Politicopedia: A Simple Breakdown of the Issues: The Debate Over Foreign Aid

For my first in-depth analysis, I wanted to tackle foreign aid, an issue that is especially pertinent right now with the further development of diplomatic and military tensions between the United States and Pakistan following the assassination of Osama Bin Laden.

As a reminder, I will break these analyses up into four manageable categories:

Prior History of the Issue
Current political landscape/Recent initiatives and/or legislation
Progressive Perspective
Conservative Perspective
Main Point to Take Away
Relevant Charts

While for a lot of political issue, a clear ideological divide between Democrats and Republicans exist, the topic of foreign aid is a little more convoluted. While two clear belief systems exist (and will be laid out), it should be noted that the idea of a “partisan divide” in which progressives only vote with progressives and vice versa for conservatives does not occur as much in debates regarding foreign aid.

History of Foreign Aid

Foreign aid really began developing immediately following World War II. Europe had been devastated by years of conflict and millions of people had been killed or wounded. Transportation and infrastructure were in complete shambles and the only country relatively untouched was the United States.

The Marshall Plan was intended to aid these reeling economies, supplying them with the supplies that they needed to rebuild. According to the Marshall Foundation, “Officially known as the European Recovery Program (ERP), the Marshall Plan was intended to rebuild the economies and spirits of western Europe, primarily. Marshall was convinced the key to restoration of political stability lay in the revitalization of national economies. Further he saw political stability in Western Europe as a key to blunting the advances of communism in that region.”

Sixteen nations received aid and a combined $13 billion in aid was given out, which resulted in large shipments of food, staples, fuel, and machinery from the United States.

This resulted in a period of economic recovery and growth for both the United States and Europe. The Marshall Foundation explained that the “Marshall Plan nations were assisted greatly in their economic recovery. From 1948 through 1952 European economies grew at an unprecedented rate. Trade relations led to the formation of the North Atlantic alliance. Economic prosperity led by coal and steel industries helped to shaped what we know now as the European Union.”

Aid continued under President Truman, who called foreign aid a “bold new program” to provide assistance to developing countries in his 1949 inauguration speech. Although Truman jumpstarted the idea of foreign aid as a component of foreign policy, it was not until President Kennedy established the United States Agency for International Development (commonly known as USAID) in 1961 that the US had its first actual agency to administer foreign aid assistance.

During the 1960s and 1970s, foreign aid spending shifted away from Western Europe to underdeveloped countries, US military allies in the Middle East and Asia, and extremely poor countries in sub-Saharan Africa and southeast Asia. Foreign aid was seen as an attempt to stop the spread of communism and promote peace and democracy in the Middle East. Additionally, foreign aid served as a newfound market for the United States. The Marshall Plan ushered in a huge market for American industrial goods following the collapse of European infrastructure after World War II and the same principles held with new markets in the Middle East. The aid, which slowly shifted from being economically-centered to military-centered, was largely used to purchase American-made weapons.

Aid continued in a strong manner throughout the late 70s and early 80s, with Jimmy Carter ushering in the Camp David Accords, which ended the formal hostilities between Egypt and Israel. In the Accords, the US promised to provide economic and military assistance to both Israel and Egypt.

But the popularity of foreign aid quickly came to a halt during the presidencies of both Ronald Reagan and George H.W. Bush, who felt a strong distrust for foreign aid following reports of misuse and mismanagement of funds in many foreign countries. According to the Cato Institute, “Reagan declared in a major speech before the annual meeting of the World Bank and International Monetary Fund, ‘Unless a nation puts its own financial and economic house in order, no amount of aid will produce progress.’” The end of the cold war also led to across the board cuts in foreign spending.

The next section will discuss how this pattern of diminishing aid all changed following the September 11 terror attacks.

Current Landscape/Proposed Legislation

Everything changed following 9/11. But instead of a foreign aid policy that promoted economic interests or market economics, aid now began to act as a potential deterrent to terrorism. In 2002, President George W. Bush promised $4.5 billion in aid to Afghanistan and with the US invasion of Iraq in 2003, reconstruction costs in Iraq now exceed all other US foreign aid spending. The US assistance program to Iraq remains the largest aid initiative since the Marshall Plan of 1947. As of February 2005, over $150 billion have been spent on the war in Iraq.

Additionally, even more recent developments with Osama Bin Laden have called foreign aid spending with countries that do not like the United States into question, especially Pakistan.

The Congressional Research Service breaks down our financial assistance to Pakistan over the years:

Post-9/11 U.S. aid to Pakistan rose dramatically and included a $600 million emergency cash transfer in September 2001. In 2003, President George W. Bush hosted then-Pakistani President General Pervez Musharraf at Camp David, Maryland, where he vowed to work with Congress on establishing a five-year, $3 billion aid package for Pakistan. Annual installments of $600 million each, split evenly between military and economic aid, began in FY2005.

