Jewish World Review April 1, 2002 / 19 Nisan, 5762

Thomas Sowell

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Foreign "aid" | Now that the International Monetary Fund and its political and media allies are in a full-court press for more money from the American taxpayer, expect to see more stories about the supposedly good things the IMF and other international donor agencies have done and the lives they have supposedly saved in the Third World. But the reality is very different from the pious stories.

When you do something for someone, that doesn't necessarily mean that what you did would not have been done without you. In fact, a case can be made that it was precisely the cutbacks in American economic aid to Taiwan and South Korea in the 1960s which forced these countries to get their own acts together and institute the reforms which led to their economic rise.

With nations, as with individuals, dependency is not the royal road to prosperity. What "we" can do for "them" is usually a lot less than what they can do for themselves. Playing Lady Bountiful with the taxpayers' money may allow some people to feel good, and it certainly allows those who administer vast sums of money to become important and impose their ideas on the recipients. But that is very different from saying that this is the policy which produces the best long-run results.

Where it is simply a matter of allowing people to survive in the short run -- as with the Marshall Plan in war-devastated Europe or emergency aid during famines in India in years past -- then of course immediate help is urgently needed. But a distinguished Indian economist warned long ago that continued shipments of American wheat to his country inhibited the development of India's own agriculture.

Instead of continuing to rely on donations of wheat from America, India reformed its restrictive agricultural policies. Its own production of wheat then increased so much that today it has a surplus of wheat. Had we continued to supply India with wheat, no doubt the foreign aid bureaucrats could point to statistics on all the lives we "saved" in India with our food. But instead, those people have been kept alive with India's own food. Indeed, a few years ago, India was able to ship surplus wheat to Ethiopia to relieve a famine there.

Professor Peter Bauer of the London School of Economics has waged a decades-long crusade against foreign aid, arguing that the very word "aid" begs the real question: Are transfers of wealth to Third World governments really an aid to economic development? His own experience in Third World countries convinced him that "foreign aid" was often in reality foreign hindrance.

The continuing fiascoes and tragedies of foreign aid programs have won more converts to Professor Bauer's position over the years. More and more economists and others have begun to complain that the policies which the international donor agencies like the IMF have imposed on various poor countries around the world, using the leverage of "foreign aid" money, have made matters worse instead of better.

In addition to calls for more outright donations of money, there have also been cries for the "forgiveness" of Third World debts. This would add financial irresponsibility to dependency as the keys to progress. Those who talk this way may feel good about themselves but they are unable to point to any country that has actually risen out of poverty this way.

With far more money -- trillions of dollars -- being available in the international capital markets than in foreign aid, why is any government forced to rely on either outright gifts or disguised gifts, such as "loans" that will later be "forgiven"?

First of all, it is always more tempting to get something for nothing than to get investments that have to be repaid. Moreover, foreign aid can be spent on whatever is politically expedient, such as a grand plaza with government buildings or a showy new sports stadium, and much of the donated money can simply disappear into the Swiss bank accounts of Third World politicians.

Investors who are lending their own money are a lot more hard-nosed about the practicalities of proposals to use it, and are far less likely to "forgive" loans afterwards, much less continue to make new loans when the old ones are unpaid. That happens only with the taxpayers' money.

JWR contributor Thomas Sowell, a fellow at the Hoover Institution, is author of several books, including his latest, The Einstein Syndrome: Bright Children Who Talk Late.


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