Transcript Krasner, Foreign Assistance and MCC

CDDRL SUMMER PROGRAM
AUGUST 2013
FOREIGN ASSISTANCE
Foreign Assistance is a new international development
Prior to WWI finance was tied to specific foreign policy objectives
Germany financed Ottoman Railways to get port access
German lending to Russia decreased after 1887 and virtually stopped
after 1907 Russian British agreement
Potential adversaries eg Germany were not given access to French
capital markets
As relations between Russia and France warmed Russia turned to
French capital markets in the 1890s.
British loans to Russia increased after Anglo-Russian treaty of 1907
Foreign Assistance Begins After WWII
•Economic conflict and deprivation could lead to political conflict
•The Great Depression and Nazi Germany
•Need to rebuild Europe
•Creation of the World Bank and other IFIs which insulated some aid
from the preferences of specific donors
Aid Commitments Mirror Domestic Attributes of Donors
•Aid as a percentage of GNP correlates strongly with social welfare
expenditures as a percent of GNP
•Left leaning government give higher percentages of aid
•Small European social democratic countries are largest aid donors
FOREIGN ASSISTANCE HAS NOT
SUCCEEDED, AT LEAST NOT VERY WELL
•Very very few countries have graduated from foreign
assistance, perhaps only Korea and Greece
•Africa has received $568 billion over 42 years.
• Per capita growth rate of median African country is near 0
•Debt forgiveness has not been correlated with higher growth.
•Recent statistical studies have found
• Modest relationship between aid and growth (1 percent)
• No relationship
• A negative relationship
WHY FOREIGN ASSISTANCE HAS FAILED
Lack of accountability for donors
• Multiple donors
• For large objectives, ending poverty, multiple causal factors
• Outcomes cannot be associated with specific programs
Aid substitutes for taxes
Aid encourages corruption by providing unaccountable funds
Aid undermines social trust by weakening ties between
government and citizens
Aid weakens pressure for reform because donors always
provide funds
Donors rarely enforce conditionality
Donors are incapable of taking adequate account of local
institutions and circumstances:
• Weakening traditional property rights, for instance, before conventional
property rights are in place can leave a society worse off
 Three Approaches to State Building
 Modernization Theory
 Institutional Capacity
 Rational Choice Institutionalism
MODERNIZATION THEORY
 Economic and social development leads to political
development
 Economic development requires more capital
 Foreign assistance can provide more capital
 Implications for foreign assistance
 Meet the 0.7 percent of GDP target
 Provide more funds to meet the MDGs
 Most types of foreign aid are consistent with modernization
theory
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Budget support
Infrastructure
Resources for social services
Debt forgiveness
Structural adjustment
INSTITUTIONAL CAPACITY
Economic and social mobilization without greater institutional
capacity  political decay
Implication for foreign assistance
• Build state capacity
• Training
• Technical Assistance
RATIONAL CHOICE INSTITUTIONALISM
Political and economic outcomes reflect strategic choices
made by key actors (usually elites)
Better outcomes achieved through pareto improving
initially self enforcing deals among key players
Implications for Foreign Assistance:
• Change Incentives for Leaders
• Millennium Challenge Account
• Trade Agreements
• Mo Ibrahim Prize
• Support independent actors
• Civil society, religious organizations, lawyers, even companies
• Accept external control where Pareto improving deals are
impossible
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Shared sovereignty
Charter cities
Neo-trusteeships
Examples: RAMSI, GEMAP
DISTRIBUTION OF US AID FUNDING
1999-2007 (PERCENTAGES)
United States Foreign Aid by Percent (Excluding Iraq and Afghanistan)
100.00%
90.00%
80.00%
70.00%
Percent
60.00%
Modernization
Institutional Capacity
50.00%
Rational Choice Institutionalism
40.00%
30.00%
20.00%
10.00%
0.00%
1999
2000
2001
2002
2003
Years
2004
2005
2006
SACHS, EASTERLY
