Is U.S. Foreign Aid A Waste?

The United States started popularizing foreign aid shortly after WWII with the Marshall Plan. This plan was one of the largest foreign aid propositions in United States history, giving approximately $100 billion to Europe to assist in their rebuilding efforts. The largest recipient of Marshall Plan funds was the United Kingdom. Since then, the United States has begun to engage in a variety of other foreign aid efforts. But the question still stands: does our foreign aid to developing countries actually help?

There are some who say no. In fact, they argue for the complete elimination of foreign aid to developing (most frequently, African) countries.

Before we can fully assess the impacts of American foreign aid, we must first understand the two types of aid the United States distributes. The first type is military aid. This is a broad category that encompasses all forms of monetary, training, and non-U.N. peacekeeping aid (Note: this monetary aid goes to acquiring defense equipment for other countries.). The second type of aid is known as economic assistance. As one can imagine, economic assistance includes but is not limited to food aid, clean drinking water, and other life necessities.

In 2017, the United States distributed $14.7 million in economic assistance and $14.77 million of military aid. There are, however, some who are concerned that the economic assistance provided to certain countries is ineffective. A prime example of this frustration is a statement by former U.S. Secretary of the Treasury Paul O'Neill. On a trip to Africa, O'Neill said, "We've spent trillions of dollars on these problems and have damn near nothing to show for it."

People who hold this belief simultaneously argue that African governments are squandering the money, whether through corruption or ineffective use.

According to Jeffery Sachs, a world-renowned international macroeconomist at Columbia University, it's a common misconception that our aid to Africa has been useless. Sachs alleges that our aid to Africa has been in relatively low amounts: only $12 per person. In fact, he says that in 2002 it was significantly less, only $3 per person. That being said, it is no surprise that we see little to no change. Moreover, the impacts of government on economic development are limited, says Sachs. Rather than a causal relationship (that good government causes economic success), they go together. As one advances, so does the other and vice versa.

While Sachs provides strong reasoning, many still aren't convinced. It may not be surprising to learn that this issue is heavily studied within economics. William Easterly offers a differing perspective, suggesting a theory of perverse incentives for governments (African or not) to squander the money they receive through foreign aid. If the government effectively uses aid to build capital and solve their problems, they'll be less likely to receive as much if any aid in the coming years. So, argues Easterly, there becomes an incentive to limit growth and development.

So what's the remedy? Again, the economists are still out on this one. It has been suggested that the United States start offering conditional aid, meaning that the U.S. will offer a country a certain amount of aid based on whether they change their policies, spend the money well, and avoid corruption. Others argue that we simply need to offer more money to these countries, citing the above stated figures. The reality is that global economic policy is difficult and complicated to effectively resolve. It will be years before developing countries see strong positive growth.

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