The Rest of the Story

WHEN George Bush is sworn in this Thursday for a second term in office, he will use his inauguration speech to emphasise his belief that "liberty is powerful and freedom is peace".

The citation above is from today's issue of The Scotsman.  And writing at the invitation of Foreign Policy magazine, outgoing Secretary of State Colin Powell wrote:

The United States cannot win the war on terrorism unless we confront the social and political roots of poverty. We want to bring people to justice if they commit acts of terrorism, but we also want to bring justice to people. We want to help others achieve representative government that provides opportunity and fairness. We want to unshackle the human spirit so that entrepreneurship, investment, and trade can flourish. This goal is the indispensable social and political precondition for sustainable development; it is the means by which we will uproot the social support structures of terrorism.

President Bush and Secretary Powell have voiced some powerful ideas.  Furthermore, there are actions to back up these voices.  The United States of America has had some successes in the area of foreign policy.  The victory in Afghanistan is one example, ...and when I think of a second example, I'll let you know.

Is there any reason to think that the US is really going to act in such a way as to promote the humanitarian ideals of freedom, health, and prosperity?  Perhaps.  In his essay, Powell goes on at length about the Millennium Challenge Account. 

Ultimately, it is not possible to separate economics from politics. We should not expect democracy to work in places where there is blatant economic injustice. We should not expect sustained economic success in places where political life remains shackled. This symbiosis between political and economic freedom is the basis for the Millennium Challenge Account (MCA), which offers a contract modeled on the free market itself—that is its genius. Recipients of MCA money have to meet a set of eligibility requirements before they get a nickel. Governments must already have in place effective policies to rule justly, invest in their people, and promote economic freedom. They must also agree to achieve measurable results from aid assistance in terms of reducing poverty and generating broad economic growth.

Personally, I think the MCA -- as presented to the public -- is a good idea.  It links foreign aid to democratic principles: countries that rule unjustly are not eligible for the aid.  In some ways, the MCA aspires to operate like the EU.  The European Union requires that a country meet certain standards, and show regular progress, before it will admit the country to its ranks. 

Mr. Powell currently is the chairman of the board of directors of the Millennium Challenge Corporation.  (The MCC is the organization that will administer the MCA.)  I am hopeful that Mr. Powell will remain involved in the organization, to assure that they follow the stated principles:

Key MCA Principles

• Reduce Poverty through Economic Growth: The MCC will focus specifically on promoting sustainable economic growth that reduces poverty through investments in areas such as agriculture, education, private sector development, and capacity building.
  

• Reward Good Policy: Using objective indicators, countries will be selected to receive assistance based on their performance in governing justly, investing their citizens, and encouraging economic freedom.

• Operate in Partnership: Working closely with the MCC, countries that receive MCA assistance will be responsible for identifying the greatest barriers to their own development, ensuring civil society participation, and developing an MCA program. MCA participation will require a high-level commitment from the host government. Each MCA country will enter into a public Compact with the MCC that includes a multi-year plan for achieving shared development objectives and identifies the responsibilities of each partner in achieving those objectives.

• Focus on Results: MCA assistance will go to those countries that have developed well- designed programs with clear objectives, benchmarks to measure progress, procedures to ensure fiscal accountability for the use of MCA assistance, and a plan for effective monitoring and objective evaluation of results. Programs will be designed to enable progress to be sustained after the funding under the MCA Compact has ended.

The statements by Bush and Powell, and the Principles of the MCA, represent the good dise of American foreign policy.  But I am skeptical.

Why be skeptical?  The track record of the USA in recent years has not been good.  Yes, we did a good think in Afghanistan, but we screwed up in Iraq.  The tsunami relief effort has been good, but our efforts in Haiti were miserable.  We've strengthened relations with the UK, but alienated the rest of Europe.  We torpedoed the rapprochement  between North and South Korea, inflamed the situation in Iran, all but ignored the problem in Darfur, had a minimal role in Liberia and Sierra Leone, have underfunded the promised AIDS effort, and have allowed US corporations to make obscene profits in Ivory Coast -- a country ruled by a ruthless dictator.  We let Halliburton strengthen the infrastructure of Iran, even while proclaiming Iran to be part of the Axis of Evil. 

In fact, the US government has shown a stronger commitment to advancing the profits of its major corporations, rather than advancing the principles of freedom, health, and prosperity.  

The Millennium Challenge Account, so far, has not lived up to its billing.  It was announced on March 14, 2002.  The initial announcement promised $5 billion over the next three budget cycles.  Well, we now are in 2005, only a total of $1 billion has been appropriated, and nothing actually has gone overseas.  See articles on the International Relations Center website, and the San Diego Union Tribune, for details. 

