On October 17, 1994, scholars, government officials, and directors of private foreign assistance organizations met at AEI to analyze the geopolitical, economic, and humanitarian rationales for foreign aid. The sessions were part of AEI's Amgen Forum, a series of public policy debates, lectures, and conferences sponsored by Amgen, Inc. A summary of key conference presentations follows.
Paul D. Wolfowitz, dean, Paul H. Nitze School of Advanced International Studies, Johns Hopkins University
The geopolitical objectives of the United States have changed a great deal since the end of the cold war, and with them have changed the objectives of U.S. foreign aid programs. More than a few people say that foreign aid no longer needs any geopolitical objectives. My own view is that foreign aid is still an essential instrument of American foreign policy. We may need less of it than in times past, but it would be a mistake to conclude that the world has changed so fundamentally that the traditional uses of foreign aid no longer apply.
Still others say that instead of being an instrument to support American foreign policy, foreign assistance should deal with the root causes of conflicts. There is no question that there is poverty and misery in many places in the world; there is no question that we, along with other countries, have some obligation to try to relieve it. But there is a great danger in overselling what foreign assistance can do, for example, in resolving the kinds of horrors we saw in Rwanda in the summer of 1994. From a political point of view, there is a lot to be said for sticking to a foreign aid program that provides support for American interests abroad.
As for the direction of such assistance, I would suggest four broad prescriptions. First, U.S. foreign aid programs should preserve the ability to deliver military assistance when necessary. Bosnia is but one example of the type of conflicts that are likely to beset the post-cold war world. It is far better to help such people defend themselves than to send foreign peacekeepers to fight both sides in a futile attempt to impose peace.
Second, we should use bilateral aid to reward our friends. Turkey, for example, was persuaded to support the so-called Provide Comfort Operation in northern Iraq--one of the great humanitarian achievements of our lifetime--because of U.S.-Turkish friendship based at least in part on the foreign assistance we have provided.
Third, we should use foreign aid to reinforce success, not to make up for failure. Too often we rush to the assistance of the poorest of the poor, from an understandably humanitarian impulse. But one of the reasons for such misery is fundamental policy failure. Pouring more foreign aid where the policies are wrong only reinforces bad policies.
Finally, we should give higher priority to training people in the United States. In the countries of the former Soviet Union, for instance, numerous officials in the foreign ministries who never thought they would need to develop their own foreign policies; civilian analysts in defense departments that never before had a civilian in them; lawyers, educators, and researchers--all could benefit from training in the United States.
Lawrence H. Summers, undersecretary of the Treasury for international affairs
When the history of the final twenty years of the twentieth century is written, there will be two big stories: the end of the cold war and the transformation of the developing nations. It is only a slight exaggeration to say that this is the era when 3 billion people got on a rapid escalator to modernity.
Our discussion of foreign aid should start with the recognition that what is happening in the world's emerging markets is probably more important for U.S. interests than it has been at any time in the past fifty years. The maintenance of and support for stable prosperity in those parts of the world where progress is under way is central to the American purpose in the world. Here are five observations on the process of foreign assistance and the promotion of those objectives.
First, to have important effects, policy needs to be leveraged. Even the Marshall Plan financed less than 5 percent of the investment that took place in Western Europe during the late 1940s. Achieving maximum leverage today means transferring knowledge about such subjects as securities markets, bank supervision, and educational reform but also making assistance conditional on policy reforms in the recipient countries.
Second, there is a central role for administering multilateral assistance through international financial institutions. Last year's U.S. contribution to those institutions--about $2 billion--provided about $60 billion in program support, as well as a good deal of technical assistance and policy dialogue.
Third, global problems represent an important item on the U.S. international agenda. Whether it is the security problem associated with extreme poverty, refugee relief, responses to environmental disasters, or even a cure for AIDS, we are moving toward increased assistance in these areas of global concern.
Fourth, U.S. foreign aid should adapt to changes in the private capital market. There still are too many countries for which de facto U.S. policy remains aid, not trade. That is surely wrong if one believes in promoting the private sector.
Finally, investments in people do matter. Increased education for girls, for example, would more than repay its costs purely as a family planning program, but since it is also a public health program and an investment in the next generation, it may well be the highest return investment that we and others can support.
