There are many reasons why I’m not a big fan of the United Nations. Like other international bureaucracies, it supports statist policies (higher taxes, gun control,regulation, etc) that hinder economic development and limit human liberty by increasing the burden of government.
Some people tell me that I shouldn’t be too critical because the U.N. also helps poor people with foreign aid. Indeed, the U.N. has a very active project to encourage rich nations to contribute 0.7 percent of their economic output to developing nations.
I generally respond to these (in some cases) well-meaning folks by explaining that there’s a big difference between good intentions and good results. If you examine the evidence, it turns out that redistribution from rich nations to poor nations is just as counterproductive as redistribution within a society.
An article in The Economist succinctly summarizes the issue. It starts with the rationale for foreign aid.
After the second world war, a new “development economics” came to dominate policymaking…, often at the urging of international institutions such as the World Bank. It argued that poor countries were victims of a vicious circle of poverty… The answer? Rich countries should provide the capital, in the form of foreign aid. …poor-country governments should plan their economies and…competition should be restricted through monopoly rights and barriers to foreign trade.
It then describes the revolutionary thinking of the late Peter Thomas Bauer, a Hungarian-born British economist who said the developing world needed economic freedom rather than handouts.
Lord Bauer set out alternative theories that, from the 1950s to the 1970s, were heresy. …Opportunities for private profit, not government plans, held the key to development. Governments had the limited though crucial role of protecting property rights, enforcing contracts, treating everybody equally before the law, minimising inflation and keeping taxes low.
Moreover, Bauer explained that foreign aid generally had a negative effect because it put resources in the hands of government, thus leveraging more statism. Which is the last thing these nations needed.
Aid politicised economies, directing money into the hands of governments rather than towards profitable business. Interest groups then fought to control this money rather than engage in productive activity. Aid increased the patronage and power of the recipient governments, which often pursued policies that stifled entrepreneurship and market forces. Indeed, aid had proved “an excellent method for transferring money from poor people in rich countries to rich people in poor countries.”
Writing for the U.K.-based Spectator, Daron Acemoglu and James Robinson explain that foreign aid has a very poor track record.
The idea that large donations can remedy poverty has dominated the theory of economic development — and the thinking in many international aid agencies and governments — since the 1950s. And how have the results been? Not so good, actually. Millions have moved out of abject poverty around the world over the past six decades, but that has had little to do with foreign aid. Rather, it is due to economic growth in countries in Asia which received little aid.
Meanwhile, the nations getting the most handouts have remained mired in poverty.
In the meantime, more than a quarter of the countries in sub-Saharan Africa are poorer now than in 1960 — with no sign that foreign aid, however substantive, will end poverty there. …huge aid flows appear to have done little to change the development trajectories of poor countries… Why? …economic institutions that systematically block the incentives and opportunities of poor people to make things better for themselves, their neighbours and their country. …The problem is that their aspirations are blocked today…by extractive institutions. The poor don’t pull themselves out of poverty, because the basic ability to do so is denied them.
What exactly are “extractive institutions”?