Speech

October 20, 2008

As Prepared by John J. Danilovich, Chief Executive Officer

Conrad N. Hilton Foundation Symposium, Geneva, Switzerland

‘MCC: Changing Development Assistance to Better Reach the Bottom Billion’

Introduction

Thank you very much, Ralph.  It’s great to see you again.

It is a true honor for me, for the second time, to be invited to speak at the Conrad N. Hilton Humanitarian Prize event.  I am grateful that you have allowed me—and the Millennium Challenge Corporation—to be a small part of the great work the Hilton Foundation is doing around the world.  So, I would like to particularly thank you, Steve, Greg, Hawley, and Jim, for this honor.

It’s a pleasure to join you this morning, and I appreciate the invitation to participate in this important discussion on ending the plight of global poverty.

In our societies of plenty—amidst the comforts of more-than-enough—we recognize the tremendous constraints billions across the planet face as poverty robs them of 

  • economic opportunity,
  • health,
  • education,
  • access to basic services,
  • and a productive future.

And, we recognize that poverty anywhere is a threat to prosperity everywhere.  We here today are a vital part of the discussion and debate as to how best to confront and defeat global poverty. 

Describing the problem of poverty

I have the enormous privilege of working with 300 of the best and brightest minds in development at the Millennium Challenge Corporation headquarters in Washington.  At MCC, our values are not left at the door when we come to work.  They are brought into the workplace, and it is the quest to end global poverty and sustain development that motivates us all to do our work each day.  And, because of Professor Paul Collier’s groundbreaking book, the bottom billion also comes to work with us each day as well. It’s a crowded office! 

Joking aside, they are in our consciousness; they help mold our thinking and determine our practices.  Nongovernment organizations and civil society organizations—and a symposium like this, with participants like you—remind us emphatically not only of the moral imperative to reach out to the world’s poorest, but also of the disastrous consequences of failing to do so. "A cesspool of misery next to a world of growing prosperity is both terrible for those in the cesspool and dangerous for those who live next to it,” writes Professor Collier.  This is the reality we cannot turn our backs on.

In describing how

  • conflict,
  • the politics of natural resources,
  • geography,
  • and bad governance

trap the bottom billion in poverty, Professor Collier’s book raises our awareness and better informs our actions to empower the poor to break free of these traps.  He gives the bottom billion a voice—the voice we hear calling and challenging us to

  • change our assumptions,
  • change our strategies,
  • and change our conversation about how to end poverty.   

MCC’s role

I am honored to be part of the discussion because the work of the Millennium Challenge Corporation shows me every day—in concrete ways—that we can make—and are making—a difference in the fight against poverty.  Since its creation in 2004 as the U.S. Government’s signature development assistance program, the Millennium Challenge Corporation has been changing the lives of the poor in ways that matter.  MCC awards grants—not loans—to poor countries worldwide to achieve one mission: poverty reduction through sustainable economic growth. As Professor Collier states, "We cannot make poverty history unless countries of the bottom billion start to grow…”

When I addressed this symposium two years ago, I spoke about our innovative model; now I can point to the results that our innovative model is making possible around the world. Your faith in MCC’s new approach to development has been well-placed, and today I am pleased to report to you of the progress underway, of how the lives of the poor are improving.  I have seen for myself how our MCC partner countries are using our grants to:

  • issue land titles,
  • increase farmer incomes through better agriculture techniques and programs,
  • create jobs,
  • increase market access,
  • strengthen small-scale fisheries and artisan training,
  • open health clinics,
  • alleviate HIV/AIDS and other diseases,
  • build and operate "girl-friendly” schools,
  • facilitate vocational training,
  • strengthen financial services and access to credit,
  • expand water and sanitation services,
  • and improve infrastructure—from roads to bridges to ports. 

It is a great source of satisfaction to witness how a new approach to U.S. development assistance—administered through MCC—is easing the burden of poverty for so many families and communities.

