CENTER FOR GLOBAL DEVELOPMENT

Presents

Foreign Aid: Diplomacy, Development, Domestic Politics

Tuesday, December 5, 2006

4:00 p.m.

Marriott Wardman Park Hotel Maryland Suite

2260 Woodley Road Washington, D.C. 20008

[TRANSCRIPT PREPARED FROM AUDIO RECORDING]

Nancy Birdsall: Good afternoon ladies and – Good afternoon ladies and – There we go. Good afternoon ladies and gentlemen. It's – Let's me welcome you warmly to this very exciting presentation of a wonderful book, in my opinion anyway. I'm Nancy Birdsall, president of the Center for Global Development. And I assume we have a crowd of people who are aficionados of the aid business or the aid industry. And in that sense it's really very wonderful to welcome you to a discussion of this wonderful book. I was thinking, driving over here that the book comes at a very important moment, in my view. We've had five or six years when aid and development have been very present on the global agenda. Maybe it was 9/11, maybe it was Tony Blair and Gordon Brown, maybe it was the AIDS pandemic and maybe it was President Bush's initiatives, the millennium challenge account and PEPFAR to deal with AIDS. It's not – We may never be able to account in any systematic way for why aid has been on the agenda in a way that for us at the Center for Global Development has helped create demand for our work. I don't know if we face the same situation in the next 5, 10, 15, 20 years; maybe we're going to go back to a period when if we want to have development and aid issues on the agenda we have to work to put them on the agenda. In that sense I'm very glad to have this opportunity to talk with you and to hear from Carol about her book, because I think her book can play some role in making sure that these issues stay prominently on the agenda. You have the bios of the speakers; I'm going to introduce them briefly now and then give the podium to Carol. Andrew Natsios has alerted us that he'll be a little late. I think I see him coming in now; perfect. So he's here, which is a great thing. Carol is the director of the Mortara Center for International Studies at the School of Foreign Service at Georgetown; I'm sure many of you know that. Much more important, in my view, is that she is a founding board member of the Center for Global Development and has been a very generous and supportive board member. Andrew Natsios is currently the special envoy for Sudan for the Darfur issue at the U.S. Department of State. I think we should all be very grateful that he's found time to join us today. Many of you obviously know that Andrew was the, what do we call it, the administrator, that's a funny term, he was the head, he was the mainstay of the USAID in recent years and he, what I know most recently about Andrew is that when I was not able to be at a Center event he participated in a very exciting and important discussion of an initiative he undertook on food aid. So maybe he'll have some reflections on that point in the context of Carol's book today. And finally we're very pleased to have Sebastian Mallaby as a moderator and no doubt more than a moderator, an intelligent commentator as the discussion proceeds. Sebastian is well known I'm sure to all of you as a columnist at the Washington Post and many of you may have read among his other books his book on Jim Wolfensohn, James Wolfensohn the World Bank president published a few years ago. So we will proceed now to Carol who will speak for a while about the book and then to Sebastian, moderating the panel with Andrew Natsios and Carol. Carol. Carol Lancaster: Thank you. I'm standing on what we call at Georgetown the Madeline Albright box. If you're short you can't quite see over the top of these podiums, so I've always, I've learned to ask for the box and that's why I'm so tall right now. I want to thank you all for

coming. I want to especially thank Nancy and the Center for Global Development for hosting us today and Andrew and Sebastian for being here and commenting. It takes a village to write a book and part of my village was the Center for Global Development who gave me shelter for a little bit of the time when I was writing this book, and so for that also many thanks, and all the good things that the Center does. This book is basically a book that starts out by observing that foreign aid is something we take for granted today. But it is a real innovation in relations between states. And so I want to ask, where did it come from? Why do the U.S. and other governments give it? How has it changed over time? How have those purposes changed over time? And what are the policy implications of what I have found in this study for the issues that we're debating today on foreign aid? The book rests on the assumption, which I think is demonstrated in the studies that it contains that domestic politics matter a great deal for foreign aid policies. This is something I think most people in this room, most of you are practitioners have observed in your own experience; certainly I have in mine. But it's also related to the nature of foreign aid itself. It's a peculiar instrument, a peculiar public spending instrument in the field of foreign affairs. Because it's an instrument that each year has to be re-debated, re-justified and in our country re-appropriated and each year it is on the agenda again. It isn't like a trade bill that takes a period of time and then is either passes or not passed. It isn't like a crisis that comes and goes away, it continues. And because of that, in a democratic country it becomes the object of debates. Not just international debates but domestic debates as well. And not just pressures from abroad, events, challenges, opportunities, but pressures at home. And so you see in most, I think, democratic countries a substantial role for domestic politics in aid decisions, and I want to talk about that a little bit. Just to tell you, the book actually has a historical chapter that talks about the broad evolution of foreign aid and its purposes and then it has five in depth case studies that look at the domestic politics of aid-giving and not just the domestic politics but the international pressures as well in the U.S., Japan, France, Germany and Denmark. The first four of those are the largest aid-giving governments. The final one, when I started the book was relatively the largest aid-giving government although I think it seeded that position now to Norway. So I wanted to get a little diversity in there, and I think you might find some of the portraits of aid giving in these countries interesting and maybe relevant. Well, let me start very briefly by saying what I mean by foreign aid. I find that discussions of foreign aid often get hung up on what people are really talking about. I pretty much hue to the DAC definition of foreign aid, the Development Assistance Committee definition which says it's a public transfer of concessional resources to low income countries, one purpose of which is development. So I'm not talking about military aid, I'm not talking about private charity here, I'm not talking about export promotion, covert action, cultural exchange, but this thing that basically the DAC talks about. I also use the term "purposes" a lot. And that's an even squishier term than foreign aid, but we have to draw the line somewhere. What I talk about when I talk about purposes are those broad ends, those broad objectives that are discrete enough to be identified as drivers for decision making on the allocation, use and terms of aid giving. And so you will see – I think we're all familiar with the kinds of things we talk about as purposes; development broadly defined as a purpose; diplomacy, I've used that term as a purpose, which are basically the

national interest purposes; commercial interests constitute a purpose of aid giving; export expansion, access to raw materials; cultural purposes and more recently we see a number of what I consider rather new purposes or at least if not new, newly prominent. Things like since the 1990s democracy promotion, supporting economic and political transitions in former socialist countries, conflict mitigation and prevention and several others addressing global issues. So where does aid come from? As I see it, the antecedents of aid are of course in the bribes, the tributes, the subsidies, relief and colonial transfers of an earlier time. But I think that the key innovation in foreign aid, something that is new in the last 50 or 60 years of our, of some of our lifetimes, is the goal that aid is used to improve the human condition in countries that receive the aid. And if you look back to the early years after the Second World War, this wasn't even in anybody's mind, a sustained intervention to bring about beneficial economic and social changes in other countries. And now it has become something that's accepted, it's even a norm that rich governments should provide aid to poor governments. So let's ask, where did this come from? In my world of the academy we still debate the sources, the original motivations of foreign aid as we know it today in the post Cold War world. And some people will argue that altruism was a key element in the beginning of aid as we know it. I think the historical record says that that actually is not the case, that what – and you probably are very familiar with this, but what is really evident, it seems to me, is that aid began as a Cold War expedient. It began in this town in 1947, not with the Marshall Plan but with the aid to Greece and Turkey that came about because the British ambassador informed the Truman administration that Britain was no longer going to be able to sustain the governments of Greece and Turkey against, in the case of Greece, a communist led insurgency and something was going to have to happen. And the wonderful description of this moment in time is found in Dean Atchison's book Present at the Creation where he talks about the discussions with Senator Vandenburg in the White House about what had to be done, what the President wanted to do in order to keep a Soviet breakthrough from occurring in southwest Asia. I only mention that because at that time I don't think anything could have moved the U.S. Congress to do, to send money abroad in significant amounts unless it had been a national security compelling reason. Not just the Truman Doctrine, but the Marshall Plan and Point IV were all sold as temporary expedients in the Cold War, and they were supposed to disappear after they had effectively contained the expansion of communist influence, which of course they didn't. It was in the Eisenhower administration that we begin to see something different happening. Something changed; and it's really interesting. Eisenhower began his presidency by saying one of his goals was to curtail foreign aid. But by the end of his presidency he had this peculiar statement where he said he would give up part of his salary to meet the pressing need for funds for foreign aid. Something had happened in that period of time. And he wasn't necessarily making the altruistic case; he was certainly making the case that aid was very useful. And I think it acknowledged that need and usefulness for foreign aid. But it also acknowledged, and we can see it in the politics of the time, the necessity to create a coalition that would sustain what was no longer a temporary program, but something that was going to extend into the future. A coalition that would sustain and allow the aid bills to pass through the Congress and so on. And that coalition was built up of the right and the left. The left increasingly criticized aid as walking around money; sometimes we hear it even now. And

