[Senate Hearing 113-140]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 113-140

 
          DIFFERENT PERSPECTIVES ON INTERNATIONAL DEVELOPMENT 

=======================================================================

                                HEARING

                               BEFORE THE

                     SUBCOMMITTEE ON INTERNATIONAL
                  DEVELOPMENT AND FOREIGN ASSISTANCE,
                    ECONOMIC AFFAIRS, INTERNATIONAL
                       ENVIRONMENTAL PROTECTION,
                            AND PEACE CORPS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 22, 2013

                               __________

       Printed for the use of the Committee on Foreign Relations

      Available via the World Wide Web: http://www.gpo.gov/fdsys/


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                COMMITTEE ON FOREIGN RELATIONS         

             ROBERT MENENDEZ, New Jersey, Chairman        
BARBARA BOXER, California            BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania   MARCO RUBIO, Florida
JEANNE SHAHEEN, New Hampshire        RON JOHNSON, Wisconsin
CHRISTOPHER A. COONS, Delaware       JEFF FLAKE, Arizona
RICHARD J. DURBIN, Illinois          JOHN McCAIN, Arizona
TOM UDALL, New Mexico                JOHN BARRASSO, Wyoming
CHRISTOPHER MURPHY, Connecticut      RAND PAUL, Kentucky
TIM KAINE, Virginia
               Daniel E. O'Brien, Staff Director        
        Lester E. Munson III, Republican Staff Director        

                         ------------          

           SUBCOMMITTEE ON INTERNATIONAL DEVELOPMENT        
           AND FOREIGN ASSISTANCE, ECONOMIC AFFAIRS,        
             INTERNATIONAL ENVIRONMENTAL PROTECTION        
                        AND PEACE CORPS        

                 TIM KAINE, Virginia, Chairman        

CHRISTOPHER A. COONS, Delaware       JOHN BARRASSO, Wyoming
RICHARD J. DURBIN, Illinois          JAMES E. RISCH, Idaho
TOM UDALL, New Mexico                JEFF FLAKE, Arizona
CHRISTOPHER MURPHY, Connecticut      RAND PAUL, Kentucky

                              (ii)        


                            C O N T E N T S

                              ----------                              
                                                                   Page

Barrasso, Hon. John, U.S. Senator from Wyoming, opening statement     4
Kaine, Hon. Tim, U.S. Senator from Virginia, opening statement...     1
Lane, William, International Governmental Affairs Director, 
  Caterpillar, and copresident, U.S. Global Leadership Campaign, 
  Washington, DC.................................................    20
    Prepared statement...........................................    22
Moss, Todd J., Ph.D., vice president for Programs and senior 
  fellow, Center for Global Development, Washington, DC..........     5
    Prepared statement...........................................     8
Murphy, John, vice president for International Affairs, U.S. 
  Chamber of Commerce, Washington, DC............................    14
    Prepared statement...........................................    17

                                 (iii)


          DIFFERENT PERSPECTIVES ON INTERNATIONAL DEVELOPMENT

                              ----------                              


                        WEDNESDAY, MAY 22, 2013

        U.S. Senate, Subcommittee on International 
            Development and Foreign Assistance, Economic 
            Affairs, International Environmental 
            Protection, and Peace Corps, Committee on 
            Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:30 a.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Tim Kaine 
(chairman of the subcommittee) presiding.
    Present: Senators Kaine, Coons, Murphy, and Barrasso.

             OPENING STATEMENT OF HON. TIM KAINE, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Kaine. I am going to call this subcommittee meeting 
to order. I am joined here by my ranking member, Senator 
Barrasso, and expect others to attend.
    I want to welcome our witnesses. We have got a good panel 
today to address the important issues: John Murphy, who is the 
vice president for International Affairs at the U.S. Chamber of 
Commerce; Bill Lane, who is the copresident of the U.S. Global 
Leadership Campaign and also the director of the Washington 
Office for Caterpillar. And he has brought a visual aid. I 
highly approve. You guys did not get the memo, Todd and John? 
Finally, Dr. Todd Moss, who is vice president for Programs at 
the Center for Global Development.
    The purpose for this hearing, and it is the first hearing 
of the International Development Subcommittee in this Congress, 
is meant to complement full committee hearings that we have had 
on the President's fiscal year 2014 international affairs 
budget request. We have heard as full committee both from 
Secretary Kerry and Administrator Shah about the justification 
for the budget request from within the administration, what 
they need, what they plan to do with it, and how we will be 
able to measure their success. Those were important hearings.
    I had the opportunity to introduce Secretary Kerry for his 
first major foreign policy address as Secretary of State, which 
occurred at the University of Virginia, the university started 
by a former Secretary of State, Mr. Jefferson, as we call him 
in Virginia, ``Mr. Jefferson.'' Secretary Kerry made the 
compelling case for foreign aid.
    Foreign aid is about 1 percent of the Federal budget and 
Secretary Kerry laid out the good that it has done, but also in 
a changing world the good that it still can do, including an 
openness to change and reform. Foreign assistance has 
traditionally served U.S. national security interests, 
commercial interests, and also addressed global humanitarian 
concerns.
    During the State of the Union Address in February, 
President Obama laid out a very ambitious goal about the 
eradication of extreme poverty within two decades. We have 
heard Administrator Shah sort of focus on two deliverables in 
that score, reduction of death of children up to age 5 and 
elimination of hunger, as the two measurables that we would 
work on in this area.
    Today's hearing is an opportunity to hear now not from 
within the agency and those talented individuals, but to hear a 
different perspective, private sector colleagues who have been 
in the field, but now are kind of looking at it from the 
outside, and especially looking at it from the private sector: 
What international development does to advance American 
economic interests and how those global interests, those 
American economic interests, can also be yoked to significant 
global advancement.
    Before we hear from Senator Barrasso and the witnesses, I 
will just set the stage for a couple more minutes. The history 
of foreign assistance investments in this country generally was 
justified by national security concerns. The primary trend-
setting U.S. investments through the Marshall Plan and 
thereafter were a way to prevent or slow down Communist 
influence and secure United States support during a cold-war 
era.
    Post-cold war, there was a need to make a change and the 
focus of foreign aid shifted to the Middle East, to transition 
to democracy in Eastern Europe and the Republics of the former 
Soviet Union, and then more recently to combating illicit drug 
production and trafficking. Without the strong national 
security rationale that was immediate and apparent because of 
the cold war, the foreign aid budgets decreased during the 
1990s, and post-9/11 foreign assistance ticked back up because 
it became a tool in U.S. counterterrorism strategies.
    We also have a very significant effort to focus on 
commercial interests and the humanitarian concerns that occur 
around the country, around the world. As we are talking about 
humanitarian concerns, I know all of us in at least some part 
of our minds are thinking about those in our own Nation that 
are dealing with the horrible weather and tornado tragedy in 
Oklahoma. Those humanitarian issues are not just elsewhere; 
they are here as well, and the United States has always been a 
leader in responding to them.
    There has been a huge shift in development assistance in 
the last couple of decades and it is a shift that we ought to 
mention because it affects what we do going forward and how we 
measure the success of what we do. That shift has been where 
assistance dollars come from. Basically the story I would say 
of the last 20 years has been a dramatic increase in private 
sector resource flows to development assistance. The resource 
flows from developed to developing countries are currently 
dominated by private transactions, such as foreign direct 
investment, portfolio investment, philanthropy, remittances. 
Collectively these account for now 87 percent of the global 
total of development assistance.
    The donor governments and multilateral development 
assistance only account for 13 percent of resource flows. This 
is a complete reversal from decades past, where the 
governmental assistance used to be about 80 percent and total 
private development assistance at 20 percent.
    Foreign direct investment, just using that, developing 
countries saw a 293-percent increase from 2000 to 2010 in FDI. 
If you look at the 30-year period from 1980 to 2010, the 
statistics are even more stark. The bilateral and multilateral 
assistance in that 30-year period grew by 280 percent. Now, 
this is a global dollar number. But foreign direct investment 
inflows to developing countries grew by nearly 7,000 percent, 
admittedly from a very low base. But you can see where the 
momentum is going.
    This is happening, the shift of development assistance into 
the sort of private side of the equation, for a number of 
reasons. The recent recession transformed the world economy, 
including a reordering of relative national economies. Emerging 
economies, particularly China, have begun to be involved in 
assistance in new ways. Developing countries are seeing more 
rapid growth, growth of a middle class, strong commodity 
prices. They have liberalized trade. Mexico is a wonderful 
example of a country that is trade liberalized and is now a 
more open economy, making foreign direct investment and trade 
easier.
    Developing countries' share of global GDP is steadily 
rising. Overseas markets represent 95 percent of the world's 
consumers and 80 percent of its purchasing power. Now half of 
U.S. exports go to the developing world, and these markets in 
all likelihood are growing and will continue to grow at a 
faster pace than our traditional trading partners.
    All of those factors have accounted for this tremendous 
increase in the private sector foreign direct investment and 
the increase in development dollars on the private side of the 
ledger.
    The United States has a number of tools that have 
facilitated this and should continue to: the Export-Import 
Bank, the Overseas Private Investment Corp., the U.S. Trade and 
Development Agency, and the Millennium Challenge Corporation. 
So truly we are in the midst of a dramatic revolution in the 
way that international development is done. Some of that 
revolution has been because of smart policy, but some of it has 
just been because of markets and innovation and the growth of 
economies, not necessarily intentional policy, but just facts 
on the ground that changed the way development assistance is 
done.
    So we are here today to have the hearing to talk about 
these new perspectives on development assistance in light of 
the presentation of the President's budget, looking forward to 
what we should focus on. I look forward to hearing from the 
panel. We have got three great witnesses about a number of 
issues.
    The U.S. Government interest in international development. 
We continue to need to make that case to our public about every 
dollar we spend in the budget. International development is no 
different.
    How this public-private partnership model is growing and 
the importance of nurturing those partnerships, the way the 
United States can better leverage private partners, and in a 
public-private model what that says in terms of accountability 
and how we should measure the success of our efforts. And 
always, always, the most important question in any hearing like 
this: How we can improve. We can talk about things that are 
working well. We can talk about things that are not working 
well. But at the end of the day I know my ranking member and I 
and the members of this committee are always looking for 
strategies to help us do a better job, and I hope we will hear 
some creative ideas, both about things that work and things 
that do not, but how we can do a better job, from our witnesses 
today.
    With that, I would like to turn it over to my ranking 
member, Senator Barrasso.

           OPENING STATEMENT OF HON. JOHN BARRASSO, 
                   U.S. SENATOR FROM WYOMING

    Senator Barrasso. Well, thank you so much, Mr. Chairman. I 
really appreciate your very thoughtful comments. Thank you for 
your leadership in organizing this hearing. I look forward to 
working with you during this session of Congress and beyond on 
this very important topic and issue.
    I want to welcome all of our witnesses, thank each and 
every one of you for being here with us today, and appreciate 
your sharing your knowledge and your analysis and your 
perspectives with our subcommittee.
    I really do appreciate, Mr. Chairman, your efforts to have 
our first subcommittee hearing on the examination of the costs 
and impacts of international development assistance. The 
American people are very generous, as you have just stated. 
Individuals, groups, and communities across our country give 
their time and their precious resources to help others, both 
people to people here, as we are seeing now with Oklahoma and 
the tragedy there, but also to people around the world. There 
is a very long history of people across this Nation generously 
supporting victims of international disasters, famines, 
diseases, and wars.
    I hear from a lot of people at home in Wyoming about 
foreign assistance and they want to make sure that--as they ask 
the questions, they want to know what is the purpose of foreign 
aid? is it effective? how effective is it? is any being wasted? 
who is it helping? and what value does it add to the United 
States? This hearing is going to provide a great opportunity to 
discuss these questions and find some of the answers.
    In fiscal year 2012 the United States spent over $37 
billion for international development. That is about a 5.7-
percent increase from the previous year. About 147 countries 
received some form of bilateral assistance from the United 
States. U.S. foreign assistance is often aimed at promoting 
democracy and economic development, as well as humanitarian 
efforts, as you have mentioned, Mr. Chairman.
    With the national debt, however, quickly approaching $17 
trillion, it is irresponsible for us to just borrow more money 
to fund initiatives if they are failing to provide results or 
real value for the taxpayers. The government must be a good 
steward of U.S. taxpayer funds. Every government branch and 
agency needs to be carefully evaluated and streamlined to 
eliminate duplication and wasteful spending. So I believe each 
program must be carefully analyzed to ensure it is being 
designed and implemented in the most effective and efficient 
manner. The time for unaccountable government spending must 
come to an end.
    In October 2012, the USAID's Office of the Inspector 
General indicated that one of the most significant challenges 
facing their agency is the ability to demonstrate results 
through performance management and reporting. All foreign aid 
programs need to be rigorously evaluated. Most aid programs are 
not evaluated to determine the actual impact of the assistance. 
How can we determine whether taxpayer dollars are being used 
wisely when it is unclear if it has succeeded or failed.
    So I believe Congress needs, one, to ensure that programs 
focus on U.S. priorities. Congress needs to evaluate the 
effectiveness of all of the programs. We need to support 
programs that are getting real results. We need to eliminate 
programs that are not working.
    I think these are important issues, so I look forward to 
hearing the testimony of our witnesses, and I look forward to 
working with you, Mr. Chairman.
    Thank you.
    Senator Kaine. Thank you, Senator.
    We will now begin with witness testimony. We will just move 
left to right: Dr. Moss, Mr. Murphy, and Mr. Lane.

