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This September, the international community is set to adopt the most ambitious goals for global development ever. Known as the “Sustainable Development Goals,” or SDGs, this effort will have as its headline objective to help one billion people around the world lift their incomes above the line that defines “extreme poverty”—living on less than $1.25 per day.
Foreign assistance is America’s most well-known tool for fighting global poverty. While it accounts for less than 1 percent of the federal budget, the United States is still the world’s largest provider of humanitarian development and relief funding. Americans are rightly proud of leading the world in this category.
But foreign assistance alone will not be enough to help the world reach the goal of ending extreme poverty. To actually escape poverty, people need the opportunity to earn a decent living. They need to work in order to meet the essential needs of their family—health care and food. So when the U.S. focuses too much on giving handouts—like food—we potentially miss the opportunity to help countries and communities build the skills and institutions required to grow more of their own food.
The challenge for developing countries is to create an attractive environment for private investments that leads to job creation. Understandably, companies seek predictability; they look to conduct business in places where public institutions are legitimate and accountable; legal frameworks are clear and well-established, and the rule of law prevails.
Many poor countries lack accountable governance. The key to attracting more foreign business is building strong institutions. This is where U.S. foreign aid can play a pivotal role. By supporting improved governance and the rule of law, our country, and others, can contribute to a virtuous cycle where better governance supports more private-sector led growth. Ultimately, this can help countries get to a place where they do not need development assistance to attract foreign capital.
To make this happen, aid needs to help leverage private sector investments in developing countries in four key ways. First, aid needs to catalyze other development finance, and help sustain it. Aid should be invested in ways that support partner countries to generate and invest more of their own money, so they are less reliant on foreign aid in the future.
Second, aid needs to build the systems and conditions that can ensure that more private investment supports poverty reduction. Attracting more private sector investment is not an end in itself if that investment doesn’t support the creation of decent, secure jobs for people living in poverty. Aid needs to do more to help governments create and enforce fair and effective rules that make sure the poor benefit from growth.
Third, aid needs to advance the rights of citizens, particularly poor and marginalized people, to hold government accountable for protecting the rule of law. Aid should support governments to be more responsive to citizens, and support citizens—and civil society—to demand accountability from their governments, and make sure they deliver on their promises.
Fourth, aid needs to do a better job of helping countries and people create lasting development outcomes. Too often, donors program their aid in a way that prioritizes their own needs over the needs of recipients. Citizens in poor countries are not just recipients—they are innovators, investors, and voters. They hold the key to their own economic futures.
Aid alone cannot create broad based economic growth. But how aid is delivered can influence how well people and their governments create the conditions that attract investment and create growth. When delivered well, aid can help improve public accountability and the rule of law, and support citizens’ efforts to hold their governments to account. This accountability to citizens is the antidote to corruption and can help disadvantaged people and groups get the policies they need to reduce poverty.
There is major opportunity for the United States, and other nations, to rethink aid policies in a way that can create more opportunities both for poor people and American investors. Members of Congress, like Tennessee’s own Senator Bob Corker, are leading the effort to make U.S. development assistance a catalyst for change, and support the good governance that attracts investments for market-led growth and job creation.
The article was originally published in the 2015 Global Action Report, an annual synthesis report produced by the Global Action Platform in collaboration with Diplomatic Courier. Republished with permission.
The views presented in this article are the author’s own and do not necessarily represent the views of any other organization.
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Moving Beyond Aid: How American Public and Private Investment Can Help End Extreme Poverty
Guatemala City favela type housing near downtown.
October 7, 2015
This September, the international community is set to adopt the most ambitious goals for global development ever. Known as the “Sustainable Development Goals,” or SDGs, this effort will have as its headline objective to help one billion people around the world lift their incomes above the line that defines “extreme poverty”—living on less than $1.25 per day.
Foreign assistance is America’s most well-known tool for fighting global poverty. While it accounts for less than 1 percent of the federal budget, the United States is still the world’s largest provider of humanitarian development and relief funding. Americans are rightly proud of leading the world in this category.
But foreign assistance alone will not be enough to help the world reach the goal of ending extreme poverty. To actually escape poverty, people need the opportunity to earn a decent living. They need to work in order to meet the essential needs of their family—health care and food. So when the U.S. focuses too much on giving handouts—like food—we potentially miss the opportunity to help countries and communities build the skills and institutions required to grow more of their own food.
The challenge for developing countries is to create an attractive environment for private investments that leads to job creation. Understandably, companies seek predictability; they look to conduct business in places where public institutions are legitimate and accountable; legal frameworks are clear and well-established, and the rule of law prevails.
Many poor countries lack accountable governance. The key to attracting more foreign business is building strong institutions. This is where U.S. foreign aid can play a pivotal role. By supporting improved governance and the rule of law, our country, and others, can contribute to a virtuous cycle where better governance supports more private-sector led growth. Ultimately, this can help countries get to a place where they do not need development assistance to attract foreign capital.
To make this happen, aid needs to help leverage private sector investments in developing countries in four key ways. First, aid needs to catalyze other development finance, and help sustain it. Aid should be invested in ways that support partner countries to generate and invest more of their own money, so they are less reliant on foreign aid in the future.
Second, aid needs to build the systems and conditions that can ensure that more private investment supports poverty reduction. Attracting more private sector investment is not an end in itself if that investment doesn’t support the creation of decent, secure jobs for people living in poverty. Aid needs to do more to help governments create and enforce fair and effective rules that make sure the poor benefit from growth.
Third, aid needs to advance the rights of citizens, particularly poor and marginalized people, to hold government accountable for protecting the rule of law. Aid should support governments to be more responsive to citizens, and support citizens—and civil society—to demand accountability from their governments, and make sure they deliver on their promises.
Fourth, aid needs to do a better job of helping countries and people create lasting development outcomes. Too often, donors program their aid in a way that prioritizes their own needs over the needs of recipients. Citizens in poor countries are not just recipients—they are innovators, investors, and voters. They hold the key to their own economic futures.
Aid alone cannot create broad based economic growth. But how aid is delivered can influence how well people and their governments create the conditions that attract investment and create growth. When delivered well, aid can help improve public accountability and the rule of law, and support citizens’ efforts to hold their governments to account. This accountability to citizens is the antidote to corruption and can help disadvantaged people and groups get the policies they need to reduce poverty.
There is major opportunity for the United States, and other nations, to rethink aid policies in a way that can create more opportunities both for poor people and American investors. Members of Congress, like Tennessee’s own Senator Bob Corker, are leading the effort to make U.S. development assistance a catalyst for change, and support the good governance that attracts investments for market-led growth and job creation.
The article was originally published in the 2015 Global Action Report, an annual synthesis report produced by the Global Action Platform in collaboration with Diplomatic Courier. Republished with permission.
The views presented in this article are the author’s own and do not necessarily represent the views of any other organization.
