Foreign aid was an extremely useful tool of U.S. diplomacy during the second half of the twentieth century. It helped contain the expansion of communism in Asia, Latin America, and Africa; promoted economic and social development in those regions; and provided humanitarian relief in emergencies. Foreign aid will continue to play an important role in the twenty-first century. But its major purposes and priorities will be distinct from those of the last 50 years and will therefore require a new design for both its organization and management.

The 1990s were a decade of enormous change. The Cold War ended with the collapse of the Soviet Union. The pace of globalization accelerated as the revolution in communication technologies reduced barriers to international trade and investment. The number of democratic countries expanded dramatically in the former Soviet sphere, Africa, and other parts of the developing world. Although poverty remained widespread, real economic and social progress began to occur -- especially in Asia and Latin America. And the capacity of many of these governments to manage their economies and open their markets to international capital became greater than at any time in recent history. In short, the traditional purposes of aid over much of the past half-century -- promoting U.S. security and supporting development in poor countries -- are no longer pressing in the post-Cold War world of American dominance and new emerging markets.

These changes have left the United States the sole superpower and acknowledged world leader. They have also raised new challenges and opportunities for U.S. leadership that point to different purposes and priorities for foreign aid. Three are particularly pressing: to help preserve peace, address the challenges of globalization, and improve the quality of life of the many poor and disadvantaged throughout the world.


The most basic challenge facing the United States today is helping to preserve peace. The end of the Cold War eliminated a potential threat to American security, but it did not eliminate conflict. In 1998 alone there were 27 significant conflicts in the world, 25 of which involved violence within states. Nine of those intrastate conflicts were in sub-Saharan Africa, where poor governance has aggravated ethnic and social tensions. The ongoing war in the Democratic Republic of the Congo has been particularly nightmarish, combining intrastate and interstate conflict with another troubling element: military intervention driven by the commercial motives of several neighboring states. Such motives could fuel future conflicts in other weak states with valuable resources. Meanwhile, a number of other wars -- in Colombia, the former Yugoslavia, Cambodia, Angola, Sudan, Rwanda, and Burundi -- have reflected historic enmities or poorly resolved hostilities of the past. Intrastate conflicts are likely to continue in weakly integrated, poorly governed states, destroying lives and property, creating large numbers of refugees and displaced persons, and threatening regional security. The two interstate clashes in 1998 -- between India and Pakistan and Eritrea and Ethiopia -- involved disputes over land and other natural resources. Such contests show no sign of disappearing. Indeed, with the spread of weapons of mass destruction, these wars could prove more dangerous than ever.

Peacemaking will therefore be an important focus of U.S. diplomacy in the twenty-first century. As in the past, the United States is likely to take a lead in conflict prevention and peacemaking in regions that have high priority but lack effective alternatives to U.S. leadership: parts of Europe, the Middle East, countries near U.S. borders, and the Pacific Rim, especially Korea and Taiwan. Foreign aid will become more important to peacemaking diplomacy than before -- as a symbol of U.S. engagement, an incentive for warring parties to negotiate peace, and a source of resources to help countries recover from the legacies of war. For example, a promise of half a billion dollars of U.S. aid was a key element in efforts by the Clinton administration to negotiate an end to the Bosnian war. The growing importance of peace aid is already evident in increases in foreign aid appropriations in 1999 and 2000, much of which was slated for peacemaking in Kosovo and the Middle East. Congress has also recently passed a large supplemental appropriation of more than $1 billion to fund such a policy in Colombia.


A second challenge facing America involves globalization. The growing integration of the international economy, the rapid spread of electronic technologies, and the increasing movement of people across borders have made the globe a smaller, more informed, and more interactive place. These trends promise to accelerate as technology advances and barriers to trade, investment, and travel fall. They bring the promise, if not for many the reality, of greater prosperity. They also bring the possibility of a better informed, more influential political voice for those now gaining access to the new electronic technologies.