Timothy E. Wirth, undersecretary of State for global affairs
For almost everybody who was engaged in the 1994 world population conference in Cairo, it was successful beyond their wildest dreams. It was perhaps the first time in history when the world's nations could talk about population without being accused of promoting genocide or abortion. That left the discussion focused where it belongs: on such issues as political stability, economic opportunity, and environmental protection.
A second major result of the conference was a remarkable commitment to world population stabilization. The sense of urgency was felt by almost every government, and the consensus went far beyond the narrow concerns of family planning to such issues as the education of girls, women's reproductive health, child survival programs, and empowerment of women.
The Clinton administration has made no secret that this is a high priority of its foreign policy. We are the largest contributor to population activities in the world; the U.S. population control budget has almost doubled over the past eighteen months from around $300 million to $600 million. But other countries were also willing to commit new and additional resources. The Japanese have increased their contribution from $40 million to more than $400 million for population control and AIDS prevention; the Germans have contributed around $2.3 billion over a seven-year period for population programs; and the British, Australians, and members of the European Union have likewise increased their contributions.
To the extent that we were the broker who worked quietly to make all of this work, I consider the Cairo conference a major political victory for the United States.
Susan Raymond, director of policy programs, New York Academy of Sciences
While it is painfully true that there still remains tremendous suffering in poor countries, the number of such nations today is lower than it was thirty years ago, and getting smaller all the time. As a consequence, the content of foreign aid ought to be driven by recent changes in the developing world.
Life expectancy, for example, has risen virtually around the world over the past thirty years. In low-income countries, infant mortality has declined by 41 percent since 1965. Indeed, by 1992, such nations as Trinidad, Malaysia, Costa Rica, and even Jamaica had infant mortality rates lower than Washington, D.C.
In education, the gap between the developing world and the industrialized world continues to close. Africa, which started from a much lower base, nearly quintupled its percentage of the age group in secondary schools in just twenty-five years. Food production is going up, prices are going down. And what we might call the social dependency ratio (that is, the ratio of children and the elderly to workers) will shift the economic advantage toward the developing world over the next twenty years or so.
In light of these developments, one might fairly conclude that today's developing world will be tomorrow's engine of economic growth. From a position of near equality during the 1974-1993 period, economic growth rates for developing countries are projected to be more than 70 percent higher than those of industrialized countries in the next ten years. By 2020, nine of the world's top fifteen economies will be from today's third world.
Manufacturing and service industries will account for most of that growth. Manufactured products now account for 60 percent of LDC exports, up from 5 percent in 1955. The third world share of exported manufactured goods has risen from 3 percent in 1970 to 22 percent in 1993. But trade and financial measures also show that the third world is increasingly integrated into the global economy. In real terms, the value of global trade has increased thirtyfold since 1950.
As the private sector, both local and multinational, has become a driving force in third world growth, central government expenditures as a percentage of the gross national product have declined in more than half of all third world countries. In 1992, developing countries privatized nearly $8 billion of basic infrastructure. Developing countries hold nearly half the world's foreign exchange reserves today.
The tremendous diversity within the third world means that no single foreign aid strategy will fit the multiple circumstances. Second, not only is the role of business increasing, but with the spread of democracy, there is a tremendous upwelling of nonprofit organizations through which much foreign assistance can now be channeled. Third, the developing countries have tremendous reservoirs of trained people who can interact with foreign assistance officials as peers and determine priorities that are of equal benefit to both parties. That creates a chance for foreign assistance to stop simply looking for problems to solve but to look for opportunities for mutual benefit. That should be the central theme of foreign assistance in the future.
Nicholas N. Eberstadt, visiting scholar, AEI
For as far back as we know in human history, governments have taken actions that have had important demographic consequences, but for the most part, those programs had justifications that were nondemographic. Today's global population stabilization policy, largely underwritten by Western governments and multilateral institutions, is something new: an explicit attempt to reshape the demographic rhythms of the world's societies. The problem is that this enterprise is based on several misconceptions.
The first misconception concerns the relationship between population growth and economic consequences. In 1971, the National Academy of Sciences issued a study that associated rapid population growth with underemployment, increasing poverty, malnutrition, and starvation. Fifteen years later, the academy took a second look and concluded that the problems arising from rapid population growth were relatively small when compared with the economic policy decisions that national governments make. The contradiction between these reports typifies the absence of a scientific consensus on this crucial question.
