August 7, 1985

August 7, 1985 | Backgrounder on Trade, Economic Freedom

"In Africa's Anguish, Foreign Aid Is a Culprit"


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I 447 August 7, 1985 IN AFRICA'S ANGUISH F,ORElGN AID IS A CULPRIT INTRODUCTION Africa is visibly deteriorating. Though major forecasts from the U.S. Agency for International Development (AID) show consistently positive net marginal social benefits, hunger and human suffering c ontinue to spread, deepening compassion and whetting the administrative appetite for new responsibilities.

Yet foreign aid is not the answer to Africa's troubles; in fact aid may be a major culprit contributing to Africa's anguish.

Financial, technical, a nd intellectual aid excuses and therefore helps to support and sustain those African domestic economic policies which are the root of Africa's problems the self-interest of many of those whose present and future careers are dependent on foreign aid This s ituation is perpetuated by In the long run, foreign developmental aid to Africa should be ended. More immediately, it should be restructured substantially so that it no longer reinforces those phenomena causing Africa's horrible suffering.

THE STATE OF AFRICA It is tempting to document the decline of Africa in statistical terms. But these do not tell a full or accurate story.

In Africa, accurate data are hard to discover and the collection and analysis skills are scarce there is great divergence between re ports from different sources about the same measured phenomenon Hence data are crude at best, while The international aid agencies classify their client nations, in regressing .order, as "Newly Industrialized I Middle Income, I' or Least Industrialized" o n the basis of per capita income. It would be anticipated that with the growth and decline of economies, nations would move up or down on the list. Mysteriously, however, on paper African countries only move up on the scale of progress, despite visible evi d ence of decline. Obviously, political rather than scientific considerations determine the numbers which form many statistics about African nations. But whatever the official statistics say, the more reliable evidence is unequivocal. The productive agricul tural economies of most African nations are in shambles. Where previously there was an abundance of food, countries no longer can even feed themselves.

Though causality can never be proved, the implications are hard to avoid: countries which have had forei gn aid in the most basic form for an extended period of time have regressed economically more often than they have developed the aid was insufficient or did not continue long enough basis for the aid distribution process must be questioned It is no longer acceptable to argue that The very PARALYZING RATIONALIZATIONS What is the reality of Africa? How can perceptions differ so much from what is actually happening? It seems that an elaborate ruse has been created which posits excuses for Africa's economic st agnation and decline.

Africa's control for Africa's problems. As such, the rationalizations paralyze Africa, preventing it from taking the steps required for restoring its economic health These rationalizations blame non-Africans or forces beyond The most common and dangerous rationalizations are Population It is asserted that rapid or rising rates of population growth or some particular level of population density, precludes the possibility of African economic progress popular because they give the appear a nce of concerned objectivity is easy to assume that those unresponsive to Western advice on population must be either ill-informed or ill-intentioned Population explanations are It The 2concept of the abject and mindless poor, knowing nothing of the proce ss of procreation and giving nolthought to the morrow, is inherent in all population policies.

A disproportionate amount of foreign aid to Africa goes directly or indirectly into population policies policies can be demonstrated to be the cause of subsequen t changes in the rate of population increase or in population density does nothing to deter the proponents The fact that none of these In reality, foreign aid directed at population policies has at least three major negative effects. First, it creates a p reoccupation with something which may be totally irrelevant to the development process, and justifies doing nothing about those factors (such as the pattern of ownership and incentives) which are known to be important.

Second, foreign aid used for populati on activities gives enormous resources and control apparatus to the local administrative elite and thus sustains the authoritarian attitudes corrosive to the development process. Third, money used for population policies, as with all foreign aid, is taken from other activities that could contribute positively to global prosperity Tribalism Blame for the present African situation is often directed at tribalism. But tribalism is inevitable when law is no longer evenly enforced, detailed economic controls mak e'corruption a way of life and the right to own one's possessions is subject to political whim.

Who can one turn to but one's fellow tribesmen and one's family?

Foreign aid sustains tribalism as long as it supports excessively centralized government, the administrative elite,2and the favored groups which have access to the political system. But mainly the answer to tribalism lies in the hands of today's African r ulers is not an exogenous factor.

