Odious Debts

World Bank and other bureaucratic failures in foreign aid

Stephen M. Lilienthal
Enter Stage Right
May 8, 2006

The British medical journal, The Lancet, has published an article critical of World Bank efforts to combat malaria. The article charges that the World Bank, after promising at least $300 million in loans to combat this dreaded disease, has failed to provide the full amount. It gets worse because, writes Amir Attaran, an attorney at the University of Ottawa Institute of Population Health, the Bank’s lack of transparency and “contradictory” accounting techniques obscure the Bank’s failure to fulfill its promise. World Bank officials deny Attaran’s charge but it drew support from a dozen public health experts associated with prestigious institutions, such as Oxford University, the London School of Hygiene and the Prince Leopold Institute of Tropical Medicine. This report arrives at a crucial time because Americans, including Members of Congress, should be scrutinizing the value of international aid provided by the Federal Government – that is, by American taxpayers.

Many Americans, shocked at the United Nations oil-for-food scandal, realize that the mismanagement of government aid is not merely a phenomenon which occurs in Washington and State capitals but internationally. The positive view many Americans held of the United Nations and the World Bank is diminished as they come to realize these institutions are simply large bureaucracies which consume money but frequently fail a good return on investment.

U.S. News & World Report recently spotlighted the corruption and inefficiency of the World Bank and its current effort to reform itself. “For most of its history, World Bank officials ignored complaints about corruption,” states U.S. News. President Paul Wolfowitz is continuing to wage a crusade against corruption that started with his predecessor, James Wolfensohn. “The scale of the problem is enormous: Knowledgeable analysts believe corrupt practices of one type or another may be associated with more than 20 percent of the funds disbursed by the bank each year,” U.S. News asserts. The problems associated with World Bank corruption and the countries it aids are complex and, despite the good intentions of Wolfensohn and Wolfowitz, the Bank’s own bureaucratic mindset remains a stubborn hurdle. Too many careerists resist reform. World Bank reliance upon “Developing World” governments aggravates the problem. Northwestern University Professor Jeffrey Winters is cited in the article as having estimated to Congress in 2004 that corruption devoured $100 billion of World Bank funds over time. A former World Bank project manager has opined that estimate may be low.

Americans are a generous people; they are not callous to human suffering or poverty overseas. When Europeans were left hungry during World War I it was (future President) Herbert Clark Hoover and the American Relief Administration (ARA) which helped to assure they were fed. Hoover had to battle the desire for vengeance expressed by some European countries, especially France, over extending aid to Germans. After the ARA folded, Hoover created the ARA European Children’s Fund, a private charity, to continue feeding children. The Marshall Plan, advanced by the Administration of President Harry S. Truman and enacted by the Republican 80th Congress, first as aid to Greece and Turkey, helped to rebuild European countries devastated by World War II and to provide stability that limited the appeal of Communism.

As Congress surely most re-examine its assumptions regarding domestic spending, some prudent rethinking of international spending also is in order. The Contract With America: Renewed, the budget proposal advanced by the Republican Study Committee (RSC), calls for eliminating aid to all international development banks. The RSC plan calls for the United States to continue as a member and stockholder of the development banks but without providing further capital.

It remains to be seen whether the RSC can muster the necessary Congressional support. The elimination of such funds would not preclude the United States from providing international aid to combat poverty and its contributing factors, such as poor public health. The Hudson Institute Center for Global Prosperity has released its Index Of Global Philanthropy, which spotlights efforts that rely on the initiative of the charitable, religious and corporate sectors and are more effective at directing aid and expertise directly to those in need.

The Organization for Economic Co-operation and Development (OECD) is critical of our country because international aid from the Federal Government totaled only 0.17 percent of gross national income in 2004. Only Italy (0.15 percent) contributed less, according to OECD statistics, of 22 developed countries, including Japan, Canada and Australia. OECD says we fall well below its standard of 0.7 percent. Americans have no cause to hang our heads in shame according to Hudson’s briefing material:

“The 0.7 percent standard…is misleading because it ignores the enormous amounts, as well as the effects, of private aid. And private aid from the U.S. is much higher than from other Western countries. Americans give abroad the way they do at home – privately. Europeans traditionally rely more on government for supporting the poor, at home, as well as abroad.”

