The world’s leaders will gather next week at the United Nations in New York to review progress toward achieving the Millennium Development Goals (MDGs) first laid out a decade ago–eight goals, 20 targets, and more than 60 indicators.

Not surprisingly, there will be a lot of self-congratulation on the part of a small group of aid donor countries that provide the lion’s share of foreign aid.  There will be pats on the back and a flurry of statistics about how many people have been lifted above the poverty line, how many more children are getting vaccinated or are being enrolled in school, the number of people suffering from AIDS or malaria who are getting treatment today that didn’t receive it two decades ago.

Among the statistics likely to be recited in New York to demonstrate progress will be that the number of people in the world living on less than $1.25 per day has fallen by more than 400 million since 1990, that 40 million more children are in school today than only five years ago, or that 1.6 billion more people have gained access to improved drinking water, putting us on target to meet the global goal of halving the number of people without access to safe drinking water.

But when all is said and done, the real question remains: Does this mean anything in the long run?  Are downward ticks in poverty rates, school enrollments, or vaccinations sustainable?  If anyone doubts that this question needs to be asked, they need only look at the recent news from the U.S. government about the President’s Emergency Program for AIDS Relief.  The Obama administration is suggesting that all countries with HIV/AIDS populations now being treated through this program should be prepared to shoulder the burden of continued treatment.   The suggestion of shifting the program to recipient countries’ health budgets reflects a certain donor fatigue (or restlessness)—a desire to move on and experiment with different approaches to development.

But even if donor fatigue is not evident, if foreign aid flows continue at a steady or even an increased rate, will measurable changes in the development outcomes result in sustainable changes in the lives of people in the less-developed countries?  Are the goals, clustered as they are around functional and measurable indices, really a good measure of economic growth and prosperity?

What really matters to people in developing countries is the trend line of economic growth.  A continuous, steady improvement in prosperity is a more reliable measure of progress than school enrollment rates or vaccination rates.  That doesn’t mean those are not important indices of health and social progress, but they are results that flow from the normal course of economic growth.  South Korea provides a good illustration of this hypothesis.  In 1960, the illiteracy rate in South Korea was over 50%, roughly the same as in Mali.  Likewise, income levels were on par with the newly independent states of West Africa.  Today, South Korea boasts one of the highest college graduation rates (above that of the United States) and has a per capita income level 20 times greater than Mali.

Which is the chicken and which is the egg?  Did growth lead to better education for the citizens of South Korea, or did improved education pull growth rates up by the boot straps?  Of course, they go together in synergistic fashion, but the economic evidence is clear that growth will nearly always lead to improvements in indicators of personal well-being.  One might add that it also leads to improved governance, which in turn fuels more economic growth.

Perhaps, rather than counting new desks in new classrooms, the world’s leaders should concentrate on bolstering the underlying growth rates in developing countries.  This suggests a different set of indicators that might be used:

•    Economic Growth rates over a five year period compared to other comparable developing countries;

•    Trade flows and their growth rates;

•    Foreign Direct Investment flows;

•    Regulatory Efficiency—what barriers confront business when they try to trade outside or inside a country, make investments, or establish entrepreneurial enterprises;

•    Tax Structure—fairness and equity, not just rates, and how it affects business investment; and finally,

•    Governance, which, from an economic growth point of view, means transparency, accountability, openness and fairness.

It is readily apparent that these indicators provide an underpinning for sustained economic growth that does not depend on the largess of outside donors.  Is this achievable?  One only needs to look at the economic success stories that have been achieved in a number of emerging market countries to realize the benefit of focusing on growth.

So, while those gathered in New York next week can take justifiable pride in the progress that has been made toward reaching the Millennium Development Goals, it should also be a time to take stock and figure out where we go next.  The answer should be to emphasize plain, old-fashioned, economic growth above all other metrics.

Jim Kolbe is a Senior Transatlantic Fellow with the German Marshall Fund of the United States in Washington, DC, and is the co-chair of the Transatlantic Taskforce on Development.

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WASHINGTON — As a member of the U.S. Congress, I spent most of my 22 years as a vocal deficit hawk—warning against the danger of unchecked deficits and most particularly against mounting costs of entitlement programs such as Social Security and Medicare adding to a mounting debt load for future generations.  So, I find myself in the strange position of worrying about the severe austerity programs being cobbled together in the European Union, led most notably by Germany.

