Savaging State and USAID Budgets Could Do Wonders for Results

Congress and the chattering class have been in high dudgeon over the past several days about President Donald Trump’s proposal to make deeps cuts in the budgets of the State Department and the U.S. Agency for International Development (USAID) — possibly as much as 37 percent — to help pay for his $54 billion increase in defense spending. “Soft power” tools like diplomacy and development, the critics say, are the necessary partner of any military capability.

Of course, they are right. And while the cuts in foreign-policy budgets are being justified as a choice to spend the money at home, they are actually the result of a mechanical budget-process reality that, sadly, lumps State and USAID funds with domestic spending, making them an easy target.

The State Department and USAID are not very popular in Congress or the country at large — and there’s no army of lobbyists who storm the barricades to defend foreign aid. But diplomacy and foreign assistance are vital tools in advancing American interests. A reduction of this magnitude would pose a serious challenge to State and USAID programs and activities.

But throwing money at State and USAID is no panacea. More funds do not necessarily translate into better diplomacy or more effective assistance. As with the defense budget, it’s less about how much they spend than about the results they achieve. Budget and political realities under the Trump administration are likely to force State and USAID to live with less. This may be an opportune moment for these institutions to think about how they carry out their missions, and how they might deliver more effective diplomacy and assistance with fewer resources.

This institutional adaptation to fiscal realities should be rooted in a more strategic vision of the relationship among development, security, and governance in U.S. foreign assistance funding. Here are some fundamental reforms Secretary of State Rex Tillerson should consider as his budget shrinks.

Development assistance

The United States has one of the largest development assistance programs in the world (roughly 25 billion in absolute dollars), but one of the smallest as a share of gross national income (.018 percent), according to the Organization for Economic Cooperation and Development. For decades, however, it has lacked programmatic focus. Both State and USAID try to do too many things in too many different countries. There is also very little meaningful evaluation of the programs’ effectiveness, and it is rare for either agency to end a program because it hasn’t worked. For example, if these principles were followed, programs for low-performing countries like Haiti and South Sudan would be treated like humanitarian assistance and more development aid would be allocated to countries making progress, like Ghana and Botswana.

Development assistance is also less effective because it is scattered among too many agencies — principally USAID itself and the Millennium Challenge Corp. (MCC), a separate government development assistance agency created during the George W. Bush administration. These two aid stovepipes, along with some smaller agencies like the Peace Corps, the Inter-American Foundation, the African Development Foundation, the Overseas Private Investment Corp., and the Trade and Development Agency, should be consolidated inside the State Department. This would not only save redundant administrative funding, but also offer a golden opportunity to eliminate duplication, harmonize practices, and streamline U.S. foreign assistance goals and programs.

But a further step is needed: America’s diplomats need to take foreign assistance and development seriously as a long-term diplomatic mission to foster stronger governance. Development and governance need to be elevated to core missions at State, on a par with diplomacy and negotiations, and this assistance should be more tightly linked to a country’s performance. The MCC has been the gold standard in this regard, linking assistance dollars to a country’s progress in investing in people, ruling justly, and having economic freedom.

Merged organizations, concentrated dollars, and careful metrics will create a smaller, more efficient and effective development assistance program that would be a valuable asset to U.S. foreign-policy strategy — at 80 percent of its current cost.

Humanitarian assistance

Humanitarian tragedies are inevitable. Over the years, Republican and Democratic administrations have allocated substantial resources to respond to such events, and this assistance has long enjoyed bipartisan support in Congress. But humanitarian aid is inefficiently managed. The Disaster Assistance Response Team in USAID’s Office of Foreign Disaster Assistance (OFDA) is one of the best in the world at organizing humanitarian response operations. It was OFDA, for example, that organized the U.S. response to the Ebola crisis in Africa.

At the same time, however, State’s Bureau of Population, Refugees, and Migration (PRM) controls a large amount of highly flexible resources for international organizations like the U.N. High Commissioner for Refugees. Policy leadership is concentrated in PRM, while operational capacity to cope with refugees is in USAID. The missions of these two organizations have overlapped for years; merging them, which has been proposed and seriously discussed over the years, would better align the best-practice disaster and humanitarian relief work of OFDA with PRM’s policy leadership and funding — saving administrative funds, streamlining the work of the two organizations, and enabling more efficient operations.