That said, globalization carries costs as well as benefits. The costs fall into two categories. The first involves the economic and political downsides of globalization: the financial volatility evident in the Asian crisis of 1997-98, which led to severe recessions in some countries and spread the crisis to other fragile economies, and an increase in inequality within and among countries. These costs will produce discontent among globalization's "losers" and fuel political resistance to further economic liberalization.

The second cost derives from the growing importance of "transnational issues" -- the spread of problems generated in one country to the populations of other countries. Examples of this type of issue include the transmission of disease (such as aids, drug-resistant tuberculosis, and cholera), global crime and terrorism, and the spread of environmental problems across borders and generations. The workings of the market will not always produce solutions to these problems; indeed, it may make them worse. Hence public action is required to deal with many of them. And where effective international organizations and regimes do not exist to address globalization's problems, the United States must take the lead in tackling them and, over the longer term, create or strengthen the international organizations that can resolve them.

For all these reasons, foreign aid will be an important tool in America's new diplomacy of globalization. First, such aid can provide the resources needed to address sudden crises, as it did primarily through multilateral banks in Asia in 1998. By funding training and advice, it can help poor countries position themselves to exploit the trade, investment, and growth opportunities that globalization offers. Furthermore, foreign aid can fund surveillance and response to transnational crimes and disease -- for instance, through the U.S. Centers for Disease Control. Likewise, aid can support research to reduce the long-term costs of resolving global problems; developing and disseminating technologies that reduce carbon-producing gases is just one example. In tense regions of the Middle East, South Asia, and northeast Africa, it can help finance the infrastructure needed to conserve increasingly scarce water resources. Foreign aid can also serve as an incentive for governments to deal with regional problems such as transborder pollution. Finally, it can act as a symbol of U.S. engagement by addressing pressing issues and calling on other governments to do the same.

A portion of U.S. aid already addresses the costs of globalization -- say, efforts to deal with the international transmission of infectious disease, or projects involving problems of global warming. But this amount is likely to rise significantly with the increasing prominence of these issues to U.S. foreign policy and to Americans as a whole. At present, however, public funding for these and other transnational issues remains relatively low compared to the size and growing severity of these problems.


This two-pronged diplomacy is fundamentally driven by U.S. interests in preserving world peace and prosperity and protecting the quality of life for Americans. However, American foreign policy has never been based on interests alone. It reflects deep-seated humanitarian values as well. If anything, the role of values in U.S. foreign policy is likely to grow as Americans become increasingly aware of the world beyond their borders, thanks to CNN and the Internet, and demand action by their government to ease human suffering. A U.S. diplomacy of values is also important in fortifying America's "soft power" -- the credibility and trust that the United States can command in the world -- and ensuring effective American leadership in other areas.

Four principal elements make up a U.S. diplomacy of values: providing relief in humanitarian crises; helping to promote development and reduce poverty in the poorest countries; advancing "humane concerns" by improving the quality of life for the neediest and most vulnerable abroad; and supporting the expansion of democracy and human rights. Foreign aid will be essential in each area.

Humanitarian relief will likely make increasing demands on U.S. aid as disasters, both human and natural, continue to proliferate. Natural disasters have been on the rise in recent years, in both number and severity. They could become even more numerous in the future as a result of climatic changes and more severe as a result of the pressure of growing populations on fragile environments.

In contrast, aid for development will be less prominent than in the past, concentrating mostly on sub-Saharan Africa and a few very poor countries in Asia and Latin America where governmental capacity and access to capital are still limited. Although more than one billion people live on a dollar per day or less, it is often forgotten how much progress has been made in southern Europe, Asia, the Middle East, and Latin America over the past half-century. Life expectancy and literacy levels have risen rapidly and significantly while poverty has dropped. Governments are now far more capable of addressing their own problems than they were three or four decades ago. Along with this progress, the proportion of the world's population living in poverty has continued to decline, falling from 28 percent in 1987 to 24 percent in 1999. Furthermore, the surge in private capital over the past decade has meant that governments and private enterprises with good policies and prospects can now access additional resources from private sources. The two countries with the largest number of poor -- India and China -- do not require or expect much highly concessional aid to spur their development. Nor do most of the countries of Latin America. What they do need is private investment -- domestic and foreign -- to spur growth and the policy and institutional environments to encourage it.