It 1. Economic development is a long-run process. There is little, if any, evidence that high rates, or even increasing rates, of population growth have in the long run led to poverty more often than to prosperity the avai lable empirical data--the cross-sections and time series of nations presented by Kuznets and Easterlin, together with the historical allusions of Sauvy and Clark--did not confirm that theory Julian L.

Simon, The Economics of Pornlation Growth (Princeton, New Jersey: Princeton University Press, 1981), p. xxi 2. Alan R. Waters, "Interregional Development and Urban Tribalism in Africa Growth and Change, Vol. 4, No. 2, April 1975, pp. 30-37 3 I The Past Historical determinism, or blaming the past, is a means o f escaping responsibility for the present past approach can work only so long as its basic premise is faithfully respected: that those in control. of Africa for the last two decades somehow have been prevented from initiating change without foundation Yet this Ilprisoners of the This is In any society, practices and institutions from the past must be changed if they inhibit successful economic development. If foreign aid enables African leaders to postpone the inevitable pain of change it does the people o f Africa a deep disservice. Because foreign aid goes directly to governments, it is given first to the officials who control the state. These officials are not those most likely to begin the desperately needed process of dismantling the state apparatus.

Si nce foreign aid is fungible, it merely replaces a country's own funds, which can then be used to support other activities I Education Systems African education systems are frequently accused of producing inappropriate skills and interests. Example: Africa n secondary schools and colleges produce too many clerks, it is said, and not enough technicians. If this is true, it is much less the fault of the education system than of the reward structure that offers a more attractive combination of workload, securit y, and salary to clerks than it does to other workers.

Admittedly in many cases, African education systems are highly inappropriate education system. A reason for this may be the way foreign aid is made available. The educational systems of Africa are almo st totally state-controlled ,and almost all patterned after the state systems of Europe. Nowhere has Africa emulated the Land Grant University of the United States. Private.education is centrally controlled through curriculum requirements and state examin a tions. The whole'apparatus has the support of the foreign aid agencies. Innovative and private alternatives are simply not funded by foreign aid no consumer choice in education for the children of any but the urban elite Yft African rulers do little if an y thing to change the There is little or 3. For the argument that the higher education systems which the Africans have chosen are indeed reactionary and ultimately dangerous see: Alan Rufus Waters, "A Behavioral Model of Pan African Disintegration The Afric a n Studies Review, Vol. 14, No. 3, December 1971 pp. 299-303 4National Boundaries It is argued that the political boundaries inherited from the past, drawn by West European colonists, contribute to African governmental excesses and economic stagnation. His t ory, however, does not support this hypothesis. To be sure, the current map of Africa was largely set at the Berlin Congress .of 188401885, and African politicians have chosen not to alter it since independence. Yet arbitrary nationa1,boundaries that igno r e ethnic or geographical distinctions need not be a barrier to economic success. Nations are prospering despite arbitrary boundary changes which divide ethnic communities. Examples: the Koreas, the Germanies, the Republic of China on Taiwan. If African ru l ers and foreign aid donors, moreover accept the argument that present African national boundaries are an impediment to prosperity and development, why then do foreign aid agencies continue giving money to political units formed by those boundaries? By the ir own definition, foreign aid is merely perpetuating the past.

Commoditv Fluctuations I Third World ideologues frequently argue that the global terms of trade have shifted against the primary products which are the major exports of African and other devel oping nations evidence of a secular or long-term decline in basic commodity prices.