Security assistance

The State Department’s security-assistance dollars — more than $8 billion in aid for equipment, training, and defense cooperation — are concentrated in six countries: Israel, Egypt, Jordan, Pakistan, Afghanistan, and Iraq. The rest (about 25 percent of the funding) is sprinkled like pixie dust around the globe to well over 100 countries, in amounts that are too small to make a difference or to give Washington any real leverage.

Moreover, good security-assistance money is also thrown after bad governments. Rather than reward high-performing countries that use this funding effectively — like Morocco, Tunisia, and Jordan — the program has become heavily skewed toward governments that are among the world’s least effective, like Pakistan, Afghanistan, Nigeria, and Egypt. Many of these weak or failing states are incubators for terrorism, famine, refugees, and disease. The Egyptian and Pakistani programs are of questionable value and could be cut, freeing up resources that could be allocated to fragile states that have a chance of becoming net security producers both internally and for their region.

Lastly, many recipients have developed an entitlement mentality. Too many security assistance dollars consistently go to the same governments regardless of their performance — and the vast majority of these recipients have seen their security conditions worsen, according to the World Bank’s governance indicators and the Fund for Peace’s Fragile States Index. For example, from 2009 to 2013, the 145 recipients of $46.5 billion in security assistance on average actually saw their security scores worsen slightly from what they had been before our investment started.

If a country is going to get funds no matter how it performs or governs, it does not need to work for them. On Wall Street, they call this moral hazard. To continue investing in a country, Washington should require proof that its investments have prompted reforms and actions that they otherwise would not have taken. Here, too, the MCC provides a model: A smaller supply of security assistance dollars should be linked to a country’s performance, both in the security sector and in governance as a whole. There are substantial savings to be had here.

Governance focus

There is a crisis of governance throughout large parts of the Middle East and Africa, fostering conditions that breed conflict and insecurity and an environment in which Islamic extremists flourish. Yet, USAID devotes only a small portion of its foreign assistance to improving governance. Instead, it prioritizes development, democracy promotion, and human rights, all of which depend on effective, efficient, responsive governance — even if it does not meet the highest standard of “democracy.” The State Department, which oversees the majority of foreign economic and security assistance dollars, has not given the problem of governance the attention it deserves, beyond a smattering of dollars devoted to democracy promotion.

The link to governance is critical to both development and security. Adopting effective, efficient, accountable, and uncorrupt governance as a goal should help focus the shrinking U.S. assistance program on best performers. In their search for effectiveness in a more resource-constrained environment, an empowered State Department should make governance a central priority for both development and security resources. The target of these programs should be those countries that show potential to meet performance goals, using a governance template built on the MCC criteria for development assistance. The more stringent selection of recipients should also allow substantial savings.

Organizational recalibration

To execute this strategy and manage fewer resources, State and USAID need the capacity to do better strategic planning and budgeting. For decades, the greatest impediment to strategic thinking, effective planning, and efficient operations at State was the absence of any top-level attention to management, planning, and budgeting. The secretary of state generally does not pay much attention to these issues, while the deputy secretary is generally consumed with policy. Thus internal planning, management, and budgeting has been a weak sister, with nobody in charge at the policy level.

That began to change in 2006, when Secretary of State Condoleezza Rice created a budget office for the first time (with authority over both State and USAID budgeting), and was reinforced when Secretary Hillary Clinton appointed a second deputy secretary for internal planning, budgeting, and management and with authority over that planning office. These changes launched a long-overdue process of coherent strategic and budgetary planning — one that has had some success in better aligning the allocation of resources with the secretary of state’s policy priorities.

It seems likely that, under the Trump administration, this second deputy position (and possibly the budget and planning office) will be eliminated. This would be a major setback to sound management, and a serious loss if State and USAID need to focus and plan in a more strategic and integrated way.

State and USAID are facing four years of shrinking budgets with their stewardship of foreign aid put under a microscope by the White House and Congress. Implementing these reforms would enable both agencies to make their programs more effective and efficient and to save resources — and might even persuade these skeptics to give the international affairs budget more priority.

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