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News ::
Foreign aid, foreign disaster (english)
25 Apr 2003
Modified: 09:08:01 PM
Be it bilateral or multilateral, dispensed directly from a government or through an international lending agency, foreign aid embodies all the failures and tragedies that have come to typify our government-run domestic poverty schemes.
Foreign aid, foreign disaster
by Jude Blanchette, The Ludwig von Mises Institute, UPI, 4/24/2003

AUBURN, Ala.--Few countries around the world wanted to be entangled in the War on Iraq, but now everyone seems eager to participate in reconstruction. The United States, as primary military aggressor, has estimated the cost of this effort totaling $100 billion over the next several years.

Foreign aid seems to many the only answer for Iraq's shattered economy. While bilateral aid from the United States to the next Iraq government will play a major role, the International Monetary Fund and the World Bank have begun preliminary investigations into what roles these agencies can play.

Judging from the historical record of foreign aid, however, Iraq is in for a long, tumultuous ride. Because foreign aid is welfare for governments, the Iraqi project's success will largely depend on how little aid is given.

Be it bilateral or multilateral, dispensed directly from a government or through an international lending agency, foreign aid embodies all the failures and tragedies that have come to typify our government-run domestic poverty schemes. As with welfare for the poor, its destructive results are excused, its opponents are demonized and its failures rewarded. It is a system through which political power becomes entrenched, political favors are distributed, enemies are punished.

And despite its record of unmitigated failure, foreign aid, like welfare, has grown both in size and scope. For the sake of the American taxpayers and the poor of developing countries, all forms of government-to-government aid must be abolished.

The "foreign aid as welfare" analogy might seem, at first, to be forced and inappropriate. On the surface, the two programs differ in form as well as function. While one seeks to act as a buffer between subsistence and destitution, the other aims to be a catalyst for growth and development.

In theory, welfare exists to correct a perceived market failure. Proponents assert the private sector cannot provide alms to all affected by poverty. Foreign aid, on the other hand, often seeks to assist in the creation of a market economy. Its ostensible raison d'Ítre, aid advocates contend, should be welcomed by supporters of the market order.

While the language surrounding the two programs may differ, the dissimilarities end there. Foreign aid is welfare on a global scale.

As with welfare for the poor, foreign aid was given an ingratiating name by its architects. As Peter Bauer writes, "To call official wealth transfers 'aid' promotes an unquestioning attitude. It disarms criticism, obscures realities, and prejudges results. Who can be against aid to the less fortunate? The term has enabled aid supporters to claim a monopoly of compassion and to dismiss critics as lacking in understanding and compassion."

At its base, however, foreign aid consists of government-to-government subsidies. They are funded through taxes and constitute a wealth transfer between governments. Funds, clothing, food, etc. are not given directly to the poor, rather they are funneled through the recipient government. Any "aid" that is subsequently passed down to the poor of developing countries is secondary and incidental; the recipient country's government decides where and how much money actually reaches its citizens. Because corruption runs rampant throughout much of the developing world, vast sums of aid are embezzled or consumed by government employees.

The most conspicuous result of subsidies is the dependence of the recipient countries upon the benefactor. Loans and grants are tied to the incidence of poverty and because of this, leaders of third world countries can assure financial transfers only by staying within the loan/grant criteria.

This creates a perverse incentive for government bureaucrats to keep their nation in poverty. Raising the living standard of their people would require freeing the economy and a consequent loss of political power. Foreign aid provides socialist leaders the means to remain in power, impoverish their country and get paid while doing it. More often than not, it is a taxpayer-funded bailout of corrupt, socialist dictators around the globe.

The case of North Korea highlights the perils that government subsidies engender. Throughout the 1990's, the United States funneled billions of taxpayer's dollars into the North Korean government's coffers. Aid in food and oil helped support and extend the life of a moribund dictatorship. Korean leaders quickly became adept at extracting aid in return for more central planning and communism.

The recent nuclear blackmail by North Korea has sparked yet another round of "aid" negotiations. The United States will most likely buy-off the North Korean government once again, and this outpost of Stalinism will prolong its existence and the continued misery for its populace. For Kim Il Jong, foreign subsidies offer the only hope for political survival.

In Zimbabwe, the U.S. Agency for International Development, or USAID, estimates that foreign "assistance" accounts for close to 15 percent of its GDP. This creates extensive opportunities for rent seeking and what Peter Bauer calls "the politicization of poverty". Zimbabwe's dictator, Robert Mugabe, uses the distribution of food, a "gift" from foreign nations, to reward allies and punish enemies, thereby solidifying his power. As the International Crisis Group stated last October, the Zimbabwe regime was "blatantly using food as a political weapon against opposition supporters."

Recognizing the failures of outright grants, international lending organizations, such as the IMF and the World Bank, began in the early 1980s to offer loans contingent upon changes in policy, or what became known as "adjustment lending." These loans were an attempt to induce structural changes that would promote growth, all the while offsetting the loss in private commercial lending that fled in response to various political and economic instabilities.

Twenty years of adjustment lending have proven to be a failure. As former World Bank economist William Easterly notes, "The loans were there, but too often the adjustment was not. This indiscriminate lending created poor incentives for making the reforms necessary for growth."

