The Optimist

Paying for Peace

Can we just buy security in Afghanistan?

In Afghanistan, as in Iraq, both the U.S. Defense Department and Agency for International Development (USAID) are struggling to find ways to use aid resources to promote the goals of development and security. The effort involves a considerable amount of money: If Afghanistan's volatile Helmand province were a country, it alone would have been the fifth-largest recipient of USAID funding in 2008. Meanwhile, aid organizations and NGOs complain that military programs such as the $1 billion Commander's Emergency Response Program build infrastructure that will not be maintained and will provide little long-term development impact. The military, for its part, complains that civilian development efforts are too focused on secure areas at the expense of winning hearts and minds in other places where it would actually make a difference to reduce violence.

Both sides are probably at least half-right: Despite many successes in improving Afghan citizens' quality of life, it seems quite likely that aid flows are failing to deliver economic development or security. A recent review of reconstruction in Helmand province by Stuart Gordon of the London-based Royal Institute of International Affairs (Chatham House) concluded that aid "may have as many negative, unintended effects as positive ones and, at the very least, is not a panacea." Gordon's interviews with people in Helmand suggested a widespread feeling that aid was only entrenching local tribal and criminal elites while doing little to improve the lives of ordinary people. But perhaps there is a way to meet both security and development goals at once. Just giving money to poor people turns out to be a powerful tool to improve lives and foster opportunity. And making that money conditional on security could provide a big incentive for local communities to turn against the Taliban.

The latest rage in the development industry is paying people to develop: to go to school, to get kids vaccinated, and so on. Conditional cash transfers hand over money to families if -- and only if -- they ensure junior is in school or has his shots. Mexico's conditional cash program, Oportunidades, reaches more than 25 million people; Brazil's Bolsa Familia reaches 12 million households. The programs work and have dramatic impacts. Not only have they considerably increased vaccination and enrollment rates -- Mexico's program increases the chance that children will complete grade nine by 23 percent -- but the money also has a number of other positive effects in areas like nutrition and income generation.

Growing evidence suggests that even unconditional cash transfers to poor people -- just giving them money, no strings attached -- can have a big development payoff as well. A pilot of a universal grant program in the Otjivero-Omitara area of Namibia found that within a year of program launch, child malnutrition fell from 42 to 10 percent, the proportion of adults involved in income-generating activities increased from 44 to 55 percent, school attendance rose considerably, savings expanded, and crime rates fell.

Meanwhile, in Afghanistan, we are struggling to spend considerable resources in a manner that achieves peace and development. Why not use cash transfers to promote stability? Here's one way it might work: In districts that are free from violence against Afghan forces or NATO's International Security Assistance Force, every adult is paid $20 every other month, with no conditions at all. If violence resumes, payments drop by a widely advertised amount. Too much violence, no cash transfer. If the Taliban or related groups keep fighting or attempt to extort payments, then a whole district population has a strong personal incentive to snitch. And to incentivize the security of those involved in the payments system, deaths of payment agents would also lead to a reduction or curtailment of payments at the district level.

Even a large cash-for-peace program would be cheap compared with the resources the United States alone is already throwing at Afghanistan. A grant that gave $120 over 12 months to each Afghan above age 15 would cost $1.5 billion a year. In 2010, USAID and the State Department spent $5.7 billion in Afghanistan, while the Defense Department spent nearly $88 billion. If a cash-transfer program significantly reduced violence, it would be a bargain.

What about the practical issues involved in making payments to so many people? Afghanistan has already seen projects including the National Emergency Employment Program providing cash for labor on road rehabilitation, drainage projects, and irrigation construction. These involved the delivery of significant sums of money around the country, some using money-transfer companies. Expanding access would mean creating a registry of recipients and ensuring that people only collected payments once. The voter registration process has done a considerable part of the heavy lifting in setting up a list of the country's adult population, and Afghanistan plans to roll out a national ID card over the next few years. To increase the security of the system, registered adults could be biometrically identified using fingerprinting or iris scanning, as some people were for the last election. Iris scanning has already been used to ensure that 200,000 returning Afghan refugees only received one repatriation payment. When it comes to making those payments, Afghanistan already has a cell-phone-based cash-transfer system called M-Paisa, and the mobile signal already covers more than 80 percent of the population. Perhaps payment trucks could be used to reach the rest of the country, as they have been in similar initiatives in a comparably fragile country, the Democratic Republic of the Congo.

