the economy as a whole. If political and economic development depend on the calculated self-interest of leaders, then external actors seeking to promote better governance must focus on altering incentives, not providing money or building state capacity. One way to alter incentives is through foreign assistance with ex-post conditionality; political leaders must implement reforms before they receive foreign aid. The United States Millennium Challenge Account is the only foreign aid program that is unambiguously committed to this approach. The funding request for this program, however, is only a modest $1.45 billion for FY 2010. Providing trade opportunities, either through preferential tariffs or by eliminating subsidies in OECD countries, would be another way to alter incentives. Donors may also be able to change the incentives facing leaders in poorly governed states by providing assistance to public and private organizations that might be able to check and balance centralized state power. Such groups could include not only entities associated with politics such as parties, bar associations, human-rights organizations, the media, parliamentary staffs, and corruption commissions, but
also more apolitical entities such as microfinance plans, women’s education groups, and professional organizations. Policies based on altering the incentives of leaders are difficult to implement. Conditions will vary from one country to another. Providing money for private or public organizations is more like investing venture capital than investing in the stock market, much less a savings account. If 10 percent of investments come to fruition, investors may be very rich, but informing the U.S. Congress or another legislature, as opposed to venture capitalists, that 90 percent of the money will be wasted is not politically attractive. Focusing on the calculated choices of political leaders is the most compelling way to understand state development. But unlike providing capital or building state capacity, it does not translate easily into public policy. Until political leaders in the Group of 20 and beyond are willing to admit that conventional formulas for improving the conditions of the bottom billion have been unsuccessful, the threat that failed and weakly governed states pose to internal and external security will not abate.
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Carnegie Mellon University