To The Editor:

We in the Agency for International Development (AID) agree entirely with the philosophical underpinnings of Nick Eberstadt’s “The Perversion of Foreign Aid” [June], and we respect the thoughtfulness of his previous work. Given that, it is particularly difficult to understand how or why he arrives at his conclusions in the article.

In brief, he is right on the mark in his description of the problems of AID in the past, but he is all wrong when he tries to report what has been done in the last four years.

We have in fact undertaken programs and concentrated our resources in the way Mr. Eberstadt proposes, but he does not recognize that we have done so. For example, we have moved away from the international welfare of a Brandt Commission model and moved toward self-help—exactly the self-sustaining development process he emphasizes in his opening pages.

I am happy to see that Mr. Eberstadt agrees with us that economic policies are the foundation of progress and growth in the less-developed countries (LDC’s). But he suggests that we have not been interested in encouraging governments to allow farmers to be paid market prices for their products. I don’t know whom Mr. Eberstadt has been talking to, but anyone close to these matters on the Hill or around Washington knows that an agriculture price policy has been a matter of tremendous concentration for AID.

Consider some “bottom-line” examples of what we have actually done with economic policy and the private sector:

  1. AID worked with the government of Bangladesh to help it move its fertilizer-distribution system completely out of government bureaucracies and into the private sector. Over 45,000 small Bangladeshi entrepreneurs are now getting fertilizer into the hands of small farmers.
  2. AID worked with the government of Pakistan, in Food for Peace negotiations over the last couple of years, to help it move the oilseed (vegetable oil) milling industry out of government bureaucracies and into the private sector. Because vegetable oil is Pakistan’s second largest import—roughly a quarter of a billion dollars—this is a very significant, and politically courageous, initiative by the Pakistani government. Our policy-reform counsel and Food for Peace resources have helped the Pakistanis to do it.
  3. AID worked with Somalia to help it come to a decision to close down or to sell off several state-owned, “parastatal” corporations. When those bureaucracies are shut down or divested, the private sector will take over—and that is happening right now. Somalia also eliminated all farmgate, wholesale, and retail price controls on banana and sorghum production resulting in a 40-percent increase in the production of these crops.
  4. AID worked with Zaire as it moved to abolish some of its agricultural parastatals and to abolish forced sales of food by farmers to government entities at fixed prices. This means that the small farmer can sell to private traders and get whatever price the free market will bring him. Zaire is also abolishing controls that prevented peasants from moving their food around the country into whatever province pays them the most. A Presidential Task Force which AID recommended and managed followed up on these and other issues.

I could go on and on. The point is, there’s a story to tell about what AID has been doing in policy reform, and in freeing up private entrepreneurs all over the Third World. The real story is that this is what we have spent most of our time and energy on in this administration. Mr. Eberstadt didn’t tell that story because apparently he didn’t know it. The impression he left with your readers is that we are doing none of this, and that impression could simply not be more wrong. We have worked hard, and we have had quite a few successes.

The Brandt Commission and others did emphasize that continuing widespread poverty in the Third World can lead to political instability. This instability, if it threatens LDC governments friendly to us, could threaten our interests as well. I am surprised that Mr. Eberstadt labels that truism as a “threat,” rather than the simple fact that it is. Richard Nixon emphasized it, Henry Kissinger emphasized it in presenting his Presidential Commission’s report on Central America, and Ronald Reagan has emphasized it. However, I have said repeatedly that the Brandt Commission’s emphasis on resource transfers to LDC’s is the wrong answer to the problem.

Mr. Eberstadt attacks “Basic Human Needs” (BHN) as the focus of development and attacks us for continuing the emphasis on BHN. Well, I am proud that we as a nation still have the goal of helping the poor peasants in LDC’s, and the President is proud of our national idealism too—as he emphasized in announcing our billion-dollar package of famine relief for Africa. There is no reason we should be ashamed that our idealism has continued over the years through Mr. Reagan’s administration. The President’s view on this is just a reflection of the view of the American people.