A cash-transfer program would undoubtedly have a significant development impact. Afghanistan has a GDP per capita of $609, meaning that a $20 payment every eight weeks would be equal to about one-fifth of the average income -- and, of course, a good deal more in poor, rural areas. Given a reasonable consensus in the aid-effectiveness literature that poorly governed fragile states receiving considerable aid flows are unlikely to be places where traditional aid has the largest impact, and that unconditional cash transfers can have a considerable impact on poverty, any pilot scheme is likely to be at least a partial success in terms of improving overall aid effectiveness.

What about an impact on security? Critics would likely argue that at least some of the cash handed out to Afghan civilians would undoubtedly end up in Taliban hands. But cash transfers to reintegrate former combatants into a peacetime economy appear to work if well designed. And even though the general link between reduced poverty and lower violence is not as strong as often supposed, there is some evidence pointing toward a relationship. Research from New York University's Oeindrila Dube suggests conflict is less likely in Colombia when coffee prices are higher -- and so the financial costs of fighting rather than growing and selling coffee are larger. (Dube also finds that U.S. financial support to Colombia's military had the opposite impact, increasing levels of violence.)

Again, we know that schemes that reward collective responsibility work in other settings. Not least, it's the basis of the microfinance movement, where new loans are only available to groups in which all members keep up on repayments. In Zimbabwe, passing on some of the income from hunting licenses and tourism to communities was associated with dramatic declines in poaching because local communities were given the incentive to keep animal stocks alive for legal use -- and so keep poachers out. Thus group financial incentives to reduce violence look to be a plausible approach.

None of these cases are exact parallels. In Colombia, the link between increased incomes and reduced violence had nothing to do with a government transfer. And the Zimbabwe case doesn't involve conditional payments to individuals to buy their opposition to a group dedicated to the overthrow of the government. Indeed, the model suggested here hasn't been tried anywhere before. And this lack of direct evidence of a security impact of conditional payments might be a reason to pilot the approach in a particular province or range of districts. Regardless, we've tried with limited success to buy hearts and minds by building roads and schools to foster peace and development. Maybe it is time to try a more straightforward approach -- and just buy the peace.


The Optimist

Inpatients Abroad

How do you solve America's health-care woes? Outsource them.

One of the few things that Republican and Democratic politicians in the United States can agree upon today is that their country can no longer afford Medicare and Medicaid. In 2009, the U.S. government's principal health-care entitlement programs between them spent $876 billion -- an expenditure about the size of the entire economy of Mexico. The Congressional Budget Office projects that those costs will continue growing at 7 percent a year for at least the next decade, considerably outpacing GDP growth. And as the costs of Medicare and Medicaid have ballooned, the programs have become an explosive political issue. On Tuesday, May 24, Democratic candidate Kathy Hochul won a decisive upset in a Republican-leaning New York congressional district in a special election that was widely viewed as a referendum on Republicans' ambitious plan to overhaul Medicare.

It's not just the entitlement programs, either. Total health-care expenditures in the United States in 2009 topped $2.5 trillion --18 percent of GDP. And the efficiency of all that spending appears pretty low. According to World Bank data, Costa Rica and the United States have the same life expectancy (79 years), but Costa Ricans spend only 16 percent what Americans spend per citizen on health services.

That statistic, however, suggests a possible solution -- or at least a partial one -- to America's health-care woes. Maybe Medicare's services don't need to be cut, overhauled, or saved. Instead, they should be outsourced. The U.S. government could save billions by simply letting its citizens go abroad for their federally funded health care.

