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The Art of the Development Deal

The Art of the Development Deal

In March 2017, President Donald Trump issued his first budget blueprint for fiscal year 2018. Titled , it proposed cutting U.S. foreign aid by nearly one-third, or approximately $15 billion, reflecting a collective judgment by many voters that foreign aid fails to produce a return on investment (ROI) for taxpayers.

Like past administrations, Trump's budget takes a "salami slice" approach to budget re-prioritization, slashing many agency budgets across the board. The administration also has contemplated moving boxes around on organizational charts. Both approaches aim to fix the "hardware" of development (budget and organizational structure) but fail to address the "software" — the culture, mindsets, and underlying beliefs of development professionals both in and out of government.

Instead, the administration should apply a "shared value" test by pursuing trade and foreign policy opportunities that further U.S. interests while also furthering international development. Harvard Business School's Michael Porter defines shared value for corporations as finding business opportunities in solving social problems. Doing so will make foreign assistance more politically sustainable by driving better deals for the American people while improving lives in the developing world.

Promoting American Values

The Marshall Plan set the gold standard for international development deals that benefit aid recipients while also furthering long-term U.S. interests. It helped rebuild war-torn Europe after World War II; created unprecedented peace, security, and prosperity for the United States and Europe; and paved the way for some of the highest economic growth on record.

During the Cold War, we could easily explain why we gave foreign aid: to buy loyalty and cooperation, advancing our interests against those of our rival, the Soviet Union. We also used it to lay the foundations of the current international order — including the United Nations, the World Bank, and the International Monetary Fund. Since the financial crisis of 2008, however, American voters have turned inward, returning ever more isolationist members to Congress and electing an "America First" president.

Today's fast-changing, multipolar world makes our interests more complex and harder to articulate. China and other rising powers are actively working to create an alternative international order, starting with initial capital investments in the  and the , at $50 billion and $100 billion, respectively. While both banks have laudable goals — including supporting collaboration across the Global South and promoting sustainable development — they nonetheless represent a direct challenge to the liberal democratic order set up by America and its allies. And while China's foreign aid spending still sits at half of annual U.S. spending (even with the administration's proposed cuts), China's investments have grown by more than 20 percent each year since 2005. In 2015, China committed $20.9 billion of the $83.5 billion total pledged by donor governments for African infrastructure, making it the largest foreign investor in these types of projects.

China moves much faster and invests in more targeted ways than the United States, in part because the Chinese government will champion specific industries and companies and overlook corruption and human rights issues. America and the Western powers cannot and should not compete on these terms. We should play to our strengths: transparency, rule of law, dynamism, and entrepreneurship. When we lead by example, transparently investing our development dollars to build more vibrant economies, we set a precedent that partner governments often follow.

Applying shared value makes it easier to find and explain international development in the national interest because it ties foreign aid to America First foreign policy and trade goals while solving social problems in the developing world.

A Four-Step Approach to Reform

The Trump administration should radically re-think international development by adopting four recommendations.

First, align spending with American security interests and local needs. America First international development programs would address security problems rooted in underdevelopment and advance economic development that makes it easier for U.S. companies to do business. Take the administration's goal of combating violent extremism. Historically, spikes in unemployment among young men lead to higher levels of violence. Recent estimates indicate a  in world labor markets: a surplus of 90-95 million low-skilled workers worldwide, while employers need 90-95 million skilled workers. The world's youth will use their pent-up kinetic energy for good or evil, and the wider this youth-skills gap, the more likely they will get lured into danger and violence.

In 2016 my firm, , worked with an international aid organization in a key allied Muslim-majority country. (Due to the politically sensitive nature of the work, the client asked that we withhold their name.) We helped it partner with the national government to create ways of tackling sectarian violence and international terrorism. The organization listened to the national government and responded to their needs — a shockingly obvious yet infrequent act in international development — and subsequently engaged local, regional, and international organizations; employers; local governments; and educators to generate innovative ways for poor and vulnerable people to enter the formal economy. The process produced a variety of innovative ideas, from micro-franchising that would create a cohort of micro-entrepreneurs to ways of accelerating curriculum development in high-growth fields. These kinds of efforts help close the skills gap for vulnerable populations, including youth, leading to a more stable and less violent future — the foundation of shared-value ROI.

Second, focus on solvable problems. Pick a set of priorities — the UN's  (SDGs), for example — and find the solvable problems within them. Some SDGs — "No Poverty" or "Reduced Inequalities" — may seem too vague or open-ended, but others — "Decent Work and Economic Growth" and "Clean Water and Sanitation" — have clearly defined outcomes and known solutions.

Our client, the , a growing coalition of foundations, governments, universities, and corporations, works to ensure that children achivee their full potential through nurturing family care. While the United States and Western Europe have moved away from institutionalizing children in orphanages, it remains the default in many developing countries. More than 80 percent of children in these facilities have living family members who, with better access to basic services, would care for them. When aid organizations tackle such solvable problems, they help stabilize post-conflict countries and check the ambitions of other rising regional powers such as China.

Third, institutionalize cocreation to solve market or structural failures. Most development problems come from a market or structural failure. In India, for example, more than 564 million people . A lack of affordable household-owned latrines keeps effective sanitation beyond the reach of the poor. This creates immense social and public health burdens: more than 188,000 children under the age of 5 die each year from diarrhea alone — the highest rate in the world — and women and girls live under the constant threat of violence when they go to the toilet, trapping them at home instead of going to school or work.

To address this problem,  and the  worked with local entrepreneurs to assemble everything needed for a family to buy and maintain a toilet for their home, including financing, local masons, installation, and cleaning. Together they created a profitable sanitation market that now enables even the poorest consumers to select and purchase sanitation goods and services from a variety of choices. Unfortunately, the existing culture in international development inhibits co-creation. Many development professionals distrust companies, fearing that profit will subvert mission. When engaging the private sector, agencies often revert back to traditional procurement rules that treat companies more like vendors than partners.

It doesn't have to be this way. USAID has wide latitude and a variety of purchasing and partnering methods to choose from, but most partnerships use only a few mechanisms — namely, grants, contracts, and cooperative agreements. As creative as USAID staff and its partners can be, their ideas end up crushed by the grindstone of its traditional procurement culture.

Instead, the administration should retrain procurement professionals and mission leaders to take full advantage of the variety of partnership methods available, combine foreign assistance with trade assistance and finance, and treat innovative development programs less like grants and more like investments.

Fourth, set clear exit strategies, pivoting from philanthropy to local ownership. Countries and their citizens want trade more than they want aid. Whenever possible, international development programs should transition countries from aid recipients to trading partners. On his first day on the job as USAID's administrator, Mark Green said, "The purpose of foreign assistance should be ending its need to exist." Green recognizes that ending the need for aid requires exit strategies that bridge to markets — and that takes more than shifting budgets or org boxes. It takes a reboot of the software of development: the culture, traditions, and beliefs that pervade the whole development community both inside and outside of government.

If the White House could successfully imbue the culture of development with a shared-value ROI mindset and institutionalize reform in procurement policy, it would transform U.S. development aid for the better. And years from now, the administration could look back on a track record of having struck better development deals and a legacy that made America safer, accelerated global and American prosperity, and saved the taxpayer money. That's an America First development deal well worth crafting.

Richard J. Crespin is CEO of CollaborateUp, a consultancy working to accelerate collaboration among businesses, governments, and nonprofits to solve big social problems at lower cost and in less time than traditional approaches. He also serves as a senior fellow for the U.S. Chamber of Commerce Foundation, a senior associate at the Center for Strategic and International Studies, and an adjunct professor at the George Washington University, where he teaches public-private partnerships.