The Heritage Foundation

WebMemo #1878

April 1, 2008

April 1, 2008 | WebMemo on

The Global Poverty Act: The Wrong Track for U.S. Aid Policy

The Global Poverty Act of 2007, currently before Congress, is superfluous, misguided, and dangerous:[1] Superfluous in that it ignores current U.S. government development goals and strategies, which already include the elimination of global Poverty; misguided in that it focuses on foreign aid as the pathway to global development at a time when aid flows, large as they are, are insignificant in size and impact compared to the massive resources available to developing countries from trade, foreign direct investment, and remittances; and dangerous in that its exclusive focus on one goal for U.S. assistance-poverty eradication-risks undermining the many other vital roles played by U.S. assistance in promoting the safety and security of America and her interests around the world.

The Global Poverty Act (H.R. 1302 and S. 2433), would require the President to "develop and implement a comprehensive strategy" to promote "the reduction of global Poverty, the elimination of extreme global Poverty, and the achievement of the Millennium Development Goal (MDG) of reducing by one-half the proportion of people worldwide, between 1990 and 2015, who live on less than $1 per day."

The primary tool envisaged by the co-sponsors is apparently a massive increase and re-focusing of U.S. foreign aid. Surprisingly, the facts of global development undercut the legislation's rationale and focus. Indeed, the bill is oddly out of touch with the Millennium Development Goal it purports to embrace.

The latest report from the United Nations indicates that the goal of halving the proportion of people worldwide who live on less than $1 per day between 1990 and 2015 was already 80 percent achieved by 2004, 11 years before the deadline. [2] According to the U.N., "the MDG target will be met." U.S. contributions toward this achievement are substantial. The U.S. is the largest source of foreign direct investment in developing countries, the largest recipient of developing country exports, and the largest provider of development and humanitarian assistance to developing countries. In a world economy that is increasingly market-oriented and globalized, unprecedented levels of resources are flowing to developing countries. The share of these resources coming from the private sector, primarily through the mechanisms of trade, investment, and remittances, dwarfs official aid flows.

In the context of such robust development progress and the heavy U.S. engagement in contributing to it, the Global Poverty Act adds little of value but could mistakenly convey implicit U.S. support for the broader range of statist economic bromides in fashion at the U.N., chief of which is that developed countries should provide 0.7 percent of their gross domestic product annually to developing countries. Such a commitment would require U.S. taxpayers to fund foreign aid at more than quadruple current levels, at an amount of $100 billion per year. There is scant evidence that such a sum is necessary or, if provided, would actually promote development.

The Millennium Summit and Millennium Development Goals

Leading up to the end of the 20th century, there was widespread dissatisfaction with the progress being made toward development and Poverty alleviation in the developing world. For decades, the United States and other donor nations had tried to catalyze economic growth in poor countries by providing trillions of dollars in bilateral and multilateral development assistance. Between 1960 and 2006, the U.S. and other developed nations spent more than $2 trillion (in 2005 dollars) to promote development through bilateral and multilateral grants and loans.[3] Few if any development successes could be attributed to this assistance.

The United Nations General Assembly decided to designate its 55th session in 2000 as a "millennium assembly" to "provide an opportunity to strengthen the role of the United Nations in meeting the challenges of the twenty-first century."[4] As part of the millennium assembly, the UN held a Millennium Summit in September 2000 that brought together the world's largest gathering of heads of state to "tackle major global challenges such as how to pull over 1 billion people out of extreme Poverty, reverse the spread of HIV /AIDS and protect the environment."[5]

At the Millennium Summit, the participants adopted a Millennium Declaration that addressed a wide range of problems related to peace, security, and development. On development, it included a number of specific targets such as halving, by the year 2015, "the proportion of the world's people whose income is less than one dollar a day and the proportion of people who suffer from hunger and, by the same date, to halve the proportion of people who are unable to reach or to afford safe drinking water." It also included the goal of ensuring by 2015 that "children everywhere, boys and girls alike, will be able to complete a full course of primary schooling and that girls and boys will have equal access to all levels of education" and the goals of reducing "maternal mortality by three quarters, and under-five child mortality by two-thirds, of their current rates."[6]

