Foreign aid to poor countries could hurt more than help

Part of the big plan for re-aligning the foreign policies of the United States involves an increase in the use of “soft power” (using money, technology, and infrastructure development) and a decrease in the use of “hard power” (military presence, training, and supply). China has been making gains in their foreign policy front by using soft power to a tremendous degree and gaining allies in unstable regions of the world. The United States, under Barack Obama in particular, has tried (and largely succeeded) in removing the United States as a military power and focusing on making its presence in the world overall much softer.

However, there is a risk in such politics. The places that need the money in order for soft power to work tend to be led by people who, if not already corrupt, are easily corrupted by a sudden influx of wealth. This argument is expanded on by a winner of the Nobel Prize for Economics, Angus Deaton.

Deaton argues that, by trying to help poor people in developing countries, the rich world may actually be corrupting those nations’ governments and slowing their growth. According to Deaton, and the economists who agree with him, much of the $135 billionthat the world’s most developed countries spent on official aid in 2014 may not have ended up helping the poor.

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Think of it this way: In order to have the funding to run a country, a government needs to collect taxes from its people. Since the people ultimately hold the purse strings, they have a certain amount of control over their government. If leaders don’t deliver the basic services they promise, the people have the power to cut them off.

Deaton argued that foreign aid can weaken this relationship, leaving a government less accountable to its people, the congress or parliament, and the courts.

“My critique of aid has been more to do with countries where they get an enormous amount of aid relative to everything else that goes on in that country,” Deaton said in an interview with Wonkblog. “For instance, most governments depend on their people for taxes in order to run themselves and provide services to their people. Governments that get all their money from aid don’t have that at all, and I think of that as very corrosive.”

It makes sense. If a government does not have to rely so much on tax revenue from its people, it does not have to implement policy that meets the needs of keeping a steady cashflow. Things like balancing budgets and maintaining a happy populace don’t come into play when someone is just handing you money instead of you having to earn it. Lowering taxes and engaging policy that keeps the the populace happy keeps domestic prosperity high.

Likewise, if you don’t rely on the populace and its happiness when budgeting, you (at best) neglect them. If it is a poor country with a dictatorship or a small group of powerful people running things, it is a lot easier for government to become corrupted by sudden onsets of wealth. Deaton’s argument is that, in foreign policy, top-down wealth creation doesn’t work.

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