Issue #8, Spring 2008

End Foreign Aid As We Know It

After more than four decades and $500 billion in international aid, much of Africa remains as poor, if not worse off, than it was at independence. The same is true around the world: Aid flows profusely to governments with little or no inclination to control corruption and reduce poverty. Despite tough talk about “good governance,” it is still largely business as usual: predatory governments pretend to be promoting development, and the donors profess to be aiding it. The losers are the people of these so-called “developing countries,” who lack the schools, clinics, medicines, roads, housing, irrigation, sanitation, drinking water, credit, and justice that they need to be productive–or even survive.

More money is not the answer. It’s time to end foreign aid as we know it. We can begin by building on one of President George W. Bush’s few good initiatives, the Millennium Challenge Account (MCA), which operates on the basis of incentives and “selectivity.” Low- and lower-middle-income countries compete for sizeable increases in aid on the basis of three criteria: ruling justly (by providing freedom and a rule of law and by controlling corruption); investing in people (especially basic health and education); and promoting economic freedom. Sixteen publicly available indicators, drawn from independent agencies, are used to measure the criteria, and are applied in a reasonably fair and independent fashion.

But these new principles still govern only a small proportion of overall U.S. foreign aid, much of which continues to flow to deeply corrupt governments. Moreover, MCA assistance is not without its flaws. It is awarded on a curve so if most of the potential recipients have high levels of corruption and malfeasance, the aid simply goes to the “less bad.” And there is no coherent strategy to demand that countries construct strong institutions of accountability to uncover and punish corruption. In addition, while other donors are gingerly moving toward good governance standards, only the United States has established an entire aid program based on these principles. Finally, the Millennium Challenge Corporation, which disburses MCA funds, has been too hung up negotiating the details of country assistance projects, and thus slow to send money.

So what next? First, apart from public health and urgent humanitarian aid, the American foreign aid budget (which totaled $23.5 billion in 2006) should be reorganized around MCA principles, with a particular emphasis on institutions to control corruption. Countries serious about governance and development–as measured without a curve–should get substantial aid increases. Venal governments should be largely cut off (unless the president signs and Congress approves a waiver for explicit national security reasons). Each country should come up with its own reform plan, as a result of free and vigorous discussion. However, any credible plan must include some key components: a free press; an independent judiciary; and robust institutions of accountability such as a counter-corruption commission, an ombudsman, and audit agencies. All of these must have the leadership, legal authority, and resources to monitor official conduct and probe and punish wrongdoing. Once they are established and given the necessary authority, the donors should provide generous financial and technical assistance to help train and equip them.

Second, the practice of relieving the debts of bad governments, only to have them pile up fresh debt in new frenzies of corruption, should end. Future debts of low-income countries should not be forgiven in one fell swoop, but suspended and retired incrementally (for example, at 10 percent annually for every year that countries adhere to good-governance standards).

Third, we need to fight for aid accountability globally. We should push Europe, Japan, and the World Bank to also reorganize their own aid programs. And the next administration should press the World Bank for radical reform of its structures and practices, both to root out corruption in its own projects and to insist on better governance as a condition for aid. The whole logic of global aid institutions has to change, so that officials are rewarded for stimulating real development, not for pushing money out the door.

Finally, we need a fundamental reorganization of our own institutions to promote development. In its current understaffed, over-bureaucratized, demoralized state–with heavy reliance on for-profit corporations to implement its programs–the U.S. Agency for International Development cannot be the agent of a global “new deal” for development. It should become a cabinet-level Department of International Development and Reconstruction, with a dramatic expansion of career staff (back to the levels of the 1960s), enhanced democracy and governance assistance programs, and more capacity to move quickly into changing circumstances with diffuse engagement and small grants.

In the world’s poorest countries, poor people and their civil societies know that aid will not bring development without accountability and a rule of law. The next American president can win their hearts and change their minds about America–and improve our own security–by showing that we agree.

Issue #8, Spring 2008
 
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Foreign aid:

In the March 2002 Monterrey Conference, 22 of the world’s wealthiest countries (listed above) agreed to make “concrete efforts” towards the goal of each giving 0.7 per cent of their national income as aid to the poorest countries.



How are the countries doing?