wasted because it was just being thrown out there for Cold War purposes, even if it was being used to stabilize governments and improve the economies of the countries receiving it. The right was unhappy because the aid was not achieving its goal of containing communism. And so one of the things that arose during this time was the increasing prominence of what we can call the development justification for foreign aid. And a lot of that came from somebody whose name will be familiar to many of you, Walt Rostau. Development became, along with diplomacy, a sort of basis of the enduring dualism in the politics of aid giving in the United States and in the nature of those aid programs. So you had diplomacy and development, national security and national values, the political right and the political left that sustained, began to sustain aid in the United States. And it was really the Kennedy administration that institutionalized our aid giving in what was the creation of USAID and a number of programs then. Aid was still a means to – Development was a means to an end of a Cold War but here we began to see the rise of increasing prominence on the development purpose of aid in the United States. And increasing pressure by the Kennedy administration on the Europeans and the Japanese to set up their own aid programs, and this began to happen. I won't go any further into the history, I want to fast forward to today because I'd like to suggest to you that what didn't exist in the Eisenhower and the Kennedy administrations has come into existence today, which is a norm that I think is broadly accepted even here in Washington and abroad that better off countries should provide public concessional resources to less well off countries to better the condition of peoples in those countries. This is not questioned now, though it had been questioned much at the beginning. And you can even see it in the accession agreements to the European Union. The recent agreements require countries entering the European Union to have an aid program and contribute to the European Aid program and it's not questioned or challenged. I think you can also see a rising prominence in the development focus of aid in terms of the countries that get it, the limits on the commercial uses of aid and the easing of terms over these years. So the question is, why, if I'm right about this norm, did it happen? Why has this happened? And I think in addition to the international pressures on governments to provide aid, which have been evident in the U.N. and elsewhere over the period of time, we have to turn to the domestic political environment to explain this. And what I think has happened in many aid giving countries is that two entities have provided the constituency for aid for development and over time the development of a norm. And those two entities are the non-governmental organizations with a development focus and aid agencies within aid giving governments. Aid agencies tend to be lobbies within governments for development aid and other things as well, of course. But I think you begin to see how important both of these factors are when you begin to compare countries. If you take for example Japan; Japan is a country where there has been very weak NGO constituency for development aid. And I think in part that explains the relatively weak focus on development, at least development as defined by the DAC, evident in Japanese aid. And you can say the same thing about France, where there are plenty of NGOs but they have very little access to government. The interesting place where this I think is most evident is China. Now I don't deal with China in this book but I've been looking at Chinese aid and going back and forth a little bit over the last year and one of the things that's really striking about China of course is there are no NGOs in China that play an independent role in lobbying

government for development or anything else. And furthermore, the Chinese do not have an aid agency, they have an office in the Ministry of Commerce that manages their aid programs. And it does seem to me that those say a lot about the nature of Chinese aid as we're beginning to observe it in various parts of the world. Well, let me shift very briefly to the purpose of aid giving in individual countries. Because I wanted to pull out some peculiarities of aid giving and try to explain them in terms of domestic politics. And what I've done with this book is try to create a framework that allows us to compare the different countries that I mentioned earlier. And that framework includes the ideas that are in people's heads about the appropriateness of aid giving, I'll come back to that in a minute, the political institutions as they affect aid giving, the interests that compete for control over aid, and finally the organizational architecture that governments put into place to manage their aid programs. And I would suggest to you that all of these are quite important and reveal themselves in a variety of ways in the way governments use their aid. One of the things that's really interesting about ideas; and when I'm talking about ideas I'm talking about ideas about the relationship between state and society. What is the appropriate role of government in the society? And one of the things that's really interesting about the United States, if you look at the some of the peculiarities of American aid, aid has probably been more controversial here than in any other country that I've looked at in the world. We have been, as you well know, the least generous in relative terms of aid giving. We are the most constrained by earmarks. And we have a peculiar government organization of aid that looks incoherent and is filled with tension. So what's going on? One of the things that's really often missed about us, about U.S. aid is that we have had a long history of serious debate about the appropriateness of aid giving. And as I was scratching around in the sort of old records I came across what I think was the first aid debate in the United States Congress, in 1794, not 1974; 1794 where it was proposed, this is relief aid, it was proposed that the U.S. provide $10,000.00 to some destitute French refugees who had fled a slave revolt in Santo Domingo and had settled in Baltimore. And the debate was interesting because there was the humanitarian side that said well we have to do this, these are human beings, they're in trouble and besides we owe something to the French government. And there was the libertarian, the classical liberal side that said we cannot do this with public monies, this is an inappropriate use of public monies to benefit people outside of our boarders and the Constitution doesn't permit it; that was the argument of James Madison. And that argument is wonderfully reproduced again in the discussions of whether we should provide aid to the starving Irish, and all of the ethical issues that we still debate on aid were all trotted out then. And finally I think the argument was brought to an end by President Polk saying, don't send me a bill because I'll veto it. But nothing is simple in aid giving. Even though we didn't provide aid, public aid to the starving Irish, we did provide two Navy ships to carry the aid to Cork. So, it's probably the beginning of our aid giving in some significant sense. But what these arguments reflect is something that I haven't seen in any other country which is a long history of dispute between what you can call libertarians and humanitarians in U.S. aid giving, the last evidence of which was, as far as I can tell, in 1960 when Barry Goldwater made the same argument that foreign aid was unconstitutional and inappropriate. We don't hear it now. That argument has morphed into the "aid can't be effective because it's being provided through States" argument, but it has very much informed our thinking, I believe, on

foreign aid and made it a vulnerable spending program in the United States in a way that a lot of other programs have not been. And it's also part of the dualism that I talked about earlier. I think the disputes on foreign aid here have also probably led to a lower public support for foreign aid in the United States than in any other major aid giving country. Certainly that's what the polls say. Not that support isn't over 50 percent, and it's probably up further these days, but I think that if you look at the Euro barometer polls and other polls that look at other parts of the world you will see a tendency for a higher degree of public support for aid, and I think probably the long and public controversies here have had a role to play in that. If you take as a contrast let's say Denmark; Denmark has a tradition, a considerable tradition of social democratic thinking, although the government there now is center right rather than center left. But I think for the Danes and the Scandinavians and others that the bridge between domestic social democratic policies and international aid policies was a much less controversial path and therefore the whole nature of the discussion on aid in these countries, I think, has been very, very different. In the case of Japan, there's another tweak that seems to me interesting. Japan is often described as a strong state and a weak society. The state is strong, there's not much between the state and the family and civil society has not been a very major factor in Japanese life, although I think that's beginning to change. And I think that may partly explain why NGOs have been so weak in Japan. They're beginning to now expand and become more influential, but for a long period of time they played a very little role in aid giving. And I think maybe part of it was in the ideas that people have about, again, the appropriate role of the state in society. I want to just quickly go on to institutions. How do political institutions affect the way, what we do with our aid? And I think that the institutions we have here, we're probably the only presidential system among major aid giving countries. There's a very peculiar French system which I won't go into, which is a mix, but with our checks and balances, our weak party system and our highly disbursed power in Washington, we have in effect an adversarial system. Lots of access, lots of veto players, lots of disputes, lots of arguments. And I think that this system creates incentives for people in Congress, for example, to attack aid, and I think we've all seen it and that is reinforced by some of the, I think, historical doubts that we've had about aid. It also creates incentives to use earmarks to build support and to use earmarks by Congress in order to shape what's going on in aid. I have a couple of charts in there; I went through the last Omnibus spending bill. If you want to have a really scintillating afternoon I encourage you to look at it, it's only about 2,500 pages, and in the aid part of it I tried to calculate the number of earmarks, the quantity, the volume of aid they represented in three programs; child survival, development assistance and ESF. And I'm not even talking about directives now. In child survival and development assistance they added up to more than the volume of aid appropriated. And it was almost that large in ESF. Now we all know how to double count so it doesn't kill us, but it is striking how much our system is penetrated by that, and you don't see that in any other system that I've looked at. The Millennium Challenge Corporation of course is not earmarked, and the question is, how long is that going to last? It may be that we're going to see that debate quite soon if the MCC gets caught up in budgetary disputes.

