ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Wednesday, January 3, 1996 TAG: 9601030041
SECTION: EDITORIAL PAGE: A-9 EDITION: METRO
SOURCE: BRYAN JOHNSON AND THOMAS SHEEHY
FACED WITH budget cuts, foreign-aid bureaucrats continue to insist that U.S. assistance is vital to the economic well-being of less developed countries. Indeed, they argue, America should be spending more, not less, because U.S. economic assistance is essential in helping poor countries lift themselves out of poverty.
The argument, of course, has a warm fuzzy feeling to it. But the evidence indicates something else: that foreign aid, like domestic welfare, creates a culture of dependency and discourages the kind of responsible economic reform needed to create vibrant, growing economies.
We have just completed a sweeping survey of economic freedom around the world - called the ``Index of Economic Freedom'' - covering 142 countries, from Albania to Zambia. Our research proves conclusively that foreign aid does more harm than good. Poverty, we have concluded, is largely a condition politically imposed on people through ill-conceived and repressive economic policies. No amount of foreign aid can rescue a country with a repressive economy from its own self-destructive behavior.
While it's true that some countries have improved economically while receiving foreign aid, it's also true that no long-term recipient of economic development aid has been as prosperous, or grown as rapidly, as many of the countries that have received little or no such aid.
Consider this: 76 countries on our survey have economies that to one degree or another are ``unfree'' by normal economic standards. By that we mean they levy confiscatory taxes against individuals and entrepreneurs, erect barriers to trade, make businesses jump through unnecessary regulatory hoops and tangles of red tape, have currencies that are politically manipulated, and so forth. Of these 76 countries, 34 have received U.S. economic assistance for periods ranging from 35 to 51 years.
Of those 34 countries, 14 are poorer today than they were 30 years ago. The economies of another dozen are essentially unchanged; they have experienced little or no appreciable economic growth in 30 or more years.
In other words, of the 34 long-term recipients of U.S. foreign aid that significantly restrict economic freedom, just eight are better off economically than they were 30 years ago. The economies of 26 have remained stagnant or regressed.
A strong case can be made that long-term recipients of foreign aid actually are hindered by such aid. Why? Because many countries would rather receive donations from the United States and the rest of the developed world than make the difficult, but necessary, economic reforms needed to produce prosperity. Consider the following:
Haiti has been dependent on U.S. foreign aid for 51 years, yet it is one of the poorest countries in the world. During this half-century, Haiti has received almost $1 billion in foreign assistance from the United States alone, and most of that was development aid. Haiti's per-capita gross domestic product was $360 (in constant 1987 dollars) in 1965. By 1992, per-capita GDP was down to $279.
Similarly, Peru has been a U.S. foreign-aid recipient for 51 years, receiving almost $2 billion. Its per-capita wealth in 1965 was $1,137. In 1992: $951. Somalia has received almost $1 billion in U.S. foreign aid in the last 40 years. Somalia's per-capita GDP was $123 in 1965. It was down to $108 by 1992. Niger has received more than $500 million in U.S. assistance over the last 36 years. Per-capita wealth, meanwhile, shrunk from $605 in 1965 to $275 in 1992. (All dollar values are expressed in 1987 dollars.)
The list goes on. All of these countries have at least one thing in common: their economies are ranked as either ``mostly unfree'' or ``repressed'' on our ``Index of Economic Freedom.''
While these and other long-term foreign-aid recipients continue to wallow in poverty, some once poverty-stricken countries and territories now have booming economies. For example, Hong Kong's per-capita wealth increased nearly 500 percent between 1965 and 1992, from $2,279 to $10,223, in constant 1987 dollars. Hong Kong did not achieve this with foreign aid. By 1965, the world's largest foreign-aid donors had cut off Hong Kong from virtually all assistance.
Over the next several years, Hong Kong cut taxes, reduced government regulation, freed up its banking sector, and turned itself into a vigorous, open international trading center. It now has the freest economy in the world, according to the ``Index,'' and residents of Hong Kong are enjoying the benefits.
The story is similar elsewhere: in Singapore, the Republic of China (Taiwan), South Korea and Chile, for example.
The key in each of these cases is economic freedom: The countries that grow the fastest do so because their economies are free. The countries that remain impoverished, meanwhile, remain that way because their economies are unfree.
Countries don't need foreign aid to promote economic freedom. Rather, aid is frequently a curse, used to subsidize repression and failure.
While reducing poverty, eliminating hunger, improving education and reducing infant mortality are worthy goals, the best way to achieve them is by increasing economic prosperity around the world. Wealthy countries can accomplish such things; poor countries can't. And the surest route to economic prosperity, we now know, is through increased economic freedom, not increased funding.
Bryan Johnson and Thomas Sheehy are policy analysts at The Heritage Foundation, Washington, D.C., and co-authors of ``The Index of Economic Freedom.''
- Knight-Ridder/Tribune News Service
LENGTH: Medium: 99 linesby CNB