Three Big Ideas + Three Smart Reforms for US Development Policy
By CGD’s U.S. Development Policy Team | OCTOBER 19, 2016
Presidential Transition Memo — Download PDF
With strong bipartisan support, the US government has long employed an array of foreign assistance tools and programs in support of the fundamental belief that America can be a force for good in the world. By acting as a committed partner in support of the development of poorer countries, administrations led by Democrats and Republicans alike have demonstrated that a firm commitment to supporting progress in these countries—measured in lives saved, poverty reduced, and human rights advanced—is tied to our core values as a nation. US foreign assistance programs also benefit us here at home by expanding economic opportunity and making the world more secure for our citizens.
With this in mind, the Rethinking US Development Policy team at the Center for Global Development strongly urges you to make a mark on this critical set of issues, starting in the earliest days of your administration. Specifically, we propose three big ideas for inclusion in your first year budget submission to Congress:
We also propose three smart reforms to pursue during your first year:
The recommendations detailed below have the potential to attract strong allies in Congress and realizing early progress in these areas will lay the groundwork for a longer-term agenda where it will deliver significant impact.
Three Big Ideas for Development
In recent years, the US government has sought to advance the cause of global development with big ideas—major campaigns to eradicate disease and new partnerships focused on removing the obstacles to sustained economic growth in poorer countries. The President’s Emergency Plan for AIDS Relief (PEPFAR), Millennium Challenge Corporation (MCC), Power Africa Initiative, and Feed the Future showcase great ambition toward achieving better development outcomes through new approaches to US engagement. In that spirit, we offer three big ideas to bolster US leadership in service of driving progress toward gender equality, building sustainable infrastructure, and addressing the humanitarian consequences of prolonged conflict.
1. An incentive fund to empower women and girls
Promoting global gender equality is a priority in its own right and necessary to achieving other development goals, including those related to health, education, poverty reduction, and economic growth. Making progress on Sustainable Development Goal 5 (which seeks to “achieve gender equality and empower all women and girls”) will also be crucial to the achievement of the other SDGs. A strong and growing evidence base finds investments in women and girls have catalytic and multiplier effects: girls that complete their education are less likely to marry or become pregnant during adolescence, and delaying adolescent births has the potential to slow population growth, generating broad social and economic benefits. Women who have access to and control over their own income are likely to invest in the well-being of their children, ensuring that the next generation is healthier and better educated.
As evidenced by the strategies put forth by the State Department, USAID, MCC, and other US agencies focused on gender equality, the US Government recognizes the significant potential of closing gender gaps in opportunities and outcomes. But in 2013-14 just $1.5 billion in foreign assistance (.008 percent of US GDP and less than 5 percent of total US ODA) was provided with a principal objective of advancing gender equality. As proposed in the CGD policy brief "Promoting Women's Economic Empowerment through US Foreign and Development Policy," to reach the OECD average of .013 percent of GDP, the next administration should allocate an additional $1 billion annually to improving gender outcomes in developing countries.
But more money alone does not ensure better outcomes. To have a transformative impact, this $1 billion infusion should be disbursed through a new incentives-based approach. To date, US Government efforts to promote women’s empowerment and encourage gender equality have relied on policies, rules, and requirements to increase gender integration in analysis, design, training, monitoring, and evaluation. These measures are critical: a top-down “push” is needed to set standards and change practices, especially in large bureaucracies. However, competing priorities and limited financial and human resources can hinder full implementation.
A new incentive fund would promote these policies and build on them by employing innovative financial tools designed to close gender gaps in development outcomes, with specific focus on women’s economic empowerment. The fund would mobilize increased public and private sector resources, primarily through issuing results-based payments against the achievement of specific gender-related outputs and outcomes as well as other innovative mechanisms (e.g., impact bonds, prizes, technology for targeting interventions). This would incentivize domestic and foreign programs and institutions to work towards greater gender equality. Through performance rewards and recognition, new funding would also encourage project officers, in-country policymakers and private sector actors (after having received the requisite technical assistance and training) to use their specialized knowledge to design interventions to close gender gaps. A portion of the new funding could help catalyze a new multilateral mechanism with similar mechanisms to leverage expertise and funding from other partners.
This new source of financing would follow on similar results-oriented approaches, including the World Bank’s program-for-results financing, which links disbursement of funds directly to the achievement of specific policy benchmarks and program results; social and development impact bonds, through which the public sector or private investors commit to pay for improved social outcomes that result in public sector savings, or the Center for Global Development’s proposed system of Cash on Delivery Aid, through which donors pay for measurable and verifiable progress on specific outcomes. Similar innovative financing models specifically focused on improving outcomes for women and girls have been implemented in the past and could be used as reference points as new funds are allocated.