In contrast, if you take the parliamentary systems where you have proportional representation and the incentives to small parties to come together in coalitions to govern, one of the things that has struck me is how small parties, particularly in center left coalitions, often pick development as one of their issues, one of their prizes that they want to have to join a governing coalition. So in some sense, in those systems you get a higher priority on development provided of course that you're talking about a center left coalition. And that's evident in Germany and it's evident in Denmark and it's evident in the Netherlands. In fact, in Germany it's really an interesting story; the ministry, there's a ministerial development department in Germany and it was created exactly because of coalition politics. In 1961 when Conrad Addenhauer needed to create another foreign affairs portfolio for Walter Sheall to come into the government and so you know, I mean things happen for all kinds of bizarre reasons. So you can see the impact of, you can see the impact of political systems on how this all works. Interests, another of the factors, are the most dynamic of factors. And I think we're all familiar with them. What is really interesting here it seems to me is what the Danes did. I think when they recognized they were going to be providing a large amount of aid relative to the size of their economy, the Danish government went out and looked for constituents. Of course they had NGOs that supported them, but they wanted a broader constituency. And so they went to the business community and said, can you join us? And this is not usually the way it happens, of course, and so for a long time half of Danish bilateral aid was tied to Danish business interests. And I think that's often overlooked, but I think it's another one of those domestic politics things that are really important and need to be seen. I think the U.S. is in a particularly dynamic moment, which I'll come back to in a minute, and that is with the rise of the Christian Coalition and its apparently expanding interest in aid giving and I think there is an opportunity and a challenge there which I want to mention in just a second. Finally, organization matters, and of course that's really policy relevant today. Two aspects of organization matter the way a government organizes its aid; one is where the aid decision-making is located, is it at a cabinet level or a sub-cabinet level or inside a ministry? And the other is whether it's fragmented or unified. And that is important because the way a government organizes itself to manage its aid locks in interests. And it decides who has access, who sits at the table, who decides, who vetoes, who makes the decisions. So you can look at a number of countries, probably the most fragmented aid system I was able to observe was France where there were a number of government agencies involved in aid giving and no central point; up until recently when the French government has tried to implement some reforms which I actually have my doubts will succeed as far as they would like to. The other interesting story in organization is Germany. I said the Germans created a ministry of development for non-development reasons, it was really for coalition building reasons. That ministry was empty in 1961, it didn't have much in the way of responsibilities. By now it has most responsibilities and a policy level it does not implement for aid giving in Germany. And in a sense you can say, build it and they will come. People say no, no, you can't create a ministry of development if you don't have already a very prominent development program or the development programs are scattered about. But in the case of Germany the ministry sat there and one minister after another, especially persuasive activist

ones managed to bring the aid programs into the ministry. So I thought that was a very interesting experience and an interesting lesson. Okay, you're tired of all this lecture, it sounds like we're at Georgetown. So let me pull this together with some policy recomm, not recommendations, some policy implications. And by the way, this is not really a policy book. My experiences writing scholarly books and then ending with a big policy chapter is that nobody in Washington will read anything but the policy chapter. And if you have the worst mistaken of making budgetary recommendations, people, after the look in the index for their names, will go straight to the budgetary recommendations and never read anything. So I decided I'm not writing too many policy books anymore except for Nancy. Let me pull some of these out; what I'm arguing here is that foreign aid is a complex instrument and it's shaped and constrained by domestic forces, especially in the United States because of the nature of our government. Those purposes are mixed, they are sometimes inconsistent, they sometimes conflict. If we are going to think about reforming foreign aid, and I can see the literature building up already for the next administration, we have to think about it in those constraints. It's not good enough just to say well, this is our problem, this is what we have to do to solve it. We all know if we've been in politics that it ain't so easy, and I think to have really useful debates and discussions on aid reform we've got to take into account the domestic politics. The norm, if I'm right, of an expanding constituency supporting aid for development creates an opportunity for realistic reforms in a funny way. I think it gives us a chance to make the argument that I suspect many think anyway, that one of the most important reasons we provide aid is an ethical one, and that is that rich countries should help poor countries. And all of the arguments that we make about commercial, and I remember when I was in AID we said oh, we have to help Africa because it's 700 million people, be a big market for the United States. I mean I never really thought that was why we were doing things there. I think we can make that argument; people shy away from it. I think it's a mistake, I think there's certainly a readiness to accept it, but it's conditional and the condition is that it has to be combined with evidence of effectiveness. And here I think we have some important deficits to deal with. First of all if we're going to talk about aid effectiveness let's just talk about the aid effectiveness of what we're trying to do. If it's development, let's talk about development; if it's diplomacy, let's talk about diplomacy. And by the way, I searched the literature for any opportunity, any place, any exercise in evaluating the diplomatic effectiveness of aid and I haven't found one thing. I did try my hand at it but it didn't turn up in this book. So that's very peculiar it seems to me, but there are other things we're trying to do, too. And we see a little bit of that evaluation going on, but it seems to me that we have to talk about the, to evaluate, to talk about the effectiveness of aid in terms of the purposes for which we're using it. I think that the aid – Turning to development, I think that the aid growth debate has been hapless and hopeless. There's been a war among econometricians, with all due respect to the econometricians here, that has, it seems to me, produced very little consensus. And I have to say that the best piece on all of this is by Steve Radelet, where are you Steve, called Counting The Chickens Before They Come Home To Roost. But it's still I think very inconclusive out there. I think we need to think about it in a different way. I think we need to think about aid

evaluation that is rigorous, that focuses on specific activities and interventions and is produced ideally by an independent source of evaluation. Maybe it's the CGD, maybe it's someplace else, something that will be credible, something that can call to attention good things that are going on, and some of that has been done in the CGD. But I think we have a big deficit there and I think it will be very hard to convince people over the long term that what we're doing is effective if we can't show it, and I don't think we're going to find that in the econometric literature. But I think we have a more basic issue to wrestle with, and it's coming up fast and that is, what do we expect from aid for development? Is it too much to expect growth? I think maybe that's right in a lot of cases. What is it we're trying to do? And how effective should we expect this stuff to be? Is 70 percent effectiveness, if we could measure it, enough? After all, we're in an experimental field here and if you tell me that you're 100 percent effective I'm going to suspect you're either gaming the system or you're not doing your job. So that's a debate we haven't had. And it seems to me it's coming up fast because it's coming up with regard to the Millennium Challenge Corporation. Now I don't know how long that corporation has before it has to answer some of these questions, and I mean I think if we don't have something of a debate on them it's going to be unfortunate. Another point, another policy relevant point; I've talked about constraints of domestic politics on aid giving. Nowhere greater than in the United States. But I think we can widen those constraints if we work at it. I don't think we can just say we're going to reform aid without taking them into account. But I think we have to widen those constraints because the world we're living in now is not a world where bilateral aid agencies are alone anymore in any significant sense. We're in a world which the telecom people call a world of many to many, which I talk about a little bit in the book. We need to be agile, we need to be flexible and we need to be able to collaborate in ways that do not have us dictating the terms, which domestic political forces often force us to do. So how do we deal with that? Well, it seems to me that one way to think about it is to develop, if it's possible, a consensus, a general consensus among, I don't know who the stakeholders are, maybe people from Congress and so on, on the use of earmarks. I think the moment is right, people are starting to complain about it. And then an independent watchdog on it. How many things ended up in that Omnibus spending bill last year, on the A part of it, that nobody had anticipated? And I think again that is a function that could help us widen, I think, the domestic political constraints assuming anybody was listening, which I think they would. Finally, let us embrace diversity in public aid giving. Aid is used for different purposes and it probably will be always used for different purposes because of politics. We need to be coherent at the broadest level, but we need to protect the differences. And you won't be surprised that for me this is an organization issue that's on the table right now. I have long thought that development and diplomacy are quite different purposes, and I've worked on both sides of it, I must say, so maybe that has left me traumatized. If you put your aid agency into your Ministry of Foreign Affairs in Washington, you're going to muffle the development voice. And that means you're going to muffle the voice of one of the key constituencies for development, it seems to me. What we might think about is a new aid agency for a new administration, the MCC plus USAID.

And I have to leave you with one or two funny remarks; when I looked at that I thought, what's the name of that organization? It's MCAID. Finally, one final, two sound bytes for a final wrap up. I've been talking about aid not as an instrument that we can easily shape but one that's important, one that has lots of constraints on it but one that we all want to use effectively for whatever our purposes are. So let me just say what my students say sometimes; wake up and smell the coffee before you drink the Kool-Aid. Thank you. Andrew Natsios: ****Georgetown and my principal job, Nancy is still a professor at Georgetown and I never would have taken the job as a diplomat if I did not have my teaching at Georgetown and my students and my friends and the faculty. Uh, I think it's an excellent book. I've read the literature, both from my course and because I'm sort of interested in this stuff from an academic standpoint. Uh, and I think it's made an major contribution to the literature because Carol has made a set of arguments that have not been made that I found anywhere else and she's mentioned some of those but she hasn't mentioned all of those. Uh, she clearly connects the politics of donor countries, the organization of a program. She talked about that which I don't think anybody else is really, some, some of the DAC writing, the Development Assistance Committee of the OECD deals with some of those organizational issues but it's really, it’s not a scholarly document and it, it is a lot of research there that could be used **** to scholars although for some reason it hasn't been used that much. But I, I think um, that uh, Carol has done a great service by, as a scholar, put, putting this together. I also want to say that because Carol worked at OMB she worked at the State Department trying to control the A budget and the uh, Africa Bureau which is a more horrendous part of her career and then of, of course the high point of her career was when she was Deputy Administrator of uh, U.S. Aid in the uh, uh, during the Clinton years. Um, and of course, she, because she's a practitioner and a scholar, it, it, it, it, it, the area, the book reads reality for me. A lot of the writing and foreign aid by some of the scholars with all due respect in this city and some of them are good friends of mine are, they're, they're in a different plant somewhere. Uh, I'm, I'm amused. I don't want to mention the specific works but works on nation building and I mean, I read this book recently on how in Afghanistan we need to really have local ownership and no one in these, any of these works looks at the issue of speed and the implementation of eight programs in Afghanistan or accountability uh, or quality control. Uh, you can talk about what local ownership, a very critical issue, the central issue. If you talk about it in the middle of a nation building effort which is geostrategically driven without looking at speed, quality control and accountability then it seems to me you're, you're, you're living in a fantasy world. You don't look, you're not dealing with the reality of the invitation of an Aid Program in a post-conflict country that endured 25 years of hell where the institutions of the state were literally destroyed. In fact, the institutions of the state were literally destroyed. In fact, the institutions of society were literally destroyed. Carol, on the other hand, in no way does she sort of venture into this, this nebulous world of mathematical calculations, some of which is very entertaining, I’ve heard people us it to trash and Frank **** love to use some of this data to trash uh, arguments he doesn’t agree with. The problem is, I don’t think political science exists. I think uh, the political science is in fact an art form, politics is an art, history is much more useful than political science in explaining why things happen and doing a lot of these mathematical calculations to describe why a or why government behaves the way they do is, is not only not useful, it becomes some times

