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Weekly UpdatesGiven this and other evidence regarding foreign aid development projects, there is little to suggest that more aid will lead to greater prosperity. While it is in the interest of the United States for countries to develop, such economic and political change must be motivated by initiatives that are based within developing countries themselves. India and China are perfect examples of this fact. Both countries receive low foreign aid per capita, and both have had large-scale poverty reduction through policies that have opened their economies to private sector led growth. US government aid can indeed help those countries that are committed to development, but only when the aid is delivered in such a way that it goes directly to individuals and institutions and is matched by local initiatives.
The Effectiveness of US Security Assistance
The third pillar of the US foreign aid agenda--security assistance--is defined exclusively by the fact that its programs are motivated by national security interests. However, the nature of these programs does not differ from those implemented under the aegis of development aid or relief assistance. In the past, security assistance has been aimed at combating Communism, promoting peacekeeping, creating regional peace accords, maintaining military bases, controlling nuclear weapons and narcotics, and fighting terrorism. In contrast to the general success of disaster relief and the general failure of development aid, security assistance has had a fairly mixed record. Such aid did help the United States achieve European integration after World War II, maintain bases in the Philippines, garner allies in the Gulf War, and buy peace time in the Middle East through the Camp David Accords. Yet at the same time, the effectiveness of security assistance in influencing developing countries' policies and opinions of the United States has not been consistent.
The most obvious failures of security assistance have occurred in the Middle East. Debunking the assumption that foreign aid buys local support for the United States, even before the 2003 invasion of Iraq, countries that received considerable US security assistance funds saw rising anti-Americanism. Egypt, one of the largest US aid recipients in the world, tolerated anti-Americanism and harbored some of the terrorists involved in the attack on the World Trade Center on September 11, 2001. Moreover, significant aid to Pakistan over the last 20 years has not helped to diminish anti-American sentiment in the country.
Following the invasion of Iraq, the increase in US security assistance to the Middle East has neither improved the United States' public image nor bolstered its national security. With ongoing insurrections in Iraq and Afghanistan, low approval ratings of the United States persist, even in the face of an increase of US security assistance to the region.
Security aid remains a highly debated facet of US foreign aid--not because of its mixed record in improving US security interests, but because of the contentious nature of using US aid money for reasons other than direct development assistance. However, many of the criticisms levied against US security aid policy are either incorrect or irrelevant, and it is important to address these arguments before further discussing the effectiveness of aid programs.
Critics of security assistance claim that it forms a predominant portion of US foreign aid. But of all US Official Development Assistance (ODA)--which includes the budgets of USAID, the State Department, the Department of Defense, the Peace Corps, US contributions to UN agencies, and other agency programs that support relief and development--less than 30 percent was spent on security assistance, including Iraq, in 2006. Less than 2 percent of ODA was spent on cash grants directly to foreign countries. Thus, the vast majority of security assistance is being spent on projects targeting health, education, agriculture, infrastructure, the environment, and long-term economic development. While there is a motivational difference behind why certain countries receive security assistance, the nature of security assistance projects themselves does not differ from those of development or relief projects.
With regard to the argument that security assistance does not go to the poorest countries, 21 of the 48 countries receiving security assistance have per capita GNIs below US$1,000, including Afghanistan and Pakistan, two of the largest recipients. Of the top 15 recipients, 10 have per capita GNIs of less than US$1,500, ranging from US$140 in Liberia and US$480 in Haiti to US$1,420 in the Philippines.
Additionally, 53 percent of security assistance goes to regions other than the Middle East. For example, poor South Asian countries such as Bangladesh, India, Pakistan, and Afghanistan were slated to receive US$739 million in 2006. In the East Asia and Pacific region, Cambodia, Nepal, and Vietnam have per capita GNIs of less than US$700. While some higher-income countries receive security assistance, including Ireland, Israel, and Cyprus, they account for less than 10 percent of these funds, and aid to Israel will be phased out in 2008.
Security assistance, therefore, does target the right countries. But its success--both in raising prosperity and improving the United States' image--has been spotty at best. It is therefore necessary to look at ways to improve foreign aid in general and to seek out methods to adapt existing programs to make them more effective in a changing world.
Global Changes since the Marshall Plan
In his 1962 Special Message to Congress on foreign aid, President Kennedy encouraged nations to mobilize their own resources for growth. This was an excellent prescription for successful economies. Countries following this advice have advanced into the category described by the United Nations as "less without least," or the states that are left when the least developed are subtracted. By 2015 the percentage of people living on less than US$1 a day in these countries (primarily in Asia, Latin America, the Middle East, and North Africa) is projected to decline from a high of 40 percent in 1990 in South Asia to under 15 percent in all regions.
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Countries in the "least" developed category, however, have not enjoyed this successful trajectory, even while receiving significant amounts of foreign aid. Poverty levels in sub-Saharan Africa are higher than in the rest of the developing world and are declining at a slower rate. Despite promising economic growth rates in many states, by 2015 nearly 38 percent of Africa's population will still be living on less than US$1 per day.
The Marshall Plan's stunning success led policymakers to assume that similarly large capital flows to poor countries would lead them to prosperity. But this was mistaken, as the Marshall Plan helped to rebuild already developed countries, not develop countries that had always been poor. Indeed, foreign aid cannot substitute for leadership and self-reliance in developing countries. Rather, growth and poverty reduction depend on countries establishing their own policies that encourage rule of law, job creation, exports, good governance, and investments in human capital.
An equally important change in the nature of foreign aid since the Marshall Plan era has been in its nature and composition. While government foreign aid has almost tripled since the Bush Administration came into office in 2000, such aid does not constitute the principal financial flow from the United States to the developing world. In fact, US government aid comprises less than 15 percent of all US economic engagement with developing countries. US private capital flows for investment and lending account for 36 percent of that engagement, and US remittances and private assistance from foundations, corporations, charities, universities, religious organizations constitute another 50 percent. Indeed, some 75 percent of all financial flows from developed countries now comes from private donors.
The developing world is therefore interacting more with private players in the United States than with the US government. In contrast to the Marshall Plan era when there was little private investment and philanthropy, government foreign aid is now a minority shareholder in emerging economies.
The new forms of philanthropy are reaching people more directly, with skilled volunteers delivering hands-on assistance at one-third of the cost of government consultants. New players hail from investment banks, hedge funds, and business schools, combining altruism with for-profit business models. Bonds issued against small loans to the poor allow private capital to help the microfinance market grow. Insurance companies provide low-cost insurance for the poorest of the poor against death, disease, and even crop failure. Immigrants now send money directly home to their villages to build clinics, schools, and roads through new banking accounts, cell phones, and credit cards. The leaders of this transformation in foreign aid delivery--these new "philanthro-capitalists"--focus on results, local ownership, and the creation of sustainable projects.
New Implications for Foreign Aid
While US government assistance will continue to provide disaster relief, humanitarian aid, and security assistance, it needs to transform the way in which this aid is delivered so that it can truly help people prosper.
Assistance should fund projects that are "demand-driven," or developed by local institutions with people who are contributing their own time, money, and expertise to a given project. Too often, aid monies go to expensive contractors who are more interested in creating long-term business agreements than long-term development in poor countries. A 2005 OECD report stated that the average cost of a consultant ranged from US$173,760 per year in Bangladesh to US$200,000 in Jamaica. These costs exclude overhead and benefits, so the final costs of global consultants are probably closer to US$300,000 per year for a contractor funded under a USAID project.
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