The events of September 11, 2001 have led, among many other things,
to the revival of an old debate about the relationship between
poverty and political extremism. To get at the root of apocalyptic
terrorism, many new initiatives to reduce global poverty have been
proposed. British International Development Secretary Clare Short
advocates a massive international effort to stop poor countries from
becoming breeding grounds for terrorism: "The conditions which bred
their bitterness and hatred", she has said, "are linked to poverty
and injustice." Britain's Chancellor of the Exchequer, Gordon Brown,
has called for a fifty-year Marshall Plan that would disperse aid in
exchange for an end to bad government, in his words, for "the
developing countries pursuing corruption-free policies for stability,
opening up trade and encouraging private investment." Some advocates
call for spending targets to be directly linked to the GDP of donor
nations, overlooking selectivity or effectiveness. Even more
ambitious proposals call for an international tax to limit the
adverse consequences of globalization by financing global public
goods.

The presumed connection between poverty and terrorism raises general
fears of global class warfare--but are these fears justified? The
argument that poverty directly causes terrorism is simple-minded. A
more compelling argument can be made that rising levels of material
well-being, and with them expectations of social and personal
empowerment, actually fuel political extremism and violence. It
cannot be refuted, however, that most of the countries incubating
terrorism tend to be on the low end of the per capita income
spectrum, nor that "poverty and injustice"--and these are not the
same--fuel resentment of the powerful and wealthy to the extent that
terrorism can attract admiration and even peripheral support. And it
is certainly true that bad government is a problem so serious that no
effort at poverty alleviation can succeed without facing it.

Whatever the motives or the depth of understanding underlying them,
new efforts are afoot to tackle global poverty through greater
funding of economic aid programs, and the Bush Administration is
contributing to those efforts. Its proposals on development, if
carried out, could represent a significant milestone in the way aid
is allocated in the future. The President affirmed that "Poverty
doesn't cause terrorism. Being poor doesn't make you a murderer. Most
of the plotters of September 11th were raised in comfort." But he
added that "persistent poverty and oppression can lead to
hopelessness and despair, and when governments fail to meet the most
basic needs of their people, these failed states can become havens
for terror." Thus, the administration has agreed to raise the level
of U.S. foreign economic assistance considerably, but, at the same
time, insists on conditions that can produce some reasonable
assurance that the money will not be wasted. In a sense, the
administration has adopted a kind of market-based aid program kindred
in spirit to that of Gordon Brown's. It proposes, in essence, a
contract with the governments of the world's poorest countries: Cease
the practices that keep the vast majority of your people poor, and we
will help you; persist in those practices and we will refuse to
subsidize them--and you.

In general, this approach makes good sense because economic aid
cannot truly succeed unless it prompts sound institutional reform. It
is the irony of foreign aid that it is used best by the countries
that need it least. But it does not solve the problem that many
countries are poor because their governments resist such reform, and
that such resistance will ultimately generate both humanitarian
crises and havens for terrorism. How do we deal with cases in which
conditions attached to U.S. economic aid are rejected or ultimately
distorted?

This essay has two purposes. The first is to lay out some empirical evidence about the relationship between economic aid and systems of governance. The second is to address the problem of how the U.S. government should deal with difficult partners. On the first task there is a wealth of data that suggests some surprising connections between the length of political tenure, the nature of governance, and the role of aid money. That data and those connections, in turn, can help us to think through the second task.

Political Tenure and Economic Development

Our standard approach to economic policy reform typically assumes
that leaders are rewarded politically if they help their nation
improve its economic performance. In reality, politicians succeed by
helping their constituents and, in the vast majority of poor
countries, politically significant constituencies are not
representative of the whole population. It makes perfect political
sense for autocrats in poor countries to enrich the clique of
supporters around them, even if it means keeping the majority of the
population poor. In short, in such situations, political rationality
and economic rationality are not in alignment. Under such conditions,
external aid money will not help to alleviate poverty; it is more
likely to buttress further what is already an economically
dysfunctional arrangement.

