Capitalism is the most powerful economic force ever developed. The exponential economic growth made possible by private property rights and free trade is the basis for the existence of the modern world. This is no secret; even the Communist Party of China includes "businessmen," i.e. capitalists, as one of the four pillars of the Party.
So why are so few nations even nominally capitalist? Largely because of America’s biggest welfare program: Aid to Dependent Dictators. Since World War II, US foreign aid has systematically subsidized parasitic governing “elites," from the nomenclatura of the Warsaw Pact to the kleptocrats of Africa; even the rulers of the “Axis of Evil."
The Roman Empire extracted tribute from its subject provinces, leaving Roman citizens with a lighter tax burden (at first, anyway). The US Empire instead taxes its own citizens to pay tribute to foreign ruling classes. This may be counterintuitive, but it is a highly effective Imperial stratagem. By subsidizing socialist regimes, Rome-On-The-Potomac prevents the development of competing capitalist centers elsewhere. A tiny expenditure each year to prop up a dictator can prevent the emergence of a multitrillion-dollar economy. What if every poor nation in the world had taken the route of 20th century Singapore, Hong Kong, Taiwan… or for that matter, the 19th century United States? How much power would State Department proconsuls have if every nation on Earth were rich?
Of course, “tiny” expenditures on foreign dictators add up. Unfortunately, no one can tell you exactly what they add up to, because foreign aid is dispersed and cloaked better than the CIA budget. Official foreign aid is the smallest part of the cost; the majority of foreign Aid today is arranged in back-room deals between money-center banks, dictators, and the Federal Reserve. The “official” foreign aid figures are a lower limit. Even this lower limit is an incredible figure. At an absolute minimum, since WWII more than a trillion dollars has been transferred from US taxpayers to unfree regimes. What would this trillion dollars have become, if left in the private sector? How many trillions of private wealth? And how much of this private wealth would have been invested in the more-free parts of the Third World, providing real jobs and real pride to people who now live in hopeless dependence? Of course, we will never know. Perhaps we would have seen a cancer cure by now, perhaps Mars would have been terraformed, perhaps Washington DC would have had a legitimate baseball stadium instead of a tax-financed atrocity. A multi-trillion-dollar hole in the world economy is too big to visualize.
The real dollar cost of foreign aid is the sum of all official aid, plus all US military commitments not related to US security, plus all bank “loans” to Third World and communist governments. The majority of these anti-capitalist regimes will never be able to, or be interested in, repaying any of this money. The Warsaw Pact alone was estimated to have owed about two hundred billion dollars to Western banks at the time the Berlin Wall fell. Since then, of course, the pace of “loans” to parasite governments has increased dramatically. Counting our continuing defense subsidy to the wealthy nations of Europe and the Pacific Rim, and counterproductive military commitments to puppet regimes in Iraq and elsewhere, US foreign aid must be well over two hundred billion dollars per year.
The World Bank
Even the official foreign aid agencies use accounting methods that make Enron look like a model of honesty and transparency. The World Bank handed out more than 17 billion dollars in 2001. But you won’t find $17 billion worth of expenditures in the official budgets of the funding nations. The 1994 Cato Institute book, Perpetuating Poverty, found that in 1992 the US Congress placed only 3 percent of its World Bank contribution on the budget. The other 97 percent was in “callable capital pledges," i.e. illegal, unconstitutional, off-the-books debt. Most of the World Bank’s money comes from the sale of bonds, backed by these off-the-books “callable pledges."
This relatively minor source of foreign aid still gave away $17 billion in one year. While $17 billion might be only a moderate expenditure for Bill Gates, this much money can buy a lot of AK-47s and barbed wire in countries that have per capita incomes less than 400 dollars per year.
The good news about the World Bank is that it wastes a high proportion of its money on administrative costs, more than $1.3 billion in 2002. After all, every dollar spent on overpaid bureaucrats is a dollar less for forced relocation programs, rainforest destruction, and dam projects. And to be fair, while the Bank’s financing may be shady, it issues lots of good reports on the failures of its own programs. In the Bank reports you can read of the bulging Swiss bank accounts of government officials, and the environmental damage Bank projects have caused to the rain forests in Indonesia and Brazil. The bad news is that the only solution the Bank proposes is that we give it more money.
Another of the official sources of foreign aid, the IMF, explains some of its financing methods as follows on its web site:
“Off-market transactions in gold. In December 1999, the Executive Board authorized off-market transactions in gold of up to 14 million ounces to help finance IMF participation in the HIPC Initiative. Between December 1999 and April 2000, separate but closely linked transactions involving a total of 12.9 million ounces of gold were carried out between the IMF and two members (Brazil and Mexico) that had financial obligations falling due to the IMF. In the first step, the IMF sold gold to the member at the prevailing market price and the profits were placed in a special account and then invested for the benefit of the HIPC Initiative. In the second step, the IMF immediately accepted back, at the same market price, the same amount of gold from the member in settlement of that member’s financial obligations falling due to the Fund. The net effect of these transactions was to leave the balance of the IMF’s holdings of physical gold unchanged.”
