Home | Vol. 2 No. 4, February 2005 | Contact Us | thesoapbox.org | Princeton University



Humanitarianism and Foreign Aid—by the Numbers

Scott Noveck

In the wake of the Asian tsunami crisis, many pundits criticized the United States for what was seen as the comparatively stingy amount of aid that the government pledged to help support the victims[1]. Even when as the pledge was raised from $35 million to $350 million, and as it was raised again to $950 million, the increases were seen as a public display of one-upsmanship that was disconnected from any true sense of moral obligation. Certainly a cause as visible as the tsunami relief efforts will be as influenced by politics as it is by altruism, but an important question remains: when it comes to foreign aid for disaster relief, how does the United States compare to other countries?

As it turns out, ranking a country’s foreign aid donations is far less objective than it might seem; the results depend on what criteria are used. One simple measure is the amount of aid per capita. Using numbers available from the Center for Global Development’s 2004 Ranking the Rich survey[2], we find:

By this measure, the United States doesn’t do terribly well. But it would be easy to question whether this is a fair and accurate measure. Aid per capita takes into account the amount that people give, but it gives to consideration to their ability to give. Generosity in aid would be better measured by comparing not what amount of money each person gives, but rather what fraction of their wealth they give. We might therefore choose to measure the ratio of aid per capita to GDP per capita, or simply aid to GDP:

The results are roughly the same. The United States now falls a spot in the rankings, and it no longer compares nearly as favorably with Canada, Spain, or Australia as it did before.

But this ranking may also prove highly objectionable. The top of the rankings are dominated by the most expansive welfare states, which raises an interesting question: are the citizens of countries with strong domestic welfare systems inherently more generous with their foreign aid as well? Or are these countries’ aid contributions merely being inflated by the excessively simple formula used by these rankings? (Or, perhaps, is it some combination of the two?)

One substantial problem is evident in our measure of the amount of sacrifice that a country’s citizens have to make in order to provide a given amount of aid. In this case, we have used GDP as a proxy for sacrifice. On its surface, this seems like a straightforward measure: GDP per capita is closely related to consumption and income, and contributions for foreign aid detract from the amount of goods a person is able to consume or the amount of income they have[3].

But since we’re comparing the value of what each person sacrifices to the total value each person has available to give, we need some standard way to measure the “value” that each person possesses. As several examples will show, GDP is not a reliable measure of this value.

First, we must note that decreasing GDP by a given percent may be much more of a sacrifice for the citizens of one country than for the citizens of another. Consider, for instance, Canada’s socialized health care system. Consider a person who makes enough money per year to buy $30,000 worth of consumption goods in the United States, and a person who makes enough money for the exact same amount of consumption on Canada. If there are no other differences between the two countries besides Canada's free health care, are these people equally well-off? No; GDP fails to serve as an adequate proxy for value here.

Second, some countries may require a greater investment of resources to achieve the same level of well-being. The obvious example here is national security: for example, in order to achieve the same level of safety as Canada, the United States needs to spend far more money on defense. In the five year period from 1997-2001, the United States spent an average of 3.12% GDP per year on its military – and this is the lowest of any five-year period since before World War II. In the same period, Canada spent an average of 1.24% GDP, less than 40% of what the United States spent. And, as recent events have shown, the United States was still less safe than Canada, despite its higher military outlay. Again we can see that, the amount of wealth a nation produces, as measured by GDP, is not a reliable measure of the value possessed by its people.

How, then, do we compare the “value” possessed by citizens in one country to that of citizens in another? What we need is a measure of the quality of life of a nation’s inhabitants. GDP is NOT a reliable measure of quality of life; what happens when we look at actual quality of life estimates?

One possible measure of quality of life is calculated yearly by The Economist magazine [4]. The Economist’s index takes into account many factors, of which “material well-being” is only one, and uses life satisfaction surveys to determine what weights each factor should be given. Using these numbers:

The rankings remain surprisingly stable; the “generous” countries still appear generous, and the United States remains about two-thirds of the way down the list. It is important to note that no measure of quality of life can be truly objective, and the simplicity of these numbers is deceptive. For instance, the United Nations uses its own quality of life measurement, the Human Development Index, which yields very different results. For example, according to the U.N., Canada has the fourth highest HDI in the world, and in many years has been number one; on The Economist’s list, Canada is a mere fourteenth. On the whole, however, these differences tend to be minor.

Regardless of rankings, there will always be disagreement over how much foreign aid is demanded of us by morality or justice; these questions may be more appropriate, but they will never be settled. In the absence of such a consensus, international comparisons are a useful means for measuring how well we meet our moral obligations. By any measure, we are led to conclude that while the United States may not perform so poorly as to warrant the “stingy” label, it is indeed far less generous than much of the rest of the world.

Scott Noveck is a Junior majoring in Economics with a focus on Political Economy. He can be reached at snoveck@princeton.edu.



READ
POST A COMMENT (html welcome)
Name or nickname:

Or comment via email.


[1] See, for example, Nicholas Kristof, “Land of Penny Pinchers,” The New York Times, January 5, 2005, available here.
[2] Available here. The measure of foreign aid used here includes not just direct government aid, but also private charitable giving and indirect government aid through the relaxation of debts. Currency conversions use purchasing power parity rather than simple exchange rates.
[3] It is important to note, again, that the GDP and aid data were calculated using purchasing power parity rather than simple exchange rates. This means that these numbers are an absolute measure of the amount of consumption foregone per person in order to provide the given amount of foreign aid. That is, the numbers, as a measure of amount of sacrifice, already account for many differences between countries. The numbers are calculated in such a way that one unit will buy you the same number of, say, shirts, or books, or DVDs, regardless of which country you are in or what goods you prefer to buy.
[4] “The Economist Intelligence Unit’s quality of life index,” available here.

Home | Vol. 2 No. 4, February 2005 | Contact Us | thesoapbox.org | Princeton University