silly. Because if you read all the studies, they all kind of **** to each other. If that’s the case, it really isn’t a science. Uh, it’s not like medical science and, and, and you know, it’s also interesting uh, that Carol’s talked about the effectiveness of aid programs. When you’re dealing with a scientifically driven discipline within the Aid Program, health, agriculture, water, sanitation, these are hard sciences. When you, or, or engineering for that matter. I, I don’t know if that is a science or not but it’s a precise, you know, you either build the road to last or it’s not built to last. You can do mathematical quantitative measurements of those programs which were scientifically based and come out with quantitative measurements of whether or not you’ve achieved certain objectives, because it’s science based. And, and we know how to lower child mortality rates and **** mortality rates and we know how to increase agricultural productivity. In terms of the scientific interventions needed. What we do not know which is the thing that Jeffrey Sachs and all of his work is oblivious to and maybe because he hasn’t run an aids agency before, is how do you create the institution to do these things that’s sustainable, without any outside money or outside help, or any northern technical people or any aid program. How do you create a ministry of health in the third world that will immunize all the children every year exactly when they’re supposed to be with quality control the way it’s supposed to be, that’s the problem. The problem is not knowing whether immunizing programs reduce child mortality. We all know that and we can mathematically calculate how much the child mortality will decline over a number of years if you do all that. And we know if you increase fertilizer, and you increase irrigation and you increase, and you have certain levels of soil fertility and pesticides used carefully in a third world country you can increase agricultural productivity. The question is, how do you get farmers and agriculture industries to do that. How do you get a seed market institutionally the way Douglas North talks about in his great books on the importance of institutions. That’s what this is all about is institution building and I think that’s what’s lost in this discussion. The issue of implementation is lost in a lot of the debate over aid programming. Implementation is where aid programs fail. Not in the design phase, not in knowing immunizing all the kids and reducing the mortality rates, it’s doing it that’s the problem. In the middle of a civil war where people are shooting at you, you don’t have a code chain and, and bad things happen to you in the field. Carol has a reality check on all of this. I think it’s very useful for her to look at the legislature structure. The only work that I have seen that attributes the earmarking and the involvement of uh, the legislative branches of the parliamentary democracies on aids programs is Carol’s work. It’s the only place it appears in literature that I can find. It’s a major contribution because that is the reason why we have the system we have. And it’s very interesting to me as parties have declined empowering the United States. I think it’s made the country more ungovernable but over the last 50 years, there’s been a steady decline of the power of political parties. I’m a devotee of strong parties of the left and the right of Republicans and Democrats and the dramatic rise in the number of interest groups in Washington, there were like 15 organized interest groups in Washington in the 1950s, there are like 12,000 now in Washington and it’s because the parties have declined is the principal intermediary between the American people and the American government. Parties used to perform that function. Interest groups now, and we’ve vulcanized and atomized the American political system because of that, and what Carol has pointed out, the only person that’s pointed it is the relationship between strong parties, interest groups, aid programming and directives. It’s in

her lit - in her work. The other thing that she’s talked about favorably which I think is lost on people who don’t, who associate the religious right with the entire evangelical church. Almost all black churches are either Pentecostal, evangelical, and they are not religious right even though they are very conservative on gay marriage and on the abortion issue. They are in to social justice and they are certainly not right. Right of center, left of center. And a large portion of the evangelical, white evangelical churches in the United States is, in fact, driven by the same populous instincts that drove William Jennings Bryan who was an evangelical when he led the populous movement of the white 19th Century. The progressive movement in the American politics was evangelically based. People forget that in the United States. The four great awakenings that began in the late 1730s with um, in Massachusetts with Jonathan Edwards, all had profound political implications in domestic politics. The American Revolution some scholars believe started in the 1730s with Jonathan Edwards and the great awakening. The second great awakening was in the 1830s that led to the Jacksonian Revolution and the Civil War. The third great awakening was during the populous rebellion in the late 19th Century. We are now in the fourth great awakening. You know, people don’t realize it. It is now beginning to have profound implications in terms of foreign affairs. If and, and people who, who think of the religious right only as interested in, in religious liberty or religious freedom for Christians now are not listening carefully to the evangelicals. They’re talking about religious persecution of any kind one. Two, they’re talking about slavery issues around the world uh, they’re talking about the HIV AIDS Program of, of New Testament theology. Listen more carefully to the conservative Christians in the United States. You’ll realize that something is profoundly changing. There’s been breakups of some of the evangelical coalitions over foreign aid issues, over foreign aid issues just in the last two or three years. Carol has pointed that out. I don’t actually think that appears in any other literature. If it does, I’ve missed it. I think that’s a major contribution not to do what happens in the city, which is to, to make silly comments about the evangelical church when you really don’t know much about it. I would add something that Carol mentions but I think needs more research and that is this. Globalization has connected uh, American corporations with the developing world. High tech companies, Starbucks, you go through the list in a profound way. We were engaged in this effort, the career people invented this system, I simply endorsed and sort of drove it away, drove it along through a, a from a leadership perspective and that’s the Global Development Alliance. It’s now 400 alliances worth $6 billion, $1.4 billion dollars in AID money, and $4.6 billion in private sector money. Much of that is corporate money and corporate foundation money. And it, what, what has changed is that AID is no longer the principal funder of these programs. AID’s role has changed into a techni - a center for technical excellence, is a facilitator and a designer. Not as principally a funder any more. That may change this whole question of mandates. I asked several CEOs of very big corporations, are you doing this for charity and they said absolutely not. I mean, that’s what the foundation is for. We do, we’re doing this because it’s good for our business. I’ll give you two examples. Starbucks has a new program, it’s not new now, but it’s an alliance program in Rwanda for specialty coffee. Forty thousand **** families, about 400,000 people are in this program. So it is to scale as having a profound effect in rural areas. Those families have had their incomes doubled in the last two years, okay. Because they’re now producing coffee that’s marketing and it says in the bag that 16,000 Starbucks sells them and it says in the bag, this was produced as an alliance between

coffee farmers in Rwanda or coffee farmers, AID and Starbucks for specialty coffee at a premium rate. Starbucks has linked these poor farmers into a global supply chain for their, for their coffee shops. And it’s having an effect on their income and they are now learning because Starbucks takes the farmers, many of whom have never drunk coffee before. They produce it, they don’t drink it, and show them the difference between a premium coffee and a regular coffee. And they can taste it and then they point out to them if you do this, when you grow the coffee, it will taste like this and you’ll get twice as much money for it than if you produce it this way. Which is a capacity, capacity building of the, the kind that aids programs have always done. But now a corporation’s doing this with some aid funding. The aid funding by the way does not go to Starbucks, it goes to NGOs that do the capacity building that builds double. This is a new paradox, it’s being done now across Europe and within the UN. **** is a great innovator of this in the UN and the bank is doing this, the World Bank is doing this. The point here is I think there’s a new constituency for foreign aid and that is globalized corporations in a way, very interesting way. It’s a bit high tech company spent $200 million in internet cafes all over the world. Training people, I asked the CEO, why do you need $3 million for AID, they’re not even giving you the money. They said, we don’t need your money. You know, spend the money technically to help the local level. We want you to introduce third world companies to the internet. There are six countries in Africa that got the internet because of AID technical programming. We help them write the law and introduce it technically to the country. The interesting thing is they said we want your technical ****, the knowledge of your country. We don’t have local offices. I said why are you putting these internet cafes in to build capacity. They said it, it’s building markets for us. I said that’s fine as long as we know why you’re doing it, we don’t have a problem with that. Any other high tech company can invest the same money, we’ll have them too. This links corporate interests in a socially responsible manner. There’s a book that Charlie Schultz wrote, he was accused of being a Reaganite, of course he was a chairman of economic advisors under Ronald Reagan, under uh, under Jimmy Carter, and he wrote the **** lectures of 70, 1970 or 79, a wonderful book called The Public Use of Private Interest. The GDA is the public use of private interest and is creating, in my view, a new uh, interest, special interest in the United States that’s very powerful behind foreign aid in a way that Carol has captured in this book. But I think we need to do more research on it. The last thing I want to make a comment on is that, or, or I want to make, comment on the issue of multiple purposes. People are threatened by and it drove me nuts, I’m a development purist at heart. I realized the only way AID was going to recover its placement in the agency process was if I embraced the multiple uses of foreign aid and didn’t resist them. And I got the career people, I think most senior career officers accept that now. Even if they don’t like it, they accept it and it’s a reality and, and you know, as a conservative, I believe in dealing with reality, not fantasy worlds. So that’s the way it is, I accept American history, I’m not going to change it, just accept it. Just guide it as much as you can. If you’re not at the table, you can’t guide policy. And you can’t guide policy if you keep resisting everything. But, you can have a good development program in a country that has profound implications for the state craft of the United States as

