Did Elon Musk Sentence Millions to Death by Dismantling USAID?

The study cited by Rep. Ro Khanna as the basis for that claim is statistical nonsense

By Aaron Brown of Reason. Aaron Brown teaches statistics at New York University and at the University of California at San Diego. Excerpts:

"As I explained when I first wrote about the Lancet study for Reason in July of last year, with some basic arithmetic and a bit of common sense, you can see why the study's topline figures are nonsense. Just put the claim that nearly 92 million people were saved by USAID between 2001 and 2021 into perspective: During this period, the world's total death rate fell substantially. If the death rate prior to 2001 had remained steady for the next 20 years, about 79 million additional people would have died, according to data from the United Nations.

So how could USAID have saved 92 million lives? That's more than 100 percent of the global mortality decline, meaning that not only was USAID responsible for saving all 79 million people who didn't die thanks to the fall in the total death rate, but it saved an additional 13 million who otherwise would have died if not for USAID's charitable efforts.

Since I wrote about this study, its authors have effectively backed away from their number. The Lancet published formal critiques and a non-response reply. None of this produced a correction, a retraction, or a single follow-up story in the outlets that ran the 92 million figure. The number is still in circulation, still being cited by Khanna, and still generating threats of litigation from Musk.

Reason emailed several of the study's co-authors, laying out the criticisms cited in this article and video. They didn't respond.

The study's authors failed to establish that USAID saved any lives at all because they built a statistical model based entirely on correlation: Funding for USAID doubled during the study period. Since global mortality fell over the same time span, the two trends correlate, which is all their evidence adds up to. The authors did do a lot of complex statistical hocus-pocus, which they explained in a dense, technical online appendix, making the analysis look sophisticated. But all they were doing was correlating two lines with no evidence that one affected the other."

"On February 2, 2026, Lancet Global Health, a sister journal of The Lancet, published by the same house, ran a paper titled "The Impact of Two Decades of Humanitarian and Development Assistance and the Projected Mortality Consequences of Current Defunding to 2030.""

"The new paper looks at all official development assistance: every donor country, every agency, roughly $250 billion in 2023—and found it associated with a 23 percent reduction in age-standardized all-cause mortality across low- and middle-income countries. The original paper looked at USAID alone, which, at its peak, was somewhere around a sixth of global official development assistance, and found it associated with a 15 percent reduction.

These estimates don't square. The same research group, using the same technique, has now credited one agency with roughly two-thirds of the mortality effect of all foreign aid on Earth."

Related post:

Did USAID Really Save 90 Million Lives? Not Unless It Raised the Dead: A Lancet study’s inflated numbers are being used to push a partisan narrative, not inform public policy (2026) 

Did USAID Really Save 90 Million Lives? Not Unless It Raised the Dead

A Lancet study’s inflated numbers are being used to push a partisan narrative, not inform public policy.

By Aaron Brown. He teaches statistics at New York University and at the University of California at San Diego.

""Is [the U.S. Agency for International Development] a good use of resources?" James Macinko, a health policy researcher at UCLA, asked in an NPR interview this month. "We found that the average taxpayer has contributed about 18 cents per day to USAID." That "small amount," Macinko estimated, had prevented "up to 90 million deaths around the world."

Macinko was referring to a study he coauthored, which was published in the prestigious medical journal The Lancet. In addition to estimating that USAID programs had saved 90 million lives from 2001 to 2021, Macinko and his colleagues project that if the Trump administration's USAID cuts continue through 2030, an estimated 14 million people could die who otherwise would have lived.

In the same NPR story, Brooke Nichols, an infectious disease mathematical modeler and health economist at Boston University, gushed about the study. "Putting numbers to the lives that could be lost if funding isn't restored does something very important," she said. "I like [the study's] statistical approach; it was really well done and robust."

To the contrary, the study's statistical approach was poorly done and not at all robust. But you need not be an economist or a mathematician to recognize that its results are absurd. The authors failed to apply common sense to the numbers, and so did reporters at NPR, the BBC, the Associated Press, NBC, and other news outlets that amplified the study's findings.

Is it plausible that USAID programs saved more than 90 million lives from 2001 to 2021? Let's compare that to the total decline in worldwide mortality during the same period.

In 2001, the United Nations reports, there were 52.43 million deaths, or 8.4 per 1,000 people. In 2002, the death rate fell slightly; if it hadn't, 370,000 additional people would have died. In 2003, if the 2001 death rate had stayed constant, 750,000 more would have died, and so on. If you add up all the people who would have died over 21 years if the 2001 death rate had remained constant, you get 79 million lives saved. 

The Lancet study claims USAID programs saved more than 90 million lives during this period. In other words, USAID was allegedly responsible for the entire global improvement in mortality, plus another 11 million lives. 

If you drill down into the numbers, the claim gets even more absurd. Most of the mortality decline (47 million of the 79 million) occurred in China, which received only 73 cents per capita annually from USAID. The least developed countries—the ones with the highest per capita USAID spending—actually saw an increase in mortality of 8 million during the study period, thanks to higher average death rates from 2001 to 2021. 

Even if you believe that foreign aid is the primary cause of the declining death rate, these numbers make no sense. USAID comprises about 60 percent of U.S. foreign aid, and the U.S. contributes about a third of all government aid worldwide. Private cross-border charity dwarfs the USAID budget. Was all that money wasted while USAID funds were well-spent? Did advances in medicine, agriculture, public health, and economic growth have no role?

