Tuesday, January 9

Millennium Challenge Account: America's first truly modern foreign policy initiative shoots itself in the foot

In yesterday's post we saw that while traditional types of US foreign aid and development assistance for the poorest countries continue, the Millennium Challenge Account (MCA) represents an experiment in basing foreign aid (in this case, financial grants) on an objective set of criteria. Before we turn to a discussion of the criteria we need to ask, "Objective, according to what standard?" The standard is US defense.

The post 9/11 era of asymmetrical warfare, whether covertly mounted by governments or carried out by decentralized cells, inverts the Cold War pyramid of war. During the Cold War neither superpower feared a catastrophic attack from a client state in the poorest world regions. Today, even a relatively poor developing nation with a small military that is not technologically advanced can fund a series of guerilla-style attacks to bring down a major government.

From that viewpoint, modern US defense policy and its foreign policy adjunct give high priority to defusing situations that lead a developing nation to launch armed aggression against the United States.

A very weak government tends to establish an oppressive regime; such governments are the prime generators of social conditions that are fertile ground for internal unrest, aggression against neighboring states, and the designation of the Bogey Man. The Bogey Man in this context is a nation or group (e. g, America, the Jews) that a government blames for its shortcomings.

While oppressive government can arise from several causes and conditions, as a general rule it's seen today largely as a failure of a national government to address overwhelming internal problems in the social or economic spheres and/or external problems in the defense sphere. In other words, weak governments with bad policies and/or inadequate administration are seen as the prime candidate for takeover by factions that would seek to make war on the United States.

That reasoning is the foundation for devising a US foreign aid/development assistance program that aims to help a cooperative government create or strengthen national programs that defuse internal social unrest and reduce external conflicts. In short, the idea is to use financial assistance in a way that helps a developing nation crank out good government.

Just what constitutes good government? From many sources, including the World Bank and International Monetary Fund -- which have extensive experience dealing with truly atrocious governments -- and from the historical record, today we have a pretty good idea of the criteria.

So let's take a look at the MCA criteria; while you read, see if you notice something very odd about one item on the list:
The funds in the Millennium Challenge Account will be distributed to developing countries that demonstrate a strong commitment toward:

Good governance. Rooting out corruption, upholding human rights, and adherence to the rule of law are essential conditions for successful development.

The health and education of their people. Investment in education, health care, and immunization provide for healthy and educated citizens who become agents of development.

Sound economic policies that foster enterprise and entrepreneurship. More open markets, sustainable budget policies, and strong support for individual entrepreneurship unleash the enterprise and creativity for lasting growth and prosperity. (1)
Stumped? Okay; I''ll give some hints. (Regarding the second quote, ignore the sour grapes about President Bush's motives for tripling US aid to Africa; see the entire article for that discussion):
"The idea to revive state-owned industries [in Iraq] has come full circle. Iraq's economy under Saddam Hussein was state-controlled. When the first U.S. team arrived, its members looked to reenergize the industries as a key element in jump-starting the economy. But the subsequent Coalition Provisional Authority, run by L. Paul Bremer, opted to scrap the effort and emphasize a free-market economy, even though Iraq was ill equipped to make a dramatic conversion. The failure of a free market and the lack of both local and foreign investment has led the Defense Department to launch a massive reassessment."(2)

"[President Bush] has tripled direct humanitarian and development aid to the world's most impoverished continent since taking office and recently vowed to double that increased amount by 2010 -- to nearly $9 billion. [...] Some advocates suspect that the Bush administration's interest in Africa is motivated more by business ambitions than altruism. Grants made by the Millennium Challenge Corp., a foreign aid program developed by Bush with the aim of rewarding poor countries that practice good governance, are also partially predicated on whether countries have open markets that allow widespread foreign investment."(3)

"[Russia] has come to a point where further economic development will, to a large degree, be determined by the state of its political and judicial institutions. To achieve an economic breakthrough, it is no longer sufficient to have good labor and land legislation, laws on banks and bankruptcy, taxes and budgets. All these laws and regulations have to be implemented in practice, which requires an efficient state machine, just courts, and a good law enforcement system. In other words, Russia needs its basic state institutions to function efficiently."(4)
Still stumped? Okay, one more clue; again, ignore the sour grapes part:
"I know a lot of activist groups who believe that the president's stated commitment to Africa is, at best, a play on words," said Nii Akuetteh, executive director of Africa Action, a Washington-based advocacy organization.