an instrument of national power. It even can have the winning of heart and minds as a military strategy. Because I, I think that we need to distinguish between the military uses of foreign aid in a conflict zone for U.S. military purposes and the purposes of state craft which are, are related but they’re not the same thing. And I would sort of make that little distinction a little bit more that Carol and I might disagree on, on that particular distinction. But, but this is the last point. And that is this. It appears from at least my own experience that the other side of the Potomac River has now a profound interest in development in foreign aid that they did not before. Uh, we know that Colin Powell saved AID when it was about to be cut to the bone in the mid 1990s by the Republican Congress. The White House thoughtfully did not send someone from the Clinton administration to convince Newt Gingrich not to cut it. He sent Colin Powell after he retired as a Joint Staff and Colin Powell said if you don’t, don’t put that money back, we’re going to have more wars, we’re going to spend more money on national defense. He, he intervened in a critical meaning. It’s very interesting story as to how that happened. Newt Gingrich ordered the money put back in the budget. It’s very interesting how that happened. Now, I know from some friends of mine in Congress is one of the reasons we got more money in Afghanistan, early on before the administration asked for is a station chief for the CIA was traveling around Congress and, and said how can we win the war against terror and he said give that **** in AID more money and they said who, this is not in our foreign aid appropriations committee. And they said who’s that and they said what are you talking about. He said we’ll never get out of Afghanistan unless you get AID enough money to do the reconstruction program the right way. Give them more money. And people on the right who were really not into foreign aid but were realists in international politics all of a sudden said oh, we didn’t think of that. Now, the committees did but they didn’t have the support of these other elements in the Congress and all of a sudden, it’s the CIA telling people it’s a good idea to do this. I also want to just point out, if you read the QDR, the Quadrennial Defense Review that **** put this together. He is no friend, he is not my best friend, when he was in office, he’s leaving office now and I’m not going to make any comments but he was, it was not a fun relationship, okay. The QDR, the Quadrennial Defense Review, says for the first time in American history that war fighting and the QDR drives defense policy and defense budgets. It’s the policy document for the Defense Department. It says in it stability operations, which is the Defense Department term for nation building, particularly in a post-conflict setting, is equal in importance in the new Defense Department to war fighting. A profound statement, of course, that scared me, that means there’s going to be a developed AID within the Defense Department. They’re asking for I don’t know almost a billion dollars in the budget this year for nation building, the nation building in the defense budget. Now, even though there is a very hostile relationship between civilians, not military, civilians in defense and AID for a variety of reasons I want to go into. It’s very interesting just after I left, a senior officer from AID was in a senior meeting, I’m not supposed to tell you what it is because it’s classified with Secretary Rumsfeld, Secretary Rice and Director of ONB. This is a true story. We almost, in fact, Dr. Rice’s jaw fell. There was a $200 million cut in the AID budget in a very important country for capacity, capacity building, not building things, building structures, capacity building. Rums - and we couldn’t get it back in the budget, ONB said no you can’t have the money. Rumsfeld said the President it’s unacceptable to make this cut, and my, my guy, my old friend was there and said well what, what did he say.

He said put the $200 million back in AID’s budget, not my budget, AID’s bud - we need to spend the money and AID needs to run the program, I support it and of course, Condie, thinking very quickly said I support Don, he’s absolutely right and they rolled over ONB and the money was restored by a person who was not a particular friend of AID during those five years. We were stunned by it. It means that people on the other side of the river can be an intergovernmental lobby and advocate for foreign aid if we take a broader view of its purposes and don’t resist it, and if they respect the development expertise of the agency. If they don’t respect it, then I think they should resist it. But what’s happening now is the more interaction there is between all these agencies in the, the field, more people are learning that we do know in our community a lot more than people give us credit for and that’s hard realists in terms of what works, what does not work, how you do things, how you build institutions, and how you get measurable outcomes. And I think that’s changing and I think that interaction’s very useful, I don’t think we should resist it, I think we need to understand Carol’s book is the best study to convince people on all sides that we need to, to review our sort of purist’s view of how this works. Thank you very much. Carol Lancaster: If anybody came hoping that Andrew and I were going to debate because it seems like we’re not going to, we haven’t yet. Andrew Natsios: You want to think of something we can disagree on, Carol? Sebastian Mallaby: Great, well I’m going to ask a couple of questions to start off with and then we’ll go to the floor for your questions. Uh, I have a question which is sort of you know, comes in a form typically for a journalist of a half-baked hypothesis which I’m going to ask the other two to either confirm or shoot down. Uh, **** just shot it down so, so think in those terms. It seems to me, you know, listening to all these comments, one of the interesting questions is do we really think that foreign aid will grow in the future or will it stagnate and shrink. Putting together what we’ve heard and by the dynamics underlying whether people are willing or not to give foreign aid, and you know, what direction are we looking at to start making in the future. And I would suggest and here’s my hypothesis that if you, if you go down the list of, of factors and concerns, Carol and Andrew have spoken to that and neither of them really spoke convincingly in a sort of one-way ratchet effect. They’re more **** things that can backslide, move forward and so that’s sort of the future for cyclical is that after a period since 2001 or so of, of quite rapid growth in ODA, we could easily go into a cycle in the next half decade or so where it starts to shrink. Now just going down the list of, of what I was, as I was listening and putting together some of these **** factors, foreign policy and the policy community is concerned and, and for that is, I guess developing systems as a tool, that does I would say go in cycles, right, because you have periods when the secure craft, the ****, that people already believe in AID potential to help them and they get disillusioned later um, they don’t connect with the fact if you ask the AID community where is the AID most effective, I’ll tell you it’s not in the **** states, it’s in the state where the policy environment and so please give us the money because we’re worried about the failed states in Afghanistan, we’ve got to spend it in Ghana or something. There, there’s that kind of danger, that kind of disconnect in the foreign policy rationale for aid on the one hand and where the aid sort of where the aid people would prefer to spend it if they’re allowed to on the other.

So I would say that foreign policy is something where you know people get enthusiastic about aid and they might get disillusioned later. Similarly, economic and commercial interests, um, I think that whether you’re talking about economic interests in the sense of you know, we’ll develop Africa so that they will buy our exports for commercial interests, we’re **** list, um, we will help our exporters by doing projects which could be contracts. Uh, when you have a budget crunch whether it’s in Japan in the last five or six years, I believe there, they cut ODA which had previously been very **** or whether you look at the 1990s and, and the U.S. budget contracts. These are not **** arguments. If, if the justification for aid is going to be sort of economic and commercial, then when you have an economic and commercial crunch, you, you rapidly lose the justification for it. So I don’t see that as a ratchet, I see that as a, a cycle effect too. Then there’s something about growth of debate kind of argument, it sort of you know, there’s the internet doing a number of focus groups, the CNN effect, maybe this moves in a one-way ratchet, more debate maybe equals more aid because people are more, and so shrinking well to more knowledge about the rest of the world. Um, I would just point out on this one that you know, Carol cited uh, the presence of uh, debate rather than, lack of debate of the French and Japanese context around ODA is the reason why it was bad. But at the same time, a lot of the debate in the U.S. system uh, for a reason why ODA was limited and bad. I mean, uh, in, in one sense you get coalition parties in Europe and, or left wing coalitions where small parties look more at ODA as a, as a condition of going into the government, but when you need to build coalitions in the U.S. context, what you do on every legislative issue all the time, that doesn’t necessarily translate into the same result. And there’s nothing intrinsic in the um, presence of debate or in the need to build coalitions it seems to me that guarantees that ODA will increase. And in fact, in Denmark as your book points out, uh you know, you had, had a reduction in aid where a different kind of coalition emerging more recently. So I don’t see that as a ratchet either. And then there’s sort of an issue of norms. Um, uh, do norms move in one direction, have they done that in the last 50 or 60 years? It seems to me that you know if you take the U.S. as an example, we’ve again had a period where you know norms were influenced by sort of free market skepticism about the needs for government assistance uh limiting the amount of aid relative to, to other countries um, but that now maybe with the rise of the coalition interest and evangelical groups interest in aid. You know, norms could be shifting. So again my point is that, norms don’t, you know, norms are fairly important but knowing that doesn’t tell you what’s going to happen in the future in terms of ODA so, I, I’ll stop there, but maybe Carol you could begin by uh, um, do you think that’s right that all these things can move in both directions and therefore, um, aid is more likely to move in cycles than in one direction? Carol Lancaster: Depends on your time frame. And I think cycles are clearly a factor in the short run and I, I, I’d be willing to predict that we’re moving into perhaps a cycle now where the increase in aid is likely to taper off given some of the concerns with the federal budget in this country. Uh, but we’ll have to see. Uh, foreign policy concerns obviously move in cycles. 911 did have an impact on, I think, the awareness of many people of problems in countries beyond their borders and that these problems needed to be addressed. It’s very hard to increase aid during periods of economic downturn in donor countries, why are you giving those people money when I have my own problems here and so on.