 STATEMENT OF TODD J. MOSS, PH.D., VICE PRESIDENT FOR PROGRAMS 
 AND SENIOR FELLOW, CENTER FOR GLOBAL DEVELOPMENT, WASHINGTON, 
                               DC

    Dr. Moss. Thank you. Thank you, Chairman Kaine, Ranking 
Member Barrasso, distinguished members of the committee.
    U.S. development policy is about more than foreign 
assistance. While it is important to maintain a robust 
bilateral aid program, it is probably more vital that we 
consider when not to use bilateral aid and instead when it 
might be better to use multilateral channels or when nonaid 
development tools might be more effective.
    U.S. development policy should be critical in promoting 
U.S. national interests around the world--this includes our 
security, economic, and humanitarian interests--and in 
remaining actively engaged around the world. Unfortunately, our 
aid and development policies have too often underperformed. 
Yes, there are big successes where aid and development policy 
have helped achieve U.S. policy aims; for example, U.S. support 
for reconstruction in Liberia or independence for South Sudan. 
And clearly well-run aid programs can save lives. PEPFAR is 
today providing life-saving drugs for some 5 million people. 
Those people would not be with us were it not for this program.
    But there are also very severe limits on what we can do 
with aid and development policy. We should be very humble about 
our ability to shape complex systems from the outside. There 
are also far too many examples of shameful failure. The United 
States promised $3 billion for Haiti to build back better. Yet, 
some 3 years later we have got about 400,000 people still 
living in tents.
    Mali as well. I had the tremendous honor to work in the 
State Department and I worked closely on Mali, so I know how 
badly our efforts to fight terrorism and promote democracy in 
that country fell short.
    Now, I believe that this disappointing record stems from a 
structural problem in how the U.S. Government approaches these 
issues. The current administration has launched several very 
well-intentioned efforts to try to upgrade: USAID Forward, the 
first-ever QDDR, and a separate White House Presidential policy 
directive on global development. USAID Forward is positive in 
pushing for open data and modern evaluation methods, but 
overall these are very, very modest steps.
    The QDDR, after sapping momentum for aid reform by taking 
more than 18 months, is probably making matters worse by adding 
to fragmentation and confusion in the system. The Presidential 
policy directive is bold and I believe very much in the right 
direction, but is not really being implemented. So I do not 
believe that these efforts will fix U.S. development policy.
    I also do not believe that these problems can be solved by 
more money, by stronger anticorruption oversight powers, or by 
another bureaucratic layer to try to coordinate U.S. agencies. 
In fact, I think any of these approaches are likely to make our 
tools and policy even less effective.
    Instead, I see three fundamental problems. First, there are 
just too many Federal agencies involved. Some 24 separate 
agencies report aid to the OECD. While the British model of a 
singular Cabinet-level development agency does not fit within 
the United States political system, having 24 agencies does not 
work either.
    Second, foreign aid has too many often-conflicting 
objectives. Lael Brainard, now Treasury Under Secretary, found 
that U.S. foreign assistance had more than 50 different goals. 
When we have too many priorities, then we have none.
    Worse, our objectives are entirely divorced from the 
appropriations process. Instead of setting goals and a strategy 
and then allocating resources to meet those goals, our system 
instead is an aggregation of congressional directives and 
single-issue initiatives. Our strategy is just the sum of those 
disparate parts. So if our goals are to support girls' 
education in Pakistan or fight malaria in East Africa or 
promote electricity in Tanzania, it might be most effective to 
use AID or it might be better to use the African Development 
Bank, or perhaps the Global Fund. But our system does not allow 
for that decision, where you would weigh tradeoffs and consider 
these different channels, it does not allow those decisions to 
ever be made.
    The third problem is that the interagency process is 
broken. The interagency that should work out tensions and 
tradeoffs in U.S. policy is, as anyone who works in the Federal 
Government can attest, deeply dysfunctional. Every initiative 
is a fire drill and these require intense direction from a very 
small and heavily overburdened National Security Council staff. 
The result is too often delay of key decisions, duplication of 
effort, and ultimately little accountability. If all agencies 
are collectively accountable, then no one is accountable.
    The broken interagency also means that we often miss huge 
opportunities to use nonaid tools to meet our foreign policy 
objectives. Modest tweaks to our immigration policy, for 
example, could probably be a far more efficient development 
tool in many cases than aid programs, but we rarely use it as 
such.
    So what might make things better? I will suggest three 
examples. First, limit, do not expand, the number of agencies 
involved. Ideally, the budgets and staff of most traditional 
international aid programs should be moved inside an empowered 
USAID. DOD, I should note, also is not a development agency, so 
we should avoid the temptation to ask them to take on more and 
more civilian tasks.
    Second, to the extent we can we should link the budget 
process to goals and results, perhaps by allowing 
experimentation with new kinds of development models. We should 
learn from the Millennium Challenge Corporation's compact 
model, where objectives and indicators are agreed over a 5-year 
period. So rather than checking every receipt and micromanaging 
projects, the compact is judged based on the overall success of 
meeting the goals.
    Congress could also provide space to experiment with new, 
innovative, pay for performance contracts where U.S. taxpayers 
would only pick up the tab for bills where actual results were 
achieved. At the Center for Global Development we call this 
``cash on delivery.''
    Third, we should focus on development finance, which is the 
next wave of development policy and where, frankly, the United 
States is far behind. Since most poor countries are growing 
quickly and many are receiving windfall gains from natural 
resources, demand for traditional grant aid is shrinking. At 
the same time, the demand is growing rapidly for other types of 
development finance: debt, equity, venture capital, and other 
kinds of patient capital that can both leverage private money 
and be deployed for long-term development.
    The good news is that many of these tools already exist. 
The bad news is that they are spread across multiple agencies, 
including OPIC, TDA, USAID, Commerce, Labor, Treasury, USDA, 
USTR, and many more. A simple first step would be to bolster 
OPIC with multiyear authorization, equity authority, and 
perhaps a modest grant window. Even better would be to turn 
OPIC into a full-service U.S. development finance corporation 
by adding things like TDA's feasibility studies window, the 
USAID's development credit authority, and select programs from 
other agencies that promote the private sector. A U.S. 
Development Finance Corporation could be built at no additional 
cost to the budget by simply allowing OPIC to retain some of 
its profits. More importantly, this could provide a platform 
for coherence of all these U.S. policy tools in support of 
private sector development.
    An approach like the U.S. Development Finance Corporation 
would not only be more efficient, but is probably necessary if 
the United States is going to achieve our ambitious goals, such 
as creating business opportunities in the new emerging and 
frontier markets or promoting electricity in Africa. For all 
the reasons I have outlined, our current system simply cannot 
deliver on those goals.
    If the United States remains stuck in the past, it will be 
left behind.
    Thank you.
    [The prepared statement of Dr. Moss follows:]

                   Prepared Statement of Todd J. Moss

    Thank you, Chairman Kaine, Ranking Member Barrasso, and 
distinguished members of the committee. U.S. foreign assistance should 
be a critical tool for promoting U.S. foreign policy and meeting other 
national security, economic, political, and humanitarian goals around 
the world. It should be a prominent and proud component of projecting 
America's power and projecting a positive image of what America is all 
about: the generosity and compassion of our people, the spreading of 
free market values and economic opportunity, the bedrock belief we hold 
that hard work can provide a better life for the next generation, the 
inviolable rights of individuals, the aspiration that all people 
everywhere should live free from tyranny. Foreign assistance should be 
able to play a role in supporting all of these goals and core American 
values. To be clear, foreign assistance can't deliver any of these 
goals. But it can and should be a useful tool to complement our 
military and diplomatic and business efforts.
    Unfortunately, U.S. foreign assistance has too often not lived up 
to its potential and instead been a perennial underperformer. An 
underperformer for American taxpayers, an underperformer in supporting 
U.S. foreign policy objectives, and an underperformer in meeting global 
development goals. Yes, there are successes: U.S. support for Liberian 
reconstruction, U.S. support for the global effort that eradicated 
river blindness in West Africa, and especially the tremendous success 
of the U.S. fight against HIV/AIDS through PEPFAR, which is providing 
life-saving drugs for some 5 million people. These are 5 million lives 
directly saved by U.S. foreign assistance. But there are also too many 
examples, even where attention was intense and large funds promised, of 
abject failure. The U.S. effort in Haiti to ``build back better,'' 
where some $3 billion was promised but 3 years later there are still an 
estimated 400,000 people living in tents is a national shame. U.S. aid 
to help fight terrorism and build democracy in Mali also clearly 
failed. I had the tremendous honor to serve in the Africa Bureau of the 
State Department in 2007-08 and worked closely on Mali, so I know how 
badly our efforts there fell short--and it is a failure for which I 
bear some responsibility.
    I believe that this disappointing record of U.S. assistance stems 
from a structural problem in how the U.S. Government works. Recent 
efforts under the current administration--a first Quadrennial Diplomacy 
and Development Review (QDDR), a separate White House Presidential 
Policy Directive (PPD) on Global Development, and a set of business 
reforms within USAID known as USAID Forward--are all well intentioned 
and aimed to help fix the problems that everyone recognizes. But these 
efforts are not working. USAID Forward is too small-ball, while the PPD 
is bold and in the right direction but not being implemented. The QDDR, 
in addition to sapping the administration's energy on development for 
more than 18 months, is likely making U.S. policy even more confused.
    To be clear, I do not believe that the problems of U.S. foreign 
assistance can be fixed by more money and more staff. The aid budget 
may very well be too low, but in many places it is too high. The 
funding levels, which attract so much attention, are not fundamentally 
germane to the problems of effectiveness. I also do not believe that 
the answer lies with additional investigative powers to root out 
corruption or additional bureaucratic layers to coordinate aid 
agencies. In fact either of these approaches is likely to make the aid 
system and U.S. policy even less effective.
    I see three fundamental problems with U.S. foreign assistance:
    First, there are too many Federal agencies with aid programs. Some 
24 separate agencies report aid to the OECD's Development Assistance 
Committee. In the latest year, just 35 percent of total foreign aid 
goes through USAID. By contrast, the U.K. has a single large aid 
agency, DFID, that not only is tasked to ensure internal coherence, but 
also provides a development perspective within the Cabinet to inform 
foreign policy goals. I don't believe that the British model works in 
the U.S. political system, but I also know that having 24 agencies 
involved doesn't work either. The QDDR, which embraces uncritically a 
whole-of-government approach, is probably making this worse.
    Second, foreign aid has too many, often conflicting, objectives. 
Lael Brainard in the book on foreign aid she published just before 
becoming U.S. Treasury Under Secretary for International Affairs found 
that U.S. aid had more than 50 goals.\1\ That the U.S. has multiple and 
often conflicting goals is not surprising--foreign policy is complex 
and cannot be boiled down to a few simple absolute goals. But when we 
have too many goals and priorities, then we really have none.
    To make matters worse, these objectives are entirely divorced from 
the appropriations process. Rather than setting goals in a national 
development strategy and then allocating resources to meet these goals, 
multiple single issue initiatives are given resources and the strategy 
becomes the sum of those disparate parts. For example, if we want to 
support reconstruction in Afghanistan or support budget reform in 
Kenya, or fight malaria in Mozambique, there is no obvious or clear way 
to make tradeoffs between these goals or to choose the most efficient 
mechanism to accomplish them. Sometimes the best way to meet these 
goals is through the World Bank or the Global Fund rather than USAID. 
But of course U.S. support to the multilateral development banks is 
made by the Treasury and congressional responsibility is with your 
committee and the House Financial Services Committee, while 
appropriations are handled by the State and Foreign Operations 
Subcommittees. This leads to a particular disconnect on the House side, 
with little ability to make clear decisions as to whether bilateral or 
multilateral aid is more effective for particular goals. So the direct 
tradeoff between the Bank, the Global Fund and USAID is never made. In 
short, part of the problem is the sprawling Federal Government and part 
of the problem is Congress. One way to consider the tradeoffs among the 
various bilateral and multilateral vehicles would be to formally 
consider the options against efficiency and alignment with national 
interests, as the United Kingdom has done with its bilateral and 
multilateral aid reviews.\2\
    Third, the interagency process is broken. The interagency that 
should work out the tensions and tradeoffs among various objectives is, 
as anyone who works in the Federal Government can attest, 
dysfunctional. Every initiative is a fire drill and requires intense 
NSS staff direction and oversight. But NSS too small and overburdened 
to really do more than a few priority tasks. The result is too often 
delay of key decisions, frequent duplication of effort, and little 
accountability. If there are multiple agencies collectively accountable 
then in reality no one is accountable. And critically, the broken 
interagency combined with narrow mandates often means that we miss huge 
opportunities to use non-aid tools to meet our foreign policy 
objectives. Immigration policy, for instance, is probably a far better 
and more efficient development tool than our aid program, but we rarely 
use it as such.\3\
    What steps would make things work better?
    First, limit, don't expand, the number of agencies involved. 
Ideally the budgets and staffs of most international programs should be 
moved into USAID. If this is too politically difficult, and I suspect 
it probably is, then agencies should be forced to secund staff and pass 
through their budgets to USAID for those critical projects. While the 
whole-of-government mantra suggests the more agencies involved the 
better, the opposite is true. The fewer number of agencies involved--
and the fewer offices of the State Department--the better. Whole-of-
government may work in small European governments with a handful of 
agencies and a small number of people who all know each other and can 
horse-trade to work out problems. This does not--and I believe cannot--
work in the U.S. context because of the sheer size and fragmentation of 
the Federal Government.
    Second, link the budget process to goals and results--and allow 
experimentation with new models. This would imply Congress granting 
greater flexibility to the agencies to determine allocations and 
specific projects, but also could provide a mechanism for holding those 
agencies accountable by adding measurable indicators. This approach 
could draw heavily on the MCC's compact model where objectives and 
indicators are agreed over a 5-year period. Rather than checking every 
receipt and micromanaging the projects, the compact is judged based on 
the overall success of the portfolio in meeting the stated objectives. 
Congress could even provide USAID and other agencies space to 
experiment with innovative pay-for-performance contracts where U.S. 
taxpayers would only be picking up the bills for actual achievements. 
We at the Center for Global Development call this Cash-on-Delivery and 
see it as an opportunity to make aid--and tax dollars--about outcomes, 
not inputs or even outputs, while also building local management 
capacity and innovation and reducing transaction costs.\4\
    Third, development finance is an obvious target for efficiency 
gains. Some consolidation of agencies with overlapping activities is 
highly desirable, and the lowest-hanging fruit are the various Federal 
activities to promote private sector development. At a time when most 
low-income countries are growing quickly and receiving windfall gains 
from resource discoveries, demand for traditional grant aid will be 
diminishing. U.S. development policy must be careful not to remain 
stuck in the past. What countries want, and where the United States is 
really best placed to help, is with other types of development finance: 
debt, equity, venture, and other kinds of patient capital that can 
leverage private capital and be deployed for long-term development.
    The good news is that many of the tools already exist. The bad news 
is that they are spread across multiple Federal agencies, including the 
Overseas Private Investment Corporation (OPIC), the Trade and 
Development Agency (TDA), USAID, Commerce, Labor, Treasury, USDA, USTR, 
and more. And, like traditional aid, only rarely do they work well 
together. In the 2012 State of the Union, President Obama noted the 
absurdity that there are 12 different agencies that deal with exports 
and pledged to ``merge, consolidate, and reorganize the Federal 
Government in a way that best serves the goal of a more competitive 
America.'' What applies to export promotion also applies to development 
finance.
    To be clear, I do not support the merger of OPIC into the Commerce 
Department--indeed that would be a tremendous mistake because the 
purposes of those agencies are very different. But I do believe a 
consolidation among the development finance tools would be highly 
beneficial. A first simple step would be to bolster OPIC into a full-
service U.S. Development Finance Corporation.\5\ This would imply 
granting OPIC additional authorities such as multiyear authorization, 
equity authority, and a modest grant window. It could also bring in 
complementary tools we already have in other agencies, such as TDA's 
feasibility study window, USAID's Development Credit Authority (DCA), 
and international programs of agencies like the Small Business 
Administration.
    A U.S. Development Finance Corporation could be built using 
existing staff and resources and at no additional cost to the U.S. 
budget by allowing OPIC to simply retain its profits. More importantly, 
a bilateral development finance corporation could provide a platform 
for coherence of U.S. policy tools in support of the private sector, 
allow the U.S. to better compete in new markets, and limit the repeated 
scrambling within the interagency. An approach like the USDFC would not 
only be more desirable from an efficiency standpoint, but is likely 
necessary if the U.S. is going to achieve ambitious goals, such as 
building market opportunities in the next wave of frontier markets or 
promoting electrification in Africa. For all the reasons outlined 
above, our current system simply cannot deliver those goals.
    The United States must remain engaged with the world, especially in 
the fastest growing markets and emerging regions of the globe. U.S. 
foreign assistance and our other development policy tools must be 
modernized if we are to succeed, and not be left behind by others who 
are showing more flexibility and more innovation. Thank you for the 
opportunity to testify today.