The second misconception concerns overpopulation. For any country that is considered overpopulated by one indicator, there exists a counterexample that will not appear to be overpopulated according to the same indicator. Bermuda, for example, is four times as densely populated as Bangladesh. What people really have in mind when they think of overpopulation is poverty, but it is a fallacy of composition to conclude that poverty is a population problem simply because it is manifest in large numbers of poor people.
The third misconception concerns population projections, most of which coincide with reality only by chance. It is simply impossible to predict far into the future what total births in any given country will be.
The fourth misconception concerns unwanted fertility and family planning. One recent World Bank study looked at twenty years of data from dozens of low-income countries and found that about 90 percent of the difference in fertility levels could be correlated with expressed differences in the desired level of fertility on the part of local women. Parental desires, not contraceptive technology, seem to be the determining factor in the fertility differences we see around the world.
Finally, there exists a mistaken presumption in many quarters that voluntary family planning will of itself reduce birthrates in third world countries. Yet if the difference between desired and actual levels of fertility is small, then even perfect contraceptive use and zero failure rates would result in a small drop in worldwide levels of fertility. This raises questions about the extent to which establishing population targets is consistent with voluntary family planning at all.
J. Brian Atwood, administrator, U.S. Agency for International Development
For years, policy makers have undervalued the role of U.S. foreign assistance programs in foreign policy. Foreign aid has been referred to as if it were only food and blankets parceled out in the wake of earthquakes or famines or, as one member of Congress put it, "a grace note tagged onto the great issues of state."
I have not shared these views, but I have well understood how a security-oriented foreign policy community could develop such perceptions. But that debate is behind us. I would offer two rationales for why foreign aid must occupy a central role in U.S. foreign policy in the aftermath of the cold war.
First, we need foreign aid to deal effectively with the fundamental threat to American security in the post-cold war era: the breakdown of international order and the failure of nations. Second, we need it to create markets abroad for our goods and to ensure the economic well-being of the United States into the next century.
International disorder is indeed a strategic threat precisely because it endangers the political, economic, and security interests of the United States. How should we reply? By mounting a response that fits the threat. A diplomacy that focuses only on nations and governments and not on the conditions that impel their behavior will forever be caught short. These conditions include persistent repression, unabating poverty, unsustainable rates of population growth, and environmental damage. We in the United States, even though isolated by oceans, cannot escape their impact. But the crisis prevention approach that the U. S. Agency for International Development (AID) is implementing is a strategic response to this strategic threat.
The immediate post-cold war era is not just a time of spreading conflict. It is also a time of democratic experimentation and consolidation. Our emphasis on cooperation, development, and democracy building is consistent with both our national values and our national security interests. The consolidation of democracy and the success of policies that prevent crises also make economic sense: the price of peace and stability is infinitely less than the cost of reconstructing entire nations.
The ultimate objective of our work is to improve permanently the ability of societies to anticipate problems, to establish institutions to deal with them, to acquire and transmit the necessary expertise and resources, and, in so doing, to respond to whatever crises confront them.
The second major rationale for foreign assistance is the creation of markets for our goods. Foreign trade does not simply materialize; the ground must be prepared first. That is why we have launched initiatives to remove institutional and legal barriers to trade, to foster cultures that are receptive to foreign investment, and to support programs that create broad-based economic growth in developing countries.
That authoritarian regimes have overseen periods of economic growth is clear, but the link between their repressiveness and their growth is questionable. If it is ever present, it is not enduring. In the long run, authoritarianism is a drag on economic efficiency and growth. Sustainable economic growth requires governments with democratic authority, not authoritarian government.
Our aid programs are working to promote needed political and economic reforms in countries around the world. In Russia, for example, we have provided extensive technical support for privatization, giving millions of citizens a stake in the market economy. As they acquire that stake, they insist that their elected leaders help them to preserve it. We are working to help Russia become a society of laws, where people can enjoy the fruits of their labors and where they have the freedom to make the rational economic and political choices on which a market economy depends. If we succeed, the American economy will benefit from an important new market--and the cost of our investment will be a fraction of what we might have had to spend on defense.
Developing markets now represent the fastest-growing markets for American goods, particularly high-value exports like pollution control systems, computers, communications equipment, and expert services. Exports to emerging economies are one of the main reasons U.S. unemployment is low and why exports are the fastest-growing sector of our economy.
The end of the cold war has created a unique opportunity for the United States to deal directly with the international factors that can advance its political and economic interests or injure them profoundly. We at AID have taken up that opportunity, and we look forward to working with you in pursuing it for the good of our nation.
