How U.S. Aid Can Be Effective

Carol Han
World News /04 Dec 2017

How U.S. Aid Can Be Effective

For decades, the U.S. government has given structural adjustment loans to governments of developing countries. Attached to these loans are stipulations aiming to create an economic environment conducive to domestic economic growth and, hopefully, poverty alleviation. However, these stipulations have failed. They have failed to alleviate poverty; they have failed to help countries accumulate wealth. If the U.S. wants to see its money spent effectively, it should prioritize projects proven to work.

Keeping current levels of funding, the U.S. should invest its money in effective projects. Specifically, Congress should move the current $9.1 billion away from structural economic support and top-down development assistance. Funds should be redirected to more tangible, grassroots initiatives of livelihood growth, productivity improvement, and skill building. This should be done incrementally over 10 years, to provide aid agencies and recipient governments time to adjust.

What do such tangible initiatives look like? Examples of livelihood improvement and skill-transfer projects include road building and maintenance, disease eradication, infrastructure building, agriculture modernization, microfinancing, and nonconditional cash transfers. Projects like these are already happening but could occur at a greater scale and in more places if current funding were redirected to them. When projects like these work in conjunction, they offer impacted individuals not just the fiscal resources needed for economic mobility, but they create an environment in which these individuals can engage, invest, sustain, and prosper.

Projects that underscore the transfer of skills and knowledge are always more effective. First, they are sustainable in the long run. The community learns the skills needed to continue a project’s momentum even after it has ended. Second, they foster local autonomy. When local communities accumulate knowledge and skills, they are less likely to need assistance in the future. Instead, they can be self-sustaining, autonomous actors playing an active role in their own realities.

Finally, bottom-up projects have a greater impact on their recipient communities. Structural adjustment loans rely on domestic governments to trickle down the money to their population. However, effective projects work with the communities themselves, from the bottom up, developing their human capital and skills, and bypassing bureaucracies that skim off the top. Communities see the impact in ways they request, want, and can sustain.

Such a budgetary shift builds more American jobs. Numerous aid implementing agencies would see an explosion in their annual budgets and could take up many more projects. They would require more specialized workers in the field. Engineers, educators, farmers, scientists, anthropologists, economists, architects, and others would be needed to both execute projects and transfer their knowledge and skills to recipient communities.

An end to structural loans means an end to ineffective stipulations. A prominent loan stipulation is the liberalization of trade markets. This means many nascent domestic industries die off, unable to compete with cheaper foreign economies of scale. Another stipulation is to peg domestic currencies to the dollar. This makes the dollar and western currencies more competitive globally. It also means recipient countries must export even more to profit, pay back the loans in a timely manner, and only then aim to grow economically. By ending the loans—and by extension, their stipulations—recipient communities can retain their protective barriers and develop, until such a time they decide their industries could survive on international markets.

This better assistance model will deter foreign direct investment (FDI) but will still be a net gain for local communities. FDI’s biggest impact is the foreign-owned capital, and its jobs only go to a select few in localities that already possess adequate infrastructure and formal economies. Such investment does not develop much human capital and the jobs offer little to no stability or benefits. Foregoing the FDI and instead building adequate infrastructure and developing local communities and economies benefits the country as a whole, whether it liberalizes trade or not.

Aid can be effective. As a global moral voice, the U.S. needs to prioritize what works. Livelihood development, skill-building, and tangible goals work. Structural adjustment loans do not. Poverty alleviation is possible and every day we are learning better ways to achieve it. It is time we drop antiquated policies in favor of effective development, promising futures, and a sustainable world.

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