House Committee on Foreign Affairs

Hearing:  Foreign Assistance Reform in the Next Administration - Challenges and Solutions

 

Testimony of Jim Kolbe

Former Chairman of the Foreign Operations Subcommittee on Appropriations, Senior Transatlantic Fellow at the German Marshall Fund of the United States

 

April 23, 2008

 

 

Thank you Mr. Chairman, Ranking Member Ros-Lehtinen, and Members of the Committee for the opportunity to testify before you this morning.  Not long ago, I sat on the other side of the dais as a Member of Congress and the Chairman of the Foreign Operations Subcommittee on Appropriations.  It is an honor to be here with you today to discuss the future of U.S. foreign assistance and development for both the next administration and the U.S. Congress. With your permission, I will summarize my remarks and submit my full testimony for your review.

 

I think it is fair to say that the next administration and the next Congress can play a role in reshaping our foreign assistance program if, together, they choose to do so.   Both branches must be involved in the key decisions to restructure, reform, or streamline the way the U.S. government prioritizes, funds, and delivers foreign aid.  The final responsibility for shaping the legislation and providing the funds to implement it will fall to Congress.  It is a considerable challenge, but one worth taking.

 

I spent twenty-two years representing the 8th District of Arizona in the House of Representatives.  The final six of those years I served as Chairman of the subcommittee that annually funded most U.S. foreign assistance programs.  During those six years, the subcommittee witnessed a significant transformation in the landscape of foreign assistance 

 

Priorities shifted dramatically in the aftermath of September 11th.  Funding levels increased for the new reconstruction efforts in Iraq and Afghanistan, to cope with the Darfur crisis, to support the Pakistan government’s battle against Muslim extremists, and the introduction of new programs such as the President’s Emergency Plan for Aids Relief (PEPFAR), the President’s Malaria Initiative, and the Millennium Challenge Corporation (MCC).  In one year alone, 2003, with the supplemental appropriation for Iraq reconstruction, the subcommittee’s spending level increased by more than 100%.

 

As a result of the radical change in the global environment, the Administration added development as a third pillar of national security, and the Defense Department found itself tasked with a greater role in the implementation and delivery of both humanitarian and development assistance.  In 2006, the Secretary of State established the Bureau of Foreign Assistance and proposed a new transformational development agenda, which became know as the “F” process.

 

The Foreign Operations 302(b) allocation has traditionally been one of smaller Appropriations Committee allotments, registering at approximately 1% of the total U.S. budget.  Although the percentage of foreign aid funding changed little in relation to the total U.S. budget, the overall foreign aid budget drastically increased while I was Chairman.  For instance, the increase in the total enacted level of funding between Fiscal Year (FY) 2001 and Fiscal Year 2006 was over $3 billion, increasing from nearly $17.6 billion to over $20.8 billion or nearly 18%.  And, this did not include the frequent supplemental requests we received in the later years. These increases were significant to the foreign operations budget, especially in the short timeframe in which they materialized. 

 

The President’s Emergency Plan for Aids Relief (PEPFAR), speaks for itself.  The program has garnered widespread support from the Administration, Congress and the NGO community.  It has proven itself with measurable results.  The Millennium Challenge Corporation (MCC) continues to offer an innovative approach to aid that reinforces local ownership, good governance, and economic freedom for recipient nations.  The MCC is an initiative I supported as Chairman and worked closely with what was then the International Relations Committee to draft legislation that created this new approach to foreign assistance.  As a former appropriator addressing authorizers, I think we both know how rare that collaboration is.  We were proud of that effort, and I continue to support the tenets and the delivery record of the MCC.  I urge you to continue to support them as well.

 

U.S. foreign assistance has undergone considerable changes in the last seven years.  It is important for Congress to face the challenges that have stemmed from this transformation and support the reauthorization of a Foreign Assistance Act that would harmonize the reality in the world around us with the Act that governs our assistance.