As you can see, Enron accountants have a lot to learn from foreign aid bureaucrats. Speaking of gold, the IMF claims that gold is not important in today’s monetary markets, which is no doubt why the IMF hoards only a bit more than $32 billion dollars worth of the valueless metal. The IMF claims total currency assets of 290 billion dollars. The IMF also maintains a credit line of $40 billion. How much of this leaks away per year? I don’t know how to answer that question, except to say “all of it." None of this money is going to get back into the private sector except for the part that is stolen and invested through numbered Cayman Islands bank accounts. Let’s hope that’s a large proportion.
Yet another source of off-the-books income for the world’s monarchs and oligarchs is the United Nations. In addition to dollars, the UN provides free pro-government mercenaries. Upon a “democratic” vote of UN representatives (the majority of whom are representing either dictators or regimes which are “democratic” in theory at best… most of the world’s elections are just as phony as those run by Diebold), armies of “peacekeepers” can be raised and used to support leaders so unpopular in their own countries that they can’t even hire their own thugs. The US provides a disproportionate share of the UN’s income, not least of which is the UN dues from minor dictators… paid out of their US aid money.
Working our way down to the small fry of the aid world, we come to USAID. Unlike the bigger players, USAID actually has an annual budget request figure you can look up, along with some wild guesses as to other US agency aid expenditures (their guess for FY 2004 is 38 billion).
For FY 2005, the "official" figure is only $8,880,800,00 (but notice that "supplemental" expenditures were almost four billion in FY 2004, and there is no reason to believe that any less will be spent this year).
So USAID is only hitting up the taxpayer for less than thirteen billion every year. It doesn’t sound that bad, surely not as bad as the Department of Agriculture’s mammoth domestic economic drain. But the real problem is the effect on the aid recipients. What does massive aid to a government mean to that nation’s citizens? Let’s look at a few of the most famous cases:
There is a persistent myth that foreign aid rebuilt Germany and Japan after World War II. I don’t know how this myth persists when it is so easy to look up the figures on the 1948 Marshall Plan. There is a perfect reverse correlation between Marshall Plan expenditures and development. The lion’s share of Marshall plan money went to England, which recovered very poorly after WWII. Then France was pummeled with Marshall help, keeping it down as well. Austria and Greece were also proportionally large recipients, and proportionally slow in recovery. (One of the many features of Marshall “help” was that any Marshall expenditure had to be matched with taxes from the donor country, causing a maximization of public sector vs. private sector growth.)
So far from helping Germany, the allies actually stole twice as much in reparations and occupation charges as the Marshall Plan contributed. Germany and Japan both recovered more quickly than England or France in spite of, not because of, the Marshall Plan. In both cases the economic “miracle” was achieved by repudiating price controls and allowing private foreign investment.
Now let’s look at where massive aid didn’t go after WWII: Singapore, Hong Kong, and Taiwan. In each case, the economy grew at over 5% per year. Again, “economic miracle” occurred when price controls were removed, free trade and foreign investment permitted. Equally important was the absence of aid. Local politicians had no choice but to allow some economic freedom, or they would have had nothing to steal from their productive classes.
Unfortunately the majority of the world’s politicians face exactly the opposite incentives. As long as the dictator of a post-colonial African or post-Soviet “republic” prevents the development of a private sector, his regime cannot be overthrown. Year after year, the assured flow of US aid dollars will provide him with a cornucopia of weaponry and wealth. This is exactly what has happened all across the world, from Azerbaijan to Zaire. “Aid” has brought permanent stagnation. In many aid-dominated African nations, incomes are actually lower than they were twenty years ago.
But Could US Foreign Policy Get Along Without Foreign Aid?
Many of my "conservative" friends tell me that US aid programs are a necessity; that without the skillful diplomacy of our aid bureaucrats, the world would be overrun with dictators. That would be terrible, of course. So let's take a quick look at the effect of US aid programs on the longevity of the most famous dictators:
Stalin: given vast US aid during WWII and after, including the use of US troops and flamethrower tanks to round up and send to the Gulag 2.5 million Russians who had “seen the West." Died of old age.
Tito: given vast US aid, including nuclear reactors, in the 1950s. Died of old age.
Mao: captured much of his US aid honestly from former warlord Chiang Kai-Shek, though some was transferred from Soviet lend-lease stockpiles ostensibly intended for fighting the Japanese. However, he was aided by US Drug Prohibition, which made south China opium more valuable. A hard-working dictator, who still holds the all-time record for “peasants starved” and “free-style executions," Mao finally died of old age in the 1970s.