Since the loans are given only to countries mired in poverty, the World Bank and IMF began to subsidize poverty. Indeed, they reward poverty. Leaders of poor nations who had not already enacted market reforms, despite the destitution of their populations, were obviously not interested in the welfare of the people. Putting them on the dole rewards the status quo.

Even though loans are ostensibly tied to structural changes, incentives within the lending agencies permit the continuance of subsidies despite the lack of any tangible reform. Employing an army of economists and administrators, government agencies like the IMF, the World Bank and USAID view success solely in terms of amounts given in aid and loans.

The IMF alone employs 2,633 individuals, an increase of 54 percent since 1980, all working to legitimize their existence. As a former vice president of personnel at the World Bank bluntly states, "Public proclamations to the contrary, poverty reduction is the last thing on most Work Bank bureaucrats' minds."

A good case can be made against foreign aid simply by perusing the official documents and reports published by government lending agencies themselves. In a recent World Bank statement calling for increased funding, the World Bank candidly remarks, "While the former Zaire's Mobuto Sese Seko was reportedly amassing one of the world's largest personal fortunes (invested, naturally, outside his own country), decades of large-scale foreign assistance left not a trace of progress. Zaire's (now the Democratic Republic of Congo) is just one of several examples where a steady flow of aid ignored, if not encouraged, incompetence, corruption, and misguided policies.

Of course, the report continues on to issue a clarion call for increased government spending on aid and other forms of foreign "assistance."

The theme of under-funding runs rife throughout these reports. The above mentioned World Bank paper chastises the United States, where "aid was a mere .08 percent of GNP in 1997." Sweden and other Nordic countries, the report goes on to say, are more "generous," "giving almost one percent of GNP."

First, it should be no surprise that the Nordic welfare states are more inclined to export dependency to other countries. Second, the World Bank's notions of "giving" and "generous" are curious, at best. The confiscation of a mere .08 percent of private citizen's incomes, only to dole it out to various socialist regimes might not strike some as "giving."

Moreover, the report fails to mention the total amount of aid given. In 1996, a year before the report was written, the "generous" Swiss gave a total of $1.9 billion in direct assistance to developing countries. In munificent Finland, a little over $408 million was doled out. The United States, however, contributed a mere $9.3 billion for developing countries.

The World Bank classifies countries as "aid-dependent" when aid as a percentage of GNP is above 10 percent. Of the 17 African countries classified as aid-dependent in the period 1975-79, 82 percent were still considered dependent in the period 1990-97. Of the 25 African countries classified as aid-dependent during the period 1980-89, 88 percent were dependent in the period 1990-97.

Missing from the discussion over aid is the role of private property and its corollary, economic freedom. According to the 2002 Economic Freedom of the World Report, countries in the top quintile for economic freedom experienced a GDP per capital growth rate of 2.56 percent in the period 1990-2000. Conversely, the bottom quintile grew at -.85 percent over the same period.

Redistributing wealth from rich to poor does little to ameliorate effects of poverty. Allowing citizens to create and keep their own wealth requires something few third world dictators would welcome: the abdication of political power and the embrace of capitalism.

Although the bureau-speak is different, the geographical scale larger, and the amounts of money greater, foreign aid (in whatever form it takes) differs from welfare in name alone. Its reliance on government coercion increases the politicization of poverty. Incentives for work, savings, investment and entrepreneurship are crushed and the status quo is rewarded. While its original intention may have been noble, its process is corrupt and has degraded aid into a grab bag of government handouts.

In this respect, there is one foreign aid policy that is sure to alleviate endemic poverty throughout the world: translate the works of libertarian economists Bastiat, Mises, Bauer, Hayek and into the languages of less developed countries and airdrop them onto their city streets.

(Jude Daniel Blanchette studies economics at Loyola College in Baltimore, Maryland.)

About the Ludwig von Mises Institute
The LVMI is a research and educational center devoted to classical liberalism -- often known as libertarianism -- and the Austrian School of economics. LVMI seeks a radical shift in the intellectual climate by promoting the market economy, private property, sound money and peaceful international relations, while opposing government intervention.
See also:
http://www.upi.com/view.cfm?StoryID=20030424-034428-5037r
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How a Libertarian would run the world... (english)
25 Apr 2003
The Cato Institute

WELFARE REFORM -- "Tinkering with the current system can make modest improvements, leading to both reduced welfare usage and improvements in both economic and psychological well-being of recipients. But welfare reform by itself will do little to end dependence or lift large numbers of people out of poverty," he concludes. "When it comes to welfare, we should end it, not mend it."
http://www.cato.org/new/04-03/04-16-03r.html

CORPORATE REFORM -- The collapse of Enron was not the result of accounting fraud, but rather the direct result of the firm's failure to apply its "asset lite" business model in its ventures into non-energy markets, according to a new Policy Analysis released today by the Cato Institute. In "Empire of the Sun: An Economic Interpretation of Enron's Energy Business," Christopher L. Culp, of the University of Chicago, and Cato Institute Senior Fellow Steve H. Hanke argue that Enron's fall should not encourage new regulations aimed at preventing risk-taking and economic failure. Rather, the company should be recognized for its innovative asset-lite business strategy, and its executives prosecuted for their illegal actions.
http://www.cato.org/new/02-03/02-20-03r.html