 

 

Since I left Congress, I have begun to examine foreign assistance more broadly as a Senior Transatlantic Fellow at the German Marshall Fund of the United States. Our focus is a transatlantic one.  The United States and Europe account for four out of five official development assistance dollars globally and also account for the bulk of foreign direct investments, philanthropic and trade flows with the developing world.  Working together, the U.S., Canada and Europe can help to rationalize the aid system – not just because most of us accept the moral imperative to alleviate poverty, but because fostering economic growth in the developing world can lead to shared prosperity and improved security for all of us.  Given the important questions that you have asked us to address today, I believe that it is important that we do not reexamine our policies, practices and institutions in isolation. The next President - regardless of who that person will be - will no doubt conduct a major “rethink” on how our foreign assistance is delivered and—more broadly--how the United States engages the world. The rest of the world has watched this election process with universal attention.  So, as the next administration examines the U.S. foreign assistance structure and options for reform.  It cannot fail to consider our European and other global partners – not to mention the poorest countries of the world.

 

With this thought in mind, the German Marshall Fund, together with the active support of the Hewlett Foundation, launched a major look at foreign assistance on both sides on the Atlantic, creating a platform for transatlantic learning, debate and policy reformulation around foreign assistance and development. It will continue to support the successful conclusion of the WTO Doha Round multilateral talks because we are convinced trade is a critical piece to the development puzzle. Aid and trade need to be better coordinated. Removing barriers to trade must be complemented by foreign assistance that enables poor countries to access global markets. The process of aid modernization in the U.S. is an opportunity to leverage partnerships worldwide, exchange lessons learned, strengthen policy coherence, foster and coordinate with new development finance sources like philanthropy and the private sector, and explore common approaches to coping with failed states.

 

At GMF, I co-chair a Transatlantic Taskforce on Development with the Swedish Minister for International Development Cooperation, Gunilla Carlsson. Our mission is to provide strategic recommendations to strengthen transatlantic cooperation in development and to harness them to public opinion in a way that can create conditions for reform.  The Taskforce consists of 24 members, eminent in the development field and with experience collectively across governments, think tanks, universities, NGOs, foundations and corporations.  The taskforce will act as a platform for the exchange of innovative ideas in an environment conducive to intensive policy analysis. We began our work this month and will address four primary challenges: first, the development-democracy-security nexus; second, climate change and global public goods; third, innovative instruments and approaches to development; and fourth, food security. These four challenges are among the most pressing issues in development.  All require greater coordination and understanding amongst transatlantic donors. A report based on our findings will be published in January 2009 in time for the findings to be considered by the incoming US administration in the United States as well as the new European Commission to be installed in Brussels later that year. I hope we will have the opportunity to present the taskforce recommendations to you at the same time.

 

It is worth discussing these four challenges in more detail. In terms of the Democracy/Development/Security Nexus, there is continued concern in the international community regarding the roots of terrorism and other forms of extremism.  Attention has focused on the environmental conditions – political, social, and economic – that cause or enable individuals to pursue violent behavior. There is a widely-shared belief that democracy, development, and security are inextricably linked even if the correlations have not yet been proven in the short-term. Fragile and failed states – “ungoverned spaces”  characterized by collapsed societal institutions, ineffective rule of law, substandard education, and insufficient investment among many other problems – can and have become sources and sanctuaries for terrorists.  Quite naturally, this provokes concern among policy makers and implementers alike. Of particular interest are the lessons to be obtained from states transitioning from post-conflict status, specifically the economic development strategies that allow an effective exit on the part of military forces and the creation of conditions that ensure political and economic stability. This would include “pre-conflict” strategies designed to prevent military conflicts by anticipating and mitigating situations that lead to political “backsliding” or economic uncertainty.

 

Climate Change and Global Public Goods: In a global environment, there exists a set of issue areas that extend beyond national borders in both their scope and content.  As such they are considered to be of critical importance to the broader international community.  These “global public goods” are unique in that, in principle, their benefits extreme to all people, but they can only be effectively defined and addressed only through collective action. Unfortunately, difficult questions concerning sovereignty, preferences, compliance, and often create strong and abiding disincentives for regional or international cooperation.  Although there are a number of issues that fall in the category of a global public good – education, health care, technology transfer among them – climate change remains one of the most salient. Seen in the context of development, climate change is particularly relevant as it is predicted to have a profoundly negative impact on the world’s poor. These impacts could include higher levels of drought, declines in agricultural production, food shortages, shifts in investment, and large-scale migration. Work by the development community on this issue now encompasses both mitigation and adaptation, with significant discussion revolving around the environmental indicators that could benchmark progress by developing countries and the transfer of critical technologies that allow them to do so.

