Ed Lotterman: U.S. aid is all about influence globally

July 19, 2013 

U .S. foreign aid is not well understood, to put it mildly.

It is an important tool in achieving our objectives in our relations with other nations. Any benevolent or altruistic motives are secondary.

But the public highly overestimates its costs to the Treasury and misunderstands its limitations as a foreign policy tool. So it always is controversial. Such controversy comes to the fore in situations such as those we face in Egypt and Afghanistan. It thus bears some explanation.

The aggregate number, about $55 billion for economic and military assistance combined during fiscal year 2013, sounds big. But that is only 1.5 percent of all federal spending, and only one-third of 1 percent of gross domestic product. Yet, surveys repeatedly show the general public thinks that foreign aid makes up about a third of the federal budget.

At the height of the Marshall Plan of assistance to Europe after World War II, aid was 12 times as great a proportion of GDP as now, and during the Cold War 1960s, four times.

Comparing aid to other major spending programs provides additional context. Total defense spending is 12 times, Medicare nine times and Social Security 15 times as much as that for aid.

Where the money goes has varied over time. The concentration of recipients follows foreign policy priorities. In the decade after WWII, most went to Western Europe. Once Fidel Castro came to power and scared us about communist influence in Latin America, large amounts went to that region.

As the Vietnam War ramped up, we spent a lot on that nation and gave substantial amounts to other Southeast Asian nations deemed vulnerable. South Korea and Taiwan long got substantial funds due to their front-line status against China and North Korea. The same was true for Turkey and Iran (under the Shah), both of which had borders with the Soviet Union.

Over the past four decades, the focus has shifted to the Middle East, principally Israel and Egypt, and, more recently, to Southwest Asia, largely Iraq, Afghanistan and Pakistan.

Since the 1977 Camp David agreements that ended open belligerence between Israel and Egypt, those countries have gotten large annual payments - essentially bribes to remain at peace. For many years, aid to Egypt alone exceeded that to all the rest of Africa combined. Right now the top five are Afghanistan, Israel, Iraq, Pakistan, and Egypt.

Aid to Israel and Egypt, adjusted for inflation, has declined over time, but continues in the proportion of two-thirds to Israel and one-third to Egypt. Because Egypt's population is so much larger, the per-capita amounts are about $400 for Israel and $18 for Egypt.

So what do we get for all of this? The answer is foreign policy influence, although the degree to which that translates into any effective ability to change anything is limited. One might think the large amounts given to Israel would give the U.S. some say in West Bank issues, for instance. But the amount is small relative to the overall Israeli economy, and support for Israel in the U.S. Congress is great enough that no U.S. president has ever had much luck in this regard.

Similarly, despite $2 billion per year, or $9 per person, given to Pakistan, split about equally between military and economic assistance, that nation continues to surreptitiously support some of the very groups we are fighting in Afghanistan.

So why not cut them off? And why didn't we cut off Egypt when Mohamed Morsi, of the Muslim Brotherhood, came to power through imperfect elections? Should we cut it off now that he has been toppled by a military coup?

The answers are somewhat similar to Dear Abby's classic response to queries about whether or not to get a divorce: "Are you better off with him/her or without?"

We can give aid to Pakistan and have some influence with its government as a whole, or we can cut aid, have even less influence and perhaps see that country fall into the embrace of China. We also would lose important supply routes and fly-over rights to land-locked Afghanistan. Sustaining our current war there through the Central Asian republics to the north and through Russia would be extremely difficult.

Similarly, we can cut off aid to Egypt. In this case, the options are complicated by a U.S. law requiring us to halt aid whenever a civilian government is overthrown by the military. But as with Pakistan, the question of whether it is better to have more influence with aid or less influence without is key.

In neither case do we really give a toot about the well-being of these nations' general populaces. The issue is how best to achieve our foreign policy objectives.

Should we be entirely cynical then about our aid programs? No. While much aid has had little effect on improving living standards because it was administered by incompetent or kleptocratic governments, like the 32-year reign of Mobuto Sese Seko in what was then Zaire, a small fraction of it has been of enormous importance in improving health and nutrition around the globe. We felt we needed Mobutu as a bulwark against communist regimes to his south and we knew from the get-go that money given to him would do little for his country, but that was a minor consideration.

The relatively minuscule amounts that have gone to agricultural research centers, such as Norman Borlaug's International Center for the Improvement of Corn and Wheat in Mexico, probably have done more to improve human well-being than anything else in history. And many health programs have been very effective.

With Egypt, the Obama administration will find some way to finesse the statutory cutoff requirement.

U.S. foreign aid isn't pretty, but it is a practical necessity.

Economist Edward Lotterman teaches and writes in St. Paul, Minn. Write him at ed@edlotterman.com.

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