Ideals and goals, however, are a very different thing from strategy. We have maintained the continuity of BHN as a goal, but since I came to AID, we have rejected BHN as a strategy. BHN as a strategy implemented during the late 1970’s essentially said, “Forget national-level policy reform, and just concentrate on getting the social services delivered at the local community level.” We believe that kind of strategy accomplishes nothing of lasting significance at the LDC national level, and that in fact it does not help most small farmers in most LDC’s. We have focused on policy reform, on the use of market forces, on institution-building, on science-and-technology, and have abandoned the Carter-era BHN as a means. We have focused on growth and jobs as the way to provide income to poor people so they can buy their own food and medicine.

The proof of the pudding is that the ambitious Reagan-administration agenda has been working to stimulate growth and change in Third World countries—and therefore in helping them actually to achieve the BHN goals.

Mr. Eberstadt is right on target in arguing that the land-reform program in El Salvador needs to evolve from central control of bank credit and of farm production into private, mostly farmer, control. Indeed, that is exactly what we have been arguing to the government of El Salvador. I was recently quoted in a national publication as describing the program as a “political success” in mobilizing farmer support for President Duarte and against the Communist guerrillas:

Land reform is a key factor in putting together the political forces for a democratic government. . . . But, in fact, the thing that needs to be done now is that you need a greater role for the individual.

. . . The collective farms that have been put together need to be structured quite differently (with title going to individual owners). I have talked to [President] Duarte about this over a period of time. . . . While it has accomplished its political purposes over the first few years, important changes need to be made if it is going to accomplish its economic purposes.

Mr. Eberstadt says much the same thing himself in his article, but then depicts me as supporting opposing views. Apparently we agree.

There are quite a few other bones that I could pick with the Eberstadt article. John F. Kennedy was right, for instance, in stressing the “threat” (attributed to me by Mr. Eberstadt) that Third World peasant poverty poses to political stability, and therefore to our own political interests. Economic development is related to effective counterinsurgency, and the fact that it has not always worked doesn’t mean that we should give it up now in other countries. That is, in fact, precisely the point that the Kissinger Commission made about the need for economic assistance to Central America.

And that is what President Reagan believes. That is why the administration has supported congressional passage of the Jackson plan of economic aid, implementing the Kissinger report. That is why, in several countries all over the world, the President has directed us to put together packages of economic assistance and humanitarian refugee relief to support “democratic revolutions” against Communist repression. We have a moral obligation to continue such support. This administration is committed to that moral obligation, and we won’t shrink from the task just because there are problems. That is a counsel of despair which Mr. Eberstadt puts forward, and we don’t buy it.

So we think Mr. Eberstadt’s premises are correct; it is his conclusions that are wrong. Foreign aid in this administration has a private-sector and self-help orientation. They are pronounced and clear. We have put foreign aid together with American foreign policy—even as we have unabashedly continued to fulfill the humanitarian purposes of AID. We are proud of what we have done, and Mr. Eberstadt should be too—because it is exactly what he says we should have done.

M. Peter Mcpherson
The Administrator Agency for International Development
Washington, D.C.

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Nick Eberstadt writes:

I thank M. Peter McPherson for his kind words about my studies, and about the overall thrust of the article which has prompted him to write. If I read his letter correctly, our disagreement appears to center upon only a small portion of my article. That portion described the performance of AID since 1981, the year in which he became its administrator.

To judge by his letter, Mr. McPherson does not seem to be fully aware either of the actions which the foreign-aid apparatus under his direction has been taking or of the impact of these actions on the peoples in poor and distant lands whose governments receive AID assistance. If Mr. McPherson will bear with me, I will attempt to correct some of the misapprehensions of fact in his letter, to explain some of the misinterpretations he seems to have made in reading my article, and to suggest some of the ways in which AID might be transformed from its present condition into an institution whose overall impact on the prospects for development in the poorer regions of the earth would be unambiguously positive.

