Solution 3: Target foreign aid to business development

With our country drowning in debt, it may seem an odd time to bring up this subject, but just in case we do move to an equity-based economy, the topic of foreign aid may once again become important. Our country gains its prosperity through the development of equity by its citizens, under the protection of the government. That should be a clue for how to structure foreign aid. By agreement with the government of the target country, our loans and grants should be offered to individuals and be approved on the same basis that we award business loans in our own country, with the promise that they be repaid. A high probability of repayment can only come through the application of sound business practices, starting with a business plan; the exercise of such practices is the key to building a strong economy. Muhammad Yunus, Grameen Bank founder, won a Nobel Prize in economics for proving the efficacy of this principle. By investing in individual citizens in the private economy, we strengthen the country.

But, aren’t some countries so poor that they will never catch up? Don’t we need to invest in their infrastructure? Never is a long time. The infrastructure that we may offer, that is right for us, may or may not be helpful to the growth of a new economy. If for example, loans are offered to farmers to purchase seeds and fertilizers and to institute crop rotation, the new produce may go first to local towns and villages. The infrastructure under discussion may simply amount to a market place or two and a road cleared and maintained by local villagers. The roads may then be built as private ventures, whose initial and recurring costs are paid by use taxes (toll booths have been a feature of American roads for decades). The enhanced productivity of the farm may yield the profits necessary to finance a large part of the venture. The point here is that, once the fledgling private sector has life, private citizens can decide on what infrastructure investments make sense; they can even apply for more loans.

Foreign aid can never be a panacea. It takes time to build a vibrant economy in a poverty-stricken region. Current policies of financing governments in place can actually be counter-productive, by strengthening the governments rather than the private businesses of the governed. This can have the perverse effect of institutionalizing statist governments and policies.