Why Foreign Aid Is Dwindling

William Daniels / Panos

At the last G8 summit in June, the world's leading nations agreed to work hard on the usual litany of good causes—peace, global warming, etc.—with one notable exception. The issue that had dominated the summit just five years ago, foreign aid, got little mention. Perhaps that's not surprising, given how many rich nations are busy bailing themselves out of the debt crisis, but it is emblematic of a wider malaise: the death of generosity itself.

Just a decade ago, most Western economies were still thriving, and sitting Western leaders like Tony Blair and Bill Clinton were signing on to high-profile celebrity campaigns to boost public and private aid to the developing world. Bono became a global celebrity all over again, as a development expert. The Live 8 concerts and Global Call to Action Against Poverty day of 2005 brought together tens of millions of concerned citizens from around the world; economist Jeffrey Sachs's book on ending poverty through a massive new infusion of aid became a bestseller. In the Bush White House, the (empirically dubious) idea that poverty breeds terrorism gave rise to the Millennium Challenge Corporation, designed to boost aid and reward well-governed recipient nations. This attention paid off. Between 2001 and 2005, governments around the world more than doubled their allocations of foreign aid, setting the stage for the optimism of the 2005 G8 summit in Gleneagles, Scotland, at which all the G8 nations except Russia vowed to pitch in to a new $50 billion aid package to the world's poorest countries, including $25 billion annually to Africa. This new flow of aid was designed to help the poorest countries achieve the United Nations Millennium Development Goals for 2015, which included eradicating extreme poverty and hunger, and achieving universal primary education.

Private donors also opened their wallets. In 2006 Bill Gates persuaded fellow billionaire Warren Buffett to bequeath most of his fortune to the Gates Foundation, nearly doubling its assets and creating a philanthropy with more power than any the world has ever seen, devoted primarily to putting an end to deadly Third World diseases.

Yet by 2010, the organization for Economic Cooperation and Development found that the G8 was on track to break its 2005 commitment, and would likely provide Africa with less than half the money pledged. Other studies suggested worse news. In April the NGO Oxfam observed that foreign aid from wealthy nations had actually fallen by $3.5 billion between 2008 and 2009 and was not going to meet its previous targets. Italy's aid spending dropped by 31 percent; Germany's by 12 percent; Japan's by 11 percent; and Canada's by 9.5 percent. In June the G8 nations acknowledged that they had donated only $6.5 billion of the $20 billion promised for the L'Aquila Food Security Initiative, designed to fight hunger and poverty in developing nations. The world now seems unlikely to meet the Millennium Development Goals by 2015.

Even in Afghanistan, the poor nation now most important to U.S. foreign policy, aid numbers have not matched promises. In 2002 President George W. Bush pledged the equivalent of a Marshall Plan for Afghanistan, but according to Peter Bergen, an expert on Afghanistan at the New America Foundation, he never delivered. Bush raised humanitarian assistance to Afghanistan from $1.3 billion in 2004 to $1.9 billion in 2008, but that's still a sum far lower than what Washington gave to rebuild the Balkans in the 1990s, and it represents a much lower share of U.S. GDP than the Marshall Plan commitment to rebuild postwar Europe.

One big obstacle to aid is the politics of spending money on other nations' problems. President Bush enjoyed a Nixon-goes-to-China credibility with conservatives, who tend to be more skeptical of foreign aid. But Obama's low popularity among conservative voters makes it nearly impossible for him to sell an aid program to them. Reaching out in this way might feed into American stereotypes that Republicans are tougher on national security while Democrats prefer soft power.

What's more, Americans are not in a generous mood. In a poll released last December by the Pew research organization, nearly half the Americans surveyed said that the U.S. should "mind its own business" in the world. This figure was the highest level of support for isolationism in decades. And it is not just the U.S.; polls show that this isolationism is matched in many wealthy nations in Europe and Asia, including Japan, long one of the biggest donor nations.

