No More ‘International Welfare’ : U.S. Shifting Foreign Aid Emphasis to Private Sector

When Julie Da Vanzo, a senior economist at the Rand Corp., visited a government-run hospital in the West African nation of Gambia that is dependent on foreign aid from China and Britain, she found a babble of voices and a jumble of priorities.

Most of the doctors were supplied by a Peking government aid program; they spoke only Chinese. Most nurses were locally trained and spoke English. Most patients spoke only their own tribal languages.

A kitchen and a laundry, both built by the British, were spotless and antiseptic--and apparently seldom used. Adjoining them was an intensive-care ward so filthy, Da Vanzo said, that “you wanted to move the really sick patients to the laundry or the kitchen.”

The Gambian hospital is just one of a bewildering variety of programs that the world’s more affluent nations have showered on developing countries, mostly in Africa, in an effort to lift the poorest of the world’s poor out of their poverty. It is also a microcosm of foreign aid projects where good intentions have gone awry.

The more affluent nations have spent billions of dollars in pursuit of noble goals, chiefly in Africa, over the last decade. But Africa appears in worse shape than before. When the rains failed, people starved to death by the millions throughout sub-Saharan Africa, with Ethiopia and Sudan hit the hardest.

“It is clearly true that conditions in Africa are not better than they were 20 years ago,” said Richard Derham, assistant administrator of the U.S. Agency for International Development. “It’s not just the weather. There was a steady decline in per capita food production even before the recent drought.”

And some specialists, such as Elliot Berg, an economist who heads a consulting firm specializing in international development, are not sure that any approach to foreign aid will surmount the formidable problems of the world’s poorest nations. “My own view,” Berg said, “is that the game is too tough for us.”

After years of frustration, however, the United States is shifting gears, and this is pointing to some signs of success.

AID Administrator M. Peter McPherson said that Reagan Administration officials have determined that foreign aid should not attempt to be “international welfare.” The emphasis on eradicating poverty, he argued, led to a proliferation of programs, the benefits of which were outweighed by the way they forced recipient countries to waste the time of their few trained officials, who ended up attending meetings and shuffling paper.

Now, the United States concentrates on training local specialists and running programs to adapt modern technology to the needs of the recipient countries. It also places new emphasis on building up the private sector of the economy, directing its aid to countries that are prepared to substitute private enterprise for government programs.

American officials and some non-governmental experts say that foreign aid may be starting to work in Africa. And they point to remarkable successes in Asia as proof that foreign aid can be effective if, as was the case in Asia in the 1950s and 1960s, it is tailored to local economic conditions and the givers wait patiently for results.

“We can now see in Asia that all of that foreign aid in the ‘50s and early ‘60s was a success, even if it was not perceived as such at the time,” said John W. Mellor, an agriculture research economist and director of the International Food Policy Research Institute. South Korea is prospering, Bangladesh is no longer the economic basket case it was a decade ago, and India has become a net exporter of grain.

The same sort of thing may be beginning to happen in Africa today. Officials say that aid-supported research has produced high-yield, drought-resistant sorghum, which could reduce Africa’s grain shortage in much the same way that the celebrated “green revolution” increased rice yields in Asia.

The ranks of international donor countries are growing, and Kuwait, Saudi Arabia, Norway, the Netherlands, France, West Germany, Canada, Britain and Japan now give a larger share of their gross national products in aid than does the United States.

But this country, which pioneered modern foreign aid with the Marshall Plan that rebuilt Western Europe after World War II, remains the largest single source of such aid. Nearly $5 billion in non-military aid is in the budget for next year. The United States continues to set the terms of international giving and, with President Reagan’s emphasis on aiding the private sector of developing nations, those terms have changed.

“In a typical developing country, government structures don’t function very well in rural areas or urban slums,” McPherson said. Health centers are not fully staffed--”maybe they don’t even have medicine. The schools don’t have books.”

“By 1981, many African countries had come to their own conclusions, irrespective of East-West concerns, that statism wasn’t working. We’ve really had an impact, but we came along at the right time. We are trying to give money in a way that will support changes that are already there.”

U.S. officials believe their most important shift was to press aid clients to eliminate price controls on food, which almost all developing countries use to reduce the cost of living of the urban poor. Laudable as the objective is, price controls almost universally push farm prices below the cost of production, discouraging farmers from growing more than their own families eat. The result, U.S. specialists say, is less food for the urban poor to buy at any price.