"First of all, much of the aid is emergency food or medical aid, rather than true development assistance. Then there are conditions that are attached where the emphasis is more on countries that open up their markets so American companies can go in and privatize things like water and electrical service or have access to certain resources."(3)
Akutteh is not talking about the MCA disbursements, which are outright grants. But consider the observation about a privatization condition in the context of Bremer's confounding decision, noted above. Imagine a nation where the key industries and services are bombed to rubble or in ruins for decades, where the only government administrative efficiency is repressing dissent, where the rule of law is absent, where the judicial system is a mockery -- and along comes Paul Bremer and says, 'What this country needs straight off the bat is a free market economy.' Try to imagine, then apply the MCA "open markets" condition.

Ladies and Gentleman of the Millennium Challenge Corporation:

What planet do you reside on, if you think that the criteria of a 'free market economy' and 'opening a country's markets to foreign investment' are top priority for a weak government? In a nation that doesn't even have a rule of law or the judicial system to enforce the rule?

What are you smoking, if you think you can dam the tide of repression by demanding that a nation struggling toward a semblance of modern government strengthen itself by allowing foreign investors to take over key industries in the country? When the nations don't even have the courts system, the banking system, the law enforcement, the -- the everything that Russia had to build from scratch after the Soviet Union dissolved?

The reasoning behind the government approval for MCA is supposed to be strategic -- you know, that concept having to do with national defense? On my knees, Ladies and Gentleman of the MCC, if you want a strategy to strengthen weak government in poverty-stricken nations that have only a few trappings of modernity, you need a reasonable set of priorities before establishing a reasonable set of criteria. Helping US corporations buy up the country is not seen as a high priority by the target population and recipient government. And in fact, not seen as priority by anyone who can chew and walk.

On my knees, Ladies and Gentleman of the MCC, globalized trading principles do not equate to freedom and the rule of law. Just look at China, if you don't believe me. Wake up! Then set up a list of priorities for how a government should go about meeting criteria for sound government, and apply the list before analyzing qualification factors.(5)

Then splash water on your face and ask whether the experience of Western Europe in the post WW2 period should be the model for hauling a nation out of ruins. Ask yourselves, "What national government experience would make the best model in this era?" For the answer watch carefully; don't blink:
"I don't know that the Iraqi government has ever demonstrated ability to lead the country, and we shouldn't be surprised," said retired Army Lt. Gen. Jay M. Garner, who was the first U.S. official in charge of post-war Baghdad.

"You'll never find, in my lifetime, one man that all the Iraqis will coalesce around." Iraqis are too divided among sectarian, ethnic and tribal loyalties, he said, and their loyalties are regional, not national.(2)
Now, what other country could Garner be describing? Well, several in this era. But what country started out with the same set of basic problems and has made great progress within less than a decade toward solving them? Why that would be Russia, wouldn't it?

So to accomplish the goals of the Millennium Challenge Account, Ladies and Gentleman of the MCC, swallow your pride and ask Russia's government for advice on how they would go about bringing in good government in Iraq. You don't have to follow every advice but at least ponder it all, and try to apply general principles that correct the flaws in the MCA criteria.

Keep in mind -- or finally confront -- that Western Europe is an inadequate development model for today's poorest developing nations because they are not under the protection of NATO. Much of the government's revenue in the poorest countries goes to defense because they cannot be guaranteed that the United States and its NATO partners will come rushing to their aid in case of an invasion. Russia shared this problem in the wake of the Soviet Union's dissolution. So again, Russia makes a valuable model when sorting out priorities for where to put funds that support good government.

The Millennium Challenge Account is a very important initiative that deserves far more attention than it's received in the US media. And it deserves more attention from Congress. Although the MCA is underfunded for it's objectives, it needs the kinks worked out before pouring on the megabucks. Greater public awareness of the initiative can help in the fine-tuning process.

1) From the USAID fact sheet on MCA

2) The Washington Post, January 7, 2007.

3) Bush has quietly tripled aid to Africa.

4) The risks and traps of the new reform stage in Russia by Vladimir Mau for Rossiyskaya Gazeta and RIA Novosti, December 2006.

5) From The Heritage Foundation paper on the MCA:
To qualify for the MCA, a country must score above the median[26] for half of the indicators in each policy area—that is, it must be above the median in at least three of the six performance indicators that measure good governance, two of the four that measure investment in people, and three of the six that measure economic freedom. It must also be within specified income levels.[27] The Bush Administration also has determined that countries must pass the “control of corruption” indicator to qualify.[28]

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