Shadow Government

Obama administration takes on development reform

The administration has decided that promoting economic development around the world is essential. Foreign assistance is a crucial part of how the United States relates to the developing world and plays a critical role in U.S. national security policy. To date, however, U.S. programs have not been as effective as they ought to have been. Aid flows through too many channels and there is poor overall coordination among the relevant agencies scattered through the government. It is time for this to change.

The preceding paragraph was pretty easy to write, since those were key themes of Secretary of State Condoleezza Rice in 2006. The paragraph works equally well this week, as the Obama administration unveils its own approaches. I'm well-versed in the earlier version, since I had the privilege of working on those issues as a member of her policy planning staff. After an extensive review of foreign assistance programs and countless intra- and interagency discussions about how the sprawling aid apparatus might be improved, Secretary Rice implemented a series of reforms, most prominently featuring tighter integration between the U.S. Agency for International Development (USAID) and the State Department.

Skip forward four years. After not one, but two extensive and concurrent reviews, the Obama administration is poised to tackle the same problems. It is doing so in the context of a United Nations discussion of the (limited) progress that has been made toward the Millennium Development Goals. Herewith, some places to look for potential changes.

The role of USAID:

Earlier this month, the USAID Administrator, Rajiv Shah, announced the recreation of a budget and planning office for the agency. This explicitly undoes one of the reforms from 2006. Then, the theory was that if the State Department and USAID were pursuing the same goal of global development and diplomacy, and if they were to work in tightly integrated fashion, it would help if they had a single set of plans to achieve this goal. Now there will be coordinators at the USAID, State, and White House level. Apparently the new theory is: the more coordinators, the more coordinated the policy.

The Washington Post story further reported this week:

Development experts have... criticized [the Bush administration] for continuing to weaken USAID, which has withered for years. That is changing under the Obama administration.

It cites hundreds of staff hirings. Presumably those hirings are junior level. The senior level story has been quite different. The Center for Global Development has provided a very helpful "tracker" for USAID leadership positions. The administrator position was vacant for 11 months until Shah assumed the post in January of this year. The deputy administrator post was vacant for over 18 months until being filled in the beginning of August. For the majority of top posts, no nominee has yet been named. Even if nominees are chosen and quickly confirmed in the next Congress, they will not have influence in policy discussions until the FY2013 budget. The vacancies in USAID's top corridors raise the question of how strong a leaderless agency can be in Washington.

Policy selectivity:

A major aim of the new approach to assistance, according to the Post, is greater concentration of resources.

What we'd like to do is focus selectively on a subset of countries, or regions, subregions, and try and make sure all our development resources ... are being applied in those countries in a way to maximize economic growth," said one senior official, speaking on condition of anonymity before Obama's speech at the United Nations.

This touches on two dimensions of selectivity. There is selectivity in choosing recipient countries, and there is selectivity in choosing programs and activities within each recipient.

Such focus is relatively easy in a time of expanding resources. You can just devote all new resources to the new areas of emphasis. It is substantially more difficult when resources are capped or shrinking. Then tough choices have to be made.

It is not clear that prominent figures in the aid debate have yet received the memo about a new focus on economic growth in select countries. One senior U.S. official recently drew a warm reaction from an Asia-Pacific gathering when he said that USAID engagement in the smaller Pacific islands would be renewed. There may be very good diplomatic and even strategic reasons for doing so, but those countries would not merit assistance if the goal is to find exemplars of economic growth. Tuvalu and Tonga would likely be left behind in any serious country screening process. There are constituencies and rationales for each country assistance program the United States has. A refocusing -- pulling out of some countries in favor of others -- would likely impose some serious diplomatic costs.

In terms of choosing among potential goals for assistance, on Sept. 21, Secretary of State Hillary Clinton rolled out the Global Alliance for Clean Cookstoves. That's not trivial; cooking smoke can have serious health consequences. But it is hard to argue that this is a linchpin for achieving faster rates of near-term economic growth.

The real difficulty with reforming foreign assistance is the plethora of worthy recipients and legitimate objectives pitted against the paucity of resources. Foreign assistance can be a tool to win diplomatic influence, a means to spur economic growth, a way to address humanitarian emergencies, or a means of addressing chronic health or environmental problems. It is also, consistently, unpopular with a cash-strapped American public looking for ways to cut spending. Some things never change.

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Shadow Government

Gates and Carter tackle Defense budget

No one doubted that Secretary of Defense Robert Gates was serious when he announced that he would seek efficiencies amounting to at least $100 billion over the next five years. Gates made it clear that he understood that unless he could curb the Pentagon's seemingly insatiable budget appetite, either the White House (in the form of the Office of Management and Budget) or Congress would put the DOD on a starvation diet. Only if he could identify real cost efficiencies did Gates feel he would be justified in requesting modest growth in defense spending.

