Economics 101 & Public Square

Is Foreign Aid a Big Waste?

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In his recent Gates Foundation’s annual letter Bill Gates makes the shocking prediction that, “By 2035, there will be almost no poor countries left in the world.”

What is shocking is that the news media has done little if no reporting on the fact that over the last 25 years, hundreds of millions of people (600 million in China alone) have climbed out of abject poverty. The World Bank reports that this is the largest movement out of poverty in human history. If this trend continues, we will see extreme poverty almost completely eradicated in the future.

Gates also takes on the challenge that government-funded foreign aid is wasteful. He calls this a myth, but qualifies the statement by saying that the type of foreign aid being given matters. Is this true? Does government-to-government foreign aid work?

Successful Foreign Aid Projects

Gates recognizes the importance of global market trade for the poor. I would go further and say that this is the most significant source of global poverty alleviation. There have, as development economist Bill Easterly suggests, been very successful foreign aid projects:

  • A vaccination campaign in southern Africa virtually eliminated measles as a killer of children.
  • An international effort eradicated smallpox worldwide.
  • A program to control tuberculosis in China cut the number of cases by forty percent between 1990 and 2000.
  • A regional program to eliminate polio in Latin America after 1985 has eliminated it as a public health threat in the Americas.

Clearly there are incredible success stories associated with foreign aid and they tend to be associated with health issues. These are to be celebrated. But in addition to foreign aid and health, what about the link between foreign and economic development?

Foreign Aid and Economics

As Christians think about the relationship between foreign aid, poverty alleviation, and economics, it’s helpful to consider a few questions:

  1.  Is the way we help people bringing us into relationship with them? After all, that is what we are called to do. We have to get to know the folks we are trying to help.
  2. Is our well-intentioned help doing any long-term harm? Often we go in without assessing the entire situation, and we can end up hurting people by displacing goods and services that were being provided locally or by ignoring infrastructure constraints. Peter Greer, in our upcoming book For the Least of These, gives the example of Playpump, a product operating as a merry-go-round doubling as a water pump. Unfortunately, the pumps were placed over the only existing water source in communities and they didn’t work well. When they broke there was no one who could fix them, so people often had to walk to the next village to get water.
  3. What are the alternatives? We must use sound economic thinking when deciding how to help the poor. Are there better ways of providing vaccines, education, and encouraging trade other than government-to-government aid? We need discernment around how to help and in what cases we use federal aid.

Economic freedom is key to greater opportunity and an improved quality of life. It’s important because it affects nearly every aspect of an individual’s life. According to research done by Dr. Joseph Connors, living in a society with high levels of economic freedom leads to higher incomes, lower poverty, less unemployment, longer life expectancy, lower infant mortality, higher literacy, cleaner environments and a host of other benefits. More economic freedom equals improved well-being and higher quality of life. Economic freedom, then, is one measure of what the Bible calls “flourishing.”

Does foreign financial aid buy more economic freedom? Although the evidence is not entirely clear, there seems to be no general conclusive indication that foreign aid increases the economic freedom of a country. Then what does?

Work, Economics, and Flourishing

In the opening chapters of Genesis we read that Man was created to work (Genesis 2:15), and that work is the stewardship of all of creation for the glory of God and the service of man (Genesis 1:28). Ken Boa writes,

God has entrusted us with certain resources, gifts and abilities. Our responsibility is to live by that trust by managing these things well, according to his design and desire.

We learn what it means to be a good steward from principles laid out in the scripture. These truths help us make better choices. God created us with the freedom to choose how to live our lives for his glory, thus all human action is purposeful—it is aimed at ends and goals. Economic freedom increases when people, Christians and non-Christians alike, are given the opportunity:

  • To freely work using their God given talents.
  • To keep the fruits of their labor.
  • To own private property.
  • To be protected from exploration and corruption.
  • To be able to buy and sell in a free marketplace.

This is the way God make things to be. The essence of this idea is captured in IFWE’s new video “Freedom to Flourish.” Gates is successful in part because he grew up in a country with a high level of economic freedom. For people in developing countries to be successful, our quest must be to encourage those institutional conditions that support individual work and creativity.

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