The economic rationality of autocracy underlies a good deal of what
we have learned over the past half century in the experience of
giving, monitoring and evaluating foreign aid programs. Two lessons
stand out.

First, the amount of aid a poor country receives does not directly
correlate with how well it does. Getting external resources into a
country, whether by public or private investment, is not the main
factor. Second, conditionality--the linking of aid money to
macroeconomic reform--does not work as advertised. Aid to low-income
African states has been significant, especially since the end of the
Cold War, and nearly all of it has been conditional on macroeconomic
policy reform. Excluding South Africa and Nigeria, the average
African country received the equivalent of 12.3 percent of its GDP in
Official Development Assistance, a sustained 5 percent increase in
real terms between 1970 and 1995, before declining. This
unprecedented international transfer far surpassed the Marshall Plan,
which at its peak accounted for only 2.5 percent of GDP in France and
Germany. If conditionality had worked, Africa would be the world's
stellar performer. Instead of helping the reform process, however,
substantial aid increases have allowed governments to avoid reforms
that might have led to growth and peaceful political change. Aid
allocation decisions often reward countries that least follow donor
dictates, and it is all too easy to find examples of donor programs
that have undermined the very objectives that donors wished to
promote.

Put differently, we have the economics of foreign aid right, but we
have got the politics wrong. There is a strong consensus about what
sound economic policies are at various stages of economic
development, and professionals in this field recognize in turn that
external aid works best in a good economic policy environment. There
is no consensus, however, about the delivery of results in poor
policy environments. For example, how do we ensure that programs
targeted at reducing infant mortality and making certain that
children learn to read achieve their objectives when the "right
policies" are missing in many of the poorest countries?

Many economists argue that better dissemination of their own ideas is
the solution. In this spirit, Joseph Stiglitz, former chief economist
of the World Bank and Nobel laureate, started an international
network "to ensure in one place a comprehensive catalogue of what is
at issue, and what is the theory and evidence that underlies
positions, so that those in the developing world are in a better
position to make decisions for themselves." But with abundant
technical assistance being provided by international agencies, the
supply of good advice often exceeds the demand. Ignorance of sound
economic policies is not really the issue.

Stiglitz does note, almost in passing however, that poor countries
are poor because their leaders have only half-heartedly implemented
sensible economic ideas. The real question, then, and one that
economists alone are powerless to answer, is why that is so. Why have
many governments rejected good economic advice that they have been
paid to receive? The answer may be found in the economic logic of
autocracy.

Just as we naturally consider successful those leaders who foster
economic growth and prosperity for their citizens, we expect that
leaders who produce famine, poverty and misery will earn a rapid
retirement. But the data show that leaders who produce poverty and
misery through the systematic corruption that is characteristic of
autocracy keep their jobs much longer than do those who enrich their
countries. Indeed, the eight countries consistently rated the most
corrupt in the world--Congo, Iraq, Myanmar, Sudan, Indonesia, Syria,
Pakistan and Burundi--are those in which political leadership has
been most secure, measured by the longevity of its tenure. (Only
countries that have experienced a complete breakdown in social order
can rival an entrenched autocracy in generating extreme levels of
corruption.)

With rare exception, only autocrats--leaders who are unresponsive to
the popular will and who exercise power unchecked either by law or
other institutions--hold on to power for a long time. Over the past
century, the only leaders who have remained in office for forty years
or more have been autocrats. By contrast, nearly half of all
democratic leaders--leaders who hold power at the pleasure of the
voters or an elected legislature--are out of office within about one
year of coming to power. Such a short tenure is true of only about
one-third of autocrats, a remarkable difference in survivability.
Virtually no democrats--but one-quarter of autocrats--stay in office
for more than eight years, even though few democratic leaders are
subject to term limits.

Essay Types: Essay