1.

Relief of acute need and misery in poor countries has been the declared purpose of foreign aid—that is, official transfers from richer to poorer countries, as distinct from military assistance, commercial investment, or the efforts of voluntary agencies—since President Harry Truman launched the Point Four program in January 1949, well over a generation and hundreds of billions of dollars ago. This objective has always been the aim of the many genuinely compassionate supporters of foreign aid. Yet foreign aid goes to governments, not to the poor. To support rulers on the basis of the poverty of their subjects effectively rewards the policies that cause impoverishment. We have not emphasized this critical consideration sufficiently in our previous writings on foreign aid.¹

Since in those writings we have considered at length the numerous other arguments which have been advanced for foreign aid—including restitution for alleged Western misconduct; promotion of exports and employment in the West; the interests of Western political strategy; and the need to avoid a financial crisis—we shall not examine them here. We shall instead confine ourselves to the most durable and most effective argument behind this policy, the insubstantial nature of which has been so dramatically exposed by recent events in Africa.

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2.

Aid advocates have usually envisaged two different routes or methods for reaching their proclaimed goal. One, which may be termed the direct method, is the relief of acute poverty through transfers of money to governments of the poorest countries in the expectation that this will help directly to improve the lot of the very poor. The second, or indirect, method is the transfer of funds to governments in the expectation that this will promote development which in turn will reduce acute poverty, or even eliminate it. In the early years of aid, the primary emphasis was on the promotion of development; in the last decade or so, the emphasis has shifted to the direct method.

These two methods are often intertwined in aid discussions. They do, however, differ radically in their criteria of allocation and in their expected results, much as scholarships, grants, or subsidized loans to promising youngsters for their education or for setting up in business differ from alms to the poor, or from support to a disabled person.

Here we shall discuss the direct method first.

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3.

The money sent via the direct method does not go to the pitiable figures whose photographs we see in the campaigns of the aid lobbies. It goes to their governments—that is, their rulers. All too often it is these very rulers who are responsible for the gruesome conditions depicted in aid publicity. Foreign aid enables them to go on pursuing policies harmful or even utterly destructive to the population at large. A depressing yet incomplete list includes: maltreatment and expulsion of productive minorities; suppression of trade in farm produce, simple implements, and consumer goods; state monopoly of import and export; large-scale underpayment of farmers; forced collectivization and coercive removal of people from their homes; wholesale confiscation of property; restriction on the inflow of badly needed skills, enterprise, and capital.

In Asia and Africa many recipients of aid routinely pursue such policies. Even singly, some of these policies—e.g., suppression of trade, underpayment of farmers, or restriction of essential supplies—often cause havoc over wide areas by undermining or even destroying the exchange economy. Pursued in combination, they can greatly aggravate any natural calamity, and indeed can be devastating in the literal sense of the term, as can be seen today in Ethiopia, the Sudan, the Sahel, Uganda, and elsewhere. Simultaneously, many of these governments neglect such elementary responsibilities as public security, public health, and the maintenance of basic communications.

Aid can relieve immediate shortages. It thereby conceals from the population, at least temporarily, the worst effects of destructive policies. It also suggests external endorsement of the activities of the government, and this confers spurious respectability on the rulers. In these ways, aid keeps governments afloat and enables them to persist in their damaging policies. The famine in Ethiopia is only a recent and conspicuous example of this sequence, which has many antecedents and analogies elsewhere in Asia and Africa—for instance in Vietnam, Tanzania, Uganda, Zaire, and Ghana, among others.

To support rulers on the basis of the poverty of their subjects not only enables the rulers to pursue extremely damaging and even inhuman policies; it positively rewards them for doing so. Thus, per-capita incomes are reduced if a government restricts, persecutes, or expels its most productive people, often but not only ethnic minorities—Asians and Europeans in East Africa or Chinese in Southeast Asia; or if a government restricts the employment opportunities of women in the name of Islamic orthodoxy; or if it cripples or destroys the exchange economy. As incomes in the country are now lower, such governments can then qualify for more aid.

