Wednesday, October 29, 2003

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Inside the numbers on U.S. foreign aid

Tyler Cowen at the Marginal Revolution links to Carol Adelman's new Foreign Affairs essay, "The Privatization of Foreign Aid: Reassessing National Largesse." The key paragraph:

All in all, the United States is the most generous. In addition to giving more foreign aid, in absolute terms, than any other country, it has long provided the most foreign direct investment to the developing world and generated the bulk of the world's research and development, spurring long-lasting economic development and saving lives through better food and medication. The United States also contributes the most militarily, guaranteeing the security necessary for growth and democracy. The big point--that the totality of U.S. foreign assistance far exceeds U.S. ODA [official development assistance]--corrects the criticism that the United States is stingy in giving abroad.

Pejman Yousefzadeh and Glenn Reynolds, reading Tyler, conclude that the U.S. is the most generous nation in the world.

Longtime blog readers are aware that I agree with much in quoted paragraph, which was why I took the Center for Global Development (CGD) to task for calling the U.S. a miser earlier this year. However, my Tech Central Station article on this -- which did get results from the Center for Global Development -- did not mention the factoring in of private aid flows as a measure of generosity. On this, Adelman says:

[A] conservative estimate, based on surveys and voluntary reporting, puts annual private giving around $35 billion. Even this low-ball figure is more than three and a half times the amount of official development assistance (ODA) given out in a year by the U.S. government. (emphasis added)

Was I just thick-headed in not raising this point? Well, no. If you read p. 32 of the primary technical paper that supported the CGD rankings -- they do deal with this:

A recent argument from the U.S. government in defense of its aid policies is that the United States, while a relatively stingy supplier of official aid, is a huge source of private charitable contributions to developing countries (USAID, 2003), which ought to be weighed in any comparison of donors. Much of this flow is tax deductible and/or tax exempt in the United States, and so is a credit to U.S. policy. The U.S. Agency for International Development estimates these flows at $15.6–23.7 billion per year (USAID, 2003, p. 146).

To judge the importance of this consideration, we experimented with treating these flows as if they were an increment to aid—in the case of the United States only. We treated them as aid that is completely untied and allocated with the same administrative cost and selectivity as official U.S. aid. The effect.... left its rank unchanged at 20 [out of 21 countries]. (emphasis added)

Now, the key question is whether private aid flows are in the $15-23 billion range -- which don't seem to affect the rankings all that much -- or are nearly double that at $35 billion -- which one would expect to have a more appreciable effect. I went to the referred source, USAID's "Foreign Aid in the National Interest," specifically Chapter 6, p. 146. What I found is that Adelman's figure is accurate if you include foreign remittances, and the CGD's figure is correct if you don't include them.

Remittance flows are clearly important, but counting them as examples of American generosity strikes me as a bit off-kilter. Americans aren't remitting this money -- foreign nationals are. The U.S. deserves a measure of credit for permitting foreign workers into the country and sending money back -- indeed, I agree with Tyler Cowen that remittances are, "the most effective welfare programs ever devised." However, this policy is of a different kind than either public or private aid.

I don't think Adelman is incorrect in her core thesis. But lumping remittances in with charity flows exaggerates the generosity of Americans as a people.

posted by Dan on 10.29.03 at 06:23 PM


This baffles me.
If I read Adelman's math is right, official aid is about $10B. Ok. According to the technical paper, private aid is at least $15B. Ok. The technical paper says adding this in has no effect on the rankings. Soooooo... more than DOUBLING the number has no effect? So official US aid would have to be something like a third or less than country ranked #19? Can this be right?

posted by: Bill on 10.29.03 at 06:23 PM [permalink]

I have looked at the index and I think I now see the problem. It's a "composite" score, based on various categories. These include, for example, an "environment" score. So actually GIVING money to people could be considered less important than, say, signing the Kyoto accords, whether or not the Kyoto accords would actually help anybody, and from everything I've read, they wouldn't. I think I can file this report under "ignore" from now on.

posted by: Bill on 10.29.03 at 06:23 PM [permalink]

They count remittances as foreign aid?

And if so, shouldn't we look at remittances from other countries?

posted by: GT on 10.29.03 at 06:23 PM [permalink]

Oh, it's all numberplay. Anything but admit the plain truth: that in terms of overseas aid expressed as a percentage of GNP, the US is embarrassingly stingy.

posted by: Jesurgislac on 10.29.03 at 06:23 PM [permalink]

I'd be curious to see the raw numbers here, because the analysis always seems suspect. Ive seen 20 billion jockeyed around as the number Mexicans and Mexican-Americans alone remit to Mexico. I would hardly characterize this as foriegn aid. Mexicans come to America specifically to work and send money home.

posted by: Mark Buehner on 10.29.03 at 06:23 PM [permalink]

I agree with the above poster. Right now I am working and studying in China. I earn money here and send it back to pay tuition at my home university. I do not think this counts as China aiding the United States. I still consider myself an American and it is my money. So this example is an American giving money to the American educational system. I also send money back to America to pay bills just as the Mexican workers do. Does this mean my bills are paid by Chinese charity? If this is true because the job and the money are earned in China I think that we need to look even deeper at the remittances.

