The Foreign Service Journal - November 2017

THE FOREIGN SERVICE JOURNAL | NOVEMBER 2017 57 Twenty years after Bauer’s seminal essay, John Kenneth Galbraith struck the same note in A JourneyThrough Eco- nomic Time (1994). “Assistance programs have done something to serve the conscience of the fortunate; they have done much less to lessen despair,” Galbraith wrote. “Those countries … that have flourished…have done so because of their own internal dynamic. This, not foreign assistance, has been the moving force.” Some Striking Evidence Now in 2017 we can look back not just at this corpus of rigor- ous criticismbut at some striking evidence of the unimportance of aid for development. Take, for instance, the “Least Developed Countries” list agreed upon by the United Nations in 1971. Today there are 48 countries on the list, 21 of which have been on the list since it began 46 years ago. In all this time only three of the origi- nally listed countries have “graduated” from it (Botswana in 1994, Cabo Verde in 2007 and the Maldives in 2011). More striking is how dependent on foreign aid these LDCs are. On the current list, there are eight countries where foreign aid is greater than their govern- ments’ national budget (e.g., Haiti). Many of the LDCs are not only not improving but are, inmany ways, worse off than before. Malawi, Mali, Burundi, Sierra Leone, Guinea, Burkina Faso, the Central African Republic and others suf- fer from growing poverty rates, and unimaginably high unemploy- ment among large populations of young people. The argument that more aidmoney will domore thanmerely keep them alive simply does not hold up. How can a major industry like foreign aid ignore such a four- decade-long critique? Imagine the U.S. auto industry persisting decade after decade in ignoring those who, beginning in the 1960s, began pointing out its shoddy workmanship andmanagerial back- wardness?The auto industry turned around, but not just because of the critics; it stoppedmaking money. In short, it was self-interest that prompted change; the auto industry both heard its critics and saw its balance sheet. GM and Ford want to stay in business; indeed, that is their raison d’etre. But foreign aid is fundamentally different. The only genuine metric of foreign aid’s success is the degree to which it becomes unnecessary; the goal is to go out of business. Yet because foreign aid has become a big business, a kind of aid-industrial complex, using “sales” as the core metric, self-interest does not enable change: indeed, it prevents it. Like President Dwight Eisen- hower’s military-industrial complex, the aid-industrial complex marshals political sup- port for increased government spending for its work, on the grounds that foreign aid is cru- cial for world peace and devel- opment. Were the aid establishment to take its critics to heart, this wouldmean a reduction of aid, if not its end inmany countries. The Stakes: Success vs. Self-Interest Over the last 20 years the outsourcing of U.S.-funded develop- ment aid to contractors has grown to the point where they have much to lose. In Fiscal Year 2012, 28 of the top 40 USAID vendors were American for-profit or nonprofit firms whose total contracting business with USAID amounted to $5.37 billion, fully 25 percent of the agency’s budget. In FY 2014, 33 of the top 40 vendors were American firms and their total business with USAIDwas $5.53 bil- lion (the latest data available on www.usaid.gov is fromNovember 2014). And these are only the top vendors. There are scores of other U.S. organizations that get a piece of the American aid pie. The cohort is a surprisingly mixed group, frommission-driven (and venerable) nonprofit organizations like Catholic Relief Services ($179 million in USAID business in FY 2012; $206.3 million in 2014) and Save the Children ($128 mil- lion in FY 2012, and $125.9 million in 2014) to for-profit firms like Chemonics, founded in 1975 ($501.7 million in USAID business) or huge newcomers to aid like Tetratech, which started in the 1960s as an engineering and construction firm and now, with 35,000 employees, has expanded intomany fields including international development ($360 million in USAID business in 2015 alone). Like the other dozen or so “Beltway bandits,” these firms pull names from consultant databases to put together teams to implement projects they bid on, and can be counted on to follow the fine print of USAID rules and provide the “deliverables” in the contract, whether they make developmental sense or not. But whether for- profit or nonprofit, the scramble for position and gain in the aid marketplace marks all these organizations. With negotiated overhead cost rates in the 30 percent to 45 percent range for the more established firms, aidmoney can be easy money. While the aid industry is accountable in the strict legal sense, it is certainly wasteful. In the interest of responsible oversight, a contracted project might easily charge two to 20 days a month for supervisors at different levels of the firm to look at what Today there are 48 countries on the [U.N. Least Developed Countries] list, 21 of which have been on the list since it began 46 years ago.