Anyone claiming that USAID was the sole source of declining global mortality during the two decades covered by The Lancet study bears a tremendous burden of proof. Yet the study does not provide convincing evidence of any mortality reduction attributable to USAID.

Studies of this sort often involve problematic data, plagued by missing values, inaccurate numbers, and changes in definitions. Such data require complex processing. To avoid reporting risible results, researchers must do constant reality checks. If simple analysis reveals an effect, more complex methods can refine it, making the result more certain and precise. But when simple methods show no effect, as in this case, it is dangerous to rely entirely on complex methods whose results defy common sense.

The authors of the study began with a common academic approach called "regression analysis." They compared average mortality declines in countries with little or no per capita USAID spending to declines in countries with high per capita USAID spending.

Regression analysis shows only correlation, which does not demonstrate causation. Most researchers are careful to note this distinction. But Macinko et al. claimed their analysis showed USAID caused mortality declines, which is statistically impossible.

That assumption is particularly problematic in this case because a lot of USAID spending went to the same countries that also get aid from other sources. Effectively, the authors gave USAID credit for all the aid that countries received, no matter the source.

In any case, simple regression analysis did not demonstrate any correlation between per capita USAID spending and mortality declines. 

For four of the 21 years in their study, Macinko et al. used "dummy variables" to ignore data showing USAID was associated with mortality increases. Their excuses for excluding two of the four years were the 2008 global economic shock and the 2020 COVID-19 pandemic. So why exclude the remaining two? "To adjust for major economic and health shocks," the authors say, with no clue about what those shocks were and why they were more important than shocks in other years.

It's not clear why shocks should be ignored in the first place. Does it not matter that USAID recipient countries were hit harder by COVID and the global financial crisis than other countries? Does USAID only save lives in calm times and cost lives in turbulent ones? If so, don't we care about the net lives saved or lost at all times?

Next, the researchers tested 48 "control variables." The purpose of these adjustments is to account for factors unrelated to USAID spending that affect mortality rates. Unfortunately, in this case, there are no good controls. For example, the study included education spending and the availability of piped water; however, since USAID funds education and water infrastructure, these factors are related to the amount of USAID received. All the control variables tested were things affected by USAID spending.

Including controls that are causally linked to your main variable of interest—USAID spending in this case—can cause illusory effects to appear statistically significant. This is particularly problematic when you select a large number of control variables relative to the number of data points and choose those control variables from a long list of candidates.

Macinko et al. did not preregister their controls, meaning they did not publish a research plan that committed them to a particular set. That safeguard aims to prevent researchers from falling prey to the temptation of selecting control variables based on whether the results align with their preconceptions.

What about the estimate that the Trump administration's USAID cuts, if continued, will result in 14 million preventable deaths by 2030? Programs like USAID have numerous consequences, both positive and negative, and it is impossible to accurately calculate or project their impact with any confidence. Pretending to have scientific confidence in a quantitatively dubious measure, such as lives saved, is irresponsible and leads to a loss of trust in science.

The Lancet study seems designed to generate a partisan talking point, suggesting that anyone who supports the Trump administration's actions values 18 cents over 90 million lives. Note the trick of making the cost look small by dividing it among 150 million U.S. taxpayers and 365 days per year while making the benefit look large by totaling it over the entire globe for 21 years. 

This study has nothing to do with science. It waves the bloody shirt while feigning scientific detachment."

The allocation of US AID funds

By Tyler Cowen.

"According to Marco Rubio only 12 cents of every dollar spent from USAID went to recipients, the other 88 cents went to NGOs who pocketed the money.

I tried to fact check that with o3:

However you draw the line, before 2017 well over half—and usually more like 75-90 percent—of USAID money was channelled through third-party NGOs, contractors, and multilateral agencies rather than handed straight to the governments or other local actors in the partner country.

I do support PEPFAR and the earlier vaccine programs, but perhaps those estimates have been underreported as of late?  I do understand that not all third party allocations are wasteful, nonetheless something seems badly off here.  Nor were many US AID defenders keen to deal with such estimates when the major debate was going on."

Next, Defund the United Nations

The U.S. underwrites a variety of international organizations that make up a global deep state

By Eugene Kontorovich. He is a professor at George Mason University Scalia School of Law and a senior research fellow at the Heritage Foundation. Excerpts:

"Nearly every U.N.-affiliated organization seeks to make climate and gender issues (including abortion and transgenderism) an integral part of their work. DEI offices abound. The International Organization for Migration lists as among its central areas of activity “gender equality,” “environmental sustainability” and “reducing global inequalities.”"

"The U.N. Commission on Human Rights promotes a variety of transgender propaganda campaigns, such as helping Nepalese “LGBTIQ+ writers to tell their own story.”"

"The U.N. Population Fund—whose budget Mr. Trump cut in 2017 because of its funding for abortion—says “Diversity, Equity and Inclusion is at the heart of UNFPA’s workforce.” In 2021, $1 million went to the International Labor Organization for job training for gays and lesbians in Brazil. In 2022, through the U.N. Development Program, U.S. taxpayers have funded a program called “Being LGBTI in the Caribbean.”

Apart from ideological absurdity, this leads to massive inefficiency, with the U.S. funding numerous entities with overlapping missions. The U.S. funds the U.N. Environment Program, the U.N. Convention to Combat Desertification, the International Union for Conservation of Nature, the Secretariat of the Pacific Regional Environment Program, the Global Environment Facility, the Commission for Environmental Cooperation, the Montreal Protocol and others. If that weren’t enough, the Global Fund for HIV, Tuberculosis and Malaria says “climate change is the largest global health challenge of the 21st challenge,” and thus part of its mission."

