Proceedings from the Summit on

ENTREPRENEURSHIPand
EXPEDITIONARY
ECONOMICS
Toward a New Approach to Economic
Growth Following Conflict or Disaster

Command and General

Staff College Foundation, Inc.
 Table of Contents
Introduction
Expeditionary Economics: Charting a Course for Economic.............................................5
Recovery and Development in Post-Conflict Countries
by Carl J. Schramm and Col. Robert Ulin, U.S. Army (Ret.)

Post-Conflict Planning and Execution in Previous Wars

Back to the Future: The Marshall Plan.................................................................................8
by R. Glenn Hubbard and William Duggan
The Occupation and Economic Policy in Japan 1945–52.................................................20
by Louis A. DiMarco
Post-Conflict Planning and Execution in Korea................................................................42
by Marcus Noland
Post-Conflict Economic Planning and Execution in South Vietnam...............................60
by Rufus Phillips
Out of Sight, Out of Mind: Post-Conflict Economic Planning in the Balkans................74
by Patrice C. McMahon and Jon Western

Current Post-Conflict Planning and Execution

Post-Invasion Economic Planning for Iraq and Afghanistan............................................92
by Michael O’Hanlon
Remodeling Pre/Post Conflict Development Assistance................................................104
for Weak and Failing States
by Dr. David A. Anderson
Stabilization and Reconstruction in Conflict and Post-Conflict Since 9/11.................124
by James Stephenson
Planning for Stability Operations: The Personal Lessons of Two Wars.........................139
by Ronald E. Neumann, Ambassador (Ret.)
Implementing Expeditionary and Entrepreneurial Economics:.....................................156
Iraq and Afghanistan
by Nicholas H. Riegg

Post-Conflict Planning and Execution in the Future

Post-Conflict Planning and Execution: Progress, Challenges, and................................177
a Framework for Moving Forward
by Frederick W. Kagan
Economic Regeneration in Unstable and Conflict-Affected Areas...............................189
by Clare Lockhart
Operationalizing Expeditionary Economics....................................................................201
by Kori Schake
A Structural Approach to Future Stability and Reconstruction Operations.................214
by Ginger Cruz
Towards a Post-Conflict Economic Development Doctrine..........................................226
by Colonel Jeffrey D. Peterson
How Ideas Become Doctrine: The Evolution of Military Thought................................234
in an Era of Complex, Rapid Change
by Clinton J. Ancker, III
Appendix
Opening Dinner Keynote, May 25, 2010..........................................................................255
by Niall Ferguson
Luncheon Keynote, May 26, 2010.....................................................................................262
by Gen. William E. Ward
Dinner Keynote, May 26, 2010..........................................................................................272
by Richard Haass
Closing Luncheon Keynote, May 27, 2010.......................................................................282
by Lt. Gen. Robert Caslen

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[ 4 ]
 Introduction

by Carl J. Schramm
President and Chief Executive Officer,
Ewing Marion Kauffman Foundation
and
Col. Robert Ulin, U.S. Army, Ret.
Chief Executive Officer, Command and General Staff
College Foundation, Inc.

O
ver the past several years, the United States and its allies have been
entangled in two conflicts, Afghanistan and Iraq, in which military action
alone has been insufficient to achieve victory. In particular, political
settlements and economic progress have come to be seen as essential “non-kinetic”
components to strategic success.

This is not an especially novel realization: Since the early 1980s, the United States
has repeatedly found itself involved in “irregular” engagements that demand attention to the
social and economic dimensions of conflict. Nor is this confined to warfare—in responding to
natural disasters such as the January 2010 earthquake in Haiti, the U.S. military is often among
the first international responders and thus bears a large burden of responsibility for the initial
stages of recovery.
As has become quite clear in Afghanistan and Iraq, however, the United States and
other countries have not yet mastered the art of stimulating economic development in other
countries. One decade after U.S. intervention in the Balkans, for example, while conflict has
subsided, economic progress remains minimal. And, after repeated international interventions
over the past two decades, Haiti is still one of the poorest countries in the world, which
contributed to the terrible devastation wrought by the earthquake.
The reasons for this poor track record in economic development are varied—
poor planning, misaligned resources, bureaucratic confusion, and so on. To be sure, the
shortcomings in the American and international approach to post-conflict economies do not
result from lack of military effort. The experiences in Afghanistan and Iraq are replete with
success stories achieved by individual soldiers and units, from irrigation canals to new schools
and health clinics.