----------------
End Notes

    \1\ Brainard, Lael. 2006. ``Security by Other Means: Foreign 
Assistance, Global Poverty and American Leadership.'' Brookings 
Institution Press, Washington, DC. Brainard's ``Spaghetti Bowl'' of 
U.S. foreign assistance legislation, objectives, and organizations is 
attached as Annex A.
    \2\ A version of an American multilateral aid review that I 
completed is attached as Annex B.
    \3\ Clemens, Michael and Kaci Farrell. 2011. ``Beyond Aid: 
Migration as a Tool for Disaster Recovery.'' Center for Global 
Development, Washington, DC.
    \4\ Birdsall, Nancy and William Savedoff. 2010. ``Cash on Delivery: 
A New Approach to Foreign Aid. Center for Global.''
    \5\ Forthcoming paper, ``U.S. Development Finance Corporation: 
Strengthening OPIC to Promote Private Sector Development in Emerging 
Markets,'' by Benjamin Leo, Todd Moss, and Beth Schwanke. Center for 
Global Development, Washington, DC.

                                ANNEX A

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                ANNEX B

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Senator Kaine. Thank you, Dr. Moss.
    Mr. Murphy, welcome.

   STATEMENT OF JOHN MURPHY, VICE PRESIDENT OF INTERNATIONAL 
   AFFAIRS, UNITED STATES CHAMBER OF COMMERCE, WASHINGTON, DC

    Mr. Murphy. Thank you, Mr. Chairman, Senator Barrasso. I am 
pleased to speak today about the importance of funding a robust 
international affairs budget from the perspective of the U.S. 
business community. No priority facing our Nation today is more 
important than putting Americans back to work. As a nation, the 
biggest policy challenge we face is to create the 20 million 
jobs needed in this decade to replace the jobs lost in the 
recent recession and to meet the needs of a growing work force.
    World trade must play a central role in reaching this job 
creation goal. After all, outside our borders are markets that 
represent 80 percent of the world's purchasing power, 92 
percent of its economic growth, and 95 percent of its 
consumers.
    Many Americans are already seizing these opportunities. One 
in three manufacturing jobs depends on exports. One in three 
acres on farms is planted for exports. And nearly 300,000 
small- and medium-size businesses export today, accounting for 
more than a third of all U.S. merchandise exports.
    Now, in this context the international affairs budget plays 
a vital enabling role for U.S. companies to tap foreign markets 
to create jobs and prosperity at home. The indispensable role 
this investment makes in national security and advancing our 
humanitarian values is something you both alluded to.
    The business case for the international affairs budget is 
straightforward. It supports and protects U.S. diplomats who 
are on the front lines of American commercial diplomacy and 
export promotion efforts. It provides technical advice so 
developing countries can adopt more open and accountable 
political, legal, and economic systems and become better 
markets for U.S. companies in the bargain. This is more 
important than ever before because developing countries last 
year purchased more than half of all U.S. exports for the first 
time.
    However, U.S. companies risk falling behind if the Federal 
Government fails to maintain a significant diplomatic and 
economic presence overseas or to provide American businesses 
with the essential tools to level the playing field. 
Competition is fierce in fast-growing markets in Southeast 
Asia, Latin America, Africa, and firms based in other parts of 
the world are actively working to boost their own market share, 
and this competition is only becoming more intense.
    Some studies estimate that China's Government-supported 
economic development programs in Latin America, Asia, and 
Africa grew twenty-five-fold in the 5-year period from 2002 to 
2007. In its first official report on foreign aid policy, the 
Chinese Government indicated that its budgeted foreign aid grew 
by nearly 30 percent per year between 2004 and 2009. While the 
United States and most developed countries have been moving 
away from tied aid, China's development assistance is often 
contingent on requirements to purchase products or services 
from Chinese companies. For example, the Chinese Government has 
offered loans to African governments on the condition that they 
buy telecommunications equipment only from Chinese companies.
    In this challenging environment, unilateral disarmament is 
not the answer. So we need the international affairs budget. 
Let me give some examples. We see this with the Export-Import 
Bank--Ex-Im--which provides vital financial guarantees to help 
American businesses export. Last year Ex-Im supported export 
sales that sustained nearly 255,000 American jobs at 3,400 
companies. Ex-Im is especially important to small- and medium-
sized businesses, which account for more than 85 percent of its 
transactions.
    Now, without Ex-Im U.S. companies would be unable to sell 
their goods abroad in many circumstances. Other countries 
provide their own exporters with an estimated $1 trillion in 
export finance through their own official export credit 
agencies, often on terms more generous than Ex-Im can provide. 
So without Ex-Im American companies would be left at a sharp 
disadvantage relative to the size of their economies. European 
governments provide three times as much official trade finance 
to their exporters as Ex-Im does, and China and India provide 
four times as much. Further, far from being a subsidy for 
corporations, Ex-Im charges fees for its services that 
generated more than a billion dollars net in revenue for the 
U.S. Treasury last year alone.
    Similarly, OPIC, the Overseas Private Investment 
Corporation, provides U.S. investors with financing, 
guarantees, and political risk insurance when private sector 
financing is unavailable. Often this is in support of key 
foreign policy objectives. Now, partnering with the private 
sector is a hallmark of OPIC's work and historically every 
dollar of OPIC support has leveraged about $2.70 in private 
sector investment.
    Like Ex-Im, companies that use OPIC's services pay 
interest, fees, and premiums for those services, and this 
allows OPIC to operate on a self-sustaining basis at no cost to 
the U.S. taxpayer. Last year OPIC earned a net profit of $272 
million.
    Now, a third example is the U.S. Trade and Development 
Agency. USTDA works to increase U.S. exports by connecting 
American companies with targeted development projects in 
emerging companies. Last year it identified $2.2 billion in 
U.S. exports to emerging markets that were directly 
attributable to its programs. From Thai training grants to 
strategically timed reverse trade missions, USTDA helps U.S. 
firms compete on an international playing field that is often 
skewed against them.
    Programs supported by USAID, the MCC, and other 
multilateral development banks offer many other examples, which 
I will leave aside given the short time. Just consider quickly 
the following examples of collaboration between U.S. companies 
large and small and programs supported by the U.S. 
international affairs budget. In 2011 Wal-Mart partnered with 
USAID on a regional agreement in Central America named Tierra 
Fertil, ``Fertile Soil,'' to support farmers in that region, 
and the initiative helped farmers diversify their crops and 
improve their quality, all while meeting real market needs.
    Miss Jenny's Pickles, a small North Carolina business and 
proud U.S. Chamber member, is run by entrepreneurs Jenny Fulton 
and Ashlee Furr. In 2011 they began exporting their pickles to 
China thanks to export finance provided by Ex-Im and their 
products are now available in more than 800 stores across the 
United States in addition to China, and they are now eyeing 
Canada and Germany as potential export markets.
    In conclusion, U.S. companies and the workers they employ 
need the support of these agencies, which are funded by the 
U.S. international affairs budget. They need them to be 
competitive. This partnership requires sustained sufficient 
funding. The international affairs budget strengthens our 
economy by shoring up these export markets, promoting 
development and good governance, and reaffirming U.S. 
leadership. At stake is America's standing in the world, our 
ability to exert positive influence, our reputation and our 
brand, and our best hopes of reducing unemployment.
    The U.S. Chamber looks forward to working with members of 
the subcommittee on this and other issues.
    Thank you very much.
    [The prepared statement of Mr. Murphy follows:]

