Tuesday, May 24, 2011

Oxfam America Presents: Foreign Aid 101

Oxfam America, a leading organization intent on solving poverty and injustice, has just released a great guide to understanding foreign aid - it's both comprehensive and straightforward. The paper addresses some of the most destructive myths about global poverty, and recommends policy changes that will make aid truly successful. Let's take a look at the major points that the paper makes:

A Short History of US Foreign Aid

A little historical context can go a long way. The most famous example of the first major US foreign aid project is the Marshall Plan. In 1948, the US gave $13 billion (5% of GDP) to help European countries rebuild infrastructure that had been destroyed during WWII. The goal was to combat the spread of communism, which was believed to be more powerful in poor countries. The Marshall Plan is considered a huge success; growth rates and standards of living increased dramatically, and communism never again gained a foothold in Western Europe.

Since the Marshall Plan, the US has been involved in numerous foreign aid projects, including the Foreign Assistance Act of 1961 under President John F Kennedy, which created USAID to provide economic assistance to needy countries; the Millennium Challenge Corporation under President George W. Bush; and President Obama's new US Global Development Policy.

Why Does the US Give Foreign Aid?

As the article rightly points out, there are numerous and distinct reasons that the US gives foreign aid. One great reason is humanitarianism. A mind-boggling 2.7 billion people currently live on less than $2 per day (one of the many official poverty lines). By itself, the death, pain, and suffering caused by extreme poverty necessitates our help.

But it's okay to do good things for self-interest, too. The United States has two main reasons why aid we give other countries benefits us. First, economics. Developing countries buy some 40% of our exports, meaning that we have a strong monetary incentive to make sure the people there aren't destitute. A richer world means a larger market for US goods. Second, national security. Numerous officials within the US government and military have made it clear that they recognize that poverty breeds sociopolitical instability. The best weapon we have against terrorism isn't a gun or a tank; it's foreign aid.

How Much Does Foreign Aid Cost?

The short answer: a pittance. Surveys show that Americans estimate that we spend 30% of our budget on foreign aid, and would prefer if we only spent 13%. This is especially ironic considering that aid advocates often ask for no more than 0.7% of GNP to be spent on foreign aid, in alignment with the Millenium Development Goals. The sad reality is that the US spends only 0.22% of GNP on Official Development Assistance, even though we promised 0.7%.

How the US Can Ensure That Foreign Aid Leads to Broad-Based Growth

The article makes 3 policy recommendations. First, implement the US Global Development Policy, which ensures that foreign aid spending is directed toward actual poverty-reduction, not just short-term security purposes. Second, modernize the structure that the US uses to give aid. In its present state it is infamously bureaucratic and inefficient. Third, give the poor countries control over development efforts - put them in charge of their futures. Hold them accountable by requiring transparency.


We need to do more. As the richest country in the world, the fact that we are ranked 19th in terms of foreign aid as a fraction of GNP is embarrassing. Well directed foreign aid has the potential to lift literally billions of people out of extreme poverty, creating a richer and safer world for both developed and developing countries.

--Travis Baseler