"The Office of the High Commissioner for Human Rights, for which the U.S., as with most U.N. programs, is the lead donor, has called on Washington to surrender land to Native Americans, while the Special Committee on Decolonization regularly demands Puerto Rican independence."

"Federal law already requires defunding U.N.-affiliated international organizations that accept Palestine as a member state. The failure, since the Obama administration, to enforce this law has undermined American credibility at the U.N."

The Left Didn’t Always Love USAID

Until recently, the agency received criticism not only from conservatives but from leftists and centrists

By Tom Nicholson. He is director of Advance Access and Delivery, a global health nonprofit. Excerpts:

"Critics note that a substantial portion of “foreign aid” never leaves the U.S., instead staying within USAID or circulating among well-heeled USAID subcontractors. Many of these subcontractors later work for USAID and sustain the revolving door of self-interest. Some dollars do reach intended recipients around the world, but plenty of the funding goes to local affiliates of those same USAID subcontractors. By most assessments, less than 10% of U.S. nonmilitary foreign aid ends up with locally based organizations.

Critics on the left made these charges for decades"

"also criticized USAID for some of its more nefarious actions, deeming them politically subversive and manipulative. In 1965 the New York Times reported that the level of USAID funding to India was contingent on India’s importing certain products, such as fertilizer, from U.S. companies."

"The agency generously supported many authoritarian figures and regimes"

"Some economists and aid practitioners argued that USAID’s economic assistance to these countries was often paternalistic at best and destructive at worst. They accused the agency of undercutting farmers by dumping free grain in local markets in Haiti, impoverishing rural communities that were critical constituencies resisting dictatorial rule. While USAID fed hungry people, critics argued, it also sometimes fatally compromised a society’s ability to produce its own food, weakening popular resistance to authoritarian rulers.

In 2006 the U.S. spent millions of dollars through USAID to boost the popularity of the Palestinian Authority before its election against Hamas in Gaza."

"President Obama said “the American people’s money must be spent to advance their priorities, not to line the pockets of contractors or to maintain projects that don’t work.” Today, these kinds of critiques have all but disappeared"

"the agency’s Center on Democracy, Human Rights and Governance had turned some of its focus inward and was meddling in domestic politics. In 2021 this USAID bureau published a 100-page “disinformation primer” for USAID staff and partners on how private tech and media companies can better “manage” inconvenient political speech online."

Hurricane Musk and the USAID Panic

Elon gets a flavor of the pushback his DOGE project will get

WSJ editorial. Excerpts:

"The agency in the Biden years supported electric vehicles in Vietnam and a “transgender clinic” in India. A Serbian LGBTQ group called ‘Grupa Izadji,’ received $1.5 million to ‘advance diversity equity and inclusion in Serbia’s workplaces and business communities.” There are many other examples."

"some USAID spending may undermine U.S. interests. An analysis by the Middle East Forum says $164 million of USAID money has supported radical organizations around the world, and $122 million of that aid was going to groups aligned with foreign terrorist organizations."

"USAID has given millions of dollars to “organizations directly in Gaza controlled by Hamas” and that recipients of the money have “called for their lands to be ‘cleansed’ from the ‘impurity of the Jews.’” The Middle East Forum notes that money also often flows to anti-American groups through intermediary recipients that fail to vet local partners."

Food Aid Failure in Ethiopia

By Chris Edwards and Krit Chanwong of Cato.

"The US Agency for International Development (USAID) has announced it will restart sending food aid to Ethiopia. USAID had halted aid earlier this year after “uncovering a colossal scheme by government officials to steal donated grain.” US officials say it could be the largest theft of foreign food aid ever.

Last month, Cato published a study arguing for cuts to foreign food aid, which costs US taxpayers more than $2 billion a year. The study discussed the problems of food aid in conflict zones:

Armed conflicts around the world create demand for humanitarian aid. However, some experts argue that food aid can fuel or sustain conflicts, and thus can do more harm than good in some situations. Food aid can reduce political pressure for warring factions to reach settlements, and it can be seized by combatants and resold to buy weapons or other assets to prolong conflicts.

The USAID debacle in Ethiopia illustrates the dynamic. Ethiopia is experiencing a humanitarian crisis as a result of civil war and drought. Foreign food aid seems justified, but food aid to Ethiopia has been severely mismanaged. One investigation found that more than 7,000 metric tons of wheat and 215,000 litres of food oil have been looted by the various warring factions. In addition to theft, bureaucracy and violence have blocked aid from reaching people in need.

Feeding undernourished people abroad is a noble goal, but practical realities undermine government efforts to do so. The Ethiopian scandal has “cast an unflattering spotlight on the lax controls over the distribution of food and other international aid in crisis zones … including Somalia, Sudan, and South Sudan.”

The failure of food aid in Ethiopia led UN official David Del Conte to conclude, “The denial of relief assistance, and the manipulation of relief assistance, is very much entrenched in the Ethiopian experience.” In that country, “humanitarian assistance is part and parcel of the war machine,” he said. It is used by the various factions as a political weapon against opponents.

This has long been the case. The Central Intelligence Agency opined about Ethiopia’s dictator back in 1985: “He relies on international donors to support the rural population in government‐​controlled areas of the north but vehemently opposes all efforts to provide aid to the drought victims in regions held by the insurgents.”

