Wednesday, August 15, 2007

Foreign Investment vs. Foreign Aid

More from Rudy's Foreign Affairs piece:

Foreign aid can help overcome specific problems, but it does not lead to lasting prosperity because it cannot replace trade. Private direct investment is the best way to promote economic development. The next U.S. president should thus revitalize and streamline all U.S. foreign-aid activities to support -- not substitute for -- private investment in other countries.

Companies and investors often don't open factories and other enterprises in dysfunctional areas because the risk of the enterprise being destroyed or confiscated is so high. I wonder if there's a role for a government-administered insurance program that encourages these sorts of investments.

Funding would be an issue. The combined risk of these enterprises would put them close to the same risk categories as one would see during military operations. Direct funding by the American taxpayers doesn't seem completely fair. After all, investors taking advantage of this program stand to make significant profits on the enterprises that succeed. I hate the idea of generating tax revenues targeted at things like this, but you'd need something like that to fund the effort.

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