The self-inflicted wound of US foreign aid cuts

Kevin P. Gallagher and Katherine Koleski

It’s not every day that foreign aid is front page news in the United States, but it is because slashing foreign aid has become one of the few areas of bipartisanship in the US Congress. Such an act of retreat is short-sighted. Given that China and other emerging markets are ramping up their overseas development assistance, the US should be revamping and increasing aid, not cutting.

When Obama took office, he put together two major reviews of US foreign assistance programs, resulting in the release of two bold reports (pdf) just last year. These reports led the administration to propose a 10% increase in foreign aid for this budget cycle, up to $59bn – but still less than 2% of the total federal budget. A key part of these reports was a focus on pursuing a long-term strategy rather than going with the latest development fad and constantly switching gears.

Well, the immediate recipients of that aid don’t vote for US congressional representatives. Last week, the US House of Representatives proposed a 20% reduction, while the Senate suggested a 10% cut from last year’s total, not an increase at all. While Congress hardly proposes to dent the components of US aid that are tied to military programs, hardest hit are food aid, global health programs, the United States Agency for International Development and official development assistance (water filtration plants, etc).

While the United States is in the midst of reducing its foreign aid, China has been increasing its contributions. China has lent at least $110bn between 2009 and 2010 – more aid than all World Bank loans combined during that period. Furthermore, China is implementing that longer-term strategy that Obama said the US needs.

The US aid machine has been prey to the latest fads in development thinking. In the 1970s, we built dams and displaced people; in the 1980s, we made nations “restructure” their economies by getting the government out of the economy; in the 1990s, we told them to “trade not aid”; and lately, we’ve been setting up little microfinance projects around the world. All that can be fine at a micro-level, but such efforts have made a small impact at best and have been disastrous at their worst.

Meanwhile, China has been building export-processing zones, ports, railways and other more growth- and job-friendly projects. What is more, China’s aid has far fewer strings attached than the US’s does, and is increasingly favored abroad as a result. That is, in part, a pity, because according to a new report by US-China Economic and Security Review Commission, China’s aid to the developing world does not adhere to international standards such as governmental reform and human rights protection; this undermines efforts by the United States to initiate such reforms in Burma, Venezuela and Sudan.

In short, Obama’s new vision for aid started the right conversation; but the budget cutters have muted it. Foreign aid is seldom charity; it is an investment. The US needs to invest in growth and development abroad for our own sake, as well. If US aid is working, then as other countries of the world grow, they will be more apt to purchase our products, will be less apt to be struck with civil unrest that can jeopardise our geopolitical strategies, and improve our standing in the world in a manner that pays dividends.

Slashing foreign aid is an easy target, given that foreigners can’t vote in the US. Congress would show more strength if they trimmed the defense budget and passed the millionaire tax proposal. Given that the 0.3% of the people in the US who make over $1m a year had a great ride during the boom years, they owe it to the 99.7% who are being asked to pay more still now and cut back.

This piece was originally published in The Guardian.