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Wednesday, March 17, 2010

Foreign Aid and the Forgotten Man

Oh dear. I'm really going to take heat for this one...

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The issue of foreign aid to developing countries was very much in the news a few years back, thanks in large part to U2 singer Bono, who, along with others, was urging governments of developed nations to contribute their promised share of around 7% of GDP to help poorer countries. Since then, the issue seems to have slipped under the radar, mostly because, since the financial meltdown, the money is no longer there to give — or at least, that is the perception.

(More correctly, Bono was asking for rich nations to donate 1% of GDP more than they already are, or than they have pledged. Thus, the total percentage of GDP would vary by nation. I’m using 7% as a realistic example; some countries donate much less and some more. Canada’s record here is worse than Canadians probably like to think it is.)

However, before the world’s economy went belly-up, many citizens of rich nations, of supposedly good intentions, were firmly behind Bono and company. But I often wonder whether those good intentions were really so good, or whether there was a certain degree of bad faith implicated in them.

There are sceptics out there who make some pretty plausible arguments that much aid does more harm than good to recipient nations. Lord Peter Bauer has devoted much of his career as an economist to this very thesis, while more recently Roger C. Riddell has devoted his very interesting book Does Foreign Aid Really Work? (Oxford University Press, 2007) to a penetrating critique of the foreign aid industry.

Now, don’t get me wrong. I’m not against foreign aid as such. But one doesn’t have to be a complete naysayer in order to appreciate the very real complexities involved in large-scale interventions in the economies of the poor, even with the best of intentions. My reading recommendation here is Sir Partha Dasgupta’s magisterial An Inquiry into Well-Being and Destitution (Oxford University Press, 1993), which, while not making a case against foreign aid per se, raises doubts regarding many widely-held assumptions about what causes poverty, what kind of aid is likely to be effective, and how it should be delivered.

I do not intend to involve myself in any of these issues here, which mostly turn on the question of efficacy. Although I am skeptical of the ability of many aid efforts to effect much good, I am not against all such efforts, and many of them I find ingenious and worthwhile (e.g. Muhammad Yunus’ truly groundbreaking work in making microcredit loans available to the poor, for which he received a Nobel Prize for Economics). Instead I should like to focus very specifically on the campaigns of Bono and others to get governments of rich nations to give over a certain percentage of their GDPs to poorer countries.

Even if you happen to agree that more should be done, is it true that governments are the best agents of change here? After all, there’s absolutely nothing stopping you from donating 7% of your income to aid organizations. As a matter of fact, this option might even be better, since you would then have a degree of choice as to who gets it, and you can direct it to where you believe it can do the most good. The rather checkered history of foreign aid and development demonstrates that governments are not infallible judges of what the poor need, to put the point charitably (pardon the pun).

Ah yes, but this would require effort. You’d have to do some footwork, inform yourself about the problems of the poor and about who is working on solutions to those problems. Best just to let the government do all that, no? Never mind how much of that money will be wasted in transaction costs as it wends its weary way through different levels of bureaucratic administration, or gets siphoned off by whichever organizations and NGOs have the best lobbyists with the readiest access to the ears of government.

Am I sounding cynical? Well, I’m not finished: I have a hunch that many — even most — of Bono’s admirers, if they were instead urged by him to donate 7% of their own pre-tax salaries to foreign aid (which is, after all, what he proposes to do, only more indirectly), would baulk at the suggestion. “I can’t afford to give that much!” they’d cry. “Let the rich donate it from their heaps of treasure!”

And here is the nub of the matter. People who sigh and are filled with warm feelings as they gush about “What a nice man that Bono fellow is,” fail to see the bad faith shown by their own proposed passivity. If the concept of 7% of GDP means anything to them, I suspect it means any or all of the following (with my comments in italics):

1. It’s 7% of some abstract heap of extra money already sitting around somewhere unused. Not bloody likely.

2. It’s a quantity of money that the government has access to by some magical means. Yes, like printing it (see #5).

3. It’s a quantity of money that is really very small and therefore won’t be noticed. How much is 7% of your salary? Would you notice it if you received a bill in the mail tomorrow requiring you to pay that amount?

4. It’s money that the government will get by taxing rich people. In other words, not by taxing me (see also #5).

5. It's money that can be borrowed. Never mind from whom (e.g. our children and grandchildren, who get no say in the matter), and never mind that it will need to be repaid with interest (making the final donation amount to much more than 7% of GDP).

Of course, it’s almost never suggested that the 7% is money that can be provided by cuts to services we currently receive from government. No sir. We won’t be doing that (at least not with the services you and I receive).

I get the general impression that a vague, ill-defined feeling of goodwill towards the world’s poor motivates the demand for governments to pledge 7% of GDP, with the unspoken wish that it be someone else who ponies up the dough. There’s a cheap thrill one can get from the feeling of moral superiority derived from simply willing that good be done. If I will that good be done, it must mean that I possess a good will, and by extension, it must mean that I am a good person, more importantly, a better person than others. (Ouch! Now there’s cynicism for you.)

