American Outlook
Summer/Autumn 2004
By Alan Dowd

“We have it in our power to begin the world over again.” Those words were penned by Thomas Paine some 225 years ago, but they could just as well have been spoken by President George W. Bush in 2003. And in a sense, they were. “Our founders dedicated this country to the cause of human dignity, the rights of every person, and the possibilities of every life,” Bush explained in his 2003 State of the Union. “This conviction leads us into the world to help the afflicted, and defend the peace, and confound the designs of evil men.”

Since September 11, 2001, the White House has made no secret about its willingness—and America’s capacity—to confound the designs of evil men by tearing down the vast infrastructure of terrorism, and in the process to transform the world through the destructive force of arms. Less publicized has been the Bush administration’s readiness to help the afflicted by building an infrastructure of democracy in the forgotten corners of the world, and to begin the world over again through the creative force of American ideas and wealth.

In the Millennium Challenge Corporation (MCC), Bush has unveiled a brand-new tool of U.S. power that could transform both foreign aid and the developing world.

Priming the Pump

As Robert Bremner details in his book American Philanthropy (1980), foreign aid is not a new phenomenon. Concerted efforts to distribute foreign aid on the part of Americans date back at least to 1820, when volunteer committees collected money to care for Greek orphans. In 1832, the United States sent a relief ship full of supplies to the Cape Verde Islands. When Ireland was ravaged by famine a little over a decade later, America sent much more. According to Bremner, “To carry the contributions of Massachusetts alone required two sloops of war, four merchant ships, and two steamers.”

World War I triggered the first great transformation of American foreign aid. Early in the war, with Belgium blockaded and its nearly eight million people on the brink of starvation, the United States helped form the Commission for Relief in Belgium (CRB). Headed by Herbert Hoover, the CRB pooled philanthropic and government contributions from the United States, Britain, Belgium, and France. Most of the money came from government sources, however. According to Bremner, individuals and charities accounted for just $52 million of the $1 billion the CRB spent during the war. Washington created the American Relief Administration (ARA) after the war to feed and clothe postwar Europe.

Congress shunted $50 million to the Red Cross between 1939 and 1941 to help war refugees. Six months after America’s entry into the war, President Franklin Roosevelt created the War Relief Control Board (WRCB), which coordinated most non-military foreign aid for the balance of the war. In 1943, with the creation of the UN Relief and Rehabilitation Administration (UNRRA), U.S. foreign aid experienced its second great transformation. As Bremner notes, the UNRRA combined the efforts of fifty governments. Together, they spent $4 billion on food, clothing, and medicine. At $2.6 billion, America’s contribution accounted for close to 75 percent of the UNRRA’s generosity.

It would be just a fraction of what was to come.

President Harry Truman recognized early on in his administration that foreign aid would be a useful weapon in the Cold War. In Truman’s view, “The seeds of totalitarian regimes are nurtured by misery and want. They spread and grow in the evil soil of poverty and strife. They reach their full growth when the hope of a people for a better life has died.” To prevent those seeds from taking root, Truman sent aid first into Turkey and Greece, and later into all of Western Europe.

Marshalling Resources

In the effort to contain communism, humanitarian aid proved just as important as military aid. The former prevented communist ideas from taking root; the latter prevented communist tanks taking territory. In just over four years, the Marshall Plan poured $13 billion into Western Europe’s industry, infrastructure, and economy. As such, it was decidedly different than the CRB or ARA. Because of the near-total devastation wrought by the march of World War II through Europe, the Marshall Plan’s scope was much wider. It is important to remember that Secretary of State Marshall called on European governments first to develop and submit long-term plans for rebuilding their countries. Only those plans that were economically sound and open to trade and investment would be supported by Washington. The program would be administered not by a relief or humanitarian-aid agency, but by the Economic Cooperation Administration (ECA).