                   Prepared Statement of John Murphy

    Thank you Chairman Kaine, Senator Barrasso, and distinguished 
members of the subcommittee. My name is John Murphy, and I am Vice 
President for International Affairs at the U.S. Chamber of Commerce. 
The U.S. Chamber of Commerce is the world's largest business 
federation, representing the interests of more than 3 million 
businesses of all sizes, sectors, and regions, as well as State and 
local chambers and industry associations. I am pleased to speak today 
about the importance of funding a robust International Affairs Budget 
from the perspective of the U.S. business community.
    No priority facing our Nation is more important than putting 
Americans back to work. More than 7 percent of the U.S. workforce is 
unemployed--a figure that soars to nearly 15 percent when those who 
have stopped looking for jobs and the millions of part-time workers who 
want to work full time are included. As a nation, the biggest policy 
challenge we face is to create the 20 million jobs needed in this 
decade to replace the jobs lost in the recent recession and to meet the 
needs of America's growing workforce.
    World trade must play a central role in reaching this job-creation 
goal. After all, outside our borders are markets that represent 80 
percent of the world's purchasing power, 92 percent of its economic 
growth, and 95 percent of its consumers. The resulting opportunities 
are immense, and many Americans are already seizing them: One in three 
manufacturing jobs depends on exports, and one in three acres on 
American farms is planted for hungry consumers overseas. Nearly 300,000 
small and medium-sized businesses export, accounting for more than one-
third of all merchandise exports.
    In this context, the International Affairs Budget plays a vital 
enabling role for U.S. companies to tap foreign markets and create jobs 
and prosperity at home. Although it represents a little more than 1 
percent of all federal spending, the International Affairs Budget is 
critical to creating jobs, saving lives, and protecting our national 
security.
    As former Defense Secretary Robert Gates has stated, ``America's 
civilian institutions of diplomacy and development have been 
chronically undermanned and underfunded for far too long . . . relative 
to the responsibilities and challenges our Nation has around the 
world.'' America must utilize all of the tools and resources it has to 
strengthen U.S. national interests and ensure our global 
competitiveness.
                           the business case
    The business case for the International Affairs Budget is 
straightforward. It supports and protects U.S. diplomats, who are on 
the front lines of American commercial diplomacy and export promotion 
efforts. Programs funded by the International Affairs Budget directly 
promote sustainable economic reforms in developing countries that 
ultimately benefit American companies and workers.
    U.S. foreign assistance programs provide technical advice and build 
stronger political, legal, and economic policy regimes in developing 
countries that help these nations become reliable trading partners. 
This is more clearly the case than ever before, as developing countries 
last year purchased more than half of all U.S. exports for the first 
time in years.
    In this vein, the U.S. Agency for International Development (USAID) 
supports programs that help countries improve their business regulatory 
environments and embrace international commerce. These programs can 
move developing countries away from rigid government-controlled 
economies toward competition and market orientation, which in turn 
creates new opportunities for American companies and workers. 
Similarly, the Millennium Challenge Corporation (MCC) provides grants 
to countries for economic reforms but only if they demonstrate a 
commitment to democratic governance and economic freedom.
    The International Affairs Budget has also provided modest 
investments over the years in the multilateral development banks 
(MDBs), including the World Bank, the African Development Bank, the 
Asian Development Bank, the Inter-American Development Bank, and the 
European Bank for Reconstruction and Development. In addition to an 
array of educational and health programs, the MDBs support programs 
that strengthen governance institutions and build infrastructure that 
facilitates U.S. investment and exports.
    Over the years, the World Bank and the regional banks have funded 
successful programs to get children into school; build infrastructure 
to allow entrepreneurs and farmers to transport their goods to market; 
strengthen judiciaries; support private sector job creation; and combat 
measles, diarrhea, malaria, and other preventable illnesses. These 
efforts helped developing countries add two decades to life expectancy, 
cut the mortality rate of children under age 5 by 50 percent, and 
reduce by half the proportion of people living in poverty.
    American businesses understand these institutions' vital role in 
fostering prosperity in developing nations. MDB loans and expertise 
help developing countries become reliable trading partners and open up 
their markets for U.S. goods. These loans come with conditions, such as 
strengthening transparency, promoting good governance, and improving 
the investment climate.
    The U.S. investment in the MDBs has a huge multiplier effect. For 
instance, the United States has invested $2 billion in the World Bank's 
capital base since its creation in 1944. The U.S. funding has leveraged 
contributions from other donors, allowing the World Bank to provide 
nearly $500 billion in financing and invaluable expertise to developing 
countries.
                     boosting trade and investment
    Other agencies supported by the International Affairs Budget also 
play a direct role in supporting economic growth and job creation at 
home. For example, the Export-Import Bank of the United States (Ex-Im) 
provides vital financial guarantees to help American businesses export. 
Last year, Ex-Im supported export sales that sustained nearly 255,000 
American jobs at 3,400 companies.
    Ex-Im is especially important to small and medium-sized businesses, 
which account for more than 85 percent of Ex-Im's transactions. Tens of 
thousands of smaller companies that supply goods and services to large 
exporters also benefit from Ex-Im's activities. It's worth noting that 
Ex-Im has tripled the amount of exports to sub-Saharan Africa it 
supports since 2009.
    Without Ex-Im, many U.S. companies would be unable to sell their 
goods abroad. Because other countries provide their own exporters with 
an estimated $1 trillion in export finance through their own official 
export credit agencies--often on terms more generous than Ex-Im can 
provide--American companies would be left at a sharp disadvantage 
without Ex-Im. Relative to the size of their economies, European 
governments provide three times as much official trade finance to their 
exporters as Ex-Im does. China and India provide four times as much.
    Further, American taxpayers can cheer the fact that Ex-Im regularly 
helps reduce the Federal deficit by hundreds of millions of dollars. 
Far from being a subsidy for corporations, Ex-Im charges fees for its 
services that generated more than $1 billion in revenue for the U.S. 
Treasury last year alone. This is a significant, yet often overlooked, 
attribute of Ex-Im.
    Finally, Ex-Im loans expose the U.S. taxpayer to little risk 
because they are backed by the collateral of the goods being exported. 
Borrowers have defaulted on less than 2 percent of all loans backed by 
Ex-Im over the past eight decades, a default rate lower than commercial 
banks.
    The Overseas Private Investment Corporation (OPIC), the U.S. 
Government's development finance institution, is also a critical 
agency. It mobilizes American private capital to address major 
development challenges in emerging markets, often in support of key 
foreign policy objectives. It helps U.S. businesses of all sizes take 
advantage of lucrative growth markets, and it turns a profit year after 
year.
    OPIC provides U.S. investors with financing, guarantees, and 
political risk insurance when private sector funding is unavailable. 
OPIC's activities are perhaps most notable in Africa: OPIC in 2012 
committed $907 million to projects in sub-Saharan Africa, helping to 
create jobs, raise living standards, and stimulate economic growth 
opportunities in the U.S. and abroad.
    Partnering with the private sector is the hallmark of OPIC's work. 
Historically, every dollar of OPIC support has leveraged about $2.70 in 
private sector investment. Since 1971, OPIC has supported more than 
$200 billion of investment which, in turn, has generated about $75 
billion in U.S. exports and supported more than 275,000 American jobs.
    OPIC services are not free. Companies that use these services pay 
interest, fees, and premiums for the services, in addition to repayment 
of principal amounts on loans. This allows OPIC, like Ex-Im, to operate 
on a self-sustaining basis at no cost to the U.S. taxpayer. Last year, 
OPIC earned a net profit of $272 million, and the agency has helped 
reduce the Federal budget deficit for 35 consecutive years.
    OPIC's authorization has been extended 10 times via a succession of 
appropriations bills and continuing resolutions. For a period of time 
in 2008, that authorization lapsed completely, and the agency was 
unable to process any transactions. This has made the investment 
community wary. The Chamber urges Congress to provide OPIC with 
permanent authorization. Doing so will provide assurance to the 
business community of OPIC's long-term involvement in their projects, 
most of which carry tenors of 10 years or more.
    Another important agency supported by the International Affairs 
Budget is the U.S. Trade and Development Agency (USTDA). USTDA works to 
increase U.S. exports and help companies expand overseas by connecting 
American companies with targeted development projects in emerging 
economies. Last year, USTDA identified $2.2 billion in U.S. exports to 
emerging markets that were directly attributable to its programs. For 
every $1 programmed by USTDA, the Agency identified over $63 in exports 
of U.S.-produced goods and services.
    USTDA's programs directly support U.S. businesses facing 
competition from companies subsidized by foreign governments. From tied 
training grants to strategically timed reverse trade missions, USTDA 
helps U.S. firms compete on an international playing field that is 
often skewed against them.
    USTDA responds directly to the needs expressed by the U.S. business 
community. To better position U.S. firms in the international arena and 
invest in projects that will most likely provide the highest return, 
USTDA has reprogrammed its funds toward priority sectors including 
energy, transportation, and information and communications technology. 
Over 90 percent of contracts awarded by USTDA are performed by small 
businesses. Once U.S. small businesses are introduced to overseas 
export opportunities, many go on to succeed in securing new contracts 
in foreign countries.
                     public--private collaboration
    Consider the following examples of collaboration between the 
private sector and programs supported by the U.S. International Affairs 
Budget:

   PepsiCo, USAID, and the United Nations World Food Programme 
        in 2011 partnered to improve yields, production, and the 
        availability of healthy food in East Africa. The program--
        dubbed Enterprise EthioPEA--uses chickpea production to address 
        famine and malnourishment in the Horn of Africa and stimulate 
        economic development in Ethiopia.
   In 2011, Wal-Mart partnered with USAID on a regional 
        agreement named 
        Tierra Fertil (Fertile Soil) to support farmers in Costa Rica, 
        Nicaragua, Honduras, Guatemala, and El Salvador. The initiative 
        helped farmers diversify their crops and improve their 
        quality--all while meeting real market needs.
   Working with the Inter-American Development Bank (IDB), The 
        Coca-Cola Company has rolled out a program to improve access to 
        clean water in partnership with American entrepreneur Dean 
        Kamen (President of DEKA R&D and inventor of the Segway 
        scooter) and the NGO Africare. This collaboration focused on 
        Kamen's new water purification system, but the partnership with 
        the IDB is vital to bringing this technology to communities in 
        need in rural parts of Latin America (and Africa through 
        Africare).
   Miss Jenny's Pickles, a small North Carolina business run by 
        entrepreneurs Jenny Fulton and Ashlee Furr, in 2011 began 
        exporting their pickles to China with export finance provided 
        by Ex-Im. Their products are now available in more than 800 
        stores across the United States, and Miss Jenny's Pickles is 
        now eyeing Canada, Hong Kong, and Germany as potential export 
        markets.
                          a competitive world
    The global economy provides many avenues to create American jobs 
and spur economic growth if the United States builds the necessary 
foundation to ensure American companies can be competitive. For 
American businesses and workers to seize these opportunities, we must 
use the full range of available tools to achieve success in these 
demanding environments.
    U.S. companies risk falling behind if the Federal Government fails 
to maintain a significant diplomatic/economic presence overseas or 
provide American businesses with tools that can help level the playing 
field. Competition is fierce in fast-growing markets such as those in 
Southeast Asia, Latin America, and sub-Saharan Africa, and firms based 
in other regions are actively working to get their own market share.
    This competition will only become more intense. Some studies 
estimate that China's Government-supported economic development 
programs in Latin America, Asia, and Africa grew twenty-five-fold in 
the 5-year period from 2002 to 2007. Indeed, in its first official 
report on foreign aid policy, the Chinese Government indicated that its 
budgeted foreign aid grew by nearly 30 percent per year between 2004 
and 2009.
    While the United States and most industrial countries have been 
moving away from tied aid, China's development assistance is often tied 
to requirements to purchase products or services from Chinese 
companies. For example, the Chinese Government has offered loans to 
African governments on the condition that they buy telecommunications 
equipment only from Chinese companies.
    In this challenging environment, unilateral disarmament is not the 
answer. U.S. companies and the workers they employ need the partnership 
of the agencies funded by the U.S. International Affairs Budget to be 
competitive. That partnership requires sufficient and sustained funding 
of these agencies.
    Representing just over 1 percent of Federal spending, the 
International Affairs Budget is an investment that will strengthen our 
economy by shoring up vital export markets, promoting economic 
development and good governance, and reaffirming U.S. leadership. At 
stake is the standing of the United States as the world's leading 
power, our ability to exert positive influence around the world, our 
reputation and brand overseas, and our best hopes for escaping high 
unemployment. The U.S. Chamber of Commerce looks forward to working 
with the members of the subcommittee on this and other issues.

    Senator Kaine. Thank you, Mr. Murphy.
    Mr. Lane.

 STATEMENT OF WILLIAM LANE, INTERNATIONAL GOVERNMENTAL AFFAIRS 
DIRECTOR, CATERPILLAR, AND CO-PRESIDENT, U.S. GLOBAL LEADERSHIP 
                    CAMPAIGN, WASHINGTON, DC

    Mr. Lane. Thank you, Chairman Kaine, Senator Barrasso. I am 
extremely happy to be here today. I am Bill Lane, Caterpillar's 
director for government and corporate affairs. I am appearing 
today--but I am also appearing today in my capacity as 
copresident of the U.S. Global Leadership Coalition, an 
organization that brings together Republicans and Democrats, 
business and NGO leaders, veterans and retired military brass, 
and faith-based volunteers from across the country. What units 
our strange bedfellow coalition is the conviction that 
development and diplomacy programs are vital to America's 
economy, our national security, and our values.
    I am proud to have worked for Caterpillar for the past 38 
years. As one of America's most successful exporters, 
Caterpillar has long realized that our prosperity is directly 
linked to economic currents and trends that are occurring 
outside of our borders. Today trade supports more than 38 
million jobs in the United States and the emerging markets of 
the developing world are growing at a much faster rate than in 
the developed world. Already, they are the destination of more 
than half of U.S. exports and, as I said before, growing at a 
much faster pace than what we are seeing in the traditional 
markets.
    But success in this requires engagement, persistence, 
commitment, and at times support from the U.S. Government. I 
recall 30 years ago American business often said we believe in 
trade, not aid, in effect saying U.S. Government programs 
should focus on reducing trade barriers rather than fostering 
development. That may have been a great sound bite, but it did 
not fully reflect the reality of international commerce. While 
we believe in the importance of free trade more now than ever 
before, we also know that countries that have been devastated 
by AIDS or malaria do not grow, nor do countries that lack 
transparency or the rule of law.
    While we must always make sure that U.S. Government 
resources are spent wisely, the reality of international 
commerce is that trade and aid are often mutually supportive. 
The State Department, USAID, the MCC, OPIC, just to name a few, 
are funded by just 1 percent of the U.S. budget. At Caterpillar 
we have found that this teamwork approach--working with the 
government--bears results. Teamwork has been demonstrated 
through private-public partnerships where one can leverage 
government funds with the creativity, innovation, and core 
business resources of the private sector.
    For example, last year Coca-Cola, the largest employer in 
Africa, committed millions of dollars on the continent as part 
of a new partnership with USAID and the Peace Corps to expand 
sustainable access to clean water. I must say, as part of my 
work on the HELP Commission, of all the brands I saw in this 
part of the world, the Peace Corps has one of the strongest 
brands I have seen anywhere and it really does reflect well on 
our values and our priorities.
    At Caterpillar we are working closely with the global 
communities to build infrastructure and the International Youth 
Foundation to train young people in the developing world.
    For me, the best example that illustrates the importance of 
the international budget is Colombia. In the late 1990s 
Colombia was on the verge of being a narcoterrorist state. With 
the leadership of President Clinton and Speaker Hastert, the 
United States and Colombia began a multifaceted partnership 
called Plan Colombia. It was a sustained program that included 
security and development assistance to tackle narcotics-funded 
insurgency.
    The bottom line is it worked. Thanks to the substantial 
improvements in the equipping, training, and professionalism of 
the Colombian security forces, the drug lords and the 
associated guerrilla groups effectively lost control of the 
countryside. At the same time, United States development 
assistance helped Colombians build infrastructure, provide 
education and medical care, and put in place judges and police 
who respected the rule of law and human rights. USAID assisted 
rural farmers in developing alternative crops to the coca 
plant, which has helped lead to a sharp decline in the 
smuggling of Colombian narcotics into the United States.
    During this same time, United States trade with Colombia 
tripled, reaching over $14 billion in 2011. The United States 
is now Colombia's largest trading partner and the free trade 
agreement that went into force last year is expected to add 
billions more in annual commerce between our two countries.
    For the folks living in Peoria, IL, Plan Colombia and the 
reforms embraced by the free trade agreement meant that 
Caterpillar now has a destination that consistently ranks as 
one of its top 10 export markets. Perhaps more remarkably, 
Americans also have proof that in Washington Republicans and 
Democrats can work together over a sustained period of time and 
get results.
    Mr. Chairman, at Caterpillar we like to say that the road 
to development literally begins with the road. It should go 
without saying that we know how to produce equipment needed to 
build those roads. But it is the development and diplomacy 
programs funded by 1 percent of the U.S. budget that in the 
broadest sense provides the foundation that allows development 
to take place.
    Like you, we are concerned about getting the most results 
from each Federal dollar spent. We also know how important it 
is that U.S. global leadership and competitiveness be enhanced 
and not undermined. Yet international affairs programs have 
been cut by nearly 20 percent over the past 3 years. This is 
not in America's best interests. So on behalf of the hundreds 
of companies that are members of the U.S. Global Leadership 
Coalition, we strongly encourage the Senate to oppose further 
cuts and to invest in a strong and effective international 
affairs budget.
    Thank you.
    [The prepared statement of Mr. Lane follows:]