Still, a number of countries -- largely in Africa -- have not fared so well over the past four decades. Although they have made some progress in literacy and life expectancy (until the devastating impact of aids), many still lack the capacity and access to international capital to address their deepening problems of poverty. U.S. foreign aid still has a role to play there, but several difficult dilemmas have complicated the provision of effective aid for African development. The first involves the issue of when to provide aid and when to withhold it. For much of Africa, the core development problem has been not a lack of resources but bad politics. In many countries, policy and regulatory environments continue to discourage investors, while government institutions remain weak and often corrupt. It is noteworthy that in the 1999 Transparency International Corruption Perceptions Index, five of the ten worst offenders were in Africa. Until the political leaderships of African countries come to value the long-term betterment of their populations over their own personal and political interests, policies will remain faulty, institutions weak, investment and growth low, and aid ineffective.

But the problem of weak institutions in Africa is also in part the responsibility of aid donors themselves. With 40 or more poorly coordinated aid agencies working in numerous African countries, pursuing their own priorities, and expecting their own separate administrative and procurement requirements to be met, the burdens of aid have overwhelmed African officials and disrupted government budgets. These multiple aid agencies urgently need far better coordination and discipline.

The primary responsibility for international leadership on development must lie with the World Bank. To its credit, it has been trying to better coordinate the different mechanisms for delivering aid. It is the one international institution with the expertise, coordination, and potential aid resources that can work for governments committed to economic and social progress. True, some critics of the Bank argue that it needs to be more focused. Others, including a number of nongovernmental organizations, argue that the Bank needs to be more accountable, especially to those it is trying to benefit. Both are right. But with appropriate reforms the World Bank can effectively serve as the primary channel for U.S. development aid in the future.

If promoting development in poor countries will have less priority in U.S. aid policy, helping disadvantaged and vulnerable groups and communities abroad to better their lives will assume a more prominent place. Indeed, it already has. But an important difference distinguishes these two goals. Development policy seeks to bring about broad-based economic and social changes on a national level; this kind of foreign aid takes a strategic approach, removing obstacles to development and helping spur national economic and social progress. Most major aid donors produce periodic assessments of the overall development needs of particular countries and shape their interventions to fit those needs. In contrast, aid for humane concerns -- directly helping vulnerable groups to improve their lives -- may also help development, but its principal goal and impulse is humanitarian: to help those in need who cannot easily help themselves.

One good example of this approach is the growing amount of U.S. bilateral aid for activities to promote child survival -- for example, through inoculations, micronutrient supplements, and oral rehydration therapy. In recent years, the Republican-controlled Congress has consistently earmarked more funding for child survival programs than the Clinton administration has requested; in fiscal year 2000, spending on child survival activities was set at $715 million out of a total development assistance budget of $2 billion. Other aid-funded programs with broad bipartisan support that address humane concerns include assistance for land-mine victims and street children as well as microenterprise lending for poor women. These programs are popular in Congress and among the U.S. public because they typically deliver aid directly to those who need it -- and their results can often be observed. Foreign communities also welcome them as an expression of American values, which in turn helps enhance American "soft power." And to the extent that these activities are partly funded by private American groups and involve such groups in program implementation, they also increase the knowledge and experience of Americans in foreign lands and create support for U.S. engagement abroad.

Finally, future American administrations must continue to support human rights and democracy in the world to reflect the broadly shared values of the U.S. population. Foreign aid can play a role in furthering democracy through funding elections and providing training for legislators, judges, and police forces. Assuming the trend of democratization continues, however, aid for this purpose is likely to decline as the basic building blocks of democracy fall into place throughout the world.

