The first question we should ask is do, we go with 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, Countries such as the US and European Nations have given $521 billion in assistance since World War II. As this figure indicates, foreign aid is politically popular. Besides its humanitarian supporters, many special interest groups lobby for foreign aid. For example, British and 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.
The first stage in helping any third world nation is Humanitarian Assistance. This is normally given in the form of food aid, this is aid designed to avert immediate disaster, such as after war (like Afghanistan), famine, Earthquakes etc. In the long term though free food does have it problems, 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. It also encourages polices to discourage production
Foreign aid fails as a development policy because it destroys the incentives of the marketplace and extends the power of ruling elites. Because it leads the Third World away from the free market, it actually increases Third World poverty. On the other hand, the alternative policy of free trade will give the private sector of the LDCs an opportunity to expand and flourish.
What I feel we should be doing instead is first of all realise that just throwing money at things isn’t going to help matters, when you have a new government such as the one in Afghanistan it takes time years often for internal civil administration to mature and work efficiently. Secondly we should look at more long term solutions, the first of which is free trade. If European and American government would lower import barriers, we can allow the private sectors of the Third World easier access to our markets. With the huge markets of the United States and Europe available for their products, entrepreneurs will have the opportunity to develop new industries or expand old ones.