Where does US foreign aid money go?

The U.S. has spent more than $1 trillion since 1960 attempting to help the poor abroad, making us the most generous nation among other developed countries when it comes to monetary contributions. Indeed, President Obama’s recent announcement that the U.S. will commit additional funds to alleviating the Syrian humanitarian crisis will make most of us feel proud of our nation.

But in a recent paper examining the effectiveness of these contributions and the practices of the agencies that distribute them, my colleague and I find that these acts of good will may benefit donors with good PR points, more than they benefit recipients. American families work hard for their money and most support our country’s generous mindset, but taxpayers deserve better stewardship of their dollars when it comes to our government’s charitable endeavors.

Ranking Foreign Aid Agency Best Practices: New Donors, New Findings reviews foreign aid agencies based on criteria they developed using five categories: transparency, overhead costs, specialization, selectivity, and ineffective channels. Setting standards in these categories is an excellent approach to reducing the chances that aid is wasted or, worse, harming the people it is intended to help. But while all this looks good on paper, our research reveals that agencies are failing to meet the standards they themselves set. And, to add insult to injury, are unfazed by their own failure, making little effort to better respect the contributions of so many hard working taxpayers. 

In short, this poor management and lax adherence to standards means foreign aid is wasting tax dollars, and, ultimately, is not helping the poor.

Worse than ineffective, many have long suspected that U.S. foreign aid inadvertently ends up supporting corrupt regimes. Just last week, evidence came to light that Syrian President Al-Assad uses relief dollars to provide supplies to his supporters, while simultaneously keeping food and other supplies away from non-supporters, and using the funds to suppress the regime’s opposition. This comes just as U.S. Secretary of State John Kerry pledged $925 million in addition to the $4.5 billion the U.S. has already given.

The revelations about Syrian aid are an example of failure in the selectivity category, which describes how donation recipients are selected. The standards aim to ensure that aid is specifically allocated to the poorest countries, to more democratic countries, and to less corrupt governments. Clearly there is a breakdown in the process. and yet, the monetary commitments by politicians continue.

Unfortunately, Syria is not an outlier: Almost 80 percent of U.S. aid is given to corrupt governments and over 75 percent of aid goes to countries that lack political freedom. Furthermore, only 34 percent of aid was given to low-income countries. It appears that the U.S. does not use poverty or good governance as a selectivity benchmark to receive aid.

While rules are in place, there is no a way to punish politicians who break them and fall back into lax distribution of funds. An alternative is to privatize all foreign aid. Several private corporations including GE, Google, IBM, Intel, Johnson & Johnson, and Nestlé are already having enormous impact with their humanitarian efforts in developing countries.

For example, Firestone’s response to the recent Ebola breakout across West Africa illustrates how corporations can effectively tackle humanitarian crises. According to the widely reported story, the Liberian government’s Ministry of Health told Firestone that it was unable to treat the wife of one of its employees. In response, Firestone took the matter into its own hands, building its own treatment center and effectively curbing the spread of the virus.

While government health providers struggled to contain the outbreak, Firestone was able to keep the disease from spreading and care for those already infected. The company treated 49 Ebola cases with 18 patients surviving. When asked what’s needed to stop Ebola, Dr. Brendan Flannery, head of the U.S. Centers for Disease Control and Prevention's team in Liberia, said “More Firestones.”

Settling for good intentions when it comes to distribution of aid simply isn’t good enough. The reality that these dollars are funding unnecessary initiatives and corrupt governments is an outrage and there is no reason to continue on this course when we have a more effective, proven approach right in front of us.

Williamson is an assistant professor of Economics at Mississippi State University.