Not content with the actual words agreed to unanimously by the member states of the U.N., the UN Secretariat decided that it needed to repackage the Millennium Declaration, or at least part of it, into the Millennium Development Goals. The product, never submitted explicitly to member states for approval, selected 17 or 18 (depending on how you count) development related targets or pledges from the document and grouped them under eight headings determined by the Secretariat.[7] The result, the "Millennium Development Goals," while capturing the imagination of the general public and serving as a useful fundraising tool for the UN and development-oriented governmental and non-governmental agencies, by all accounts falls far short of an actual development plan or comprehensive strategy.

The widespread failure of poor countries to develop despite extensive foreign aid and concern that the objectives of the declaration would not be met led donor nations to meet and reevaluate the Millennium Declaration's development strategies at meetings such as the 2002 Monterrey Conference on Financing for Development, the June 2005 G-8 meetings, and the 2005 U.N. World Summit. While these meetings have produced voluminous documents filled with admirable goals, they have failed for the most part to confront the failure of past aid efforts.

Despite numerous economic studies showing that good governance, economic freedom, and the rule of law are key factors in economic growth, specific goals and targets in these areas have been strongly resisted by developing countries in UN negotiations and are thus missing from UN plans and strategies, including the Millennium Development Goals. Their absence is remarkable when one considers that economic growth is a key overarching goal. Without economic growth, countries will lack the resources to support efforts to improve the lives of their citizens.

The Bush Administration's Delicate Balance

The Bush Administration has been very careful to express its support for the objectives of the Millennium Declaration without specifically endorsing many of the specific indicators or documents that the Declaration has spawned. For instance, the U.S. has consistently couched its commitment to increase aid as part of a pact with developing countries to adopt policies that would create an economic environment more conducive to growth. Both the 2000 Millen­nium Declaration and the 2002 International Confer­ence on Financing for Development emphasized the responsibilities of developing countries in the devel­opment partnership. As noted by Ambassador John Bolton:

In Monterrey, Mexico in 2002, we all made commitments to fight Poverty through development. We agreed that we had to change the models of the past, which focused primarily on resource transfers, to solutions premised on the proven methods of good governance, sound policies, the rule of law, and mobilization of both public and private resources.[8]

Another example is the much-criticized efforts of Ambassador Bolton to change the draft outcome document of the World Summit in the summer of 2005 to remove explicit requirements for aid targets and insert text to emphasize the importance of policies improving governance, the rule of law, and economic liberalization.[9] However careful the Administration has been, even its limited endorsement of the "Millennium Development Goals" has been interpreted as a promise by the U.S. to meet the specific indicators and commitment to dramatically increase its development assistance, which the UN and others have asserted is necessary to meet the MDGs.[10]

Concerns about the Global Poverty Act

Congress and the Bush Administration should be wary of committing the U.S. to an aid-focused development strategy or a strategy that accords Poverty reduction pride of place among assistance objectives. Such a policy would implicitly downplay the many other goals and objectives of U.S. foreign assistance and inappropriately focus on the MDGs as the lens through which to view U.S. aid policy.

Alleviating extreme Poverty is one of America's many objectives, and the United States is a vital player in this worldwide process of growth and development. The U.S. is the largest source of foreign direct investment worldwide, with a direct investment position in developing and other non-OECD (Organization for Economic Cooperation and Development) countries of over $585 billion in 2006.[11] The U.S. is the largest recipient of developing country exports, sending over $694 billion in 2006 to developing countries in exchange.[12] And the U.S. is the largest provider of development and humanitarian assistance to developing countries. Official U.S. development assistance was $27.9 billion in 2005, almost triple the amount in 2000, and more than double the amount provided by the next-largest donor.[13] The Department of State/USAID Strategic Plan for FY 2007-2012 declares that "helping poorer countries share in the virtuous circle of development and achieve rapid, sustained, and broad-based growth is also in U.S. vital national security interests. Economic growth is essential to allow countries to reduce and eventually eliminate extreme poverty."[14]