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 introduction

The problem, instead, is one of doctrine: The United States has no coherent doctrine
for understanding or approaching post-conflict economic development. In fact, what doctrine
does exist has never proven itself to be effective. As a number of economists have shown,
the past six decades of foreign aid and international programs in poor countries have mostly
failed or even, in some cases, caused harm. The upshot has been that, in situations where the
military serves as our primary presence in a country, there have been plenty of ground-level
achievements but a lack of overall progress in terms of economic growth.
On one level, it should not be surprising that the received doctrines of development
that have guided the United States for sixty years do not work. After all, the U.S. Agency
for International Development was conceived in the middle of the Cold War, and for several
decades foreign aid was rightly filtered through the lens of this struggle. Until 1990, the
strategic necessity of checking the Soviet Union overrode any intent to instigate growing
economies.
The fundamental problem is how we conceive of economic development. The
emphasis on infrastructure illustrates an approach that is top down, at odds with the bottom-
up reality of economic growth. An economy does not grow because it first develops a generic
“capacity” or because of administrative prerequisites deemed to be necessary for growth.
An economy grows because firms grow—firms are its most essential component, the only
mechanism of new jobs and wealth creation. To pursue economic growth in countries such as
Iraq and Afghanistan—as well as in post-disaster countries such as Haiti—the United States
must look for ways to encourage the formation and growth of new firms.
The promotion of business formation might seem somewhat incongruous in the
post-conflict context. Consider, however, that this is the only way in which economic growth
happens—and it reflects an approach once taken by the United States in rebuilding postwar
countries.
The most striking recent economic success stories are China and India, responsible
for lifting hundreds of millions of people out of poverty. While the prominence of
government intervention captures much attention, both countries owe their remarkable
growth to the formation and growth of new companies—village enterprises in the case of
China, and iconic companies such as Infosys and Wipro in the case of India.
The United States, moreover, placed business front and center in the
implementation of the Marshall Plan. With economic production and government finances
in shambles, the United States recognized that only with economic activity, via firms, would
Western Europe recover and provide a buffer against the Soviet Union. Achieving economic
growth was seen as essential to strategy.
The American military clearly perceives the importance of economic activity
following combat missions—restarting the economy served as the primary rationale
behind many individual units’ successful adaptations in Afghanistan and Iraq. In the past

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 introduction

several years, presidential and Department of Defense directives and two new military field
manuals—on counterinsurgency and stability operations—have raised post-conflict economic
performance to the level of highest national priority.
To explore these issues, the Kauffman Foundation and the Command and General
Staff College Foundation (CGSCF) brought together leading military and civilian figures for a
conference on Expeditionary Economics on May 25–27, 2010, at Kauffman’s headquarters in
Kansas City, Missouri. This concept, first introduced in Schramm’s 2010 Foreign Affairs essay,
seeks to provide a new theoretical framework for economic development in post-conflict
situations and, as mentioned, emphasizes the formation and growth of new companies as
the key to growth. Such growth, moreover, provides the central basis for secure and stable
countries, helping to strengthen the security of surrounding nations and the United States.
One preliminary question that naturally arises is why the U.S. military should be
tasked with economic development in places like Afghanistan, Iraq, and Haiti. This, after all,
has historically been a civilian responsibility and would simply add to the burden borne by
soldiers. Clearly, these are significant concerns, but we should also recognize that, in many
cases, the military will be not only the sole presence in a country, but also the best-resourced
institution. In fact, the military has already been engaging in economic development in
post-conflict situations, just in the absence of any coherent guiding doctrine that might
promise sustainable progress. There is every expectation, too, that future engagements will
demand similar involvement by the military. To promote global security and ensure that the
valiant efforts of soldiers are not wasted, we must craft a workable and effective doctrine of
Expeditionary Economics.
Not everyone at the conference—either in the formal panels or in the discussions
by participants commenting on the presentations—agrees with all of these propositions. That
is to be expected, and indeed encouraged. It is only through active debate that ideas are
sharpened to the point where they are practical and useful.
This volume collects the papers, in chapter form, that were presented at the
conference. Both the volume and conference consisted of three parts: a review of the
economic planning before and/or after each of the major military actions in which the
United States has been involved in since World War II (including that war); an examination of
economic recovery planning and actions during the Iraq and Afghan engagements; and issues
relating to economy-building in future military actions.
Expeditionary Economics is a topic that has been long in coming. It is time for it to
receive the attention it deserves. We hope that this volume will give readers a sense of the
issues involved and the debates over their resolution that must now begin.