AFFIRMATIVE ACTION -- "The time has come to put an end to the use of racial preferences in the admissions process of public colleges and universities," explains Roger Pilon, Cato's vice president for legal affairs. "They are demeaning to those whom they allegedly benefit. They generate racial animosity. And, from a legal perspective, they are at war with the constitutional guarantee of equal protection under the law."
http://www.cato.org/new/01-03/01-16-03r.html

NUCLEAR WEAPONS PROLIFERATION -- Preemptive war and economic sanctions are also dangerous and ill-advised strategies, according to Carpenter. The most well suited approach, he writes, would be to "raise the possibility of a regional nuclear balance." Allowing more nuclear proliferation is the best way to deter North Korea's nuclear program... Carpenter concludes that although additional nuclear proliferation may not be an ideal outcome, it is better than having U.S. forces defending weak allies from an unpredictable, nuclear North Korea.
http://www.cato.org/new/01-03/01-06-03r-2.html

SUSTAINABILITY -- Although global leaders convened today in Johannesburg, South Africa for the start of the United Nations World Summit on Sustainable Development, concerns about a lack of natural resources have been exaggerated as the world is already on a glide-path for sustainable development. Jerry Taylor, Cato's director of natural resource studies, argues in a new policy analysis, "Sustainable Development: A Dubious Solution in Search of a Problem," that those who favor central planning as a prerequisite for sustainable development in effect make environmental protection more expensive and even exacerbate problems. "A review of data concerning resource availability and environmental quality clearly illustrates that the developed world is on an eminently sustainable path -- resources are becoming more abundant, environmental quality is improving, and per capita incomes are rising," writes Taylor, who has done extensive research on national environmental policy.
http://www.cato.org/new/08-02/08-26-02r.html

GLOBALIZATIOM & WEALTH -- Controversy surrounding globalization has focused on whether it exacerbates income inequality between the rich and the poor, but Goklany examines whether globalization is improving human well-being. "For every indicator examined, regardless of whether the rich are richer and the poor poorer, gaps in human well-being between the rich countries and other income groups have for the most part shrunk over the past four decades," writes Goklany. For example, the infant mortality gap between rich and poor countries has been cut in half during the past 50 years. Trends indicate that as countries become wealthier, human well-being gets better "with improvements coming most rapidly at the lowest levels of wealth," according to Goklany.
http://www.cato.org/new/08-02/08-22-02r.html

ENVIRONMENT & LAND USE -- "The showdown over whether or not to drill in the Arctic National Wildlife Refuge is more show than substance. Unfortunately, both the pro-drilling and anti-drilling factions are right about the other. "The environmentalists are right that drilling in ANWR would not do much to bring down oil prices. Industry's best estimate is that ANWR could produce about 1 million barrels of oil per day at its peak. That's a 1.25 percent increase in global production. "On the other hand, the argument that drilling in 2,000 acres of barren tundra during the winter months only would significantly harm the wildlife in the Refuge is hard to believe given our experience in nearby Prudhoe Bay. And while the reserve may not produce the volume of oil produced in Middle Eastern fields, most experts believe that the value of oil there is somewhere in the neighborhood of $30 billion. "The only way to really know whether those 2,000 acres in ANWR are best used as an oil platform or a wilderness preserve is to auction off the land. Letting politicians decide how best to use the land means that interest group politics rather than economic common sense will rule the day."
http://www.cato.org/new/04-02/04-17-02r.html
CIA BANDWAGON (english)
25 Apr 2003

The message in "The case of North Korea..." is,
starve the commie bastards out and make thier economy scream untill they submit to corpratization or death , even if its sandwiched in some high brow CIA front slop.

Aid to DPRK was used to purchase nuke capacity from ABB inc. chaired by... Donald Rumsfeild.

They use our money to give to guys like Saddam, Noriga, Suarto and on and on to make them rich by buying guns and bombs from thier companies to kill people like you me over thier. Get it?

America is a wonded bull with a rope around its nuts that is running itself to death chasing the matadors red cape never even giving its tormenter a side ways glance.
Cato Institute ???!! (english)
25 Apr 2003
What the fuck do we care what the Cato institue says about foreign aid? A "libertarian" solution? Sounds like a neoliberal solution. It's a bastardization of the word "libertarian" from its historical usage.


Foreign "aid" isn't problematic solely because it is a transfer of money from one agency to another, as the article implies -- because it causes "dependency" as an inherent quality. It's because it is _designed_ to cause this dependency. It's a systematic underdevelopment (where underdevelopment is a transitive verb, not an intransitive verb, in other words there is an agency doing the underdevloping). The World Bank and multilateral development banks design "aid" packages to neoliberalize the economic systems of countries and regions. In order to expand capitalist markets for goods and labor. In other words, it's like a giant tiller machine that rips apart whatever systems were in place, and prepares the area for the corporate monocrop of capitalist exploitation by big global capital.

Ahem.