Please Stop the Aid
By Nancy Salvato

“Economic freedom, in and of itself, is an extremely important part of total freedom.” -- Milton Friedman¹

“In 1996, the UN declared that 70 countries, aid recipients all, were poorer than in 1980. An incredible 43 were worse off than in 1970.”² Experience has consistently shown that simply providing money to Third World countries will not buy political stability, spur social progress and eliminate poverty, yet this strategy continues to influence charitable efforts aimed at helping the impoverished people residing in these areas.³

It may sound cruel, but there are many valid reasons to stop the billions of dollars in aid given to poor countries. Often, it ends up in the hands of officials who repress their people. Many of them spend this money on arms and military instead of necessary infrastructure. Foreign countries acknowledging leaders, in this way, legitimize their rule. With money comes influence; not only of corrupt officials but with the countries providing the donations. Donors determine which projects to support. As a result, beneficiaries lose their autonomy and any possibility of true self government. Instead, allegiance is offered to those in power who can distribute aid or provide public service.⁴ 

How often does one read about the misuse of funds; the ruling elite making personal fortunes off of foreign aid and distributing great sums of money based on nepotism and favoritism. Perhaps the worst aspect of aid is that it finances centrally planned economies. Government enterprise competes with the private sector. Massive bureaucracies formed within aid agencies prevent the growth of a body of human resources in the recipient country. Many aid agencies’ bureaucratically sanctioned projects have failed, devastating the environment and ruining lives. Sadly, ordinary people lose their initiative and become reliant on government. Farmers are displaced by food aid. Potential entrepreneurs and intellectuals end up as bureaucrats in aid agencies. ⁵

The bottom line, third world countries compete against each other for aid and limited trade opportunity. Recipient governments do not encourage a tax base through increased productivity. Potential capitalists go elsewhere.⁶

It should come as a surprise to no one that Bono’s campaign to aid the poor, Project Red (http://www.joinred.com/manifesto.asp), is not receiving a 100% positive reception. Companies like Apple, American Express, Converse, among others are selling Red colored versions of their products. When purchased, a portion of the proceeds will be donated to the Global Fund to fight AIDS, TB, and Malaria in Africa.⁷

In an interview published in Der Spiegel, Kenyan James Shikwati summed up his feelings about how we can best help the poor. “For God’s sake, please stop the aid!”⁸ It is his belief, “That business, not aid, can best fight poverty and disease.”⁹ His actions speak volumes about his words. To stop the spread of malaria, he hires Bukura youths to spray homes with pesticides. It costs villagers about 75 cents for an introductory treatment, and follow up treatments run $4.25 every six months. This is cheaper than paying $17 to treat an actual case of malaria. Employees can use savings to purchase fertilizer and seed. These profits will, in turn bankroll businesses. And so on...He understands that foreign aid hurts local markets, corrupts governments and promotes dependency. The lesson is that we need to promote economic freedom.¹⁰

Milton Friedman explained it best, when he said,

“The present crisis is not the result of market failure. Rather, it is the result of governments intervening in or seeking to supersede the market, both internally via loans, subsidies, or taxes and other handicaps, and externally via the IMF, the World Bank and other international agencies. We do not need more powerful government agencies spending still more of the taxpayers' money, with limited or nonexistent accountability. That would simply be throwing good money after bad. We need government, both within the nations and internationally, to get out of the way and let the market work. The more that people spend or lend their own money, and the less they spend or lend taxpayer money, the better.” ¹¹

Recently, the Nobel Peace Prize was awarded to Bangladeshi economist Muhammad Yunus and his Grameen (Village) Bank. He “defied conventional lending rules by making loans to the poorest of the poor”¹² and “challenged cultural taboos by giving most of the loans to women in a Muslim-dominated society where rural women at the time were seldom allowed to touch money or work outside of their homes.”¹³ He discovered that women spent the money more carefully and paid back their loans in higher percentage rates than men. Micro-credit; small $27.00 loans were used by some women to purchase straw and create stools. Grameen Bank currently has 2,226 branches, has lent $5.72 billion, and can claim a 98 percent rate of repayment.¹⁴

What else can be done to help? Moeletsi Mbeki, deputy chairman of the South African Institute of International Affairs, an independent think tank based at the University of the Witwatersrand, writes that sub-Saharan Africa’s development would require that peasants be able to own land, have direct access to world markets, and have their financial needs met by banks serving small and medium scale producers.¹⁵

The United States is providing resources “both to strengthen security and foster economic growth.”¹⁶ Millennium Challenge Account funding will only be distributed to developing countries which demonstrate a strong commitment toward good governance; in other words, “Rooting out corruption, upholding human rights, and adherence to the rule of law.”¹⁷ Developing countries must invest in, “schools, health care, and immunization”¹⁸ so to “provide for healthy and educated citizens who become agents of development.”¹⁹ Finally, recipient countries must demonstrate, “Sound economic policies that foster enterprise and entrepreneurship.”²⁰ There need to be, “More open markets, sustainable budget policies, and strong support for development.”²¹  In addition, there are clear, concrete and objective criteria for measuring progress in the above areas.

