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Monday, August 12, 2013

Corruption Fertilizer

What Is Foreign Aid For? Nothing Good in Egypt

The recent coup in Egypt has left the Obama administration looking more foolish than usual. U.S. law requires the cut-off of aid in the event of a coup, but the administration says doing so would deprive Washington of leverage. But if Washington ever had leverage, there would have been no coup.

Foreign “aid” has been a mainstay of U.S. policy since the end of World War II. Trillions of dollars have been transferred to developing countries from industrialized states. A variety of bilateral and multilateral agencies have circled the globe handing out cash. Money has gone for economic development, humanitarian relief, political payoffs, and security support.

The very name, foreign “aid” or “assistance,” presumes that the transfers are helpful. However, long, hard experience has delivered a very different verdict. Egypt is a good example of the pervasive failure of foreign “aid.”

Washington provided some economic transfers even to left-wing Gamal Abdel al-Nasser, who allied himself with the Soviets. Once his successor, Anwar al-Sadat, shifted to the American standard, Washington started providing military as well as economic assistance. When Sadat made peace with Israel, the U.S. Treasury doors opened wide.

Over the years Cairo has received more than $75 billion. Some $40 billion of that has gone to the Egyptian military.

After spending so much, the United States could expect Egypt to be a democratic capitalist ally that followed Washington’s direction and whose people loved America. Alas, no.

Instead, that nation’s economy is in collapse. Democracy looks further away than ever. The U.S. government is ignored by Egypt’s politicians and loathed by almost every other Egyptian. What did Americans gain from their generosity?

Egypt’s economic failure was predictable. Wealth was created when people gained the liberty and created the institutions necessary for enterprise. That meant private property and free markets. Until then poverty was the common human experience. Capitalism released invention and entrepreneurship. As a result, Europeans and their transplants around the world enjoyed marked and rapid economic growth absent elsewhere.

Unfortunately, most of the developing states—and especially the newly independent former colonies—ignored history and spent their early years following dirigiste economic policies. The result was slow and often negative growth. Foreign aid subsidized counterproductive government-led strategies and shielded entrenched political elites from accountability.

In Egypt today, public subsidies prop up most of the bad institutions while the military controls as much as 40 percent of the economy. The system was organized to enrich the authoritarian elite, which ran the country for six decades. While the men at the top are different, the system remains the same. The most important constant is that those with political power mulct everyone else. Little changed with the revolution or the short-lived presidency of Islamist Mohamed al-Morsi.

America’s political impotence was equally striking. Administration officials endlessly speak of “leverage.” While receiving bountiful U.S. subsidies, Egypt went from dictatorship under Sadat to dictatorship under Hosni al-Mubarak to increasing authoritarianism under Morsi to military rule under Gen. Abdul-Fattah al-Sisi. Washington has achieved nothing, except to enrich oppressive rule and make U.S. taxpayers poorer.

Now the administration refuses to cut off the $1.55 billion going to Cairo annually in the name of leverage. Gen. Sisi ostentatiously ignores administration pleas and insults administration officials. It is the antithesis of leverage.

What of Israel?  Strengthening the Egyptian military and providing it with advanced weapons is supposed to encourage it to keep the peace. But the generals have the most to lose from renewed war. They would see their expensive toys destroyed and could end up in the dock, like the Argentine rulers who started and lost the Falklands war. By subsidizing the military, Washington has strengthened the greatest barrier to liberalization in any form in Egypt.

Unfortunately, the long-term consequences of Washington’s continued support for the Egyptian government, any government, are likely to be ugly. Already every Egyptian seems to blame Washington.

Liberals and democrats hated decades of U.S. aid for the Mubarak dictatorship. So did Islamists, including members of the Muslim Brotherhood, who were driven underground. The privileged elite blamed America for not saving Mubarak from angry crowds. The democrats, liberals, and privileged elite berated Washington for building a relationship with the democratically elected Morsi. The Islamists assumed the U.S. backed the coup that brought him down and suffered as Washington effectively subsidized the ongoing military campaign to destroy the movement. The privileged elite back in power blamed Washington for not having supported them all along.

The situation will only worsen if the military attempts to eradicate the Brotherhood’s presence from Egyptian politics. The response could be large-scale civil war or, more likely, low-level violence topped by sporadic terrorism. That would ensure long-term instability—and more foreign enemies likely to strike at America and Americans.

Maintaining aid will keep the United States entangled in the Egyptian imbroglio and allow every party to blame Washington for everything that goes wrong. But the dollars, bitter demonstrates, will provide Washington with no “leverage.” No matter how venal and oppressive the Egyptian government, it can count on American support.

It’s time to say no more. Foreign aid long has been described as forcing poor people in rich countries to subsidize rich people in poor countries. In the case of Egypt, foreign aid has discouraged economic and political liberty. And harmed America’s reputation.

Washington should end all financial “assistance” and leave Egypt’s future up to the Egyptian people.

  • Doug Bandow is a senior fellow at the Cato Institute and the author of a number of books on economics and politics. He writes regularly on military non-interventionism.