Trade, Not Aid: The Cure to Africa’s Ills

I was first introduced to the ideas of libertarianism through my interest in international issues. In high school, I interned at a congressional office that dealt with immigration requests in the aftermath of the 2010 Haiti earthquake. Through my experience, my eyes were opened to the government’s inability to help people when they need it most. Now, as an SFL Campus Coordinator, I get to be a part of a truly global network of students advocating for the true cause of empowerment in people’s lives – freedom. While it is easy for me to become jaded about the importance of freedom while living in the lap of luxury in the United States, it is impossible for me to not be inspired and motivated by what hundreds of my fellow students are accomplishing outside of the United States where the stakes for liberty are much higher. I spoke to two such students, Adigun Ajibola from Nigeria and Chikulupi Kasaka from Tanzania, about an issue that affects both Americans and Africans: foreign aid.

Foreign aid is a fairly contentious topic in the United States. Many Americans today are calling for lower levels of international assistance for moral reasons, arguing that it is wrong to spend taxpayer money on causes that don’t affect them. Others argue from an economic stance, claiming that the United States cannot afford to assist other countries. These arguments (particularly the latter) lose some of their saliency when one considers the actual amount of money that is spent on foreign aid. Many polls have demonstrated that the average American thinks the federal government spends 25% of its budget on foreign aid and thinks a more appropriate level would be 10%. In reality, foreign aid accounts for less than 1% of the federal budget.

However, while the money spent on foreign aid is chump change for the United States, it has a big impact overseas. Across Africa, U.S. aid accounts for 70% of the public purse. Rather than underscore the importance of foreign aid, the fact that so little money can make such a big difference in developing countries makes it even more important for the United States to decrease aid. Why? Because government aid doesn’t help the countries it is meant to help, and, in many ways, it hurts them. As a libertarian, my compassion is blind to state lines and national divisions, and, for this reason, I am against sustained foreign government aid.

In his book, The Elusive Quest For Growth, economist William Easterly criticized the theory that investment through aid will lead to growth. He demonstrated that there is no stable short-run link between aid and growth. Countries with high investment and aid such as Guinea-Bissau, Jamaica, Guyana, Chad, Mauritania, Mozambique, and Zimbabwe have had stunted growth while countries with low investment and aid such as Singapore, Hong Kong, Thailand, Malaysia, and Indonesia have grown rapidly. As Ugandan journalist Andrew Mwenda has asked, “What man or nation has ever become rich by holding out a begging bowl?”

Why does bilateral, or government-to-government, aid fail to produce results? Economists like Easterly and others argue aid fails due to a lack of accountability which creates perverse incentives for lenders and recipients which leads to corruption, a cycle of dependence, stifled entrepreneurship, debt burden, inflation, increased conflict, and Western stereotyping. It doesn’t take a professional economist to get it, either. When I asked Ajibola and Chikulupi for their opinions on foreign aid, they cited many aspects of Easterly’s argument based on their personal experience, three of which I will now highlight.

Perverse incentives for lenders
The success of aid agencies is measured by the number of dollars they loan and programs they start rather than how effective those dollars and programs actually are. As a result, lenders have no reason to operate at optimum efficiency. Ajibola told me that because “government money is no man’s money,” aid flows will be consistent regardless of the behavior or policies of the recipient, making it less likely for corrupt governments to reform. Ajibola addressed the accountability problem with foreign aid when he said, “the government that often wastes her own resources cannot be trusted with the funds of other governments.” Even more seriously, Ajibola told me that in Nigeria, corruption literally kills. Indeed, according to Easterly, human rights abuse is actually positively correlated with aid receipts.

Perverse incentives for recipients
Chikulupi told me that because African governments can rely on foreign aid, they have little need to tax their citizens, which means politicians are not held accountable to the people and can ignore their wants and desires. This means that aid encourages fiscal irresponsibility and the misuse of public funds because the less countries save, the more money they can expect from the United States. Both Chiku and Ajibola told me that these incentive problems lead to embezzlement. Ajibola argues that aid has had an overwhelmingly negative impact in Nigeria by stunting economic growth through corruption. He said, “Aid often ends up in the pockets of government officials or their cronies. I think my fellow countrymen are disdainful of our leaders who go bowl in one hand begging the international community for alms while enriching themselves with the other.” Here are a few numbers to support their anecdotal evidence of corruption: The president of the Democratic Republic of the Congo until 1997, Mobutu Sese Seko, stole at least $5 billion from the country and Malawi’s former president Bakili Muluzi embezzled $12 million in aid money. The World Bank has participated in the corruption of $100 billion of its loan funds and the African Union has estimated that corruption is costing the continent $150 billion a year.

Cycle of dependency and stifled entrepreneurship
Chiku argues that foreign aid also causes a cycle of dependency, which makes it more difficult for Africans to pursue self-determination and the social institutions necessary for economic innovation. Foreign governments “poison us so that we become the dumpsite of their manufactured goods” which favors U.S. interests at the expense of African development. Similarly, Zambian economist Dambisa Moyo argues that rather than giving Africans free anti-malarial bed nets, which put Africans out of business, we should assist them in growing their own businesses and services. She says, “Don’t forget that over 60 percent of Africans that are under the age of 24 need jobs not sympathy.” Paul Kagame, the president of Rwanda has said, “We appreciate support from the outside, but it should be support for what we intend to achieve ourselves. No one should pretend that they care about our nations more than we do; or assume that they know what is good for us better than we do ourselves. They should, in fact, respect us for wanting to decide our own fate.”

Chiku and Ajibola have both seen positive effects from aid. Chiku witnessed the construction of hospitals in two districts in Dar es Salaam made possible by aid. Ajibola has benefitted from the MacArthur Foundation and Google, which built Internet infrastructure at his university. However, the two students are in agreement that private charities have done more for their countries than aid from foreign governments because non-governmental organizations and charities have greater incentives to spend their money wisely. Also, because they take more specific, targeted approaches, it is less disastrous if their projects fail. As Ajibola said, “The impacts on aid may differ in terms of gravity of effect. With governments, the effects go further down the stream than they do for NGOs and charities.” Unfortunately, the two types of aid often come in conflict. Ajibola told me that the MacArthur Foundation experienced difficulty in digitizing his university library in Nigeria because corrupt university officials were uncooperative because the assistance did not enrich them financially.

Chiku is of the opinion that African countries should reduce dependency on foreign aid and hopes that African governments will soon open their eyes to this crucial agenda. African leaders should follow President Kagame’s example. In the past decade, Rwanda has cut foreign aid as a percentage of GDP by half while growing this year at more than 11% in spite of the recession. Aid critics are denounced as heartless, but aid advocates should be denounced as mindless. As Easterly has said, “Africans are and will be escaping poverty the same way everybody else did: through the efforts of resourceful entrepreneurs, democratic reformers and ordinary citizens at home.” Africa needs more trade, improved political institutions, a strong middle class, and a free press. Not aid.

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