Does Foreign Aid Work?

Posted on November 11, 2014 at 11:18 am,

After a long blogging break brought about by real life, I’m back, and picking up my series critiquing Wayne Grudem’s book Politics According to the Bible. Today we’re continuing to look at the chapter on Foreign policy, focusing in on what he says about Foreign Aid. Grudem says that this is an area in which the US (and presumably other rich-world nations) can promote their own interests and also do good for other nations. He divides this subject up into six different areas, and we’ll be looking at this in the same order.

Military Aid

Grudem says that military aid – giving or selling weapons and military training – can be used to help other nations defend themselves against attack and maintain their freedom. He doesn’t mention the historical cases where such aid has been used for oppression.

Humanitarian Aid

Grudem agrees with sending humanitarian aid to places suffering from natural disasters. He says that the US gives more than any other country, but does not point out that this is only true in absolute figures. There are many other nations that give more in proportion to both the size of their population and the size of their economy.

Economic Development Aid

Grudem says that it has been assumed for years that rich-world countries should give aid for economic development in poor countries. He doesn’t explain the term, but it means giving money to help relieve poverty and to encourage economies to grow, so that these countries have the resources to help themselves.

Whilst he does not go into the arguments, Grudem says that a number of studies have claimed that foreign aid has been harmful, as it has “always been channelled through corrupt governments”, has tended to entrench their power, and has created a culture of dependency, which prevents them from becoming self-sustaining and economically healthy. Grudem concludes that the rich world should stop giving aid.

However, even assuming these criticisms are valid, that doesn’t mean that we should abandon foreign aid. In fact, they form a stronger case for reforming it. Instead of channelling funds through corrupt governments, we could send it directly to anti-poverty projects, or make it conditional on cleaning up the corruption. As for dependency culture, this depends on how things are spent. If, for example, aid is spent on one-off infrastructure projects (e.g. digging a well in a village so they have easy access to clean water), then there is no danger of creating dependency.

Debt forgiveness

Grudem spends a lot of time talking about the issue of cancelling the unpayable debts that many poor countries owe. He mentions that there are a number of Christian groups promoting this idea, based on the year of Jubilee in Leviticus 25:8-55. Grudem doesn’t explain any of the arguments in favour of the idea of cancelling these debts, but argues against the idea. He argues that the analogy with the forgiveness of debts in Leviticus is flawed, as lenders in ancient Israel knew that the debts would be cancelled, whilst lenders today don’t. He believes that cancelling the debts would be unfair to the lenders, especially if it would leave poor countries free to borrow again. He also argues that the countries that are most heavily in debt are corrupt, and have very little economic freedom, and that changing this is the actual solution to the debts. Finally, he says that the money to pay off the debt must come from somewhere, and that the costs of paying off the debt will ultimately be borne either by bank shareholders (who he says are mostly pension funds) or by rich world taxpayers, and considers either option to be a bad thing.

He appears to be unaware that the initial idea of asking for debt forgiveness came from the people of the poor countries themselves, who genuinely believe that the debt repayments are a major cause of their countries’ poverty. He doesn’t consider that the measures governments are taking to make the debt repayments might be a partial cause of their corruption and weak economies, or that it might be making things worse. And he seems to be unaware that the 21st century banking system is able to create money essentially out of nothing. In short, he ignores the reasons why the idea was originally floated in favour of saying that poor countries should follow his economic ideal (which I pointed out was deeply flawed when covering the chapter on the economy).

Restrictions on Aid

Grudem believes that it is important that the US doesn’t give aid that would advance morally wrong agendas (he cites George W Bush refusing to fund Chinese population control measures that would promote abortion, or which involved forced abortion), and that it doesn’t give aid that will help oppressive totalitarian regimes. This is nice in theory, but it raises two big questions. Firstly, how should a government decide what is and isn’t a “morally wrong agenda”? Secondly, how do you balance helping the people living under an oppressive regime with not helping the regime itself? Grudem doesn’t mention either question, let alone attempt to answer them.

Who Gives What?

Grudem says that the US is responsible for giving far more aid than other countries. He cites a statistic that the US apparently accounts for more than 70% of all “financial flows” reaching developing countries from the G7 developed world (i.e. the US, Canada, the UK, France, Germany, Italy, Japan) – adding together private investment, private philanthropy, public aid, and private remittances.

This figure is somewhat misleading. Firstly, it is not clear what the phrase “financial flows” refers to. Given that, legally speaking, all transactions in US dollars have to go through the US, the phrase could be used to say what proportion of those payments were made in US dollars. Even assuming that means payments coming from the US, private investment is not usually considered to be foreign aid. Given that most of the largest companies in the world are (at least nominally) American, including it is bound to inflate America’s numbers. Also, it doesn’t tell us how generous the US is relative to other countries. They have a much larger population and economy than any other rich-world nation, so other countries do not need to give anywhere near as much in absolute terms in order to be more generous. When it comes to government aid, the US gives a significantly less per capita than other rich-world nations.

In short, Grudem has relatively little reason for the national pride he demonstrates in this section. The US gives more, but that is because it has more resources from which to give, not because it is more generous with what it has.

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