Turning Good Intentions to Action

How the United States should refocus and retool its soft-power economic diplomacy.

If the United States hopes to maintain a level of influence in the world commensurate with its economic and military strength, it must modernize and dramatically improve some of its soft-power foreign policy tools. Many of those tools have proven ineffective, and fail to reflect the transformational changes in the past two decades prompted by technology, connectivity, and global markets.

For example, unrestricted aid grants to foreign governments, commonly known as "budget support," often do more to perpetuate poor governance than improve it. Assistance for programs that are neither scalable nor sustainable after their funding ends are frequently a waste of taxpayer money. And support for projects that are based upon "inputs" (such as the number of people enrolled in a program) rather than "outcomes" (such as the number of people who actually completed and benefited from the program), are examples of soft-power approaches that represent an old way of thinking.

These types of aid also fail to take advantage of what people admire most about America, which is economic growth and opportunity. As the United States looks for new ways to project its influence abroad in the 21st century, there is one item in the foreign policy toolbox that should be relied on more heavily: economic diplomacy.

An important lesson of the current turmoil in the Middle East, Africa, and South Asia, is that it is difficult to discourage violent extremism and establish stability in places where there is little or no economic hope. Despite seemingly insurmountable differences in culture, religion, and lifestyle, people around the world share the same aspirations to put food on the table, a roof over their heads, and provide for their families. American foreign policy should be built more around those shared aspirations than around the traditional political or military strategies currently pursued. Indeed, stronger economic relations could increase the leverage and effectiveness of U.S. diplomatic and defense objectives.

This is not to suggest that we diminish the critical role the United States plays in providing humanitarian assistance and fighting disease and starvation through our aid agencies. That work constitutes roughly 1 percent of the U.S. federal budget and is an essential part of our character as a generous and compassionate people. Nor should we abandon our efforts to improve governance and strengthen civil institutions. However, we must also develop a more robust, creative, and nimble set of options that encourage and support job creation and economic growth.

But all too often, economic development is a second- or third-tier objective after other diplomatic and development priorities. Field personnel at our embassies, whether from the State Department or USAID, often lack operational business experience, rendering them poorly attuned to what is necessary to kick-start economic activity. Indeed, we tend to focus first on legal, regulatory, and structural reforms, otherwise known as "capacity building." The intentions here are good ones. Trying to establish the right environment for business creation and growth is absolutely essential to building a strong economy. However, this project normally takes years -- and while the United States and other international entities are focused on capacity building, the local population grows frustrated, if not alienated, by the lack of any tangible economic progress. This is particularly true in places like Afghanistan and Iraq: if people are willing to put down their weapons, they need to be able to pick up a shovel, or some other tool for work.

Speedier fixes are necessary. There are many things we can do immediately to support economic growth in the developing world, thereby engendering positive views of the United States. A more dynamic approach must include short, medium, and long-term initiatives undertaken simultaneously rather than the current sequential approach.

Short-term options include easing credit access for small- and medium-sized enterprises (SMEs), or providing high-value infrastructure improvements such as replacing a broken water pump for a community. In the medium term, building a farm-to-market road not only reduces the time and cost of transporting commodities, but also provides a more competitive point of sale. In terms of longer-term priorities, we should encourage the enactment of legal and regulatory reforms that protect and enable more private-capital investment and private-property ownership.

To be successful, U.S. economic diplomacy must focus on a mix of investment, trade, technology, and infrastructure initiatives.  It should enlist private-sector experts to work side-by-side with public-sector players. It is important to remember that almost 90 percent of the capital flows into the developing world come from the private sector: from business investments, non-profits, and remittances. This means that public-sector funding now represents only 10 percent of the capital flows. Thus, the failure to work cooperatively with the private sector seriously inhibits the success of public-sector development programs.

Examples of investment initiatives that can have a highly catalytic impact on existing businesses include easier access to credit for SMEs, combined with modest angel equity investment. The Overseas Private Investment Corporation (OPIC) is well-placed to share the risk with a local financial institution or intermediary to help make this happen. Coupled with advice and guidance from trained business experts on how to improve cash management, marketing, planning, and other skills, this can speed the path to an SME's sustainability, leading to faster job creation and growth. Coupling access to capital with business advisory services is an approach increasingly pursued by international financial institutions around the world. However, the U.S. government struggles to provide these services in a seamless, cooperative fashion. As local businesses grow and are able to access new credit and capital, greater emphasis should be placed on enabling those businesses to enter export markets and encouraging their governments to pursue more international trade.