We see this with Justine in Madagascar. Supported by MCC’s land reform program, Justine secured clear, legal title to her land.  With that, she went to work leveraging her assets. She used two of her parcels as collateral for a $500 microloan, which she invested in her potato farm. The tenure security on another plot of land gave her the confidence to invest in constructing a small house that she now rents. Such rental income has been enough to pay for her children’s school fees and to purchase oxen that the family uses to transport their crops to market. Justine, her husband, and her four children are living a more secure life in Madagascar.

We see this with sesame seed producers in Nicaragua.  Benefitting from business development training they received through MCC, these farmers saw, on average, a 130 percent increase in their income from the previous harvest’s income on land where they applied MCC’s technical assistance and access-to-market support.

We see this among the girls attending school in Burkina Faso.  Working closely with the

  • United States Agency for International Development,
  • the Burkinabe government,
  • and international and local NGOs,

MCC is proud of our 132 "girl-friendly” schools, where nearly 19,000 children—12,000 of whom are girls—learned

  • reading,
  • writing,
  • and arithmetic

during the last academic year. Improving the literacy and math skills of girls gives them greater employment opportunities in the long run, empowering them to lift themselves out of poverty.  When I visited these schools last year, I encouraged Burkina Faso’s commitment to double the capacity of these schools as a part of their compact, which we signed this past July.

Our partner countries are buzzing with the implementation activity of putting their MCC grants to work—activity that is multiplying every day. Projects implemented by our MCC partner countries have already resulted in more than 48,000 farmers being trained and more than 3,000 hectares of land under production so far. More than 3,000 kilometers of roads are under design. More than 600 kilometers of irrigation canals are being built. 
To date, MCC has committed over $6.7 billion to 35 countries worldwide to fund country-sourced programs to fight poverty through growth.  Over $6.3 billion of this total has been awarded to 18 countries in

  • Africa,
  • Central America,
  • Eurasia,
  • and the Pacific

that have passed our "good government” eligibility criteria to qualify for our sizable, five-year grants we call compacts.  The remainder—in smaller grants—has been awarded through MCC’s threshold program to countries that come close to passing and are firmly committed to improving their performance on our eligibility criteria. 

How MCC’s aid fights poverty

There is a growing debate in Washington over the next administration’s need to overhaul the U.S. foreign aid system. Now, how our MCC grants are awarded and delivered has provided a working template—a sort of action plan—for changing the conversation about aid to reach the tipping point in the fight against poverty.  Aid is very much part of the solution, and I would like to concentrate my remaining remarks on this aspect of Professor Collier’s thesis.

As the professor explained in a Washington Post opinion piece, "aid will probably be…as important to helping the bottom billion as it was to saving postwar Europe: part of the solution but not decisive. Our utter neglect of trade, security, and governance policies for the bottom billion is a scandal—and an opportunity. Properly used, these policies have real power….”

At MCC, we agree that the real power of aid lies in creating powerful incentives for

  • reforming policies,
  • strengthening good governance,
  • opening markets,
  • and promoting security and stability. 
  • That’s why Mali and Benin have undertaken significant land reforms to maximize the benefits of their MCC grants. 
  • That’s why Madagascar has reduced the minimum capital requirement to start a new business.
  • That’s why El Salvador has reduced the number of days required to start a business.

Many experts agree on development assistance’s powerful role as a catalyst for change. As part of this template for change, MCC’s approach demands five of the very ingredients we believe are essential for countries in the bottom billion to effectively change and pull their people out of poverty.

First, MCC’s approach demands sound policy performance. We use 17 policy indicators taken from independent, third-party sources to measure a country’s commitment to

  • good governance,
  • economic freedoms,
  • and investments in education and health. 

Our partners are making great efforts to

  • respect the rule of law,
  • create a business-friendly environment,
  • enforce contracts,
  • protect intellectual property rights,
  • and safeguard land rights.

MCC’s mandate focuses only on those countries where our assistance can make the greatest difference because, as Professor Collier points out, "aid [is] not very effective at raising growth in the conditions of poor governance and policies that typif[y] the bottom billion.”

Second, MCC’s approach fights corruption. We only partner with those counties that pass our control of corruption indicator. This strong position against corruption encourages countries to take on the difficult work of building a culture of transparency and accountability. 

