The Trouble with Foreign Aid to Developing Nations

It sounds good.  Stories of our financial support to developing nations make the US seem benevolent and good.  We send aid to a country, and the people are helped.  What could the harm be?

The trouble with foreign aid to developing nations is that once the people receive the “free” money, they no longer have the motivation to find ways to earn money for themselves.  Their lack of earning then impacts the tax base which in turn makes it nearly impossible for governments to operate properly.  Then, the governments begin to operate corruptly.  It is a vicious cycle.

Angus Deaton, the newest winner of the Nobel Prize in economics, makes this point and provides several examples of corrupt governments misusing foreign aid in a way that only makes things worse for the poorest of their residents.

In a recent article in the Washington Post, we find Deaton’s theory:

Like revenue from oil or diamonds, wealth from foreign aid can be a corrupting influence on weak governments, “turning what should be beneficial political institutions into toxic ones,” Deaton writes in his book “The Great Escape: Health, Wealth, and the Origins of Inequality.” This wealth can make governments more despotic, and it can also increase the risk of civil war, since there is less power sharing, as well as a lucrative prize worth fighting for.

Deaton and his supporters offer dozens of examples of humanitarian aid being used to support despotic regimes and compounding misery, including in Zaire, Rwanda, Ethiopia, Somalia, Biafra, and the Khmer Rouge on the border of Cambodia and Thailand. Citing Africa researcher Alex de Waal, Deaton writes that “aid can only reach the victims of war by paying off the warlords, and sometimes extending the war.”

Deaton presents solid statistics and research data and builds a case for cutting aid to poor nations.  He suggests that wealthy nations should step aside and give the poorer nations an opportunity to use their natural resources and build their nations themselves.

Angus Deaton concludes his argument with a question our leaders need to ask more often: “Who put us in charge?” he asks.