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Cutting US foreign assistance bad for economy, Arab democracy

August 2, 2011 1 comment

Everyone knows US foreign assistance is slated for spending cuts, but recent aid authorization bills show the major differences already forming between the House and Senate. Never has there been a better opportunity and greater need for democracy promotion and US aid than the Arab Spring. But if the House gets its way, that will mean a sharply decreased US role abroad — and, as I will argue, to the detriment of the US economy.

First, let’s start with the facts. The foreign assistance fund — which includes food aid, supporting stable democratic institutions and the like — is not in any way related to the defense budget. Politicians usually lump the two together, whether intentionally or not, because our military missions in Iraq and Afghanistan have undertaken the ostensible role of democracy promotion. But when you look at the numbers, foreign assistance accounts for a mere 1 percent of the US budget. That still hasn’t stopped people like Rep. Paul Ryan, R-Wisc., from suggesting cuts of 44 percent by 2016. By comparison defense budget — cuts to which the House has tried to avoid — is the largest spending item in the US budget, comprising 24 percent of total spending this fiscal year.

Many people believe the US should turn inward — some argue the nation cannot project itself abroad when it cannot take care of its economic issues at home. I don’t buy that argument. US-based nongovernmental organizations will continue to do a lot of the heavy lifting overseas when it comes to international aid, but they will need government grants to keep major operations going. Denying those funds could lead to job loss, so keeping foreign assistance at current funding levels will keep Americans at work.

Also, it is in US economic interests to promote healthy governments and citizens because it will lead to economic rewards in the future. Corrupt, undemocratic governments will generally operate at the expense of their own people largely by keeping growing wealth for the government elite. That means people have less money to spend on more expensive American goods, which in turn dampens US overseas profits.

Curbing corruption will also ensure future US investment is not wasted. Billions of dollars of US investment — both from the federal government and private citizens or corporations — get lost among red tape or swindling politicians in corrupt foreign nations. Some of those nations — such as Afghanistan, Mongolia and India — sit on treasures of natural resources the US lacks, so US business interests are more than happy to invest. Cleaning up those states would produce a greater return on that investment.

In terms of the hopeful new Arab democracies, US foreign assistance can help build trust between those governing in Arab nations and the US officials with whom they will be communicating. It’s no secret that Egyptians oppose US meddling, a fear the military there is exploiting. But it’s not the Arab street the US must win over — it’s the new, democratically-elected leaders with whom the US must curry favor. The US already is training potential political leaders in Libya, Syria and Egypt — certainly a good start. The US wants to be the nation those new leaders look toward for guidance, but cutting foreign assistance will imperil the US ability to help guide new Arab democracies through the troubles they will encounter during nascent stages. In turn, that will dampen the ability to do everything from strike bilateral trade agreements to establishing and supporting sound human rights protections.

On top of the general budget malaise, a Foreign Relations Authorization bill currently going through the motions on Capitol Hill makes it more difficult for the US to use international aid in corrupt nations:

The corruption indicator has a range of uncertainly (especially around the median) and can have time lags of up to two years.  Using the control of corruption indicator as a hard hurdle for all U.S. economic and development assistance without addressing the inherent problems in the indicator could prove highly challenging.

That bill, pushed by the House (there also is a less restrictive Senate version) is not likely to pass in the Senate. But the writing is on the wall for US foreign assistance. If this debt ceiling fiasco proved anything, it’s that the House and Senate are beholden to very different interests and views. The House will champion spending cuts abroad because, rhetorically, it sounds good. The House will stomach defense cuts, but it will not digest those cuts easily. Still, it’s the assault on foreign assistance that should induce gagging.

 

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Jordan workforce training initiative disappoints World Bank

Jordan must improve its joint public and private sector workforce development initiative, according to a sub-par World Bank report.

Since adopting a national plan to improve workforce training and preparedness in an increasingly globalized Jordanian economy, “the past two years have not seen effective coordinated implementation” of outlined initiatives, the World Bank said.

The review evaluates a 2002 plan to better integrate the private sector into the public sector’s efforts in preparing Jordanian workers for the competitive globalized market. That plan said, chiefly:

The absence of employers in the participation and decision making of most aspects of workforce development is the current dominating characteristic of the system. For example, none of the 5 private sector representatives of the 11 Board members of the VTC’s Board of Directors hold leadership positions or represent priority sectors. Over the last 30 years of VTC’s history, the attitude of the private sector toward VTC has been symbolic at best.

The quality of private sector training providers varies in both cost and quality and will have to be improved over time by developing certification and accreditation activities.

Jordan’s government has failed to set policies encouraging this partnership, the World Bank report released this week said. Ultimately, workforce training has to start with heavy government lifting. It must set the agenda and have a direction before it instructs the private sector on how to train and develop its workforce. Until the government knows what it wants, the private sector will remain distant.

The truly innovative and society-benefiting businesses follow talented minds and skilled labor, which Jordan certainly could have if it coordinated its efforts. The average Jordanian goes to school for 13 years, which means there are plenty who go to college. Workforce training starts with the government because it must set the agenda.