                    Prepared Statement William Lane

    Chairman Kaine, Ranking Member Barrasso, and members of the 
subcommittee, thank you for the opportunity to discuss the 
International Affairs Budget. I am appearing today in my capacity as 
copresident of the U.S. Global Leadership Coalition (USGLC), an 
organization that brings together Republicans and Democrats, national 
security and foreign policy experts, and business, faith-based and 
community leaders all across the country. What unites this ``coalition 
of strange bedfellows''--including a ``Who's Who'' of America's leading 
corporations--is the conviction that the diplomacy and development 
programs funded in the International Affairs Budget are vitally 
important for America's economic future, national security, and global 
influence.
    As director of Caterpillar's Washington, DC, office, I am cognizant 
of the difficult budget choices the Congress has to make, especially in 
this onerous fiscal environment. Every government agency deserves 
scrutiny of its costs and effectiveness. Yet, from a business person's 
perspective, the International Affairs Budget--which represents a 
little more than 1 percent of the overall Federal spending--represents 
a smart investment in American global leadership that fuels economic 
growth and job creation at home.
              exports, american jobs, and emerging markets
    For major manufacturers like Caterpillar, it has been clear for 
some time that America's prosperity is tightly bound to economic 
currents and trends emerging beyond our borders. Overseas markets 
represent 95 percent of the world's consumers and 80 percent of its 
purchasing power. Trade already supports one in three manufacturing 
jobs, and one-third of American agriculture is destined for consumers 
overseas.
    Overall, trade supports more than 38 million jobs in the United 
States, and 
export-related jobs pay, on average, 15 percent more than the average 
wage. Studies indicate that every 10-percent increase in exports is 
associated with a 7-percent increase in employment.
    Half of those exports today are to the developing world, and those 
markets will grow at a far faster pace than many of our more 
traditional trading partners. In sub-Saharan Africa, 17 countries have 
maintained rates of economic growth of 5 percent to 7 percent per year 
for the last decade and African economies are expected to nearly double 
in size to $2.6 trillion by 2020. According to Standard & Poors Latin 
America's economies grew by more than 3 percent last year--better than 
the U.S. and Europe--with countries like Peru and Chile growing in the 
5-7 percent range.\1\ These markets represent tremendous opportunities 
for American companies and businesses.
         the role of u.s. government development and diplomacy
    But we can't do it alone. Businesses succeed in overseas markets in 
conditions where there are stable governments, transparency, 
predictability, adequate financial infrastructure, free market economic 
policies that allow for competition, and rule of law. Those conditions 
are often lacking in many of today's emerging nations and require a 
coordinated approach that includes the development programs, diplomatic 
efforts, and trade promotion activities of the U.S. Government.
    In the past some have called for a shift toward ``trade, not 
aid''--arguing that U.S. Government programs should focus on promoting 
commerce rather than fostering development. Based on my experience in 
this area, which includes service on the 2007 HELP Commission, the real 
answer is ``trade and aid,'' each of which are mutually supporting.
    In these countries the road to development--and the investment, 
commerce, and trade that follow--may begin (literally) with a road. 
Here I am referring to the basic infrastructure that must be improved 
and, in some cases, created from scratch using machinery and expertise 
often supplied by companies like Caterpillar. In fact, more than half 
of Caterpillar's exports now go to non-OECD countries, primarily in the 
developing world.
    In all, effective development programs funded in the U.S. 
International Affairs Budget spur economic reform, advance the rule of 
law, improve governance, and raise standards of living--building more 
peaceful, prosperous societies that desire--and can afford--American 
products and services.
    For example, the Millennium Challenge Corporation (MCC) provides 
economic assistance to developing nations based on a competitive 
selection process in which the countries must show a strong commitment 
to ruling justly, investing in their citizens, and economic freedom. 
The U.S. Agency for International Development (USAID) supports programs 
that help countries improve their business regulatory environments and 
open their economies to foreign competition.
    The International Affairs Budget also supports the multilateral 
development banks (MDBs), including the World Bank, the African 
Development Bank, the Asian Development Bank, the Inter-American 
Development Bank, and the European Bank for Reconstruction and 
Development. MDB loans come with conditions, such as strengthening 
transparency, promoting good governance, and improving the investment 
climate, that open developing markets to U.S. goods and transform them 
into more reliable trading partners.
                          colombia case study
    The story of Colombia, which has endured a narcotics-funded 
insurgency for decades, provides an excellent example of ``smart 
power'' in action to advance American interests and prosperity.
    In 1999 the U.S. and Colombia began a multifaceted partnership 
called ``Plan Colombia'' involving security, developmental, and 
governance assistance.
    Back then, the country was engulfed in drug-related violence and 
lawlessness. In fact, about 11,000 Colombian towns had no government 
presence at all. Since then, substantial improvements in the equipping, 
training, and professionalism of the Colombian security forces led to a 
dramatic decrease in violence and the drug lords and their associated 
guerrilla groups effectively lost control of the countryside they had 
dominated for so long.
    At the same time, U.S. governance and development assistance helped 
Colombians build infrastructure, medical care, education, and competent 
judges and police who respected the rule of law and human rights. USAID 
assisted rural farmers in developing alternative crops to the coca 
plant, and with the help of the Colombian Government, we have seen a 
sharp decline in the smuggling of Colombian narcotics into the United 
States.
    Since Plan Colombia began the country's GDP has averaged close to 
4.5 percent growth and now ranks as the 4th-largest economy in Latin 
America. U.S. trade with Colombia has tripled since 2000, reaching over 
$14 billion in 2011. The U.S. is now Colombia's largest trading partner 
and our exports include machinery, oil, agricultural products, organic 
chemicals, and plastics. The free trade agreement that went into force 
last year is expected to add billions more to annual commerce between 
our two countries.
    Colombia is one of the top 10 export markets for Caterpillar, and 
their booming mining industry presents the potential for still further 
growth. The more trucks and tractors we sell overseas, the more jobs 
are created in places like Peoria where those vehicles are 
manufactured.
    These kinds of results are not limited to Colombia. In Vietnam, a 
trade-acceleration program funded by the USAID led to the revision or 
enactment of more than 100 laws and regulations over the course of a 
decade. The USAID program cost roughly $1 million, and since 2001 U.S. 
exports to Vietnam increased more than 700 percent.
                      public-private partnerships
    In spite of all the progress made in recent years, American good 
will, innovation, and resources are still needed to address the world's 
most pressing humanitarian and developmental problems. Consider that 
millions of children die prematurely every year from preventable 
diseases, tens of millions of children are not attending school, and 
more than a billion people are without clean water or basic sanitation. 
These afflictions are holding back entire regions of the world--the 
regions with the most quickly growing populations--from being secure, 
productive participants in the global economy.
    As Bill Gates has said, ``Investing in the world's poorest people 
is the smartest way our government spends money.''
    One of the more promising developments in recent years has been the 
increasing use of private-public partnerships to provide foreign 
assistance in more effective and creative ways.
    In 1969, 70 percent of financial flows to developing countries came 
in the form of official development assistance and the remaining 30 
percent from private sources. Today, those ratios have more than 
reversed, with over 80 percent of financial flows coming from private 
sources.
    The U.S. Government uses these partnerships to get the maximum 
impact of scarce public funds by leveraging the creativity, innovation, 
and core business resources of the private sector to promote economic 
growth and opportunity.
    For example, last year Coca-Cola--the largest employer in Africa--
has committed several million dollars on the continent as part of a new 
partnership with USAID and the Peace Corps to expand sustainable access 
to clean water.\2\
    In Central America Wal-Mart has partnered with USAID to help 
farmers in Costa Rica, Nicaragua, Honduras, Guatemala, and El Salvador 
in diversifying their crops to meet real market needs.
    In these and many other cases, a modest investment of public funds 
in partnership with the private sector can substantially improve 
standards of living in the developing world, all of which leads to more 
promising trade and investment for American companies doing business in 
these countries.
                               conclusion
    In a ferociously competitive international business climate, the 
U.S. Government's International Affairs Budget is one of the most cost-
effective instruments we have to provide a vital link between America's 
businesses and workers and some of the fastest-growing overseas 
markets. In this environment the U.S. cannot unilaterally disarm, 
leaving our business at a distinct competitive disadvantage.
    Programs such as the Overseas Private Investment Corporation, the 
Export-Import Bank, and the U.S. Trade & Development Agency--all funded 
by the International Affairs Budget--are essential to maintaining a 
level playing field for our companies doing business around the world, 
boosting U.S. exports overseas and creating more American jobs at home.
    These efforts and other forms of international engagement require 
adequately funded and staffed U.S. embassies, targeted and accountable 
governance, development, and security assistance programs, and 
effective export credit and trade promotion agencies--capabilities 
threatened by deep cuts to the International Affairs Budget. Yet, these 
programs have in fact been cut nearly 20 percent in the past 3 years.
    Too much is at stake to diminish U.S. global leadership and 
competitiveness in a world that is only growing more interconnected and 
interdependent--as well as more turbulent--virtually every day.
    On behalf of the hundreds of companies that are members of the U.S. 
Global Leadership Campaign, we strongly encourage the members of the 
subcommittee to support the investments contained in the International 
Affairs Budget--for a more secure and prosperous America, for a safer 
and better world.

----------------
End Notes

    \1\ http://www.standardandpoors.com/ratings/articles/en/us/
?articleType=HTML&assetID=12453 
50590911.
    \2\ http://www.peacecorps.gov/resources/media/press/2129/.

    Senator Kaine. Thank you to all the witnesses.
    We will begin two rounds of questions, 7 minutes, and I 
will just begin with one picking up on Mr. Lane's--actually, a 
combination question. Dr. Moss, you talked about the fragmented 
nature of the number of agencies within the Federal space that 
work on the international development area. In looking at that 
testimony and the chart that you provided, it was the kind of 
thing that makes you think, boy, this is a complicated system.
    Mr. Lane, you talk about Colombia and the obvious success 
in Colombia, and that was a sort of a full-government approach 
from the United States. It involved military, it involved other 
security agencies like DEA, it involved trade, it involved 
Congress taking steps with respect to the free trade agreement, 
USAID. A lot of different parts of the U.S. Government played a 
role in this comprehensive plan and it has been a success 
story.
    So we all agree that the budget is important, needs to be 
spent the right way. We do not want to be overly fragmented. 
How do we wrestle with this question of better organization to 
get more bang for the buck without sacrificing the kind of 
comprehensive approach that in Colombia's case has seemed to 
have been successful?
    Dr. Moss. When we think about our relations with partners 
in difficult states overseas, we are going to have complex 
interests. We are never going to have a single interest. 
Agencies that we can bring to bear have different objectives. 
DOD and State, very often they are complementary, what they are 
looking at, but their objectives are very often different. The 
same with USAID.
    To just give you one example, DOD is obviously going to be 
interested most in security and looking at very short-term 
security concerns. USAID, perhaps they are going to take a 
longer term development perspective. Maybe they are thinking 
about long-term transformation, of trying to build a capable 
partner over 10 or 20 years. The State Department is trying to 
ensure that we have solid partnerships with as many friends 
around the world at the same time. So AID might want to focus 
our resources in places where they think they can be 
transformative over the long term, so they would want to 
perhaps close missions that are too small or are not working, 
whereas State would see our AID missions as part of our 
international diplomacy, part of making friends around the 
world. Their preference would be to spread it around the world. 
And DOD, of course, wants to go where the action is.
    So you have the triple D's of defense, diplomacy, and 
development. Sometimes they come together, but very often they 
do not. Perhaps in the case of Colombia these things came 
together and they worked quite well, but those are more often 
than not the exception rather than the rule. So I think we 
should build the system in a way that can manage those tensions 
and make those tradeoffs, rather than assuming we are all one 
big happy family, we all have the same objectives, and we are 
all moving in the same direction. Those were the exceptions.
    Senator Kaine. Mr. Lane.
    Mr. Lane. Yes, Mr. Chairman. Back in 2006 to 2008 I was on 
the HELP Commission, which looked at the effectiveness of 
foreign aid. I have to say we all came back with various 
conclusions, but some were very revealing. One was where we 
have a unified mission it really works. In Colombia, when you 
went and visited the U.S. Embassy in Bogota there was a focus. 
It was a very complex mission, but I have to tell you people 
knew what the objective was and everyone was working well 
together and working well with the Colombian Government.
    You move over to Egypt, it was the exact opposite. It 
seemed to be a very bifurcated operation. You go to Honduras, 
where the focus was on infrastructure, ag development, here, 
too, results that were quantifiable and positive. So it really 
varied quite a bit.
    As far as the reorganization that Dr. Moss talks about, 
there has to be some consolidation that takes place. What is 
realistic and what is not, given the purview of the State 
Department, is subject to debate. But where foreign assistance 
works, it works. In Africa, taking on the plague of AIDS, you 
went to small towns in northern Uganda which were coming back 
to life and it was because of the PEPFAR program. At the time, 
and this was in 2007, I found that President George Bush was 
more popular in northern Uganda than he was in Texas, and I 
think that is probably still true.
    Senator Kaine. Good example.
    Mr. Murphy, I want to drill down on something. You 
testified about the degree to which other nations provide more 
export assistance than we do. Was the stat that European 
nations generally about triple and India and China about four 
times the kinds of export assistance to their private sector? 
If you would elaborate on that a little bit?
    Mr. Murphy. Sure. I was referring in that case particularly 
to trade finance. Just about every country around the world has 
an official export credit agency. In fact, China has three or 
four of them. It has been very notable that there has been a 
huge increase in the resources that countries are making 
available to finance exports. The OECD has estimated there is 
$1 trillion of this trade finance sloshing around the global 
economy today. In the case of China, one estimate is that it 
provide four times as much as our little Ex-Im Bank is 
providing, and India similarly.
    So what we find is that there are many circumstances where 
U.S. exporters are going head to head with competitors from 
other countries. Those other countries, they have secured the 
finance that they need to make the deal, often on very generous 
terms. And if the U.S. company does not have that same kind of 
backing, they are going to lose the bid.
    There are other circumstances as well. I know a small 
medical device manufacturer in Maryland that has been making 
inroads in the Chinese market. They would be unable to make 
sales there if they did not have export finance from Ex-Im, 
from the official U.S. export credit agency. They would not 
qualify without that. So it is a fundamental reality that 
American companies often need this kind of support.
    Senator Kaine. Hearing your testimony, the notion that we 
are bringing down trade barriers, which is generally something 
I strongly support, that is important. But if the financial 
assistance provided is wildly different among nations, that is 
a different kind of a trade barrier that takes a leveling 
playing field and makes it unlevel again.
    Mr. Murphy. Yes. I would just add that securing that level 
playing field is an important goal of this administration, as I 
understand it. There have been negotiations conducted in the 
OECD, for instance, on large aircraft, and those agreements 
have resulted in aircraft manufacturers in the United States 
and in Europe being obliged to pay much higher fees, such that 
the financing terms are now really on a par with commercial 
financing.
    So that effort is ongoing. But we also see that, just 
sticking with aircraft for a moment, China is developing a huge 
domestic civil aircraft industry, and there is no sign that 
they are going to be committing in the near term to follow 
those same kinds of disciplines to keep the financing at a 
commercial level.
    Senator Kaine. Senator Barrasso.
    Senator Barrasso. Thank you, Mr. Chairman.
    Dr. Moss, you touched in your testimony the idea of U.S. 
Government implementing kind of a pay for performance contract 
in order for the U.S. taxpayer to only pick up the bill for 
actual achievements. You are hearing that discussion now with 
health care in the United States in terms of doctors taking 
care of patients. I wonder if you could just explain a little 
bit how this approach would work to foreign aid. I think you 
call it ``cash on delivery.''
    Dr. Moss. Yes, thank you. The traditional way that we 
measured projects was on inputs: How much money did we spend, 
how many things did we deliver? The next level was, which is 
still a leap in many areas, is let us measure outputs. We spent 
$10 million for school construction. Did those schools actually 
get built? How many teachers actually got trained? That would 
be a big leap forward if we were going to say, look, we will 
pay only for the number of teachers trained, only for the 
number of kilometers of road actually built, and we will come 
after and do that.
    Our system does not handle that all that well because it is 
contingent finance. It might be multiyear. So certainly we 
should be thinking about flexibility to allow our budget system 
to handle these contingent financial obligations.
    But the golden chalice here is not to go to outputs, but to 
go one step further to outcomes. Outcomes are the real results 
that we are looking at. What the cash on delivery model does is 
pays for outcomes. What do I mean by that? Let us say we want 
to support girls' education in Pakistan. What we would pay is 
not for--we would not say how much money are we going to spend 
on education. We would not even say how many schools are we 
going to build; teachers we are going to train. We are actually 
going to pay for educated girls in Pakistan, by perhaps through 
how many children have taken an additional test and what are 
those test results published.
    Because what that would do is not only would we only be 
paying for what we hope to achieve, but there is no way sitting 
in Washington we are going to figure out how do we actually get 
girls educated in Pakistan. We would put the onus of that onto 
the authorities there to figure out: Is it building schools? Is 
it training teachers? Is it something else? Usually it is 
something else that we do not recognize, and cash on delivery 
puts that there and also is--in terms of taxpayer value, it 
guarantees you are only paying for things that you actually 
get.
    The trick is going to be trying to make this fit within the 
U.S. budget system.
    Senator Barrasso. You had mentioned so many conflicting and 
competing policy objectives that sometimes you are not able to 
achieve any of them. It is clear that we have to streamline, 
focus our top priorities. When I think about assistance, what 
objectives should be left to others to handle? where should we 
work on our core competencies? Someone mentioned Tanzanian 
electricity. I had a chance to be there with Melinda Gates and 
see what the Gates Foundation is doing there in terms of 
agriculture work, in terms of disease prevention and treatment, 
early detection.
    How do you see that playing out?
    Dr. Moss. I think it makes sense that there needs to be a 
lead agency on a particular issue. In the case of electricity 
in Tanzania, it is obvious that a lot of agencies would think 
that they could take the lead. Even DOD might think that they 
could do that well. But really OPIC is the logical agency. OPIC 
has the expertise and, more importantly, they have the business 
model that can crowd in private finance.
    You do not want to do electricity in Tanzania with grant 
financing. You want it to be commercially viable. But you need 
that public policy nudge. OPIC would be the logical lead. But 
given that OPIC is a small agency, the State Department--this 
would not make my former colleagues happy--the State Department 
is very expansive and imperial in a sense within the 
interagency, everybody wants to take the lead. I am sure USAID 
thinks they could take the lead there, too.
    But I do think in projects that should be largely 
commercial and business-driven, an agency like OPIC makes the 
most sense and we need to be able to give them the tools to 
achieve that.
    Senator Barrasso. Mr. Murphy, could I ask you about 
unlawful takings. We hear in our office from U.S. businesses 
concerned about property of businesses being expropriated by 
foreign governments. Do you believe U.S. assistance should 
continue to be provided to countries that do this sort of 
unlawful taking of U.S. business assets and properties?
    Mr. Murphy. I think there are a number of elements of U.S. 
foreign policy that can and should be brought into play to 
support U.S. companies when they are faced with expropriation. 
It is a matter of public statute, for instance, that the 
Generalized System of Preferences, and the preferential access 
to the U.S. market it provides, should not be given to a 
country that expropriates without compensation. I think in the 
area of foreign aid as well that is something that should be 
taken very much into consideration.
    Senator Barrasso. Mr. Lane, you talked about what we needed 
to do in terms of foreign aid. From your past experience, not 
just from Caterpillar but the commissions on which you served, 
and you talked about economic development, for national 
security, as well as consistent with our values. Then you 
mentioned the free trade agreement with Colombia. I had a 
chance to visit with President Santos in Cartagena in January 
2011 and at that time he was saying: The United States has made 
this incredible investment to turn what could have been a 
narcostate around and they are saying, but we were delaying the 
free trade agreement for extended periods of time. And at what 
point do--sometimes we have invested wisely and then, through 
either a political position that we take or a military 
position, kind of undermine what another branch of our 
government is trying to do and accomplish with a country.
    I just wondered if you could comment.
    Mr. Lane. As a businessman, this is a source of 
frustration, 
because what we often find in any kind of negotiations of trade 
agreements or the implementation thereof, we often fall prey to 
the notion that the perfect is the enemy of the good, and at 
some point, you have just got to take a good deal. But often we 
wait and wait. In business we never wait and wait. Once it is a 
good deal, we take it and we start getting results.
    It should not take longer to expand the Panama Canal than 
pass a free trade agreement with Panama, and that is nearly 
what happened. And by the way, for a couple of years we found 
that our exports to Panama--expanding the Panama Canal was a 
big deal for Caterpillar. Anything that moves that kind of dirt 
really gets our attention--we were at times exporting more to 
Panama with 3 million people than to Korea, which is one of the 
10 largest economies.
    So we wanted a sense of urgency. I think that is what we 
all need to do at some point. It is always seductive to hold 
out for the perfect, but at some point let us take a good deal 
and move on. It took way too long to get a lot of those FTAs 
through. I hope when we move forward with the agreements with 
Europe and the TPP and others we get to a point where we can 
actually get something to where it starts benefiting the U.S. 
economy and the global economy.
    If I could just end with one observation, in my entire 
career at Caterpillar exports have been important. We have 
always taken export markets seriously. But the places where we 
used to export were developed countries, it was Europe, it was 
Japan, Canada, Australia, and oil-producing countries. Today 
exports are more important to Caterpillar than ever before. 
Well over half of what we produce we export. But over half of 
our exports now go to non-OECD countries: Colombia, Chile, 
Peru, South Africa. These are important markets that are 
driving employment in the United States, driving employment in 
Illinois. It is absolutely critical that we recognize at some 
point that, while it is not a perfect process, when we engage 
in countries and we help them develop it pays dividends down 
the road, and at times big dividends.
    Senator Barrasso. You know, Mr. Chairman, if you get a 
chance to look at the book ``The Path Between the Seas: The 
Building of the Panama Canal,'' it was the first time a 
President of the United States left the United States during 
his Presidency, and it was Teddy Roosevelt and he was there 
operating a steam shovel in this big picture. I do not know if 
it was a Caterpillar.
    Mr. Lane. If I could do a commercial, it is a Bucyrus steam 