There is no doubt that Germany is a nation of savers, worshipping at the altar of balanced budgets.  The historical reasons are well known.  The years of hyper-inflation in the 1920s that preceded the Nazi regime have left a lasting and deep imprint on all Germans and their public officials.  We could benefit from a dose of their fiscal discipline here in the United States.  But for the Germans, a sort of moral self-righteousness about avoiding deficits has taken the place of strategic economic thinking.  Now, they have exported this thinking—or more precisely “imposed” it—on their partners in the eurozone.

Europe is in the midst of an unfolding fiscal crisis.  Most see it as a sovereign debt crisis, though it is more likely a massive banking crisis about to implode.  The markets understand this: non-stop meetings of finance ministers and prime ministers, large commitments of budget support (bail outs) for the most fiscally challenged countries, and pledges of even more help if needed, European bank purchases of faltering countries’ bonds—all have failed to stop the euro’s steep slide or the growing gap between bond spreads.  The result: a shaky European economic recovery looks perilously close to plunging into a second, double-dip recession.

Under such circumstances, the European austerity program led by Germany seems like the right prescription, but the wrong moment.   President Obama warned as much in a letter to the G20 on the eve of their Toronto summit.  The only thing missing in the President’s warning was an admission that the United States has been woefully short on a commitment to getting its own fiscal house in order.  But that is another subject for another day.

So how do the Europeans hope to overcome what would appear to be an inevitable second recession brought on by a combination of a debt and banking crisis and the simultaneous imposition of budget austerity?  The answer is to export their way out of the crisis and hope that such exports can sustain at least a weak and prolonged economic recovery.  For this to succeed, however, the euro must remain weak against the dollar.  Meanwhile, the Chinese, despite promises to allow the renminbi to upwardly revalue, have taken no action to accomplish this.  Their thinking appears to be that they have already done so because of the falling value of the euro, and that they need not go further to placate the United States.

So with a weak euro, a weak yen, and an artificially weak yuan, who is left holding the bag?  The United States, of course, where the dollar becomes the currency of last resort.  Our interest rates stay low (which amounts to a massive tax on savers to benefit the government as borrower), the dollar stays strong, and the result is more imports, less exports, larger current account deficits, more borrowing, and increased fiscal deficits.  This may be a solution that works well for the near future and saves the Europeans from falling into too big a recessionary hole.  But, in the long run, this crudely mercantilist, beggar-thy-neighbor policy can only bring greater grief and a more prolonged recession to a world already weary of two years of retrenchment and stalled recovery.

The point is relatively simple.  Fiscal discipline is a virtue, one that Americans would do well to embrace.  But in a world whose economies and financial systems are deeply intertwined, policies of fiscal austerity, stimulus, financial regulation, and monetary policy all must be coordinated.  The current fiscal crisis in Europe, infecting the rest of the world, serves to highlight this imperative.  Let’s hope Toronto is a serious effort to find a way to fix the mess in which we collectively find ourselves and not just another photo-op for world leaders.

Jim Kolbe is a Senior Transatlantic Fellow with the German Marshall Fund.

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The much ballyhood, long awaited Presidential Study Directive–the guidance on where the administration thinks we should be going long-term with our foreign assistance programs has finally arrived.   Well, it didn’t actually arrive.   It was leaked to the media.  

The fact that it slid out from under the door of the NSC instead of being delivered with much fanfare says a great deal about the apparent conflict within the administration over how foreign assistance programs should be reorganized and–much more importantly in a town where power and control counts for everything–who should be in charge.

While the development community has  nervously awaited the arrival of the other study on foreign assistance reform–the QDDR, or Quadrennial Diplomacy and Development Review being conducted by the State Department–not much was known about where the PSD might come down–whether it might favor USAID, State Department or the White House–as the lead agency for policy, budget and implementation of assistance programs.   Now we know.   While the PSD makes the obligatory acknowledgement of”development…as a key pillar of U.S. foreign policy” and calls for the U.S. to resume its historic leadership position, the direction seems clear: restore USAID as the lead agency, put its administrator into  an NSC chair when it seems appropriate, and give it responsibility for policy, budget and field authority.       All this is music the ears of the development community.