Hudson’s Index states private giving abroad by American foundations, corporations, private and voluntary organizations, universities and colleges, religious organizations and individuals totaled $71.2 billion in 2004. That is over three and one-half times the level of U.S. Government foreign aid. Another $6.5 billion was delivered by private lending and investment. (The Washington Post criticized the Hudson Index in an April 16, 2006 editorial “Counting Aid Dollars,” because a large percentage of the giving included “worker remittances,” aid sent from families living in the United States to relatives in the “Developing World.” Nonetheless, The Post, while critical of the overall thrust of the Index and charging that private aid can be “amateurish,” did state that “The Hudson Institute is right to draw attention to unofficial aid; private actors can be more innovative and nimble than governments…”)

The Hudson Index shines a spotlight on several groups which personify the belief “the voluntary way is the American way.”

Statistics from the United States Agency for International Development (USAID) show that 503 private voluntary organizations, including Catholic Relief Services, CARE, Save the Children, and the lesser known such as the World Rehabilitation Fund, help disabled people in developing countries. They delivered an estimated $5.7 billion in private assistance to the Developing World in 2004.

The Jewish Volunteer Corps, sponsored by the American Jewish World Service, has 62 volunteer professionals helping to deliver essential services, such as education and health care, in eighteen countries.

There is also an entrepreneurialism waiting to be unleashed in the “Developing World.” For example, an entity called Worldstock helps artists sell their products, enabling them to keep at least 60 per cent of the proceeds. Another, KickStart, produces low-tech tools to help solve irrigation problems. The Skoll Foundation, which promotes social entrepreneurship, selected KickStart to receive a grant in 2005, explaining:

“Since its inception, KickStart has helped farmers start 36,000 new businesses in Kenya, Tanzania and Mali that collectively generate more than $38 million in new profits and wages per year. The new revenues are equivalent to 0.5 percent and 0.2 percent of the Gross Domestic Product of Kenya and Tanzania, respectively. Skoll funding will help KickStart strengthen its operations, develop two new products and reach 50,000 more clients.”

The World Bank, in its World Development Report 2005, credits the valuable role that corporations play in spurring development and tackling poverty. “Driven by the quest for profit, firms of all types…invest in new ideas and new facilities that strengthen the foundation of economic growth and prosperity. They provide more than 90 percent of the jobs.” The tax revenue they generate help to fund efforts to fight poverty and fund health care and education. The Bank credits private enterprise as “central actors” in promoting economic growth that can help to improve the lives of impoverished people.

The Index brands government-directed international aid as “old-line thinking.” A paradigmatic shift is taking place in which the private and charitable sectors can lead efforts to alleviate poverty. William Easterly, a former World Bank official now Professor of Economics at New York University and Co-Director of the NYU Development Research Institute, in an essay on Cato Unbound examining why “Why Aid Doesn’t Work,” states flat-out that the West has received a poor return on its “$2.3 trillion on foreign aid over the last 5 decades.”

The idealism which gave birth to the World Bank and the Peace Corps need not be strait-jacketed into a bureaucratic lending institution or a governmental program. In this age of quick and easy air travel and the Internet, American citizens, organizations and corporations can unleash their own creative solutions and directly solve problems. We need not rely upon bureaucratic efforts that devour money but fail to produce positive results. Why not a “Global Poverty-fighting Tax Credit” for corporations and individuals supporting enterprise-developing programs aimed at improving developing world economies and bypassing corrupt governments? Why not a White House conference to highlight the productive efforts of the private, religious and corporate sectors in combating poverty that urges more action?

Ronald Reagan, in his 1980 presidential campaign, famously challenged Americans to ask themselves whether they were better off than four years previously. Americans should be asking World Bank officials and those of other international development banks: Is the developing world better off than it was after five decades of international aid totaling $2.3 trillion? Better yet, the people living in the developing world ought to be asking that very same question of their own country’s officials and those of the international lending banks. It would be simplistic to say – paraphrasing Reagan – that when it comes to combating poverty in the developing world the international lending banks and Government aid is the problem rather than the solution. There are significant reasons ranging from culture to geography to climate to politics for underdevelopment and poverty. Throwing good dollars to chase bad results help only the corrupt.

Let’s see if Congress can muster the will not only to slash our assistance to international lending institutions commensurate with the return but also to spur creative alternatives to the sclerotic status quo that defines government-directed international aid.

Stephen M. Lilienthal is a policy analyst with the Free Congress Foundation.

Categories: Odious Debts

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