2. Becoming the global leader in sustainable infrastructure investment
Even as your administration mobilizes to address longstanding infrastructure needs at home, you should also recognize the window of opportunity to address critical infrastructure needs in developing countries. Doing so in a way that also meets climate imperatives is critical for sustainability, as is ensuring that new infrastructure lasts and is well maintained. According to one prominent estimate, there will need to be a global investment of $90 trillion in sustainable infrastructure over the next 15 years, most of it in the developing world, in order to meet shared objectives for growth, poverty reduction, and carbon reductions. Yet, absent strong US leadership, we will not be on track to meet these goals: infrastructure investment in lower-income countries will continue to be too low and the emissions reductions that come with cleaner infrastructure will be too little to ensure that we meet the Paris climate commitments.
To date, the US government has too often been one of many supporters of the sustainable infrastructure agenda rather than a clear leader. Yet, countries that do choose to lead on this agenda will capture the large economic gains that come with technological advances and global market dominance, as evidenced by major investments in solar and other climate-friendly technologies made by countries in Asia and Europe.
For all of these reasons, a big commitment to US leadership on sustainable infrastructure globally should be a core element of your administration’s development policy, with new commitments in your first year budget focused on three elements: obtaining new authorities necessary to transition Overseas Private Investment Corporation (OPIC) into a comprehensive development finance institution; significant new commitments to the multilateral development banks (MDBs) to support their operational leadership on public infrastructure investment; and a clear anchor in power infrastructure modeled on an expansion of Power Africa to a global scale.
OPIC’s authorities require modernization for the agency to effectively catalyze private flows into sustainable infrastructure, where they would otherwise be lacking. OPIC lacks authorities to make equity investments, provide grant funding, and offer technical assistance—all of which would help OPIC deliver the innovative finance and market-making functions necessary to drive private investment into the infrastructure gap. Your first budget should request these authorities. In addition, the budget should seek to loosen the requirement that OPIC projects have participation from a US firm and give OPIC the ability to use reflows to fund operations and capitalize investments. This package of OPIC measures should also include a commitment by the agency to enhanced transparency and reporting on development additionality. All of these changes could be structured as budget neutral or continue OPIC’s history of transfers into the 150 Account.
US leadership on a round of capitalizations at the multilateral development banks could be tied directly to targets on MDB investment in sustainable infrastructure. The World Bank and regional institutions like the African and Asian development banks already play a leading role in public infrastructure investment, combining lending with technical expertise and policy engagement to build infrastructure and improve the enabling environment for sustainable infrastructure in developing countries. A US-led MDB initiative would both increase the overall scale of investment globally and reassert US leadership within these multilateral institutions at a time when competition for policy influence in developing countries is growing. The US voice can be amplified by the MDBs.
Finally, the successes and lessons learned from Power Africa should be scaled up globally. Power Africa represents a unique model—a highly visible initiative that relies on relatively modest USG financing to leverage private and other resources (including from the MDBs and other bilateral donors) in support of specific projects. The model has proven itself to justify expansion into other regions.
3. Create humanitarian compacts
Millions of refugees fleeing violence in Syria have brought renewed attention to humanitarian needs that result from conflict, particularly the impacts on refugees and their host populations. One clear conclusion—whether looking at the plight of Syrian refugees, or those fleeing violence in Somalia, who are now housed for multiple generations in potentially-closing Kenya’s Dadaab refugee camp—is that what we have long thought of as short-term humanitarian “crises” have become increasingly long-term in nature. In addition, a majority of states impacted by increased refugee populations are developing countries. As such, they demand measured and persistent development policy responses that move the international community beyond a crisis response mindset.
The United States is the largest provider of humanitarian assistance, the most generous host of permanent refugees, and the largest provider of bilateral development assistance. As such, we will be instrumental in driving a new approach to humanitarian disasters, one that joins the immediate imperatives of crisis response with the long-term approach of development assistance. Setting aside the politically difficult issue of how many refugees should be admitted to the United States, we call here for a new approach to engaging with developing countries to address the challenges associated with assisting displaced persons within their communities. Your first year budget should introduce a new package of bilateral and multilateral assistance in support of a compact approach with countries hosting a large number of refugees.
The current humanitarian system is designed to respond to short-term needs for food, water, and shelter. Given that refugees are displaced for an average of 10 years and increasingly live in urban, non-camp settings, there is a need for much greater focus on self-reliance, including education and livelihoods. A rigorous body of research about refugee impacts on native workers in developed countries shows refugees are net economic contributors if provided adequate services, support and rights (e.g., work permits, access to labor markets, freedom of movement). This is not to suggest that there are not winners and losers in host countries—for example, displacement from certain sectors can occur as the labor market adjusts.  However, if well-integrated, refugees provide an overall net benefit to their host countries.
However, governments struggle to provide the necessary conditions for integration given the development challenges of their own citizens, sensitive political dynamics, and fears that encouraging self-reliance will deter refugees from eventually returning home. A compact model would combine significant, flexible, multi-year resources (potentially including donor policy commitments related to trade and migration) benefitting refugees and host communities, and include policy commitments and investments that enable refugees’ self-reliance. A compact, in countries such as Lebanon (where one in four people is a refugee), could be a powerful means to bridge the short-term costs associated with hosting refugees with the long-term benefits they bring to host countries. The binding nature of compacts and their concrete incentives for governments and their citizens also ensure a long-term focus on outcomes—without these, it’s too easy to fall back on policies that are critical for success.
