The Heritage Foundation

Executive Memorandum #402 on Trade, Economic Freedom

January 27, 1995

January 27, 1995 | Executive Memorandum on Trade, Economic Freedom

Abolish the Wasteful Agency for International Development

It is time to abolish the U.S. Agency for International Development (AID), the executive branch agency that administers most American foreign aid programs. AID has failed in its mission to promote economic development overseas. Despite billions of dollars spent on economic assistance, most of the countries receiving U.S. development aid remained mired in poverty, repression, and dependence. In addition, AID lacks focus and, notwithstanding repeated attempts at reform, is poorly managed. Only a complete overhaul of America's foreign aid programs will make those programs more efficient and effective.

To its credit, the Clinton Administration realizes that there is a serious problem with AID. Vice President Al Gore's September 1993 report, Creating a Government That Works Better and Costs Less, concludes that "AID does not have a single, clearly defined and articulated strategic mission." This conclusion has been reached by scores of commissions and independent studies. After two years and several reform attempts by Administrator J. Brian Atwood, including his Peace, Prosperity and Democracy Act of 1994, which failed to pass Congress, AID continues to be notable for its fuzzy mission, poor management, waste, and fraud.

AID's failures cannot be papered over by folding it into the State Department, as some in the Clinton Administration were advocating this week. Abolishing AID by moving its functions to another bureaucracy offers little chance of significant reform in the way the U.S. designs, distributes, and spends nearly $14 billion in foreign aid dollars each year. U.S. policymakers should abolish the agency altogether, along with most of its functions.

The best way to determine which AID functions should be saved and which should be abolished is to examine critically the purposes and effectiveness of U.S. foreign aid programs rather than the programmatic effectiveness or even managerial efficiency of any given bureau. These programs should be cut or eliminated based on their own merits. If, after this analysis, a program is retained, it should be administered by an existing office within an existing agency. Under no circumstances should a new bureaucracy be created inside the State Department or any other agency to accommodate programs spun off from an abolished AID.

Once AID is eliminated, some foreign aid programs will still exist. Military and security assistance programs, for example, are administered primarily by the Department of Defense and should be retained for national security reasons. So, too, should military and security aid to Israel and Egypt. Although economic support funds for these two countries do nothing to promote economic development -- in fact, they may actually harm their economies -- an argument can be made that they should be continued in order to demonstrate political support for the Middle East peace process. If Congress deems Israeli and Egyptian aid necessary for national security reasons, lawmakers should rename it "Security Supporting Assistance," which is what it was called before 1978 when it was renamed Economic Support Funds (ESF). Once AID is abolished, these programs could be administered by such offices as the Under Secretary for Arms Control and International Security Affairs and the Bureau of Political and Military Affairs.

There are, however, two broad areas of foreign assistance that should be cut back drastically or eliminated entirely, as should the AID bureaucracies which have administered them. These programs are:

Economic Development Assistance. According to AID, Development Assistance funds are intended to promote economic growth in less developed countries. AID spent nearly $2.1 billion on development assistance projects in FY 1994. Since 1946, the U.S. has given nearly $265 billion in development assistance to foreign countries. Yet there is scant evidence that this aid has propelled many countries into the developed world. The late AID Administrator Alan Woods was right when he argued in his 1989 study, Development in the National Interest, that "Where development has worked, and is working, the key has been economic growth. And this is largely the result of individual nations making the right policy choices and making the most of their internal human and material resources."

The keys to economic development are free markets and free trade. Whether aid promotes or fails to promote them should be the fundamental criterion for economic assistance. The Index of Economic Freedom published by The Heritage Foundation provides such a criterion. The Index uses ten economic factors to grade the level of economic freedom in a given country. Countries with high levels of freedom have established the necessary economic system for achieving sustainable levels of economic growth. Countries with low levels of economic freedom still have systems in which government impedes economic growth. Sending development assistance to these countries would be a waste. The U.S. should adopt the Index as a tool to determine which countries are most likely to benefit from foreign aid and which ones are most likely to waste it.

Once this is done, much U.S. economic assistance would be cut. It would be impossible to justify maintaining all of the nearly $4 billion a year in U.S. economic aid if the criteria in the Index were applied. As much as $2 billion a year could be trimmed from AID's budget alone. As these funds were eliminated, so, too, could the supporting AID and related overseas offices be abolished. This would lead to a substantial reduction in bureaucracy which need not be moved to the State Department or any other governmental agency.

P.L. 480 Food Aid. Given the major agricultural reform bill coming before Congress this session, as well as requirements that the U.S. reduce agricultura subsidies as part of recent free trade agreements, Congress should eliminate one of America's largest agricultural subsidy programs: the so-called P.L. 480 programs aimed at providing food to impoverished countries. All too often, by depressing prices, this aid ruins the local food market of the very people i is intended to help. While some of its functions may be maintained under an "emergency food relief program" administered by the State Department or other departments, most of the $1 billion spent annually on emergency aid and agricultural development could be eliminated. So, too, should the AID supporting bureaucracy.

AID has failed in its mission to promote economic growth in less developed countries. There is little correlation between foreign aid spending and economic growth. Rather, the evidence shows that those countries which have graduated from the depths of poverty and into the developed world did so by creating the economic freedom that is necessary for expanding economies.

When he introduced AID in the early 1960s, President John Kennedy said it should be seen as a temporary transitional agency. AID never was intended to make the developing world dependent on international welfare. It is time for Congress to abolish AID and transfer whatever useful functions remain to the State Department.

Bryan T. Johnson is a former Policy Analyst at The Heritage Foundation

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