Sachs: Give more money (modernization)
Easterly: Planners vs searchers (rational choice)
• Planners fail; searchers sometimes succeed
• Think small; think local
THE MILLENNIUM CHALLENGE ACCOUNT
•Proposed by President Bush in March 2002
•$5 (almost 5 percent) billion increase in foreign assistance by
Fiscal Year (FY) 2006
• Actual budget for 2007 was $1.75 billion
• Appropriation for FY 12: $898 million
• MCA is good policy without a constituency
•Countries to be selected on the basis of “clear, concrete, and
objective criteria”
•The MCA was to supplement not replace existing assistance
programs which are used for many different purposes including:
•Strategic objectives (Egypt, Israel, countries on the UNSC)
•Humanitarian Assistance
•Post conflict reconstruction and stabilization (Afghanistan)
•The purpose of the MCA is to jump start economic growth in
better governed countries
Better Performing Countries Originally Identified by 16
Indicators in Three Categories (There are now 17 indicators)
Governing Justly:
_Civil Liberties (Freedom House)
_Political Rights (Freedom House)
_Voice and Accountability (World Bank Institute)
_Government Effectiveness (World Bank Institute)
_Rule of Law (World Bank Institute)
_Control of Corruption (World Bank Institute)
Investing in People:
_Public Primary Education Spending as Percent of GDP (World
Bank/national sources)
_Primary Education Completion Rate (World Bank/national
sources)
_Public Expenditures on Health as Percent of GDP (World
Bank/national sources)
_Immunization Rates: DPT and Measles (World
Bank/UN/national sources)
Promoting Economic Freedom:
_Country Credit Ranking (Institutional Investor Magazine)
_Inflation (IMF)
_3-Year Budget Deficit (IMF/national sources)
_Trade Policy (Heritage Foundation)
_Regulatory Quality (World Bank Institute)
_Days to Start a Business (World Bank)
To make the list of better performers countries must:
-- Score above the median on half the indicators in each policy basket
--
Be above the median on the corruption indicator
Separate competitions for countries above and below $1435 because
scores correlate with income
Final Recommendation to the President from the Millennium Challenge
Corporation Board of Directors Composed of:
•Secretary of State
•Secretary of the Treasury
•USTR
•Administrator of USAID
•President of MCC
•4 public members appointed by president with consent of Senate
MCC Compact Countries
MCC Threshold Programs
UNDERSTANDING THE MCA
MCA appears to be a fully rational program consistent with the
best available social science knowledge when the program
was first proposed.
Aid only effective in good policy environments
The real story is much less neat
JOHN KINGDON: POLICY STREAMS
Three Policy Streams
1. Problem generation:
• Crisis, Budget, Legislative renewal, Feedback that an existing program is not
working
2. Policy Alternatives
• Bureaucrats, think tanks, academics
• Proposals survive if they are:
• Technically feasible
• Conform with policy makers ideology
• Can survive budget constraints
• Policy stew world operates through persuasion
3. Politics
• National mood among attentive publics
• Elections or changes in key players such as cabinet secretaries or committee
chairs in Congress.
• Political stream operates through bargaining
KINGDON (CONT.)
Policy Windows:
• Opened by political stream or problem generation stream
• Last for a limited period of time
Policy Entrepreneurs
• Bring Streams together
• A policy alternative must be ready to go when the policy window
opens
MCA AND POLICY STREAMS
Problem Generation Stream
• 9/11, US Security, Development
Policy Alternative Stream
• Relationship between governance and development.
• Position articulated by World Bank and academics
Political Stream
• President Bush’s commitment to attend Financing for Development
Conference
• Relationship with President Fox
• Need for a deliverable
POLICY ENTREPRENEUR
Deputy National Security Advisor, Gary Edson
Stanford BA
Chicago Law and MBA
Edson is sherpa for G 8 meeting
Good governance discussed at preparation meeting for Canada G-8
summit
Edson discusses idea for new aid program with small number of
people at State and NSC