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Escapist Assumptions

Face it, Americans, foreign aid is your duty to your children.

It's often difficult for Americans to keep a perspective on what is for them a low priority concern at best - development aid to the world's poorer countries.

But as Congress takes up the 1998 foreign aid appropriations bill this month, it's a good time to address escapist assumptions that permeate the debate and cause us to focus elsewhere in meeting our global responsibilities.

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First, many Americans assume that we are major players in the world's aid programs, and that our generosity to poor nations has contributed significantly to our public debt. In fact, we contribute the smallest percentage of our gross national product to foreign aid of any of the world's industrial nations. For us, foreign aid is less than 1 percent of our federal budget.

Large amounts of the US Agency for International Development's money goes to countries where we have special strategic, political, or military concerns. USAID's two largest contributions go to Israel ($3 billion) and to Egypt ($2 billion). The Egyptian contribution is conditioned only on Egypt talking to Israel.

Second, most Americans also assume that we are major contributors to poor countries through such multilateral agencies as the World Bank, the IMF, and the various continental regional development banks.

As a former president of the World Bank, I find it hard to overstate the remarkable benefits the US receives from the World Bank. As the largest shareholder at the bank, the US has tremendous leverage at minimal cost, influencing loans to countries in whose markets we have more than a modest interest, such as Mexico.

We, and all other bank member countries, contribute capital primarily by guaranteeing loans to the developing world. Bonds based on these guarantees are issued to fund the loans, which pay interest high enough to cover the costs of running the bank, to protect against bad debts, and to generate $1 billion in profits a year.

A third assumption held by many Americans is that foreign aid may no longer be necessary because of the great surges of developed-world private investment in the economies of the developing world, and because of the growth of trade between them.

Multinational corporations are now investing in developing markets an average of four times the official foreign aid going to those countries. Trade now has twice the impact on development that foreign aid does.

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So do we need foreign aid at all? Yes, because investment and sophisticated economic activity do not occur in a state of nature; they require infrastructure. In our country we assume that the private sector does almost all development and job creation. But we take for granted roads, railroads, port facilities, readily available energy distribution systems, and most of all, schools able to provide an appropriately trained labor force. None of these prerequisites to development can be taken for granted in an underdeveloped country. Development aid must have a heavy infrastructure component or private investment and trade growth won't follow.

The fourth escapist assumption stems from the growth rates in developing nations, which average 6 percent, while the developed world strains along at 2 percent. We decide that we're creating competitive monsters that will damage our own economic futures.

But at least 1.3 billion people, five times the population of the US, still try to subsist on less than $1 a day.

Grave threats to our future global stability lie in the masses of people beset by absolute poverty. Foreign aid conditioned on economic reform, education, and infrastructure creation is still the most hopeful corrective.

Fifth, we assume that following the end of the cold war, the criteria for foreign aid lending should appropriately be changed. But although bilateral aid was sometimes used to try to buy friends in the developing world during the cold war, multilateral aid has always been distributed according to strict economic criteria to those poor enough to need it.

But now, the G-7 is pressing multilateral agencies to loan substantial parts of their available funds to Russia and its former client countries. Presumably this is to facilitate reform of former socialist systems.

Traditionalists like myself, who think foreign aid should be used to improve the quality of life of poor people, are confused by the rationale for forcing aid on a former superpower that maintains a massive military establishment and nuclear and space programs.

So far, the Russians have't been willing to meet reform requirements such multinational aid agencies impose as conditions for loans. Massive amounts remain to be paid.

So substantial diversion of money and skilled staff resources away from poor countries is almost inevitable.

This is the obvious time to be considering institutional reform. Our multilateral institutions had their origins in very different circumstances than today's. They were created for the shattered and impoverished world of the mid-l940s. That they're not now well supported or functioning well should tell us that change is appropriate. And reform still requires American leadership, not American disengagement.

A stable world and a minimum of human suffering is always in America's interest. Per capita incomes of the world's poor have doubled in the past 25 years, at least in part because of effective development projects and properly conditioned loans to poor countries. But now is not the time to disengage.

No human efforts are perfect, but for a modest price, a dash of idealism, and a little strength of purpose we can still work effectively for a better world for our children and grandchildren.

* Barber Conable is a former congressman and was president of the World Bank from 1986 to 1991. This article is excerpted from a paper for the National Policy Association.

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