The problem with aid delivery isn’t just that food is stolen. In 2021, a UN food aid convoy ventured into Ethiopia’s war‐​torn Tigray region with 445 trucks. Only 38 returned, as one of the warring parties apparently seized 407 of the vehicles.

With the resumption of US food aid to Ethiopia, we will see whether it works any better this time around. That seems unlikely, however, as food aid failures and corruption are a feature of Ethiopia’s sad history going back decades."

The Myth of the Marshall Plan

By David Henderson.

"The first tranche of Marshall Plan funds helped West Germany reform its currency and jump-start a surprisingly rapid economic and political revival. Integral to the Marshall Plan was the Truman administration’s elimination of German debt and reparations. As a result, real output increased by 18.5 percent in 1948 and leveled off at an average increase of 8 percent a year during the first half of the 1950s.

The above is a quote from David L. Roll, “The 11-Minute Harvard Speech that Rebuilt Postwar Europe,” Wall Street Journal, Saturday/Sunday, June 4-5, 2022. It’s based on Roll’s book titled George Marshall: Defender of the Republic.

Roll missed most of the cause of the German recovery and economic expansion. It wasn’t the Marshall Plan, as Tyler Cowen laid out cogently in his 1985 book chapter titled “The Marshall Plan: Myths and Realities” and in a 1986 article based on that chapter in Reason. The latter is titled “The Great Twentieth-Century Foreign-Aid Hoax,” Reason, April 1986.

So what did cause what has come to be known as the German economic miracle? I tell the story in some detail in “German Economic Miracle,” in David R. Henderson, ed., The Concise Encyclopedia of Economics, Liberty Fund, 2008.

The short version: currency reform, ending price controls, and substantially cutting marginal income tax rates."

Does Foreign Development Aid Trigger Ethnic War in Developing States?

By Demet Yalcin Mousseau. He is a professor at the University of Central Florida. 

"Abstract

Can foreign aid trigger ethnic war? The quantitative conflict literature has produced mixed findings on the effect of foreign aid on civil war in developing states. One reason for the mixed results is that a subset of civil wars, ethnic wars, are more likely than other kinds of civil wars to be triggered by foreign aid. This is because large amounts of foreign aid can cause the state to become a prize worth fighting over, mobilizing ethnic identity and group-related rebellion. This article investigates this question by testing the separate impacts of total, bilateral, and multilateral aid given by state and nonstate actors on the onset of ethnic war, using a cross-national time-series dataset of 147 countries from 1961 to 2008. The findings show a very strong association of foreign aid with ethnic war, whether measured as total aid, bilateral aid, or multilateral aid."

 

The Afghanistan Lessons America Refused To Learn

A U.S. agency spent 13 years documenting our government's failure to stabilize or rebuild the country.

By Scott Shackford of Reason.

"As the humanitarian disaster in Afghanistan continues to brutally unfold, there are not a few "we told you so" lecturers out there. But nobody has earned their stripes more than the office of the Special Inspector General for Afghanistan Reconstruction (SIGAR). Created by Congress in 2008, SIGAR's job is to serve as independent oversight over the more than $140 billion dollars appropriated for the country's reconstruction efforts.

For more than a decade, SIGAR has done yeoman's work with regular reports showing how poorly the reconstruction efforts were going, how Afghanistan continued to fall under the Taliban's control, and how the money being spent on infrastructure projects was feeding internal corruption rather than making the country safer. When Americans read stories about disastrous Afghanistan boondoggles (like a $43 million compressed natural gas station that should have cost $500,000), a SIGAR report is frequently the source. In 2018, Reason's Brian Doherty compiled many such stories from SIGAR's reports.

SIGAR normally publishes a "lessons learned" annual report. This week they've published a report with a title that's even blunter: "What We Need To Learn: Lessons from Twenty Years of Afghan Reconstruction."

In the preface, Inspector General John F. Sopko gives only the barest mention of successes in Afghanistan, explaining that this new report documents, "how the U.S. government struggled to develop a coherent strategy, understand how long the reconstruction mission would take, ensure its projects were sustainable, staff the mission with trained professionals, account for the challenges posed by insecurity, tailor efforts to the Afghan context, and understand the impact of programs."

"There have been bright spots—such as lower child mortality rates, increases in per capita GDP, and increased literacy rates," he says, adding that "after spending 20 years and $145 billion trying to rebuild Afghanistan, the U.S. government has many lessons it needs to learn."

The 140-page report focuses on seven different areas where policy decisions in Afghanistan failed to achieve stability over a 20-year period. The most damaging lesson was that America did not have a coherent strategy for what reconstruction in Afghanistan looked like. Strategies for "success" kept changing from defeating Al Qaeda to defeating the Taliban (which, unlike Al Qaeda, is deeply entrenched in Afghan culture) to fighting corruption.

Though the report talks about how poorly resources were managed and deployed, it also notes that the problem was not that America didn't spend enough money: "The U.S. government was simply not equipped to undertake something this ambitious in such an uncompromising environment, no matter the budget."

American personnel sent to Afghanistan often were not qualified to supervise Afghanistan's domestic operations. We were using cop shows to teach Afghans how to police themselves: "[Department of Defense] police advisors watched American TV shows to learn about policing, civil affairs teams were mass-produced via PowerPoint presentations, and every agency experienced annual lobotomies as staff constantly rotated out, leaving successors to start from scratch and make similar mistakes all over again."

