28 January 2011

Rand Paul's Take on Foreign Assistance

Rand Paul wants to cut foreign aid, amongst a few other things, and gives the the following reason:
Despite billions of dollars spent in attempts to prop up economically weak countries, U.S. foreign aid has had almost an opposite effect. In the 1990s, a Clinton administration task force found that despite decades of foreign assistance, most of Africa and parts of Latin America, Asia, and the Middle East are economically worse off today than they were 20 years ago. In 2000, the Meltzer Commission found that the World Bank and organizations like it spent record levels backing projects in developing nations, only to have 55 to 60 percent of them fail because the money went to poorly managed economies where the money was either squandered by corrupt officials or imprudently spent.

Instead of reaching the people who need it, foreign aid has increased the size of the state rather than the welfare of the people. After reviewing aid flowing to 95 countries, researchers at the London School of Economics found that virtually all the aid went toward consumption. It did not increase investment in growth, nor benefit the poor. But it did increase the size of government. Historical examples tell us the same: From 1961 to 1989, the U.S. sent well over $2 billion in aid to India, almost all of which went to the Indian state. Similarly, in the 1980s and 90s, African economists frequently complained that 90 percent of U.S. aid to sub-Saharan Africa went directly to governments.

Finally, there is no evidence that aiding developing nations produces rapid and widespread economic reforms. Though many list South Korea and Taiwan as success stories of U.S. economic assistance, those counties began to take off economically only after massive U.S. aid was cut off. Similarly, numerous studies have disputed the link between aid money and economic reforms. In fact, A 2002 World Bank study admitted that they had been “overly optimistic about the prospects for reform, thereby contributing to the misallocation of aid.”

There are a lot of things here that are just plain wrong, but I am not at all knowledgeable enough to tackle this point by point. So, I am hoping that this post can cause another post to be written by the likes of Aid Watchers, Owen Barder, Chris Blattman or someone else who feels up to the challenge. With plenty of mis-information floating around, it would be useful to set the story straight.  Comments are great, a blog post better, and best would be if someone wants to email me some thoughts that I can use to craft a story to pitch to the Guardian or some place else.

If interested, you can read the proposed law here and the summary here. I would suggest skipping the text of the law as it provides nothing while the summary gives some wonderful illogical arguments like the one seen above.