It is not surprising that nations such as Italy, one of the weakest industrialized economies, have slashed their aid budgets by more than 30 percent, while France has not met promised commitments, and the Obama administration has presided over reductions in the budget of the Millennium Challenge Corporation from $3 billion requested for 2008 to $1.4 billion this year.

Recipient nations have not exactly helped themselves. In the early 2000s many developing countries eagerly pledged to improve governance in order to make aid more effective. In 2001 African nations agreed to a New Partnership for Africa's Development, a continentwide compact to improve governance, promote equitable development, fight graft, and fulfill other aims favored by both Western donors and civil-society activists in most developing nations. In 2006 wealthy Sudanese communications entrepreneur Mo Ibrahim established a $5 million prize for the African leader who best focused on development, governance, and education. Yet the performance of these aid-recipient nations often has been woefully poor, a failure that only further alienates donors. Kenya, for one, vowed in 2002 to implement a tougher reform program, appointing prominent graft fighter John Githongo as anti-corruption czar. Within two years, Githongo had been forced out of real power, and he soon fled the country, his investigations having failed to change Kenya's climate of corruption. Githongo has since returned to Kenya to launch a grassroots advocacy group, but little has changed, though there is some hope that the new Constitution, passed in Kenya this month, might curb some of the worst abuses. Still, Kenyan M.P.s recently voted themselves another salary increase, and now earn roughly $170,000 per year, nearly the same as members of the U.S. House of Representatives, though the average nominal annual income in Kenya is only about $900, compared with roughly $46,000 in the United States.

In rich nations, the growing demand for instant political gratification also undermines the long-term commitment to aid programs. For instance, India, fueled partly by foreign assistance, launched the agricultural-modernization program that would come to be known as the green revolution in the early 1960s, but most of the results were not seen until the 1970s and even later. After the devastating Haiti earthquake last January, governments and private citizens around the world rushed to contribute to the reconstruction effort, often pledging money through new tools such as mobile phones. But as the Haitian government, weak in the best of times, struggled to rebuild and resettle the homeless, many donors grew frustrated. Though it has been only seven months since the quake, only $506 million of the $5.3 billion pledged to the country has been disbursed. "Donors typically set unrealistic time frames for reconstruction, and the level of infrastructural and political damage inflicted in Haiti suggests that they must think in terms of years, if not decades," notes a report by Oxfam Great Britain on the Haitian disaster.

Private donors have struggled with the same challenges, especially because wealthy individuals are used to getting fast results in the business world and often cannot reproduce such quick successes through foreign philanthropy. In June, Gates and Buffett launched a new campaign, named the Giving Pledge, to persuade other American billionaires to donate half their assets to charity, and roughly 40, including Los Angeles philanthropist Eli Broad, signed on. But that good news obscures the fact that there are hundreds of other billionaires who have decided to keep their wealth for themselves.

Slashing foreign aid might seem like a necessary evil when countries such as Italy or Britain could need bailing out. But reversing the G8 pledges will have severe consequences. For one thing, it means creating a gap for a new group of donors such as China and Venezuela to boost their aid commitments. These countries do not require the same sort of respect for human rights and high-quality governance that the West demands as a condition for aid. What's more, if the world fails to eradicate hunger, as vowed in the millennium goals, children in many developing countries will still lack food, launching a cycle of stunted growth, weak brain development, and poor economic performance; if the world does not meet the goal of universal primary education, African states may never catch up to East Asian competitors with strong primary-education systems.

In Afghanistan, and in many other countries, failed development can create failed states, which can breed radicalism and militancy. In Foreign Policy magazine's annual Failed States Index, the three "winners," Somalia, Chad, and Sudan, all happen to be humanitarian disaster zones. They are also places where instability has allowed powerful militant organizations to establish themselves and eventually threaten local institutions and Western ones. That could necessitate the use of more hard power by G8 nations, which is many times more expensive, in dollars and lives, than a proper investment in foreign aid.