Five countries have already met the goal to give 0.7% of their income in international aid: Denmark, Luxembourg, the Netherlands, Norway, and Sweden.



In 2002 and 2003, five other countries set up a schedule to give 0.7%: Belgium, Ireland, Finland, France, and Spain.



In July 2004, the United Kingdom set up a schedule to give 0.7%.



In April 2005, Germany set up a schedule to give 0.7%.



In May 2005, Austria, Greece, Italy, and Portugal set up a schedule to give 0.7%.



Only six countries have not yet set up a schedule to give 0.7%. These are Australia, Canada, Japan, New Zealand, Switzerland, and the United States.



The figures for 2007 are due out in April 2008.



Sources: UN Millennium Project, United Nations Development Program (UNDP), The End of Poverty (Jeffrey D. Sachs), Organization for Economic Co-operation and Development (OECD).

Mar 20, 2008, 7:38 AM
jmanzano1930@yahoo.com:

Some persuasive suggestions, but unconvincing in many respects. One I find unconvincing is that staffing needs to be increased. A second is a distrust of the profit motive. But be that as it may, I would recommend the routine funding of a "millenium" type fund, but let the funds accumulate uncommitted and unexpended. Let LDC development planners stare at these unused funds and compete for them. The need to obligate and expend funds in present programs corrupts the jundgment of managers. Secondly, I would fund only those items not available locally. Equipment, raw materials, and ex-patriot experts, yes, but all paid for out of grant or loan funds made available for such purposes, and not provided and costless, so to speak, by grantors or grantees. Thirdly, I would bias aid away from government entities and in the direction of local private entrepreneurs. I would leave charitable organizations to be funded by voluntary contributions, aided as necessary, by charitable tax treatment. I find the temptation to do good too powerful to overcome mismanagement and corruption almost endemic in local officialdom. It ought not be in the realm of government to use public funds to buy support of largely subsidized consumption.

Mar 25, 2008, 8:18 AM
MCA:

This Millennium Challenge Account sounds to me like “No Country Left Behind,” with exactly the same failings. Its loopholes are intended to promote the takeover of government functions by the market to the complete destruction of their democracy and the citizens of foreign nations as people.

Mar 28, 2008, 9:12 AM
DG Cooper:

The MCC/MCA has been an interesting concept, but little more.



1. It chose to disregard the experience of USAID, and has wasted time learning many of the lessons that USAID (for all its faults) had already learned. Nothing to be done about this now.



2. Posited as a transparent and objective mechanism, the MCC actually operates as black box, with a considerable amount of politics and US strategic interest mucking up the works. An interesting analysis within USAID some years ago showed absolutely no predictability in terms of which countries (based on their indicator scores) received Compact or Threshold aid or eligibility. MCC needs to stick to its stated principles and indicators, if it is to have any credibility.



3. Many of the programs are simply unrealistic. While the attention to corruption is wise, anyone with an understanding of how corruption works knows that no two year Threshold program (no matter how brilliantly conceived and executed) is going to have a meaningful impact on the problem. Any revamping of foreign aid must encourage a longer-term outlook, especially if, as Mr. Diamond suggests, governance is at the heart.

Apr 1, 2008, 5:52 PM
Owen:

Rather than cutting off entire countries whose governments are corrupt, the governments should be cut off while transparent organizations working within those countries should still be able to compete for funds.



Cutting off transparent organizations because of government corruption makes no sense that I can see. In many cases it would help tighten the grip of the corrupt regimes.

Apr 8, 2008, 12:50 PM
200milesup:

Aid is irrelevant to a continent like Africa. Ending foreign aid as we know it depends primarily on realising that aid can no longer be the central factor in the western relationship with Africa. Why? Because it is insufficient. It's less than 0.7% of African GDP. Most of the economic value of that 0.7% never even touches the continent. It is spent buying donor country goods, paying western consultants and so on.



If the $500 Billion wasted on aid had been invested instead, as much as $2 trillion in economic activity could have been created since we all know (or should know) that returns on investments made in Africa is as high as 43%. Aid is a drain, investment grows, creates jobs and annuls poverty.



The answer is investment, and not aid. Invest the money, don't give it away.

Jun 3, 2008, 3:49 AM

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