Why the Middle East and North Africa Incentive Fund Won’t Make a Difference

On Monday, the Obama administration released its proposed budget for Fiscal Year 2013, which starts on 1 October 2012. Among the many tidbits buried in that document is a proposal to establish a new Middle East and North Africa (MENA) Incentive Fund, to be managed by the Department of State and the U.S. Agency for International Development (USAID). According to a State Dept. press release, the point of this new $770-million fund would be “to better position the United States to quickly respond to dramatic changes in the region and incentivize reforms.” More specifically, the MENA fund is intended to “incentivize [gack, I hate that word] long-term economic, political and trade reforms—key pillars of stability—by supporting governments that demonstrate a commitment to undergo meaningful change and empower their people.”

On its face, this fund strikes me as smart policy. Since the 1980s, the U.S. government’s efforts to promote democracy abroad have relied heavily on negative incentives–sticks rather than carrots. Democratic and Republican administrations alike have routinely sought to jawbone recalcitrant autocrats into adopting political and economic reforms and funded training for those autocrats’ domestic challengers.

As I’ve argued elsewhere on this blog, I don’t think these hostile approaches are very effective, and they may even be counterproductive. The appearance of an alliance between foreign powers and domestic opposition groups may goad authoritarian rulers into cracking down before that opposition grows powerful enough to pose a serious threat, and it can enhance domestic support for that crackdown by playing on nationalist concerns about foreign meddling. Foreign funding for “civil society” organizations and training  also draws local activists’ energy away from the difficult but crucial work of domestic organizing into the cyclical hunt for overseas grants and attention.

These problems haven’t stopped Western governments from trying, but they also haven’t stopped American policymakers from experimenting with positive incentives, or carrots, too. The single-biggest experiment along these lines is the Millennium Challenge Corporation, created on George W. Bush’s watch, but the proposal of this new MENA fund shows that interest in positive incentives was not unique to that administration.

The more I think about it, though, the more I doubt this MENA fund would have any effect on the odds that regimes in that region will attempt or sustain democracy. I see three major problems.

First, the proposed fund is awfully small. Even if it’s spread across just a handful of the many countries in the region, the proposed budget of $770 million would still represent no more than a few hundred million dollars per country. That’s not a whole lot of incentive to undertake or sustain reforms that will often have powerful domestic enemies in countries as large as Egypt, Jordan, and Tunisia. To have much impact on those governments’ behavior, the fund would have to be big enough to make a real dent in the expected costs of democratization–and, equally important, to bear some resemblance to the expected rewards of sustaining or restoring authoritarian rule.

Second and related, the benefits of that assistance aren’t properly targeted. Specifically, the benefits of the foreign assistance the MENA Fund could offer would be public, while the benefits of sustaining or restoring authoritarian rule are often private, or at least spread across a much smaller pool of beneficiaries. Enticements work by motivating someone to do something. When it comes to political and economic reforms, the “someone” isn’t a country or its population; instead, it’s the small group of elite insiders who control–and benefit most from–the current institutional arrangements. Asking them to destroy those arrangements in exchange for new foreign assistance is kind of like offering a reward for tips leading to the capture of a local crime boss but insisting that the informants share the reward with everyone in the neighborhood. Stacked against the material benefits of keeping the old order going and the risks of ratting out the boss, one’s personal share of the public gain starts to look pretty meager.

Third, there are too many alternatives. Conditional rewards don’t work very well when the targets can get the same benefits somewhere else without the hassle of meeting the conditions. If the U.S. and the were the only source of badly needed foreign financing and assistance, conditional assistance might be more effective. In today’s world, though, governments in need of cash can often shop around for a better deal–from China, from Russia, from the Gulf monarchies, from regional development banks, from wealthy private investors, and so on. The availability of unconditional alternatives further dilutes the drawing power of these already-modest enticements.

If it gets established, the Incentive Fund will add some programs to the roster of U.S. activities in MENA countries “in transition,” and some of those transitions might succeed in producing durable democracies. My guess, though, is that the countries receiving this new assistance will be the ones that would have undertaken the relevant reforms anyway. The Incentive Fund will not transform any dictators into democrats, nor will it have a significant effect on the odds that new democracies in the region will survive.

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1 Comment

  1. Jaroslav Petrik

     /  February 17, 2012

    Good points, reflecting many of my own thoughts. One more reason — the platform newly elected parties in the MENA region campaigned on wasn’t particularly warm to cooperation with the US. Combined with their predecessors’ histories of cooperation with US, there are few reasons why these new govts would like take the same road (at least in the eyes of their voters).


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