Egypt And The Politics Of U.s. Economic Aid

Marvin G. Weinbaum

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429711831
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Middle Eastern Politics
• Index: Politics & International Relations

The massive U.S. economic aid program for Egypt initiated in 1975 resulted in a bilateral aid relationship shaped by the interaction of political and development goals. In this study of the program's origins and consequences, Professor Weinbaum describes its scope and identifies the constraints that delayed and limited program implementation. The author discusses the modest U.S. leverage designed to encourage economic reforms and argues that far-reaching reforms could only be attained through a major change in Egypt's political structure. He finds that, despite its failure to make Egypt more economically self-reliant, U.S. assistance has enabled the country to attain a level of consumption and development planning possible with no other alternative. The profit to the United States results from the regime's moderate foreign policies and compatible views on strategic threats to the region. Despite the mutual benefits of this aid program, Professor Weinbaum concludes that the United States must display greater sensitivity to Egypt's political and economic problems if the "special relationship" is to survive through the 1980s.

1
Directions and Strategies in U.S. Foreign Aid

Bilateral assistance programs have remained prime instruments of U.S. economic and security policy throughout the postwar years. U.S. foreign aid first to Europe and then the developing countries laid the basis for strong dependent and interdependent relationships, commercial, political, and military. During the four decades since the end of World War II, U.S. economic aid has taken various forms and directions in accordance with changing global needs and the short-and long-term objectives of the U.S. government. The aims and content of U.S. assistance have also reflected the rise and decline of development ideas. Throughout this period, economic aid has involved transfers of capital, technology, and commodities, especially food. It has focused on broad programs and country strategies as well as on specific projects. Progress in overcoming many problems of the developing countries continues to hinge on the adequacy and appropriateness of this external aid. But it also is thought to depend on the absorptive capacity of the recipient country as determined by its physical and human stock and, above all, a political will expressed through domestic policies.

To its advocates, U.S. and other Western aid transfers, both bilateral and multilateral, supplement a recipient country's resources and help stabilize weak economies. In the long run, aid improves conditions for high levels of output and employment, in part by stimulating the recipient country's ability to mobilize its own resources. Aid rarely escapes controversy, however. In the absence of good theories or agreed guidelines to indicate how much and what kind of aid are optimal for realizing stated economic and development objectives, differences regularly arise about the content of programs and whether aid is being allocated in the most desirable form. There is little empirical evidence, moreover, that demonstrates cross-nationally the relative effectiveness of official aid programs compared with private investment strategies and commercial loans or, for that matter, the alternative to external aid in policies of national self-sufficiency.¹ But much of the debate is essentially subjective, often moral. Opposing views rest on ideologically inspired judgments about Western economic institutions and values. Detractors focus on the alleged tendency of aid to inhibit recipient countries' own productive efforts and to waste resources. In contrast to the view that assumes the indispensability of foreign exchange for development and the gains from integration into a global market system, many critics stress the tethering of developing countries to Western industrial economies and an inherently unequal distribution of the proceeds of aid. Differing doctrinal approaches also variously prescribe aid as a means to sustain a status quo, to improve or reform economic and social conditions, or, in a more radical vein, to help mobilize the poor, facilitating their efforts to organize against those who hold power.

Differences appear even when similar economic philosophies and political goals prevail. Policy-makers within the United States and other Western donor countries are not always in agreement about the purposes of aid. Some emphasize economic efficiency in choosing development programs; others give greater weight to their presumed impact. Disagreements frequently pit those anxious to use aid to promote economic growth and stability as a means to political ends against those more committed to development assistance for its own sake. Politically allied countries receiving assistance complain about the levels and terms of support and frequently decry explicit economic conditionality in aid and implicit political obligations. These governments often question their own ability to help shape assistance programs. They perceive unwarranted interventions in their domestic affairs and protest that programs too often reflect the priorities and development experiences of the donors rather than the real needs of the recipients. Almost inevitably there arise resentments growing out of the extended economic and technological dependency and financial indebtedness incurred by low-income, less developed countries.

This study concedes the primacy of politically motivated aid and the importance of commercial and trade interests in prompting U.S. budgetary and development assistance to much of the Third World. No state can, after all, be expected for any extended period to slight foreign policy objectives or ignore the implications of aid for its own economic well-being. Indeed, aid-giving that repeatedly fails to recognize domestic self-interest may be difficult to sustain in a democracy. Aid policies plainly involve mixed motives and can serve several purposes at the same time. Thus, concessional food sales meet humanitarian needs even as they are used to reduce grain surpluses and help stimulate long-term commercial markets for farm exports. Food shipments that succeed in coping with problems of hunger and malnutrition may contribute, not incidentally, to the political viability of a friendly regime. The same assistance that finances development project contracts and creates commodity dependencies is also likely to relieve host governments from having to draw on their limited reserves for critical imports and to increase available resources for social investment.

At issue in politicized and commercially self-serving aid is the extent to which such aid distorts or denies the full value of assistance. Aid strongly colored by a donor's economic philosophy may be particularly inappropriate, even if incrementally beneficial to the recipient. It is argued here that the United States in its economic assistance programs has simultaneously and sincerely tried to pursue political and commercial as well as developmental and humanitarian objectives, but that contradictions do arise in so broad a strategy. Much as U.S. political aims and domestic economic interests do not always run parallel in foreign aid, both at times are incompatible with the development needs of recipient countries. It may be unfair to conclude, as some do, that when politics predominates in aid the poor cannot be served. Yet it is probably valid to say that politically motivated aid tends to strengthen the status quo. The failure of the United States and its aid agency to come to terms with incompatibilities in aid objectives often results in unrealized expectations and bitter frustrations with foreign aid.