From FY2000 at $36.76 million to FY2001 at $187.7 million, U.S. aid increased five-fold, and in FY2002 (the first post-9/11 fiscal year) aid increased by another eleven-fold to $2,057 million.

Aid continually increased from 2006 to 2010; FY2007 was the first year of the Bush Administration’s plan to devote $750 million in U.S. development aid to Pakistan’s tribal areas over a five-year period. The 2010 U.S. aid to Pakistan of some $4,462 million represents an increase of 2,273% when compared to the pre-9/11 level in FY2001. In FY2010, Pakistan ranked second among top U.S. aid recipients, after Afghanistan and before Israel.

Problems with US aid to Pakistan only seriously began when Osama Bin Laden was discovered in Abbottabad, Pakistan, just miles away from the top Pakistani military training facility. Questions of whether the Pakistani intelligence ministry was sheltering Bin Laden began to be leveled by both congressman and every day Americans, leading to congressional debates over whether the US should be funding countries who strongly dislike us.

The discussions went so far that on May 4^th of 2011, Rep. Dana Rorabacher introduced H.R. 1790, the Defund United States Assistance to Pakistan Act of 2011. The legislation, which can be found at the following address, http://thomas.loc.gov/cgi-bin/query/z?c112:H.R.1790:, essentially says that aid assistance may not be provided to Pakistan under any provision of the law.

While the bill is still in committee and its unclear whether it will ever make it out, the LA Times is reporting that “With ties strained in the wake of the U.S. military killing of Osama bin Laden within one mile of Pakistan's military academy, the Obama administration said it will suspend one-third of its $2 billion in annual military aid to Pakistan.”

All of this then begs the question, is foreign aid still necessary?

In Support of Foreign Aid

In order to fully understand the significance of foreign aid, I think it is important to provide a rather length quote from President Kennedy that directly answered the question that so many people are today asking: After so much corruption and mismanagement of funds, why should the United States continue a foreign economic assistance program?

The answer is that there is no escaping our obligations: our moral obligations as a wise leader and good neighbor in the interdependent community of free nations--our economic obligations as the wealthiest people in a world of largely poor people, as a nation no longer dependent upon the loans from abroad that once helped us develop our own economy--and our political obligations as the single largest counter to the adversaries of freedom.

"To fail to meet those obligations now would be disastrous; and, in the long run, more expensive. For widespread poverty and chaos lead to a collapse of existing political and social structures which would inevitably invite the advance of totalitarianism into every weak and unstable area. Thus our own security would be endangered and our prosperity imperiled. A program of assistance to the underdeveloped nations must continue because the Nation's interest and the cause of political freedom require it.

To those who support the furthering of foreign aid, they argue that it not only benefits the needy by providing access to food and the opportunity for shelter and medicine, but that it also improves the US own economy, especially in sectors like agriculture.

Perry Letson, the Assitant Vice President of Communications ACDI/VOCA, a private non-profit organization “that promotes broad-based economic growth and the development of civil society in emerging democracies and developing countries,” explains it best:

’Foreign aid’ is a term that often provokes intense debate. However, besides benefiting the needy, U.S. foreign assistance is a wise investment in our own economic fortune. This is especially true when the aid is devoted to agricultural development. American agriculture must look beyond current difficulties and support strategic agricultural aid overseas. It is well established, though counterintuitive, that broad-based agricultural growth in developing countries boosts ag imports from the United States. When people in developing nations earn disposable income, they spend it on improving their diets. According to the International Food Policy Research Institute, each dollar increase in developing-country farm output leads, on average, to 73 cents in imports from the United States, including 24 cents of agricultural imports from the United States. Agriculture is a critical engine for a nation's economy because, on average, a $1 increase in ag production generates $2.32 worth of growth in the over-all economy. And agricultural assistance works: U.S. investments in better seeds and farming techniques have helped feed an extra billion people in the developing world since the early 1960s.

Letson also touts the major success stories, saying that “There’s no denying that U.S. foreign assistance has had remarkable success.” He remarks, “In the 1950s and early 1960s, the four developing countries that received the most U.S. aid were Brazil, Korea, Taiwan and Turkey. Today, we have over $100 billion in trade with each. Now South Korea each year buys U.S. goods that are worth more than all the assistance provided to that nation since 1962.”

And while a recent Gallup poll found that 59% of those polled support foreign aid budget cuts to relieve some of the budget deficit, there are a number of things incorrect about this assessment, the largest being Americans misconception of how much money actually goes towards foreign aid. In all, foreign aid represents less than 1% of the federal budget. In 2004, the United States spent $20.673 billion on foreign aid. Compare that to a multi-trillion dollar budget, and the percentage of GDP spent of foreign aid is surprisingly small.

