The Failures of Foreign Aid (And Some Potential Fixes)

I previously mentioned that individuals can make a large difference in the lives of others through donations, as long as they choose very cost-effective charities. However, while our donation does make a difference to a few people, there are much more massive institutions working to make much bigger differences in the well-being of those in other countries – foreign aid.

Foreign aid aims to eliminate extreme hunger, extreme poverty, and disease from the world altogether and usher everyone into lives in which they can be happy and live to their potential. Because foreign aid is perhaps the biggest attempt to make the world a better place, it is important to me that we get this right.

Unfortunately, we haven’t gotten it right quite yet. Fifty years of foreign aid efforts later, and extreme poverty, extreme hunger, and disease still exist. While it may seem wildly idealistic to believe that extreme poverty, extreme hunger, and disease can be eliminated soon, Peter Singer in his book The Life You Can Save argues that the elimination of all three plights is within our reach if only we studied foreign aid, looked at its failures, and made some modifications. In this essay, I explore his chapter on foreign aid.

How Much Aid?

Peter Singer starts off by quoting a prominent foreign aid critic, William Easterly, who makes the following argument:

The West spent $2.3 trillion on foreign aid over the last five decades and still had not managed to get twelve cent medications to children to prevent half of all malaria deaths. The West spent $2.3 trillion and still had not managed to get four-dollar bed nets to poor families….It’s a tragedy that so much well-meaning compassion did not bring these results for needy people.

However, as Peter Singer notes, $2.3 trillion on foreign aid over five decades is 46 billion a year, which distributed over all developed nations works out to $60 per person per year, or 0.3% of the economic output of these nations (30 cents per $100). In 2006, America was one of the least generous developed nations, giving 0.18% of GDP – though America still gave the most at the dollar by dollar level, sending $27 billion overseas. Other nations, like Sweden, give closer to 1% of their GDP.

Misconceptions About the Quantity of Aid

Still, billions of dollars a year sounds like an awful lot, though it’s also equally fair to describe it as $90 per person, per year – less than people tend to typically donate on their own from their after tax income, and much less than people give up in taxes.

Interestingly, the American population feels like a lot more goes to foreign aid than 0.18% of the GDP. Peter Singer quotes a poll done by the University of Maryland, which asked 848 respondents “What percentage of the federal budget goes to foreign aid?”. The median answer was 25%, or $900 billion annually (the US budget has typically been $3.6 trillion per year), or $3000 per person – more than 33 times larger than the actual budget.

More interestingly, these same respondents were asked how much they thought the government should spend on aid. Here, the median response was for the government to slash the aid budget down to 10%, or 13 times larger than it actually is. At 10% of GDP, the aid budget would work out to $360 billion annually, or $1200 per person.

The Actual Cost of Aid

Whether $900 billion annually or $27 billion annually, these numbers for aid – both potential and actual – mean little without a baseline to compare them to. Just how much would it actually cost to do what William Easterly suggests – use medications and bednets to prevent half of all malaria deaths?

To consider the cost, Peter Singer looks to a more broad initiative – the United Nations Millenium Goals, a UN-lead project to “Eradicate extreme poverty and hunger; Achieve universal primary education; Promote gender equality and empower women; Reduce child mortality rates; Achieve universal access to reproductive health; Combat HIV/AIDS, malaria, and other disease; Ensure environmental sustainability; and Develop a global partnership for development”. One of these subgoals is to prevent half of all malaria deaths.

The World Bank has estimated that in order to meet these goals, it would require around $60 billion per year for twenty-five years. For the United States to do this alone, this would work out to $200 per person, and require roughly 2% of the US budget.

The Politicization of Aid

So even if our aid was solely focused on the Millenium Development Goals, it still would fail because its simply not large enough. But the Millenium Development Goals isn’t the only target for America’s foreign aid, nor really would I be prepared to argue that humanitarian goals would even require us to do so.

However, Peter Singer does spend some of his chapter arguing that the way America picks its foreign aid targets isn’t the most humanitarian. Instead, it’s all about… politics.

Who Benefits

During the Cold War, the politics of aid was at its height – money was spent on other countries not to reduce poverty or fight disease, but rather to tilt countries away from Soviet influence. Peter Singer writes about hundreds of millions of dollars that was given directly to a Congolese dictator, and all that money was included in Easterly’s $2.3 trillion figure. Obviously, those hundreds of millions did little to help meet the Millenium Development Goals.