Third, MCC’s approach empowers partner countries. We provide funding and technical support, but we expect our partners to

  • develop their own proposals,
  • implement their own programs,
  • and benefit from leading their own economic development efforts.

This motivates our partners to reform their policies as critical steps for sustaining their development and to build their capabilities to do more for themselves.  Local capacity building that strengthens local skills and know-how is part of what Professor Collier refers to as "intelligent aid.”

Fourth, MCC’s groundbreaking gender policy demands the inclusion of women in development. We ask countries to consult extensively with their citizens—from the

  • private sector,
  • to NGOs,
  • to civil society groups—

and outline their priorities for overcoming barriers to poverty reduction and growth. This

  • meaningful,
  • participatory,
  • citizen-driven,
  • consultative process

—what Professor Collier calls "local efforts at change”—must include the participation of women.  This is not only our policy but also common sense:  A development strategy that ignores half of its citizens is, by definition, doomed to fail. 

And, fifth, MCC’s approach promotes entrepreneurship. Our goal is to have our aid augmented and eventually replaced by the self-sustaining economic activity driven by the private sector. Because we demand performance on indicators evaluating

  • fiscal,
  • monetary,
  • regulatory,
  • and commercial factors, including the costs and days required to start a business,

we foster conditions that

  • promote local entrepreneurship,
  • attract investment capital,
  • and expand commerce and trade.

Madagascar, for example, MCC’s first compact partner, adopted trade liberalization reforms as a priority for both stamping out corruption and stimulating growth.

Our partner countries—among the world’s poorest—are examples to the bottom billion of what is possible through meaningful reform. As the real leaders of their own development, our partners are responding to MCC’s bold approach, one that expects more of us who are providing the assistance and expects more from those who are receiving it.  Though it is challenging and demanding, we see partner countries adopting MCC’s way

  • by embracing ongoing reforms to retain and maximize MCC funding;
  • by fighting corruption;
  • by engaging all segments of their societies—including women—to define development priorities and implement action toward them;
  • by building their capacity to fight poverty;
  • and by working to promote healthy business climates so that trade and private enterprise can serve as the ultimate engines of long-term economic growth.  

How MCC enables growth

This process for realizing results is as important as the results themselves.  At MCC, we share Professor Collier’s assessment that "aid alone is really unlikely…to address the problems of the bottom billion.”  But, how aid is delivered will, in fact, stimulate the very conditions that will empower countries to grow in sustainable, country-driven ways.  And, this will have an impact. Growth remains the single most important factor in poverty reduction; we know that economic growth has accounted for 80 percent of global poverty reduction since 1980. 

  • We can’t have growth if corruption persists. 
  • We can’t have growth if a country receives a hand-out as opposed to a hand-up in fulfilling its vision for its development.
  • We can’t have growth if women and girls are excluded from the productive lives of their communities.
  • We can’t have growth if the enterprising ingenuity and innovation of the private sector aren’t part of the solution.

Recommitting to poverty reduction

To reach the bottom billion means using development assistance not as a panacea but as a pathway to effect the change necessary for countries to grow.  MCC’s assistance provides such a pathway—not just by raising the bar on what countries must do to qualify for our aid in the first place, but also by altogether changing the expectations.  The future of development assistance—and the debate about how best to make it most effective—hinges on rethinking aid’s role and responsibilities.  At MCC—with our eye on the bottom billion—we will continue contributing to this vital debate.

I am proud of the solution to global poverty the Millennium Challenge Corporation offers.  It is a solution that is working, and working well—as the incomes of enterprising farmers increase as they expand into new markets, or as the businesses of women entrepreneurs grow through their ability to access credit.  The MCC solution is grounded in

  • sound policy performance,
  • country empowerment and partnership,
  • aid with accountability,
  • and results-based assistance.  

And, it is a solution that countries themselves are embracing, with pride, as they pursue economic opportunity and growth that will, once and for all, replace poverty with prosperity for their citizens in sustainable and meaningful ways.  

Thank you again for this opportunity to talk to you about the role the Millennium Challenge Corporation is playing to help end global poverty in countries home to some of world’s bottom billion, and I very much welcome our discussion here today.  Thank you.