Foreign aid: effectively advancing security interests.(weapons of market destruction: ECONOMICS OF SECURITY)

The use of foreign aid as a tool to advance national security interests has been a driving force in US foreign policy since the implementation of the Marshall Plan, the United States' first official aid program. Critics of using aid for national security purposes, such as Columbia professor Jeffrey Sachs and InterAction President and CEO Samuel Worthington, claim that this geopolitical aid goes to countries that are often wealthier and more corrupt than the nations that do not receive it. Such aid, the argument continues, is not spent on long-term development, but on short-term political gain. Proponents of this view draw the conclusion that foreign aid, so motivated, cannot be effective in reducing poverty.

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Such contentions are largely unfounded. While there are certainly motivational differences between development aid and security assistance, the natures of these projects are essentially the same, with resources in both cases targeted toward education, health care, agriculture, infrastructure, the environment, and long-term development. In addition, the evidence suggests that security aid does go to poor countries that are in need of assistance, and furthermore, that it is spread across many different regions of the world.

However, critics are not wholly incorrect in saying that foreign aid has not been effective at reducing poverty and increasing prosperity. Indeed, evidence suggests that while disaster relief has been successful, development aid more broadly has been ineffective in generating prosperity, and security assistance has been only somewhat effective in improving US national security interests. The reason for this lack of success in development initiatives has been an unwillingness to engage with local populations and adapt aid programs to a rapidly changing world. The most effective aid programs are not those implemented by USAID or the US government, but are those that are run by private donors while being based on local initiative and involvement. If the United States hopes to use aid effectively in order to bring countries out of poverty and improve its image abroad, it must recognize these trends and devise policies to integrate new models into its foreign aid programs.

Historical Rationales for US Foreign Aid

Before addressing some common misperceptions and deficiencies in US aid policy, it is important to understand the historically central role of foreign aid in US national security policy. The goal of the Marshall Plan, which was to help European democracies back on their feet economically while working together politically, was obviously connected to US security interests at the outset of the Cold War.

In the United States' early clashes with Communism, as Theodore White wrote in his book In Search of History, the Marshall Plan was the master move. When George Marshall returned from Moscow in the spring of 1947, there were fears that Stalin would occupy Western Europe. Marshall's plan to buttress European economies and provide political support for their unstable post-war governments likely kept Stalin from pursuing more aggressive policies. As White wrote, "The Marshall Plan had won because it had linked gain with freedom, had assumed that the movement of minds and the movement of peoples must go with the movement of goods and merchants."

While some have questioned its economic impact, the Marshall Plan had an indisputable effect on European integration, bringing its countries together and Germany back into the European community. Thus, the two rationales for providing foreign aid--economic development and US national security--were embedded in the first modern economic aid package. Providing disaster and humanitarian relief to the developing world later became a third important pillar of the US foreign aid agenda.

Disaster Relief and Development Assistance

In evaluating the effectiveness of US financial assistance programs, it is useful to distinguish between the aforementioned three pillars of the US foreign aid agenda--disaster relief and humanitarian assistance, development assistance, and security assistance--as each has met with varying degrees of success.

The first category, disaster relief and humanitarian aid, has generally worked well and has also drawn the strongest support from the US public. The United States has been a leader in delivering goods, coordinating disaster relief, and leveraging vast resources from private contributions. USAID has helped countries implement significant immunization campaigns, feeding programs, and public health emergency measures that have saved countless lives around the globe. However, there has been far less success in the second category of what the US government calls "development assistance." This is aid that is spent with the purpose of promoting economic growth and lifting people out of poverty. From the 1980s to the more recent work of former IMF economists Raghuram G. Rajan and Arvind Subramanian, studies have shown that foreign aid does not increase economic growth.

Rajan and Subramanian conclude that even the best implemented foreign aid programs have a small impact on foreign states. Where growth and development have occurred, the driving forces have been open markets, investments in institutions and people, and policy environments supportive of local and foreign entrepreneurship. Most discouraging is their finding that "in countries that receive more aid, exportable industries systematically underperformed." Rajan and Subramanian further suggest that too much aid can lead to poor governance and disincentives for exports. It is no coincidence, they say, that Africa does not even have a clothing industry despite having the minimal infrastructure and know-how required for these exports as well as favorable access to markets in the West.

One of the most famous economists arguing against foreign aid's impact on economic growth is NYU professor William Easterly. He rebuts two World Bank researchers, Craig Burnside and David Dollar, who claim that aid can have a positive impact on growth when proper fiscal, monetary, and trade policies are implemented. After analyzing their data, Easterly and colleagues conclude that they "no longer find that aid promotes growth in good policy environments."

Jeffrey Sachs argues that a small proportion of official US aid goes toward development. He contends that massive increases in aid, reaching the UN target of 0.7 percent of US gross national income, are necessary to reduce poverty in poor countries. His call for increases, however, ignores the significant existing private philanthropic flows and individual remittances from developed to developing countries. In the United States, these financial flows now exceed foreign aid by almost three and a half times, as documented in Hudson Institute's 2007 Index of Global Philanthropy.

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Moreover, as Center for Global Development research fellows Michael Clemens and Todd Moss point out in their article "Ghost of 0.7%: Origins and Relevance of the International Aid Target," the 0.7 percent target is based on an outdated growth model and assumptions that are no longer true. They conclude that "the 0.7% target began life as a lobbying tool, and stretching it to become a functional target for real aid budgets across all donors is to exalt it beyond reason." In further analyses, economists argue that large aid flows can give governments even less incentive to improve tax regimes as long as they can expect more money from donors than their own citizens. In a stark evaluation of its foreign aid program, the Canadian government's Standing Senate Committee on Foreign Affairs concluded that the program had failed to make a difference in Africa, despite spending $12.4 billion in bilateral assistance. Their February 2007 report stated that "by far the biggest obstacle to achieving growth and stability in sub-Saharan Africa has been poor government and poor leadership within Africa itself."

Despite some notable development aid success stories, including the Green Revolution, foreign academic training, rural electrification, the elimination of smallpox, and the productivity gains from combating river blindness, evidence of impact at the project level is weak at best. The World Health Organization's "Health for All" campaign, initiated in 1977, resulted in donors giving an estimated US$100 billion to governments for primary care health infrastructure. Yet there is hardly a report issued today on global health that does not put the blame for inadequate healthcare delivery on the lack of primary care systems.

Even some of the flagship programs of aid agencies, such as those that focus on child survival, have results that are either unknown or inconclusive. In May 2007 the LMF reported that it could find no relationship between aid resource flows and infant mortality rates. The US Government Accountability Office evaluated USAID's 20-year-old, US$14 billion child survival program, and could not find evidence of positive health outcomes. A 1995 USAID review of 203 agricultural credit, input, and marketing projects revealed that a majority fell short of their potential. Another summary showed that 11 integrated rural development projects in Asia, Africa, and Latin America did not deliver benefits to the needy. Projects were hampered by unwieldy public bureaucracies, inflexible project design, inappropriate national economic policies, and poor coordination among participating agencies. These negative results are partially due to the fact that projects have been poorly evaluated, but they are primarily due to the fact that projects have been poorly conceived and lack local ownership or co-investment by the people they were designed to help. Thus, there is little development of in-country institutions and human capacity for self-reliance.