A Half Penny on the Federal Dollar: The Future of Development Aid

This is a hard-hearted practical look at development aid, and so it should be. The "official development assistance" (ODA) element of Program 150, the international affairs budget commonly recognized as the "preventive diplomacy" budget that runs alongside Program 50 (the traditional military budget), is evaluated by the authors in terms of amounts (are we doing enough), allocations (are we giving to the right countries), and directions (are we doing the right things). It is a small amount of money that is being discussed--$9 billion a year in 1997 for ODA alone-said to represent a half penny of each dollar spent by the U.S. government. This works out to about $15 per year for the members of the targeted populations. Larger more populous states receive less aid per capita than smaller states. India, Pakistan, Bangladesh, and China are especially disadvantaged. In contrast to today's $15 per person nvestment, the Marshall Plan provided in excess of $100 to $200 per person in Europe (but for only several years, working out to an equivalent amount when compared to sustained aid flows today). Several thoughtful observations jump out from the book: 1) Foreign aid is not preventing conflicts from emerging (if anything, and this is not implied by O'Hanlon but is explicit in William Shawcross' book DELIVER US FROM EVIL: Peacekeepers, Warlords and a World of Endless Conflict (Simon & Schuster, 2000), foreign aid contributes to instability by giving rise to warlords and black markets); 2) Foreign aid is of limited use in reconstructing societies ravaged by conflict, especially those with limited infrastructures that cannot absorb resources as well as European nations; 3) Foreign aid's best return on investment appears to be the education of women-even a few years of education has a considerable impact on birth control, health, and other areas of interest; 4)Foreign aid shapes both our own philosophy of foreign affairs, and the perceptions others have of our foreign role-it also shapes our domestic constituencies perception of why we should have a foreign policy arm; 5) Foreign aid does not play a significant role in most countries where there is access to open markets and stability does not frighten away investors-indeed the emerging expert consensus appears to lean toward debt forgiveness combined with private capital investment as the best approach to economic reform; 6) Foreign aid is least effective in those countries that are either unstable or have a range of harmful economic policies including trade barriers, large budget deficits, oversized public sectors, and overvalued exchange rates. Roughly half the countries receiving aid today have poor economic policies in place; 7) The U.S. is the least generous of the Office of Economic Cooperation and Development (OECD) members, providing just over one third as much of its Gross Domestic Product (GDP) as the other OECD countries-0.10 percent instead of 0.27 percent. Having said all this, the author's do