Likewise, in 2008 the top recipients of US Aid are Iraq, Israel, Egypt, and Afghanistan – together, these four nations receive 24.7 billion of the 27 billion, or 91% of the budget. Heck, Iraq alone receives the lion’s share 68% of the budget (18.44 billion). Again, it’s clear that these nations are the target of aid not because they are the most poor or most in need, but because – even though they have more than a fair share of legitimate humanitarian problems – they are key countries in the War on Terror. It’s no coincidence that all these nations are near or in the Middle East.

Now, the point that Peter Singer and I are making is not that it’s unfair for nations to make their aid conditional to political goals. It’s just to point out that primarially political aid should not be criticized for failing at humanitarian goals – because humanitarian goals are just not what we have in mind. And that’s something we need to own up to. The humanitarian goals need more work.

How They’re Benefitted

Another political problem with US foreign aid that Singer points out is that our aid is focused on indirectly benefitting the US. – Congress requires that US aid be in the form of US goods transported on US ships. A government agency that intends to stop the spread of AIDS in Africa by distributing condoms must buy these condoms from American manufacturers and load them onto American ships – even though this would cost more than twice as much as doing the same with Asian manufacturers and Asian ships, or by building the necessary industries in Africa and using those industries to employ Africans themselves.

It gets worse when you consider that of food. Politics requires that food aid be in the form of government subsidized US goods shipped on US ships. This results in food being dumped in Africa at great shipping expense and displacing the local market, resulting in less income for African farmers.

Instead, the same corn could have been bought in Africa without shipping costs and other overhead costs, getting income directly to African farmers instead of taking it away from them. While a boon to American business, inefficient regulations like these can mean that spending $27 billion a year is often the equivalent of $7 billion a year or less. When economic and political goals are swapped with humanitarian goals, its no wonder the humanitarian goals suffer.

Corruption, Dependence, Institutions, and Millenium Villages

While Singer points out that aid is insufficient at cutting extreme poverty, extreme hunger, and disease because it is (1) too small, (2) badly directed, and (3) badly structured, he also argues that aid critics go too far by suggesting that all aid is caught up by corrupt governments and/or that it just creates dependency. The reason for this is that it is ignorant of how aid actually works.

Sure, giving money directly to the poor might breed dependency and giving money directly to certain governments might enrich only the warlords. That’s why foreign aid money is mostly neither given directly to the people or the government (though a lot of money in the past certainly was, which is more reason why Easterly’s $2.3 trillion over fifty years figure failed to eradicate poverty forever).

As an example of effective foreign aid, Singer points us to the United Nations Millenium Villages Project. This was a project to provide simple interventions to put extremely poor people on paths to sustainable growth that would continue even after the Millenium Villages Project stopped. Some of these interventions involve the creation of village-run institutions to decide how aid is spent that must involve the input of women, programs to purify drinking water, vitamin and mineral supplements, immunization, bed nets to prevent malaria, new technology like stoves and energy production, and deworming to rid people of internal parasites.

Another example program Singer mentions is offering fertilizer and better seeds to farmers that will improve their agricultural productivity, and farmers in return are required to give a portion of their increased harvest to a program that would feed schoolchildren – continuing the cycle to improve nourishment and school attendance. The project makes sure to require village buy-in, focuses on the long-run, focuses on changing things at the institution-level, and works to create sustainable change. It’s very different from the drop money and run approach that would create dependency and corruption.

Conclusions

Singer points to several failures in foreign aid with humanitarian goals – not enough money is being spent, and the money that is being spent is not on the countries that need it the most or on the most effective methods. Instead, too little money is being spent on wildly ineffective measures. Yet, Singer offers foreign aid a way out to meet its humanitarian mission: work on funding more proven interventions at much higher rates, and end the counterproductive regulations and food subsidies.

Singer, being consistent with a more politically liberal tradition, even suggests an easy place foreign aid money could come from: slightly higher taxes. Consider the proposed Millionaires’ Tax, a 5.4% additional tax on all incomes over a million dollars in the US.

The Joint Committee on Taxation has estimated this would bring in roughly an extra $42 billion per year, which combined with the current aid budget would be enough to fully fund the Millenium Development Goals with an extra $9 billion annually left over. Another way to get the $60 billion per year would be to just cut the US Defense Budget by 10%.

Now, I don’t suggest that any of these changes would be wise – I just do this to suggest that making very serious and significant strides toward eliminating extreme poverty, extreme hunger, and disease is possible, with equally serious and significant changes in our priorities. Remember that $60 billion annually is a simple $200 per person per year in the United States. Such an amount is hardly out of our reach.