U.S. foreign aid: Business skills needed


Somalian refugees wait in the registration area of the Ifo refugee camp which makes up part of the giant Dadaab refugee settlement on July 20, 2011 in Dadaab, Kenya. (Oli Scarff/GETTY IMAGES)
August 3, 2011

This piece is part of a leadership roundtable on U.S. foreign aid, in light of the crisis in Somalia — with opinion pieces by Sen. John Kerry, Fletcher School Professor Astier M. Almedom, Share Our Strength Founder Bill Shore,Wharton School Professor Stuart Diamond, and Executives Without Borders CEO Robert Goodwin.

It’s easy to criticize the U.S. foreign aid program these days as a waste of money in a time of budget deficits and needs at home. It’s easier yet amid reports of corruption, non-cooperation and harboring of enemies by recipient countries. For some, the discovery that terrorist Osama bin Laden was living secretly for years in Pakistan, a big U.S. aid recipient, was the last straw.

Under pressure from Republicans, the 2012 foreign aid budget wending itself through Congress reflects billions of dollars in aid cuts. Despite the instinct to help starving children in Somalia, sick refugees or earthquake victims, there are only so many resources available. Most of the public thinks foreign aid should be cut, and some lawmakers want aid cut to zero.

What is harder, however, is to summon skill and focus to differentiate what works and what doesn’t, to eliminate the bad investments and keep the good ones. Clearly, this is not happening. A main reason is insufficient use of business and persuasion skills. In a sense, aid proponents have brought problems on themselves either by not making the case or by thinking they shouldn’t have to. If post 9-11 lawmakers want to cut aid to parts of Somalia controlled by Islamist terrorists, for example, you can bet the aid community will have to make a case to feed the destitute there.

At least since the end of World War II, foreign aid’s explicit rationale has been to spread democratic ideals and otherwise protect the United States. From rebuilding Germany and Japan to developing the Peace Corps and providing food and medical relief in Africa, U.S. aid has slowed communism, reduced diseases that could have migrated here, preserved ethical leadership, created American export markets and helped combat illegal drugs. U.S. aid buys a seat at the negotiating table for release of kidnapping victims, environmental talks and other thorny issues. And it doesn’t cost much: Although the annual total is upwards of $50 billion, that’s little more than 1 percent of the total federal budget—a similar percentage since Ronald Reagan’s presidency.

Yet the record is uneven: early support of the Taliban in Afghanistan, confiscation of farmers’ grants by governments, support of countries sheltering U.S. enemies, and the inability of food and medical programs to promote economic progress in many countries. A July 2011 report by the U.S. Government Accountability Office found insufficient (a) reporting (b) performance targets, (c) best practices, (d) monitoring, and (e) spending on required trade enhancement by the State Department’s U.S. Agency for International Development (USAID).

Skilled business leaders know that a key to gaining opportunities is minimizing the risk. This requires risk-reward estimates and return on investment calculations before a project is funded. But few examples of this can be found with U.S. foreign aid. Though some efforts, such as smallpox programs, have had great benefits ($100 million cost, $1.3 billion annual savings), that was known only after the fact. If returns were routinely part of foreign aid proposals to Congress by the State Department, projects would be less vulnerable to failure or criticism. It’s no longer sufficient to say, “It’s the right thing to do.” One has to make the case that the foreign aid will not only help other countries, but the United States as well.

And that’s only part of the problem. In order to avoid misuse of funds, we need independent auditing. Otherwise, funds too often wind up in the wrong place and goals go unmet. The GAO report found that only 15 percent of USAID projects were independently evaluated. Among some of these independent evaluations, other sources show, millions of dollars of waste or fraud have been found. In Haiti, for example, 30 percent of civil service employees paid with American aid were “phantom,” according to the National Academy of Public Administration.

The third problem is insufficient development and focus on goals. Leadership requires mission statements that all involved follow. Projects require explicit goals that are checked off to see if one is on track. The U.S. National Security Strategy, developed by the Bush administration in 2002, says helping the world’s poorest citizens reinforces diplomacy and defense, “reducing long-term threats to our national security by helping to building stable, prosperous and peaceful societies.” This has not occurred with much of U.S. foreign aid. Rather than be spread thin with the current 150-country program, the U.S. would do better to target fewer at a time, and succeed in those before moving on. Plenty of private foundations are available to help others.

The fourth problem is lack of public education on foreign aid. Most of the public thinks that foreign aid is at least 25 percent of the federal budget and should be more like 10 percent, not realizing the 1 percent that it is. Nearly half of Americans think that cutting foreign aid would have a significant impact on reducing the federal deficit, when it would not. Foreign aid proponents have done little to change this misperception. While $50 billion is nothing to dismiss, the upside shows that, properly managed, a relatively small budget allocation can be worthwhile. The issues in this article were put to the State Department, which declined to comment.

It comes down to leadership: creating a vision and motivating a staff to carry it out, in all its details. Instead of cutting aid outright, Congress could hold the State Department to business standards for allocating and monitoring aid. Then aid proponents would be able to choose between effective leadership or, perhaps, no money at all.

Stuart Diamond, a professor at The Wharton School of business at the University of Pennsylvania, is the author of Getting More: How To Negotiate To Achieve Your Goals In The Real World (Random House/Crown Business, 2011).

In this roundtable:

Sen. John Kerry: Amid budget crisis, a defense of foreign aid

Astier M. Almedom: With Somalia,what should really scandalize the public

Bill Shore: A chronic political failure on humanitarian aid

Stuart Diamond: U.S. foreign aid: Business skills needed

Robert Goodwin: A new strategy for solving America’s foreign aid problem

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