 

Innovative Instruments and Approaches to Development:  The transfer of private sector practices and expectations to the public sector as a general trend has deepened focus on results and effective delivery in the development arena, further magnified by the emergence of new actors and paradigms. Innovative instruments and projects such as Advance Market Commitments (AMC) that leverage private sector, international bond markets, or other forms of capital and lead to reduced conditionality, effective coordination, and enhanced local ownership are also carving a new path in development aid. As the relative scale and impact of such transfers are becoming appreciated, both traditional and new aid actors must find ways to harness these efforts to the benefit of emerging and developing economies. Particular emphasis should be placed on mechanisms to channel ’patient’ capital to small and medium enterprises, support capacity-building that spurs entrepreneurship, bolster local financial intermediaries, and strengthen public sector institutions required to create viable investment environments attractive to the private sector.

 

Food Security: Food security has exploded in the last year as a critical topic for the development agenda, both because of the immediate global food crisis, fuelled by high commodity and energy prices, and because of the broader linkages between food and other development initiatives. Without food, people cannot live productive lives and so the Millennium Development Goals (MDG) targets are undermined.  Lack of food can trigger social unrest, witnessed by rioting as far apart as Mexico, Senegal, Indonesia and Haiti in just the last month or two. There are also other linkages between the efforts taken on climate change – such as biofuel targets – and its unforeseen implications on food production and security.  On April 19, it was announced that the European Commission was backing away from the proposal to establish a compulsory 10% quota of biofuels in all petrol and diesel by 2020, because of the criticism of the diversion of food crops to fuel. A number of international actors have raised their voices on this topic – including the World Bank and the United Nations Secretariat. The United States is considering its response in terms of humanitarian assistance in terms of food aid, but must also consider the wider implications on the use of food for fuel within the United States and whether it should be publically funded.

 

 

In its call for this hearing, the Committee posed four questions it asked respondents to address.  Let me turn to these questions and provide a few of my thoughts.

 

First, what are the problems plaguing foreign assistance? 

 

The international development system has become increasing complex. The average number of bilateral donors per aid recipient has nearly tripled, from about 12 in the 1960s to about 33 by 2005.  The advent of new donors like China, India, Venezuela, Brazil and the Arab states (such as Kuwait and Saudi Arabia) has fundamentally altered the development landscape with significant implications on international norms and geo-politics.  They have been joined by an array of new global programs, vertical funds and new kinds of instruments.  Development is no longer predominantly a government to government domain.  The rise of mega-foundations like Gates, corporate foundations, social responsibility programs of private corporations, and hybrid actors, such as investment funds and triple bottom line business models, have brought new opportunities, but also challenges in development.  These ‘private’ actors are estimated to contribute roughly $8.3 billion annually to international development activities. Remittance flows add another $240 billion – more than doubling official development assistance (ODA) worldwide.  There are some U.S. programs that seek to leverage the private sector, but there has been few changes in the way we delivery aid to adjust to this new aid landscape and harnessing these new sources of finance, technical assistance, and development expertise.

 

U.S. trade policies often fail to achieve - and sometimes undermine - our development goals, which are in turn linked to our security interests.  It is critical that the U.S. demonstrate leadership and help bring the WTO Doha Round of multilateral trade talks to a successful conclusion.

 

In 2003, legislation was introduced that would extend duty-free status to non-oil products of many Muslim nations. The legislation has languished.  The Pakistani textile industry, that country's largest employer, faces stiff U.S. tariffs, even though Pakistan is the epicenter of al-Qaida.   It is a shameful fact that the United States collects more tariff duties from Bangladesh and Cambodia than it does from Britain and France, though the value of trade with the first two countries is less that a tenth of that of Britain and France.

 

 

Despite preferential trade agreements such as the African Growth and Opportunity Act, oil still accounts for 90 percent of African exports under this program. In the end, such preferential trade arrangements are of little value if poor countries lack competitive enterprises and the infrastructure required to support exports in anything except natural resources. Nurturing a vibrant private sector, promoting entrepreneurship and bolstering transport, water and energy infrastructure require bold thinking and new kinds of partnerships. Donor practices must be revamped to ensure they harness local capacities, not stultify them.