The Fraser Institute, with its Economic Freedom of the World: 2006 Annual Report offers proof that, “Economic freedom has a greater impact than foreign aid in helping people in poor nations escape poverty.”²² Countries with more economic freedom have substantially higher per-capita incomes; higher growth rates; lower levels of unemployment; higher life expectancy (over 20 years longer in countries with the most economic freedom); lower infant mortality; declining incidences of child labor; access to improved water; the amount of income going to the poorest 10% of the population is much greater; and greater “human development” as measured by the United Nations.²³

Interesting bi-products of economic freedom are political rights, “free and fair elections” and civil liberties, “freedom of speech.”²⁴ Fewer regulations, taxes, and tariffs help to reduce corruption. In addition, “economically free countries are more integrated with the economies and cultures of other countries.”²⁵  There are fewer environmental stresses on human health and more vital ecosystems.²⁶

Freedom indicators include, “personal choice, voluntary exchange, freedom to compete, and security of privately owned property.”²⁷ Underlying all of this, of course, is the right to self determination. Countries are ranked by the size of their government; legal structure and security of property rights; access to sound money; freedom to trade internationally; and regulation of credit, labor, and business.²⁸

Economic freedom benefits from, “a legal structure that provides for the even-handed enforcement of contracts and the protection of individuals and their property from aggressors seeking to use violence, coercion, and fraud to seize things that do not belong to them.”²⁹ In addition, citizens need access to sound money. Government must, “refrain from actions that interfere with personal choice, voluntary exchange, and the freedom of individuals and businesses to compete.”³⁰ Taxes, government expenditures, and government regulations reduce personal choice, voluntary exchange, and market coordination. “Similarly, restrictions that limit entry into occupations and business activities also retard economic freedom.”³¹

The EFW index reflects the idea that all citizens have “negative rights”; protective rights which shield them against others who would invade or take what does not belong to them. “Positive rights” are considered invasive because to assume rights to, “things like food, housing, medical services, or a minimal income level,”³² implies that, “some individuals have the right to impose on others,”³³ to provide such things. Positive rights conflict with economic freedom.³⁴

“It is important to distinguish between economic freedom and democracy. Mutual agreement provides the basis for economically free activities. Unless both parties to an exchange agree, the transaction will not occur. On the other hand, “majority rule” provides the basis for democratic political action. In the case of direct democracy, the majority of those voting on the issue will be decisive. For representative democracy, legislative majorities will decide the issue. It makes a huge difference whether mutual agreement or majority rule underpins economic activities. When mutual agreement forms the basis for economic activity, there will be a strong tendency for resources to be used in ways that increase their value. The agreement of buyer and seller to an exchange provides strong evidence that the transaction increases the well-being of both as well as that of society. In contrast, there is no such tendency under majority rule. The political process generates both “winners” and “losers” and there is no assurance that the gains of the winners will exceed the cost imposed on the losers.”³⁴

The checks and balances of our limited constitutional government serve to, “restrain the impulses of the majority and promote political action more consistent with economic freedom”³⁵ ensuring that, “we do not count on majority rule to protect civil liberties such as the right to free speech, freedom of the press, the right to assembly, and religious freedom.” ³⁶

“Basic economic freedoms such as the right to trade with others, including foreigners, at mutually agreeable terms”³⁷; “the right to enter and compete in the business or occupation of your choice”³⁸; “the right to keep what you earn”³⁹; and, “protection of your property from confiscation by others, including the government”⁴⁰, are too important to be left to majority rule. “Like other basic liberties, they deserve constitutional, procedural, and structural protection.”⁴⁰

When a person is given everything, the objects of their desire are valued less and there are fewer opportunities and experiences on which to base self worth and build autonomy. On the other hand, people expected to meet life’s challenges learn to use their ingenuity and are provided opportunity to build their inner strength, character and integrity.  If there is always a safety net, there is less motivating a person to succeed. Conversely, when there is no control over a situation, people eventually yield to the forces pushing and pulling them. Our framers understood the importance of balance in maintaining our social order and freedom. Similarly, there must be balance between helping out the less fortunate and providing them opportunity to help them help themselves. Sage advice: everything in moderation. 

Footnotes:

^16-21 The Administration's Commitment to the Developing World
http://www.whitehouse.gov/infocus/developingnations/developingworld.html

^22-40 Economic Freedom Promotes Growth While Foreign Aid Fails Developing Countries
http://www.fraserinstitute.ca/shared/readmore.asp?sNav=nr&id=740

^{1, 11} Friedman's Sampler
http://www.opinionjournal.com/extra/?id=110009267

^{2, 3} Foreign Waste Disguised as Aid
http://www.cato.org/dailys/08-25-99.html

^{12, 13, 14} Micro-Credit Pioneer Wins Peace Prize
http://www.washingtonpost.com/wp-dyn/content/article/2006/10/13/AR2006101300211.html

¹⁵ Perpetuating Poverty in Sub-Saharan Africa: How African Political Elites Undermine Entrepreneurship and Economic Development
http://www.policynetwork.net/uploaded/pdf/mbeki_perpetuating_poverty.pdf

^{8, 9, 10} Preaching Free-Market Gospel to Skeptical Africa
http://www.nytimes.com/2006/11/18/us/politics/18thinktank.html?ex=1321506000&en=f7babfd9e30a1139&ei=5090&partner=rssuserland&emc=rss

⁷ Shopping for the Poor
http://www.opinionjournal.com/taste/?id=110009224

^{4, 5, 6} The Future of Africa in the World
http://www.irenkenya.com/downloads/articles/The_future_of_Africa.pdf