As important as alleviating Poverty or supporting the MDGs may be, those objectives are not and should not be the primary goals of U.S. assistance as the Global Poverty Act seemingly would intend. Among the many objectives of U.S. foreign assistance are promoting representative government and the rule of law, encouraging economic growth and trade, supporting America's allies, protecting the environment, supporting education and training, improving access to health services, providing assistance to victims of disasters and conflict, fighting corruption, improving agricultural production, and many others. Some of these priorities fit within the MDG framework, others do not. Yet each has been adopted by successive Congresses and Administrations as an objective because it supports U.S. interests.

It would be a mistake for the U.S. to abandon its broad-based vision for development assistance, and even worse to link itself to a flawed UN development strategy emphasizing the Millennium Development Goals. The Bush Administration has been correct to avoid supporting the MDGs without caveats and clarifications and should eschew efforts that would tie the U.S. more closely to the MDGs.

Development Requires Policy Changes in Developing Countries, Not More Aid

Numerous studies indicate that policy changes that create a more conducive environment for economic transactions, bolster a free and fair legal system, and strengthen government accountability and responsiveness are far more important to development than the amount of aid a country receives. Unfortunately, the idea that development requires greater aid flows is omnipresent in U.N. documents like the World Summit "outcome document," which welcomed the "increased resources that will become available as a result of the establishment of timetables by many developed countries to achieve the target of 0.7 per cent of gross national product for official development assistance by 2015."[15]

Indeed, the notion that developed countries made a "commitment" to provide 0.7 percent of GNP in development assistance has attained iconic status in the UN and in the aid community, despite repeated refusals by the United States and others to endorse it. For instance, the United Nations Development Program asserts:

The commitment to provide 0.7% of gross national product (GNP) as official development assistance was first made 35 years ago in a General Assembly resolution, but it has been reaffirmed repeatedly over the years, including at the 2002 global Financing for Development conference in Monterrey, Mexico.[16]

The idea of linking development assistance to the gross national product of donor countries rather than to any demonstrated need by developing countries or evidence that such aid could be used effectively is illogical on its face. Even staunchly pro-aid groups have questioned its relevance. For example, as explained by experts from the Center on Global Development:

The international goal for rich countries to devote 0.7% of their national income to development assistance has become a cause célèbre for aid activists and, lately, politicians. However ubiquitous and durable, the target of 0.7% was never meant to represent the 'right' level of aid needed by poor countries. A look at its history shows that it was calculated using methods with little relevance to today's understanding of the development process, and actually reaching 0.7% of income in aid was never agreed to by any government or international body prior to 2005. Originally intended as a political tool to goad rich countries to modestly increase their aid budgets, the specific figure of 0.7% was a compromise between educated guesses based on economic conditions in the early 1960s and on a crude and deeply flawed model of growth. Despite these origins, "0.7%" has taken on a life of its own and become a powerful rallying cry for aid proponents. Indeed, in 2005, advocates are demanding that rich countries reach this specific target (and with some success). But there has been little reflection on whether 0.7% is the right figure, where it comes from, and exactly what the international agreements pertaining to the goal say and do not say.

[O]ver time 0.7% has gained prominence well beyond its initial intention and gained credibility as the correct aid goal that it does not deserve... We find that if we apply the same assumptions that went into the original formulation to conditions present today, that the updated target would be 0.01% of rich country income-well below current aid levels for all major donors.[17]

The emphasis on levels of aid endures despite numerous economic studies, including studies conducted by the World Bank and the International Monetary Fund (IMF), that have concluded that economic assistance is not a key component of economic development. [18] The U.S. should not hesitate to reject the false claims of past "commitments" to the 0.7 percent target or other unsupported aspects of the MDGs.

What the United States Should Do

The goal of reducing Poverty is admirable and is rightly included among the priorities of U.S. foreign assistance. However, the U.S. should not adopt a policy, as set forth in the Global Poverty Act, of elevating poverty-alleviation efforts above other priorities for U.S. foreign assistance or on achieving the Millennium Development Goals.

