Eleven Reasons to End All Foreign Aid

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The Canadian government has suspended foreign aid to the African nation of Mali following a military coup. From The Globe and Mail:

In a sharp reaction to the military takeover and suspension of the constitution, Ottawa is blasting “illegitimate rule” in a country where Canada has been a major donor, sending $109-million in aid last year. Mali is one of Canada’s biggest aid recipients, with much of the money passing directly through government coffers in Bamako.

Foreign Affairs Minister John Baird said Friday that Canada’s “initial” response is cutting off aid that goes directly to Mali’s government.

“Canada utterly condemns this attack on democracy by a faction of Mali’s military,” he said in a statement. “We call on those behind this coup to put the needs of the Malian people first and to immediately withdraw so that constitutional order, peace and stability may be restored and aid resumed.”

Ending foreign aid to Mali is a good thing. Permanently ending it would be better. Not just in Mali but everywhere else.

One of my favourite expositions on foreign aid is by the great Thomas J. DiLorenzo. In it, he explains the many perils of foreign aid, which include:

  • The fact that foreign aid is often a government subsidy; it enlarges the size and scope of the central government beneficiary, enabling it to repress its people
  • It lends credence to the fallacious “vicious cycle of poverty” theory, which suggests that people living in the Third World cannot achieve prosperity without handouts
  • It perpetuates poverty by diverting resources away from production and capital accumulation toward obtaining a seat on the foreign aid gravy train (e.g. overthrowing your government via a military coup becomes a better path to prosperity than entrepreneurship)
  • It masks disastrous economic policies; as Ludwig von Mises explained in Money, Method, and the Market Process: “The truth is that the United States is subsidizing all over the world the worst failure of history: socialism. But for these lavish subsidies the continuation of the socialist schemes would have become long since unfeasible.”
  • It creates moral hazard, tempting governments to sabotage their own economies in exchange for the consolidation of power and enrichment that foreign aid allows
  • It is used as moral justification for protectionist trade policies (e.g. “embargoes or tariffs on imports from Third World countries to buy votes at home may wreck their economies, but at least we can sleep at night because we throw freshly-printed money at them instead”)
  • It can be used to subsidize pet industries at home, as “aid” money sometimes comes with stipulations that it be spent on favoured companies; this benefits politicians and their cronies more so than poor people
  • It bankrupts local producers, such as farmers, who find it difficult to compete against a price of zero
  • It results in malinvestment because recipient governments don’t have to pass the profit and loss test
  • It is used as bribe money to influence domestic policy in other countries, often against the will of their people
  • It is immoral, as it expropriates money from taxpayers in one country and redistributes it those in other countries
According to the Organization for Economic Cooperation and Development, Canada gave $406 million in foreign aid money to Mali between 2000-9. Look where this has gotten us:
Drunk soldiers were reported to be looting the presidential palace on Thursday, carting off televisions and computers, pillaging gas stations and firing rifles in the air as they careered in pickup trucks through the streets of the capital, Bamako. A number of civilians were injured by stray bullets.
Canada’s foreign aid budget was $5.2 billion in 2010. Our national debt is $582 billion. I can think of a better way to spend our money.


 

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  • About Gregory Cummings

    Gregory Cummings writes about Canadian monetary and economic policy. His writing has been featured at the Ludwig von Mises Institute of Canada and the Ludwig von Mises Institute's Mises Daily publication. Read more.

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