In sum, foreign aid will continue to be an essential foreign policy tool to promote U.S. interests and values abroad. Its major purposes will include peacemaking, addressing transnational issues and other challenges arising from globalization, providing humanitarian relief, and promoting "humane concerns" abroad. The first two purposes relate primarily to U.S. interests; the second two reflect U.S. values. Support for development and democracy abroad will not disappear, but they will not be among the major priorities for foreign aid spending in the decades to come.


Whatever its priorities may be, however, the American government remains too poorly organized to effectively dispense its aid. There are at present four bilateral aid agencies: the U.S. Agency for International Development (USAID), the Peace Corps, the InterAmerican Foundation, and the African Development Foundation. A number of these agencies duplicate the activities of others. In addition, the United States contributes to six multilateral development banks, dozens of U.N. groups, and other international aid organizations. And in recent years, nearly every U.S. cabinet agency has initiated its own "foreign aid" program abroad, usually involving technical assistance to foreign governments on issues in its area of expertise.

The United States cannot redesign the entire aid landscape. It is particularly difficult to bring about changes in international aid agencies where the United States is only one member state among many. But Washington can pursue a number of reforms at home and abroad that will bring these agencies more into line with American purposes.

First, Washington must ensure that the purposes of specific aid programs match the purposes of the agencies running those programs. Hence aid for diplomatic purposes should be based in the Department of State, where it can be used to back up State's diplomacy. This would include aid for peacekeeping, transnational issues, and democratization programs. The State Department has not traditionally managed large spending programs abroad, and it must acquire that capacity if it is to manage such programs in the future.

Aid for humanitarian relief -- now located in the Office of Foreign Disaster Assistance in USAID and in the Bureau for Population, Refugees, and Migration in the State Department -- should be combined with aid for "humane concerns" in a new aid agency, possibly a successor to USAID. These programs are distinct enough from traditional foreign policy that they should be located in an agency separate from the Department of State. The two small government aid foundations that already exist -- the InterAmerican Foundation and the African Development Foundation -- both support grassroots activities abroad and should be folded into this new bilateral aid agency. But the Peace Corps, with its unique focus on sending U.S. volunteers to work in poor countries, should remain independent; indeed, its strong political constituency would likely insist upon it. Altogether, these organizational changes would reduce the number of U.S. bilateral aid agencies from four to two.

Reforms are also needed on the multilateral level. U.S. development aid should be directed to the World Bank and regional development banks. But these banks should refocus on their traditional goals of economic and social development. As a number of critics have noted, these banks -- especially the World Bank -- currently show signs of mission creep. For example, the World Bank has recently created a program to finance the transition from war to peace, which is better undertaken by aid agencies that specialize in post-conflict relief and recovery. The bank has also begun to lend money for "cultural preservation," which replicates the work of the U.N. Economic, Social, and Cultural Organization. In fact, the World Bank and regional development banks are much better equipped to provide longer-term development financing. And the International Monetary Fund (IMF), which was never intended to be an aid agency, has become one through lending on longer and softer terms to poor countries. It should return to its original mission of providing short-term lending to governments facing balance-of-payments problems. The fund's expertise lies here and plenty of demand exists for its short-term lending. With a sharper focus, it could reduce the numerous conditions associated with its bigger loans and ideally enjoy a better success rate as a result of the conditions that it does require.

Finally, a portion of U.S. aid for transnational issues provided to existing international organizations, such as the World Health Organization (who), should be combined with an effort to ensure that these organizations get the leadership and build the capacity needed to achieve their purposes. Leadership has been a serious problem with many of these organizations in the past, and reforming the way the heads of these organizations are chosen is an important first step. The appointment of directors-general or presidents and their senior officials, often allocated to particular countries or groups of countries, needs to be made far more transparent and combined with a strict professional vetting procedure if these organizations are ever to fulfill their promise. The who in the 1990s was just one example of how an international organization can be seriously weakened by poor leadership that is chosen and protected by an important member state. Fortunately, its current director-general, Gro Harlem Brundtland, is an extremely capable leader who has reversed that trend.


