A Strategy for Economic Growth
10. Resources and Resource Allocation
A renewed USAID commitment to economic growth has clear implications for budget and staff. With respect to budget, a recent study concluded that only 4 percent of the U.S. foreign aid budget of $15 billion was programmed for economic growth in a flexible and unconstrained manner.52 Another 6 percent went to the new MCC, while an additional 13 percent promoted growth subject to constraints, usually country or sector earmarks. These relatively small amounts reflect a lack of consensus between the executive and legislative branches of government about the importance of economic growth programs. The result is that economic growth funding has become largely a residual after other demands have been met – a residual that has shrunk precipitously since the early 1990s. 53 But if economic growth is indeed essential to enable poor countries to address all other development goals and to emerge from further dependence on foreign aid, funding for economic growth programs should be a clear and visible priority.
The distribution of economic growth funding among countries also matters. Until recently, some 80 percent of total economic growth funds under USAID management were concentrated in strategic programs financed from the Economic Support Fund (ESF) account and in programs in Eastern Europe and the Former Soviet Union. Economic growth initiatives in countries funded under the Development Assistance (DA) account are highly constrained, which biases assistance in those countries away from the programs that could do the most to reduce their dependence on foreign assistance over the medium and longer terms. These differences in funding for economic growth programs in countries funded from different budget accounts should be revisited to ensure that broader U.S. interests are being met. Finally, flexibility in funding and contracting procedures for economic growth programs matters a great deal to their success. The ability to quickly concentrate funds and expertise when and where genuine opportunities arise can significantly increase impact.
With respect to staffing, the last time USAID gave central importance to promoting economic growth in poor countries was in the early 1980s. At that time, USAID attracted a substantial number of experienced, mid-career economists and private-sector officers. The latter brought an understanding of how private businessmen and women think and operate, and earned USAID the reputation of being the most innovative and successful donor agency in the area of private sector development. However, the overall strength of USAID’s cadre of economists and private-sector development officers declined sharply in the 1990s, as emphasis shifted to other priorities and as USAID missions were downsized. The Reduction in Force in the mid-1990s particularly depleted USAID’s economic staff.
Four staffing issues require attention to sustain and improve program quality:
- First, USAID needs on-the-ground, direct-hire experts in economic growth and its component areas such as agriculture and private sector development. Success in the challenging environments in which USAID is asked to work depends on the ability to interact effectively with local leaders in government and the private sector.
- Second, skill requirements in Rebuilding countries will be especially broad, including the capacity to make and implement macroeconomic policy. To be effective in these situations, USAID must retain a similarly broad range of expertise in economic growth.
- Third, although the approach, priority, and sequencing of economic growth initiatives depend heavily on local conditions, global best practice remains an important benchmark. USAID needs to dedicate staff to manage lessons learned in the “tradecraft” of promoting economic growth, and to disseminate those lessons effectively to field staff.
- Last, but not least, active participation by USAID in interagency decision-making processes on policies that affect developing countries will require mobilizing the expertise in Washington to assert the economic growth perspective effectively. To maximize its effectiveness both in the field and in interagency policy fora in Washington, USAID must work to rebuild its cadre of senior economic growth professionals, seasoned through experience with both policy and program issues in the field. In all cases, human resource quality will be at least as important as quantity.
52 Fox and Timmer (2005).
53 Crosswell (2000) finds that among the four major users of development resources – the Africa, Asia/Near East, Latin America/Caribbean, and Global Bureaus – overall development funding in constant dollars dropped between 26 percent and 42 percent from 1992 to 1999, but economic growth funding fell much further, between 65 percent and 79 percent. Thus, the share of EG resources in the development programs of these four bureaus dropped precipitously, from 43 percent in 1992 to just under 20 percent in 1999. Within EG, agriculture funding fell somewhat less than for other EG programs.
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