Membership

Forum 2002: Address as Prepared by
Andrew Natsios
ADMINISTRATOR, U.S. Agency for International Development

Remarks to InterAction Annual Forum
Washington D.C.
June 5, 2002

Fifty-five years ago today, Secretary of State George C. Marshall gave a speech at Harvard College that would set the nations of Western Europe on the road to economic recovery and political integration. In the process, this country would abandon the isolationism that had been our peacetime policy since independence and embark upon a path of international engagement we have maintained ever since.

In his remarks, Marshall cited the "hunger, poverty, desperation and chaos" that threatened the nations of post-war Europe, and called on the people of the United States to "face up to the vast responsibility which history has clearly placed upon our country."

"The truth of the matter is that Europe's requirements for the next three or four years… are so much greater than her present ability to pay that she must have substantial additional help or face economic, social, and political deterioration of a very grave character," he said.

Thus began the Marshall Plan, the most successful foreign assistance program in history. While most Americans are familiar with the aid we furnished and the remarkable use Europe made of it, the demands we placed on the Europeans before they could get it are often overlooked. But Marshall was quite specific about them from the beginning.

"There must be some agreement among the countries of Europe as to the requirements of the situation and the part the countries themselves will take," he stated clearly. "It would be neither fitting nor efficacious for this Government to undertake to draw up unilaterally a program designed to place Europe on its feet economically…The initiative, I think, must come from Europe."

So from the very beginning the Marshall Plan was a bargain, an agreement between the United States and the Europeans about the economic and political reforms they needed to make before they could get our assistance. Given their history, coordinating their efforts would prove difficult for the Europeans. But soon the benefits -- to Europe and the United States - would be abundantly clear to everyone. There is no question that the prosperous, stable, democratic Europe we take for granted today owes much to the process the Marshall Plan began.

Today, the United States is once again launching a major new foreign assistance initiative, one whose significance may one day rival the Marshall Plan. I am speaking of the Millennium Challenge Account - or MCA -- that President Bush launched on March 14 in a speech at the Inter-American Development Bank.

Only three times since World War II has a president gone to the American people and introduced a vigorous new foreign assistance program. Each has been issued in times of peril, and each time the President explained his reasons in terms of compassion and national security.

The first was in March 1947, three months before Marshall's historic speech, when President Harry S Truman warned of the grave threats facing Greece and Turkey.

The second was at the height of the Cold War, when President John F. Kennedy launched the Alliance for Progress in March 1961. Soon he would follow this initiative by creating the U.S. Agency for International Development.

The third such time was March 14.

Why, after years of relatively flat budgets, would the President propose a new account, one that will amount to five billion dollars a year by 2006?

There are several reasons.

First is our country's long tradition of fighting poverty and helping those in need. "As a nation founded on the dignity and value of every life, America's heart breaks because of the suffering and senseless death we see in our world," the President said. Poverty casts "a dark shadow across a world that is increasingly illuminated by opportunity. Half the world's people still live on less than $2 a day. For billions, especially in Africa and the Islamic world, poverty is spreading and per capita income is falling."

Second is the relationship between the poverty he cited and national security, a relationship that the events of September 11 has underscored.

"In Afghanistan," the President noted, "persistent poverty and war and chaos created conditions that allowed a terrorist regime to seize power. And in many other states around the world, poverty prevents governments from controlling their borders, policing their territory, and enforcing their laws."

The third reason is that our foreign assistance has not often produced the results we would like. It is a fact that in the past two decades only one country - Botswana - has graduated from the ranks of the Least Developed Countries. That is not a particularly good record.

Improving that record is my single highest priority as USAID Administrator. To that effect, we have created four new pillar bureaus, giving our programs a tighter focus. We are promoting trade and economic growth and giving new emphasis to agriculture - for after all ¾ of the people in the developing world live in rural areas. We are spending more money in the field, where it matters, and less in Washington. We are building new alliances with a host of private sector partners, pooling our experience with their energy, ideas and financial resources. And we are designing programs that offer incentives and demand new levels of accountability from the countries we work with.

But more needs to be done. As the President observed, "many of the old models of economic development assistance are outdated… The needs of the developing world demand a new approach."

The heart of this new approach is an emphasis on holding governments accountable for the policies they pursue. Like the Marshall Plan, the MCA begins with a bargain. As the President put it, countries that wish to take advantage of our generosity need to "adopt the reforms and policies that make development effective and lasting."

These can be divided into three basic categories: governing justly, investing in people, and economic freedom.

Again, to quote President Bush: "Good government is the essential condition of development. So the Millennium Challenge Account will reward nations that root out corruption, respect human rights, and adhere to the rule of law. Healthy and educated citizens are the agents of development, so we will reward nations that invest in better health care, better schools and broader immunization. Sound economic policies unleash the enterprise and creativity necessary for development. So we will reward nations that have more open markets."

Let me add here that while the general outlines of the MCA are quite clear, discussions are still under way about the criteria that will be used to determine which countries will be eligible for MCA funding.

Why countries fail to develop

When I was at Harvard's Kennedy School, there were two basic schools of thought about public administration. The first -- the qualitative analysis school -- relied heavily on mathematical models and economic analysis to decide the proper public policy decision in a given circumstance. While this approach was interesting, people could seldom use it. After finishing school, they would return to the government agencies or ministries where they worked and immediately be confronted with the same political realities that were there when they left. Public policy in the real world is not decided through mathematical formulas: politics always intervenes.

The second school of thought relied on political or "stakeholder analysis." This looks at a given question from the point of view of the people who have a vested interest in the outcome. As someone who has spent much of his adult life in government at the state, national and international level, I find it hard to believe that anyone would dismiss this approach. Without understanding whose interests are at stake and how these interests are brought to bear on the people who make decisions, you simply cannot understand why countries make the choices that they do.