Three strategies will be essential to the proper management of U.S. aid in the twenty-first century: coordination with other U.S. government departments and foreign aid agencies, collaboration with nongovernmental organizations (NGOS), including private corporations, and flexibility in the management of aid.

Although coordination with other foreign aid agencies operating abroad remains a challenge, Washington's growing problem lies with the multiple U.S. government agencies that provide assistance to a large number of countries. The engagement abroad of these various departments is inevitable given the effects of globalization, and these agencies could usefully bring their considerable expertise to bear on problems beyond America's borders. But this engagement also creates problems of duplication, inefficiency, and incoherence. At present, the only part of the U.S. government likely to have a comprehensive picture of all official U.S. interventions in another country is the local American embassy. Even there, ambassadors may not be fully aware of all such activities. Therefore, Washington must gather reliable data on exactly how much all government agencies are spending abroad, where they are putting it, and for what purposes.

Second, the United States should create effective interagency coordinating mechanisms in Washington as well as in embassies in the field to maximize the impact of all assistance abroad. Interagency coordination often resembles warfare rather than collaboration. But in this new age of "empowered teams" (i.e., teams that can make policy and allocative decisions), the government can support issue-oriented and country-oriented interagency units that decide on the funding for activities from both State and non-State agencies. A model for this might be the old interagency "pl-480 committee" made up of representatives from the Departments of Agriculture, State, and Treasury, USAID, and the Office of Management and Budget. This committee truly influenced policy and allocations involving food aid, in part because participating agencies could veto allocation decisions, forcing real negotiations among them.

One of the most exciting areas of change lies with the challenge of collaboration. Aid agencies have always worked with private entities -- whether consulting firms, large corporations, universities, or other nonprofit organizations -- to implement their projects. But aid agencies tended to dominate these relationships, deciding on the task to be done, financing the project, and contracting with a private entity to implement it. What is new in the development business today and is likely to be a major growth area in the future is the opportunity for truly collaborative relationships between aid agencies and private entities, especially corporations, which now bring to the table their own funding and ideas. Although there is no hard data on the amount corporations spend on good works in countries where they operate, the record suggests that such funding is growing along with the opportunities for productive partnership between corporations and aid agencies. In fact, some significant collaborative efforts have already begun. For example, the Global Alliance for Vaccines and Immunizations involves the World Bank, the who, the United Nations Children's Fund, the Gates and Rockefeller Foundations, and the International Federation of Pharmaceutical Manufacturers Association, which was created in 1999 to support the development and dissemination of vaccines to protect children from preventable disease.

Although private-public collaboration in foreign aid could mean more funding for numerous beneficial activities, it also poses challenges to the management of U.S. aid. To participate in real partnerships with corporations and other NGOS, aid agencies must be nimble and their staffs innovative and aggressive. Agencies must be able and willing to negotiate rather than command. At the same time, they must stick to their missions and priorities and maintain their accountability to Congress and the public. Traditional management practices have often been cumbersome and time-consuming, with funding for long-term projects selected and backed by U.S. officials. This approach will have to give way to a simpler, more flexible, and more collaborative management style.


What are the new political realities affecting U.S. aid -- and are they consistent with the ideas put forward here? Government policies, especially public spending programs, require coalitions of political support to sustain them. That coalition typically includes key executive-branch agencies, members of Congress, and various private groups. Public opinion also influences policies and programs, but it tends to be passive and permissive with regard to foreign aid, except when aroused by major disasters such as humanitarian crises.

During the Cold War, the foreign aid coalition was based on a "policy paradigm" with two main purposes: promoting U.S. security and political interests abroad (primarily limiting the spread of Soviet influence) and furthering development in poor countries. At the time, there was little controversy over the United States' providing aid for humanitarian relief abroad when it was required. The State Department -- the key administration agency supporting foreign aid -- tended to emphasize the security interests that aid could advance; the Treasury Department (which is responsible for managing U.S. participation in multilateral development banks) and USAID supported multilateral and bilateral aid for development, respectively. Aid for security purposes garnered the grudging acquiescence of the more conservative members of Congress, whereas development aid was supported by the more liberal members. This coalition was enough to pass needed aid legislation year after year. Some private groups favoring specific foreign countries and NGOS supporting particular types of aid-funded activities abroad (such as family planning) also lobbied for aid.

