiter, has seriously distorted the situation of extreme poverty in two ways. First, it chose US$1.25 a day as the official threshold. As this was its threshold for extreme poverty, what it was saying was that any African earning over $1.25 was not in extreme poverty. This is ridiculous. Even in Africa they needed to be earning a lot more than that. So by the simple expedient of setting the threshold far too low, tens of millions of Africans in extreme poverty have been excluded from the figures.

    Second, the World Bank did not account for inflation when arriving at its 50% reduction. Its $1.25 figure was set in 2005. Therefore by 2015 (when the $1.25 figure was replaced) inflation had taken many people out of extreme poverty without anyone doing anything at all.

    If you take both inflation and population growth into account, the current situation is that there has been a 300% increase in the number of Africans in extreme poverty since 1980.

    But if you take a realistic threshold for extreme poverty, the situation is far worse than that. According to the NGO Global Justice Now: ‘the figure should be closer to $5 a day as anything less than that would not cover the basic cost of food and other essential needs’. Anyone with any experience of Africa would probably agree with that and, on that basis, on the World Banks own figures, this would place 91% of Africans in extreme poverty.

    But all of that is irrelevant. When we have a situation where the African Union itself, as well as increasing numbers of progressive African and African campaigners, are asking for Western aid to be cut, what on earth are Western governments and the official Western aid organisations doing in ignoring them? The AU, for instance, wants foreign aid cut by 75% by 2023. Yet who has seen any mention of this in Western literature?

    You may wonder why Africans themselves, the very people whom one would assume would want aid continued the most, are actually the ones calling for it to be stopped. The reasons should have been obvious to anyone who has studied the situation and the effects of Official Western Aid:
    1. It simply hasn’t worked, and the example above is just a small sample of that. So a new way must be found to tackle poverty, and the African Union itself has set out that way in its ‘Agenda 2063 The Africa We Want’, which every Westerner and NGO should read, together with the accompanying document ‘The First Ten-Year Implementation Plan 2014-2023’.
    2. The fundamental belief of progressive Africans and African campaigners is that ‘Only Africans can solve the problems of Africa’. Agenda 2063 strongly supports this view.
    3. It is being used to help incompetent, repressive, even brutal regimes to stay in power. But aren’t these not only the very worst governments for Africa to have, but also the ones least able or interested in helping their citizens to escape poverty? As most African governments are repressive or incompetent to a greater or lesser extent, this is serious as Lord Aikins Adusei, the Ghanian writer confirmed: ‘The behaviour of [the World Bank and IMF] and other lending institutions [including Western governments] to prop up corrupt regimes explains why after 50 years of loans there has not been any appreciable reduction in poverty levels’.
    4. Westerners might find this hard to believe, but Official Western Aid often comes with conditions that are actually helping to keep poverty going.
    5. It has made Africans aid-dependent. For half a century and through the use of Official Western Aid, the Western aid agencies have confirmed on a continuous daily drip-drip basis that Africans cannot cope without it and are incapable of managing their own affairs. Imagine how this has undermined their will to sort out their problems, just as it has in the benefits-dependent culture in the UK and other developed countries.

    The only way to stop aid-dependency is to stop aid. There is no other way. This will force both African citizens and their governments to become self-reliant and take responsibility if they want to escape poverty—exactly what Agenda 2063 is proposing.

    6. It is seriously hampering Black African entrepreneurs and businesspeople. Yet these are are the ONLY people who can create the business and jobs without which the majority of Africans cannot hope to escape poverty and enjoy a Western-quality lifestyle, and the Western Aid Agencies are putting major obstacles in their way. These have been so effective that the poor countries’ percentage share of world trade has halved since 1980. Africa with 15% of world population, has only a tiny 2% share of world trade.
    7. Taking all this into account, it is now very unlikely Africans will ever enjoy a Western-quality lifestyle while Systematic Aid continues.

    You can now see why Agenda 2063 and progressive Africans are united in wanting Systematic Aid stopped. As the AU records in Agenda 2063: ‘the disadvantages associated with……foreign aid, which are tied to the objectives of……donors’.

    The fact is that the West wants aid to Africa for its own reasons far more than Africans do.

    Reply
    • @povertycure
      @povertycure says:

      Hey, David!

      Thank you for your comment. Your outline of reasons why traditional aid has not worked well is great for our readers. We appreciate your contribution!

      Reply

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