Does providing aid prolong poverty?

At a recent FEE Conference,,
one of the break out sessions had a showing of the documentary Poverty Inc.

There were two major contentions in the movie about how foreign intervention prolongs poverty and dependency.

  1. Perpetual aid kills the local economy, by reducing economic activity.
  2. The strings attached to economic aid and other restrictions on trade, reduce the ability of “third world counties” to participate in global trade.

I agree with #2  but I am not sure that perpetual aid on its own reduces economic activity.

The video shows that prior to massive foreign aid many third world countries were self-sufficient in food production, clothing and textiles, but these industries died out when food and clothing aid arrived.

While I agree that certain industries could be destroyed by foreign aid, I do not understand how that activity alone would keep a local economy from growing. It would seem to me that the benefits of division of labor would more than offset some businesses being unable to compete.

If local people cannot compete growing food, that does not mean that the local people must remain idle. When people no longer have to buy food, and spend their time growing food,  would not  that free them to do other things, and thus economic activity could be sustained, If there were no restrictions on markets they could enter, or skills and capital that outside entrepreneurs could provide them philanthropy should not be a negative.  If, however, people are content to a marginal life, and not use the advantages that charity give them, then their idleness hurts everyone.

How welfare affects the recipients behavior is more important, than its effect on local businesses.