Bono, the lead singer of the rock band U2, has long been an advocate of governments increasing foreign aid to the world’s poorest countries. In one of my economics courses, I show the class a segment of John Stossel’s 2005 program, “Myths, Lies and Stupidity” which opens with footage of Bono beseeching an audience to use their cell phones to contact their governments and request increases in foreign aid.
I’ve always had mixed feelings about Bono’s stance—up until just recently (see below). From a humanitarian standpoint, I admire his sincere desire to want to help the world’s desperately poor people survive, and hopefully thrive. On the other hand, his appeal for more government spending makes me groan, because it reminds me of myself at an earlier age when I believed the myth that government transfers of wealth were the right way to help those in need.
Look, you have to be heartless–or oblivious–to be indifferent towards the wretched poverty in the world. Like Bono, I once thought government was the answer. As a 19-year-old studying in Bogota, Colombia, the grimness of poverty in developing countries hit me right between the eyes. Swarms of little children—usually a couple of dozen between the ages of 3 and 9—would swoop toward me, begging for a handout. Invariably, at least one child in the mass was missing a foot. At first, I couldn’t figure it out—there weren’t any trolleys in Bogota, nor was there any other apparent explanation for the unusually large number of one-footed children. When I asked one of my Colombian professors about it, he told me that the children’s own parents lopped off a foot before abandoning them, believing that more people would take pity on a maimed child than a whole one, thereby increasing their odds of survival. (I’m not sure that theory was valid, because I don’t ever recall seeing a one-footed adult the entire time I was in Colombia.)
I was stunned. My entire being rebelled against such a harsh reality. Impatient, as many of us are when we’re young, I quickly turned into a socialist, believing that government action would be the quickest way to bring an end to the awful suffering of acute poverty.
Within a few years, though, I learned that free markets would do more to alleviate poverty than government programs. There’s an old saying that suggests anyone who is not a socialist when they are 20 has no heart, and anyone who is still a socialist when they are 30 has no mind. There is a lot of wisdom in that. As human beings, our emotions attain vigor before our intellect. The latter takes time to develop.
Economic history shows that some approaches work better than others when it comes to economic development. In terms of what people in one country can do to assist the economic development of another country, it turns out that foreign trade and foreign investment contribute significantly to economic development, while foreign aid does not.
Question: Which countries gave foreign aid to the U.S. during the 19th century as it became the wealthiest country in the world? Answer: None, but considerable foreign capital was invested along with a lot of international trade. Similarly, Zhou Xiaochuan, the head of China’s central bank, has stated that China’s policies for further economic growth must be based on continuing to “promote trade and investment.”
Foreign aid, in contrast to trade and investment, has a dismal record. Countries that have received large aid packages have largely remained poor. Two World Bank studies attribute this to the fact that foreign aid often props up regimes that govern poorly. Statistics have shown that the most aid-dependent countries have averaged slightly negative economic growth, leaving them mired in poverty. Aid isn’t the answer.
How encouraging, then, for me to learn that Bono now understands that, too. One of my students sent me a video clip, showing Bono addressing an audience of students at Georgetown University, in which he states, “Aid is just a stop-gap. Commerce—entrepreneurial capitalism—takes more people out of poverty than aid.”
Bravo! Here is a man who has kept searching for answers rather than taking the lazy (and popular) approach of publicizing a worthy cause without learning what policies actually work. Bono then has the courage to go into the ideological lion’s den of an American university to challenge the academic orthodoxy by declaring that capitalism is the answer. God bless Bono! There’s hope for us yet.