Gates has asked his undersecretary for acquisition, Ashton Carter, to oversee the efficiency drive. In turn, Carter has identified five major areas that are critical to meeting Gates' objectives.

First, Carter wants both the acquisition force and DOD suppliers, to plan programs on the basis of what they should cost, and not merely extrapolate on the basis of historical cost figures. Second, he would create incentives for contractors to control costs through improved business practices. Third, he will seek real competition by eliminating the practice of "directed" purchases from multiple suppliers, which effectively guarantees both suppliers a share of a program and reduces any incentive for them to compete against each other. Fourth, he plans to come down hard on the bureaucracy's management of service contracts, which account for more than $200 billion of the $400 billion acquisition accounts. Finally, Carter would reduce the number of reports that the Pentagon produces, or that contractors produce for the Pentagon.

Carter's plan is a worthy one. But it is not entirely new. Long serving -- and often cynical -- senior bureaucrats will claim that they have seen it all before. 

There have been many attempts to impose 'should cost" approaches to system acquisition. None have succeeded. As for contractor incentives, these too are not new. Until now contractors could receive "award fees" for performance; they are being eliminated for development and initial production contracts because the awards rarely accounted for cost control. But another problem with these contracts is that awards often became almost automatic, and at times therefore seemed to have little to do with actual contractor performance. 

Again, there have been attempts in the past to avoid having "directed" competitions, which, as Carter rightly points out, are not competitions at all. Yet these too seem to endure.

Clearly, what will make a difference in each of these three areas will be the enforcement of Gates' plan and Carter's objectives. If "should cost" methods are not properly applied, will those responsible for producing the cost estimates be fired? Will the programs be halted immediately? Will award fees and similar incentives be granted only when contractors really deserve them? Carter points to a pilot program called "Preferred Supplier." Will the program get past the pilot stage?

Finally, Carter points to the Navy's Littoral Combat Ship program as an example of the Department's cutting back on directed buys. But the program is still in its nascent stages -- it involves the selection of one of two competing hull designs that has yet to be made. Meanwhile, the cost of the ship has skyrocketed. Carter points to program savings of $1 billion. He will need a lot more than that.

All of the foregoing challenges reflect a culture of inefficient spending that has become embedded in the collective bureaucratic psyche of the Department of Defense. The culture of inefficiency also underlies the other two areas that Carter has highlighted, and in which he is truly breaking new ground.

Service contracts have proliferated in the past two decades. This development was due to the cutback in the size of the military during the 1990s, which created vacancies that contractors -- generally retired military or civil servants -- would fill, often by continuing to do the work they had done while in government, but now with a contractors' identification badge. Moreover, as a result of this development, both the military and civil servants came to realize that, by capitalizing on what is euphemistically termed 'staff augmentation" contracts, they could both dump work on contractors, who would work long hours and weekends (while the "govvies" could leave work at 4:30 or 5:00 PM), and then lay the blame on them for anything that went wrong.

In cracking down on the worst practices associated with service contracts, Carter will have to go after the root cause of the problem, which is not the contractors, but those who hire them. It will take nothing less than a change in bureaucratic culture for him to succeed.

Carter is also right to clamp down on the proliferation of reports that threaten to denude our forests and gather mountains of dust on back room shelves. Too much money is being spent on too many reports that too few people bother to read. And the reports get redone almost annually, precisely because no one pays much attention to what has already been reported. Again, Carter's challenge is cultural, and resides within the bureaucracy. The contractors will churn out the reports if they are asked -- and paid -- to do so. If the money is not available, contractors will look elsewhere for work.

Because they are tackling the Pentagon's culture, Carter and Gates face an uphill battle. Ultimately, they will not succeed unless they can meet two critical conditions. They will need to convey the same sense of urgency to their successors, and indeed, ensure that those who succeed their successors do not drop the efficiency baton. In addition, they will need the support of the Congress, and the behavior of the Virginia delegation over the closing of the Joint Forces Command does not bode well in that regard. 

The culture of Congressional parochialism is every bit as much of a threat to the future of a balanced defense program as is the Pentagon's culture of inefficiency. Gates and Carter will therefore have to fight on two fronts if they are to have any chance of even coming close to finding $100 billion in savings, and they will need as many Congressional allies as they can attract. If the Congress is unwilling or unable to change its own culture, the Gates-Carter initiative will go down in the history books as yet another heroic but failed attempt to find efficiencies in that massive endeavor called the defense program. 

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