Official Aid is bad for 2 reasons: 1) it creates the wrong incentives 2) it is creating a new era of colonialism … Have rich countries really let go of their colonial hold on Africa? Foreign Aid promotes economic slavery!
President Obama wants to double US spending on Official foreign aid… What are the effects of such policy? if Official aid hasnt worked then what are the motives for sticking to failed policies?
A news article dated of March 2, 2009 echoed now President Barrack Obama’s campaign promise of doubling the US spending on foreign aid:
“…President Obama’s 2010 budget seeks to double U.S. aid payments to other countries despite a $1.75 trillion deficit and the worst recession in over a quarter of a century…”
(http://newsmax.com/Newsfront/obama-foreign-aid/2009/12/12/id/341764)
One way to keep the African masses under economic slavery is to keep them dependent on foreign aid. “You eat when we give you food to eat, you depend entirely on us because you’re incapable of taking care of yourselves, oh and by the way, you do what you’re told!” That’s the message! Developed nations and their politics control the fate of Africa.
Foreign aid is the transfer of resources from one government to another, in other words, from one potentially flawed institution to another. Given the basic economic assumptions that individuals always prefer more of any good or service to less (non- satiation), and that they are rational maximizing beings, why would it not be reasonable to question the motives of these official flows to Africa? Official Development Assistance (ODA) has created the wrong incentives preventing Africans from becoming productive members of the global economy. Foreign aid keeps the African masses from exploiting their comparative advantage to produce goods that would be mainly exported to north countries that “pretend” to be in favor of free trade but are still protecting some industries (I primarily think of agriculture among others). I used the word “pretend” because politicians believe that free trade is fair trade and good only when it gets support and votes on the home front. When times are tough, and during an election season, a new sense of nationalism rises and the most avid supporters of free trade become the biggest advocates of protectionist policies. Politicians in Europe and America don’t get elected to worry about the poor in Africa, they get elected to solve problems for their own constituents, so why are people so deluded into thinking that all this money sent to Africa, is aimed at helping the African people? Foreign aid first only creates a dependency that impedes economic productivity and second, it also reveals a new age colonialism driven by selfish motives.
There are very little documented cases where official aid has actually met the needs of the African masses that live in extreme poverty. It is no secret that the biggest supporters of aid are the African elite, more often than not, members of African governments, and recipients of this aid. It is also no secret that most of these oversized governments have been accused of widespread corruption over the course of the 50 years since most African nations gained their independence from colonial power.
In practically every case, the influx of “aid” has been immediately followed by the emergence of a massive, unproductive, parasitic government bureaucracy whose very existence undercuts the recipients’ ability for sustained economic.
More systematically, the World Bank notes that Official Development Assistance totaled five percent of the gross domestic investment of the low-income countries of South Asia, but over 40 percent in the low-income countries in Africa. It also notes that for the decade of the 1970s per capita income in South Asia’s low-income countries grew over five times faster than it did in the low-income countries of Africa. (Osterfield, David: “The failures and fallacies of foreign aid” The Freeman ideas on liberty, Vol. 40, Issue 2, Feb 1990)
It is also not far fetched to assume that the African “governments” elite would have no incentive to break away from this economic dependency because they benefit so much from it. Foreign aid is a “free lunch” that keeps the African elite fat because it never really reaches the masses, so why make any effort in terms of reform to encourage economic activity?
Are Africans incapable of producing goods for consumption at home or abroad or is it that their own governments have failed them by not providing the basic infrastructure to attract the private capital needed to encourage this economic activity? The African elites have turned their back on their countrymen. European governments have found a great ally to help them maintain their control over the natural resource rich African nations. Furthermore, foreign aid promotes such laziness that it is a sure way of keeping Africans from competing, thus it contributes to the protection of some local industries. Let’s pretend to “help” the poor by sending aid and let’s protect our struggling local industries, what a sure way to win an election! As long as the African masses are incapable to compete in the global economy, they will continue to depend on the good graces of the rich nations. Official aid is clearly not the way to sustainable development and the eradication of global poverty. It creates dependency and it undermines efforts in favor of free trade.
What’s the current US administration stance on official aid?
A news article dated of March 2, 2009 echoed now President Barrack Obama’s campaign promise of doubling the US spending on foreign aid:
“…President Obama’s 2010 budget seeks to double U.S. aid payments to other countries despite a $1.75 trillion deficit and the worst recession in over a quarter of a century…”
(http://newsmax.com/Newsfront/obama-foreign-aid/2009/12/12/id/341764)
… To be continued
Economics for Liberty! 
Orphe
March 12, 2010
This is a comment posted on LinkedIn by Greg Opie
Research Assistant at Lombard Street Research
Programme Coordinator at Economic Research Council
Mr Opie writes the following:
“The following is purely my own opinion, and not that of the Economic Research Council: I think this is an interesting article. However, there are many examples which suggest that the “basic economic assumptions” that you mention (non-satiation, individuals as “rational maximising beings”) are not entirely realistic.
Your article deals with international aid, but perhaps a more micro-level analogy would be individual charity. The only way charitable donations can be reconciled with the basic economic assumptions about behaviour is if we say that individuals gain utility from giving to charity – perhaps through the “feel-good factor” of helping others or supporting a cause for which they feel strongly. Or perhaps because generosity increases their status amongst their peers. I think this reasoning could be brought up to the level of states (ie. they give either because it makes their citizens feel good about themselves, or because it increases their status on the global stage). Perhaps the argument should not be about how much aid is given, but rather how the aid is directed? If aid was targeted at helping to set up industry, could it not be desirable? “
Orphe
March 12, 2010
My response to Mr. Opie:
All aid is not bad aid! Aid aimed at the development of the private sector to stimulate job creation and economic activity is “good” aid. Unfortunately, flows have been more effective not in the form of ODA, but rather Foreign Direct Investment (FDI).
The question at the center of the debate is whether or not “OFFICIAL” aid also known as Official Development Assistance or ODA has been able to accomplish desirable results in Africa, particularly sub-saharan Africa. These transfers from one government to another have been ineffective for the most part because of the many arguments i mentioned in my article.
To respond to your argument regarding the motivation for the transfers, the motive for the transfers is somewhat irrelevant because regardless of the motive, ODA still does not promote the right incentives for a sustainable prolonged development. African governments learn to rely on these transfers as a source of revenue and they have no incentive to stimulate private sector development and job creation (tax receipts as a source of revenue to fund government activity/spending).
Although your reasoning seems logical, in order for foreign aid to reach the desired targets, we would have to cut the middle man: “Government”.