Without a consistent fixed explanation of what success looked like for Afghan reconstruction, the U.S. was unable to establish a credible timeline and underestimated how much time rebuilding would take. The end result here was an emphasis on spending quickly and completing specific projects. This reduced project oversight (we really don't know where all the money for that $43 million gas station actually went) worsened Afghanistan's internal corruption problems:

Rather than reform and improve, Afghan institutions and powerbrokers found ways to co-opt the funds for their own purposes, which only worsened the problems these programs were meant to address. When U.S. officials eventually recognized this dynamic, they simply found new ways to ignore conditions on the ground. Troops and resources continued to draw down in full view of the Afghan government's inability to address instability or prevent it from worsening.

Since America failed to provide stability or ensure that money was spent wisely, the infrastructure that U.S. forces attempted to build there was not sustainable. "U.S. agencies were seldom judged by their projects' continued utility, but by the number of projects completed and dollars spent," the report notes.

Because Afghanistan's government was so prone to corruption, U.S. officials often sought help from outside government channels to complete projects. While this helped to actually get things done, it necessarily meant that that government officials were not getting their own experience learning how to sustain infrastructure projects.

Then there's the constant arrogance of thinking that America can come into a country on the other side of the world and transform its entire civic culture to match ours via strength of will:

The U.S. government also clumsily forced Western technocratic models onto Afghan economic institutions; trained security forces in advanced weapon systems they could not understand, much less maintain; imposed formal rule of law on a country that addressed 80 to 90 percent of its disputes through informal means; and often struggled to understand or mitigate the cultural and social barriers to supporting women and girls.

The report notes that lack of knowledge of Afghan culture contributed to corruption as the U.S. often inadvertently ended up partnering with predatory powerbrokers who diverted assistance to themselves.

And finally, because the U.S. never had a real vision of what rebuilding Afghanistan actually looked like, anything that got done at all was touted as a success, regardless of its value: "The absence of periodic reality checks created the risk of doing the wrong thing perfectly: A project that completed required tasks would be considered 'successful,' whether or not it had achieved or contributed to broader, more important goals."

This attitude is not confined to Afghan reconstruction. But that in an unstable country with poor infrastructure, violent and corrupt factions fighting for control, and an inability on the part of the U.S. to monitor and evaluate success or learn from failure meant that disaster was inevitable.

SIGAR, to its credit, has been documenting these problems all along. The next time politicians and generals start talking about intervening in other countries in order to spread freedom or democracy, they should be ordered to read these reports."

Aid to the developing world has not worked

By WILLIAM EASTERLY (in 2001).

"While the industrialised West is preoccupied with recession, the rest of the world has much greater economic woes. Contrary to conventional wisdom, aid to the developing world has been a big disappointment.

Consider the facts and it soon becomes evident that the $1 trillion (€1.18 trillion) spent on aid since the 1960s, with the efforts of advisers, foreign aid givers, the International Monetary Fund (IMF) and the World Bank, have all failed to attain the desired results.

Sub-Saharan Africa has not emerged from a decades-long economic crisis; Asia remains the home of the majority of the world's poor; Latin America has known only erratic and low growth; the Middle East has not converted oil riches into sustained development.

It is little wonder that protesters have demonstrated so vehemently against the international organisations.

Each of the different actors in the development aid community has contributed to this debacle. The first culprits were the economists whose attitude was "build it and they will come". We thought that certain objects associated with prosperity in the industrialised world - dams, roads, schools - could bring success to the developing world.

Later, fads changed to include institutional magical objects. Thus we urged governments to embrace democracy, constitutions, independent judiciaries, decentralisation to local governments and other magic bullets. None of them worked.

The second culprits were the recipient governments that resisted development and the aid lenders that tried to change their attitudes. Governments in many poor countries were torn by conflict over redistribution of the existing pie between regions, political factions and ethnic groups.

The landed and industrial elite, to whom power was more important than development, were afraid to invest in the masses that might demand their share of power.

Multilateral lenders thought it enough to issue recommendations to supposedly malleable governments. In the 1980s and 1990s, the IMF and World Bank made 958 conditional loans; during the past decade alone these institutions gave 10 or more conditional loans each to 36 poor countries.

Yet with a few notable exceptions, government mismanagement usually continued in these countries. The average per capita growth rate in this group during the past two decades was zero.

To make matters worse, the conditions on the loans were not enforced. Thus indiscriminate donors and multilateral lenders were culprits number three. They created the myth of tough conditionality that developing world citizens blamed for their woes when in fact the bad old governments continued to ruin the economy.

Unfortunately, with some exceptions, multilateral and bilateral agencies had incentives to continue lending even when recipient government actions destroyed any hope of economic growth. Sometimes donors and multilaterals gave aid and loans only because the function of donors and multilateral agencies is to give aid and loans. Sometimes aid lenders gave loans to enable old aid loans to be repaid. Sometimes donors gave aid because the recipient countries were political allies of the donor countries. Recipient governments promised the multilateral agencies that this time they would reform, like alcoholics promising never to drink again.

The ultimate conditional loan was the conditional debt forgiveness package - itself a sign that the previous conditional loans had not worked. Forgiveness of developing world debt has been called for by such diverse figures as Bono from the rock group U2, the Dalai Lama, Pope John Paul II and President George W. Bush. But, again, this could be pouring good money after bad: if governments mismanaged the original loans, will they manage wisely the proceeds of debt forgiveness?

The best the foreign aid community can do in the future is to support genuine change on those precious occasions when it happens.

