As the foreign aid budget wends its way through the Congress this summer and fall, Americans should be prepared for even more assaults on their generosity. Journalists are already calling the Unites States “stingy” or “the most parsimonious in the world” when it comes to international giving. They cite the fact that the United States ranks last among developed countries in terms of the percentage of its GNP spent on foreign aid.
The international organizations have been after the United States for years on this issue. The Development Assistance Committee (DAC), representing the industrialized countries that provide the bulk of foreign aid to developing countries, says in its latest report: “The United States ODA [Official Development Assistance] total is likely to stay around the same as the total for the four ‘front runner’ DAC countries, even though those countries’ combined population barely exceeds that of California.”
These front runners -the three Nordic countries plus the Netherlands – do indeed spend the highest percent of their GNP on foreign aid. In fact, they are the only countries to have ever reached the DAC target for foreign aid at .7% of their GNP. In 1958, the Central Committee of the World Council of Churches called for 1 % of countries’ national income to go for international development. Over the years this target was modified by the UN and set in stone at .7% of GNP. It then became the all-important indicator of foreign aid.
The problem with this guilt-giving measure of “foreign assistance” is that it is outdated. Once, international resource flows to developing countries were almost exclusively governmental. Now, they are primarily private.
Contrary to ten years ago, total private resource flows today far surpass government aid to developing countries. Total resource flows from governments and multilateral agencies to aid recipients were $88.3 billion in 1998, compared to total private flows of $147.2 billion. Thus, private flows accounted for over 60 percent of all external development finance.
That’s why President Wolfensohn, early in his tenure at the World Bank, began to worry about staying relevant to the development process. In 1997, the percentage of private flows was even larger at 76 percent. It fell in 1998 because of the Asian, Russian and Latin American economic crises. The percentage will likely resume its growth along with economic recovery in most of these regions.
The percent of GNP measure is also outdated as it does not take into account private philanthropy abroad. In the United States our private foreign aid was already surpassing government giving in the late 1980s. The clean little secret is that U.S. Official Development Assistance is exceeded by U.S. private foreign giving. Foundations, voluntary organizations, universities, individuals, churches, and companies give more than twice the foreign aid budget, according to a study by USAID. This is not the case in other countries where government foreign aid is the largest form of assistance.
Criticizing the United States’ generosity by our rank in the share of GNP for foreign aid also ignores the simple fact that we are still the second highest after Japan in the absolute dollar amount we give, totaling over $8.7 billion in 1998.
This is far from stingy. We are a generous people – considering our private giving, surely the most generous on earth.
Whether the foreign aid bill is reduced by $450 million from last year’s US international assistance is big bucks to bureaucrats and their favorite recipients, but it is not where the action is on the global development scene today. With worldwide prosperity on the rise and more countries moving out of poverty, do those calling the United States “stingy” want U.S. foreign aid to be forever rising? Are they for real development, that reduces any need for outside aid, or for perpetual dependency, that provokes calls for growing aid?
Foreign aid cannot substitute dollars for will and honesty. If governments are not willing to create democracy and the conditions for growth and investment, we cannot expect more foreign aid to help them out of their poverty. The poorest countries, where much less of private investment is flowing because of corruption and inefficiency, cannot grow without open markets, open societies, and rule of law – enforced to stop corruption.
We can and should, of course, help alleviate human suffering there. We can also support the forces of liberalization in these countries – those people, governmental entities, organizations and businesses that want transparency and private sector-led growth.
Those criticizing the U.S. on its amount of foreign aid would do well to focus more on the will of the recipients and the results of the projects. Emerging economies that are indeed emerging around the world are those who don’t expect to “make it” on foreign aid.