According to the Organization for Economic Cooperation and Development, countries that reduce trade barriers and increase access to markets generally see greater progress in reducing poverty and raising living standards than those that do not. The United States needs to strongly encourage countries to reduce trade barriers by providing incentives and rewards for doing so, fully recognizing that domestic politics surrounding trade often make the reduction of trade protections difficult.

Rather than relying primarily on preference programs that simply reduce quotas or duties paid by countries or companies seeking access to the U.S. market, Washington should pursue more streamlined trade and investment agreements that tie economic assistance to commitments for market reforms. For example, the United States should help finance critical infrastructure, such as trade-processing terminals at an airport, only in exchange for that country’s commitment to a bilateral trade agreement, opening up the country to increased trade with the United States.

The Chinese strategy for building bilateral relationships in many frontier market countries is to offer to build the same types of infrastructure without requiring any trade policy reforms in return. However, the infrastructure Beijing builds always comes with a price (which often includes access to natural resources) and some extension of credit that ultimately can prove very costly.

Roads, ports, airport terminals, electric power, and water-treatment facilities, are in great demand throughout the developing world. The U.S. role in these types of infrastructure projects should be to facilitate private-sector investment, and pay only for those pieces that the private sector will not fund. A perfect example is financing power transmission and distribution systems, as opposed to generating capacity. Building new power projects is something that can and should be undertaken by private-sector companies because it can be done so profitably, assuming governments have the right investment and regulatory frameworks in place. However, building transmission or distribution systems is much harder to do profitably, which is why it often requires public-sector resources. We must do a better job of distinguishing appropriate private-sector financeable activity from those areas that require public-sector financing to be completed in a timely manner. Finally, we must try to ensure that every public-sector dollar spent leverages considerably more private sector investment.

In technology, cell phones are already used across the developing world to enable bill payment for those without bank accounts. They are also used to bring real-time commodity price quotes to farmers in the field. Those platforms can be expanded to support lending and the purchase of business insurance. They can also be used to simplify and accelerate the payment of farmers for their crops, eliminating some of the middle men and helping farmers realize a better and quicker return on their commodity. The U.S. government can convene and facilitate conversations between local farmers and other business sectors, and American companies possess the technology and know-how to introduce these improvements. Although the respective parties will have to negotiate their own relationships, the United States can offer financing for feasibility studies, or actual investments.

New innovations that can improve the quality of life and economic future of developing countries are announced constantly in Silicon Valley and elsewhere. Our government should share more of those innovations as part of its menu of soft-power options, once again using a combination of convening, facilitating, and financing capacity to enable the commercial application of relevant scientific and technological advancements. Some of this is already underway in the health care field, including innovations like mobile monitoring of chronic health care conditions. But it needs to be expanded into other business sectors, such as manufacturing, energy, and agriculture.

These are just a few examples of the types of initiatives that should be included in a 21st-century soft power toolbox. To the extent that we can help generate inclusive and sustainable economic growth in more of the developing world, not only will it lead to more stability, but it will also provide more potential customers for American goods and services. Entrepreneurial capitalism remains our greatest comparative advantage. We must learn to use it more effectively throughout the world.

SAUL LOEB/AFP/Getty Images

Democracy Lab

The Power of Naming and Shaming

Why renaming a Washington street after a leading Chinese dissident is an excellent idea.

In 1984, the United States Congress changed the name of the street in front of the Soviet Embassy in Washington, D.C. Henceforth the embassy address would be known as "No. 1 Andrei Sakharov Plaza," after the leading dissident and Nobel laureate who had been arrested by the Soviets four years earlier and exiled indefinitely to the city of Gorky, which was off limits to foreigners. His wife, Yelena Bonner, was detained just a few months prior and exiled to Gorky as well.

Every time the Soviets had to write to their embassy in Washington, the letterhead had to be printed with Sakharov's full name. Every time they walked in and out of the embassy or organized meetings there, they had to mention and see Sakharov's name. One year later, Yelena Bonner would be permitted to leave the Soviet Union. One year after that, Gorbachev finally allowed Sakharov to return to Moscow.

This simple address change was a powerful reminder to the U.S.S.R. that the world cared about the rights of the individuals it oppressed and wasn't going to let them forget it. To this day, that one-block section of 16th Street between L and M, where the Soviet Embassy was then located, is still called Sakharov Plaza.

