Monday, January 8

Foreign aid, development assistance, and the war on terror

For more than a decade in the runup to 9/11 Israel warned about the funneling of foreign aid to terrorists, but the West was not ready to concede the point until the post-9/11 era. The war on terror has clearly established the close relationship of foreign aid and development issues to today's type of warfare:

Whether a government is simply very weak and thus, a target for takeover by terrorists (or criminal syndicates in league with terrorists), or whether the government is sympathetic to a terrorist cause, Western foreign aid and cheap development loans make easy pickings for transnational terror armies.

At the same time China's "peaceful rising" has translated to anti-democratic, anti-American policies administered through foreign aid and cheap development loans to despotic regimes in energy-rich countries and weak democracies in developing countries.

The recent Pundita "Frankenstein" posts on China's relations with African and Latin American countries document the trend. The posts underscore that just as the West is attempting measures to insure that foreign aid and development loans don't fall into the wrong hands, China is writing checks to any repressive regime that opposes US policy and not asking questions about what happens with the money.

I won't carry the analogy far, but in one sentence China is playing Sparta to America's Athens. To every argument the US makes in favor of democracy, China points to the success of their nation's military dictatorship. That China has depended on the democratic nations for their success is not something a poverty-stricken, isolated dictatorship wants to hear when China dangles aid in front of them.

And it so happens that Africa has become an important front in the war on terror -- and also China's prime aid target, as the nation attempts to sew up energy concessions on the African continent.

Meanwhile, William Easterly and other economists, in time with a mountain of data, have shredded the notion that traditional foreign aid and development assistance can meet their stated goals in the poorest regions.

The evidence is now overwhelming that the Cold War's cynical use of foreign aid and development loans to support governments sympathetic to one side or another of the struggle reaped weak governments and despotic regimes. The governments took the aid and low-cost loans and spent them in ways that only entrenched the causes of poverty and oppression. Yet it is now patently obvious that the unaddressed causes of poverty and oppression played into the hands of the transnational terrorists and governments that fund them.

The US has ignored the mountain of data to the extent that we are throwing aid at any government, no matter how repressive, which claims to eat terrorists for breakfast and makes at least a pass at fighting terrorism. But there is nothing like the point of a gun to encourage clear thinking. So governments of the wealthy nations under threat from the terrorists -- and they are all under threat -- have pored over the mountain of data and asked, "Is there any kind of aid policy we can devise that actually works to reduce poverty in the poorest nations?"

To which William Easterly replies: No, you idiots; read the data again. (Forgive his tone; he worked for the World Bank.)

Is Easterly right? Yes, but this being wartime, the most compelling argument will not dissuade the Western nations from trying to use aid to help win the war on terror. Also, you can't really argue against noblesse oblige; if the rich want to give to the poor, that's a good thing provided the largesse doesn't hold the rich hostage and renders more help than harm.

Yet it's just the specter of doing harm that prompts Easterly's most cutting diatribes -- and Pundita's. This blog has pounded home the point that while it's one thing to do no good, to pile serious harm on top of ineptness is what all reasonable people should try to prevent in the 21st century.

Is there a way for the US to have their cake and eat it, too? Use aid as a tool of war and also encourage developing nations to make sound governance policy; the latter on the theory that sound government removes underlying causes of poverty?

Enter the Millennium Challenge Account. I'll tell you straight off the bat that I don't think Easterly is a fan of MCA, if one follows the logic of his basic argument:
" is a fallacy to think that overall poverty can be ended by a comprehensive package of “things,” like malaria medicines and clean water. The complex poverty of low-income societies will slowly give way to prosperity the same way it happened in rich countries, through the gradual homegrown rise of political and economic freedom. This is NOT an easy quick fix—“democracy” and “free markets” evolve from below with a lot of supporting social norms and institutions, they cannot be imposed from the top by the IMF [International Monetary Fund], World Bank, or U.S. Army."(1)
But one can make out an argument that if you use aid to support "social norms and institutions," you can help a government that is trying hard to move toward democracy and free markets, and which simply needs money to bring about certain reforms, such as shoring up their judicial system.

From that view, you can devise an objective set of criteria about what makes for good government and allocate grants on a scale of how well a developing country meets, or tries to meet, the criteria.

That is the reasoning behind the MCA grant criteria, which are not really new. Membership in the European Union is predicated on a set of criteria that reflect key elements of good government. So today the members of the EU, who represent half a billion of the world's people, live in freedom and relative prosperity and exhibit reasonably sound government practices. That is an astonishing, inspiring accomplishment -- yet it's predicated on meeting membership requirements, rather than development requirements. The question is whether the idea behind the EU criteria work as well when applied to countries that do not seek membership in a bloc. We'll dip into the question tomorrow.

1) William Easterly

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