The notion that official aid can help the poorest through direct transfers in any case does not apply over most of Asia and Africa where there is no machinery whatever for state relief of poverty. Indeed, state help to the poorest usually does not accord either with local mores or with the political priorities of contemporary rulers. This is especially so where there are ethnic, cultural, and tribal diversities. Is an Arab-dominated Sudanese government likely to help the poorest among blacks in the southern Sudan, hundreds of miles away, with whom most of the time it is in open armed conflict? Can the rulers of Ethiopia be expected to help the people of Tigre when their distress is exacerbated by the government’s military action in that extremely poor region? Is a Hausa-dominated government in Nigeria likely to assist the poorest among the Ibo and the Tiv? Are the Singhalese rulers of Sri Lanka likely to help the Tamil poor? Such questions can be asked about practically every government in Asia and Africa.

The priorities of Third World rulers are also reflected in their lavish spending on prestige projects. Familiar examples include brand-new capitals built from scratch at the cost of many billions of dollars and often incomplete many years after construction has started (Abuja in Nigeria and Dodoma in Tanzania). There are the extremely expensive international meetings of the grotesquely named Organization of African Unity. Nor are the poorest helped by the huge expenditures on arms by Third World governments (accounting for about one-fifth of total world spending on arms) intended almost wholly for use against other Third World countries, or their own subjects.

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While official aid represents a relatively small proportion of total government expenditures in Western countries (and therefore a yet smaller proportion of GNP), it is nevertheless substantial relative to government revenues and export earnings of recipient Third World countries, and often even exceeds them. The inflow of aid therefore much expands the resources and the power of governments. It reinforces and extends the politicization of life in the Third World. It increases the stakes—both gains and losses—in the struggle for political power, provokes or exacerbates anxiety and tension, particularly in the multiracial and multicultural societies of many Third World countries.

The strains and tensions provoked by politicization often erupt into armed conflict even in countries where, in the past, different communities have lived together peaceably for generations—for instance in the Philippines, Malaysia, Indonesia, Burma, Sri Lanka, Chad, Uganda, and Nigeria. Politicization of life, reinforced by foreign aid, helps to unleash the forces behind the recurrent or persistent civil wars in these countries. Among other effects, these sequences necessarily divert energy and resources from economic activity to political life. The poorest, especially the rural poor, are harmed most.

The misery in Ethiopia has been brought to the notice of many millions of people in the West. But not many have been told that the Marxist-Leninist government there has regularly received much Western aid, mostly from multilateral sources, with an appreciable U.S. and British content. This totaled about $1 billion over the five years 1978-82. Throughout this period, the government pursued most of the damaging and destructive policies we have listed above, including persecution of productive groups, coercive collectivization of agriculture, large-scale confiscation of property, and underpayment of farmers by state buying agencies. Western aid continued nevertheless.

What has happened to all this money? Obviously very little of it has gone to the poorest. Some of it has presumably helped the government to fight its several civil wars, and to finance the extravagant Organization of African Unity with headquarters in Addis Ababa.

So much for the direct method of relieving poverty and distress.

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4.

Can official aid, then, help relieve poverty and acute need indirectly, by promoting development through augmenting the supply of investible funds? The answer is no. Official aid cannot contribute substantially to Third World development, and is indeed quite likely to retard it.

To begin with, the volume of investible funds is not critical for economic development. If it were, millions of very poor people—individuals, families, groups, and whole societies—could not have risen from poverty to riches in a few years or decades, as immigrant communities in Southeast Asia and North America, among others, have done. And governments and enterprises which can use capital productively and conduct their finances responsibly can borrow at home or abroad, even if they are poor.

Thus, even in very poor countries Western trading firms in the past habitually provided substantial financing to trustworthy local firms and individuals. And governments of poor countries have often borrowed commercially for infrastructure or other purposes. Therefore, the most that aid can do for development is to reduce the cost of borrowing investible funds, the volume of which—to repeat—is not critical for development. Incidentally, this applies also to technical assistance, which can be paid for by governments, as was often done in the past, for instance by the Japanese in the late 19th and early 20th centuries.

