Foreign Aid: Breaking the Cycle of Dependency

COMMENTARY Global Politics

Foreign Aid: Breaking the Cycle of Dependency

Jan 31, 2014 2 min read

Former Research Fellow For Economic Freedom and Growth

James M. Roberts' primary responsibility was to edit the Rule of Law and Monetary Freedom sections of Index of Economic Freedom.

Why do some nations that receive U.S. foreign aid year after year never seem to improve, or move beyond the dependency phase?

Perhaps the largest reason is corruption. It’s the “pre-existing condition” that keeps many aid recipients from ever recovering. It’s a major obstacle to economic growth, which is why any U.S. development assistance program that does not make anti-corruption efforts a top priority is doomed to fail.

Congress recently sent precisely this message to the Obama administration. In “report language” attached to the trillion-dollar “omnibus” budget bill that funds the Millennium Challenge Corporation (MCC), Congress charged that the anti-corruption criteria MCC has been using under the Obama administration have been softened -- and run the risk of undermining the integrity of the MCC model.

That model was established in 2003 to create a new paradigm for the doling out of American foreign aid tax dollars. Recipients must meet minimum standards on rule of law and corruption indicators and agree to adopt better policies so that they can start to grow economically on their own.

Countries shouldn’t be forever dependent on welfare from the West. The positive results of the MCC model have shown that it works. The cycle of dependency can be broken.

Unfortunately, weak judicial systems and corruption in the public and private sectors greatly impede democratic institutions and keep many potential MCC compact countries from growing and developing. Worse, the Obama administration’s anti-corruption indicators for eligibility aren’t rigorous enough. The report language in the congressional report specifically takes note of the outsized influence of criminal enterprises and weak enforcement of private-sector contracts in these countries.

Consider the MCC’s approval in September 2013 of a second, five-year, $277 million compact with El Salvador -- despite ample evidence that under the ruling FMLN party El Salvador has become poorer, less democratic, and less free. Perhaps as a result of the negative reaction to the El Salvador approval, at the end of 2013 the MCC did not re-select two countries in compact development, Benin and Sierra Leone, because they failed the corruption test.

Traditional foreign aid, which relies on a government-to-government model, doesn’t do enough to generate significant and sustainable opportunities on the ground for people in developing nations. Instead, it tends to promote policies that create economic distortions and foster dependence on the government. It reinforces instead of fixing the problems that undermine sustainable development -- including corruption.

To break that dependency mindset, the U.S. must move away from the traditional, failed foreign aid model. As Ben Leo of the Center for Global Development notes, MCC is the only U.S. foreign aid program that has consistently focused on development assistance in areas developing countries actually want: jobs/income and infrastructure. When U.S. assistance has been closely aligned with those priorities, “the MCC has usually been the driving force behind it,” Leo says.

Yet what have we seen since 2009 under the Obama administration? An MCC that funds projects that stray far afield of the core MCC mandate of anti-corruption and rule of law -- projects that promote “energy-efficient and lower-emissions household appliances” and wind farms in Mongolia; $332.5 million for a “Green Prosperity Project” to reduce greenhouse gases in Indonesia; a solar power project in Tanzania; and a $140 million MCC “investment” in Georgia for science, technology, engineering and math education.

These programs, whatever their overall merits, resemble traditional U.S. Agency for International Development (USAID) programs that the MCC was designed to avoid.

The U.S. Senate is about to confirm Ms. Dana Hyde to be the 4th CEO in the decade-old history of the MCC. Let’s hope that Ms. Hyde and the Obama administration hear this latest message from Congress so that the MCC can again become the driving force for positive change in 21st century foreign aid programs.

If MCC continues to morph into a sort of mini-USAID, Congress will inevitably question the need to keep funding it. And Ms. Hyde could wind up being the last CEO of the MCC.

 - James M. Roberts is a research fellow in the Center for International Trade and Economics at The Heritage Foundation.

Originally appeared in Real Clear Politics