The end of the Cold War removed one element in this policy paradigm, and the progress in much of Asia and Latin America lessened the urgency of the other. During the 1990s, therefore, aid agencies sought new tasks and rationales to fortify their relevance and support from the administration, Congress, and the public. This new uncertainty was undoubtedly a key factor contributing to mission creep.

By the end of the 1990s, however, the outlines of a new policy paradigm were beginning to emerge. Aid for security had for some time given way to aid for peacemaking -- in the Middle East, the Balkans, Haiti, and elsewhere -- even though the Clinton administration had not fully articulated the policy underlying the use of that aid. Washington was already beginning to allocate more aid to deal with transnational issues like the spread of infectious diseases and global warming, even though this had yet to be presented as a major rationale for foreign aid. Finally, Congress had begun to focus more bilateral aid on addressing humane concerns, specifically those involving child survival.

These three purposes -- peacemaking, addressing transnational issues, and promoting child survival -- have now been combined with an ongoing commitment to humanitarian relief to offer the elements of a new policy paradigm for foreign aid. This paradigm promises to reconstitute an effective constituency of policymakers and activists concerned about conflict and regional security, groups focusing on transnational issues, and many Americans whose values include helping the most needy and vulnerable abroad. In short, the transformation of U.S. foreign aid proposed here reflects the evolving politics of aid.


Assuming a new administration wants to redesign foreign aid, how would it go about doing so? It should not create an interagency working group, ask for ideas, assign papers, try to get consensus, draft and approve legislation based on that consensus, and seek congressional support. Past experience proves that such an approach takes forever and rarely produces anything of value.

Instead, the new administration must create a small, expert working group -- preferably reporting to the president -- to develop a blueprint of its policy and the organizational changes it entails. The proposed changes should then be discussed with a small group of senior career officials of the major agencies affected. Outside experts may have a good sense of the broad direction of desired change, but they can rarely compete with career officials on the details of how policies and programs work. It is those details that can often make or break reform proposals.

Consultations and negotiations with key members of Congress are also essential. Those members include the chairs and ranking members of the Senate Foreign Relations Committee, the House International Affairs Committee, and the Foreign Operations Subcommittees of the Appropriations Committees of both houses. Members with interest in foreign aid, as well as leaders in both houses, should also take part. If a package of changes acceptable to these members and the administration can be put together, much of the political work behind transforming aid will already have been accomplished.

A final group then needs to be consulted: the organizations that lobby for aid and implement it abroad, such as country-focused groups and NGOS active in relief and development. Their political support is important, and many of them have detailed knowledge of how U.S. aid actually works in the field, knowledge that could strengthen the proposed changes.

The process described here should be completed in the first six months of a new administration, before political appointments are made to the agencies most affected by the changes. If major organizational changes drag on for many months, resistance to them will grow and ultimately undermine their extent or usefulness. These changes are significant and will require substantial effort on the part of any administration to implement. But they would not only transform U.S. foreign aid; they would clarify its purposes and fortify its relevance to American interests and values in a world very different from the one of the past century. The alternative would be aid programs with unclear goals, declining relevance, and inappropriate structures -- all possibly leading to a collapse in political support. Such a failure would be tragic, given foreign aid's potential to promote U.S. interests and reflect U.S. values in the new century.

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  • Carol Lancaster is Associate Professor and Director of the Master's of Science in Foreign Service program at Georgetown University. She previously served as Deputy Administrator of the U.S. Agency for International Development and Deputy Assistant Secretary of State. Her recent books include Transforming Foreign Aid and Aid to Africa.
  • More By Carol Lancaster