But now, officials say, prices paid to farmers throughout much of Africa are increasing. That may be due as much to the drought as to U.S. pressure, but American officials believe that the higher prices will lead to increased food production if normal rainfall returns.

Government subsidy programs, in which the government sells food at bargain rates but promises to pay farmers a higher price, are self-defeating, U.S. policy-makers argue.

“What happens is, the government marketing agency doesn’t have the money to make up the difference, so it can’t pay the farmers anything,” one official explained. “If the government does put up the money, it ends up with a very large budget deficit, and that leads to inflation and undermines the price received by the farmer. In the end, someone pays for the subsidy.”

With the Administration’s new approach to foreign aid, the pendulum is swinging back to the policies of the 1950s and 1960s, when the United States focused aid on Asia and emphasized agricultural research, training local leaders and building roads, dams and other key economic and structural elements. But the results were neither dramatic nor immediate, and disillusionment began to set in.

So, in 1973, Congress ordered a 180-degree change of direction. The United States began emphasizing programs for the poorest of the poor, mostly in remote rural areas, mostly in Africa.

The World Bank and some donor nations followed the U.S. lead, producing almost a decade of programs designed to improve life in individual villages. According to the Agency for International Development, a total of 362 international missions visited a single African country in one year to plan assistance projects, leaving the country’s limited number of managers little time to do much more than meet with all the foreigners.

The result, it is generally agreed, was a disaster. “We took an absolutely wrong turn in foreign aid in the ‘70s,” said Mellor of the International Food Policy Research Institute. “I think that Africa has suffered significantly from foreign aid over the last decade.”

In the view of some critics, some foreign assistance programs delivered resources to the least productive elements of society. Irrigating the land of poor farmers in villages with marginal rainfall, they say, amounted to little more than turning a garden hose on the desert.

At the same time, said Raymond Love, deputy assistant administrator of AID’s Africa bureau, the continent was receiving complex rural-development projects when it needed roads, canals and other basic facilities.

“It was very unfortunate that Africa (was a target of) this shift in thinking at a time when it could have had 10 good years of development,” Love said. “Africans were less inclined to tell the donors what to do, so they accepted a lot of advice, some of it not very good. The Asians would never have let the donors get away with calling the priorities the way the Africans did.”

Non-governmental experts generally applaud the Administration’s reversal of the policies of the 1970s. But their praise is tempered.

Economist Berg said the private sector in Africa is so weak that it cannot single-handedly save the continent from governmental folly.

And, although McPherson maintains that the Administration’s approach is not ideological, Rep. David R. Obey (D-Wis.), chairman of the House appropriations subcommittee that handles foreign aid, said: “This Administration has converted political philosophy into theology--Adam Smith has become a saint.”

Robert Bates, a California Institute of Technology economist and foreign aid expert, accepts the Administration’s determination to shore up the private sector among foreign aid recipients but maintains that AID has been heavy-handed in implementing the policy.

The U.S. agency must understand, he said, that African leaders face political hazards when they accept the Administration’s terms for receiving assistance. Former Sudanese President Jaafar Numeiri cut back on food subsidies earlier this year after the United States urged such a course, for example, and he was swept from office after subsequent food-price riots.

“Numeiri is only the latest one,” Bates said. “The Liberia coup came after the government raised the price of rice. These are very touchy issues.”

A U.S. official insisted, however, that most African governments are ready and willing to adopt reforms. “What AID does is enable governments to take actions that otherwise might be unpalatable,” he said.

If the Administration has chalked up some notable successes in reshaping the strategy for developmental aid, it has had no such luck with two far larger foreign assistance programs.

The Administration’s shift in emphasis extends only to the development assistance program, budgeted for slightly more than $2 billion--most of it earmarked for Africa--in the fiscal year that begins Oct. 1. There is no similar plan for the $7-billion military assistance program or the $2.8-billion economic support fund, a hybrid program of economic aid designed to shore up countries considered strategically important to U.S. foreign policy.

Israel and Egypt share the bulk of the economic support fund, and those two countries together account for well over one-third of total foreign aid. U.S. officials privately admit that Israel and Egypt--with their huge budget deficits, subsidized agriculture and bloated public sectors--fall far short of U.S. economic objectives for recipients of foreign aid. “The countries we give the most money to generally have the worst policies,” Berg said.

And the Administration has had no luck with efforts to put the same sort of pressure on Israel and Egypt that it uses on other aid recipients. Secretary of State George P. Shultz tried earlier this year to delay part of the aid to Israel until it instituted economic reforms, but he gave up when Congress made it clear that it would allocate the money regardless of Israeli economic policies.