Tuesday, July 9, 2013
A Poor Excuse for Policy
Developing nations do not achieve prosperity via foreign aid. In fact, they tend to do worse because of it. According to the Inter Regional Economic Network (July, 2002), for example, 70 of the countries who had been receiving such aid were poorer than they were in 1980............................................................................So, what then are the critical keys to economic development? Not that anybody has a magical formula, mind you, but I would probably have to say limited regulation (especially as it pertains to entry), a fair and simplified tax structure, a system of legal contracts, free trade/engagement, critical democratic institutions (free speech, free association, etc.), an incorruptible legal system, a stable money supply, and property rights. A strong and dynamic market orientation, in other words - NOT central planning.
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7 comments:
Are you saying that the reason they are poorer in 2002 than in 1980 is because of foreign aid?
Obama has shovelled billions into the hands of Egypt's ruthless Brotherhood terrorist dictator during this recent and ongoing revolutionary period in that country. And the economic problems of Egypt got far worse.
Israel seems to meet the requirements "limited regulation (especially as it pertains to entry), a fair and simplified tax structure, a system of legal contracts, free trade/engagement, critical democratic institutions (free speech, free association, etc.), an incorruptible legal system, a stable money supply, and property rights. A strong and dynamic market orientation.." yet
they receive one third of US foreign aid.
Being that it isn't a controlled experiment, I cannot say for certain, Jerry. If I had to hazard a guess, though, I would probably say, yes. This, in that the only thing that foreign aid to these developing countries has really accomplished is propping up corrosive governments and making the bureaucrats rich.......I'm a strong supporter of Israel, BB, but I have zero problem reexamining that issue, too.
BB: Good points. However, there is a unique situation there. Only Israel, out of all the nations of the earth, faces such a large scale serious genocide threat from its neighbors and not-distant countries. This does suggest a need at least for some military aid to save the lives of millions of people that IRAN wants entirely snuffed out.
Given this some more thought.....Israel is not and has never been a "developing nation", which disqualifies it as being part of Will's observation. As BB confirms, Israel is quite well run and uses its resources, including foreign aid, quite well.
"Developing" is a misleading term for so many third world nations, anyway. Some of them are de-developing. What these countries all are is extremely poorly run. And there in lies the explanation for Will's observation. These countries are all rich in resources, economic potential, and human capital, but they are all so poorly run that these riches do not benefit the country. Giving them even more riches such as foreign aid $$$ is more money down a rathole.
I can make an analogy to a household where the people in it keep snipping the electric lines. No one will see any benefit if you give them free HBO... the TV can't turn on. The free fillet mignon will rot in the room-temp fridge. There is a much more serious problem going on than not having enough... in fact they have quite a lot already.
The worst of these third world places (don't dare call them developing) are like this analogy. Somalia and Palestine (Gaza) come to mind. Gaza was even provided a thriving flower industry.. which the people there destroyed.
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