I am not trying to argue that the USA is, overall, doing badly with respect to pro-development foreign policy.  The Center for Foreign Development ranks the USA seventh in the world in this regard:

As I said, I am not arguing that the USA does poorly.  Rather, my concern is that the USA has two sides to its foreign policy.  One side is that espoused by Colin Powell: American values, security, and prosperity all can be advanced through the judicious use of foreign aid.  The other side is that which is evident in the operations of major international corporations, based in the USA.  Halliburton perhaps is the most egregious; Unocal is another example (see this for an update on the Unocal story.) 

The problem of corruption involving international corporations is not exactly news.  In fact,  USAID has made a strong statement on the issue:

Fighting High-Level Corruption a Priority For U.S. Aid Agency
USAID urges broader range of tactics to curb misconduct
14 January 2005
By Berta Gomez
Washington File Staff Writer

Washington -- The United States' global anti-corruption efforts should place greater emphasis on misconduct by high-level officials and well-connected firms, the U.S. Agency for International Development (USAID) says. In a new agency-wide anticorruption strategy released in January 2005, USAID said its efforts to date have tended to focus on the most visible forms of corruption, notably small transactions involving low- and mid-level officials.

"Anticorruption efforts need to be expanded to better encompass grand corruption," the agency said. "Grand" corruption covers exchanges of resources and other competitive advantages available to privileged firms and high-level officials in the executive branch, judiciary or legislature, or in political parties, USAID said.

The World Bank estimates that corruption costs the world economy about $1.5 trillion a year and reduces countries' growth rates by as much as one percentage point annually. The bank has identified corruption as the single greatest impediment to global development.

Citizens of the USA often look down their noses at poor countries, casting judgment about the corruption that impedes development in those countries.  What is ignored in this is the fact that governments are only half of the corruption problem.  Major corporations are the other half.  And many of those corporations are based in the USA. 

An international watchdog agency, Transparency International, has this to say about the subject:

TI urges western governments to oblige their oil companies to publish what they pay in fees, royalties and other payments to host governments and state oil companies. “Access to this vital information will minimise opportunities for hiding the payment of kickbacks to secure oil tenders, a practice that has blighted the oil industry in transition and post-war economies,” said Eigen.

“The future of Iraq depends on transparency in the oil sector,” added Eigen. “The urgent need to fund postwar construction heightens the importance of stringent transparency requirements in all procurement contracts,” he continued. “Without strict anti-bribery measures, the reconstruction of Iraq will be wrecked by a wasteful diversion of resources to corrupt elites.”

TI ranked the USA 17th on its list of corrupt countries; not a bad rating, although not particularly good.  (On their scale, 1 is the least corrupt.)  The index ranks the governments, not the conduct of corporations.  There is a clear link between the two, however.  According to TI:

“Corruption robs countries of their potential,” said Eigen. “As the Corruption Perceptions Index 2004 shows, oil-rich Angola, Azerbaijan, Chad, Ecuador, Indonesia, Iran, Iraq, Kazakhstan, Libya, Nigeria, Russia, Sudan, Venezuela and Yemen all have extremely low scores [low score=high corruption]. In these countries, public contracting in the oil sector is plagued by revenues vanishing into the pockets of western oil executives, middlemen and local officials.”

“Companies from OECD countries must fulfill their obligations under the OECD Anti-Bribery Convention and stop paying bribes at home and abroad,” said Rosa Inés Ospina Robledo. “With the spread of anti-bribery legislation, corporate governance and anti-corruption compliance codes, managers have no excuse for paying bribes.”

Thus, the ugly side of US foreign policy is hidden.  The US government tacitly allows corporations to do bad things, things which actually work against the stated goals of US foreign policy. 

Based upon this, I would argue that the oversight of international corporations should be considered to be a part of foreign policy.  After all, the US government has the authority and the responsibility to regulate these corporations, and it has a compelling interest to do so.  If fact, one could argue that the governmental regulation of international corporations actually is a part of the government's foreign policy. 

Although the current political climate generally is such that increased regulation is unpopular, let us not forget that these organizations could not function without the cooperation of the entire society.  Therefore, they owe a duty to society, to respect social norms, comply with laws, and to not interfere with the duties of the government.  This would include refraining from behavior that runs counter to the goals of foreign policy. 

Unfortunately, the tendency is for corruption to be worst in countries that have a single great source of wealth.  They do not have diversified economies.  Usually, when there is only one great source of wealth, the source of wealth is fossil fuel.  The implication is that the  international companies that do business with the most corrupt regimes are the oil companies.  And the current administration seems disinclined to pressure the oil companies.  As a result, the Administration is trying to put into place foreign policy initiatives that promote development, but at the same time, they allow companies such as Halliburton and Unocal to undermine those initiatives. 

It may seem that there is little the USA can do to stop corruption in another country.  The MCA, though, might do just that...but only if we also take steps to prevent our own companies from colluding with the corrupt regimes.