The writer is senior adviser of the World Bank's research group"

 

 

 

5 Historic Examples of Foreign Aid Efforts Gone Wrong

Well-meaning international aid efforts have existed for centuries. So have their unintended consequences

By Orestes R Betancourt Ponce de León. He holds a Master of Public Administration from the Middlebury Institute of International Studies. He is a former research intern with the CATO Institute and currently specializes in the sector of international development.

"In his 1850 essay, “That Which is Seen, and That Which is Not Seen,” Frédéric Bastiat explains that “in the economic sphere, an act, a habit, an institution, a law, produce not just one effect, but a series of effects.” Unintended consequences transform good intentions into bad policies, and one of the best examples of this is foreign aid.

Mansa Musa’s good intentions may be the first case in history of failed foreign aid. Known as the “Lord of the Wangara Mines,” Mansa Musa I ruled the Empire of Mali between 1312 and 1337. Trade in gold, salt, copper, and ivory made Mansa Musa the richest man in world history.

As a practicing Muslim, Mansa Musa decided to visit Mecca in 1324. It is estimated that his caravan was composed of 8,000 soldiers and courtiers—others estimate a total of 60,000—12,000 slaves with 48,000 pounds of gold and 100 camels with 300 pounds of gold each. For greater spectacle, another 500 servants preceded the caravan, and each carried a gold staff weighing between 6 and 10.5 pounds. When totaling the estimates, he carried from side to side of the African continent approximately 38 tons of the golden metal, the equivalent today of the gold reserves in Malaysia’s central bank—more than countries like Peru, Hungary or Qatar have in their vaults.

On his way, the Mansa of Mali stayed for three months in Cairo. Every day he gave gold bars to the poor, scholars, and local officials. Mansa’s emissaries toured the bazaars paying at a premium with gold. The Arab historian Al-Makrizi (1364-1442) relates that Mansa Musa’s gifts “astonished the eye by their beauty and splendor.” But the joy was short-lived. So much was the flow of golden metal that flooded the streets of Cairo that the value of the local gold dinar fell by 20 percent and it took the city about 12 years to recover from the inflationary pressure that such a devaluation caused.

Since then, the unintended consequences of good intentions in foreign aid have occurred again and again. More recent historical examples abound:

1. Between the 1950s and 1960s under the Food for Peace program—created by Dwight D. Eisenhower in 1954—the markets of India, Pakistan and Indonesia had to compete with the massive flow of donated agricultural products from the United States. The donations bankrupted thousands of local farmers and restricted the development of agriculture in these countries for decades.
2. In 1971, the Norwegian government earmarked $22 million for a fish processing plant in Kenya on Lake Turkana. The aim was to export the fish and provide employment for the Turkana people, but they were nomads with no knowledge or interest in fishing. In addition, the cost of refrigeration equipment and drinking water were very high. The plant closed after a few days.
3. The World Bank loaned Tanzania more than $10 million for cashew nut processing. As a result, by 1982 Tanzania had 11 factories capable of processing three times what was produced each year. On top of that, within a short time, six of the factories were idle and in need of spare parts and the other five were running at less than 20 percent of their capacity. It was cheaper for Tanzania to send its raw cashew nuts to India for processing.
4. In 1995, during the civil war in Sudan, Christian Solidarity International began paying between $100 and $50 ransom for Dinka slaves captured in the south of the country. It became more lucrative to sell slaves to well-meaning Europeans and North Americans than to sell them to the North for $15. The dynamics of good intentions encouraged this market and the slavers to take more captives.

Adding to the problems of unintended consequences is the problem of the incentives of the very organizations working in the international aid sector. In 2019, Devex published the investigative series “What went wrong?”

This organization—which is the communications platform and largest provider of contracting services to the international development sector—reported how in Kenya alone in the last 10 years some 22 projects failed in almost every sector “including health, education, gender equality, housing and climate change adaptation.” Devex reaches a key conclusion as to why these mistakes are repeated: “In an industry that tends to reward good news with more funding, aid organizations can be reluctant to admit to project shortcomings or, worse, project failure.”

Then, does kind-hearted international development aid work? Contrary to Jeffrey Sachs‘ argument for increasing spending on foreign aid, economist William Easterly states that “the West has spent $2.3 trillion in foreign aid over the past five decades (…) so much well-meaning compassion has not brought results for people in need.”

Though many like Bill Gates think foreign aid is unquestionably good, the flow of capital from developed countries largely fuels the corruption of recipient governments and diminishes the accountability of these governments to those most in need. What is worse, it postpones the reforms necessary for these countries to integrate into world trade under sound institutions and economies free of bureaucratic burdens. After all, this is the best way to achieve progress!

International development agencies seem to be gaining awareness of the impact of unintended consequences. Nevertheless, it is not enough. The US Government Accountability Office (GAO) reported that in 2015 six major organizations considered unforeseen side effects in only approximately 28 percent of the evaluations of their foreign aid projects.

Very often, unforeseen consequences end up destroying the good intentions of those who forget what is seen and what is not seen, as Frédéric Bastiat wrote. Unfortunately, as Milton Friedman said, “one of our great mistakes is to judge policies and programs by their intentions and not by their results.”

It is not a matter of abandoning solidarity, but of learning and becoming more effective in the noble task of helping those most in need."

Free trade and property rights increase foreign direct investment

By Ilija Stojanovic. He is a member of the Editorial Board of Science Journal of Business and Management (SJBM) and Scientific Committee for the REDETE scientific conference. He is currently at the Al Ghurair University Dubai.