 

Second, What recommendations do you have to improve the U.S. foreign assistance program, including organizational and legislative recommendations?

 

Development should be considered a much greater element of both national security and the mechanism through which the United States can demonstrate moral leadership in the world. Note that I have used the word ‘development’ rather than ‘foreign assistance’ for I believe it is time to acknowledge that development is broader than foreign aid, and encompasses supporting private sector and NGO involvement as well as government to government funding.

 

The foreign assistance program is cumbersome and complicated and ought to be simplified as a priority. This includes creating a new comprehensive Foreign Assistance Act to replace the 1961 Act and over 20 pieces of additional legislation accompanying it. If this does not prove politically practical, at the very least a new national development strategy is needed to provide an overview of the goals and objectives of United States support for development and to allocate responsibility to different agencies to achieve the stated goals. Given my experience with the MCC, I believe that the new national strategy should prioritize country-level planning and implementation to develop local capacity and sustainable projects. At the same time, we can recognize that some issues must be tackled regionally or globally.  An example would be collaboration to mitigate disease or to tackle climate change.   

 

Operationally the mission and structure of USAID ought to be defined more clearly.  Development as a whole ought to be prioritized with a stronger organizational position within the United States government.  I do not believe this is an argument for a full cabinet-level position for development. A new cabinet secretary, without thinking through all of the other changes that must accompany it, only adds another redundant layer of bureaucracy.  I do, however, recommend higher budgets for the MCC and for other development objectives. As important, there should be more flexibility within the funding allocated to development assistance, with fewer Congressional earmarks, eliminating or at least reducing the inefficient use of tied aid to purchase American goods, and enabling more predictable and multi-year funding of development assistance.

 

Finally, I believe in working collaboratively with both other developed countries and with developing countries. This includes creating informal dialogues such as we are doing with the Transatlantic Taskforce on Development collaboration with relatively new actors in development, and renewed commitment to working with multilateral organizations as a mechanism for delivering development assistance. The United Nations is far from perfect, but there are examples of excellence within it.  The World Food Programme is an efficient and effective organization which ought to be given even more substantial United States support. This ought to include providing it with more flexible assistance, with a greater balance of monetary rather than food inputs.

 

Third, What is appropriate balance between national security and long-term development in the U.S. foreign assistance program?

 

Finding this balance is certainly not easy, but it is important.  Finding it produces some satisfaction in both the defense and the development communities without having either objective totally submerged by the other. The different objectives of both should be clarified areas of overlap and should be identified where mutual efforts could be productive.

 

National security will always be paramount interest for any administration.  The war on terror will continue in another administration even if it goes by a different name. There are times when security concerns will require the United States involvement, for example, to root out terrorists and to set up surveillance and other operations, even if there may be objections to this on development grounds.  Focusing on fragile states, post-conflict states and pre-conflict states is not only a security issue for the United States but is also a security and development issue for the countries and their people.  The cost of conflict in development terms is catastrophic, both in human and in economic terms.  Liberia, Sudan, and Somalia stand as stark reminders of the truth.  There must be strong civilian and military cooperation to support development in such states, because security and development in these states are fundamentally interlinked.  Without security, there will be no normality in economic or human relations, but without protection of human rights and the basic rule of law, the ability to earn a living, and secure at least basic human needs will be impossible.  This has been demonstrated in many conflict situations and there are lessons to be learned and transferred – for example, the United States Institute for Peace has many lessons that can be practically applied in such situations.

 

Yet longer-term development objectives should not be sacrificed for short-term security goals time after time. In fact, to do so poses a challenge not only to our moral integrity and ability to effect change with the dollars that we spend, but also undermines our security over the long-term if these countries do not develop stable economies. Oxfam’s ‘Smart Development’ report which underscores some of the challenges for ‘smart power’.  I agree that there ought to be greater assistance to the poorest countries of the world.  But I do not think this assistance should be unthinking: there is little point in providing assistance to foreign governments if they divert the substantial part of such funds for non-productive purposes. Again, the example of the MCC, which targets countries that meet standards on corruption and governance measures, but then provides substantial capacity building and country ownership, is a model which should be scaled up. I also concur with Oxfam that civilian development agencies should largely remain civilian rather than be mandated to take a bigger part in military efforts.  But that does not mean that civilian agencies should never support military activities.  In certain cases, civilian and military cooperation is essential to protect both security and development and is not a paradox.

