Why Luxembourg Outranks The U.S. When It Comes To Helping Poor Nations

By Nurith Aizenman

Published December 9, 2015 at 3:42 PM EST

The United States spends more on international aid than any other nation — more than $32 billion a year. Yet it has come in near the bottom of a newly released ranking that scores the wealthiest nations according to how much they help the world's poorest people.

Perhaps not surprisingly, the famously generous Scandinavian nations lead the pack — Denmark, Sweden, Norway and Finland. Countries such as the United Kingdom and Canada rank fairly high as well. The United States, by contrast, falls 21st out of 27 — just behind Hungary, Luxembourg and the Czech Republic.

What gives?

For starters, the Commitment to Development Index doesn't just consider the dollar amount that a country spends on aid. Produced annually by the Center for Global Development, a D.C.-based think-tank, the ranking also factors in benchmarks such as how efficient that aid is and how large a share it represents of the giving country's income. On that last measure, for instance, top-ranking Denmark spends 0.85 percent of its gross national product. The United States spends about 0.18 percent.

The index also considers each country's policies on a range of other issues — finance, trade and migration, to name a few — that are arguably equally if not more significant than direct assistance programs when it comes to improving the lives of the world's poor. In quite a number of these arenas the United States also ranks among the lowest.

For example the United States scores below average on eliminating secrecy in its financial institutions. That secrecy makes it easier for corrupt officials and tax evaders in developing countries to hide their ill-gotten gains in the United States. Economist Owen Barder, who helped put together the ranking, notes that a number of states, most prominently Delaware, have laws that substantially limit what a company registered in the state must disclose about its ownership. So if someone in a developing country wants to create a shell company in Delaware to stash his money, "it would be relatively easy to do so." And these types of illicit outflows from developing countries add up to a major drain on their revenues.

Similarly, when it comes to the environment, the United States has relatively high greenhouse gas emissions and fossil fuel production compared to other wealthy countries. The United States and Canada are also the only two nations on the list not party to the Kyoto Protocol, which set goals for reducing emissions.

But the U.S. isn't the laggard on all fronts. For instance, it ranks 6th in the trade category, with some of the wealthy world's lowest tariffs and quotas on imports from developing countries. Indeed, says Barder, "to some extent the world has been learning from the United States' example on trade." He notes that after the United States adopted the African Growth and Opportunity Act of 2000, which made it easier for a group of African countries to export to U.S. markets, European nations felt compelled to make their trade rules more open as well.

And Barder says this example speaks to what he considers the most important takeaway from this year's rankings: "There are lessons for every country from some other country in here. Even the best performing countries are doing badly in some areas. And even the worst performing countries do well in some areas."

For instance, among the high performers, Denmark has a poor record on migration because it takes in a low number of refugees relative to the size of its population, economy and land mass. Similarly, otherwise stellar-scorer Sweden gets low marks for its security policy because it sells large quantities of arms to poor and undemocratic countries.

Meanwhile, says Barder, countries like Japan and South Korea are weighed down by poor trade and environmental policies but do very well on technology policy. They invest in innovation to a greater extent than many other nations, and their intellectual property rights are less restrictive, making it easier for poor countries to benefit from advancements in health technologies or clean energy.