The Challenge Ahead: Maintaining a Focus on Incentives to Enable Development

Mercatus Policy Series, Policy Comment No. 2

24 Pages Posted: 14 Mar 2009

See all articles by Frederic Sautet

Frederic Sautet

The Catholic University of America (CUA) - Busch School of Business

Brian Hooks

George Mason University - Mercatus Center

Daniel M. Rothschild

George Mason University - Mercatus Center

Date Written: October 20, 2005

Abstract

The Millennium Challenge Account's (MCA) focus on results and creating incentives for developing countries to enact good policy continues to hold promise for a well-needed change in government-driven international development assistance. The continued success of the MCA will depend on the ability of the leadership to allow the mission - to reduce poverty through growth - to guide decisions. The Criteria and Methodology for Determining the Eligibility of Candidate Countries for Millennium Challenge Account Assistance in FY2006 reemphasizes the MCC's commitment to economic freedom and a strong entrepreneurial environment as the driver of economic progress. However, it also contains troubling proposals for new indicators that lose sight of this focus. With so many problems surrounding development, it is tempting to construe the MCA as a new fix-all for development. However, this will not help developing countries or the MCA.

Economic development brings social benefits such as better health, a clean environment, and quality education. The MCA must continue to encourage countries to enact policies that create the conditions for economic prosperity. If, rather, it attempts to stimulate the consequences of development before addressing its causes, it is almost assured to fail on both accounts. The process set forward to develop a new "Natural Resource Management" indicator must be reconsidered, and any new indicators must clearly demonstrate their relationship to the MCC's mission. The MCC needs to reconsider this and similar actions proposed in the report. These actions threaten to: Prioritize narrow interests over economic growth and are likely to achieve neither, Contradict the intent of the legislation that authorized the MCA and undermine its core principles, and Confuse the consequences of development with the causes of development, encouraging economically harmful policy.

The importance of clearly articulating good indicators cannot be underestimated. Because of the strong incentives the MCA creates for countries wish to become eligible to receive funds, the MCA's influence reaches far beyond the dollars it spends. Poor choices now will have severe consequences as more countries tailor reforms to the indicators MCC chooses.

Keywords: Economic development, international aid, Millennium Challenge Account, Millennium Challenge Corporation, aid effectiveness

Suggested Citation

Sautet, Frederic E. and Hooks, Brian and Rothschild, Daniel M., The Challenge Ahead: Maintaining a Focus on Incentives to Enable Development (October 20, 2005). Mercatus Policy Series, Policy Comment No. 2, Available at SSRN: https://ssrn.com/abstract=1359146 or http://dx.doi.org/10.2139/ssrn.1359146

Frederic E. Sautet (Contact Author)

The Catholic University of America (CUA) - Busch School of Business ( email )

Maloney Hall
620 Michigan Ave, NE
Washington, DC 20064
United States

HOME PAGE: http://business.cua.edu/faculty/sautet.cfm

Brian Hooks

George Mason University - Mercatus Center

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

Daniel M. Rothschild

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

HOME PAGE: http://www.mercatus.org/people/daniel-m-rothschild

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