Mr. McPherson calls attention to what he feels have been AID’s abiding efforts, under his aegis, to promote policy reform in the Third World. He states that this is the area to which he, and his agency, have devoted most of their time and energy since 1981. Mr. McPherson’s memory may be playing tricks on him. If he were to check back over his speeches, as published in the Department of State Bulletin (the official monthly record of United States foreign policy), he would see that his first mention there of the possibility of involving AID in policy reform in the LDC’s did not occur until March 1983—the beginning of his third year of leadership at AID. In the Bulletin, it was not until March 1984—the start of his fourth year as AID administrator—that Mr. McPherson, in an official statement to the Senate Appropriations Committee, indicated that policy reform was an area of specific agency concern.

It would be unreasonable to expect an administrator supervising the expenditure of billions of dollars in development funds to be familiar with the precise details of each and every project for which he is, ultimately, responsible. It might be helpful, therefore, to focus on the specifics of some of the cases which have evidently been presented to Mr. McPherson as examples of agricultural-policy reform during his tenure in office.

Contrary to what Mr. McPherson may have been told, Bangladesh’s shift in fertilizer-distribution policy has not moved the “system completely out of government bureaucracies and into the private sector.” The production, import, and wholesaling of fertilizer in Bangladesh remain areas of government dominance and/or monopoly; the policy shift to which he refers affects only the retailing of fertilizer. Even here, the changes may be less dramatic than Mr. McPherson seems to believe: government distributorships have not been eliminated but merely reduced in number, from over 400 to about 90 at present. And although Mr. McPherson’s informants may have told him otherwise, this policy shift is not the result of efforts initiated during his tenure in office. AID-Bangladesh dialogue on precisely this policy shift began in the late 1970’s, under the Carter administration.

Mr. McPherson appears to be under the impression that his policy-reform program has contributed to the divestiture of state corporations in Somalia. Three small government-owned agricultural corporations in Somalia have indeed closed; these money-losers, however, had apparently all gone out of business by early 1981—long before Mr. McPherson announced his interest in policy reform. (I say apparently because I am relying here on the account of Elliott Berg, widely acknowledged to be one of the leading authorities on policy problems in Africa, who happened to visit Somalia in the summer of 1982; very little information about Somali “parastatals” is available either in the West or in Somalia itself.) Mr. McPherson may have been told that banana and sorghum production in Somalia has increased by 40 percent since 1981, but he should know that there is no way of proving—or disproving—this claim. The capabilities of the statistical system in Somalia are indicated by the fact that it is one of the few nations on earth never even to have conducted a national census of population.

Mr. McPherson seems to believe that AID is responsible for agricultural liberalization in Zaire. There may be much to commend AID activities in Zaire, so I hope it will not seem ungracious to point out that the fundamentals of the decontrol strategy implemented by the Zairean government originally appeared in a World Bank study published in April 1980 (Zaire: Current Economic Situation and Constraints). Pressure to enact the reforms the World Bank study suggested may have come from many quarters, including AID, but it was the reluctance of the Bretton Woods institutions—the International Monetary Fund and the World Bank—to commit new funds to Zaire in the absence of changes of operating procedures in Kinshasa that created the “climate” in which Zairean officials finally came to find the prospect of policy reform compelling. And while it is well to hope for the best for Zaire’s farmers, Mr. McPherson should have been informed that the notion of Zairean peasants “moving their food around the country into whatever province pays them the most” is somewhat fanciful. The breakdown of both public safety and transportation/communciation that has occurred in Zaire over the past two decades has made inter-provincial marketing a risky and expensive business.

