The Dictator's Handbook (29 page)

Let's be clear, democrats act as if they care about the welfare of
their
people because they need their support. They are not helping
out of the goodness of their hearts, and their concern extends only as far as
their own
people—the ones from whom they need a lot of supporters. Democrats cannot greatly enrich their essential backers by handing out cash. There are simply too many people who need rewarding. Democrats need to deliver the public policies their coalition wants.

Autocrats, on the other hand, can richly reward their limited number of essential backers by disbursing cash. Money, which good governance suggests should be spent on public goods for the masses, can instead more usefully (from the autocrat's perspective) be handed out as rewards to supporters. And since private goods generate such concentrated benefits to the people who matter (and a good leader never forgets that
who matters
is all that matters), autocrats forsake the public policy goals of the people. It is not that they necessarily care less about the people's welfare than do democrats; it is just that promoting the people's interest jeopardizes their hold on power. Remember the story of Julius Caesar!

Herein lies the basis for making foreign aid deals. Each side has something to give that the other side holds dear. A democrat wants policies his people like, and the autocrat wants cash to pay off his coalition.

Suppose there are two nations, A and B, each with a population of 100 people. The leader in each nation has $100 with which to buy political support. Suppose nation A is a democracy and its leader needs to keep fifty people happy in order to stay in power. In contrast B is an autocracy and its leader needs to keep five people happy. Suppose the people of both nations care about some policy initiative taken up by nation B. For instance, to take a common cold war situation, the policy might be nation B's stance towards the Soviet Union. The citizens in nation A prefer that B adopt an anti-Soviet stance. Suppose the value of such a stance to each of the people in nation A is equivalent to $1. The citizens of nation B don't want socialism outlawed and they don't want their government to take an anti-Soviet stance. Indeed, since it is their country's policy at stake, let's assume that the people of B care about their government's policy much more than the people in nation A. To keep our example simple, suppose that if B takes the anti-Soviet
policy, then this is equivalent to a $2 loss in welfare for each of the 100 people in B.

In nation A, the leader has $100 to make fifty people happy. If he hands out the money to his supporters then each gets $2. The leader in nation B has fewer people to satisfy. If he handed out all his money, then each of his five supporters would get $20. Now, suppose the leader in B agrees to change to the anti-Soviet policy in exchange for cash. The essential questions are how much does B need and how much is A willing to pay to make this deal work?

The leader of B would only agree to trade policy for aid if it made his coalition better off. The switch in policy is equivalent to a $2 loss for each of his supporters (and each of the inconsequential remaining 95 people in B who are not influential), because they don't like the policy. So the leader of B would never agree to the anti-Soviet stance unless the “aid” money he gets for doing so is larger than this loss. Since he has 5 supporters to keep happy, and each supporter suffers a $2 loss, he needs at least $10 in aid to offset the political cost of turning anti-Soviet. That is, an extra $2 for each of his 5 essential backers is the minimum required to change B's policy to anti-Soviet.

The leader in nation A only “buys” the anti-Soviet policy if its value to his supporters is greater than the amount given up by each. Since the fifty coalition members in A value the anti-Soviet policy at $1 each, the money they give up so that their government can buy an anti-Soviet stance from country B must be less than $1 each. Otherwise, they prefer the cash to the policy concession. Since the policy shift is worth $1 to each supporter in nation A and there are fifty member of the coalition, this means the leader in A would pay up to $50 in “aid” to B's government to get B to become anti-Soviet.

Provided the aid transfer is between $10 and $50, the essential backers in both nations are made better off by trading policy for aid. This enhances the survival of both leaders. However, it makes each of the remaining ninety-five people in nation B—those not in the winning coalition—the equivalent of $2 worse off. They are not compensated for the anti-Soviet policy that they don't like.

This example, while extremely simple, captures the logic of cold war aid flows. The United States provided Liberia's Sergeant Doe with
an average of $50 million per year in exchange for his anti-Soviet stance. This aid did not provide for the welfare of his people, and is coincidentally close to the amount of money Doe and his cronies are alleged to have stolen during his decade in power. From the perspective of survival-oriented leaders, the rationale for aid becomes clear. When the cold war ended, the United States no longer valued anti-Soviet policies and was no longer willing to pay for them. Doe's government didn't have much else to offer the United States that American voters valued, so he was cut off. Without aid revenue, Doe could no longer pay his supporters enough for them to suppress insurgencies, and so he died a gruesome death at the hands of Prince Johnson.

For the reader who finds the above example too contrived, it is perhaps worthwhile to look at a recent failed United States attempt to buy policy. In the runup to the 2003 invasion of Iraq, the United States sought permission to base US troops in the predominantly Muslim nation of Turkey. Such basing rights would have improved the US army's ability to engage the Iraqi army. Although Turkey is allied with the United States through NATO, the idea of assisting a predominately Christian nation to invade a fellow Muslim nation was domestically unpopular in Turkey. During negotiations in February 2003, the United States offered Turkey $6 billion in grants and up to $20 billion in loan guarantees. Given Turkey's population of approximately 70 million, these aid totals amounted to about $370 per capita.
¹⁰

Turkey is relatively democratic. For a quick, back of the envelope calculation, let's suppose its leader needs the support of a quarter of the people. So the value of the United States offer works out to nearly $1,500 per essential backer. This is a substantial amount (a bit over 10 percent of today's Turkish income per capita), but then the policy concession sought was very politically risky. Indeed, it might be useful for the American reader to think about how much compensation they would need before agreeing to allow foreign troops a base in the United States in order to invade Canada.