shovel, and we just acquired that fine company about 2 years 
ago and it is just an outstanding organization. We thought we 
made big products until we bought Bucyrus. The steam shovels 
they produce make some of the largest trucks in the world look 
small.
    Senator Barrasso. Thank you, Mr. Chairman.
    Senator Kaine. Thank you, Senator Barrasso.
    Senator Murphy.
    Senator Murphy. Thank you very much, Mr. Chairman, Ranking 
Member. Thank you for holding this hearing.
    I am sorry to the panel that I was delayed in getting here. 
But I trust it has been a good discussion.
    I wanted to maybe raise a general point and open it up to 
all three panelists. Having not heard your testimony, I am not 
exactly sure who to direct this to. As the Arab Spring turns 
into the Arab summer and fall and winter, and as we continue 
our withdrawal from Afghanistan and transition our role in 
Iraq, we are going to be in a position in which we are 
providing more and more economic aid and political support to 
very new democratic governments and, frankly, very imperfect 
democratic governments. Though we have been doing this for a 
long time, Pakistan probably the best example, we are likely 
going to be doing it more and more.
    My Pakistani-American friends complain all the time that we 
are sending too much of our aid through that government and 
that if we really want to make a difference in Pakistan we 
should be putting the money directly into NGOs that are going 
to be able to spend that money more efficiently on the ground. 
It has always struck me that, if you want to simplify it, two 
reasons for the aid we give. One is to directly support the 
people of the country. Second is to bolster a government that 
we have an interest in continuing to operate in that nation.
    So I guess I sort of pose this question because, whether it 
is in Pakistan or Afghanistan or Iraq or Libya or perhaps a 
year or two from now Syria, we are going to be constantly 
confronted with this decision about how we balance putting 
perhaps efficient money on the ground directly through service 
providers versus putting money through governments which may 
have large elements of corruption in them, but are vital to our 
national security interests, thus giving us a reason to support 
them.
    Maybe I will run down the line and get your impressions. I 
am sure the answer will probably be a bit that we have to 
borrow from both columns, but I would love your thoughts.
    Mr. Lane. Senator, allow me to address this from a 
strategic, not tactical perspective, because I think Dr. Moss 
is probably the best one from a tactical. Two months ago I was 
with former Secretary of Defense Gates and he made an 
observation that really stuck with me. He said: You know, when 
you think of the great revolutions, the American Revolution, 
the French Revolution, the Russian Revolution, the Chinese, 
with the exception of the American Revolution, the first 10 
years went badly. We had a Whiskey Rebellion and that was about 
it. Everywhere else you had enormous excesses.
    We are going to have to show patience with what is going on 
in the Middle East. That means we are going to have to stay 
engaged. We are going to have to constantly readjust our 
policies. But more than anything else, we have to have a sense 
of consistency and patience in order to get results. Whether we 
do this, whether we provide assistance directly or through NGOs 
or what have you, there are better experts on that. But more 
than anything else, we have to make sure that we do not get 
ourselves in a position where it is our way or no way. We have 
got to stay engaged to make sure that that part of the world 
starts benefiting from the benefits of the global economy and 
democracy.
    Mr. Murphy. Just a brief comment, but I think your point 
about working with the private sector and nongovernmental 
organizations makes a lot of sense. But it is my understanding 
that in the case of U.S. development assistance actually less 
than 7 percent is actually given to foreign governments per se. 
So I think that when I have had our interactions from the U.S. 
Chamber with USAID and when our member companies have had 
collaborative programs in different countries, I think that 
leadership at AID has gotten the message, and I think there is 
increasingly less and less of a reliance on simply transferring 
funds to foreign governments.
    Senator Murphy. Dr. Moss.
    Dr. Moss. This gets to the point about what are we actually 
trying to achieve. If you are trying to have an immediate 
humanitarian response and the government does not have capacity 
and you do not have confidence, you obviously have to use 
contractors or NGOs. But if the point, as it will be in most of 
the Arab Spring countries, is that we are trying to help build 
a capable state, going around the state actually undermines our 
long-term objective.
    Actually, I do not think--it is a false choice to say we 
either have to go through NGOs or we have to cut blank checks 
to governments. Cutting blank checks to governments, that is 
not going to happen, nor should it happen. But there are some 
pretty innovative mechanisms, including what USAID has been 
doing in Afghanistan, which is probably the toughest 
environment to operate in, which is to have projects that are 
technically--they are called on budget. They are technically 
part of the ministry, but the money does not actually just go 
to the ministry and then we hope for the best. What you 
actually do is you reimburse on a basis of what they actually 
achieve.
    So this is where I think what I mentioned earlier, that 
these innovative pay for performance contracts can balance the 
need for taxpayer--getting taxpayer value, while also trying to 
achieve the results we are trying to get, which is things like 
service delivery, but also building the capacity of our partner 
states. It does not help for the United States to come in and 
build a gold standard health care system, but when we leave 
there is nothing left behind. So we have to do that slow, hard 
work with partner governments that we are trying to bolster and 
we have to find mechanisms to link those to results. Otherwise 
we are going to be chasing our tails.
    Senator Murphy. In my remaining minute here let me make a 
non sequitur to a different issue. I was a member of the 
Foreign Affairs Committee in the House before I came here and 
in the only foreign operations budget that we debated there an 
amendment was attached that passed our committee that said 
simply this: ``The United States could not provide any foreign 
aid to any nation that voted against the United States at the 
United Nations more than 50 percent of the time.'' That passed 
the Foreign Affairs Committee against my objection and many 
others.
    I just want to ask a simple question: Do any of you think 
that that would be a good United States policy, to condition 
aid upon the particular country voting with the United States 
more than 50 percent of the time at the United Nations?
    Mr. Lane. I think in this space you want as much 
flexibility as possible. And whenever you put constraints on 
that flexibility I think it hurts U.S. influence and our 
ability to get results. So I would always be very mindful of a 
proclamation that takes the United States out of the game.
    Senator Murphy. Mr. Moss.
    Dr. Moss. I would just add, if our sole objective was to 
win U.N. votes, then that makes perfect sense. But that is way 
down on the list of U.S. national security interests. It is 
irritating, but it is certainly not our sole objective.
    Senator Murphy. Thank you.
    Thank you, Mr. Chairman.
    Senator Kaine. Thank you, Senator Murphy.
    We will have a second round of questions and do it as a 5-
minute round.
    The whole issue of metrics and accountability in measuring 
the success of your investment, Senator Barrasso raised that in 
his opening question. That is something that we should seek 
across every line item in the Federal budget and we need to 
seek it here. But it strikes me that as the model is changing 
so heavily, where less than 20 percent of the expenditures are 
governmental expenditures and 80 percent private, the question 
of coming up with the right metrics is a little bit 
challenging, or at least it is a different kind of a challenge 
than existed before.
    Talk a little bit about metrics and accountability in this 
new reality, where the bulk of the dollars are coming from the 
private side?
    Dr. Moss. The way that a lot of metrics, they have been 
added on on top of all of the other, all of the other 
oversight, if we think about what we are trying to achieve, we 
think about how little leverage we actually have through our 
aid and development program, and that lots of other things are 
going on. We are trying to just impact events at the margins. 
These are going to be high-risk ventures. None of us here would 
want to risk our jobs on the success of Project X in rural 
Afghanistan, because that is going to be largely out of your 
hands.
    It is also that we are trying to achieve difficult things, 
always under short time constraints, with lots of unknowns. So 
what do we want in that situation? We want people to have the 
flexibility to experiment, innovate, try to figure out what is 
working and what is not working, stop doing what is not working 
and plus up what is working.
    But our system--this is what a former USAID administrator 
calls the counter-bureaucracy. The system has made it that 
everyone is so scared of having a bad project that they are 
very, very risk averse. So it is the specter of the auditor 
general hanging over every project that means that we are not 
getting creative projects and, frankly, if things start going 
badly, the incentives are not to cut things off, but to try to 
sweep things under the rug a little bit.
    So what I think the answer is to be very, very clear on 
what the objectives of the project or effort will be, try to 
come up with some metrics that you think would indicate success 
or failure, and then we need to step back a little bit and 
judge it based on those metrics. I think of it more like 
venture capital. No venture capitalist would run a fund where 
their board was nitpicking every single project, because they 
would expect 80, 90 percent of those to fail. But what you want 
are those 10-percent winners that are going to really hit. That 
is how we need to think about our development assistance, as 
venture capital, and we want to judge that portfolio.
    That is why I mentioned the MCC compacts, which have 
indicators, there is a 5-year period, and there are going to be 
some failures, but a couple of big successes are going to make 
the entire system work better, and that is the kind of approach 
that I think we should try to give to our development agencies.
    Senator Kaine. Mr. Lane.
    Mr. Lane. If I could, because this is a great question. 
When we were looking at the assistance programs around the 
world, initially when your minders take you out in the field 
they want to show you the best project they have ever seen. So 
you do that for a while and you say: Show us the worst. Show us 
the biggest waste of American tax dollars you have ever 
participated in. And there is always this pregnant pause and 
then they go: We will show you a U.N. project. It always worked 
out that way.
    But what I think you have right now, I think Raj Shah, 
Administrator of USAID, has done a terrific job trying to bring 
in a matrix and get a results-oriented programs. But I have 
found that the best programs are where you do not measure 
success based on any one matrix; you do it based on the overall 
success of the country or the program.
    If you were to look at Plan Colombia on a day-to-day basis 
or a month-to-month basis, there would be lots of frustrations. 
But you look at it from a 10-year perspective, it may have been 
the greatest turnaround story of our generation, and you know 
when it has occurred. People start talking about the program, 
like we need another Plan Colombia or another Marshall Plan or 
what have you. During the Marshall Plan there were a lot of 
problems with the Marshall Plan, which no one recalls any more.
    MCC I think really has been a breakthrough policy. It is 
not being funded to the degree that it was envisioned 
initially, but when you see that the countries have a stake and 
they get to set the priorities and they are accountable, you 
are starting to see sort of a template, whether it is 
microfinance, whether it is ag development programs, whether it 
is infrastructure, whether it is better, more transparency in 
corporate governance. There seems to be a desire all over the 
world for essentially the same things.
    So I think it is a plus. I think it is something we can 
really build upon. But I would be cautious about having any one 
measure that is going to define success or failure. It is 
whether you are moving the ball down the field, not at what 
point do you score a field goal.
    Senator Kaine. Thank you.
    Senator Barrasso.
    Senator Barrasso. Just following up on that, Mr. Chairman, 
because I agree with you in terms of the metrics and the 
accountability. As you just said, Mr. Lane, it has to do with 
the overall success of the country. You used the word 
``accountability''; accountable to whom? Is there a point 
where--I think, Mr. Moss, you wrote about this at one point. Is 
there a point where too much money raised from either other 
countries, others in the international community that want to 
be helpful, that too much aid detracts from accountability, say 
to the citizens of the country itself? If you could comment a 
little bit about that.
    Dr. Moss. Yes. Thank you for that question. Look, whenever 
anybody faces a windfall gain it changes the dynamics of 
everything. I went in with some neighbors on the $600 million 
lottery last week. We did not win. I think I could handle the 
pressures of winning the lottery, but I know that that would 
change all of my relationships. My son is here with me today. 
He is going to look at me differently. I think these relatives 
and old friends come out of the woodwork.
    The pressures become enormous when you have money fall out 
of the sky for you. That is true for aid if you have an 
external donor that is supporting the majority of your funds or 
if you have some offshore natural resource gain and you are all 
of a sudden getting these dividends. You did not do anything to 
deserve that. You are just getting these windfall gains. That 
undermines, in the case of the lottery winner, it undermines 
your incentives to work like a normal participant in society. 
That works for countries as well.
    What countries should be doing is building a vibrant local 
economy and having a fair and broad-based tax system. When you 
get a windfall gain from the outside, that undermines that 
system. So absolutely, having too much money sloshing around in 
the system, especially in weak states that do not have systems 
to spend money well, can make things much, much worse. I think 
we need to be very, very cautious about that.
    Senator Barrasso. Thanks.
    Do either of you want to add anything?
    [No response.]
    Senator Barrasso. Thank you, Mr. Chairman.
    Senator Kaine. Two additional questions that I wanted to 
follow up on. Dr. Moss, in your opening testimony you really 
focused toward the end about the need to ramp up our efforts in 
development finance. You indicated that we are sort of falling 
behind. I would like you to elaborate a little bit on that. 
What are other nations doing in the development finance area? 
You talked about some of the assets that we have, but what 
could we do more and why is development finance now such a 
critical component of a successful development program?
    Dr. Moss. Thank you. Development finance is the future of 
development policy right now. We are still going to need 
traditional grants, but that is not where things are moving. 
China certainly has very large resources and they can bring all 
kinds of assets to bear. OPIC's competitors, one example, many 
of them can participate in projects through equity. OPIC is 
barred from participating in equity. They have to use a debt 
instrument. That puts them in a subordinate position. It makes 
it very difficult for some of the other partners to work with 
them. It is just a minor difference but in practical terms it 
can make a big deal.
    Multiyear authorization. If the agency is always looking 
for--it has got one more year of lifeline, that makes it a 
little bit more risk averse. It makes it viewed as a less 
reliable partner to outsiders. If it had multiyear or, dare I 
say, permanent authorization, then that would make it a better 
partner on the outside and it would give it some more 
confidence to take some greater risks.
    The reason I think that the time is right here is that, 
trying to reorganize the Federal Government, massive lift. The 
kinds of proposals that we are talking about with creating a 
U.S. Development Finance Corporation is basically just 
bolstering OPIC. OPIC is most of the way there and you could 
just take programs that are sprinkled across the interagency, 
put them under OPIC, and get a lot more bang for your buck, and 
I do not think that you would instigate all of the antibodies 
that you always get when you start talking about restructuring.
    Senator Kaine. Other thoughts on the development finance 
side?
    [No response.]
    Senator Kaine. The second question is, from any of you, 
probably the most significant policy change that is part of the 
President's development budget, foreign aid budget, is the food 
aid policy change. In the status quo, food aid, largely U.S.-
produced and U.S.-flag shipped food aid. The proposal is to 
mandate that at least 55 percent of food aid be sort of in that 
structure, but more of a focus on local food production. As I 
heard Dr. Shah describe it, sort of for two purposes: One, the 
development of an indigenous agricultural sector is one of the 
best guards against hunger; and second, you deal with some of 
the other--you get food to the ultimate recipients quicker.
    Your thoughts on that policy proposal?
    Dr. Moss. I am a huge supporter of it. I think it could go 
further, but it is a good first step, and this is both from an 
efficiency standpoint and from value for the taxpayer. The 
program is designed to reduce hunger and try to prevent hunger 
in the future. That is clearly the way to go.
    Senator Kaine. Additional thoughts, Mr. Murphy?
    Mr. Murphy. I would just add that, my real background is in 
trade policy and in Geneva at the World Trade Organization, 
