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Making Lemon-aid

Republican politicians in the United States are hellbent on axing international development assistance. But Congress's budget-cutting mania might actually improve it in other ways.
November 7, 2011 |
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When the G-20 met in Cannes last week, protesters naked but for green Robin Hood caps gathered elsewhere on the French Riviera to demand a financial transactions tax -- a payment made on each bond or stock purchase, which in theory would tame the excesses of banks and hedge funds and claw back some of the costs of the mess they have made of the global economy. The protesters might have been surprised to hear that inside the G-20 meeting, a fully clothed Bill Gates was suggesting exactly the same thing.

In a break from their regularly scheduled hand-wringing over the state of global financial markets, world leaders listened to Gates's suggestions for public financing of global development in what Gates admitted was a tough environment for aid funding. He suggested that a financial transactions tax, alongside additional taxes on tobacco and carbon, could be used to help rich countries meet a global target of committing 0.7 percent of GDP to development aid. He suggested that aid "is a small investment that generates a huge return" and that such investments were precisely the ones that should be spared during cuts. Nevertheless, as the G-20 met, the charity group Oxfam was predicting that aid funding was likely to fall by nearly $10 billion in 2012, the biggest decline in 15 years.

The outlook is particularly grim in the United States, where traditional aid is on the congressional chopping block -- 165 House Republicans want to close down the U.S. Agency for International Development altogether -- and the new financing ideas Gates has proposed appear to be non-starters. U.S. representatives at the G-20 meeting balked at the idea of a financial transactions tax, arguing instead for a "financial crisis responsibility fee" that would tax liabilities of the largest financial institutions to repay the costs of the Troubled Assets Relief Program. Meanwhile, the new trade treaty the United States has signed with Colombia zeros out tariffs on U.S. tobacco imports -- not quite the fiscal direction Gates was proposing for tobacco taxes. And of course, the U.S. Environmental Protection Agency has yet to use its authority to regulate greenhouse gas emissions.

The good news is that the United States (and, for that matter, everyone else) could be doing a lot more for development without spending more money -- and in some cases even saving it. Congress could cut the aid cake but make what's left far more appetizing -- and the United States could take baby steps toward trade and immigration reform that would help poor people lift themselves out of poverty. There might even be the votes on Capitol Hill to do it.

As Gates emphasizes, focus and selectivity are key to improving development aid. A lot of aid goes to comparatively rich countries, and a lot of it is still tied to purchasing goods and services in the donor country. And the aid process can be immensely inefficient. Back in 2005, the club of donor countries called the Development Assistance Committee met in Paris to agree on five principles to make aid more effective, along with 13 targets to help meet those principles by 2010 -- things like making sure aid is actually part of the budget process in developing countries, rather than an uncoordinated add-on, and trying to focus donor efforts so that each ministry in a developing country isn't dealing with 40 different aid agencies each giving a sliver of cash. By 2010, donor countries had managed to meet only one of the 13 targets -- the one that involved talking to each other more. In times of strapped resources, one way rich countries could improve aid's bang for the buck would be to work on meeting some of the other 12. For the United States in particular, just two reforms -- ending the requirement that three-quarters of U.S. food aid must travel on U.S.-flagged ships and buying more food in local markets -- would considerably increase the impact of aid while saving around $400 million a year.

Beyond public and private finance, the Commitment to Development Index (CDI) compiled by the Center for Global Development (where I am a fellow) suggests that rich countries could do better by improving their policies in other areas that profoundly affect global development: trade and migration. Rich countries could help poor countries trade their way to wealth by cutting agricultural subsidies, which tip the playing field against farmers in the developing world. CDI estimates suggest these subsidies amount to a little over $100 billion a year in the United States and a similar amount in the European Union. Divert just four years' worth of EU agricultural subsidies to pay off pretty much all of Greece's public debt, and we could stave off a second global financial crisis while helping some of the world's poorest people all at the same time.

In the United States, this kind of subsidy trimming has long been a political taboo -- but in a season of obsessive budget-cutting, it may no longer be. During negotiations over the deficit in July, the While House and Congress were close to agreeing on agriculture subsidy cuts worth around $35 billion over 10 years, and nearly $5 billion in direct payments to farmers may be cut in the 2012 farm bill.

And then, of course, there's migration. The CDI reports that migration from poor countries to the United States each year amounts to one-third of 1 percent of the U.S. population -- that puts it in 15th place out of 22 rich countries. So much for "Give me your tired, your poor, your huddled masses." Yet it is increasingly clear that the movement of people is a considerable boon to the economies of both origin and destination countries. So more open borders are another area where rich countries including the United States could benefit considerably from greater generosity to the world's poorest. Even on this contentious issue, there are signs of some movement on Capitol Hill toward immigration reform, as members of Congress hear from farmers whose crops are rotting in fields as supplies of undocumented labor dry up and firms who can't find skilled applicants for their jobs. Republican Sen. Marco Rubio has suggested new visa programs for both high-skilled and agricultural workers, for example. And presidential candidate Mitt Romney has called for a green card to be stapled to the front of every college diploma awarded to a foreigner.

With the United States busy beating a retreat on global leadership in development finance, perhaps the rest of the world can use some of Gates's proposals to fill that hole. But for better or worse, cuts to farm subsidies and perhaps even progress on immigration -- however difficult to imagine -- are far more plausible policy aims in the current environment in Washington than an expansion of aid spending. Focusing on these things may not satisfy the naked protesters, but it would still help address some of the problems of the world's poor.

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