Foreign Aid Follies Part 1

To a lot of people foreign aid is a benevolent act and it should be upheld, while to others it is a waste of their tax dollars. But has foreign aid done more harm than good?

What is agreed upon, however, is that there has been an increase in foreign aid to developing countries. For instance, in the last fifty years over $1 trillion U.S. has gone to Africa in form of aid but no single country has had a break through the poverty cycle from this aid.

“The unfortunate fact is that most African countries are poorer today than they were at the time of their independence from colonial powers,” says Fredrik Erixon, Chief Economist of Timbro, a Swedish think-tank.

C.K. Prahalad, author of Competing for the Future, says “there is an inherent paradox in the debate about poverty alleviation that escapes even the most sophisticated obsevers in the West. Consider the conventional thinking about China and India; they are seen as a threat to the West. The fear is not only about ‘exporting’ U.S. jobs but also about competing for resources such as oil and commodities.”

Does this mean India and China are now developed enough to be a threat to the United States? If so, does it serve (U.S.)/Western interests to create another competitor (Africa) that might effectively affect the western standard of living by adding to competition for oil and loss of jobs?

Professor Jeffrey Sachs of Columbia University argues that “out of every dollar of aid given to Africa, an estimated 16% went to consultants from donor countries, 26% went into emergency aid and relief operations and 14% went into debt servicing.” Some of the remaining 44% definitely ended up in the pockets of corrupt officials and very little reached intended recipients. Would this be the purpose of foreign aid?

John Perkins, author of Confessions of an Economic Hit Man, explains that as an Economic Hit Man, he was trained to “create situations where as many resources as possible flow into this country, to our corporations and our government.”

Addressing the General Assembly in 2003, the then UN Secretary-General Kofi Annan revealed that “even taking all subtlety and nuance into account, developing countries made the sixth consecutive and largest ever transfer of funds to ‘other countries’ in 2002, a sum totalling almost $200 billion.” “Funds should be moving from developed countries to developing countries, but these numbers tell us the opposite is happening,” Annan added.

Perkins explains that his job was “giving loans to other countries, huge loans, much bigger than they could possibly repay. One of the conditions of the loan, let’s say a billion to a country like Indonesia or Ecuador, and this country would then have to give 90% of that loan back to a U.S. company, or U.S. companies to build infrastruature. Those companies would then go in and build an electrical system or ports or highways and these would basically serve just a few of the wealthiest families in those countries.”

“The poor people in those countries would be stuck ultimately with this amazing debt that they couldn’t possibly repay,” adds Perkins.

To put this in context, C.K. Prahalad, a Management guru, explained that “of the one billion U.S. dollars in food aid provided by the United States in 2004, 90% of it was spent on U.S. produce. George Bush’s plan for AIDS required that all groups receiving cash for drugs use FDA-approved drugs (typically expensive branded products) rather than invest in generic drugs and prevention programs likely to work in a specific country.”

In June 2005, President Bush at a press conference with Prime Minister Tony Blair at the White House said, “Over the past four years, we have tripled our assistance to Sub-Sahara Africa, and now America accounts for nearly a quarter of all the aid in the region.” However, Brookings Institute reports that “the majority of that increase consists of emergency food aid, rather than assistance for sustainable development of the sort Africa needs to achieve lasting poverty reduction.”

Blake Lambard, a reporter with Canadian Broadcasting Corporation Radio quoted Andrew Barungi, a Ugandan citizen asking, “what is the point of giving $10 million when $3 million will go to a Minister, a few sycophants and officials? Three million goes to ‘aid experts’ from developed countries, $2 million on expensive cars, and the rest goes to projects which are unfinished.”

In his paper, Political Roots of Poverty; The economic logic of autocracy, Bruce Bueno De Mesquita, Professor of Politics at New York University, said that “External aid often promotes longevity in office for autocratic leaders who are otherwise at risk of being deposed; it simply makes it easier for them to patronize their core group of supporters.” “On average, every dollar of per capita foreign aid improves an incumbent autocrat’s chance of surviving in office another year by about 4 percent. Since the average autocracy gets about $8 per capita in aid, foreign assistance may boost the survival prospects of poorly performing leaders by 30 percent or more,” added Bruce.

For example, Zaire (now Democratic Republic of Congo) under dictator Mobutu Sesseko “received some $8.5 billion from a multitude of sources between 1979 and 1994, but imploded six years ago (so bad was this experience that former USAID administrator J. Brian Atwood has acknowledged that the investment of $2 billion of American foreign aid (in Zaire) served no purpose. Yet in 1996 U.N Ambassador Bill Richardson made a pilgrimage to the newly minted Democratic Republic of Congo, promising to provide $50 million in aid to the new dictator, Laurent Kabila, despite his authoritarian tendencies and the atrocities committed by his military,” said Prahalad.

“Ever since the Cold War, much of U.S. assistance has primarily been political and military, dedicated to buying and subsdizing friends,” says Doug Bandow in his paper, Focus on USAID, Foreign Aid: Help or Hinderance?

The second half of this article can be read here

Emmanuel Opati is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia.