Spreading the Wealth

Wednesday, April 30, 2003

It’s the biggest sea change in the politics of foreign aid since the Marshall Plan after World War II and is especially remarkable coming from a president who entered office rejecting any notion of nation-building. Yet President Bush has proposed a 50 percent increase in U.S. foreign economic assistance, not to mention a separate $15 billion announced in his 2003 State of the Union speech targeted at the global AIDS epidemic.

More significant than the sheer numbers, however, is the new political context within which the foreign aid discussion is taking place, both on Capitol Hill and inside the administration. The imperative for change was established early on, when then Treasury Secretary Paul O’Neill announced that the United States had given “trillions of dollars in aid over the years with precious little to show for it.” He insisted that policy changes in recipient countries must accompany U.S. assistance in order to “create a situation so that people become engines of economic progress and not just objects of our pity.” Comments like that initially seemed to confirm the worst fears of those who believed that Bush would simply gut U.S. economic assistance abroad and put nothing in its place.

Instead, the president and key elements within the Republican Party have sought to redefine the debate over foreign aid. This time around, they insist, aid must be effective—and, if it is, they will be prepared to support it. The proposition that U.S. foreign aid can ever be effective remains unproven, of course, but Bush & Co. are prepared to work hard to show that it can be done. In the current environment, it was probably also inevitable that foreign aid would also be justified as a renewed component of “national security,” a weapon in the arsenal battling terrorism, drug trafficking, and other hazards. And that, too, is happening. Finally, a crop of celebrities ranging from the rock star Bono to billionaire icons such as Bill and Melinda Gates and Ted Turner are renewing their focus on U.S. foreign aid and, in the process, renewing public interest in a controversy long mired in stale arguments.

Bush is proposing a 50 percent increase in foreign assistance, up from $10 billion, over three years. The new money—$1.3 billion starting next fall and rising to $5 billion by 2005—would be earmarked for countries as a reward for effective reforms that are already in place. Nothing, therefore, will be taken on faith. If the reforms are not in place, a country will receive no assistance, according to the plan. Last March, Bush also became the third U.S. president since World War II to deliver a speech specifically devoted to foreign aid. Moreover, the administration has decided to renew funding for the United Nations Education, Scientific and Cultural Organization (UNESCO), long reviled by conservatives as an out-of-control arm of an unaccountable and wasteful world body.

The Bush proposal would establish a new, independent federal corporation to administer what is being called the Millennium Challenge Account (MCA). A cabinet-level board of directors chaired by the secretary of state would oversee MCA, with a CEO appointed by the president and confirmed by the Senate. In another break from the past, the money would be separate from and in addition to the $10 billion in need-based assistance currently provided largely via the U.S. Agency for International Development (USAID). That is important because critics have long identified USAID as the principal vehicle for what they regard as the foreign aid failures of the past.

But you would never know USAID was under fire, at least from the rhetoric of Andrew Natsios, the agency’s able and forceful administrator. Natsios has made clear he views the challenge of foreign economic assistance very much in the Bush mold and has made that especially plain with the release of a new report in January 2003 entitled, “Foreign Aid in the National Interest: Promoting Freedom, Security and Opportunity.”

“No amount of resources transferred or infrastructure built can compensate for—or survive—bad governance. Predatory, corrupt, wasteful, abusive, tyrannical, incompetent governance is the bane of development,” the report declares. That thinking bears the stamp of, among others, Larry Diamond, a Hoover Institution and Stanford University scholar who has long stressed the vital links between economic development, good governance, and democracy. Other contributors to the report include Harvard Business School’s Michael Porter; Peter Timmer of the University of California, San Diego; and Carol Adelman of the Hudson Institute.

The report’s hard-headed, “tough love” approach marks a departure from U.S. economic assistance programs of the past, which have depended on political and strategic criteria to bolster nations such as Egypt (with its abundant state subsidies and huge, if shrinking, state-controlled sector) as well as Israel (with persistent vestiges of a socialistic economic structure dating from the nation’s earliest days).

The new MCA will allocate aid differently. To begin with, assistance will not be tied to the purchase of American products, a feature of past programs that transformed their development goals into little more than a vehicle for the promotion of U.S. exports. Instead, MCA aid recipients will be allowed to spend their grants as they wish—provided they meet a series of criteria by pursuing government policies with an emphasis on education and health care, as well as institutional and commercial transparency: in short, good governance.

One of the ironies of Bush’s boldness in foreign aid policy is that it could go largely misperceived by all but specialists and foreign policy elites. At least there’s plenty of indication that U.S. public opinion has almost no grasp of the current foreign aid situation. Public opinion polls routinely show that Americans think that about 20 percent of government spending already goes abroad in one form or another, when the actual figure is less than 1 percent. Many poll respondents also seem to believe that the right figure would be about 10 percent, although they worry that much of the money currently allocated does not reach those who need it most.

As dramatic in some ways as the Bush approach appears, even proponents concede it is just a beginning. Given America’s current fiscal woes and public misperceptions concerning foreign aid, it’s unclear whether Congress will come under sufficient pressure to fully fund the White House initiative. At the moment, the United States is the world’s second-largest foreign aid donor in absolute terms after Japan, but ranks 22 out of 22 major industrial nations when assistance is measured as a percentage of GDP. In fact, the extra allocation of money to the MCA will raise the amount America spends on foreign aid from 0.1 percent to just 0.15 percent of GDP. At a time when about half the population of the world subsists on less than $2 per day, when about one billion people live on less than $1 per day, the U.S. increase seems small indeed. But it is likely to have an impact, nonetheless, because, as a recent World Bank study asserts, a well-targeted $10 billion in economic assistance could lift roughly 25 million people out of poverty.

There are also worries, of course, that the MCA will create a system of “winners and losers”—whereby a cadre of some 10 to 15 nations selected for help by the United States would do well, leaving the rest behind. Moreover, by designating only countries with the best policies to receive MCA assistance, USAID could find itself stuck assisting only the most difficult cases that remain. Rewarding good policies makes sense if the goal is to make aid effective. But it is precisely the worst cases that, if not dealt with, are most likely to breed national security threats that the Bush administration is most anxious to defeat.