As Derek Leebaert explains in his history of the Cold War, The Fifty-Year Wound (2002), Marshall aid didn’t rebuild Western Europe, at least not in a technical sense. In Leebaert’s view, “it simply primed the pump.” He notes that postwar Europe “had in place virtually all the skills and resources to repair itself”: it was an advanced and educated, if shattered, society. Beneath the ruins of war lay the solid foundations of private enterprise, enlightened self-interest, productivity, and sound economic policies. Many of the war-weary countries even had recent histories of representative government and constitutional governance. The Marshall Plan removed the wreckage and built on those solid foundations. When the program ended, the industrial capacity of Western Europe was 35 percent higher than it had been prior to the war.

The Marshall Plan was replaced by a more comprehensive foreign-aid program in 1951, which bundled together military and non-military aid and created the Mutual Security Agency (MSA)., Within a decade, however President John Kennedy concluded that postwar aid programs were no longer adequate. Thus was born the U.S. Agency for International Development (USAID), embodying a fifth generation of U.S. foreign assistance. In its own words, USAID was “freed from political and military functions that plagued its predecessor organizations.” Its broad mandate would include administering long-range economic-development programs, providing technical assistance to governments, overseeing loan programs, and distributing agriculture surpluses.

In a sense, USAID was a step backwards, in that it separated military and non-military aid—which, after all, the 1951 reforms had brought together. Moreover, USAID ignored some of the lessons of the Marshall Plan. Despite the best intentions of its architects, USAID often dumped money into questionable hands. We cannot gauge how many of them might have turned to Moscow were it not for U.S. assistance (of course, some of them did anyway). Nor can we can calculate how a more judicious use of U.S. aid dollars might have affected the Cold War. But we can quantify how much this feeding frenzy cost American taxpayers: some $2 trillion.

Today, USAID has a presence in almost one hundred countries. U.S. agencies spend some $10 billion in official development assistance annually and another $13 billion in other forms of aid. Not all of it is wasted, of course. Indeed, at $2.5 billion, the U.S. government donates more food aid per year than any other country on Earth.

However, America’s post-Marshall aid has achieved precious little in the form of lasting, substantive change—the kind of systemic reforms that over time should make foreign assistance less necessary. As U.S. Representative Jim Kolbe, chairman of a House foreign operations subcommittee, detailed in a recent study, Washington has distributed $144 billion in aid to ninety-seven of the world’s poorest countries since 1980. In the intervening decades, the median per capita GDP of those countries has shrunk from $1,076 to $994.

Foreign Aid, Version 6.0

Tired of simply throwing money at symptoms, the Bush White House wants America's foreign-aid program to target the root causes of poverty in corners of the world that are perpetually developing but seemingly never become fully developed. Of course, traditional foreign aid is not the only way to realize that goal. Trade and investment also play an important role in development.

The American people purchase some $450 billion every year from developing countries; and, according to USAID, “the United States is the greatest source of private capital to developing countries, averaging $36 billion” per year. Moreover, as the Hudson Institute’s Carol Adelman observes, “The true measure of American generosity is the total amount of aid given abroad, including private donations.” When U.S. government aid is combined with contributions from foundations, corporations, charities, and individuals, America’s assistance to developing countries approaches $57 billion annually.

In the same way, the Bush administration’s Millennium Challenge Corporation takes a broader view of foreign aid than other efforts. The MCC represents, quite simply, the next generation of U.S. foreign aid. Although it has gained little attention, one version of the MCC plan is included in the latest Foreign Relations Authorization Act, which has already passed the House and now awaits Senate action.

When fully funded in 2006, the MCC will administer a $5-billion Millennium Challenge Account. This is in addition to existing foreign-aid spending, which means that the Millennium program will amount to a 50 percent increase in official development assistance, among the largest in U.S. history. It will distribute grants to some of the world’s poorest countries—initially, nations with annual per-capita incomes below $1,435. A larger pool of developing nations with per-capita incomes of up to $2,975 will be invited to participate in follow-on years. More than 110 countries will be eligible by 2006.

The MCC differs from existing aid programs in several ways. First, MCC aid will be based solely on how an applicant scores on a rigorous test of social-political progress. Portions of assistance have been based on certain performance criteria in the past; however, as a recent Congressional Research Service report observes, “what is significantly different about the Millennium Challenge Account is that the entire $5-billion pool . . . will be tied to performance and results.” Applicant nations will be ranked according to sixteen separate indicators, grouped under three broad headings: Ruling Justly, Investing in People, and Economic Freedom. These performance indicators will rate everything from an applicant’s respect for civil liberties and political rights, to its fiscal policy and openness to trade, to its internal markets and regulatory climate, to its immunization statistics and investment in education (see sidebar for a complete listing).