Richard L. Armitage, president, Armitage Associates
There was a time when centralized planning was seen as the gateway to sustained economic growth. At some point in the past decade, however, we relearned a lesson that should never have been forgotten: the market works. Now, as the Clinton administration considers various ways to reinvent government, my suggestion is that we place the American private sector in the leading role of a revitalized foreign aid process.
The United States will always have a major role in providing for basic human needs and emergency humanitarian assistance. Yet today's major aid questions, such as the development of national economies or the transition from state control to the market, are not something that developmental specialists at AID--trained in the economic theories of the 1960s and 1970s--are well equipped to handle.
What we do in our assistance programs is the exact opposite of what many other donor nations do in Latin America, Africa, or the Commonwealth of Independent States. Japan's assistance program, for example, responds to official requests from the recipient governments, which are generally stimulated by Japanese, German, or American businesses. But Japanese assistance does not just take the form of grants; often it consists of concessionary loan terms that force the recipients to contribute to the solution of their own countries' economic problems.
No nation on earth has been made prosperous by the ministrations of development specialists. Whether administration officials know it or not, they are in a perfect position to redefine foreign assistance by refocusing on basic human needs and humanitarian emergencies, while placing the American private sector in the leading role in promoting economic development around the world.
Alexander Shakow, director of external affairs, World Bank
Over the past forty years, there has been faster progress on many fronts than at any other time in human history. Per capita incomes in many developing countries have doubled, infant mortality has been reduced by 50 percent, life expectancy is up from forty to sixty-three years, and world trade has dramatically expanded.
Clearly, these trends are not consistent across the board. But we should not assume that because there are problems in some parts of the world, there has not been a tremendous amount of progress in this past generation or two. Rather, we should review the accomplishments of developing countries with an eye toward learning what they tell us about development and the effective use of foreign aid. Here are six general lessons we have learned over this period.
First, a recent World Bank study concluded that the three most common sources of failure of infrastructure development projects are inadequate maintenance, inappropriate investments, and inefficient operations. In almost every case, the key problem was government involvement in running the infrastructure.
Second, for many years, those of us in the aid business thought that doing a good project would be enough. But eventually we learned that if the policy environment in which these activities were undertaken was unsound, many individual activities were wasted.
Third, we learned that the people who live in and govern these countries must have a real commitment to the aid activity or it will not be sustainable. Many of us in the aid business have shied away from such questions until recently.
Fourth, beyond the village level, it is always difficult to know how to engage people effectively at all levels of society. We still do not know all the answers, but it is absolutely crucial that we continue searching for them.
Fifth, AID knew years ago the importance of investing in people. Some of the best work it has done has been in participant training and education programs. We know clearly that if you want to reduce poverty and generate growth, investing in such things as primary education, health care, and population programs is one of the best ways to strengthen the human fabric of society.
Finally, not long ago most developing countries saw investment in environmental protection as a luxury. That has changed. Many countries now see that addressing such issues as urban air and water pollution has a direct link with the eradication of poverty.
John D. Sullivan, executive director, Center for International Private Enterprise
The Center for International Private Enterprise was created by the U.S. Chamber of Commerce. It has been funded by the National Endowment for Democracy for ten years and by AID for two years. Our experience in private sector democratic development and market reform in some forty-five different countries allows me to make the following observations about the foreign aid process.
First, politics and economics cannot be separated. The primary problems of economic reform are political, and the primary problems of political reform tend to be economic. We have always asserted that market-based systems are important, that open and free political systems are essential to the development process, and that there has to be an emphasis on institutions. Our strategy is to look at the whole stock of political, economic, and social institutions in a country to ascertain the key points of leverage.
We try to work with organizations that have already demonstrated a commitment to a particular goal or objective that we feel is important for that country. Local ownership and participation are important, but the first criterion that we look for is prior commitment.
Our approach highlights the internal contradictions of most foreign aid programs. Most bilateral aid, for example, goes through other governments. In areas like health, population, or education this may not be a severe problem, but in the areas of private sector development or democracy building, it makes little sense to funnel aid to people who may not want to give up power. It is far better to work with organizations in the private sector to develop common objectives, management plans, and an agreed set of outcomes. The best programs, we have found, are designed and owned by the people in the countries. You simply cannot get local participation and commitment through a competitive bid process run from Washington--or even from Manila.
