State-led humanitarian aid has long acted as a tool for the United States to engage with foreign countries and the developing world. However, while humanitarian aid has several short term goals, such as disaster relief, it has blended with long term development projects and even counterterrorism strategies.
The global financial crisis has considerably altered American support for foreign aid, as domestic issues consume the political environment. Furthermore, reports of U.S. aid projects abroad have revealed a glaring lack of oversight and the wasteful spending of millions of dollars. While calls for reform have arisen in the past year to reduce inefficiencies, tight budget constraints and special interest groups remain an obstacle to reform. Whether aid fulfills sustainable development goals or even has any meaningful impact remains a constant point of contention. As more careful studies are produced, the results appear grim.
In his presentation at the Cato Institute last Tuesday, Christopher Coyne, the F.A. Harper Professor of Economics at George Mason University and the Associate Director of the F. A. Hayek Program at the Mercatus Center, outlined the argument of his new book, Doing Bad by Doing Good: Why Humanitarian Action Fails, which offers reasons against the impact of state-led humanitarian action.
In a nutshell, Coyne used economics to explain the vulnerability of the developing world. There is a need for economic development as well as strong economic institutions to regulate and advance that development in order to improve living conditions.
Given this foundation, Coyne then discussed how politicians frequently overestimate the impact of foreign aid by equating more spending with more development. Aid, according to Coyne, can increase predetermined outputs, but it cannot solve the basic economic problems in recipient countries required for economic progress. For that to happen, development projects should be more decentralized and therefore more responsive to the demands of its recipients.
Next, Coyne addressed the political economy behind humanitarian action. The current design of public aid results in inefficient spending. As the government makes money available, contractors and NGOs fight for the right to allocate aid money. This affects the long term flexibility and stability of aid programs as well as minimizes their impact, especially as NGOs follow their own agendas and fail to coordinate with others. For example, the international response to the Haiti earthquake has turned the country into a “Republic of NGOs.”
Aid programs have an inherent desire to grow and expand because they determine their success by the size of their discretionary budget and the number of subordinates within their organization. Hence, they promise the “next big thing” to win more money from the government. Unlike a business, aid bureaucracies are not responsible to residual claimants, who would earn money left over from business operations. Consequently, these organizations have fewer incentives for efficient spending. The lack of progress in Afghanistan reconstruction efforts serves as another example of aid infighting.
Finally, Coyne cited post-Arab Spring Libya to illustrate how U.S. humanitarian action did not fully acknowledge the consequences of intervention. In this situation, American intervention led to the unintended consequence of small arms proliferation throughout northern Africa, which has contributed to recent crises such as in Mali. According to Coyne, public aid programs need to be more aware of the systems in which they operate.
Coyne conceded that state sponsored programs have been effective in providing short term relief to those in emergency situations. However, he asked his audience to consider the sustainability and efficacy of state programs, given their current mindset and the design.
“Can the government…systematically and consistently provide assistance to those who need it?”
To conclude, Coyne suggested a constrained approach to aid, viewing development as a “discovery” of recipient needs. He argued for the removal of barriers to discovery, such as counterproductive U.S. policies that negate the effect of aid. These include government subsidies of domestic agricultural products and stringent migration barriers.
Ultimately, greater economic freedom in the world will advance development, as it allows private institutions to drive growth.
Naturally, Coyne’s presentation drew a variety of responses from the audience. Gordon Johnson, who had worked on the Marshall Plan, challenged Coyne’s assertion that the Marshall Plan failed to accomplish as much as the government claimed. Johnson pointed out that the program achieved its goals because not a single one of its recipients became a Communist state. On the other hand, Yaya Fanusie, who works for the United States of Africa 2017 Project Task Force, fully agreed with Coyne.
“I am from Africa,” he said, “We don’t need foreign aid.”
Foreign aid comprises a mere 1% of the federal budget. Subject to politics, it may see little reform and even a reduction. The growth of private aid, especially via remittances and philanthropy, offers a compelling alternative for helping the developing world. Nevertheless, Tom Ridge, former Secretary of Homeland Security, may have captured the position of foreign aid at a recent conference sponsored by the Latin Chamber of Commerce and the U.S. Global Leadership Coalition:
“Good times or bad there will always be some political resistance to foreign aid: ‘Oh my God, we have all these problems here, how can we spend that money overseas?’” Ridge said. “And I guess the answer has got to be … It’s a strategic investment in the long-term interests of the United States of America and future generations.”