Why Foreign Aid Is Usually A Matter Of Throwing Good Money After Bad

“Promoting Growth Through Economic Freedom,” by Brett D. Schaefer
I’m not saying we shouldn’t provide humanitarian aid where needed, but let’s not kid ourselves into thinking that money will do anything more than place a band aid on a gaping wound.

The same laws of economics that apply to the United States — and have been the foundation of our prosperity — apply universally, whether the country in question chooses to acknowledge them or not. Political stability is necessary as well, but for those countries with stable governments there is no reason they shouldn’t be seeing economic growth over the long term. To have negative growth over a ten-year period is inexcusable. Emulate us, don’t demonize us.

Economic studies, conceding that the level of aid is not the central issue, have focused on what policies are most conducive to economic growth and development. In its 1996 World Development Report: From Plan to Market the World Bank observed:

“The state-dominated economic systems of [developing and former communist] countries, weighted down by bureaucratic control and inefficiency, largely prevented markets from functioning and were therefore incapable of sustaining improvements in human welfare.”

Subsequent World Bank studies have demonstrated that open markets and economic liberalization provide the fastest, most reliable path to increased growth and prosperity. A 2002 World Bank study titled Globalization, Growth, and Poverty: Building an Inclusive World Economy found that increased globalization (defined as trade as a percentage of GDP) from the late 1970s to the late 1990s led to higher economic growth. The more globalized developing countries (24 developing countries with over 3 billion people) achieved average growth in income per capita of 5 percent per year in the 1990s. By contrast, in less globalized developing countries “aggregate growth rate was actually negative in the 1990s.” The losers in the age of globalization are the countries that refuse to embrace economic liberalization and the global market.

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