Meanwhile, down the road a piece in Foggy Bottom, the QDDR seems still to be shrouded in, well, fog.    The interim report was expected to be released a week ago, but then was held up.   Conspiratorial minds, of which there are many in Washington, might conclude the QDDR was going in a different direction from the PSD.   Indeed, the word from State has been that  when all the multiple working groups put their piece together, the QDDR would call for consolidation of authority and  responsibility in the State Department.

So where does that leave the process?   Ironically, Congress, usually the least willing to lean forward on reform of the foreign assistance machinery, may end up  taking charge.   Both Senator Kerry and Congressman Berman have expressed their frustration at the delay in the PSD/QDDR process and appear chomping at the bit to start marking up a bill  to make reforms.   While neither committee has laid all its cards on the table yet, both have suggested they want to go further  than either the PSD or  QDDR in strengthening USAID and creating a single center of excellence, professionalism and transparency  to design and deliver development programs.

Perhaps the development community needs to change its own mindset.   For years it has focused all of its attention on the executive branch for leadership.   This was understandable in light of the inertia, inaction and inattention of Congress to aid reform.   But Congress may be the best hope now for real change.

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On July 6-7, as part of GMF’s on-going disemmination of the Transatlantic Taskforce on Development, I had the privilege of engaging with over 100 business and policy leaders from Africa at the Commonwealth Business Council’s G8 Africa Business Forum in London. In my remarks to the group, I urged G8 leaders and their counterparts in other nations to refocus on energizing the private sector in Africa to become the primary source of economic growth and poverty alleviation for the continent. Nonetheless, it is likely that G8 leaders will once again fall short on fulfilling promises on development for the poor.

Kofi Annan, Mark Malloch-Brown, Mark Moody Stuart, Paul Collier and many others have contributed fresh thinking on how business can help fight poverty in a new report in collaboration with Business Action for Africa. In February 2009 the German Marshall Fund launched the Transatlantic Taskforce on Development, which I co-chaired with the Swedish Minister for International Development Gunilla Carlsson. It consisted of government, multilateral agency, private sector, and NGO leaders from both sides of the Atlantic. While developing countries were not represented on the Taskforce, we believe that a transatlantic review specifically focused on donor country performance was merited and is critical to helping bring about greater development policy coherence.   Notwithstanding our focus on donor countries, we recognize that successful development can only be achieved when it rises from developing country leaders and their own civil society.

The Africa Business Forum offered   a unique opportunity to reach out to others in the developing world to explore cooperative solutions. It was reassuring to find that many Taskforce findings were consistent with African perspectives conveyed at the Forum including recommendations to support small and medium sized enterprises in their quest to gain access to capital, to push for the completion of the Doha Developing Round of trade negotiations or at a minimum, urge the industrialized countries to grant duty-free and quote-free access in their own markets to the world’s poorest countries. We must redouble our efforts if we are to reach these goals, especially in the context of the economic downturn.

There was a striking candor on the part of African business and political leaders attending the conference.   They expressed doubts about the value of aid because of its unpredicability, and they questioned the intentions of donors given how widely their trade policies diverge from their stated development objectives for Africa. The current   problems in US and European financial markets have turned traditional development assumptions like the Washington Consensus on their head. Some like Dr. Akin Adesina, vice president for the Alliance for a Green Revolution in Africa are calling for a new”African Consensus” that’s focused on agriculture production, innovation and growth.

Kolbe interviews Dr. Adesina on aid, agriculture, and innovation in Africa

Practical efforts aimed at developing seed systems, soil health, adequate water supplies and market access to facilitate vibrant networks of agri-producers, suppliers and distributors are required. It’s ironic that Africans remain supportive of trade and investment while the rest of the world grows more protectionist, defying G20 and G8 pledges in Washington, London, and Italy to uphold the global trading system. GMF has been collaborating with Global Trade Alert, an independent initiative investigating suspicious state measures taken during the crisis and making this information public.

Africa and the West both need a vibrant business sector to prosper. We all require good governance that spurs innovation but limits excesses within a national context and identity. Policy reform is required on all sides. But we must proceed with an eye toward international cooperation that tempers the kind of national impulses and self-interests that can only exacerbate tensions in the international system. The Taskforce is not an end in itself but part of a process that will continue to engage rich and poor alike toward that end.