In a word, countries that hope to tap into this new source of aid will have to make room for civil society—that amorphous zone of space where liberty flourishes and where places of worship, businesses, charities, associations, unions, and political parties buffer the individual from the state. As Don Eberly, a USAID official specializing in international civil society, puts it, this next generation of foreign aid will “promote international economic development by developing the fruits of civil society in other countries.”

The MCC is also entrepreneurial and competitive. In a reprise of the Marshall Plan, the onus is on each eligible country to apply for Millennium grants. This is not a hand-out program: Applicant countries must develop and submit a proposal for aid that will lock in or strengthen existing reforms.

The MCC also injects some fairness and common sense into America’s foreign-aid program. The developing world is by no means a monolith. Yet the way these various countries are treated may not always be fair. For example, according to the Congressional Research Service, foreign aid accounts for 10.8 percent of the gross national income of countries with per-capita incomes below $1,435. However, foreign aid accounts for a paltry 1.4 percent of the gross national income of countries with per-capita incomes between $1,436 and $2,950.

Although it is an imperfect analogy, this is something like the disparity between how America treated the working poor and the able-bodied who refused to work prior to welfare reform. The first group worked hard, played by the rules, tried to be productive, barely eked out a living, and received little if any assistance from the government. Many of those in the other group didn’t work, gamed the system, often lived more comfortably than their working counterparts, and were rewarded for being unproductive. It didn’t make sense in America, and it doesn’t make sense in Africa or Asia to help one group and ignore the other. As Eberly observes, “For too long, our policies were yielding the same failed dependency-producing results [overseas] that our policies at home had been producing.” Through the MCC, Washington can reward those countries that are truly developing, while continuing to assist those that lack the capacity or resources to develop on their own.

Bypassing Bureaucracy

Because Millennium grants will be offered in addition to existing U.S. foreign aid, people from the developing world will not be negatively impacted if the experiment fails. Of course, their countries and lives could be dramatically improved if the experiment succeeds.

Think of USAID and the MCC like two parts of the same house. USAID provides the bricks and mortar of the house, while MCC grants help strengthen (or rebuild) the foundation of the house. Both are important: Without a foundation, the bricks and mortar will crumble. And without bricks and mortar, the foundation serves no purpose.

If the habits and infrastructure of civil society are exportable, then it is the United States that will lead the world in sharing these precious commodities with the countries that lack them—and it is the MCC that will deliver them. While there are many of us who worry about the creeping expansion of the state, America remains a remarkable example of what civil society can do when given room to grow. Although the United States did not create civil society, it has arguably done more to nurture it than any other nation on earth. That’s largely because the United States has used public policy to promote civil society, rather than weaken it. For example, U.S. tax and regulatory policies encourage charitable giving and often defer to civil society. Indeed, there are some 46,000 foundations in America; 1.6 million associations, nonprofit organizations, and religious groups; and uncounted businesses—some so large that they span several continents, others so small that they are contained in a garage or a spare bedroom. As Alexis de Tocqueville marveled, thanks to America’s vibrant civil society, “The hand that directs the social machine is invisible.”

Step by Step

More than one hundred years before the Marshall Plan, de Tocqueville observed that “social condition is commonly the result of circumstances, sometimes of laws, oftener still of these two combined.” What is true of individuals is true of nations, and any foreign-aid program that fails to incorporate this notion into its mission will fail to have a lasting impact on its recipients. For almost five decades, America has tried to overcome the developing world’s terrible circumstances, terrible laws, and terrible leaders with money and good intentions. It simply hasn’t worked.

Whether the Millennium Challenge Corporation can transform the world remains to be seen. However, it is bound to transform U.S. foreign aid—and that’s certainly a step in the right direction.

A longer version of this article appeared in the July 2003 issue of The World & I.
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