 

Fourth, What is your opinion regarding efforts to reform the interagency process, including calls for rewriting the National Security Act of 1947? 

 

The President added global development as a third pillar of national security, along side defense and diplomacy, in the U.S. National Security Strategy of 2002 and reaffirmed it in 2006.  This is an important policy shift, but our institutions and practices have not been altered to reflect this change.  You are aware as I am that the U.S. government has over 20 different departments and agencies engaged in development work with overlapping mission, objectives, and mandates – leading to incoherence and redundancy. Although some programs have adopted more systematic approaches like the Millennium Challenge Corporation with non-earmarked, results-based funds, such efforts only target the “good performers” and there is no coherent approach to the most unstable, fragile states across the U.S. government or in partnership other donors. In the absence of institutional and robust civil societies, the fragile states are a political vacuum, a breeding ground for transnational threats like pandemics, international crime, terrorism, conflict and violence.  Our policies must be fashioned to ensure that long-term development institutions, policies and practices are preserved and strengthened and increasingly coordinated with (but not subsumed by) diplomatic and security activities.

 

Despite good intentions, embedding USAID within State has generated new tensions and its own set of challenges. Some fear that short-term diplomatic priorities will trump long-term development goals. If the next Secretary of State manages the Director of Foreign Assistance aggressively and centralizes key parts within U.S. ODA budgeting, this could further exacerbate these tensions. The push for policy coherence has not been achieved.  In fact, it has led to greater incoherence and a weakening of support for development among some lawmakers. The process has been focused on “downward” accountability adding many new reporting and administrative requirements on USAID missions and partners. It has been given few resources to manage increasing beef-up operational demands; USAID staff has declined rapidly over the past few decades. The “F” process oversees USAID and State development funds, but not aid that is delivered Treasury, Agriculture, Defense, and other agencies. So, it remains a half measure, and U.S. foreign assistance remains highly fragmented as a result. The “F” process has the potential to generate more coherence and strengthen support in Congress, but many see current trends and the push for policy coherence leading to a “one-size-fits” all solution where long-term development priorities are sidelined. The agencies that support development, defense and diplomacy cannot be bundled under one roof. There are different incentives, practices, and organizational cultures that must be acknowledged and respected. While there are overlapping goals, there are different short-term and long-term priorities. Ultimately, this will require an interagency process that balances these differences but leverages their respective assets on the ground.  

 

In conclusion, I want to focus the Committee’s attention on what may be the most critical challenge to any successful overhaul of our foreign assistance program—rebuilding public support.

 

While I was in Congress, my first priority was to represent the interests and concerns of my district.  Like each of you, I did my best to find the balance between the domestic needs of my constituents and my responsibilities to the nation as a whole and the rest of world.  As the Chairman of Foreign Operations, I struggled even harder to find this balance.

 

Before September 11th, I would wager that you faced the same hostile questions at every public meeting about foreign aid that I confronted.  The events of September 11th shifted that focus somewhat, but our constituents continue to be concerned about domestic and security issues that impact their lives more directly.   Your challenge is to draw the connections between foreign aid and national security, as well as domestic health and economic issues.

 

I worry that as a nation we are turning inward when we should be doing exactly the opposite.  The current trade agenda is a prime example of that.  The bottom line is Congress and the new administration will need the public’s support to continue current aid commitments, let alone reform the aid system.  It is vital that as political leaders we help the public understand that our economy is intertwined with the global economy, and that our food and energy prices are impacted by the demand for food and energy all over the world.  There is no turning inward in a globalized world, and foreign aid is one tool we use to promote a healthier, more secure, and economically stable world.

 

I thank you for the opportunity to testify before you today, and I welcome any questions you may have.

 

 

 

 

 

 

The prior remarks represent my views only and do not represent the views of the German Marshall Fund.