It is true, of course, that commodities.have fluctuated in prices and quantities traded. This could create short run problems for economies dependent to a large degree on a few commodities prices have fluctuated throughout world history. The art of good management and sound leadership is to develop a system to compensate for and take advantage of fluctuations. Buffer stocks, insurance cash reserves, and forward trading are all standard techniques readily available to African officials. And Africans are as capable of good management as any other officials Yet there is no But commodity Foreign aid has been a source of lladjustmentll financing to offset It also has directly fi n anced schemes to pass The effect of such financing commodity fluctuations the cost of management back to the producers or forward to the consumers in.the more developed nations is detrimental to economic development. It distorts market signals and reduces the value of the learning procfss which African managers must experience to compete in world trade 4. See: Alan R. Waters, "The Economic Reason for International Commodity Agreements,"

Kvkklos, Vol. XXVII, Fax. 4, 1974, pp. 777-791 5Natural Disasters Bad weather and other natural disasters certainly affect national economies. Yet they are similar to commodity fluctuations. The droughts or locust infestations that plague parts of Africa may not recur at fixed intervals, but it is certain that they recur is s ue then, again, is appropriate management. Where events cannot be anticipated (and are not ignored by local officials) there is a case for disaster relief question of foreign aid for economic development. The broader problem is that foreign aid helps remo v e the incentive for efficient management the social welfare systems The Such relief is a separate issue from the Indeed in somf African nations, foreign aid takes over Foreiun Exchanue The problems of Africa also are blamed on a shortage of foreign hard c u rrency with which to purchase the imported equipment necessary for economic development necessary for economic development, this argument would not stand close scrutiny. The reason: Africa has chosen not to use its foreign exchange for industrial and agri c ultural equipment imports are food, petroleum products for transportation, automobiles and consumer goods which are surely classified as luxuries Even were imported equipment absolutely Major African Foreign exchange rate manipulation also provides a usef u l example of how the aid process transfers wealth from the poor to the rich in Africa. Foreign exchange markets exist for the purpose of coordinating the supply and demand for desirable foreign currencies high exchange rates reduce the amount of foreign c u rrency available by making exports more costly to the foreign buyer; but they also subsidize the standard of living of the import-consuming and foreign-travelling elite, making imports cheaper than they otherwise would be Artificially The cost of exchange manipulation falls on those who produce and sell exports, and on those who consume domestic products rather than imported ones. Africa exports commodities such as coffee and cocoa produced by small fanners. The poor and the productive pay for the cheap im p orts which the new administrative class consumes in the cities. As long as foreign assistance helps to sustain manipulated exchange rates, there exists no pressing incentive to cease subsidizing the upper classes in Africa 5. The extended period (over a d e cade for a number of African nations) during which foreign food and disaster aid has been maintained has resulted in the complete cooption of their welfare systems 6- THE DESTRUCTIVE SOLUTION: FOREIGN AID Strange though it may seem, foreign aid per'se has been blamed for Africa's failures. Some contend that there has been insufficient foreign aid. As such, there are attempts to Vequire" the industrialized nations to make foreign aid payments as a moral obligation A smaller group argues that the problem is that too much aid has been given in the wrong way and for the wrong purposes.

Neither of these arguments has merit, but their target has. 0 real culprit in forcing Africa deeper into poverty is foreign aid.

Foreign aid is inevitably destructive in its effect. Its existence retards the organic process of economic growth and development which comes from motivated people acting in their own best interests.

It is essential in the criticism of foreign aid to go beyond.the inevitable scandals that emerge occasi onally. Foreign aid is not bad because it is sometimes corrupt and often appears to go into unjustifiable activities. Foreign aid is inherently bad. It retards the process of economic growth and the accumulation of wealth (the only means of escape from po v erty and degradation it weakens the coordinating effect of the market process; it pulls entrepreneurship and intellectual capital into non-productive and administrative activities; it creates a moral ethical tone which denies the hard task of wealth creat ion. Foreign aid makes it possible for African societies to transfer wealth from the poor to the rich.

In general foreign aid permits and finances the maintenance of failed economic policies destroy domestic agriculture. Large capital projects (particularl y those only partially financed by foreign aid) suck domestic funds away from more profitable commercial needs. Furthermore, the purveyors of foreign aid have tended to be people of generally collectivist faith.

They have encouraged the establishment in Africa of such institutions as state monopolies and economic development planning boards which would not have been permitted at home Food aid permits price controls which Perhaps the greatest condemnation of forei gn aid is that it has engendered and now justifies the bloated bureaucracies of Africa.

