Saturday, October 20, 2007

An Alternative to Foreign Aid

Justin Muzinich and Eric Werker (the latter an assistant professor at Harvard Business School) suggest one of the least politically correct policies I have heard recently:
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....Using tax credits instead of traditional foreign aid also means that the money will be spent more prudently. Because for-profit companies are focused on the bottom line, they will be more protective than government agencies of the money they invest in developing countries.
I appreciate the logic here. They might even be right that this approach would be more effective than traditional foreign aid.

Imagine what would happen, however, if a political candidate of either party were to come out in favor of the proposal. The opposition would quickly lambast it as the "outsource American jobs to third-world sweatshops tax credit."