I think over the long run, uh, unless something un, unpredictable happens, the, the what I see as a norm and the constituency for aid giving, have been, have been, the norm, the constituency’s been increasing uh, in a number of countries worldwide. And I see other political changes, the passage of the, really the uh, the uh, generation of politicians in France and the kind of opening up a little bit of the government there. The changes in government so that the sort of greater transparency and a little bit of greater transparency and more NGO activity in, in more ****, legislative involvement in Japan, but I would just say that we might be looking at something linear with cycles uh, bouncing around it. And uh, with the case of, it’s understandable because both in the United States and Denmark, very interesting. When I started writing this book, I thought I was going to write a book about the beginning of the end of foreign aid. It was sort of you know it’s still the early part of this decade and I had lived through the downturns in the 90s and so on, but I think that a little bit more time made history look a little bit different and maybe ten years from now, we’ll have another discussion and it’ll be very different but, I think one of the things that triggered the uptake in aid in the United States and the, the thing that triggered it first was not 911 because this precedes 911. But it was the energy that uh, one saw in the coalition of groups including NGOs and business groups in the mid to late 90s who felt that aid cuts had been enough. And you begin to see a reaction and you begin to see an increase, an uptake in aid here. In Denmark, it’s true. When the center right coalition came to power in 2001, on the promise of cutting aid by 10 percent, they did exactly that but they didn’t go beyond that. And it’s picked up again in Denmark. And so, this is a hypothesis on all our parts but that, uh, I think we uh, I think we have a long run linear uh, tendency with uh, lots of things bouncing around it. Next Speaker: Andrew. Andrew Natsios: Um, well, I think there’s several things here. The, the first is I think we oversell some times but foreign aid can do in the community, because we’re under attack all the time, there’s all of these proposed cuts and we feel the need for talking about as Jeffrey Sachs has done and I think he’s done a huge disservice by suggesting we can eliminate poverty. Which we are not going to do in the next generation no matter how much foreign aid we have, it’s ridiculous to say that. I mean, I know these, these soaring visions are wonderful things for people to write about, but there’s, there’s no reality check. No serious person who understands this believes that’s going to happen. And I and maybe you do, I, I just can’t imagine people who have actually been in the community really believe that. Can we improve things? Absolutely, we can improve things. We know this stuff works. But let, let’s deal with reality here. So I think overselling aid is the worst thing we can possibly do because they’re going to, to come back to us and say well we increased aid and these things didn’t happen you promised us would happen. And I think that’s part of the problem. We shouldn’t oversell. We should tell people what we know works universally as I said before. Science based interventions that we run ourselves through our intermediary organizations does produce quantitative measurements of improvements. We don’t always do, I mean, I always thought we should do some more in agriculture, not as much in health and we have that and we can have that debate. But you know the thing that I think is disturbing is that the things the third world needs the most are strong institutions. This institution building is not a hard science. It’s a soft science, it’s not even, it’s an art form.

There are interventions that work half the time under certain circumstances, they do work. That’s worth doing it. We ought to tell people this is sort of like venture, venture capitalism it, it’s an investment. Half the time it’s going to work very well, half the time it’s going to fail. Accept that. Don’t run around saying if you put this much money in, this is going to result automatically particularly in the non-hard sciences. And, and the things they need the most are not the hard sciences. I mean, the democracy stable political system, the lack of conflict, these are all not scientifically based interventions. The third thing is I think Presidential leadership counts. And this wouldn’t have happened and I’m not being partisan or anything here but I mean the fact of the matter is the President made the decision to do this whether you like him or not and he did it. And he called, I walked, I was actually walking in the Oval Office on a number of occasions when people were parading in who weren’t going to vote for this stuff and he actually called them in and said I want your vote on this, you’re members of my party. And I watched it on two occasions happen. They were literally, we were passing each other in the hall. I said why are you going in, and they told me why. So, there has been a resistance I think to some degree in the Democratic party disinterest Democrats to get involved in this issue because it was, it was seen at some point as being sort of left of center. Which is another, another issue. We should stop identifying this to the left. There is now a Republican constituency for this and we ought to cultivate that and not use language which is divisive ideologically. I’ve been saying that for years, I want to repeat that now. People who think the Defense Department are a bunch of ogres, if you believe that, don’t say it, please. It’s really destructive and it’s also nonsense. The people who don’t want to use the instruments of military power or the Defense Department. There’s more people in the humanitarian community that want to use defense instruments than there is in the Defense, they don’t like going to war. I mean, you live in a fantasy world if you think that and people because they don’t have contact with this community or the intelligence community for that matter, they do know some of this stuff and we ought to talk with them more, deal with them more, and understand there is another role for this for our, our community that actually could build a constituency that I think can survive the cuts. So my own view is, this is evolving enough now and if we, if we do this the right way, I think that there can be a permanent constituency in this post-cold world war and this whatever you call this, the period we are dealing with the challenges we face in foreign policy for a strong aid program presence. I personally have always supported a new department with a cabinet level position. I’ve always supported that. And the argument I had with Carol is whether we can get that through right now. And I don’t think we could. Maybe in the next administration and I hope it’s a Republican administration, we can do it, but let, let me just list one last point. Next Speaker: Are you clapping for Republican? Next Speaker: No. Next Speaker: Oh, oh - Next Speaker: Cabinet position. Well Nancy if you want to, if you want to endorse a Republican candidate, I, I would be the first one to encourage you to do it. But let me just quote some very interesting -

Next Speaker: **** Andrew Natsios: Well I’m going to try to get my party candidates to do it. I am going to try to get my party’s candidates to do that. Peter McPherson and I are going to make a little crusade to do that. Anyway, he doesn’t know it yet but I’m sure he, he will support it. He always supported it, anyway let me just show you some interesting statistics. I used this for my last class. It was supposed to be the class that Carol lectures at, the second to last class and I couldn’t use the data because it was the exact opposite of what I thought it was. I should stop saying things without questioning the data and learning as a university profession, you know, I have to do that more carefully. This is to what degree are NGOs dependent on AID? This is a profoundly important, I was shocked at this data and this is from AID documents, okay; 1984, NGOs total income was $1.5 billion, 1984, of which $800 million came from AID. 1994, ten years later, total income for all the NGOs that are registered with AID, that are in the PVO Report every year is $3.5 billion of which $1.5 is from AID, so about the same percentage, about half of NGO budgets. You know what the data is for 2004? $2.8 is money from AID. In other words, AID funding has doubled every ten years for the NGO community. You know what the total income for NGOs is and I’ve got to disaggregate this data but I was stunned by it, $18.5 billion. It’s gone up in ten years for total budget from $3.5 billion to $18.5 billion. Something has happened and I think it’s this, the global development alliances, it’s private fundraising, it’s other sources of revenue other than the public sector. Now some of it may be the UN, I got to disaggregate this a little but it is stunning the change in the size of the NGO, these are just the ones registered with AID, this doesn’t include the whole community. These are American based registered with AID. So there’s been a shift here and I think it has to do with this, these sources of revenues from other communities of interest that we have not thought through before, might be allies of ours in our work. Sebastian Mallaby: Okay, but you say that you’ve also seen a marked increase in high profile private philanthropists stating with Bill Gates obviously uh, but not limited to him uh, giving to international causes rather than for classic domestic ones within the U.S. And let’s get to the audience. Uh, anybody have a question? I see one right there. The microphone is just coming. Next Speaker: What, what do you mean by NGOs? Are you, are there, are you talking about uh, the, the charities or are you talking about organizations, I won’t mention their names but not-for-profits that get lots of domestic and international funding? Next Speaker: No, no, no these are, these are, these are, NGOs registered, American based NGOs or PVOs, registered with USAID to receive AID money. And the, the funding level is not just AID funding. The 2000, and before 1994, most NGOs got most of their money, in fact, almost all their money from AID. That has changed now with the advent with the HIV/AIDS Program which HHS runs, the State Department is spending more money, labor spends $500 million in uh, aid programs now, so there’s it’s a dif - a diffusion of programs. The $2.8 billion figure is not just from AID, I misspoke when I said that. It’s from all federal sources. But it’s U.S. federal money.