Enticing Africa's most potentially productive citizens to pass up the commercial and market sectors for government work is a terrible disservice. Worse, these talented Africans now in government service justify their positions and their perquisites by continual 6. P. T. Bauer's writings on the subject of foreign aid are well known. His latest book on the subject has an excellent summary of the argument: "Foreign Aid: Is s ues and Implications," Chapter 3, in Realitv and Rhetoric: Studies in the Economics of DeveloDmen t (Cambridge, Massachusetts: Harvard University Press, 1984 I 1 I i I I 7manipulation and regulation of their economies justified (and partly funded) by fore ign aid.

All of this has been RECOGNIZING RESPONSIBILITY 0 Almost any transitory event can be the fashionable excuse for economic failure in Africa. The welter of arguments merely postpones the search for serious answers to current problems been easier to blame the foreigner and the outsider than to accept responsibility and undertake change foreigners, moreover, has been a reliable source of foreign support for activities which would otherwise be harshly questioned And it always has Assignment of guilt to To progress, there must be an acceptance of the .fact that domestic policies are Africa's fundamental problem. To be sure in recent years, there has been inserted somewhere in every document about Africa's economic situation, like a SEC-mandated disclosur e statement, a small apission that domestic policies are at least a part of the problem admission, the policy paper writers revert immediately to classic form, blaming external factors and calling for external solutions Then, having made the required small print Recognizing responsibility is the vital first step to any rationalization of domestic policies by those who control Africa's nations. now operate no service to the Africans by pretending otherwise The Africans currently in power have set up the syst e ms they They are perfectly capable of altering these systems if they see it as being in their own interests to do so. The West does I Real reform of Africa's economic systems is impossible without strong incentives necessary conditions; the sufficient con d ition is the incentive to change. In Africa, rewards and penalties are obscured by collective responsibility. corrupts individual initiatives The ability and capacity to change are only Foreign aid merely dilutes those incentives and As long as the U.S. p r ovides food, without questioning the policies that have brought about agricultural stagnation and 7. To show that the exculpatory approach is alive and well, one only need look at a relatively recent article by Carol Lancaster in Foreign Policv. Only once , near the end of the article, is there a gentle mention of unwise domestic policies as one of many secondary factors contributing to Africa's economic failures; the reader is still left with the impression that the root cause of African poverty lies in th e indecent prosperity of the more successful nations. Foreign Policy, No. 52, Fall 1983, pp. 149-166 8-widesprfad hunger, those in power will offer no more than cosmetic change. And, if the U.S. continues to condone and fund the operation of state entities (thus supporting powerful and overrewarded African bureaucracies) the results will be equally superficial.

CONCLUSION If Americans truly want to help Third World countries grow economically, then the U.S. foreign aid program should be ended.

Short of thi s, the U.S. much change the nature of its foreign aid programs Two decisive policy changes must occur quickly. The U.S. must Contract awards could then be tied to specific and privatize its foreign aid program by contracting with the competitive private s e ctor quantitative results negotiate the details of aid programs with private contractors who have no vested career interest in large foreign staffs or the maintenance of missions abroad Foreign government bureaucrats should have to Foreign aid to any coun t ry must be contracted for a set period of time and made strictly-conditional upon selected actions by the government requiring the aid. Existing aid programs, meanwhile be siven a clear termination date. This would allow evaluation must and renegotiation where necessary without the pressure of ongoing commitments.

If the U.S. gives money to the rulers of Africa, it is by definition interfering in their domestic policies morality demand that aid and assistance.be offered only to those who request it and vol untarily accept our terms for its use though it does not is outright deception. AID administrators have an Decency and To behave as obligation to demand major policy changes or polite observance of the niceties of diplomatic rigmarole will suffice No timi d nnpolicy dialoguen Prepared for The Heritage Foundation by Alan Rufus Waters Babcock Graduate School of Management Wake Forest University I 8. For a clear exposition of this and other aspects of food dumping programs see: Clifton B. Lutterell Good Intent ions, Cheap Food and Counterpart Funds Review, The Federal Reserve Bank of St. Louis, Vol. 64, No. 9, November 1982 Professor Waters was Chief Economist at the U.S. Agency for International Development (AID) during the first Reagan term 9-

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