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The Diplomacy Budget Ballyhoo

Embassies are not in danger of a funding cutoff; foreign aid ought to be

The Clinton administration says cuts in the United States foreign affairs budget are threatening the ability of the US to conduct foreign policy.

Former Secretary of State Warren Christopher claims that "spending on international affairs has been slashed by 50 percent [since 1985]." He also insists that these "budget cuts have forced us to close over two dozen consulates and embassies." Indeed, President Clinton made similar arguments in his State of the Union address.

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Yet, a careful analysis of the foreign affairs budget shows that these claims are inaccurate at best, and sometimes are downright misleading. The facts show that funding for US embassies, consulates, and other diplomatic programs is higher in real terms today than it was during most of the 1980s, at the height of the cold war.

Funding fairly stable

In fact, current funding for these programs has remained fairly stable for the past few years and is greater than levels in 1991. For example, funding for embassies, consulates, and international organizations has increased 13 percent in real terms since 1985 (see graph).

Funding for embassies and consulates is not the only part of the foreign affairs budget that has increased. Current funding for the entire State Department, even after adjusting for inflation, is more than 25 percent higher today than it was in 1985. This is a far cry from the budget "hemorrhaging" described by Mr. Christopher.

Where are the cuts?

As it happens, the foreign affairs budget, in addition to spending for US embassies and consulates, supports numerous international organizations, development aid, security assistance, and export financing. In fact, non-embassy spending accounts for approximately 70 percent of the entire foreign affairs budget.

Meanwhile, though there appears to be a reduction in recent foreign affairs spending in general, and in the account that funds US embassies and consulates specifically, most of this reduction has come in the form of reduced funding for peacekeeping operations. For example, US peacekeeping operations are funded out of the same account as are embassies and consulates. Thus, during the 1992-94 time frame, when the US was engaged in peacekeeping operations in places like Rwanda, Somalia, and Haiti, funding in this account actually increased. Naturally, when these peacekeeping operations ended or were scaled down, funding dropped off. Hence, much of the reduction in funding for the account covering embassies and consulates was the result of the diminishing role of peacekeeping operations.

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Spending on international financial programs and foreign aid, also included in the foreign affairs budget, has dropped, and rightly so. Our foreign aid program has created dependency in less-developed nations in much the same way that our welfare system creates it here at home. Of the 67 countries that have received foreign aid from the US for more than 30 years - most for as long as 51 years - 37 are no better off today than they were before receiving such aid.

Haiti, which has received some $1 billion in US aid over 52 years, is poorer than it was before receiving aid. Its per capita income has shrunk from $360 in 1965 to only about $225 today.

Another example is Peru. This Latin American country has received some $2 billion in US foreign aid over the last 52 years. Its per capita income was $1,126 in 1965. In 1994 it had fallen to $1,103.

Foreign aid failures

Even so, the Clinton administration continues to argue that such funding is vital to America's national interests. The White House continues to defend the program before Congress by arguing that such funding helps America gain influence over other countries, or that it helps the US "win friends." In fact, two out of three countries that receive aid from the United States vote against America in the United Nations more than half the time.

So what does work? While there is scant evidence that foreign aid helps countries grow economically, there are several examples of countries that have developed over the last three decades without the crutch of aid. Consider Hong Kong. In 1965 Hong Kong was under immense economic stress while it tried to absorb immigrants from China. It had the opportunity at that time to turn to the World Bank and the US for aid.

Instead, it reformed its economy to attract foreign investment and encourage entrepreneurship. Specifically, Hong Kong cut its tax rates, abolished barriers to international trade, established a rule of law and a judicial system that respects property rights, and eliminated onerous government regulations. The result? Hong Kong's per capita wealth in 1965 was $2,279. By 1994 it had increased to $21,650. Such is the case in other countries like Singapore, Chile, and Taiwan.

Of course, the United States needs to have a strong diplomatic presence overseas. Congress and the Clinton administration should work to ensure that US embassies, consulates, and public diplomacy activities are fully funded. But there is no need to increase the foreign affairs budget to keep embassies open. More than enough funding would be available if the Agency for International Development and economic aid were abolished. Savings from these cuts could be applied to embassies and similar activities, if needed.

Or these savings could be given back to those who earned it - US taxpayers.

* Bryan T. Johnson, a policy analyst in international economic affairs at The Heritage Foundation in Washington, is co-editor of The Heritage Foundation/Wall Street Journal "1997 Index of Economic Freedom."