Next Speaker: Okay, that’s, let’s have more questions please. I see one right there. Next Speaker: Uh Carol, I wanted to uh, congratulate you on uh - Next Speaker: Could you identify yourself please? Next Speaker: Oh Bob Burke is my name. And I uh, I wanted to ask about the risk of over-identification and over-allocation for political purposes. As you recall, the crisis of uh, reaction to aid to Vietnam forced a whole new political alignment in this country. Um, will chickens come home to roost because of Iraq particularly here and because uh, AID may well be called upon to fight a fight that nobody seems to be prepared to and that is the reaction to, to militant Sheehad where I’m not sure if you do evaluative results on both the Iraq program on, and on that strategy, we have much to offer and I wonder whether that might cause a risk of very serious rethink and crisis in the AID programs? Carol Lancaster: That’s a good question. In the past, foreign aid has been a sort of lightning rod for criticisms of government activities in which it was associated in any way. Vietnam is not the only one. The Iran Contra was another case in point and so on. So it could, but I, what I’m not sure of is whether we’re not in a little bit of a different political context now. The political context uh, includes the fact that the, there may be a realignment of uh, of, of, of the pro-development coalition supporting AID that Andrew mentioned and I talk about a little in my book which in -, which includes the Christian right. You know, that has, that can have if it’s a permanent phenomenon can have an enormous uh, impact I think on uh, how much aid we give, how uh, acceptable or controversial it is and of course, on the ability of the traditional aid constituency to engage uh with, with the uh, with the Christian right. And, the Iraq problem is, is up till now of course, a problem of the Republican administration and the traditional criticisms of AID, many of them, not always have come from the right. Uh, I don’t see any evidence of that happening yet, but what I think might well happen and it would be, it would be quite difficult to deal with I think is as the Democrats take charge of both Houses uh, they may find that without a fairly tough budget policy, maybe a pay-go policy. Uh, they will become complicit in a whole lot of things including the budget deficit. Uh, and we are looking at an, a Presidential election in two years. If they have a pay-go policy, and the administration asks for a big increase in aid to Iraq and Afghanistan, I uh, I think there could be some great painful trade offs and that could cause a lot of controversy about the use of aid. So, so I don’t know if that’s going to happen, it’s a scenario that’s possible out there. Um, so it, it could, your, your concern could happen in a, in a perhaps in a non-traditional way. Next Speaker: Okay, if there is a question in here – Next Speaker: If I could just add this, just add one thing here. Um, of the 18, of, there're two aid supplemental for, uh, Iraq reconstruction. Of the $21 billion or $22 billion that was spent, only about 15 percent was spent on aid as we would define it. Very little of it was spent, even the money AID spent, $5.2 billion, $2.3 billion or $2.4 billion of that was, went for infrastructure projects, so large sewer, water, electrical generating plants, um, stuff like that. They, they're not traditional aid programs.

Next Speaker: One could add that the rise in global ODA has been global, not just confined to U.S. foreign policy. Next Speaker: **** Next Speaker: **** Next Speaker: Yes. **** Next Speaker: **** something much bigger going on than just money **** Next Speaker: Yes. Next Speaker: Absolutely. Next Speaker: I, I think the bigger criticism could be in Afghanistan. There is a big, you know, people are saying, Why are we losing Afghanistan? And, and, if, and, and that's a question, but I, I don't think it's because aid failed there. I think it's because of other factors that are going on. We need to be careful and just aggregate what's hap, what is happening in Afghanistan, 'cause the aid program is doing what it was designed to do, it's just simply that there are other factors at work, which it's, it's not the place to go into that. But, uh, so I, I think we should be careful about Iraq is not a traditional aid program, uh, in any sense of the word. Next Speaker: Is a question right here in the front. Next Speaker: Yes, I'm Barbara Pillsbury. Uh, Carol, in your review of the other countries as well as the United States, um, historically, uh, it seems that has been an increasing tendency and a belief that it is right to put decision-making about programs into, uh, closer to the country level, to, uh, for the, for better outcomes as well as for capacity building, and what we hear now about the, uh, uh, the reorganization of, of U.S. aid with it, with U.S. aid moving into the State Department and reorganization of the first 30 whatever countries, um, that's to take place in 2007, and with decisions being made by teams of 20 to 30 to 50 people in Washington, could you comment on where you see that going in the, uh, in the overview of, of how things have evolved historically? Carol Lancaster: Well, it's very funny. The United States, I think, led the way in, uh, in, in decentralizing a certain amount of decision-making to the field, and we can go back 10, 20, 30 years, which, which others have come along and, and have done, for example, the World Bank. And yet, uh, increasingly that, I think there is a, a certain amount of illusion about that. Uh, I remember the budget exercises when I was in AID. We would go out to the field and say, Well, tell us what you want for the next budget. Just, just sort of lay it right out there. Here's your number. Just tell us what you want to do. And there would be all this sort of toing and froing in the field, and then the toing and froing in Washington, then we'd come up with a budget and finally we got the money back from Congress. We'd have to say, Oh, by the way, you have to do all of this – you have to do population, can't do democracy, or You have to do democracy, can't do population, because other things, uh, drove the aid program.

So in a way, it's been driven to some extent, uh, by, uh, by certain imperatives, political imperatives in Washington, all the time. I don't know whether this reform is going to further erode the, the sort of engagement of the field in a, in decision-making. Uh, I, I am hoping we'll be able to take a look at some of the things that have happened since the reform has begun to be put into place in a month or two when we have another budget and we can take a, we can see that sort of scope of what's going on. But I would say that, uh, it wouldn't be a very hopeful sign, uh, uh, because it is, it seems to me it would be one more step away from, uh, the traditional development, uh, activities for which the aid monies are used, and I'm not a fanatic about putting it all in the field, but I think there has to be a balance. Uh, I'd be concerned as to where that balance is. Next Speaker: Uh, Nancy. Nancy Birdsall: On Sebastian's hypothesis, I wonder if Carol could comment on a thought that occurred to me, which is the new philanthropists are much more global than 19th century philanthropists. If you compare the Gates and Buffet phenomenon, say, to Rockefeller, Carnegie, uh, is that, is that important, but I actually had a question for you commenting on this great point that Andrew made, so, um, eloquently about the fundamental issue being institution building. Uh, you know, one way to think about, it's a little crude, but there's aid for institution building and there's aid for poverty alleviation, uh, for saving lives, for putting children in school. These specific programs that Andrew mentioned are more easily measured and where we can see results and be more convincing, if we're aid proponents. But it is a slight exaggeration, but the trouble with the latter is that it's more appealing in terms of public, uh, interest, but in the end it risks seeming like creating dependency. Next Speaker: Um-hm. Nancy Birdsall: It risks, you know, the sort of problem that welfare programs in the U.S. suffered. And indeed, we, we sense that happening with budget support in the poorest and most aid-dependent African countries that's being used for recurrent, endless sort of financing. So how do you reconcile your idea that everything is looking positive in the long run timeframe with this, I think it's a real dilemma, because the institution building boils down often to state building and nation building. It's very hard to be convincing about that. It, it does fall victim to this larger debate about, is it about diplomacy or is it about development. Um, on the other hand, the other kind of aid really can be more convincing. I think the in, you know, it's very worrying. It is the make poverty history issue not being addressed. So, I don't know if you, if the, if the comment and the question is too complicated, but, and finally, if there's time, if Andrew could tell us what is his ranking of reforms of aid that in the U.S., that those of us out here should push, you know. There's get it on time, get rid of the earmarks, get a consolidation strategy by having a Cabinet member, you know, what's your ranking giving, given political feasibility and potential impact in, in reducing poverty or transforming societies in the developing world? Next Speaker: Well, Nancy, uh, do we have another hour and a half? Next Speaker: Sure!