Against the benefits of the reduced cost of investible funds must be set major adverse repercussions affecting the basic personal, cultural, and political determinants of development. In addition to those we have already mentioned (especially the politicization of life, with its adverse or even disastrous consequences for economic activity), official aid also often encourages imprudent financial policies and discourages, for instance, the building-up of reserves. All too often balance-of-payments deficits are not unwelcome because they can serve as a useful argument for requesting external assistance and also for imposing domestic controls, both of which can serve the interests of the government. All this goes counter to a favored shibboleth of the aid lobbies—that aid helps people to help themselves.

The reality of the limitations and consequences of aid should not be called into question because the economies of a number of aid-recipient countries have genuinely advanced, or because some particular aid-financed projects have succeeded. The maximum contribution of aid to these success stories cannot in the nature of things have exceeded the avoided cost of borrowing. Indeed, the more promising a government’s policies or the more attractive a project, the easier it is for the government or the firm to raise external funds. It is simply not true that without foreign aid governments of poor countries could not borrow commercially abroad, or that productive projects could not be financed. The contrary is clear, for example, from the plantation, mining, manufacturing, trading, and transport enterprises, both local and foreign, established in Asia, Africa, and Latin America long before foreign aid.

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5.

In sum, at best foreign aid can do little to relieve Third World poverty or promote Third World development. But this does not mean that foreign aid is not important. It is, in fact, extremely significant on several grounds. As we have discussed these grounds—which are altogether different from those suggested by the proponents of aid—in various publications, we simply list some of them here.

First, it is official aid that has created the Third World as a collectivity which, as such, is hardly a friend of the West. Aid therefore underlies the North-South conflict. Further, because, unlike Soviet-bloc aid, Western aid routinely goes to governments at loggerheads (even at war) with each other, it enables each to claim that the West, especially the United States, supports its enemies.

Second, by promoting and reinforcing the politicization of life, aid not only damages the welfare of Third World peoples in the ways described above; it also harms the political interests of the West.

Third, the advocacy of aid has spawned a plethora of writings hostile to the West and its economic arrangements.

Fourth, powerful strands in this advocacy envisage aid as a first step in a worldwide income redistribution among countries, again to the detriment of the West and its economic arrangements.

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6.

It does not follow from our argument that the West cannot do anything to improve the lot of the peoples of the Third World. Indeed, the countries of the West already offer both huge markets and vast sources of supply not only to one another but also to the Third World. The removal or reduction of trade barriers could expand the opportunities and the benefits of international commerce. Moreover, the condition of the poorest in the Third World could be alleviated by the operation of nonpoliticized charities, which could be expanded with judicious official encouragement and support.

We recognize, in conclusion, that a demonstration that aid cannot achieve its proclaimed purposes—even if such a demonstration were seen to be valid—is not likely to change the operation of foreign aid or reduce its volume. This is so because of the powerful emotional, political, commercial, and institutional interests behind it. These forces are unlikely to be deflected or attenuated by analysis, evidence, and argument, whatever their cogency. And so the damage will go on.

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¹ These writings include certain essays in two books, Equality, the Third World, and Economic Delusion by P.T. Bauer (Harvard University Press, 1982) and Reality and Rhetoric: Studies in the Economics of Development by P.T. Bauer (Harvard University Press, 1984). See also the following articles: “Western Guilt and Third World Poverty” by P.T. Bauer (COMMENTARY, January 1976); “Against the New Economic Order” by P.T. Bauer and B.S. Yamey (COMMENTARY, April 1977); “Foreign Aid for What?” by P.T. Bauer and John O’sullivan (COMMENTARY, December 1978); and “East-West/North-South” by P.T. Bauer and B.S. Yamey (COMMENTARY, September 1980).