By Jim Kolbe, Former Member of Congress and Senior Transatlantic Fellow at the German Marshall Fund
Simon Evenett, Professor of International Trade and Economic Development, University of St. Gallen, Switzerland, and Co-Director, International Trade Programme, CEPR

In their April meeting in London, G20 leaders pledged to “not repeat the historic mistakes of protectionism of previous eras.” But with many economies witnessing the sharpest falls in their exports in decades, and with unemployment rising to levels not seen since the early 1980s, fears are growing that governments may be tempted to renege on this pledge.

Although the world has not seen a return to the across-the-board tariff increases of the early 1930s, governments have resorted to massive stimulus packages, bailouts, and subsidies, many of which include nationalistic provisions that cost jobs and harm exporters and investors. The recent WTO General Council meeting confirmed that tensions between nations are growing, fuelled in part by the murky nature of current protectionism and precious little objective information upon which to formulate policy.

With this as background, a coalition of partners is launching a new service, Global Trade Alert (www.globaltradealert.org), to fill this information gap. This independent initiative will investigate suspicious state measures taken during the crisis and make public the findings. Exporters, the media, analysts, and governments will then have a firmer basis upon which to judge crisis-induced measures. No longer will the discussion of commerce-threatening measures take place behind closed doors in Geneva.

Global Trade Alert complements and goes beyond the WTO and World Bank’s monitoring initiatives by identifying those trading partners likely to be harmed by state measures. The website monitors not just tariff barriers – which are heavily constrained by WTO rules €“ but also non-tariff barriers and national crisis measures adopted by countries in response to the downturn. Global Trade Alert investigates a wide range of state initiatives precisely because governments have responded in such different ways to the crisis. So far 18 state measures have been investigated and the findings posted. Around 80 trading partners’ commercial interests were probably harmed by these posted measures. Harm to US commercial interests could not be ruled out in a clear majority of the reported measures.  

The Centre for Economic Policy Research (CEPR) will implement Global Trade Alert, working closely with expertise from independent research institutes and experts in every region of the world economy. CEPR is one of Europe’s most established networks of research economists.   The initiative stands apart from any government or international organization and will last twelve months.   A group of eminent persons will provide advice on the implementation of Global Trade Alert and includes Gary Horlick and Ernesto Zedillo.

The easy-to-use website allows policymakers, government officials, exporters, the media, and analysts to search the posted government measures by implementing country, by trading partners harmed, and by sector. Third parties will be able to report suspicious state measures and governments will be given the right to reply to any of their measures listed on the Global Trade Alert website.

We hope that a combination of peer pressure plus up-to-date information and informed commentary, the latter two being supplied by Global Trade Alert, will help maintain confidence in the world trading system, deter beggar-thy-neighbor acts, and preserve the contribution that exports could play in the future recovery of the world economy.    

NOTE: Jim Kolbe, Former Member of Congress and Senior Transatlantic Fellow at the German Marshall Fund
Simon Evenett, Professor of International Trade and Economic Development, University of St. Gallen, Switzerland and Co-Director, International Trade programme, CEPR

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WASHINGTON — Arvind Subramanian’s recent WSJ op-ed”A Farewell to Alms” is one in a series of articles that lately has helped to elevate the visibility of the aid effectiveness debate. Subramanian and Raghuram Rajan’s research shows that aid has adverse effects on an economy’s competitiveness. But Craig Burnside and David Dollar, among others, have arrived at opposite conclusions about aid, and their work has also contributed to growing (and much needed) research on this topic. There is a danger, though, that such studies simply serve as ammunition for aid supporters and detractors in opposite corners, narrowing the scope of the public debate at the expense of serious consideration of what is ultimately needed — aid reform. In today’s interconnected world our national security, economy, and moral leadership are increasingly susceptible to the threats that emerge from global poverty and underdevelopment. Policy coherence is required to adjust to this new environment. This means that the next president’s foreign policy agenda must focus attention on fundamentally realigning aid and — very importantly — trade policies toward achieving accountable, strategic results.

The delicate work of aid coordination requires building consensus and political will for real, not cosmetic, reform in numerous U.S. agencies, donors, and the myriad NGOs and foundations that are playing a greater role in the global aid architecture. A broader transatlantic dialogue on how to make aid more coherent through greater coordination must occur concurrently with a tough-love analysis of our own aid institutions. And while considering change, we must allow new and innovative approaches like the Millennium Challenge Corporation and the International Finance Facility time to demonstrate results.

While the need for aid reform is compelling and urgent, the answer is not to walk away from our commitment to aid.