Carol Lancaster: Let me, let me, I think that you've, you've asked a very interesting, uh, and complex question about, and really about, uh, much as anything else, aid **** that it has a political implication. Yes, it's true, I think, that one of the political consequences of any constituency engaging in the aid business is that they bring their agendas to the table and they bring their interests to the table. And I think that, you may not have meant this, but I think that, that, um, for example, one of the reasons there isn't much money in AID put into research is, is because it doesn't have a constituency. And I, I think there, there is a problem, and, and, uh, that may be what you were talking about, um, the direct services have a constituency, the direct service for poverty alleviation and other things have constituencies, but some things don't. And some, the things that don't might be quite important, in fact. That, that poses a problem which, which is, um, related to long-run effectiveness today. I tend to agree with you and with Andrew that at the core of the development problem is an institutional problem that we don't understand very well, and that this is probably the epicenter also of the development problem in sub-Saharan Africa, which is really what we're looking at in the long term. I, I, I don't think I know enough to say, uh, first of all, how you would attack it directly, 'cause I don't think we understand it completely. Uh, but presumably the services we're talking about, even childhood inoculations, health programs, contribute not just to the well-being of the beneficiaries, but I would presume ultimately, to the capacity that would allow some of these institutions to, um, to become stronger and more effective. This is an area which would be, which would bear some close scrutiny and so on. I don't think we can pull them completely apart and say, Well, you know, poverty alleviation stuff, community development, health, and so on, is here, and maybe it's almost welfare, because it doesn't seem very sustainable and institution building is there, and infrastructure is somewhere else. I, I, there's a nexus there. I don't know how big it is, and that's something to look at. Um, so I'm not sure if I touched on your question or not. I, I think we need to find out, I think, this is when I talked about the problems of aid, talking about aid effectiveness, we need to find, we need to discover ways to talk about, not just in terms of aid and growth, or aid and eradication of a particular disease, but the broader question of what is it we realistically think we can do, uh, with these interventions, and it isn't always going to be growth, necessarily. And I guess I just, I might disagree a little bit with Andrew, uh, on making poverty history. Uh, I think Sachs is, uh, excessively, excessively optimistic about the impact of large amounts of aid flows on making poverty history, uh, because of the institutional question. But I, I'm not convinced that it isn't within our grasp. Uh, we just don't know how to do it. Next Speaker: Okay. Uh, let me just explain – Next Speaker: We don't know how to do it, tell them – Next Speaker: Uh, if we don't know how to do it, how is it in our grasp, Carol? Next Speaker: We have to experiment. Uh, uh, and I, I mean I, I think there's a great deal we don't know about this, and I do think, for example, there are a great many things one can do with more aid monies in some of the more difficult places in the world. Uh, the ones where the institutional, uh, environment is weak, um, I think we have to experiment on how we get

at those issues, and not just say, well, the institutions are weak, we can't do anything. I mean, are we gonna write them off? Next Speaker: But hasn't there been experimentation for 60 years of ODA? Next Speaker: I don’t think there’s been a lot of systematic experimentation uh, on it and I think some times it’s been unrealistic. I mean, I hear talk, I hear conversations maybe this is passé now and the World Bank saying you know, Malawi has weak institutions, let’s get 12 auditors out there and that will help solve the problem. Well, you know, it’s a lot worse than that and it’s a lot more complicated than that and the first step is to recognize that and to try to grapple with it and I think we’ve done better in the last couple of years than, than we used to but I think, uh, you may think I’m, I’m uh, I’m posing a contradiction here but I think we, we need to be realistic and focus on the issue of institutions and uh, and I think that um, you know, it’s going to be experimental. I, I don’t think we can sit in a university and figure it out. Next Speaker: Well, I just think that you know, having interviewed hundreds of world bankers, the failure to recognize complexity is not the thing that jumps out at you. I mean, these people are uh, plenty sophisticated, they understand the complexity and the reason they haven’t done systematic experimentation is that you know, this is not a clinical trial environment and you can’t do controlled experiments. You, therefore, have a messy set of intuitions uh, not certain prescriptions and so I’m not convinced that another five or ten years of experimentation would yield to carry inside some **** in Africa and therefore, I see a sudden contradiction between say something is doable and you know, we don’t know how to do it. And I’m not sure why we would require the knowledge of how to do it - Next Speaker: Well in learning how what not to do it seems to me Iraq has a lot of lessons there. Um, and, and I mean, I think going about it in a systematic way and maybe I’m being a dreamer but going about it in a systematic way which I don’t see having happen uh is, is one way at least to begin to limit the things that we don’t know. Next Speaker: But I think we, you mentioned and I agree that uh, external evaluation by an independent group as proposed by CDD is a good start and it’s not, and Andrew uh, interventions that should be prioritized because they are politically doable and secondly, going to make an impact. What’s the proper method? Andrew Natsios: Uh, there are five things I’ll just list them okay? One is consolidation. James Q. Wilson’s book on bureaucracy says there are three characteristics of a functional, highly functional federal agency. One of them is relative autonomy. You don’t share your mandate or your mission with everybody else in the federal government. The amount of time AID wastes with in-fighting with departments who haven’t the slightest idea what the third world is all about is ridiculous. It’s demoralizing, it’s ridiculous and it, it takes too much energy and Wilson says in his research and he wrote the definitive work on federal bureaucracy. This is a critical issue. So consolidating all aid programs into one, back into one agency the way it was from Jack Kennedy and until 1990 I think is the most important. Second, I think AID should legally be put on the NSC as a sitting, along with the other whatever the other the Defense Department, the State Department, I think the CIA, it should have a seat on the agency be required to go to meetings. The way you get AID to do national uh, strategic interest stuff and foreign aid is to put them at the table when the decisions are

being made and give them an equal say as to the State Department and the Defense Department. Uh, we didn’t make the same mistakes in Afghanistan we made in Iraq. I was excluded and so was Fred from all meetings on Iraq for a year and a half at the NSC. There was no AID presence for a year and a half until **** became Ambassador, we were not allowed in the meetings except once, just once, and I caused a big stir the last time I was invited back to the meeting. I don’t think it was just because of that but we weren’t at this table, we weren’t at the table. Every week for four years we were on Afghanistan, so that’ the second riffle. Next Speaker: Well, we’d invite you back there. Andrew Natsios: Well thank you. The third is re-staffing the foreign service. I keep saying this, let me tell you why it’s important. The most important thing about AID is who the leaders are of the missions. And there are now 900 foreign service officers of whom we must choose 80 to be mission directions because there are 80 missions and 80 to be the deputy mission directors. They run the missions and there are still even under the changes that have been introduced, there are still more decentralization in AID than in any other aid agency in the world, in the international system or bilateral, by far. Even with the reforms, it’ll still be the case. If you have an extremely small pool of people to choose from, I chose a bunch of mission directors who shouldn’t be mission directors. I didn’t have any choice. There was no one else to choose. Having someone like a Bill Frey and these are all, and, I, I don’t want to embarrass Walter North, he was here before. Walter was an excellent mission director, excellent, in India and, and uh I can go through the list. They make a profound difference for the entrepreneur because there, there’s still a lot of power out there. Leadership counts at the country level. And if you don’t have a big enough pool in the foreign service, you can’t choose the people. There’s no one left in the foreign service, it’s ridiculous. Used to be 3,000 foreign services offices in 1980, 2000 in 1990, and there are now less than a thousand. We built it back up, it’s shrinking back as people retire. The fourth is we’re not going to get rid of earmarks. Charlie when he was there understood all this stuff, I’m not trying to, there’s no reason for me to try and compliment him, him sitting here okay. He understood the stuff technically enough that he wrote in stuff that he, no one except us knew was there, which gave us flexibility to spend money and he really relieved the earmarks without anyone realizing it okay, because he gave the flexibility to us directly. That stuff’s now being gradually in, because people don’t understand how important it is. I think there should be something in the Appropriation Bill or the Authorization Bill, but I think Appropriation is probably the right Bill that says 10 percent of any earmark can be reduced or increased by the administrator of AID deciding to do that, okay., to spend the money somewhere else. And, and, and an agreement, and complete transparency when you’re doing it. And, and, because the earmarks aren’t, you’re not going to bet rid of them, you just can’t do it under the divided system with weak parties like this. The final thing, I think, is critically important is we started it, I hope it, it’s still continuing the whole issue of fragile and failed states. That is where you draw in the national security strategy in the United States Government. The White House, the State Department, the CIA, and the Pentagon and when you bring in a larger constituency that’s, those are the issues, and they happen to be the greatest development challenge of our time. You began that process with the office of conflict mitigation and management, the office of military affairs, two new

offices in ****, there’s a bureau with this function, there’s a fail phase strategy, that stuff is critically important to make aid a central instrument in dealing with these kinds of crises. And I think that’s a very important part of the new aid if we want to make it a more permanent part of the arsenal of instruments of national power. Sebastian Mallaby: Okay, well, I want to second what Andrew said earlier about uh, uh, this being an important focus that weaves together all the factors underlying aid and puts together you know, both the political contacts and uh, the humanitarian impulses and everything else. Carol I think has agreed to sign copies. They’re going to be for sale in the atrium um, so we will uh, convene to the atrium now and so thank you all very much. iDictate www.idictate.com Job Number: 06342-001 Billed Word Count: 10800

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