The Foreign Service Journal, December 2008

authorizing legislation to correct this deficiency, but it remains untested. Meanwhile, by statute and practice PEPFAR focuses heavily on the delivery of services, not the building of sustainable health-care institutions — which are what is most needed if the program is to be maintained over the long term. While significant, these shortcomings certainly do not mean we should abolish either the MCC or PEP- FAR. But the new administration should make it a pri- ority to reform how the two programs operate. Bringing Order out of Chaos This brings us to the central organizational problem affecting the U.S. government’s aid program: Structural chaos has become so serious that it is compromising the very effectiveness of the program. The federal government now has five major inde- pendent funding streams, each accounting for more than a billion dollars in annual expenditures, for field offices operating in developing countries around the world: USAID, the Department of Health and Human Services and the Centers for Disease Control, the State Department, the Millennium Challenge Corporation and the Department of Defense. Faced with this cacophony of voices, developing country officials are understandably confused about who actually speaks for the U.S. government. Making matters worse, the five organizations frequently clash over turf, policy and even elemental definitions of what development is all about. As a result, they work at cross-purposes, get in each other’s way and require endless coordination, with very high transaction costs and implementation delays when disputes break out, as they frequently do. The evidence is substantial that none of these other departments have improved on USAID’s performance, and some have done much worse. More coordination will not solve the problem, for as James Q. Wilson’s 1989 book Bureaucracy suggests, coordination has a poor track record in resolving intera- gency disputes. For instance, the “F” process has not succeeded because it does not control anything other than the USAID funding stream. What is needed is a reconsolidation of all funding streams, budgeting accounts and implementation units into one agency, tied to a single implementation mission in the field, with different operating mechanisms de- pending on what the foreign aid objective is. This dis- cipline was maintained by OMB from 1961, when USAID was created, until 1991, when other depart- ments began developing their own aid programs. All foreign aid functions should be consolidated within USAID or some new entity entirely separate from the State Department. USAID should be pre- served as the foundation for building any new foreign aid agency, with a much larger in-house technical staff to be deployed by a much larger presence in the field; an expanded toolbox of implementation mechanisms; a changed business model; and freedom from sector- based earmarking. Consolidate Around USAID Policymakers should avoid reinventing the wheel, given all that has been learned about what works and what does not in development theory and practice, and because the repository of this knowledge and experi- ence in the federal system is USAID. Moreover, much of what is regarded as dysfunction- al in USAID is actually a consequence of legitimate dis- agreements over whether foreign aid should principally be used to provide social services and reduce poverty, build indigenous institutions through improved govern- ance and democracy promotion, or stimulate economic growth. The attempt to merge the diplomatic mission of State with the development mission of USAID has not been a success, because the two agencies’ operating sys- tems, institutional cultures, time horizons and person- nel requirements are all profoundly different. The clos- er each comes to the other, the less effective both are in undertaking their own missions. For instance, State should control an Economic Support Fund account as it did during the Cold War, for allocation based on U.S. strategic interests; but USAID (or its successor) would spend the money and imple- ment the programs once the allocation decisions were made. A similar account should be established for DOD, which it would allocate based on strategic focus and tactical needs; but again, USAID would spend the funds and implement the programs. In order for this new consolidated system to improve the effectiveness of our aid program, legislators will have to constrain their appetite for earmarking of funds by sector. In the absence of relief from earmarking, F O C U S 36 F O R E I G N S E R V I C E J O U R N A L / D E C E M B E R 2 0 0 8