Sunday, September 18, 2005


Cutting through the flimflam on foreign aid

One of the most frustrating topics to try to understand is that of philanthropy, especially as it relates to foreign aid. Now I have stumbled across a source that gives a balanced picture. What's certain is that the wealthy nations have promised much more than they delivered. US government aid ranks near dead last at about 0.16% of GDP in 2004 (continues in comments)
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However, the picture is more complicated because of private aid. The US government does subsidize charity through the tax code. And individuals are more generous than the government: "Americans privately give at least $34 billion overseas — more than twice the US official foreign aid of $15 billion at that time" Unfortunately the ultimate source for that figure is a right-wing source, so one can assume that there is a gimmick.

And there is. It's called "private remittances," which amount to over half of that. This is mostly immigrants giving money to family back in the old country, at least some of which are actually investments by the immigrants in a foreign businss, not what is generally known as charity.

And there's a second problem. What gets called "aid" is sometimes very self-interested. Pat Robertson's Operation Blessing involvement in the diamond trade is merely an extreme example. The Japanese are famous for tying aid to the purchase of Japanese products. The US is famous for labeling loans as charity, in which case I suppose that Citigroup is one of the world's largest charities, and weapons as charity: the M1-A2 as Jesus's cool cup of water.

Then there's the issue that the wealthy nations create most of the world's crises, and aid actually goes to mitigate problems for which we are responsible. The classic is global warming, which results in damage to poor, coastal regions far in excess of any aid that is sent. But this is hardly the only case. The US and Europe have created a world-wide crisis in agriculture by (unsustainably and through subsidies) forcing the price of food so low that local farmers can't make a buck. A lot of the aid actually compensates for wiping out foreign agriculture. If your charity returns less than your other actions take, it is not generous.

People try to correct for quality of aid, but the result is not satisfying. The bottom line is that by almost any honest (i.e., non right-wing) measure, the US benefits from poor countries more than they benefit from the US. And as measured by %GDP, the US benefits more than most wealthy nations.

One point that I think that author Anup Shah misses is the issue of recycling dollars. Is it necessarily a bad thing if money spent on aid largely comes back to the donor country? While it usually is, I think it's not a hard-and-fast verity. There is, in economics, what is called the multiplier effect. One dollar invested wisely creates new dollars. If the US gives a poor nation a credit that is applied to buying US-built equipment that reduces flood damage, improves the transportation and communications grid, or reduces mortality and disease, a simplistic analysis fails to capture the long term good done. By the same token, if credits are used to buy weapons that are then used to destroy infrastructure and terrorize civilians, the aid has done actual harm.

Case by case, as the Japanese say. Case by case.
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