Though I personally am unaware of the details of AID’s policy-reform efforts in the Pakistani oilseed industry, and have as yet been unable to find any written account of their results, I am happy to take Mr. McPherson’s word that these constitute a resounding success. More than that, I sincerely hope that they have been a success. AID currently sponsors more than 1,500 projects in poor nations around the world; the possibility that not even one of the projects in which AID takes special pride has lived up in actuality to its official description would be too tragic to contemplate.

It should give Mr. McPherson pause to consider how peripheral the initiatives he discusses are to the overall thrust of American development-assistance efforts in recent years. None of the nations, let alone the projects, which his letter describes has been the focus of America’s major foreign-aid funding in its region. For Africa (or, if you will, Asia), America’s major foreign-aid commitment is to Egypt; in the Western Hemisphere, its major commitment is to El Salvador.

As every student of public policy will appreciate, it is a rare event which can bring a roomful of economists to a consensus. I believe, however, that I am safe in stating that there is no serious observer of the Egyptian economy, whatever his ideological perspective, who does not acknowledge the serious and costly nature of the distortions which official policies impose upon agriculture, industry, and services in that nation. It is, moreover, virtually a consensus view among economists who specialize in Egypt that the economic irrationality of Egypt’s policies has, to say the least, not diminished in recent years. Food subsidies alone, for example, now cost Egypt an estimated 5-7 percent of its GNP; foreign visitors now remark that it is commonplace to see peasant farmers buying loaves of bread for their chickens, since bread is today a considerably cheaper source of feed than unprocessed wheat.

Mr. McPherson is in a better position than I to assess AID’s recent contributions to policy reform in Egypt, but he should know that the reports which filter back to the United States through nongovernmental channels are not encouraging. AID, for example, has made a major commitment to electrification in Egypt. Egypt’s government-owned electricity companies, by common consensus of domestic and foreign observers, sell electricity at uneconomically low prices, thereby contributing to serious financial losses to the government, widespread inefficiency of energy use, and recurrent electricity shortages and blackouts. At the beginning of what is known as the Ismailia III project, AID insisted that it would commit funds only if Egypt moved up electricity prices to a more economically justifiable level. Whatever the intricacies of these negotiations, the results were unambiguous: Egypt got the AID money, and the price of electricity did not change.

If I read Mr. McPherson’s letter correctly, he now agrees with my argument that the economic policies sponsored in El Salvador by AID during his years as administrator have been prejudicial to the economic welfare and social liberties of the people of that small country. There is now hope, perhaps, that some of the damage done to the Salvadoran people by those ill-conceived policies may now be countermanded. But while we may take heart from what Mr. McPherson implies will be a reversal of AID’s recent “development” policies in El Salvador, we must also wonder why it has taken AID so long to recognize the economic and social consequences of the policies it has been sponsoring there. In July 1983, more than two years ago, Rufus Waters, at the time chief economist of AID, prepared an analysis of the impact of AID’s land-reform program on El Salvador; its conclusions were essentially the same as those in my article, with which Mr. McPherson now says he agrees. Mr. Waters’s paper prompted no policy changes. According to Mr. Waters, however, it did attract attention. As he recollects events, a senior AID official instructed him to retrieve all copies of the analysis, and told him that “the existence of that paper must be forgotten.”

Two of Mr. McPherson’s apparent misunderstandings in his reading of my article deserve special comment. Mr. McPherson appears to have taken my criticism of the “Basic Human Needs” thrust in AID policy as an indication that I am unconcerned with the plight of poor peasants and poor families in the lands to which we extend development assistance. I confess I remain puzzled by this interpretation. The point of my article was that America’s present foreign-aid policies fail to translate effectively our people’s compassion into results for the needy and the unprotected overseas; AID’s BHN approach to development assistance, I argued, is one of the proximate factors in this more overarching failure.