Evolving Approaches to Aid Policy

The recent history of U.S. economic assistance began with the massive lend lease program undertaken to bolster the war efforts of allies during World War II. Between 1941 and 1946, a total of $50 billion was spent, four-fifths of which went to British Commonwealth countries and the Soviet Union. But the major precursor to present-day programs was the postwar effort to rebuild war-shattered economies of Western Europe. The Marshall Plan's economic and technical assistance from 1947 to 1952 met acute shortages of commodities, revived an industrial capacity, created markets for U.S. goods, and assured a united front in the emerging Cold War with the Soviets. By the early 1950s, with the reconstruction of Europe assured, the United States found itself with resources and skills that could be employed to assist a greatly expanded number of newly independent countries. The appropriateness of Western technological and development goals was largely taken for granted. As in the Marshall Plan, the purpose of the U.S. aid was to provide the resources and know-how that would launch these new states on the road to self-sustaining development.² U.S. aid to developing countries was spurred by a post-Stalin era challenge from the Soviets who were now ready with aid agreements to help Third World governments sever ties with the West and adopt a Soviet development model. In the competition with the Soviets, much of the U.S. economic aid beginning in the mid-1950s shifted from aid to countries allied to the West to those that had, at least publicly, accepted the principles of non-alignment. As such, the political obligations in taking economic and food aid became more implicit and the effectiveness of this aid as an instrument of U.S. foreign policy diminished.

To implement assistance to the less developed countries, President Harry Truman in 1950 inaugurated the Point Four Program. Its Technical Cooperation Administration was soon replaced by an Economic Cooperation Administration and still later by the Mutual Security Agency (MSA). Increasingly, the programs undertook economic as well as technical assistance and military aid under MSA. In 1961, Congress consolidated several nonmilitary programs in authorizing the Agency for International Development (AID) as an independent unit in the Department of State. Created by an idealistic and security-minded Kennedy presidency, the new agency coincided with a policy of accelerating economic growth in the less developed countries. AID and its immediate predecessor spent roughly $2 billion annually to aid countries in Asia, Africa, and Latin America (compared with the $15 billion distributed to a few European countries during the four years of the Marshall Plan).³ The Vietnam War and then the costs of meeting requests of aid clients in the Middle East later raised expenditures to approximately $4 billion annually. By 1985, AID was directly responsible for disbursing about $6 billion in economic and development assistance. Another $800 million to $1 billion has been allocated yearly since the mid-1950s to finance the sale of agricultural surpluses under Title I, Public Law 480, a program of highly concessional loans administered by the U.S. Department of Agriculture. Each year, an additional $100 million or more are also spent for humanitarian emergency aid to needy countries.

Early in the postwar period, the United States held the conviction, which was reinforced by the European aid experience, that developing countries could best realize economic growth through domestic capital accumulated in expanded trade in a liberalized world economy. Rather than external capital inflows, trade and a suitable domestic policy environment would be sufficient to stimulate domestic investment and attract private foreign funds. Where loans were necessary from international sources, they should be made available on strictly commercial terms. By the mid-1950s, however, serious doubts had arisen whether trade could serve as the primary and most effective means to promote growth in the less developed countries. A revised view saw development in these countries constrained by insufficient expansion of capital stock created by shortages of local savings and foreign exchange as well as by the need for technological assistance. Aid strategists concluded that foreign financial assistance would have to supply more of the investment for capital goods production and guide the efficient allocation of resources.⁴ This aid was expected to serve U.S. foreign policy interests by increasing chances for political stability and encouraging the democratic processes believed necessary to stave off communist penetration. The United States was also behind the World Bank's expansion of its lending capacity in the late 1950s and the founding of the International Development Association (IDA), an affiliate institution of the bank created to offer softer development loans to the lowest income countries.

The development approach that dominated U.S. policy during the 1950s and 1960s focused on increasing aggregate production and macrolevel planning in recipient countries. Gains were registered through new agricultural techniques, but industralization was generally viewed as the fastest path to rapid development in low-income countries. This strategy assumed that mass poverty in recipient countries would eventually be solved by expanded employment in a more rationalized and productive economy. Serious maldistributions of the benefits of growth were deemed a necessary price to pay in order to assure high investment rates. The model expected better mobilization of local capital through domestic taxation and restraints on government consumption expenditures. Foreign assistance was supposed to facilitate large-scale infrastructural improvements, the purchases of Western equipment and technologies, institutional building, and opportunities for useful education and training.⁵ Once they could overcome various resource constraints, the economies of developing countries would be ready for a "takeoff" stage that would graduate them from the need for further external aid.

Doubts about this development model increased during the 1960s. The approach that emerged in the 1970s to replace it addressed a different...

Table of contents

• Cover
• Half Title
• About the Book and Author
• Dedication
• Title
• Copyright
• Contents
• List of Tables and Figures
• Acknowledgments
• Introduction
• 1 Directions and Strategies in U.S. Foreign Aid
• 2 Aid and Egypt's Infitah
• 3 Dependent Development
• 4 Programs and Projects
• 5 Bureaucratic Constraints
• 6 Aid and Policy Reform
• 7 Aid in the Future of U.S.-Egyptian Relations
• Selected Bibliography
• Index