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Third World Development: Foreign Aid or Free Trade?
Third World poverty is one of the most
pressing problems of our age, condemning billions of people to lives of hardship
and misery. Such poverty has led many Americans to want to help Third World
peoples, both for humanitarian reasons and to increase our own trade and
national security.
In response to Third World poverty, the U.S. government has provided over $321
billion in assistance since World War II. As this figure indicates, foreign aid
is politically popular. Be sides its humanitarian supporters, many special
interest groups lobby for foreign aid. For example, American farmers back food
assistance because such programs help eliminate politically embarrassing food
surpluses caused by agricultural subsidies.
While foreign aid is a political success, it is an economic and social failure.
By increasing government power, destroying economic incentives, promoting
unprofitable enterprises, and subsidizing misguided policies, foreign aid
increases Third World poverty. In this essay we will examine two types of
foreign aid: humanitarian and development assistance. We will then discuss
alternatives to aid in helping the Third World, especially the policy of free
trade.
Humanitarian Assistance
Humanitarian assistance—aid designed to avert immediate disaster—mainly takes
the form of food aid that is allocated through Public Law 480, widely known as
the Food for Peace program. Since the establishment of FFP in 1954, the United
States has distributed some $34 billion worth of food to the Third World, and
currently provides some $1.2 billion a year in food transfers. Although it
reduces the surpluses of our government farm programs, Food for Peace has
actually increased hunger abroad in the long run.
One problem with food aid is that the dumping of free food in Third World
countries depresses prices for local farmers, therefore resulting in less
domestic production. According to George Dunlop, chief of staff of the Senate
Agricultural Committee, millions of Indians may have died of starvation because
American wheat dumped in India bankrupted thousands of Indian farmers. Thousands
of Guatemalan farmers were likewise hurt when food aid poured into the country
after the 1976 earthquake. For these unfortunate farmers, “the price of domestic
crops dropped at a time when farmers desperately needed cash to improve and
repair their homes. . . .” In Bangladesh, the upper and middle classes receive
free food from foreign aid programs, thus impoverishing local farmers with
artificially low prices.
A second major problem with food aid is that it encourages the recipient nations
to adopt pol icies that discourage production. With food aid to “cover-up” the
most grievous results of their actions, Third World governments can pursue such
counterproductive policies as forced collectivization and price controls on farm
products. For example, Tanzanian President Nyerere was able to collectivize
farms and engage in massive relocations of peasants because food aid “hid” the
consequences of such actions. In many cases, such as in Bangladesh, food aid
leads to the neglect of agricultural pro duction because of the belief that
other nations will provide sufficient amounts of free food:
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