It appears that $1,500 per person was not enough. After much back and forth, the Turkish government rejected the offer. They were holding out for significantly more money so we know there was a price at which the policy concession could have been granted, but it was a
high price. The United States was not willing to pay more and so the deal could not be struck. In the end, Turkey granted a much less controversial concession for a lot less money. The United States was allowed to rescue downed pilots using bases in Turkey.

Buying policy from a democracy is expensive because many people need to be compensated for their dislike of the policy. Buying policies from autocracies is quite a bit easier. Suppose Turkey were an autocracy and its leaders were beholden to only 1 percent of the population. Under such a scenario, the value of the US offer rejected by Turkey would have approached $40,000 per essential backer. Thinking back to the challenge offered to Americans, while few might have sold out their northern neighbor for $1,500, $40,000 might start looking very attractive to many. It is probably not an accident that the US invasion of Iraq was launched from the decidedly very small coalition monarchies of Kuwait and Saudi Arabia.

The logic of how coalitions operate gives us a good handle on who gives how much aid to whom. Getting the people what they want helps democratic leaders stay in office. It is therefore no surprise that most foreign aid originates in democracies. The price of buying concessions depends upon the salience of the issue and the size of the recipient leader's coalition. As coalition size grows, the recipient leader needs to compensate more and more people for the adoption of the policy advocated by the donor. That means that the price of buying a policy concession rises with the size of the prospective recipient's group of essential backers. This creates an interesting dynamic.

As a nation becomes more democratic, the amount of aid required to buy its policy goes up. But because the price is higher, donors are less likely to buy the policy concession from it because it just gets to be too expensive. Poor autocracies are most likely to get aid, but they don't get much. Although they may have great needs, they can be bought cheaply. We have confirmed this relationship between coalition size, the chance to get aid and the amount of aid received (if any) in detailed statistical studies of aid giving by the United States and other wealthy democratic nations, namely the members of the Organization for Economic Cooperation and Development (the OECD).
¹¹

Coalition size is not the only factor determining who gets aid or how much is spent on buying concessions from them. The salience of the issues at stake—what the policy concessions are worth—is an important determinant of how much aid gets transferred. Notice that in the formula we just described, need is not a significant factor. In fact, because an extra dollar is worth more to a poor country than to a rich one, needier countries are likely to get less aid, not more than the less needy among those receiving aid at all.

One extremely salient, and hence expensive aid for policy deal was the 1979 Egyptian-Israeli peace treaty. As part of this agreement, Egypt became the first Arab nation to officially recognize Israel. Israel and Egypt ended hostilities that had been nominally ongoing since the 1948 war (and had erupted into actual warfare in 1956, 1967, and 1973). As part of the 1979 deal, Israel withdrew from the Sinai Peninsula, which it had captured in the 1967 Six Day War and both sides agreed to the free passage of shipping through the Suez Canal. Peace between Israel and Egypt was of great importance to the United States. Beyond the strong domestic support for Israel, the United States was suffering the ill effects of oil shocks in the 1970s. The sharp rise in oil prices raised inflation and harmed the US and other Western economies dependent on oil imports. The United States, being desperate to avoid another oil crisis, underwrote the deal, thinking, perhaps, that doing so would help stabilize the situation in the region. As can be seen in
Figure 7.1
, the United States provided enormous economic incentives for the Egyptian president, Anwar Sadat, to visit Israel, attend the Camp David Peace Summit, and sign the treaty.

The recognition of Israel was an extremely unpopular policy shift in Egypt. This is why Sadat could extract so much from the United States. Unfortunately for Sadat it also led to his assassination in 1981. Fundamentalists threw grenades and attacked with automatic rifle fire during an annual parade. Although it officially recognizes Israel, the Egyptian government has done almost nothing to encourage the Egyptian people to moderate their hatred for Israel. In a BBC survey conducted nearly thirty years after the Camp David agreement was struck, 78 percent of Egyptians indicated that they perceive Israel as having a negative impact in the world, far above the average in other
countries whose citizens participated in the BBC survey on this question.
¹²
Of course, changing the negative attitude toward Israel in Egypt would just reduce the amount of aid the Egyptian government could extract from the United States.

 

FIGURE 7.1
Total US Assistance to Egypt in Constant 2008 Million US$ from USAID Greenbook

Recent movement toward a more democratic government in Egypt highlights the dilemma faced by democratic donors. Those who celebrate the prospects of democracy in Egypt and favor peace with Israel have a problem. As we have noted, the aid-for-peace-with-Israel deal could be struck exactly because the autocratic Egyptian leadership and its coalition were compensated for the anti-Israeli sentiment among its citizenry, a sentiment they helped preserve. With the
people
now in charge, it would be natural for Egypt to shift away from its peace with Israel. To prevent that, greater amounts of foreign aid will be needed than was true under the Sadat-Mubarak dictatorships. Given the significance of Israeli-Egyptian peace to American and Israeli voters, it is likely that the higher price will be paid. That leaves the question, will that greater aid be used to strengthen the military or improve the lot of ordinary Egyptians?

As with Egypt, US assistance to Pakistan is much easier to explain by looking at aid as a payment for favors rather than a tool for alleviating poverty. In 2001, the United States gave Pakistan $5.3 million and Nepal $30.4 million in aid. Pakistan's aid had been greatly reduced by congressional mandate following their test of a nuclear weapon in
1998. Yet, on September 22, 2001, US president George W. Bush lifted restrictions on aid. Pakistan received more than $800 million in 2002. Meanwhile, Nepal, not on the frontline of the fight against Al Qaeda and the Taliban, received about $37 million, just modestly more than their 2001 receipts. India, also not front and center in the battle against terrorism in 2002, received $166 million from the United States, up barely from 2001 when they received about $163 million. Poverty had not changed in any meaningful way in any of these countries between 2001 and 2002, but their importance to American voters most assuredly had.