In an Uncertain World (57 page)

On other trips to developing countries, I also saw several much smaller-scale microfinance projects. These projects provide small loans, with relatively low interest rates, to entrepreneurs who would not be able to get the capital to start a business otherwise. They promote better use of domestic savings by intermediating between small-scale savers and users of capital, and by providing technical assistance and advice to borrowers. In Brazil, Judy and I went to São Paulo's terrible
favelas,
or slums, where we saw a small business supported by microlending in which workers were sewing designs onto T-shirts. I toured a child-care facility in Soweto, South Africa, a microenterprise that not only creates jobs but also enables parents to go to work more readily. These projects were examples of ways to make capital markets work better for the benefit of the poorest. Though their capital was provided by domestic savings, most had originally been established by the World Bank, which under the deeply committed leadership of James Wolfensohn has focused far more effectively on issues of poverty and on how to spread the benefits of the global economy more widely.

On the other hand, some countries may be simply too small in terms of population or GDP to have deep and liquid capital markets of their own, or to have domestic banking systems of a size, depth, and sophistication capable of withstanding the vicissitudes of global markets. Many people I worked with disagree, and point out that Singapore and Hong Kong were successful in building up international financial centers from small city-states. But I do not think that's a realistic model for many others. I remember a poignant conversation I had with Cassim Chilumpha, the finance minister of Malawi, at a meeting in Namibia of the Southern African Development Community in 1998. Mr. Chilumpha told me that his country had tried to do everything right in the eyes of the IMF—it welcomed foreign investment, allowed its currency to float, and so forth. But as a tiny, landlocked, and desperately poor nation lacking in significant natural resources, Malawi had little to export and nothing to attract foreign capital. Policy in Malawi at that point may or may not have been as sound as the finance minister asserted, but the issues he raised seem valid to me. How could tiny and impoverished Malawi develop the institutions or bring in the capital necessary for sustained growth?

One alternative to national financial systems for small countries is to develop regional markets to pool the costs of strong private-sector and regulatory institutions and provide broader and deeper markets. There are often major political obstacles to such multinational cooperation, but the possible benefit is worth the effort if that collaboration is sustainable over time. Another approach is for these countries to be more open to foreign banks and investment banks so as to benefit from their expertise, home-based regulation, global reach, and capital. Although I now work for a private financial institution that operates in many developing countries, I thought this long before I found myself involved in that business. Alan Greenspan once said to me that the biggest problem for many countries in building an effective financial sector is the shortage of skilled personnel for both the private sector and the public sector. This scarcity can be overcome by utilizing the expertise of large global firms.

Finally, foreign aid—carefully designed and well used—is essential to enable developing countries to implement policies to reduce poverty, improve basic living standards, and make a market economy work. On this the United States has done far too little. We now contribute just over one tenth of 1 percent of GDP to foreign aid—directly and through multilateral organizations such as the World Bank—as compared to the longstanding U.N. goal for the industrial countries of spending seven-tenths of 1 percent of their GDP to overcome developing-country poverty. There are serious issues around the effectiveness of foreign aid. But while the problems are real, so are the achievements. There have been great gains in life expectancy and literacy over recent decades and, while there were many factors involved, aid clearly played an important part. Improvements in health care—including the eradication of smallpox, the near-eradication of river blindness in Africa, and much more widespread vaccination programs for children—stand as an extraordinary accomplishment. And in successful Asian countries like South Korea, high levels of foreign aid in the early stages of development combined with a focus on appropriate policies to foster robust growth. Much needs to be done to improve understanding of how to make aid more effective, and industrial countries can do much to help devise and promote sound practices in developing countries and provide technical assistance to support those policies. But based on everything I saw while I was at Treasury, I have no doubt that enough is known to warrant a far more robust program.

In conjunction with the United Nations Monterrey conference, President Bush proposed an ambitious new plan to provide foreign aid to developing countries, called the Millennium Challenge Account. The proposal, which involves spending an additional $5 billion a year, would increase U.S. foreign aid by 50 percent. The program is intended to focus aid on economic growth and development and, importantly, to maximize its effectiveness by giving the money only to countries with sound policies in place. That is a big step forward—assuming the administration vigorously pursues this initiative and Congress fully appropriates the funds—but much more needs to be done.

We in the Clinton administration always argued that foreign aid designed to promote economic growth—as opposed to emergency relief—was truly effective only when joined with real and sustained economic reform, and that aid should therefore be conditioned on reform. This approach to foreign aid is consistent with the crisis response programs I talked about in the context of Mexico, Asia, Russia, and Brazil: assistance will work only if it is conditioned on strong economic policies developed and owned by the countries themselves. Moreover, if financial support is not linked to reform and as a result fails to be effective, this further undermines political support for such financing when it can be useful. That said, there are hundreds of millions of people in countries where the governments are too corrupt or too ineffective to meet conditions attached to aid. And we can't simply ignore these people until their governments someday change. The international financial institutions, the United Nations, and individual nations need to be far more effectively focused on finding better means to address the needs of the populations of such countries, including affordable medicines, access to clean water, food assistance, and strategies for raising living standards—both because of the enormous humanitarian issue and because it is in our interests.

