If there is anything we have learned from the American welfare state it is that from the very beginning it created a moral hazard problem whereby paying people for not working incentivizes them to drop out of the workforce and remain impoverished. It’s called “the welfare trap.” Much of so-called “foreign aid” is no different; it is just the internationalization of the welfare trap.
Many clear examples of this are provided by David Osterfeld’s book Prosperity versus Planning: How Government Stifles Economic Growth. For example, after the U.S. government “acquired” Micronesia at the end of World War II “the people of Micronesia were given free food, clothes, and other supplies. The result was bankruptcy of many local stores and the undermining of the incentive to work” as “Micronesians preferred to accept free and usually gratuitous welfare, thus avoiding the work and sacrifice required for real economic progress.” There are hundreds of other examples just like this one.
Since foreign aid goes to foreign governments the governments often pocket the money themselves or sell the in-kind aid on international markets and enrich themselves that way. During the 1970s famine in Ethiopia the government there sold the donated food while thousands starved, but spent $200 million to celebrate the nation’s Marxist revolution. They even charged cargo ships delivering “food aid” a $50/ton docking fee and turned back any ship that refused to pay it.
The type of “aid” is very often useless because it is government bureaucrats and not entrepreneurs who are making investment decisions. Foreign aid bureaucrats substitute their own random whims and hunches for the consumer-oriented decisions that entrepreneurs would make on the free market. Osterfeld cites giant oil refineries in countries with no oil and grain storage facilities that are not accessible by farmers as being typical.
When American manufacturers send tractors and other equipment to less developed countries, paid for by foreign aid funds, it is the corporations that are thereby enriched, not the aid recipients. Since all manufacturers have some percentage of their products are defective, these are the ones that are sent to foreign countries which then resent being dumped on in that way.
Since foreign aid is from government to government, the effect is to centralize governmental power in the recipient countries even more than it already is. Politics becomes more and more the way to make money as opposed to working, saving, investing, learning a marketable skill, and entrepreneurship. The domain of rent seeking and bribery is greatly expanded.
Massive shipments of grain through foreign aid programs pushes the price of grain to such a low level that scores of farmers are bankrupted and forced to move to the high-unemployment cities to seek employment and earn a living somehow. God only knows how many people in poor countries have starved to death because of such generosity. As in manufacturing, American corporate farmers are enriched by pawning off their excess grain (paid for by government) while people in poor countries suffer and die from it.
The foreign aid bureaucrats at the United Nations, heavily funded by U.S. taxpayers, live lavishly at U.S. Taxpayer expense. Osterfeld writes of individual bureaucrats who spend $60,000/year on limousine services and $100,000/year on ice water, for example. Millions are spent on international travel, seldom to impoverished countries but to “poverty seminars normally held at plush hotels in very attractive locations.” A U.N. bureaucracy called the Educational, Scientific, and Cultural Organization routinely spends millions annually on such travel while throwing impoverished countries a few crumbs to “justify” all the extravagance. It generously allotted $7,200 for curriculum development in Pakistan in one year, and a whopping $1,000 to train teachers in Honduras.
The most pernicious type of American foreign aid is military “aid” which doesn’t necessarily impoverish people in other countries but kills them by the hundreds of thousands, as is on display for all the world to see today in Gaza. American greatness would be well served by abolishing all foreign aid and leaving such things up to private charities and individuals.
Image credit: UNICEF Ukraine from Kyiv, Ukraine, CC BY 2.0, via Wikimedia Commons
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