If someone is working in America is the corporation they are working for American? Are the tools they use made in America? Is the product they sell sold only in America? Why is Saudi Arabia number two in remittances? Because they have a huge number of foriegn workers. Does this mean the Saudi Arabian oil companies are paragons of generosity? Large numbers of foriegners are hired because the companies care about the well being of other countries and OPEC is really about making the world a better place to live.

If all of this is a true mark of charity then I would have to say that salaries should also be considered charity.

posted by: Eric on 10.29.03 at 06:23 PM [permalink]

The generosity of aid givers is what is being argued about, and it's the wrong argument. The right argument is what moving money from one country to another accomplishes.

It is possible to evaluate this much more objectively than it is to assess the respective charity of nations or individuals by examining their foreign aid budgets. It also leads us to the relevant question about American foreign aid, which is what it does to further American interests. I am all for spending more if this will accomplish things we need to have done, but not to show that Americans are just as generous as Swedes.

posted by: Zathras on 10.29.03 at 06:23 PM [permalink]

"Americans aren't remitting this money -- foreign nationals are."


I think you are overstating the case. Foreign nationals are certainly remitting PART of this money, but Americans are certainly remitting part of the money as well. (True, most often remittances by Americans are done by naturalized citizens who were born in the country they are remitting to, but I would argue that naturalized citizens are every bit as "American" as you or me.) Now, if you could find figures that would show how how much of the remittances are done by Americans and how much by foreign nationals, you could be more precise in your argument. As it is, I don't think you have any sound basis for concluding that remittances are only (or even primarily) made by foreign nationals, which seems to be the key assumption of your argument.

posted by: Al on 10.29.03 at 06:23 PM [permalink]

Jesurgilsac you say: "Anything but admit the plain truth: that in terms of overseas aid expressed as a percentage of GNP, the US is embarrassingly stingy."

Who decided that percentage of GNP was the standard to judge this by? That is completely arbitrary and is simply used as a tool to attack the US. Let's think of this in terms of how the US benefits the world: not only include foreign aid payments, but the Peace Corps, the billions pumped into foreign economies by basing American troops overseas, the ability of other countries to spend on social welfare programs while the US takes care of their defense needs, the fact that the US is the major importer of goods, that the US is open enough to allow people from around the world even countries like China that are potential enemies to send people over to learn in our schools, the benefit to the world from the technological advances made in the US, the spread and protection of democracy as a result of American power from Europe to East Asia and so on.

The fact is the US benefits the world like no other nation ever has. But there are plenty of people whose agenda is to condemn the US no matter what we do. If we spent a higher percentage of GNp on foreign aid, people would find some other reason to condemn the US.

posted by: Philip Beckman on 10.29.03 at 06:23 PM [permalink]

You have all conflated economic/political and moral judgements here. There is nothing "generous" in the U.S. government's forced takings from its citizens in order to further dubious foreign policy goals. "Generosity" as a moral judgement on an action presupposes that liberty to act with benevolence towards others exists, which is not the case with the tax money that the government collects. Thus, voluntary contributions to non-governmentally controlled charitable organizations would be the proper metric if we wanted to ask the questionable question "What country is the most 'charitable'?"

posted by: Ernest Brown on 10.29.03 at 06:23 PM [permalink]

It seems to me that recently the administration is starting to sound alot like Baghdad Bob, the Iraqi Minister of information. "Everything is going great in Iraq." Go Baghdad Rumsfeld,

posted by: Luis Ricardo de Leon on 10.29.03 at 06:23 PM [permalink]

Well said, Mr. Beckman! Bashing the US has become as fashionable as being gay in Hollywood. What would happen if the US truly decided to pursue an isolationist policy? Close the UN, move it to Switzerland or one of the other higher-ranking contributors to pad their score. Shut down the WHO, CDC, UNICEF, and the countless other world organizations who take up space in our country. Let everyone defend their own borders. Don't get me wrong -- I'm not advocating this policy, because obviously we benefit from the rest of the world as well, in oil, resources, labor, etc. I just think that people should look at the big picture before pointing the finger at us as the evil empire...

posted by: Shane Hughes on 10.29.03 at 06:23 PM [permalink]

I am not thinking we should become isolationists, but why not spend the money to recover from the national debt. Common sense government where before we give money away we have a surplus to give. Pay off our debt first, build homes for our homeless first, feed our hungry first. I heard where we contribute 2 billion dollars a year to Egypt, to help them cope with high unemployment. Egypt is one of the countries that help control our gas prices, when they say jump, we say how high? Our national debt spirals out of control and we keep giving more and more away. A single term in Washington gets politicians 15,000 a month for life, but an american losing his life in Iraq nets around 8,000. Am I the only one who feels our government is no longer of, for and by the people?

posted by: Robert on 10.29.03 at 06:23 PM [permalink]

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