Romney Is Right on Foreign Aid (Opinion)

The Republican challenger delivered an important message for economic development at the Clinton Global Initiative. U.S. foreign aid, he said, should be linked to efforts to promote free enterprise in the developing world.

learn more about Scott Shane

By Scott Shane

American Progress

Opinions expressed by Entrepreneur contributors are their own.

In a rare example of bipartisan activity this election year, Republican Presidential candidate Gov. Mitt Romney spoke recently at the Clinton Global Initiative gala, a fundraiser for the former President's efforts to bring together global leaders to solve the world's toughest problems.

Related: At This Year's Clinton Global Initiative, a New Focus on Young People

The Republican challenger delivered an important message for economic development. U.S. foreign aid, he said, should be linked to efforts to promote free enterprise in the developing world. This is a shift from President Obama's approach, which has been to increase the amount of money that the U.S. provides to traditional assistance programs, such as AIDS relief and education. Governor Romney's proposal makes a lot of sense.

The Republican candidate made three key points:

1. U.S. foreign aid must encourage economic freedom.
2. It must be conditional on the willingness of recipient countries to develop rule of law and to protect property rights.
3. It must be designed to leverage private sector resources.

See Where the Candidates Stand on Small-Business IssuesEncouraging economic freedom is the best way to spur economic growth in the developing world, thereby improving the lives of those living there and enhancing America's national interest. A 2011 study entitled "On the Relevance of Freedom and Entitlement in Development: New Empirical Evidence (1975 to 2007)" by Jean-Pierre Chauffour, the lead economist in the international trade department of the World Bank, shows that economic freedom does more to enhance economic development than the provision of entitlements, such as health care, education or housing.

Tying U.S. foreign-aid policies to recipients' efforts to develop rule of law and property rights also makes sense. A legal system based on rule of law enhances economic freedom by helping protect people's property from government appropriation and by helping ensure that contracts between private citizens are enforced fairly. If the U.S. seeks to promote economic growth in developing countries, and rule of law and property rights are central to the economic freedom that drives economic expansion, then it follows that the U.S. should link its foreign aid to the willingness of developing countries to establish institutions that support economic freedom.

Related: Obama vs. Romney: A Tale of Two Economic Plans

The U.S. needs to leverage private-sector resources to gain maximum impact from its foreign aid. The amount of foreign aid that the U.S., or any other country, gives is too meager to make much of a difference on its own. According to economists Rachel Bahn and Sarah Lane of USAID's Office of Economic Growth, there is nearly $8 of foreign investment for every $1 of foreign aid.

To grow prosperous, poor countries need more trade, foreign investment and local businesses activity. Unlinked to nongovernmental initiatives, the benefits of foreign-aid dissipate quickly.

Therefore, to put countries on the road to prosperity, government funds should be used to prime the pump for private-sector efforts. As Gov. Romney said, "A temporary aid package can jolt an economy. . . . But it can't sustain an economy . . . because at some point, the money runs out. But an assistance program that helps unleash free enterprise creates enduring prosperity."

The Republic challenger's argument makes sense. Our leaders should encourage economic growth in developing countries by linking foreign aid to policies that encourage free enterprise, and leverage the interests of the private sector. Such an approach would benefit citizens of both the U.S. and the developing world.

The self-evident nature of Gov. Romney's message made me wonder this: Was he reminding us once again that our government should encourage economic growth by putting in place policies that support free enterprise and leverage the interests of the private sector, whether at home or abroad?

Related: All Election 2012 Coverage

Scott Shane

Professor at Case Western Reserve University

Scott Shane is the A. Malachi Mixon III professor of entrepreneurial studies at Case Western Reserve University. His books include Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live by (Yale University Press, 2008) and Finding Fertile Ground: Identifying Extraordinary Opportunities for New Businesses (Pearson Prentice Hall, 2005).

Related Topics

Editor's Pick

Everyone Wants to Get Close to Their Favorite Artist. Here's the Technology Making It a Reality — But Better.
The Highest-Paid, Highest-Profile People in Every Field Know This Communication Strategy
After Early Rejection From Publishers, This Author Self-Published Her Book and Sold More Than 500,000 Copies. Here's How She Did It.
Having Trouble Speaking Up in Meetings? Try This Strategy.
He Names Brands for Amazon, Meta and Forever 21, and Says This Is the Big Blank Space in the Naming Game
Thought Leaders

The Collapse of Credit Suisse: A Cautionary Tale of Resistance to Hybrid Work

This cautionary tale serves as a reminder for business leaders to adapt to the changing world of work and prioritize their workforce's needs and preferences.

Growing a Business

The No.1 Most Bankable Skill You Must Have to Succeed in 2023

If you don't foster this skill, you'll fall behind the pack financially and professionally in 2023.

Business News

I'm a Former Google Recruiter. Here's How to Land a Job in Tech — and What Can Blow Your Interview

A former Google recruiter says layoffs may be trendy, but tech workers are always needed. Here's how to land a job at a major tech company.

Starting a Business

5 Ways Entrepreneurship Can Help Teenagers Overcome Negative Peer Pressure

Here are some of the positives teenage entrepreneurship can have concerning peer pressure.

Business Ideas

55 Small Business Ideas To Start Right Now

To start one of these home-based businesses, you don't need a lot of funding -- just energy, passion and the drive to succeed.

Business News

'Could This Be True?': Blockbuster Might Be Teasing a Surprise Comeback

The company has shuttered all of its locations except for one in Bend, Oregon.