Global Economics

On Foreign Aid, the Candidates’ Rhetoric Doesn’t Match Reality


Republican nominee for President, Governor Mitt Romney speaks at the Clinton Global Initiative Annual Meeting in Manhattan, New York

Photograph by Melina Mara/The Washington Post via Getty Images

Republican nominee for President, Governor Mitt Romney speaks at the Clinton Global Initiative Annual Meeting in Manhattan, New York

The second presidential debate, to be held on Oct. 16, will focus on foreign policy. As a trailer for that encounter, in late September, President Barack Obama and Mitt Romney gave dueling speeches to the Clinton Global Initiative in which they spelled out their priorities for dealing with the developing world. While Obama took a bold stance against modern slavery, Mitt Romney spent his time discussing what he’d do with the foreign aid budget. To the relief of the occupants of the U.S. Agency for International Development (USAID)’s headquarters in Washington, the word “slash” wasn’t uttered. Instead, Romney set ambitious goals for the U.S.’s foreign aid efforts—which turn out to be similar to those elaborated by the current Democratic administration.

It’s certainly refreshing to see such an example of bipartisan agreement. Unfortunately, the approach embraced by both candidates lacks understanding of what the U.S. aid budget can realistically achieve.

In his New York speech, Romney talked about using aid to address humanitarian needs; fostering U.S. military, diplomatic, and economic interests; and bringing about lasting change in nations through investments and support for policy reform. This last would involve “Prosperity Pacts” where, in exchange for assistance “focused on developing the institutions of liberty, the rule of law, and property rights,” developing countries would remove barriers to investment, trade, and entrepreneurship and open their markets to U.S. firms.

If anything, the Obama administration believes U.S. development efforts should have an even broader impact: According to the Presidential Policy Directive on Global Development, foreign aid should support economic growth and democratic governance, “game-changing innovations with the potential to solve long-standing development challenges,” and sustainable capacity to provide basic services. On top of all that, the administration promotes specific initiatives on food security, global health, and efforts to reduce the impact of climate change. The U.S. strategy for assisting Africa apparently also includes increasing opportunities for women and youth, and responding to humanitarian crises.

There’s just one problem with such an ambitious development agenda: The U.S. isn’t prepared to pay for it. In 2010, according to the Organisation for Economic Co-operation and Development, the U.S. gave about $30 billion in aid, or about 0.2 percent of U.S. gross domestic product. In that year, the GDP of low- and middle-income countries was a little more than $20 trillion at market prices, according to the World Bank. That means U.S. aid was equivalent to about 0.15 percent of developing-country GDP. What’s more, the huge majority of that development assistance was actually spent in the U.S.—buying consulting services, agricultural produce, and other goods from American firms. Expressed as a percentage of national incomes, the real benefit to developing countries from U.S. aid was considerably less than even the rather pathetic headline number suggests.

In fact, the global evidence is that aid—even considerable aid—is a weak tool to promote policy and governance change. Development economist Bill Easterly looked at International Monetary Fund and World Bank adjustment loans—assistance that was specifically designed to shift policies—during the last two decades of the 20th century and concluded that “none of the top 20 recipients of repeated adjustment lending over 1980–99 were able to achieve reasonable growth and contain all policy distortions.” World Bank economist Stephen Knack researched the question “Does foreign aid promote democracy?” and found “no evidence” to support that case.

Aid works best not when it aims to achieve such sweeping goals as democratization or economic growth, but when it’s channeled into things that can actually yield tangible results. In fact, foreign aid has helped save millions of lives, been instrumental in getting millions of kids into school, and helped build water and sewage lines, roads, and electricity networks. Take, for instance, what development economist Michael Clemens has called “the biggest, best story in development”—the incredibly rapid decline we’re seeing in child deaths in Africa. In Kenya from 2003 to 2008, the proportion of kids dying before the age of 5 fell from 12 percent to 7 percent. Thanks to the declining mortality rate just during that period, 63,000 more Kenyan kids born this year will live to their fifth birthday. And World Bank research suggests the spread of insecticide-treated bed nets to fight malaria—most provided through aid programs—played a huge role in that. The number of nets in use in sub-Saharan Africa climbed from 5.6 million in 2004 to 145 million in 2010, according to the United Nations Children’s Fund (Unicef).

Polls show that Americans erroneously believe that 10 percent of the federal budget goes toward foreign aid. If the U.S. were to hand out even half that amount, it could provide transfers large enough to ensure that no one in the world lived in absolute poverty, cover the costs of 80 percent drug antiretroviral coverage for all those with HIV/AIDS in Africa in the next three decades, and help the continent adapt to the impact of climate change, for example. Spending $150 billion—a quarter of the U.S. military budget—could really make the world a better place.

But neither Mitt Romney nor Barack Obama has suggested increasing the aid budget to such levels. Until they do, the rhetoric and reality on the subject of aid are completely unhinged. The idea that a U.S. assistance program that’s worth a rounding error of a developing country’s GDP can be a powerful tool to make the world more like us—or to like us more—is just the kind of hyperbole you would expect to hear in an election season.

Kenny is a senior fellow at the Center for Global Development and author of The Upside of Down: Why the Rise of the Rest is Great for the West.

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