Based on this new approach, a new US government platform would provide additional aid and “beyond aid” commitments to developing countries. A second element of this new approach would be a US leadership role in ongoing efforts at the World Bank to launch a multilateral platform at the nexus of humanitarian and development policy. Along with leading contributions to the World Bank trust funds, the US government should play a strong role in shaping the policy approach of these multilateral platforms in line with its bilateral approach. The US should also work closely with the G7 and other allies to promote greater alignment and impact. When it comes to policy leverage, a coordinated approach, in which US objectives are reinforced by large multilateral actors like the World Bank, stands a much greater likelihood of success than the United States acting alone.
Three Smart Reforms
In addition to these three big initiatives, we believe your administration can make major progress in the “how” of US development policy with the amplification of three smart reforms in the first year budget.
1. Prioritize country ownership
Even as there is opportunity for a new administration to bring new ideas to US development policy, it is important to build momentum around important longer-term reforms initiated by previous administrations. Your new administration has the chance to solidify US commitments and early efforts to implement an increased focus on country ownership in development.
Over the last decade, the US government has endorsed a number of international agreements that emphasize the importance of ensuring partner countries play a lead role in designing and implementing their own development strategies.Indeed, results are much more likely to be effective and sustained if they reflect the country’s own priorities and when the partner government has a greater stake in—and is more accountable to its citizens for—their successful delivery. While the US has made commendable headway incorporating principles of country ownership into its development policy, it will fall to the new administration to find new ways to ensure that the policies and procedures for incorporating local participation into program design, implementation, and financing are meaningfully implemented in such a way that they achieve the intended effects of building partner country capacity and sustaining results.
2. Drive results agenda forward
Critics of foreign assistance have often pointed out that there is simply not enough information about the results of most aid projects to know how effective US foreign assistance actually is. Recent years have seen serious efforts to remedy this, with adoption of a renewed focus on results. Your administration has a number of opportunities to drive the results agenda forward and ensure its institutionalization as a part of US development policy.
The existing policy foundation is strong. In the last decade, USAID, and MCC have both developed highly regarded evaluation policies; the State Department, too, has made policy commitments to evaluate more of its development work. As a result, there have been far more evaluations produced; however, it will fall to the new administration to ensure that future evaluations are of high quality and that the results are well communicated and appropriately utilized to inform future programming and ensure accountability.
Beyond evaluations, there are a host of additional cutting-edge results-focused approaches the new administration has the opportunity to advance, as part of the three big ideas presented here and beyond. Adaptive management, for instance, supports seeking solutions to problems through experimentation accompanied by tight feedback loops. Rather than assuming “best practices” are equally well-suited to all environments, adaptive management is associated with rapid learning to inform mid-course adjustments that ultimately allow local actors to coalesce around the best ways, within their own local context, to achieve results.
Outcome-based funding models like cash on delivery aid and development impact bonds are another option. With outcome-based funding, the US government pays only for the delivery of measurable and verifiable pre-agreed outcomes. These approaches embrace flexibility and encourage innovation, placing more importance on measuring whether results are achieved than controlling how they are achieved. Identifying in your first budget a pool of resources dedicated to piloting and scaling outcome-based approaches—a “Development Impact Fund”—would send a clear signal of your commitment to linking US foreign assistance dollars to results.
3. Launch effectiveness pilots
One of the biggest constraints to the United States’ ability to adapt to changing priorities and make real progress adopting principles of aid effectiveness like country-led programming and a focus on results is a complex web of spending directives, including both congressional directives and presidential initiatives. In fact, when the George W. Bush Administration teamed with Congress to create a new foreign assistance account focused on effective aid delivery, they created a new agency, the Millennium Challenge Corporation (MCC), to sidestep constraints found in the existing foreign assistance infrastructure. Yet, MCC accounts for a very small portion of the US foreign assistance budget. USAID, the country’s leading agency, embraces key tenets of effective aid delivery in principle, but country missions often find that their budgets are nearly completely tied up in congressional directives and presidential initiatives, leaving little flexibility to fund country-identified priorities or to shift funds to programming areas with greater prospects for achieving results.
A thorough review of the authorities included in the Foreign Assistance Act of 1961 will be important over the longer-term. Such an exercise would serve as the basis for a plan to work with Congress to create new authorities and reform existing authorities in order to create a development policy appropriate for the 21st century. However, such a review is time- and resource-intensive. To move more quickly on high impact reforms, in the short-run, USAID should engage in a series of “effectiveness pilots,” in which—in a small set of countries—directives, earmarks, and other spending requirements are removed or significantly reduced. In exchange, USAID would ensure it adheres to more effective aid delivery practices, including evidence-based priority setting, public outcome and impact measures, default local ownership in project design, implementation, and resourcing, and transition planning. Such pilots would give USAID the necessary flexibility to operate in ways associated with better and more sustainable results. Furthermore, such reforms could lead the way for more fundamental, wide-reaching changes as the reforms lead to more sustainable development efforts.