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Giving foreign aid helps America’s economy

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Business boost

Giving foreign aid helps America’s economy

I’m a big fan of America’s investments in the health and well-being of the world’s poor. Unfortunately, not everyone feels the same way. In fact, some in Washington D.C. have proposed dramatic cuts in foreign assistance.

That would be a terrible mistake. Last month I wrote about how foreign aid helps keep Americans safe. In this post, I want to show how smart health and development programs promote America’s economy, and how cutting back on these investments could backfire on American workers.

(As I said in my previous post, these security and economic arguments aren’t what inspired Melinda and me to get involved in global health. What inspired us was the chance to save children from dying of preventable diseases. But over the years I’ve come to see the connection to America’s security and economy as well.)

I start from the simple premise that everyone is better off when there are more middle-income countries in the world. As a country climbs up the economic ladder, you see concrete improvements in the lives of its people. Richer countries are less likely to go to war and more capable of preventing global epidemics. And they can afford to buy more products from other countries, including the United States.

Here’s one example from my experience with Microsoft. From our earliest days, we intended to expand into markets beyond the United States. In 1986, we chose Tokyo for the site of our first foreign office. That bet paid off phenomenally well. For a time, we sold more software in Japan than anywhere else.

You may be thinking, “Of course an ambitious software company would want a foothold in Japan.” But it wasn’t always so obvious. Just a few decades before we opened our Tokyo office, Japan had been devastated by World War II. Its economy and infrastructure lay in ruins. How did they recover? Among other things, through smart aid programs from the United States and others. By the 1980s Japan’s economy was booming, and the country presented a great opportunity for companies like us. To this day, sales there are a key part of Microsoft’s success and these sales have produced many jobs in Japan and America alike.

Microsoft’s experience in Japan is part of a larger trend that’s still going on today, as more countries join the ranks of the middle class. Countless U.S. companies are doing business in places that used to get American aid but have become self-sufficient, including South Korea, Brazil, Mexico, Vietnam, and Thailand.

Here’s another way that U.S. investments abroad help American businesses: by connecting them directly with new customers and suppliers. America’s chief aid agency, USAID, uses its expertise to encourage private companies to collaborate on projects. For example, they have worked with Cargill and Land O’Lakes to help dairy farmers in East Africa raise their productivity, increasing the value of the companies’ exports to places like Kenya and Uganda. As the companies’ CEOs wrote, “This benefits not only the farmers in Africa, but food producers and their workers in the United States and it promotes goodwill in a part of the world that can be a market for more American goods in the future.” USAID has also worked with Walmart to train thousands of women farmers in sub-Saharan Africa, and with Starbucks, Keurig, and others to help coffee farmers in Latin America improve their crops so they can join the global market.

These and other efforts are part of America’s global economic leadership. Pulling back now would mean retreating from the world stage at a time when other countries are doubling down on their investments. It would deprive American companies of potential new markets and make them less competitive, while also harming the health and productivity of some of the poorest people in the world. It wouldn’t be robbing Peter to pay Paul; it would be robbing Peter and then robbing Paul too.

So it’s good for the American economy when other countries join the middle class. But how much credit does aid deserve for making that happen?

It’s a hard question to answer; growth has many causes. My own conclusion, based on years of looking at the evidence and discussing it with experts, is that although aid may not directly cause growth, there is a strong indirect connection between the two. Moving to the middle class requires a strong education system and good infrastructure, nutrition, and healthcare—and smart, targeted aid can promote those things pretty effectively.

Fighting AIDS, for example, saves lives, and it increases productivity because societies are stronger when they have healthy teachers, police officers, and entrepreneurs. Countries that worked with PEPFAR—America’s phenomenally successful effort to slow the AIDS epidemic—improved three times more on one measure of economic development than their non-PEPFAR counterparts.

Their per-capita income also grew quickly. Between 2005 and 2015, for example, Tanzania’s per-person income went up more than 37 percent. Zambia’s went up 55 percent. Ethiopia’s rose 107 percent. And as these countries grew, so did their appetite for American goods. In the same time frame, U.S. exports to Tanzania rose by more than 77 percent, U.S. exports to Zambia went up 189 percent, and to Ethiopia, 241 percent.

Many other countries are making similar gains. The point is not that aid directly makes poor people richer. It’s that aid helps create a foundation for growth. Along with many other factors, it helps remove some of the barriers that keep people from making the most of their talents. And when people in one place do better, the rest of us do better too.

We can build on this progress if the United States helps maintain the momentum. Investments in aid—which account for less than 1 percent of the federal budget—are an essential part of the solution. We need to keep making them on behalf of Americans and people around the world. 

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