where there are efforts under way in connection with having 
some kind of package of deliverables for a ministerial 
conference at the end of the year, the long-running agriculture 
negotiations are still a part of that. It is clear that it is a 
priority of many countries around the world to have some kind 
of limitations on food aid, because--and I cite that--this is a 
recognition that comes from countries that we need approaches 
that are more similar to what the President is approaching when 
it comes to delivering food aid. Otherwise the disruption in 
local markets could be significant. There is a broad, close to 
a consensus among WTO members on that.
    Senator Kaine. Mr. Lane, any additional comment?
    Mr. Lane. The only nuance I would add is--and this would be 
a subject for probably another hearing--but the restrictions, 
the MARAD restrictions dealing with Ex-Im Bank and all sorts of 
transportation, diminishes the value of the bank. It causes 
bureaucratic slow-ups and much higher costs, and it really does 
undercut the effectiveness or our ability to use the Ex-Im Bank 
in a lot of projects.
    So at some point modernizing the way in which some of these 
agencies work, whether it deals with content requirements or 
using U.S. shipbottoms, is something that could be really 
reformed and allow the agencies to be much more effective.
    Senator Kaine. Great. Thank you.
    Senator Coons has joined us. We had a 7-minute opening 
round and we will just let you roll.
    Senator Coons.
    Senator Coons. Thank you, Senator Kaine. Is this your 
maiden hearing here?
    Senator Kaine. It is.
    Senator Coons. I would like to congratulate Senator Kaine, 
who has joined us on the Foreign Relations Committee and who I 
very much look forward to working closely with on the issues 
before this subcommittee. I chair the Subcommittee on Africa 
and have in the last Congress and this Congress, and am 
particularly focused on how we can be more successful at our 
development goals, our security goals, and our diplomacy and 
values goals in Africa. I think, if I understand correctly, you 
have already had a vigorous conversation about some duplication 
and overreach in our assistance agencies, some challenges in 
terms of focus and efficiency, and the potentially very 
constructive role of the private sector in achieving these 
goals.
    I was with, if I am not mistaken, Scott Eisner of the U.S. 
Chamber announcing the U.S.-South Africa Business Council just 
a few months ago and see very real potential for better 
alignment, better innovation, better strengthening of our 
complementary goals in development and in economic growth in 
Africa in particular.
    Mr. Murphy, if I might just start with you. Would you share 
a little bit on how in the context of the continent of Africa 
the U.S. Government and the public sector side could do a 
better job of streamlining and focusing in order to promote an 
effective and meaningful partnership with the private sector, 
to make sure that we are taking advantage of the huge 
opportunities on the continent? Of course, Mr. Lane, Dr. Moss, 
I would encourage you to comment on that as well.
    I recently came out with a report on the at least 10 
agencies that have some hand in this: Ex-Im, OPIC, USTDA, and a 
raft of others. Any particular things you would urge us to do 
on this?
    Mr. Murphy. Well, Senator, first I just want to say thank 
you for your leadership, particularly with regard to Africa 
there. I know that my colleagues who are focused on that 
program have greatly appreciated that.
    Clearly, the case that can be made here for a more 
strategic approach to U.S. foreign policy objectives and 
commercial objectives in Africa, to wed that together, is a 
powerful one. So you mentioned your efforts in this space and 
legislation that you have had a hand in that the Chamber has 
supported. What is needed is the kind of concerted approach 
that the United States had in the case of Colombia, and we had 
a very positive conversation about this.
    What worked in Colombia was that an approach was 
established that was bipartisan, that was ongoing over many 
years, and that received adequate resources from across a 
variety of U.S. Government agencies, and on top of that as well 
a very important ingredient is that the Colombians, they owned 
the strategy. It evolved over time. It shifted away gradually 
from military toward--in that case--toward a more economic 
development front, and now of course we have just celebrated 
the first anniversary of the free trade agreement and U.S. 
exports were up 20 percent last year. So we are starting to see 
other kinds of benefits.
    I think we in the private sector would really hold that up 
as kind of a model, that if there can be the staying power of a 
concerted strategy that cuts across different agencies, that 
engages the private sector, that makes trade and commercial 
engagement a key driver, and that receives adequate resources, 
those would be the top of our list.
    Senator Coons. Well, thank you. You certainly raised an 
important underlying theme: A strategy that receives adequate 
resources and is sustained.
    If I might, Mr. Lane, as you move to this topic, USGLC has 
done a wonderful job, I think, at building and sustaining 
bipartisan support--at a time when there is not bipartisan 
support for much of anything here--for what is at times 
difficult to fight for. The 150 Accounts are often the target 
of political rhetoric.
    Help me understand what has made that successful for 
Caterpillar, for USGLC, and why that is important?
    Mr. Lane. The U.S. Global Leadership Coalition is really 
sort of a unique operation. I have never been involved in 
something where NGOs and businesses work so well together, 
where actually Republicans and Democrats have sort of walled 
off the political rancor and moved forward in a way that has 
been positive.
    I like to say, given my experience in Washington and at 
Caterpillar, that at the time I do not think I appreciated 
this, but on reflection--and I say this as a moderate 
Republican, if there is any left--I now believe Bill Clinton 
was America's greatest free trade President and George Bush 43 
did more to help poor people around the world, especially in 
Africa, and neither one of them got one vote for those 
signature accomplishments.
    It is our objective, ``our'' objective, in this case the 
business community: How can we make sure people get rewarded 
for doing the right thing? That is a daunting challenge. But in 
the realm of foreign assistance I think we are all doing a good 
job working well together in this space, and I really 
appreciate the leadership that you all are showing on this 
account.
    As far as your question, in Africa one of the most 
memorable visuals I had was going into Kampala, and there was a 
sign produced, obviously, by someone in the U.S. Government and 
it had the logos of all the different agencies that were doing 
work. It was State Department and it was Commerce and USAID, 
none of which were memorable. The only two brands that really 
stand out, where people outside the United States really get 
it, one is the American flag and the other one is the Peace 
Corps. Wherever we would travel, those were the two strongest 
brands. Everything else was just sort of background noise.
    I would urge to the degree we can do it--and I realize 
there are all sorts of institutional roadblocks--but to the 
degree we can bring things together and have greater focus, 
whether it is getting the signature organizations working 
together or under one roof, it would really help with the 
effectiveness of delivering results.
    Senator Coons. I think that is a good observation.
    If I might, Dr. Moss, just to your point, I think in your 
written testimony, that U.S. aid--and this is mostly in sub-
Saharan Africa--has saved roughly 5 million lives. One of the 
signature accomplishments of the Bush administration was the 
launch of PEPFAR.
    We are today at a point where there are some obvious 
potential ways that we could be more efficient, more 
streamlined, and thus help more people, at a time when we are 
under persistent budget pressure. One of the development models 
that I think holds some real promise is the Millennium 
Challenge Corporation in terms of it having clear standards and 
clear accountability. In a recent meeting with the President of 
Liberia, she was clearly intimately familiar with what had to 
be done in order to achieve a compact, and I think it is a 
salutary thing to have clear and measurable standards and 
procedures and outcome.
    What has been most successful and what has been least 
successful about the MCC? It was not listed by Mr. Lane as one 
of the best known, most memorable changes in development 
policy.
    Mr. Lane. We talked about it earlier.
    Senator Coons. But I do think it has--there was initially--
there was a lot of wasted time and effort in terms of fighting 
over prioritization and culture. I view it in the few countries 
I have been able to visit MCC projects and in my conversations 
with folks at MCC, it has begun to harmonize and be 
complementary to the other preexisting development structures.
    How is it working out and is it worth sustaining in its 
current form or growing?
    Dr. Moss. I am overall a very big fan of the MCC. I do not 
think it was an accident that they decided to set up the MCC as 
a separate agency. They were trying to start fresh and not be 
bound by some of the problems that occur in the existing system 
that I mentioned earlier.
    But I think the lesson of MCC is not the one that we all 
expected initially. I think it was initially sold as the 
innovation was going to be that eligibility for compacts would 
be based on clear third-party criteria. If you are over the 
hurdle you are in, if you are not over the hurdle you are out. 
That is useful. There have been some fights over that.
    But the real innovation for MCC and where I think you can 
take the MCC model to other agencies and other contexts is this 
5-year compact, where you have an actual partnership with the 
partner government on the ground, you have a set of agreed 
metrics, the compact is judged over a multiyear period based on 
those metrics. That is the kind of model that can work even in 
countries that would never meet MCC eligibility criteria.
    So I think that we can learn a lot from that. I also think 
that the MCC has pushed the evaluation agenda. Administrator 
Shah has done pretty well within USAID to get an evaluation 
policy within AID. But using a rigorous independent evaluation 
is the way that you can actually figure out, did these 
results--how were they achieved, what lessons could we learn 
and apply going forward. The MCC has also really led the way 
there.
    So I think it has really been a tremendous success, but not 
necessarily in the ways that we always think.
    Senator Coons. Thank you, Dr. Moss.
    If I might just--sort of one last question about how our 
values agenda lines up with our development, diplomacy, 
security agenda, and the role of the private sector. I often 
say that we are in a race in Africa with a number of 
competitors. China is the most visible, but certainly Russia 
and Brazil and India and others are very actively engaged in 
the continent, see its potential.
    And yet, when an American potential development partner 
comes in, they are often accountable for compliance with the 
Foreign Corrupt Practices Act and transparency standards, or 
accountable to their shareholders or the American press for 
environmental impact of a proposed development project. So in 
certain cases they simply choose not to. There was one in 
Uganda recently that I was familiar with where an American oil 
development company chose not to continue with their project, 
in part because there were some very difficult tradeoffs with 
environmental standards. They stepped back and there was I 
believe a Chinese company right behind them willing to take it 
on.
    In instances where we decline to provide funding for a 
compact because of noncompliance with human rights standards or 
freedom of the press or democracy, following the constitution 
in terms of succession, there are other sources of funding 
which stand immediately next to us and provide an alternative.
    How can American companies successfully compete in an 
environment where at times their competitors are not bound by 
comparable standards in terms of transparency and promoting 
multiparty democracy and respect for human rights? And how can 
our work through State, AID, MCC, and others reinforce that 
constructively?
    [Pause.]
    Senator Coons. I see no immediate volunteers.
    Dr. Moss. I actually think the FCPA is a good example where 
a lot of the initial concerns about competitiveness are--it has 
flipped. What the United States has done through the FCPA is 
actually raised the global standard and in a way has helped to 
protect companies from getting themselves in trouble. I think 
that if we base our rules and regulations on transparency, 
respect for human rights, on our values, and we implement 
those, we can help to raise the bar across the marketplace.
    If there is a company from another country that is willing 
to come in and pay bribes and asset strip to get it done, that 
is not going to succeed in the long term. I do not believe 
that--I think the point is we should take the long view here 
and not be mercantilist about individual political deals. We 
should not sell out our values in order to get a particular 
deal, because in the long run if we are right the world will 
move toward standards, just like we have seen on 
anticorruption.
    I do not believe that companies that undermine the rule of 
law to get contracts now will succeed over the long term. Those 
will come back to bite them. That is part of the reason that we 
went with the FCPA in the first place. So I think we should 
stick to our guns.
    Mr. Lane. Senator, the issue has been around for a long 
time. Caterpillar in 1974 was one of the first companies to 
have a worldwide code of conduct. It was right after the Gulf 
Oil--I am really dating myself now--scandals in the early 
seventies.
    It is amazing. It occurred, that type of activity, occurred 
all over the world, and it still occurs in some parts of the 
world. But during the same time period, by playing by the 
rules, it is amazing, you still become a successful 
organization. Where a country really gets explosive growth is 
where they get enough things right where they start attracting 
foreign investment in a big way. When that happens, that is 
where you see the transformation really take place.
    Earlier we were talking about the promise of the MCC, and I 
really think there is a lot of promise there. But if you could 
start getting a lot of the little things--little things are big 
things, really--right, at some point the combustion takes place 
and you start attracting foreign investment.
    Where we did the biggest deep dive in the HELP Commission 
was in Honduras, and the north-south highway, you had the Port 
of Cortes improvement. You had the ag development programs 
where we were trying to encourage people to grow something 
other than corn and rice and start growing sweet potatoes and 
cucumbers and what have you. It started raising incomes two, 
three times for farmers that had two or three hectares, and it 
really makes a difference, and at some point the foreign 
investment kicks in. And when it kicks in in a big way, you 
really do see enormous growth, and the first thing that you 
have when you have enormous growth is a need for more 
infrastructure, and the best way to get more infrastructure is 
to buy Caterpillar products. So let me end with a commercial.
    Senator Coons. I will note you are the only witness today 
who brought an actual physical embodiment of the underlying 
product, and you managed to work that in.
    Mr. Lane. The reason why I brought that, just so you know, 
and we spent a lot of time talking about Colombia, but this is 
a D-11 bulldozer, the biggest bulldozers in the world. They are 
produced in East Peoria, IL. In Colombia, with the coal mines 
in Colombia, there are more D-11 bulldozers there than anywhere 
else in the world. So it is amazing how this international 
commerce really does lift all ships, even some that are 
bulldozers that are very heavy.
    Senator Coons. One more question if I might, just in 
closing. I will reference back to Dr. Moss' point. Of course I 
think we should stick to our guns. Of course I think--but I 
think we need all of the taxpayer dollars that we are spending 
across a dozen agencies and with our partners in the private 
sector we need to be pushing in the same direction, and we need 
to be welcoming and encouraging those voices, those 
institutions, and those groups within developing countries, 
particularly in Africa, which is my primary focus, that also 
have that value, that also have that priority of improving 
worker protection, improving environmental protection, 
improving transparency, because on that playing field I think 
we will always win.
    But in the absence of it, one thing that distinguishes the 
current environment from 10 or 20 years ago is the number of 
other potential sources of foreign investment that are not 
asking those questions and are not advancing those interests. 
That is, I think, something that we need to be really focused 
on and attentive to as we try and all pull in the same 
direction.
    Thank you so much for your testimony today.
    Thank you for the chance to ask questions.
    Senator Kaine. I want to thank my colleagues for 
participating. To the witnesses, you have given us a lot to 
think about. You have made the case very strongly that the U.S. 
foreign development programs and budget are important. The 
notion that you mentioned, Bill, a bit ago, that in the past 
you might talk about trade not aid, and yet aid done right 
promotes trade, lays the groundwork for trade, builds the road 
on which then trade occurs, that testimony comes through loud 
and clear.
    You have also given us some examples of things that have 
worked and why, and things that are not working as well as they 
can and how we can improve them. This is an important topic for 
America's continuous global leadership. We appreciate all your 
testimony and look forward to doing more work together.
    With that, just as we are about to now vote on the floor, 
the hearing is adjourned.
    [Whereupon, at 12 p.m., the hearing was adjourned.]

                                  
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