President Donald Trump recently issued an executive order to temporarily suspend all USAID development aid programs for 90 days in order to conduct a thorough review. The New York Times reported that the agency’s staff will be significantly reduced from over 10,000 to approximately 290.
The left-wing media has reacted with outrage, creating the impression that this will lead to a humanitarian disaster.
What is USAID used for?
There are three basic categories:
– Development aid, i.e. measures designed to promote the economic development of developing countries and thereby combat poverty.
– Humanitarian aid.
– Ideological projects, primarily in the field of DEI (Diversity, Equity, Inclusion).
Let's begin with the latter category. In my opinion, Trump is right to discontinue these initiatives. Here are only a few examples of this type of USAID program:
– $1.5 million to “advance diversity equity and inclusion in Serbia’s workplaces and business communities.”
– $70,000 for production of a “DEI musical” in Ireland.
– $47,000 for a “transgender opera” in Colombia.
– $32,000 for a “transgender comic book” in Peru.
– $2 million for sex changes and “LGBT activism” in Guatemala.
None of this has anything whatsoever to do with poverty reduction or economic development.
As far as the second category, humanitarian aid, is concerned, the Trump administration introduced exemptions for humanitarian programs on January 28. Despite the broad freeze on foreign aid, certain essential humanitarian programs, particularly in the healthcare sector, have been granted exemptions to ensure continuity in providing life-saving assistance. Recognizing the dire consequences that an abrupt halt in funding could have on vulnerable populations, the U.S. government has authorized specific waivers for critical health initiatives. One of the most significant exemptions involves a global HIV/AIDS relief program that supports approximately 20 million people in accessing antiretroviral therapy (ART).
Of course, most of the funds flow into development aid, i.e. into programs designed to promote the economic development of other countries in order to combat poverty. In my book "How Nations Escape Poverty," I draw on a wealth of scientific research to demonstrate that these efforts have often resulted in a misallocation of resources and fail to achieve their intended objectives. This has been clear a long time.
William Easterly, Professor of Economics and African Studies at New York University, describes in his book The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good development aid as largely useless, often even counterproductive. Only one example: In two decades, US$2 billion in development aid was spent on road construction in Tanzania. But the road network did not improve in the slightest. Because the roads were not maintained, they deteriorated faster than the donors could build new ones. “Tanzania produced more than 2,400 reports a year for its aid donors, who sent the beleaguered recipient one thousand missions of donor officials per year.” Foreign aid, Easterly noes, did not supply what the poor needed (roads), it supplied a lot of what the poor had little use for (bureaucracy).
Born in Zambia, Dambisa Moyo has lived in the United States since the early 1990s, where she continued her education with a scholarship. She completed a Master’s degree at Harvard University’s Kennedy School of Government and received a DPhil in economics from Oxford University. In her book Dead Aid, she takes issue with development aid: A World Bank study shows that more than 85 percent of aid money ends up being used for purposes other than originally intended, often diverted to unproductive projects. Even where the money is used for projects that actually make sense in themselves, any short-term positive impacts are often counteracted by negative long-term consequences, for example because aid projects destroy local companies in the countries they are supposed to be helping.
The Danish economist Martin Paldam from the University of Aarhus published an article in the renowned Journal of Economic Surveys entitled “The Aid Effectiveness Literature: The Sad Results of 40 Years of Research.” Paldam had scrutinized 97 scientific studies on the effectiveness of development aid. He conducted several meta-analyses, i.e. statistical procedures that summarize and evaluate the results of several studies on the same issue. His findings: “Our three meta-analysis of the Aid-Effectiveness-Literature have failed to find evidence of a significantly positive effect of aid. Consequently, if there is an effect, it must be small. Development aid is an activity that has proved difficult to do right.”
In 2017, the German economists Axel Dreher and Sarah Langlotz took another look at the same questions and examined the effects of development aid on 96 recipient countries in the period from 1974 to 2009. They found that bilateral aid can do nothing to increase economic growth. In the years of the Cold War, according to another finding, development aid actually had a negative impact on economic growth. “We also investigate the effect of aid on savings, consumption, and investment, and do not find any effect of aid in the overall sample or our sub-samples.”
Despite receiving more development aid than Asia, Africa remains the poorest continent. Poverty in Asia has fallen solely because so many countries have introduced market reforms. The reforms initiated by Deng Xiaoping in China, for example, reduced the proportion of the Chinese population living in extreme poverty from 88% (1981) to less than 1%. Market economy reforms in Vietnam (Doi Moi, launched in 1986) have reduced the proportion of poor Vietnamese from almost 80% in 1993 to 3% today. In contrast, there is not a single example in history of a country overcoming poverty through development aid.
Rainer Zitelmann is the author of the books "How Nations Escape Poverty " and "The Origins of Poverty and Wealth."