A contributor at The Economist went even further, saying that the Gallup poll numbers are misleading:

The problem is that the poll doesn't go quite deep enough and ask the key question: cut what foreign aid, and to whom? Let's say we were to ask Americans exactly what countries they'd like to cut foreign aid to, starting with the biggest recipients. The quickest figures I could find on this were Census Bureau numbers that run through 2007, but that seems like as good a year as any to pick, so let's see what we've got. In 2007, the largest recipient of American aid was Iraq. The second-largest was Afghanistan. The third-largest was Israel. In that year, these three countries accounted for $16.5 billion of America’s $41.9 billion in foreign economic and military aid, or 39%. I would be flabbergasted if less than 50% of America’s public would respond “yes” to the question “Do you think America should cut its aid to Iraq, Afghanistan, and Israel?” I’m pretty sure that means that cuts to 39% of the aid budget are off the table, too.

Boiled down, the argument in defense of foreign aid is twofold: 1) The country providing the aid assists in providing basic necessities to people who have very few resources and furthermore, have almost no means of acquiring necessary resources themselves (not only an appropriate amount of food and clean drinking water, but also medicine and other items related to the warding off of disease; and 2) as Letson explains, promoting economic growth in a developing nation through financial assistance assists both their economy in the short term as well as the United States economy in the long-term as the people in those developing nations provide new, untapped markets for US goods.

The Failures of Foreign Aid

But not all people agree that foreign aid creates a net positive for developing countries. Commentators who disagree with current foreign aid argue that it has been judged not by its practical results, but more on the intentions of the governments that provide the aid.

According to James Bovard at the Cato Institute, foreign aid has become an “opiate” for the third world:

Instead of breaking the "endless cycle of poverty," foreign aid has become the opiate of the Third World. AID and other donors have encouraged Third World governments to rely on handouts instead of on themselves for development. No matter how irresponsible, corrupt, or oppressive a Third World government may be, there is always some Western government or international agency anxious to supply it with a few more million dollars. By subsidizing political irresponsibility and pernicious policies, foreign aid ill serves the world's poor.

Bovard also explains how foreign aid has actually served to harm the third world:

American foreign aid has often harmed the Third World poor. In Indonesia, the government confiscated subsistence farmers' meager plots for AID-financed irrigation canals. In Mali, farmers were forced to sell their crops at giveaway prices to a joint project of AID and the Mali government. In Egypt, Haiti, and elsewhere, farmers have seen the prices for their own crops nose-dive when U.S. free food has been given to their countries.

AID cannot be blamed for all the mistakes made in the projects it bankrolls. However, by providing a seemingly endless credit line to governments regardless of their policies, AID effectively discourages governments from learning from and correcting their mistakes. Giving some Third World governments perpetual assistance is about as humanitarian as giving an alcoholic the key to a brewery. Good intentions are no excuse for helping to underwrite an individual's--or a country's-- self-destruction.

Main Point To Take Away

59% of Americans believe that foreign aid should be cut to help solve the deficit problem; Despite this, the foreign aid budget makes up less than 1% of the total federal budget. Regardless of what you believe about foreign aid, whether its actually effective or whether the money actually goes towards the supplies it was originally intended for, arguing that foreign aid should be abolished from a purely budgetary standpoint is an insufficient argument.

Sources Cited in this Post:

Suggested Further Reading:

APPENDIX

Table 1. Development of Aid Composition, 1990-2004

Fiscal Year	Development/Humanitarian	Economic/Political Security	Military	Total
1990	$5.667	$4.242	$4.908	$14.817
1991	$6.318	$4.717	$4.788	$15.823
1992	$6.447	$3.803	$4.479	$14.720
1993	$6.967	$5.319	$4.225	$16.511
1994	$6.539	$3.269	$4.016	$13.824
1995	$7.134	$3.700	$3.876	$14.710
1996	$5.597	$3.787	$3.924	$13.308
1997	$5.485	$3.823	$3.879	$13.187
1998	$6.077	$4.038	$4.082	$14.197
1999	$7.739	$4.607	$3.674	$16.020
2000	$5.872	$5.797	$4.991	$16.660
2011	$7.263	$5.234	$4.018	$16.515
2002	$7.376	$5.309	$4.232	$16.917
2003	$9.361	$6.991	$6.426	$22.778
2004	$10.480	$5.402	$4.791	$20.673

Sources: USAID, House and Senate Appropriations Committees, and CRS calculations.

Note: FY2003 and FY2004 exclude $2.475 billion and $18.439 billion, respectively for Iraq

reconstruction.

Sunday, July 10, 2011

The Debate Over Foreign Aid