Half Penny on the Federal
Michael O’Hanlon and Carol Graham
O’Hanlon and Graham argue that aid is
important because it serves basic human rights, freedoms, and opportunities, basic matters at least as important as U.S. national interests in
Half Penny summarizes aid spending in detail--
where it goes, who pays what. Official
development assistance, aid ear marked for
human and economic development, by the U.S. was about nine billion dollars in 1997 and falling. The biggest chunks go to Egypt and
The United States devotes a smaller
share of GDP to aid than other developed nations, but the authors make the point that the U.S. pays far more in shared policing and military
costs. About one-third of the $62 billion in western aid spending is devoted to
basic needs and micro projects, the remainder on macroeconomics, much
of it wasted on bureaucracies, subsidies, and power brokers. The authors claim $40 billion should be shifted to poor
countries with better policies and away from countries with terrible policies.
The countries with bad policies will then have incentives to change. Some might
claim funds would then be shifted from poor countries, but the authors
allege many poor countries with decent policies exist. Many dictatorships, however, are little more than local occupation forces. They do not care about better policies.
Amazingly, more money per capita currently
goes to poor countries with bad policies than poor countries with better
policies. Research by David Dollar and Craig Burnside suggests shifting
aid from poor countries with poor policies to poor countries with better
policies would raise mean growth rates from 1.10 percent to 1.44 percent.
Research suggests that in bad policy environments aid hurts growth. More thorough recent research, however, suggests aid does not work in better policy environments, either.
Aid is a complex undertaking with
unexpected consequences. Some nations that experienced hyperinflation did
better economically than their low inflation counterparts. The inflation itself hurt, but the tragedies caused by the inflation spurred the
countries to enact reforms, including lowering inflation. Some
countries with low inflation refuse to reform.
Other consequences are closer to certain. Every
nation that has somewhat free markets and secure property rights grows over the
long haul, at least according to a study of 117 nations by
Sachs and Warner. Support for reforms within
a nation is also critical.
The authors argue for debt
forgiveness, then requiring countries to attract private capital on their own
with freer markets in contrast to the present policy of constantly cajoling
countries to pay old debts. Perhaps they should reform policies first,
then ask for and receive debt forgiveness. Half Penny argues that aid
should be focused on macroeconomic growth rather than environmental policies
and microeconomic projects.
The authors believe western nations should
increase aid spending to $80 billion per year, which is about 0.35 percent of
western GDPs. The United States would pay 15 to 20 percent of the increase.
American aid bureaucracies should, they claim, be reduced by 2,500 employees,
leaving 8,000 employees. The U.N. claims that Western nations should increase
aid spending to $150 billion a year, but spending at that level, O’Hanlon
and Graham write, would cause many corruption, implementation, and dependency
harms. This work focuses too much on dollars spent and not enough on finding ways to produce good results.
—Book review article by J.T. Fournier, last updated July 24, 2009