Medical tourism has a bad reputation in the United States, synonymous with doctors in Tijuana and St. Barts hawking cut-rate plastic surgery and taking a liberal hand with the prescription pad. But going abroad for treatment is already a big business, and an entirely legitimate one. The Bumrungrad International Hospital in Bangkok, for example, sees tens of thousands of American patients each year, part of an industry that brought 380,000 foreigners to Thailand for treatment in 2005 alone. U.S. patients are attracted not just by the low costs but also by the quality of treatment. The Bumrungrad hospital has international accreditation from the Joint Commission International, the global arm of a leading certifying organization for U.S. hospitals. And Americans have other options besides Thailand. India's Apollo hospital chain has a 99 percent success rate in the 50,000-plus cardiac surgeries it has done, equal to the performance of the best U.S. cardiac surgery centers.

And if the idea of going under a knife wielded by a foreign doctor worries you, you probably shouldn't go to a hospital in the United States, either. According to economists Aaditya Mattoo and Randeep Rathindran, there is a 25 percent chance that the physician you visit in a U.S. hospital was educated abroad -- and the great majority of those foreign-educated doctors now come from developing countries. It's not really a matter of the quality of the doctor who will treat you; it's just a question of where the treatment will happen.

The best foreign hospitals and their U.S. counterparts may offer similar quality, but their costs are miles apart. Mattoo and Rathindran calculated in 2002 that a knee surgery costing over $10,000 in the United States would run just $1,500 in the best hospitals in India and Hungary, including travel expenses. There are 400,000 such procedures a year in the United States; outsource one-quarter of them, and that's $850 million in annual savings for one procedure alone.

Beyond savings for U.S. citizens and their government, allowing patients to go overseas for treatment would provide developing countries with a new source of revenue and foster the growth of world-class hospital care that local people could then access alongside medical tourists. The Philippines is the global leader in exporting qualified nurses, who send valuable remittances back home. This export success has stoked such an increase in demand for nursing courses that the country now has more nurses per capita than Britain. But if the patients were to move rather than the nurses, so that the latter could stay at home and treat foreigners in hospitals in Manila, the development benefits to the Philippines could be at least as large as those from the nurse export business.

The problem is that Medicare and Medicaid, like private insurance programs, cover virtually no services abroad, much less travel costs. This is despite the fact that a survey of retired Americans living in Mexico found that 96 percent said they would seek medical services in the country if Medicare would cover it. (The U.S. military and veterans' health-care plans do, in fact, cover treatment abroad.) This might be a case of shortsighted protectionism, or pandering to the health-care industry. But at a time when both President Barack Obama and the Republicans in Congress are pushing for more free trade alongside budget reductions, expanded trade in medical services that saves the government money to boot seems like something that should be on the table.

It is true that some of the most expensive medical care is long term and end of life; around 27 percent of Medicare costs go to patients in their final year of life. It would be difficult to outsource that health-care to other countries because people want to be close to family and friends. And yes, for some complex treatments, the best (or only) qualified doctors may be in the United States. So to those who might worry that outsourcing medical procedures would eviscerate the domestic health-care market, don't fret: The considerable majority of Medicare and Medicaid costs would remain at home, even if the programs covered travel and overseas treatment.

But health-care costs are so high that even a relatively small shift to foreign care would offer considerable savings. A 2008 report by the Deloitte Center for Health Solutions forecasted the growth of medical tourism from the United States. Its low-end estimates projected $26 billion in U.S. health tourism expenditures by 2015 for procedures that would have cost $195 billion to perform in the United States -- that's $169 billion in savings. If legislators allowed for a Medicaid and Medicare rule change, allowing the programs to save a comparable percentage of overall expenditures, that would still amount to $60 billion annually -- considerably larger than the total savings from April's budget deal between Obama and Congress. Add in the development benefits for other countries and the opportunity for a holiday in the sun for recovering seniors, and what's not to like?