This is the essay for the 5th week of the Tom Woods Homeschool Government course. In this blog post, I will be discussing two things:
1. The effects of government science funding.
2. The effects of foreign aid programs.
There are two arguments that are given when people ask whether the government should fund science. The first one is that there is no profit in basic science, so companies won’t do it. To clarify, basic science is science that isn’t focused on immediate results. Basic science is focused on pursuing discoveries for general knowledge. These discoveries could have practical uses or they could not. The second argument is that a company that makes a scientific discovery can’t exclusively keep any of the profits for themselves. Their competitors would get the same benefits from the discovery as the company who discovered it, except they didn’t need to pay anything to get it.
These arguments only work if we assume that the scientific method is how almost all technological discoveries are made. The scientific method is made of a few key steps. The most simple explanation is that the first step is the experimentation of basic science in a lab. The second step is that a few of these experimentations turn into new scientific discoveries. The third and last step is that these discoveries are used by the private sector to increase well-being and create new technology.
Now that you’ve seen the arguments for government funding science, let’s break them down one by one. It’s been historically proven that the private sector can and will make more scientific discoveries than government-funded science. During the 19th century, the British government put almost no money into science, and yet they beat France and Germany on a technological level, even though both of those countries were putting government funds into science. The scientific model suggests that most new technology comes from scientific discoveries originating from basic science. This is actually false, 90% of new technologies come from development done on old technologies. Only 10% is from basic science.
Even if we assume that most technological advancements come from basic science, the two arguments given for government support can still be rejected. We can break the first argument using the fact that the scientific discoveries made from basic science, which have a practical application, will cause the company who made the discovery to have a huge leg up over the competition. “That is why the second argument states that scientific discoveries can’t be kept exclusively by a single company.”, you might say.
That argument can also be broken, however. These discoveries are published in scientific journals, which only scientists can properly understand, so a company can’t use a new scientific discovery by themselves. The solution is that companies hire scientists to keep tabs on scientific research and discoveries. However, these scientists also want to do their own work and don’t want to be only reading scientific journals. The end agreement is that in exchange for information on scientific discoveries, companies will provide scientists with labs they can do their own work in.
By the 1990s pretty much everyone was calling foreign aid programs failures. If the government was admitting that their program was a failure, then there must really be something wrong with it. Let’s look at some of the effects of foreign aid programs and what effects they had. Foreign aid was first devised as a way to kickstart the economies of the western European countries after world war two, it was called the Marshall plan. Countries like Germany, Italy, and France had already started recovering before the foreign aid even came. Germany especially saw its economy prosper after it removed all of the restrictions it had placed during the war. Brittain which was receiving twice as much aid as Germany was doing worse than Germany was. Finally, Austria and Greece only started recovering near the very end of the Marshall plan.
A few other examples include the US Agency for International Development saying: “Only a handful of countries that started receiving foreign aid in the 150s and 60s have ever graduated from dependent status.” The Bill Clinton task force also stated that some African, Middle Eastern, and Latin American countries were poorer when the foreign aid ended than when it started.
Why would this be happening, where could all of this money be going to? With the money that they received, countries would embark on terrible economic policies that were making them poorer, but the losses from these policies were covered up by foreign aid. The foreign aid came no matter what, so countries didn’t have an incentive to improve their own economic policies. Only when foreign aid was removed, did some countries like South Korea, Chile, and Taiwan change their economic policies to be more in line with the free market and they prospered because of it.
If we look at foreign aid food programs we can see the correlation between foreign aid and corruption. The food never reaches the poorest of the poor but the government instead sells it to the middle classes for lower prices so they can gain support from them. Food aid discourages the countries that receive it from producing food themselves, meaning the poor get less food than they might’ve otherwise.
The reason that foreign aid programs were continued for so long even though they were failures was because of a theory called the “Vicious circle of poverty”. The solution to poverty is to increase your standard of living, which is done by saving, so you can create capital goods, which increases production and lets you get out of poverty. (If you didn’t understand the principles I just told you, you can check out my Week 4 blog post.) The theory says that the problem with this solution is that these developing countries are so poor they can’t save enough to get started. Foreign aid gives them the savings to start this process. The vicious circle of poverty has its own problems though. If a country needs foreign aid to start improving its standard of living, then how did the first countries manage to do it? They didn’t have any rich countries to receive money from. If this theory was true, then we would still be living in the Stone Age.