George M. Ingram, director of international economic and environmental affairs, U.S. House of Representatives Committee on Foreign Affairs
In 1988, after a year of study of the foreign aid program by a House Foreign Affairs Committee task force, the committee's chairman wrote a report critical of Congress for micromanaging foreign aid. He also recommended that Congress set broad policy but then allow the administering agency to implement the policy. This resulted in a bill that would have reduced the Foreign Assistance Act from 500 pages to 100 and replaced some thirty-three different objectives with one goal: sustainable development. The bill passed the House in 1989 and 1991 but did not get through the Senate. In 1993, the Clinton administration sent its own bill to Congress, an even more fundamental revision that did away with the old basis of programming by agency and proposed programming by objective instead. At the moment, the commitment in the House and the Foreign Affairs Committee remains as strong as it has been for the past four or five years. But the press of other business, and a sense that the Senate would not act on the legislation, led the committee not to take up the foreign aid reform bills in 1994.
Nonetheless, the administration, AID, and the secretary of state all remain supportive of the idea of foreign aid reform. Add to their efforts those of the nongovernmental organizations that have played a critical role, and I expect major activity on foreign aid reform in the new Congress.
Richard E. Bissell, member, independent inspection panel, World Bank
During the latest review of the U.S. development assistance program, some thirty-three purposes were identified, and that is probably a low count. Yet it has become increasingly clear that the United States can no longer sustain the concept of foreign aid being used to purchase anything, anywhere. How then can we identify our priorities?
One thing foreign assistance should not do is get in the way of the private sector. Too many times our bilateral programs leap as a first resort into areas that could easily be assisted better by other institutions.
If AID were purely a development institution, an approach that focused on the problems of countries and areas would make a lot of sense. If it were purely a foreign policy institution, the country-by-country approach would make more sense. Because AID is both, it has had to combine these approaches over time through something called matrix management: putting the roster of countries along one axis and the list of problems along the other, then allocating the dollars. In a time of declining budgets, it is doubtful that this approach can survive.
It may be that the time has come for breaking AID into several institutions, just as Congress did when it created the National Endowment for Democracy. For many years, AID was clearly the world's dominant development institution, providing as much as 50 percent of the world's development assistance up until the early 1970s. Today, as the United States becomes a less dominant player, it may make more sense for us to pick our areas of excellence.
Thomas P. Sheehy, Jay Kingham Fellow in International Regulatory Affairs, Heritage Foundation
Earlier, the administrator of AID presented the objectives of the current foreign aid reform bill. I am sure all of us would like to see democracy spread throughout the world, greater respect for human rights, enhanced environmental protection, and a world where U.S. exports are increasing. But not all these good things can be done through foreign aid. My goal is to make the case that the U.S. aid program should be geared toward one major end: encouraging economic growth. Here are five reasons.
First, the evidence suggests that it is easier to achieve economic growth in a nondemocracy than it is to achieve democracy in a country that is not growing economically. Second, economic growth most often comes from assisting the private sector and avoiding the usually corrupting influence of the state.
Third, programs aimed at encouraging economic growth maintain at least a semblance of being transitional. Many of the basic human needs programs provided by AID are also provided by private charities. Transitional programs designed to encourage economic growth allow us to step away from one of the big problems of such assistance: continued dependency and the sense of donor obligation.
Fourth, a country with a growing economy will provide desired social services at a far greater rate than a country with a nongrowing economy. Finally, we need to acknowledge that a great deal of our basic human needs programming has simply failed.
It is unfortunate, therefore, that the Clinton administration appears to be deemphasizing programs aimed at economic growth. The notion of sustainable development has been identified as the heart of the foreign aid reform bill. There it is defined as broad-based economic growth that reduces hunger and poverty, protects the environment, enhances human capabilities, upholds democratic values, and improves the quality of life for the current generation while preserving that opportunity for future generations.
There are two problems with this definition. First, it fails to provide the much-needed sense of focus for our development assistance program and mitigates its own emphasis on economic growth by the long list of desirable outcomes. Second, the lineage of sustainable development is quite disturbing. It has been described--accurately, I would say--as a euphemism for environmental socialism.
I am concerned, therefore, that when AID allocates its money, it looks at social indicators, basic human needs, the spread of democracy, the country's commitment to human rights, and a host of other goals. By the time we get through these criteria, the amount of attention devoted to the country's basic economic policies is no more than 40 percent. Yet in the final analysis, the primary basis for allocating assistance must be a country's commitment to meaningful economic reforms.