Abstract:

"Global competitiveness position is perceived as a highly relevant enabler for attracting foreign direct investments. Our study goes beyond this well-known fact to understand whether economic freedom indicators are relevant cause for global competitiveness in attracting foreign direct investments and how this relationship behaves in different conditions of political stability. We focused our empirical study to mediating and moderating processes through which global competitiveness is linked with FDI. We developed and tested a second stage moderated parallel mediation model to observe mediating effects of economic freedom and moderating effects of political stability. Our research was focused on mediating effects of several indicators of Economic Freedom including Size of Government, Legal System & Property Rights, Sound Money, Freedom to trade internationally and Regulation. The findings indicate that Legal System & Property Rights and Freedom to trade internationally have positive conditional indirect effects within the model. Freedom to trade internationally is a much more sensible mediator variable in case of different levels of political stability while Legal System & Property Rights is not significantly affected by political stability, strengthening economic freedom in these two dimensions provides an enhanced effect of existing competitiveness on FDI growth. We recognized that political stability has no influence on the indirect effects between competitiveness and inward FDI produced by Legal System & Property Rights, as one of the dimensions of economic freedom. Therefore, to attract FDI in unstable political conditions is very useful to establish a proper legal system and adequate protection of property rights. In such a legal environment, foreign investors will feel comfortable regardless of the political risks in the country. Freedom to trade internationally is a much more sensible mediator variable under the influence of political instability."

Foreign Aid Should Go to Those in Need, Not Ruling Elites

Researchers found that roughly 7.5% of foreign aid from the World Bank to poor countries is diverted from intended beneficiaries into offshore bank accounts of wealthy elites and corrupt government officials.

By Patrick Tyrrell and Anthony B. Kim of The Heritage Foundation.

"Wealthy elites pocket more than 7.5% of financial aid coming into their economically struggling countries, according to new research from the World Bank.

To reach these disturbing findings, researchers measured the increase in deposits into offshore bank accounts in countries known for high levels of bank secrecy by people in countries receiving disbursements of foreign aid.

They discovered that roughly 7.5% of foreign aid from the World Bank to poor countries is diverted from the intended beneficiaries into offshore bank accounts of wealthy elites and corrupt government officials.

The siphoning of foreign aid into offshore bank accounts was found to increase as the ratio of aid to gross domestic product in recipient countries grew, rising to as much as 15% for the most aid-dependent countries.

Since the World Bank report includes only foreign aid that winds up in offshore bank accounts, it can be considered the lower boundary on the amount of foreign aid that ends up lining the pockets of corrupt officials or elites in aid-dependent countries.

The total does not include aid diverted locally to buy real estate or sports cars, for example.

The Heritage Foundation’s annual Index of Economic Freedom measures corruption in 180 countries around the world. Government Integrity is one of 12 subcategories that are averaged to find economic freedom scores for each country in the index.

Corruption levels are highest in countries receiving large amounts of foreign aid.

The World Bank’s research is a wake-up call to the U.S. and other providers of foreign aid.
They need to do much more to assure the money reaches those who truly need it, not those who already enjoy wealth and privilege."

The Money Farmers: How Oligarchs and Populists Milk the E.U. for Millions

The European Union spends $65 billion a year subsidizing agriculture. But a chunk of that money emboldens strongmen, enriches politicians and finances corrupt dealing.

By Selam Gebrekidan, Matt Apuzzo and Benjamin Novak of The NY Times. Excerpts:

"Under Communism, farmers labored in the fields that stretch for miles around this town west of Budapest, reaping wheat and corn for a government that had stolen their land.

Today, their children toil for new overlords, a group of oligarchs and political patrons who have annexed the land through opaque deals with the Hungarian government. They have created a modern twist on a feudal system, giving jobs and aid to the compliant, and punishing the mutinous.

These land barons, as it turns out, are financed and emboldened by the European Union.

Every year, the 28-country bloc pays out $65 billion in farm subsidies intended to support farmers around the Continent and keep rural communities alive. But across Hungary and much of Central and Eastern Europe, the bulk goes to a connected and powerful few. The prime minister of the Czech Republic collected tens of millions of dollars in subsidies just last year. Subsidies have underwritten Mafia-style land grabs in Slovakia and Bulgaria.

Europe’s farm program, a system that was instrumental in forming the European Union, is now being exploited by the same antidemocratic forces that threaten the bloc from within. This is because governments in Central and Eastern Europe, several led by populists, have wide latitude in how the subsidies, funded by taxpayers across Europe, are distributed — even as the entire system is shrouded in secrecy.

A New York Times investigation, conducted in nine countries for much of 2019, uncovered a subsidy system that is deliberately opaque, grossly undermines the European Union’s environmental goals and is warped by corruption and self-dealing."

"The program is the biggest item in the European Union’s central budget, accounting for 40 percent of expenditures. It’s one of the largest subsidy programs in the world.

Yet some lawmakers in Brussels who write and vote on farm policy admit they often have no idea where the money goes."

". . . Hungary’s populist prime minister, Viktor Orban . . . uses European subsidies as a patronage system that enriches his friends and family, protects his political interests and punishes his rivals."

"The European Union spends three times as much as the United States on farm subsidies each year, but as the system has expanded, accountability has not kept up. National governments publish some information on recipients, but the largest beneficiaries hide behind complex ownership structures. And although farmers are paid, in part, based on their acreage, property data is kept secret, making it harder to track land grabs and corruption. The European Union maintains a master database but, citing the difficulty of downloading the requested information, refused to provide The Times a copy."

