The U.S.’s Millennium Challenge Corporation (MCC) has raised the bar for countries seeking its development-assistance grants in 2012 by adopting stricter standards for civil liberties and political rights. The intentions behind this change are clear and laudable, but larger weaknesses in the MCC program and the increased availability of unconditional aid from other sources lead me to expect that this change’s impact on political development in the targeted countries will be negligible.
For readers who aren’t aid wonks, some background is in order. The MCC is a U.S. government-funded but independently managed aid agency that aims to help its recipients reduce poverty by funding programs that are meant to boost economic growth. The MCC was established by President Bush in 2004, but it was the brain child of Stanford international-relations professor Stephen Krasner, who went on to serve as director of the State Department’s Policy Planning Staff for part of Bush’s second term.
The big idea behind the MCC was to give poor countries stronger incentive to improve their economic and political governance by making a big, new pot of aid funding available, but making access to that pot conditional on countries’ performance on a basket of governance indicators. In theory, it’s like setting up a smoothie bar in a high-school cafeteria and then telling the hungry students they’ll get free smoothies, but only if they’ve done well enough on their report cards. If they’re hungry enough (and like smoothies enough), anticipation of that reward should encourage them to improve their schoolwork, and everyone ends up better off for it.
To be eligible for MCC grants, countries a) have to be relatively poor (“low income” or “low middle income” in World Bank parlance, meaning they have an annual gross national income per capita less than $3,975); and b) have to satisfy a battery of selection criteria across three thematic groups: “economic freedom,” “investing in people,” and “ruling justly.” The MCC spells out its criteria in painstaking detail in an annual report, identifies candidate countries based on income, issues “report cards” on those countries’ governance practices, and then, finally, announces which countries have qualified for its assistance.
The big change announced by the MCC in 2011 for fiscal-year 2012 comes in the way it handles the “ruling justly” category. In the past, countries could qualify by scoring above the median on “controlling corruption” and any two of the five other indicators in that bin: political rights, civil liberties, voice and accountability, government effectiveness, and rule of law. Starting in fiscal-year 2012, however, countries have to score above a threshold on two of those six “ruling justly” indicators: still “controlling corruption,” but now either “political rights” and “civil liberties” as well.
This change is potentially significant. Of the six “ruling justly” indicators, only three are directly indicative of democratization: political rights, civil liberties, and voice and accountability. This meant that, under the old rules, highly undemocratic countries could qualify for MCC grants, as long as they were well administered relative to their low-income peers. Under the new rules, however, countries have to be at least moderately liberalized or democratized to get through the door. (For those of you who are familiar with the Freedom House political rights and civil liberties indices used to measure these dimensions, the minima for 2012 are 4s on both scales.)
To see what this rule change might mean in the real world, I poked around the MCC’s data in search of countries that would have cleared the “ruling justly” hurdle under the old system but fall short under the new one. Instead of trying to determine overall eligibility, which is pretty complicated and sometimes involves additional considerations, I just looked at the “ruling justly” category. This unofficial and possibly error-prone exercise identified the following four countries as ones that would have made the old cut but fail to make the new one:
That list nicely reflects the intentions behind the 2012 rule change. I know little about Djibouti, but Rwanda and Vietnam readily spring to mind as countries that often get lauded for their technocratic performance in spite of their clear failings on human rights and democracy. I would have guessed Ethiopia was more of a mixed bag, but it just barely tops the peer-group thresholds for “control of corruption” and “rule of law” while easily clearing the bar on “government effectiveness.”
Of course, the big question is whether or not MCC’s scoring change will actually help motivate the governments of those four countries to initiate political reforms they otherwise would not have taken. On that count, I’m hopeful but pessimistic. Seven years after its creation, the MCC isn’t having the transformative effects its designers intended, and that pattern isn’t likely to change any time soon.
The basic problem is that the MCC’s pot of money is too small to have the kind of “transformative” effect on the vast political economy of aid that its creators intended. In part, that’s a function of supply. As originally envisioned, the MCC’s Millennium Challenge Account was supposed to have an annual budget of $5 billion. In fact, the budget has hovered closer to $1 billion per year, thanks to smaller requests from the presidents and smaller allocations from Congress. Given the current state of the federal government’s finances and the domestic politics of foreign aid, it’s hard to imagine that budget growing much larger in the next several years.
Budget woes aside, any transformative effect the MCC might have is also impeded by limited demand. Poor countries seeking development assistance have other options, and most of those other options don’t come with political strings attached. Faced with the choice between adopting political reforms that might threaten their grip on power in order to pursue a modest-sized grant from the MCC or seeking assistance elsewhere, it’s hard to imagine many authoritarian rulers opting for the former. In the 1990s and early 2000s, when the U.S. and Europe were pretty much the only game in town for development assistance, the MCC’s conditional offers might have been more tempting. In recent years, though, rapid growth in foreign assistance from China in particular has expanded the pool of available funds, thereby diluting the power of the MCC’s medicine.
In sum, while I applaud the MCC for making this change, I doubt it will make much difference. They’re trying to do the right thing, but it’s hard to move the world with a short lever and a shaky fulcrum.