At the United Nation’s Millennium Development Goals (MDGs) Summit in New York this week, French President Nicolas Sarkozy and Spain’s Prime Minister José Luis Zapatero both called for a global financial transaction tax to fund foreign aid projects to lift the world’s poor out of poverty. Sounding more like a populist politician than an international civil servant, U.N. Secretary-General Ban Ki-moon chimed in supportively, warning developed countries not to “balance budgets on the backs of the poor.”
Trouble is, there is little evidence that the vast sums of tax dollars expended on Official Development Assistance (ODA, or foreign aid) by U.N. donor governments in the past 50 years have made much of a difference. In fact, foreign aid may actually impede the economic growth needed to achieve the MDGs.
While a September 16 report by the UNDP says the number of people in the world living on less than $1.25 a day has fallen from 1.8 billion to 1.4 billion in the last 20 years, the countries singled out in the study as having made major gains in reducing poverty—China, India, Vietnam, and Brazil—did so largely by rejecting the U.N. development model. As reported recently by The Heritage Foundation, together China and India have lifted nearly one billion of their citizens out of poverty through reforms, however limited, that promoted free markets and entrepreneurship—the policies central to The Heritage Foundation/Wall Street Journal’s Index of Economic Freedom.
Instead of preaching higher taxes to fund failed statist approaches to ending poverty, the U.N. Secretary-General should encourage world leaders to cut taxes and reduce state intervention in the economy, strengthen the independence of a country’s judiciary, and protect private property.