Private sector was not engaged in workforce training because, historically, Jordan generated most of its revenues from high tariffs, effectively closing off the economy and reducing its need for productive efficiency and a trained workforce. But the financial crisis that hit the nation in 1988 provoked serious trade liberalization discussion. In essence, government can take the blame for the private sector’s unwillingness or inability to train workers — the government had never given the private sector a reason to prioritize this.

Jordan had been maligned by unemployment and poverty, relying on at least five International Monetary Fund programs between 1992 and 2002. As a result, the Hashemite Kingdom had to follow the standard IMF prescription of lowering trade barriers, cutting public benefits and privatizing business, among other things. During the time of those IMF programs, Jordan joined the World Trade Organization, the EU partnership agreement, the Arab Free Trade Area and a free trade pact with the US. That all meant Jordan needed a better trained workforce to compete with its new, freer economic borders, which has lead to rapidly increasing exports and GDP.

But increasing exports is easy when you change from a drastically protectionist trade policy and have low wages — Jordan’s GDP per capita is $5,400, ranking 144th in the world according to the CIA World Factbook. The key now for Jordan is value creation. More than 77 percent of its workforce is in services, which are low-paying and do little to generate societal benefit.

The median age in Jordan is 22, which means there’s an overwhelming amount of young people in the country. It will not survive based on an almost entirely service-based economy. The government needs the private sector to help train workers in order to attract capital and investment. Until the government gets its act together, that won’t happen.

“Middle East Marshall Plan” should include human rights promotion

U.S. Sens. John Kerry (D-Mass.) and John McCain (R-Ariz.) are planning a sort of Middle East Marshall Plan by tying U.S. intervention with business and economic interests. IF (and I say IF) this is what the U.S. decides to do to break its relative isolation during the Arab Spring, the senators should work to promote human rights at the same time.

This extremely nauseating puff piece about the war veterans/politicians/BFFLs seemed to care less about the news and  more about their on-again, off-again Beltway lovefest. I hope WaPo plans on a follow with some analysis, but in case they don’t, I’ll go ahead and do it anyway.

From The Washington Post:

The elder statesmen are also hoping to forge something resembling a Marshall Plan for the Middle East, aiming to spur massive private-sector investment across a region remade by revolution. The pair traveled to Egypt last weekend with eight Fortune 500 executives in an attempt to ignite investment in a country that has struggled since the February fall of longtime leader Hosni Mubarak.

Human and basic democratic rights such as freedom of speech and free and open elections, ideally, would come before economic development. Without human rights, society is at greater risk of corruption and abuse.

The U.S. has had its rear end pinned to the pine when it comes to supporting revolutionary forces in the Arab Spring. So the first proactive approach the U.S. makes is to support investment and U.S. economic interests, which is not going to set off a ticker tape parade in most Arab countries.

By promoting human rights in tandem with economic interests, the U.S. will appear more benevolent and also secure more stable investments. Fortifying institutions such as free and open elections will make politicians more accountable and curb corruption, which will mean a more honest and even approach to things from government contracts to welfare. Human rights reform will reduce workplace abuses, alleviate gender wage and employment differentials and therefore lead to a more productive and stable economy.

There’s also the dangers posed by opening up economies to the global market when those nations do not have sound human rights protections. “Race to the bottom” scenarios could develop in which nations depress wages to earn a competitive advantage for foreign investment. It also makes exports cheaper and therefore more attractive in the international market, but at the expense of a nation’s own people because it decreases purchasing power. That, in turn, diminishes the opportunity to innovate and be entrepreneurial because citizens have less disposable income and have to provide for families on sub-standard wages.

This is obviously asking for a lot. Promoting business will address youth unemployment, one of the largest causes of the Arab Spring. That alone would go a long way. But the U.S. should aim to have equal involvement in helping craft institutions and human rights reform as it does in boosting the Middle East economy.

Ultimately, the U.S. is currying favor with future Arab leaders, and one way to do that is by bolstering those nations’ economies. The U.S. doesn’t negotiate trade or peace agreements with the Arab street, so I understand the tactic.

But the U.S. has often worried about its image in the Arab world, and its hesitance to support revolutionary forces has not been viewed positively by most Arabs. The perceived inconsistency of the State Department — intervening in Libya but not Syria, for example — only amplifies that negative image.

I truly believe a more active approach to human rights promotion is possible. There is a power vacuum in the Arab world, unlike China, where the U.S. has also used rhetoric rather than might to encourage human rights reforms. The Arab street genuinely wants the freedoms U.S. and other nations have, so I believe it would be more receptive to U.S. help.

Diplomatically, America’s hands are tied. Intervening on the side of revolutionary forces will send a signal to allies that the U.S. is fickle. But the Arab street sees a contradiction between U.S. actions and its purported values of freedom and liberty. Arabs see that as hypocrisy, which amounts to an image problem of the worst kind.

 

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