At one point in his letter, Mr. McPherson states that he agrees with me that BHN is a flawed strategic instrument with which to prosecute development in low-income nations. If Mr. McPherson does indeed believe this, I would encourage him to lobby for the rescinding of the so-called New Directions legislation of the early 1970’s; though his Agency Counsel may not have emphasized the point to him, the fact is that those laws commit AID, to this very day, to pursue BHN-type development policies. And while it may only be a stylistic oversight, I suspect that Mr. McPherson might wish to qualify the statement in his letter that he supports the “ideals” of BHN.

Like the Brandt Commission recommendations and other strategies with a similar approach to “development planning,” BHN concerns itself with the alleviation of physical poverty—nothing more. Surely this is an imperfect formulation of the ideal of “development.” To my way of thinking, development involves the extension of human choice—and thus speaks not only to the issue of physical poverty, but to the issues of political freedom and individual liberty. Most Americans, I am sure, would endorse this more balanced definition of “development.” I have no doubt that, upon reflection, Mr. McPherson too would endorse this formulation of the ideals underlying American development assistance.

On the theme of counterinsurgency, Mr. McPherson seems to have concluded that I offered a “counsel of despair” and a plea for American noninvolvement in problem regions of the Third World. I cannot see how such an interpretation suggests itself. My article emphasized the fact that U.S. “security assistance” (including resources for augmenting counterinsurgency activities) was highly successful in the 1950’s. And there have been successful applications of security-assistance funding in the years since then as well. My point, which I thought could not be mistaken, was that the United States made, and continues to make, a crucial error in subordinating development-assistance funds to the tasks of security assistance, since the criteria by which development assistance and security assistance are evaluated must radically differ from one another.

The factors underlying political instability in poor nations—or for that matter, in rich nations—are varied and often enormously complex; suffice it to say, however, that current intellectual fashions notwithstanding, widespread poverty is neither a necessary nor a sufficient condition for internal unrest or political decay. Turning development-assistance funds to the purpose of political pacification, I would submit, is a perilous undertaking, for it raises the possibility that such “investments” will be inexorably debased, until they reach the lowest common denominator of refugee-relief ministrations. Failure to recognize this danger is in my opinion one of the more serious shortcomings of the Kissinger Commission report, which seems actually to recommend regionalizing the development policies AID has recently been experimenting with in El Salvador.

In the early 1950’s—perhaps their period of greatest efficacy—the development-assistance and security-assistance programs were kept separate. We would be wise to keep these programs separate today. The United States should never fear to extend its help to governments and peoples who need it, but to provide such help effectively we simply cannot afford to mistake the tools needed for any given job.

Lest Mr. McPherson feel my judgment of AID’s recent performance is too harsh, I wish to emphasize that I do not believe that a thoroughgoing reform of that agency is a hopeless task, or one unworthy of the effort. In other writings (for example, “Restoring Purpose to American Foreign Aid,” in the Heritage Foundation volume, U.S. Aid to the Developing World: A Free-Market Agenda) I have outlined in some detail the sorts of structural, strategic, and intellectual changes which would be necessary if AID (or some successor institution) were to contribute more positively to the promotion of development in LDC’s, to bring foreign-aid policies into greater consonance with our overall foreign-policy objectives, and to bring our development-assistance strategies to reflect the values and preferences of the American people more accurately.

Among the specific changes which might be required for an overall restoration of purpose to U.S. development assistance are: the rescinding of the so-called New Directions legislation; the elimination of the superstructure which has drawn AID out of the direct State Department chain of command; the removal of all security-assistance funds from AID administration; the radical reform of the Food for Peace program (which is, in actuality, a surplus commodity-disposal program for the primary benefit of U.S. farmers); the orderly termination of AID social-service programs in the Third World; and the augmentation of American technical-assistance capabilities, which have been significantly depleted since the enactment of the New Directions legislation. Most important of all, it would be necessary to develop a basic policy-analysis capacity for the U.S. development-assistance apparatus, in the hope that this might eventually be upgraded to the point where governments genuinely interested in serious policy or managerial reform might seek American advice—without fear of its consequences in the field.

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