I call the thrill cheap because it literally costs nothing, but it only lasts as long as you manage not to ask yourself what you are doing to contribute to the good that you will. Mere “good will towards men” (like its close cousin, “faith without works”) is the junk food of altruism: passing pleasant, but not very nourishing spiritually.

On the other hand, I’m sure there are people who honestly not only will the good, but are willing to do good, and who wouldn’t mind paying 7% of their income to help the less fortunate around the world. I’ve met a few of these extraordinary people myself. Again, to them I say: Go ahead and do it. There’s absolutely nothing stopping you. To those whose motivations are not so noble, I say: Let me see you spend your money first, before you use the coercive powers of the state to pay for your noble schemes using other people’s money.

Just as bad, relying on the government to donate on our behalf may be productive of two ill effects. First, it may “crowd out” those good people who would otherwise have donated 7% (or whatever the amount) from their own pockets. After all, if they’re already going to be taxed that amount for much the same purpose, then why shouldn’t they keep their money for other uses? And arguably, money donated privately might have been spent more efficiently than money collected by taxation and then “donated” by government, if for no other reason than because of the greater transaction costs associated with the latter method.

Second, if we honestly believe it’s our duty to help the poor, by relying on government to do it, we thereby abdicate our own moral responsibility. We merit little or no praise for our “action” (for it’s really passivity), and at the same time we pass up the opportunity to exercise our virtue, which can be likened to allowing a muscle to atrophy through disuse. At the very least, we lose out on that very real and lasting pleasant feeling to be had by actually doing something for the poor, instead of merely talking about it.

Incidentally, it should be mentioned that Bono’s own financial commitment to the world’s poor is not without its sceptics. It would seem that much of his large income is funneled through various tax-avoidance schemes. It’s hypocritical, to say the least, to demand that your government give more money to the poor, while hiding from that same government the very tax funds it must use to satisfy your demand. Perhaps Bono is yet another example of that vague wish for someone else to help the poor (and of course it doesn’t hurt that it’s also a convenient and relatively costless way to boost sales of concert tickets, records, and merchandise). In this connection, I cannot help but end with a quote from William Graham Sumner’s (1840-1910) wise little essay “The Forgotten Man”:

The type and formula of most schemes of philanthropy or humanitarianism is this: A and B put their heads together to decide what C shall be made to do for D. The radical vice of all these schemes, from a sociological point of view, is that C is not allowed a voice in the matter, and his position, character, and interests, as well as the ultimate effects on society through C’s interests, are entirely overlooked. I call C the Forgotten Man.

4 comments:

  1. Hm. To pick one nit, isn't the general aim of these campaigns to increase foreign aid to .7% (not 7%) of GDP? That, if I recall correctly, was the longstanding UN target — and an idea that originated with Canada's own Lester B. Pearson, I believe.

    That said, I have no idea what kind of schemes Bono was/is advocating. I tend to tune him out.

    (And, of course, I'm sure that the amount of the donation is less important to your argument than the fact of making the donation itself, etc. etc.)

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  2. That's not nitpicking. That's a very valid question. 0.7% was the UN target for a long time (and still is, for all I know), although various nations PLEDGED more or less than that. And it's the pledged numbers that matter for our purposes, not the putative UN target (which I think we can both agree is not that much). It is here that it becomes difficult to get firm numbers. I chose 7%, but I wouldn't want to stand by that number. Sources differ. And then there's the problem of how to measure it -- there's more than one way to measure GDP.

    I do know, however, that Bono was asking for a 1% increase in current pledges.

    0.7% of a gross salary of, say, $40,000 would be $280, which certainly doesn't seem like a lot - depending on your particular expenses and plans. Then there's the fact that, as you slide down the income scale, the marginal utility of that 0.7% increases rather steeply. Of course, below a certain income, you wouldn't pay income tax anyway, which means that others will pick up that slack. That said, I don't think 0.7% is a lot of money for someone in an affluent country to give.

    Economics gives me headaches...

    But you're right. My fundamental argument doens't turn on the numbers. We might agree that the right/good/virtuous thing to do would be to give more than we are collectively giving. But does that make in okay to COERCE that donation? And the devil is in the details. Who gets that money? In the past few years there have been terrible earthquakes in Pakistan and Iran. I have strong moral objections to giving a single penny to either of those regimes in any form, directly or indirectly. Why should I be made to do so? I could (in my opinion) better spend that money on other worthy development causes. It ought to be my choice.

    Again though, you're right to question the numbers. I could very well be way off.

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  3. Perhaps I am more cynical than you, but I want to make sure that I understand your viewpoint. Is it true that you object for the attempt to gain leverage over another country to further one's own goals? To my understanding that is what foreign aid is about...

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  4. Perhaps I am being frivolous, but exactly who is Bono?

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