In any endeavor, however, it is important to make rigorous judgments about the effectiveness—and the risk of unintended consequences—of even the best-intentioned ideas. One proposal that provides assistance for the poorest—broad debt relief—has won support thanks to the involvement of Pope John Paul II and the Irish rock star Bono. I met with Bono after I left the Treasury and before I joined Citigroup, at the suggestion of former Fed chairman Paul Volcker. Despite wearing sunglasses indoors and having only one name, Bono is a thoughtful and serious person with a range of ideas on how to support the developing world. I strongly agree with his separate efforts to get Europe, Japan, and the United States to open their textile and agriculture markets to imports from Africa. But on debt relief I told Bono that while I supported the concept up to a point, his proposal for far-reaching and broad-based relief struck me as potentially counterproductive.

When a borrower is clearly overextended and unable to pay its debts, limited debt relief from the official creditors—governments and multilateral agencies—makes sense. Such a program was put in place during the Clinton years. Perhaps that program should be somewhat improved or expanded. But if debt forgiveness became a broad policy, instead of an infrequent exception, it could undermine private creditor confidence that the principle of debt repayment will be rigorously applied in developing countries—or perhaps even more broadly. Credit markets only work effectively on the basis of this principle. Undermining it could thereby reduce flows of credit, and increase interest costs for the developing world, especially for the poorest countries. Since debt relief is treated as a form of foreign aid in the U.S. federal government budget, my strong preference would be to devote the same resources to alleviating the debt burden of the poorest and most heavily indebted countries through foreign assistance.

Beyond what the United States can do as a country, private citizens can address the problem of global poverty through their businesses, through philanthropy, and through political involvement. Corporations can contribute not just money but also business and technical expertise, as Cisco has done recently in Afghanistan by setting up academies to train people in computer networking. Focused philanthropic efforts, such as the Bill & Melinda Gates Foundation's emphasis on AIDS and global health or George Soros's activities in Eastern Europe and West Africa, have made an enormous difference in recent years and have arguably been more cost-effective than governmental efforts aimed at the same problems. People with less money than Bill Gates or George Soros can contribute as well, not just by giving to charities that focus on poorer countries but by becoming informed, engaged, and politically active on behalf of trade and aid.

Most fundamentally, a dramatic change in public attitudes is needed. At one point when I was at Treasury, I thought of going to President Clinton and suggesting that he set up an interagency process to work through the whole set of substantive and political issues surrounding global poverty. Amid the distracting rush of events, I never did. Given President Clinton's deep interest and involvement in these issues, I now see that as a real lost opportunity. Such an effort could have addressed the difficult issues around growth in developing countries, including questions about what mechanisms would best encourage governments to adopt better policies. We might also have looked at how to overcome the political obstacles to winning support for substantially increasing foreign assistance at home and opening our markets more fully to developing countries. I hope that some future administration will set up such a process, and give it a high priority.

The political challenge, in any case, is immense. My many discussions with senators, House members, and others as I sought to develop support for foreign assistance have led me to believe that what is needed is a large-scale, multi-year public relations and education campaign in support of both foreign assistance and trade liberalization for developing-country exports—something more honest than, but just as effective as, the “Harry and Louise” ads that helped defeat our administration's health care plan in 1994. Other, more positive examples include highly successful campaigns against smoking and drunk driving. Such a public education effort focused on trade and aid should stress both moral issues and our self-interest imperative in combating global poverty. It should also highlight success stories, such as the eradication of river blindness in Africa
.
I've argued to a number of individuals and foundations that the considerable financial resources this would take could have an immensely leveraged impact if the project changed the political dynamic around these issues. So far, my arguments have been without effect.

   

LET ME CLOSE with a story from an earlier stage of life. I remember once sitting at a lunch counter in Brooklyn, just after finishing law school in 1964. I had a few spare weeks before starting work at a firm in New York and was spending the time auditing trials at the county courthouse. My waitress, a middle-aged Black woman, asked me—out of the blue—whether I thought the day would ever come when all people would be treated with respect and dignity.

I don't remember very clearly what my answer was, but her question has stayed with me all these years. The desire for dignity and respect is as real for a waitress in Brooklyn as it is for a member of the President's cabinet, or a student in Pakistan, or a bond trader at Citigroup. People strive to accommodate their physical needs and desires. But once the basics for life are met, their psychological needs—some might say needs of the soul—are key. If the latter are satisfied, life can work well. On the other hand, if the soul isn't satisfied, possessions won't fill the void. Among the most basic needs is what I took to be that waitress's point: the need to have one's dignity and humanity acknowledged, to be listened to, to have what you say and what you believe taken seriously.

This, to me, should be central to the focus on poverty in the developing world. Our fundamental goal is to satisfy the nutritional, basic health care, educational, and other essential requirements of all of the world's population. But material sustenance isn't the sole objective. People suffering in desperate poverty in remote places have the same needs and desires as each of us in the wealthiest nation in the world does—not just for food, medicine, and clean drinking water, but also to be respected as human beings.

In an era when the threat from people who don't feel respected can lead to dire consequences, treating other nations and their people with dignity may be a simple matter of self-protection. But to me, listening respectfully even to critics and opponents makes even more fundamental sense, as an acknowledgment of the uncertainty and complexity that I believe to be inherent in virtually all issues of import. I think we've learned a great deal about how to foster better economic conditions, both in this country and in the developing world—though whether we as a society will choose policies that reflect that understanding is another matter. But in an uncertain world there is no finality about any of these questions. Even thoughtful people who eschew ideology, recognize complexity, and try to work with great analytic rigor will continue to disagree about them.