Missing the Boat on Foreign Aid

February 2000

U.S. foreign aid in 1997 -- at less than one-tenth of one percent of gross domestic product -- has not only reached its lowest level ever, but is also the lowest in relation to GDP of any developed nation. I know that the citizens of the United States do not need me, or anyone else from abroad, to lecture them on how to spend their money. But, as a European observing the present debate over foreign aid in the United States, I am struck by how the debate in this country ignores an important set of American values and skills. Leaving aside the fact that it is not in the best interest of the United States to appear ever more stingy and selfish, I am struck by how easily the principal argument often raised against foreign aid can be countered, and with truly American ideas. After all, the main argument against foreign aid is not that it costs too much nor that the USA presently could not afford it. Rather, the critics argue that it encourages waste by bloated aid agencies and corrupts third-world governments. Since aid has accomplished so little, the critics claim, there is no need to continue it.

To see that foreign aid can effectively improve the lot of the world’s poorest, the United States does not have to look far. All that needs to be done is to apply to the foreign aid sector some of the same business principles that have made the United States the leading economy of the world: individual initiative, entrepreneurship, creativity, incentives -- and market rules.

Remarkably, applying these features to the world’s poorest countries does not mean one should no longer invest in foreign aid. It rather means working with different partners and applying different concepts. What —or whom -- should one focus on? Not governments, but the "civil society" growing all over the world. Millions of women and men outside of government take the initiative to play public leadership roles in improving their own livelihoods, and that of their fellow citizens, for a better future. Let's help these folks to accomplish their plans -- and, in American style, do it better, bigger, faster, broader. To this end, give them the instruments to do better work: management know-how, fundraising capacity, and access to empower their efforts.

I find it very strange that so many in the United States overlook using these principles as an instrument to shape foreign aid. After all, around the world, they are viewed as central to the U.S. way of accomplishing things. These concepts are the real reason why the United States is the leading nation in the world. The world looks up to the United States in so many areas because it pioneered the ideas of limited government and "civil society" -- ideas which, in the post Cold-War era, must clearly be the organizing principles of any successful society.

Now, at long last, many poor countries of Latin America, Africa and Asia are truly embracing the ideas of the 200-year old American Revolution. More and more people in those countries understand that it is only through their own efforts, in organizations of their own creation, that they can improve their lives and the lives of their fellow citizens. This surely is not the time to cut off the aid flow -- it is the time to redirect it. It would be a sad irony indeed if the Americans -- of all people -- turned their backs on the world-wide movement toward adoption of American principles of efficiency and accountability.

The ever-broader interest in applying business principles to not-for-profit causes has even reached the top halls of management sciences. The most recent issue of the Harvard Business Review carries an article by Michael Porter and Mark Kramer arguing for this approach. Beyond academia, there is an ever-wider understanding that, just because an organization is not-for-profit -- and just because a cause is good -- is no reason to suspend the principles of efficiency, openness and accountability. That is the lesson that needs to be applied to foreign aid.

My own work in philanthropy in Latin America has convinced me that there are dedicated individuals and groups who can use more resources. These people -- mainly involved in creating the institutions of civil society in these countries -- have innovative and effective approaches to community building, education, and nature conservation. As a business entrepreneur and philanthropist, I expect accountability and results -- and get them. In my experience, aid can help to transform societies as its supporters have always wished, provided it is directed at the right people, and accompanied by a tough-minded insistence on results.

In contrast, cutting off aid now is a rather perverse way of "rewarding" those who are finally adopting U.S. principles of governance. Having attained a measure of democracy and accountability, these countries find themselves liable for the huge loans taken out, and wasted, by the previous dictators. We in the West certainly should bear some of the responsibility for these loans. We knew the previous leaders of these countries did not represent their people, and in many cases we could suspect that much of the aid was not helping those it was intended to help. I find it hard to understand why some American politicians prefer forcing newly democratic regimes to pay off the debts of their corrupt authoritarian predecessors. Do they not understand how much this endangers the continuation of democracy in these countries?

At present, U.S. foreign aid payments are truly rather small. The 1997 total of $6.9 billion in non-military aid was about the same as the current stock market capitalization of Unicom, a Chicago-based utility company. With 16,000 employees, Unicom can boast of ranking just about in the top 350 U.S. companies. In other words, 350 U.S. companies are each worth more than what the United States is willing to provide for poor countries each year, representing the majority of world’s population.

In conclusion, employing the very same forces that made -- and make -- the United States great, the country should take a fresh look at new opportunities in co-operating with the poorer people of our world. The world’s leading nation surely wishes to be viewed as more than just the country of military might, arms sales, and business deals. There are constructive partners who, given the right resources, can help improve the lot of millions of people -- making the world a better place for all of us.