"80 percent of the money goes to the biggest 20 percent of recipients. And some of those at the top have used that money to amass political power."

"Farmers who criticize the government or the patronage system say they have been denied grants or faced surprise audits and unusual environmental inspections, in what amounts to a sophisticated intimidation campaign that harkens to the Communist era."

"One man who did speak up was Mr. Angyan, the former under secretary for rural development. A jowly, gray-haired rural economist with a mischievous smile, Mr. Angyan became an unlikely crusader for small farmers. He served under Mr. Orban, initially thinking him a reformer, only to leave angry and disillusioned. He canvassed the countryside, documenting the government’s dubious land deals and mistreatment of small farmers.

And then he disappeared from public life."

The Money Farmers: How Oligarchs and Populists Milk the E.U. for Millions

The European Union spends $65 billion a year subsidizing agriculture. But a chunk of that money emboldens strongmen, enriches politicians and finances corrupt dealing.

By Selam Gebrekidan, Matt Apuzzo and Benjamin Novak of The NY Times. Excerpts:

"Under Communism, farmers labored in the fields that stretch for miles around this town west of Budapest, reaping wheat and corn for a government that had stolen their land.

Today, their children toil for new overlords, a group of oligarchs and political patrons who have annexed the land through opaque deals with the Hungarian government. They have created a modern twist on a feudal system, giving jobs and aid to the compliant, and punishing the mutinous.

These land barons, as it turns out, are financed and emboldened by the European Union.

Every year, the 28-country bloc pays out $65 billion in farm subsidies intended to support farmers around the Continent and keep rural communities alive. But across Hungary and much of Central and Eastern Europe, the bulk goes to a connected and powerful few. The prime minister of the Czech Republic collected tens of millions of dollars in subsidies just last year. Subsidies have underwritten Mafia-style land grabs in Slovakia and Bulgaria.

Europe’s farm program, a system that was instrumental in forming the European Union, is now being exploited by the same antidemocratic forces that threaten the bloc from within. This is because governments in Central and Eastern Europe, several led by populists, have wide latitude in how the subsidies, funded by taxpayers across Europe, are distributed — even as the entire system is shrouded in secrecy.

A New York Times investigation, conducted in nine countries for much of 2019, uncovered a subsidy system that is deliberately opaque, grossly undermines the European Union’s environmental goals and is warped by corruption and self-dealing."

"The program is the biggest item in the European Union’s central budget, accounting for 40 percent of expenditures. It’s one of the largest subsidy programs in the world.

Yet some lawmakers in Brussels who write and vote on farm policy admit they often have no idea where the money goes."

". . . Hungary’s populist prime minister, Viktor Orban . . . uses European subsidies as a patronage system that enriches his friends and family, protects his political interests and punishes his rivals."

"The European Union spends three times as much as the United States on farm subsidies each year, but as the system has expanded, accountability has not kept up. National governments publish some information on recipients, but the largest beneficiaries hide behind complex ownership structures. And although farmers are paid, in part, based on their acreage, property data is kept secret, making it harder to track land grabs and corruption. The European Union maintains a master database but, citing the difficulty of downloading the requested information, refused to provide The Times a copy."

"80 percent of the money goes to the biggest 20 percent of recipients. And some of those at the top have used that money to amass political power."

"Farmers who criticize the government or the patronage system say they have been denied grants or faced surprise audits and unusual environmental inspections, in what amounts to a sophisticated intimidation campaign that harkens to the Communist era."

"One man who did speak up was Mr. Angyan, the former under secretary for rural development. A jowly, gray-haired rural economist with a mischievous smile, Mr. Angyan became an unlikely crusader for small farmers. He served under Mr. Orban, initially thinking him a reformer, only to leave angry and disillusioned. He canvassed the countryside, documenting the government’s dubious land deals and mistreatment of small farmers.

And then he disappeared from public life."

A Surprising Case Against Foreign Aid

Click here to read this review of Angus Deaton's Book Great Escape: Health, Wealth, and the Origins of Inequality. From the NY Times, 10-13-13. The reviewer was FRED ANDREWS. Excerpts:

"Professor Deaton tells us that a rising tide has lifted almost all the world’s boats — but some far higher than others."

"In his considered judgment, global poverty today is no longer a result of lack of resources or opportunity, but of poor institutions, poor government and toxic politics. Though about $134 billion in official aid still flows from donor governments to recipient governments, there is no mystery, he says, as to why foreign aid fails to erase poverty. That is not its mission, he asserts: typically it serves commercial interests at home or buys political allies abroad, too often unsavory ones.      "

"THE author has found no credible evidence that foreign aid promotes economic growth; indeed, he says, signs show that the relationship is negative. Regretfully, he identifies a “central dilemma”: When the conditions for development are present, aid is not required. When they do not exist, aid is not useful and probably damaging."

"Professor Deaton makes the case that foreign aid is antidemocratic because it frees local leaders from having to obtain the consent of the governed."

"So what should the West do instead of providing aid? Well, it can invest in finding a vaccine for malaria, still a mass killer. It can push drug companies to tackle diseases that threaten poorer countries. It can support the free flow of information about inventions and new management techniques. It can relax trade barriers and provide poor countries with expert advice at the bargaining table. It can ease immigration restraints and accept more newcomers."

And

"...stand aside and let poorer countries find their own paths..."