Foreign Aid–Time to Dismantle It

There are two pieces in the Washington POST this morning (10/20) which are of interest when considering the future of foreign aid.  The first is an editorial suggesting that all the GOP candidates have got it wrong when they want to end foreign aid as we know it.  I find most of the assumptions in the editorial wrong. The second is a front-page article on US complicity in corruption in foreign aid in Egypt.   Following are excerpts from the editorial with my comments in italics.  Excerpts from the front page article are included in the text, below. 

Foreign Flop

Washington POST Editorial 10/20/11

WHY DO WE continue to send foreign aid to other countries when we need all the help we can get for ourselves?”

The question, posed to the Republican presidential candidates during their Las Vegas debate Tuesday, is understandable, if familiar. Americans are suffering, as the questioner noted. Why not just help them?

There are answers to that question that many Americans will accept, if leaders have the guts to offer them. Counting defense and diplomacy, the United States spends a lot keeping the peace and promoting freedom and prosperity around the world, but pure foreign aid is a minuscule part of the budget — a little more than 1 percent. That money, leveraging donations from other nations, helps keep alive millions of people, many of them parents of children who would otherwise be orphaned.

While there have been some successes in foreign assistance, mainly as a result of products – e.g. insecticide-treated bed nets, Anti-Retroviral drug therapy for AIDS, and vaccinations – the vast majority of USAID and other donor programs which focus on training, behavior change, education, civil society, etc.  have been a dismal waste of money.  The World Bank issues regular Development Reports chronicling aid success.  Not surprisingly, the results have always been sketchy at best.  The Bank insists after every failure, “Well, now that we know what is wrong, we can fix it”.

USAID, largely because of its corruption-aversion policies, has become an even more risk-averse, sclerotic bureaucracy than ever before.  Innovation is not in the lexicon of the agency except.  Large, NGO-run programs based on philosophy and process (gender, civil society, democracy, inclusion) rather than results have had expectedly limited results.  Conditionalities imposed by the donors to ensure ‘transparency’, equity, and justice; and donor-initiated and designed projects have served only to promote corruption – “We never wanted that project and object to the conditions placed on us, so go ahead and give us the money and see what we do with it”.

It helps prevent some nations from becoming failed states that would spawn security threats to the United States. It creates goodwill for America that benefits U.S. exports. It’s the right thing to do.

Absolutely false.  Below is an excerpt from another piece in the POST today – a front page article entitled ‘Crony Capitalism’ with a US Root’:

CAIRO — Beginning two decades ago, the United States government bankrolled an Egyptian think tank dedicated to economic reform. A different outcome is only now becoming visible in the fallout from Egypt’s Arab Spring.

Formed with a $10 million endowment from the U.S. Agency for International Development, the Egyptian Center for Economic Studies gathered captains of industry in a small circle — with the president’s son Gamal Mubarak at the center. Over time, members of the group would assume top roles in Egypt’s ruling party and government.

Today, Gamal Mubarak and four of those think tank members are in jail, charged with squandering public funds in the sale of public resources, lands and government-run companies as part of a dramatic restructuring. Some have fled the country, pilloried amid the public outrage over insider deals and corruption that toppled President Hosni Mubarak.

“It became a crony capitalism,” Magda Kandil, the think tank’s new executive director, said of the privatization program advocated by its founders. Because of the corruption, the center now estimates, the assets that Egypt has sold off since 1991 have netted only about $10 billion, $90 billion less than their estimated worth.

This is not an isolated case.  The Inspector General (IG) has investigated abuse and corruption in Pakistan and Afghanistan – two client states of the US government – and finds, not surprisingly, widespread and persistent waste and fraud.   Two poor, failed states, in the middle of complex and destabilizing wars, receiving shiploads of American money with very little they have to show for it. 

Perhaps the most telling example of how to promote democracy or at least more progressive governments is the Arab Spring.  Regardless of how these countries will turn out, their populations showed remarkable courage and commitment to change which decades of warm-hearted and politically obtuse American aid have done.

The POST editorial continues:

Texas Gov. Rick Perry, cementing his claim on dangerous know-nothingness, endorsed the question and then doubled the stakes, proposing “a very serious discussion about defunding the United Nations.”

This is not at all ‘know-nothingness’, but a reasonable proposition.  The technical agencies of the UN like UNFPA, UNESCO, WHO, and others have long been known in the development community as being even more sclerotic and bureaucratic than USAID. They are marginalized by the better-funded and more politically heavy donors, and develop agenda-driven projects or provide ‘advice’ to Government ministries.  These advisors end up writing memos for the Minister, are frustrated because – with no money to back their proposals – nothing happens.

The performance and outcome of the famous blue helmets is not only suspect but troubling.  Too many reports of rape and abuse have come out of Africa especially.  The UN forces are peacekeepers, marginal at best in the business of war.  While there have been some successes – blue helmets have kept the Serbs and the Bosnian Muslims from killing each other – but little is known about what will happen when they leave.  Disputes which are centuries old are unlikely to be solved by temporary, external intervention.

Finally, there is the General Assembly, a one-country, one-vote congregation where politics always trumps progress.  Yes, it is a forum for world opinion, but an opinionated, regional bloc-dominated, and ineffective one.  Take the inability of the EU to make decisions on the euro.  That is only 29 nations.  Imagine the paralysis of the General Assembly with all the world’s country.  The Security is not much better, with its own veto-based paralysis.

Former Massachusetts governor Mitt Romney, though, won the prize for he-ought-to-know-better nonsense. Mr. Romney endorsed defense-related foreign aid, but then seemed to suggest that the United States outsource to China its humanitarian assistance. “I happen to think it doesn’t make a lot of sense for us to borrow money from the Chinese to go give to another country for humanitarian aid,” Mr. Romney said. “We ought to get the Chinese to take care of the people.” Is he so in sync with the goals and values of China’s foreign policy?

The indisputable fact is that the Chinese are ‘winning the hearts and minds’ of the Third World at an amazing rate.  We have tried for decades and have ended up with a few failed client states and fewer, scattered development successes.  The Chinese make it clear (transparency) – “We will build your roads, airports, ports, and critical infrastructure if you guarantee us a favorable futures price on natural resources”.  Or, let us exploit your natural resources (since you are incapable of doing so).  We will take the resources, and pay you a considerable fee for so doing.  No questions asked.  No conditionalities.  If you were the leader of African Country X, which would you take?  The Chinese deal or the burdensome, irrelevant American one?

No one really cares about foreign aid except those people working to keep it alive.  It represents only one percent of our budget and has no natural constituency.  It is surprising that it has lasted so long, except that people make the elision between the feel-good late-night commercials for Sponsor This Child to USAID.  We really should help out, Dear. 

Now is the best chance to eliminate or at least reform foreign aid.  I have written frequently on this subject and would like to dismantle it as we know it and return to pre-McNamara World Bank-style of Lender of Last Resort.  Let countries come up with their loan proposals, submit them to commercial lenders, and if they are turned down, go to the World Bank for consideration.  The Bank would charge them commercial rates and would give them no more credit if they default.  If the US or other countries want to use taxpayer money to support client states, then just give them the cash like we do with Israel and Egypt and be done with it.