Strict adherence to the MDGs or the goal of eliminating Poverty would leave little discretion for the U.S. to distribute or withhold aid based on country performance or political priorities. As important as alleviating Poverty or supporting the MDGs may be, those objectives are not and should not be the primary goals of U.S. assistance as the Global Poverty Act seemingly would intend. Successive Congresses and Administrations have established numerous objectives and purposes for U.S. assistance over decades. Not all of these objectives are equal, but each has been determined to be important for various reasons. The Global Poverty Act, by failing to recognize or even mention these other purposes, would implicitly downgrade these priorities in favor of alleviating global poverty.

Moreover, while many individual MDG targets are desirable, they focus on the symptoms of Poverty rather than the causes. If the U.S. is to help poor countries to develop, it should emphasize the importance of good policy in development, including economic freedom, good governance, and the rule of law. Numerous economic studies have concluded that these policies are key drivers in promoting economic growth and reducing poverty. Without economic growth, countries lack the resources to support efforts to improve the lives of their citizens or to meet the Millennium Development Goals.Yet good governance, economic freedom, and the rule of law are conspicuously absent from the MDGs and undermine their relevance as a development strategy.

Finally, the MDGs are more than a simple declaration of intent to invest in efforts to improve selected indicators in developing countries. The MDGs have been linked to a host of political, economic, or social objectives that deviate significantly from those outlined in the 2000 Millennium Summit. Few of these objectives have been specifically endorsed by the United States.

Conclusion

The goal of reducing Poverty is admirable and should be supported by the U.S., but focusing on arbitrary development indicators like the Millennium Development Goals and aid targets that are only indirectly related to reducing Poverty does little to advance that objective. The U.S. should maintain the independence of its foreign assistance programs, including its Poverty alleviation efforts, by rejecting the policy recommendations of the Global Poverty Act.

Ambassador Terry Miller is Director of the Center for International Trade and Economics and Brett D. Schaefer is Jay Kingham Fellow in International Regulatory Affairs in the Margaret Thatcher Center for Freedom at The Heritage Foundation.

About the Author

Ambassador Terry Miller Director, Center for Data Analysis and the Center for Trade and Economics and Mark A. Kolokotrones Fellow in Economic Freedom
Center for Trade and Economics (CTE)

Brett D. Schaefer Jay Kingham Senior Research Fellow in International Regulatory Affairs
The Margaret Thatcher Center for Freedom

Show references in this report

[1]The House version of the bill was sponsored by Representative Adam Smith (D-WA) with 84 co-sponsors and was agreed to by voice vote on September 25, 2007. The Senate version of the bill is sponsored by Senator Barak Obama (D-IL) with 14 co-sponsors and was ordered to be reported out of the Foreign Relations Committee favorably with amendments on February 13, 2008.

[2]United Nations, The Millennium Development Goals Report, 2007

[3]Organization for Economic Cooperation and Development, "OECD Stat Extracts," www.oecd.org/document/33/0,2340,en_2649_3444
7_36661793_1_1_1_1,00.html
.

[4] U.N. General Assembly, The Millennium Assembly of the United Nations, A/RES/53/202, 53th Sess., February 12, 1999, at www.un.org/millennium/documents/a_res_53_202.htm.

[5] Press release, "United Nations Alerts New Yorkers to Millennium Summit's Goals," United Nations, GA/9743, PI/1271, August 24. 2000, at www.un.org/News/Press/docs/2000/20000824.ga9743.doc.html.

[6] U.N. Millennium Project, Overview Report, 2005, p. 19, at www.unmillenniumproject.org/reports/index_overview.htm.

[7]Significantly, while the Millennium Declaration included calls for democratic and participatory governance, respect for the rule of law, action against international terrorism, redoubled efforts to counter the world drug problem, and respect for human rights and fundamental freedoms, the UN Secretariat, for reasons it has never chosen to explain, left these out of the MDG framework.

