Factories as an Alternative to Aid

The NYT on Saturday gave valuable op-ed space to hedge fund manager Justin

Muzinich to roll out his

big idea: cut direct US foreign aid, and use the money instead to give tax

breaks to hedge funds and others who invest in developing countries.

Congress should provide a 39-cent tax credit for every dollar of American

investment in developing countries. If Company X were to build a $100 million

factory in Madagascar, its tax bill would be reduced by $39 million. The lost

tax revenue would be offset by reducing direct foreign aid by the same amount.

Exactly how this is meant to help Madagascans living on less than $2 a day

is far from obvious: the wealth generated by a big factory is not very likely

to trickle down that far. But in any case the money wouldn’t go to places like

Madagascar, it would go to places like India and Brazil, which have more than

enough FDI already.

If American companies want to build factories in developing countries, all

power to them. But let’s not cut our foreign aid budget every time they do.

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