Castro: aided by the US until the Soviets took over the franchise. Then back on US aid again after the Bay of Pigs (ostensibly as a ransom to free Bay of Pigs POWs). Currently protected from the much more powerful and heavily armed Florida Cubans by the US Navy. May die of old age, but cryonic suspension still a possibility.
Ho Chi Minh: To "oppose" his communist ideology, the US took land titles away from peasants, forced South Vietnamese into collectivized hamlets, and dropped seven million tons of bombs on South Viet Nam’s farms and villages. Oddly, these policies failed to stop communism from spreading. He died of old age before the US could give him Thailand, but his political heirs did conquer all of Viet Nam. They received large amounts of US aid after the Viet Nam war.
Pol Pot: killed one third of Cambodian population, so holds the world record for percentage genocide of one’s entire subject population (standing contested by Jim Jones, but Jones ruled not eligible in the “government” category by the Genocide Commissioner). Aided by the US in war against North Vietnamese puppet government until 1986. Died of old age.
His Excellency, Field Marshall, Al-Haji, Dr. Idi Amin Dada, Life President of Uganda, conqueror of the British Empire, distinguished service order of the Military Cross, Victoria Cross and Professor of Geography: aided by the US (and, to be fair, by Israel as well). Later removed by dictator Julius Nyerere. Amin lived long in retirement in Saudi Arabia, due to his adherence to a healthy diet (reportedly, of vegetarians).
Julius Nyerere: Nyerere absorbed vast amounts of US aid while collectivizing Tanzanian agriculture. Died of old age.
Kim Il Sung: Attacked South Korea in 1950. Rewarded later by Jimmy Carter with vast amounts of free fuel oil and two nuclear reactors. Died of old age.
Kim Jong Il: Playboy heir of Kim Il Sung. Has a great video collection, so he must be OK, according to various journalists. In process of producing nuclear stockpile with US-donated nuclear reactors. Won’t die of old age for a long time.
The evidence shows that giving dictators billions of dollars fails to produce any ill effects on their health.
The Aidistanian Peace Corps
For those who look down on Africans and Slavs, and think that we good Amurricans would never go the same way, try a little thought experiment: pretend that America was the “beneficiary” of foreign aid from some hypothetical supersuperpower. Let’s say that whoever controlled Washington D.C. automatically received six trillion dollars per year from “Aidistan," as long as they accepted a few minor political strings. Imagine George W. in a coalition “reconciliation” government with Senator Clinton, with unlimited funds to create new government departments. Imagine Aidistanian Peace Corps volunteers crisscrossing our country, teaching the uncultured poverty-stricken Amurricans basic hygiene and condom use. Imagine Aidistanian engineers damming the Grand Canyon and building massive soccer stadiums everywhere. Imagine highly paid elite troops, equipped with ultra-high-tech foreign weapons, rounding up the troublesome, primitive, animist ethnic groups (such as Californians) and forcibly relocating them to collective rice farms in Alaska. Imagine all government agencies able to triple in size, and do it without caring about domestic tax receipts. Imagine no-fly zones over the East and West Coasts; imagine high tariffs against US products in foreign markets. Price controls, public housing, socialized medicine, gun control, Drug War, all paid for by super-taxpayers from an outside power. How long would the US economy last under a foreign aid regime?
Welfare-To-Work For Dictators
If Americans truly want to eliminate welfare for dictators, they can do it in two easy steps, both costing less than nothing. The first step is to eliminate all US government-to-government foreign aid, including the no-Congressional-oversight “unofficial” aid that is sent out through bank “loans” and ends up being quietly “monetized” by the Fed years later. This will cost somewhere between negative 20 billion to negative 80 billion every year.
The second step would be to remove all US trade barriers, thus allowing US videos, books, etc. easier access to repressive regimes. This would cost negative 100 billion to negative one kazillion, depending on how much trade increased. The absolute minimum benefit to the global economy is the amount that is now wasted on tariff enforcement and bribes to Congresspersons for trade favors.
Foreign Aid to dictatorships and oligarchies is the least-liked US government activity. Few Americans believe in the Divine Right of Dictators, and fewer still want to pay for it. If libertarian and conservative think tanks want to "cut back government," "end wasteful spending," etc., they need to concentrate their educational efforts on ending Aid to Dependent Dictators. At a minimum, there should be web sites where press and public can easily look up:
- How much foreign aid there is
- Which governments are getting the money
- Whom they are killing with it
If we can't get rid of Aid to Dependent Dictators, how can we expect to get rid of Grandma's prescription-drug subsidy?
November 22, 2004