There are reasons why many Third World countries have failed to raise the living standards of their citizens despite receiving millions of dollars in outside assistance. Invariably, there are vested interests, economic and political oligarchies that exploit the economic and political weakness of the state and profit from people's lack of political power and human rights.

The solution is to identify reformers, agents of change who we can support so that they can compete with these vested interests for the good of the country.

At the same time, we are looking to create competition among countries for our development dollars. The new resources the MCA will make available - five billion dollars a year - will be a powerful incentive to encourage them.

We expect that only a relatively small number of countries will be selected for MCA funding at the beginning, so those that do can expect a substantial reward. In the meantime, we are refashioning our mandate in USAID for non-MCA countries, to focus on helping these nations qualify for MCA at some point in the future.

Still, there are predatory governments that put little stock in the well-being of their people. Not surprisingly, they have little to show for the foreign assistance they have received. The fact is that until they change, there is little we can do to help them, except through our emergency programs.

The Enterprise for the Americas Initiative

One of the most successful development models this country has designed is the Enterprise for the Americas Initiative (EAI). Launched toward the end of the first Bush Administration, the EAI offers countries in Latin America and the Caribbean innovative ways to pay down their old USAID and PL 480 loans and reduce their overall debt burden.

In order to be eligible, however, they must meet certain criteria: committing to democratic government, maintaining an open investment regime, and respecting intellectual property and human rights. This quid pro quo approach has proven highly successful, so much so that the EAI program has been expanded worldwide and incorporated into the Tropical Forest Conservation Act.

I have been told by a number of Latin American leaders that the EAI is one of the best programs we ever designed for the region, for it gave reformers a powerful set of financial and political tools to fight the local oligarchies, military or socialist authoritarianism.

The MCA will do the same, only on a much larger scale. If passed by Congress, it will constitute the largest single increase in development assistance funds in this country's history.

The Role of NGOs

Now I would like to turn to another subject, the role of NGOs in our foreign assistance programs. Let me say at the outset that the MCA will work through many different organizations. Not all of them will be NGOs.

There are three essential roles that I see NGOs playing in development assistance.

The first is in education and health care. Most of the organizations here today have worked in these fields for many years. By and large they have a done an excellent job and they have attained a level of expertise that no other organizations can match.

I expect USAID to work closely with the countries that are selected to receive MCA funding in areas where we offer a comparative advantage. We will need help from the NGOs in health and education. This will probably mean working more closely with governments than you have done previously - but only those that have demonstrated their commitment to the criteria the President has laid out.

The second is in the development of civil society. This is a newer, but absolutely vital role for the NGO community. There are reasons why the industrialized, free-market democracies of the West have achieved unprecedented levels of prosperity and stability. These include a democratic system of governance; long-term investment in public education; and sound policies that encourage economic growth, commerce, the creation of a middle class, and the rule of law.

The free market democracies have all been built on a robust system of checks and balances. Power is shared in a democracy - between the people and their elected representatives, among the executive, the legislative and the judicial branches, and between the national and local government. But beyond that exists a vibrant civil society, advocacy and lobbying organizations, interest groups, the media, free associations of every kind. This rich civil sector acts as formidable constraint to the abuse of power by predatory oligarchies or governments.

I have no doubt, therefore, that we will continue to work closely with NGOs on civil society programs.

The third is in agriculture integrated with natural resource management. With the exception of a few city states like Singapore and Hong Kong, no country, our own included, has achieved developed nation status without first investing heavily in agriculture and the rural economy. And yet the amount of resources the donor community has invested in agriculture has dropped dramatically in the last 15 years. We are now changing that, as I mentioned above.

The world is expected to add two billion people over the next 20 years. Ninety-five percent of them will come from the developing world. Most of them, therefore, will live in the countryside and depend on farming and herding. Unless we want to face the consequences, we simply have to help them do a better job.

We also need to pay more attention to the informal sector of society that Hernando de Soto has written about so extensively. As he details in The Other Path, many people in the developing world never gain clear title to the land they farm or the homes they live in. Consequently, they are unable to capitalize fully on their holdings, the way we do in this country. All told, de Soto estimates that more than $9 trillion is tied up in these assets." But how much more could they be worth, if countries were to formalize their ownership, and permit people to harness the full value of what they hold?

So I see a growing role for NGOs, working with governments to expand property rights and helping them sort through the legal issues that limit people's holdings. I also believe that we need to keep expanding our microfinance programs, for they have proven very successful in helping individual households lift themselves from poverty.

There are limitations to what NGOs can reasonably expect to do, however. Most NGOs work at the local level - and very effectively. But they seldom have the means to run programs broad enough to work at the national level.

They also tend to work outside of government, so they lack experience in improving the capacity of government - particularly local and regional governments -- to deliver needed services.

Conclusion

I would like to conclude with a comment on a sterile debate that still rages within international development circles. I am sure you are all familiar with the argument that all that is needed for development is to throw money at it. This is nonsense. It defies history and all the lessons we have learned about the way countries grow and develop. It completely ignores the uses that development money is put to and the negative effects of corruption, incompetence and ill-conceived policy choices. And it begs the entire question of accountability, sound management and quality control.

Yes, development takes money, but official development assistance is hardly the only source for it. As President Bush noted when he announced the Millennium Challenge Account, "most funds for development do not come from international aid. They come from domestic capital, from foreign investment, and especially from trade… Trade is the engine of development, and by promoting it, we will help meet the needs of the world's poor."

The MCA is one of the most exciting new developments in the field of foreign assistance in many years. It promises a 50 percent increase in the resources this country will devote to fighting poverty, disease, and weak or corrupt governance. And most importantly, it promises a more effective approach, one that emphasizes accountability and sound policy.