[8]John Bolton, U.S. Ambassador to the U.N., open letter on the draft outcome document, August 30, 2005.

[9]The draft document called on developed nations "to achieve the target of 0.7 per cent of gross national product [GNP] for official development assistance by no later than 2015 and to reach at least 0.5 per cent by 2009." U.N. General Assembly, "Revised Draft Outcome Document of the High-Level Plenary Meeting of the General Assembly of September 2005," August 5, 2005, at www.un.org/ga/59/hlpm_rev.2.pdf.

[10]Those strongly advocating the MDGs have consistently argued that a significant increase in foreign assistance is necessary if they are to be achieved. For instance, the U.N. Millennium Project, commissioned by U.N. Secretary-General Kofi Annan in 2002 to assess what is necessary to meet the MDGs, advocated "a big push of basic investments between now and 2015 in public administration, human capital (nutrition, health, education), and key infra­structure (roads, electricity, ports, water and sanitation, accessible land for affordable housing, environmental management)." See U.N. Millennium Project, Overview Report, 2005, p. 19, at www.unmillenniumproject.org/reports/index_overview.htm. Another example is Jeffrey Sachs, special adviser to the U.N. Secretary-General on global poverty, asserting that developed countries must transfer "about $100 [billion] to $180 billion per year for the period 2005 to 2015" to meet the MDGs and that "Africa needs around $30 billion per year in aid in order to escape from poverty." See Jeffery D. Sachs, The End of Poverty: Economic Possibilities for Our Time (New York: Penguin Press, 2005), pp. 298-300 and 309.

[11]Marilyn Ibarra and Jennifer Koncz, "Direct Investment Positions for 2006-Country and Industry Detail," Bureau of Economic Analysis, U.S. Department of Commerce, July 2007, p. 34 at /static/reportimages/1ECE5EB348914220888C78D3675BF91B.pdf.

[12]U.S. Department of Commerce, Office of Trade and Industry Information (OTII), Manufacturing and Services, International Trade Administration, TradeStats Express - National Trade Data, 2008, at http://tse.export.gov/MapFrameset.aspx?MapPage=NTDMapDispla
y.aspx&UniqueURL=y0gp1e45f24voz45cmrlu1nv-2008-3-27-15-16-50
.

[13]Organization for Economic Cooperation and Development, Statistical Annex of the 2007 Development Co-operation Report, 2007, at http://www.oecd.org/document/9/0,3343,en_2825_495602
_1893129_1_1_1_1,00.htm
l
, Table 1 available at http://www.oecd.org/dataoecd/52/9/1893143.xls

[14]Department of State/USAID Strategic Plan FY 2007-2012.

[15]"2005 World Summit Outcome," United Nations General Assembly Document A/60/L.1, September 15, 2005, p. 5, at www.who.int/hiv/universalaccess2010/worldsummit.pdf.

[16]United Nations Development Program, "What is the 0.7 commitment, and where did it come from?" Millennium Project Q&A, at http://mirror.undp.org/unmillenniumproject/press/qa4_e.htm.

[17]Michael A. Clemens and Todd J. Moss, "Ghost of 0.7%: Origins and Relevance of the International Aid Target," Center for Global Development, Working Paper 68 September 6, 2005, at www.cgdev.org/content/publications/detail/3822.

[18]Kim R. Holmes, Edwin J. Feulner, and Mary Anastasia O'Grady, 2008 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., 2008), Executive Summary, at www.heritage.org/research/features/index/chapters/
pdf/Index2008_ExecSum.pdf
. For a paper discussing and citing other economic studies, see Brett D. Schaefer, "How the Scope of Government Shapes the Wealth of Nations," Heritage Lecture #925, March 07, 2006, at www.heritage.org/Research/TradeandForeignAid/upload/94713_1.pdf and Brett D. Schaefer, "How Economic Freedom Is Central to Development in Sub-Saharan Africa," Heritage Lecture No. 922, February 03, 2006, at www.heritage.org/static/reportimages/567143F8AB78688371E21D8274F593E7.pdf.