At the time, self-described realists like Henry Kissinger derided symbolic gestures in favor of human rights activists. Kissinger saw such moves as contrary to his policy of détente. What mattered was how states conducted foreign policy, not how they treated their own citizens. In fact, at his confirmation hearings for the position of secretary of state, he stated that "despite some very painful aspects in the Sakharov case, and despite the inevitable sympathies produced by my origin for the plight of minority groups that are denied the right of free emigration, I cannot in good conscience recommend as a principle of American foreign policy that our entire foreign policy should be made dependent on that particular aspect [denial of fundamental human rights] of the domestic structure of the Soviet Union."

Now, almost exactly 30 years later, history is repeating itself.

The House Appropriations Committee has again voted to rename the address of the embassy of a communist dictatorship in honor of its most famous dissident. If the House ratifies this amendment, the new address of the Chinese Embassy in D.C. will be "No. 1 Liu Xiaobo Plaza." Just like Sakharov, Xiaobo is also a Nobel laureate and is also currently in prison. His wife, Liu Xia, like Yelena Bonner at the time, is also currently under house arrest.

The realists of today have also stepped forward with their criticisms. FP's own Isaac Stone Fish calls the idea of Liu Xiaobo Plaza "silly," "absurd," and a "distraction." The American Interest's Walter Russell Mead dismisses it as "weak" and "pointless." And a reader's letter to the Washington Post refers to it as "childish."

These critics argue, first, that criticizing China for its human rights record will (by renaming a street, for example) thwart efforts to discuss "strategic interests." In this logic, human rights are just another issue to be balanced against problems such as security tensions or currency appreciation. Second, the realists assert that such tactics won't work, since China is different from the Soviet Union. In short, critics of the policy simultaneously dismiss it as ineffective even while warning that it has the potential to derail the entire relationship. A bit of a contradiction, isn't it?

What today's critics fail to see is what self-described "realists" have always failed to understand. Human rights -- or, as Kissinger would refer to them, the "domestic structure" -- are not only a question of morality but also of strategy and self-interest. You see, only governments that trust their own citizens enough to guarantee their rights can be trusted by other governments. Sakharov is supposed to have said: "A society that doesn't respect the rights of its citizens won't respect the rights of others." Just look at today's Russia under Putin: Planes are falling from the sky.

Kissinger and today's realists set up a straw man fallacy by warning that we should not base our entire foreign policy on human rights. No one is claiming that. Yet the appreciation of China's currency is not just as important as human rights: The two issues aren't equivalent and shouldn't be treated as such. Human rights are not "just one of many topics on the table" -- they are the table, to paraphrase activist Thor Halvorssen.

Can the United States really believe that the Chinese government will follow through on its promises when it knows that the government in Beijing doesn't trust its own citizens? And that includes agreements on "hard," strategic issues, like China's management of its currency, within the framework of the recently concluded U.S.-China Strategic and Economic Dialogue.

The criticisms of Liu Xiaobo plaza presuppose that China's dictatorship is rock solid, and that we must advance our interests there with great care. Yet there have been numerous examples where otherwise "stable" dictatorships have fallen without anyone being able to predict it. Mubarak's Egypt and Communist Poland are just two examples. Do we really want to be known for cooperating with the dictators of China rather than supporting its possible future democratic leaders?

Renaming Liu Xiaobo Plaza will work. Yes, China is not the same as the Soviet Union, but differences in military and trade relationships will not determine the impact of such an idea. What matters here is the amount of international shame that a country can bear. No one, including China, likes to be criticized.

They're already feeling the heat. In response to the vote in the Appropriations Committee, China's Foreign Ministry said: "It is nothing more than an attempt to smear China. We think this is purely a farce." Geng Shuang, embassy spokesman, also told FP in a statement, "This amendment is really absurd."

Jared Genser, Liu Xiaobo's international legal counsel and one of the world's foremost experts on liberating political prisoners, views that reaction from the Chinese as a positive sign: "Critics of Liu Xiaobo Plaza utterly miss the point," Genser told me in an email. "It is precisely because the Chinese are so upset about this potential symbolic gesture that its utility to advance the campaign for his freedom is so clear."

In his FP article attacking the proposal to change the Chinese embassy's address, Isaac Stone Fish also argues that the plaza idea will set an uncomfortable precedent. "The embassy of the disturbingly repressive kingdom of Saudi Arabia occupies a generous plot of land in downtown Washington," he notes. "Should the United States rename that area in honor of Manal al-Sharif, the Saudi women's rights activist? The Democratic Republic of the Congo, Belarus, Iraq, Egypt, and other countries with poor human rights situations have embassies in Washington. Should their embassy addresses all be renamed as well?"

The answer should be obvious: Yes, of course they should. Who, besides the dictators, would have a problem with that?