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 Back to the Future: The Marshall Plan

by R. Glenn Hubbard and William Duggan

Glenn Hubbard is dean and Russell L. Carson professor of finance and economics at Columbia
Business School. He is also a professor of economics at Columbia University and a research
associate of the National Bureau of Economic Research. In addition to writing more than 100
scholarly articles in economics and finance, Hubbard is the author of two leading textbooks on
economics, as well as co-author of The Aid Trap: Hard Truths About Ending Poverty and Healthy,
Wealthy, and Wise: Five Steps to a Better Health Care System. In government, Hubbard served as
deputy assistant secretary of the U.S. Treasury Department for Tax Policy from 1991 to 1993. From
2001to 2003, he was chairman of the U.S. Council of Economic Advisors under President George
W. Bush. While serving as CEA chairman, he also chaired the Economic Policy Committee of the
OECD. He currently co-chairs the nonpartisan Committee on Capital Markets Regulation. In the
corporate sector, he currently is a director of ADP, BlackRock Closed-End Funds, KKR Financial
Corporation, and MetLife.

William Duggan, a former Ford Foundation representative for West Africa, is an associate
professor at Columbia Business School and co-author of The Aid Trap: Hard Truths About Ending
Poverty.

J
ust over sixty-three years ago, on June 5, 1947, U.S. Secretary of State George
Marshall announced the European Recovery Program (later known as the
Marshall Plan) in a famous commencement address at Harvard University. He
said that it was “logical” for the United States to do whatever it could to restore the
region to economic growth, “without which there can be no political stability and no
assured peace.” The plan, funded by the U.S. federal government and administered
by a Europe-wide commission, spent $13 billion over four years and engendered
the highest rate of economic growth (about 35 percent per year) in European
history. When the work of the plan was finished, the economies of every Western
European country had not just returned to prewar levels of growth and economic
development, but surpassed them.

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 marshall plan

Ever since, the Marshall Plan has been widely hailed as a triumph, an example of
foreign aid as an enabler of economic revitalization on a grand scale. During the past few
years, some leaders have proposed it as a model for helping an entirely different region.
Given the high rate of extreme poverty in sub-Saharan Africa and the fact that Africa is
poorer today than it was twenty years ago, a call has gone out for a Marshall Plan for Africa.
For example, Jeffrey Sachs, the director of Columbia University’s Earth Institute, included the
idea in his 2005 book The End of Poverty. The United Nations Millennium Project, which
Sachs helped conceive and design, evoked the Marshall Plan in its own reports, as did the
George W. Bush administration’s Millennium Challenge Account (MCA), which was launched
in 2006. Finally, in 2005, the United Kingdom’s Chancellor of the Exchequer (now a former
Prime Minister) Gordon Brown made “a modern Marshall Plan” for Africa part of his grand
vision for international aid. He argued that Africa’s dire situation calls for massive concerted
action by the world community.
Brown’s proposal, which has influenced many subsequent proposals and projects,
contained four main elements. First, rich-country governments and multilateral institutions
(such as the World Bank and International Monetary Fund) would forgive all their existing
loans to the governments of African nations. Second, rich countries would double the
amount of their direct development aid, establishing an “international finance facility”
that could provide more support in the early phases of activity by borrowing against future
promises of aid. Third, African governments would commit to anticorruption measures and
more spending on health, education, and welfare. Fourth, high-income countries would end
trade barriers that hinder the import of African agricultural products.
There is much reason to agree with the objectives of a Marshall Plan for Africa.
Raising the economic growth rates and standards of living in the poorest countries—sub-
Saharan Africa in particular—would have many beneficial effects within the continent, and
positive implications for people everywhere.
But there’s a problem: Most existing proposals, including Brown’s, represent a great
misunderstanding of the intention of the original Marshall Plan and the way it worked. It was
less a sweeping program of foreign aid to governments and agencies than a large-scale effort
to restore the power of business as a growth engine. A true Marshall Plan for the poorest
nations could ignite growth and reduce poverty, but only through a set of institutions that
are different from those the current aid system is using. And a broader understanding of
the history of the Marshall Plan in Europe could lead to much more effective international
investments and political initiatives, not just in Africa but throughout the world.

Marshalling Resources
Let’s start with sub-Saharan Africa. Economic growth in sub-Saharan Africa has
been generally poor since 1960. More troubling is the relative deterioration in African growth
prospects: Although the average output per worker of African countries was about the

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same as that of Asian economies in 1960, the latter have since experienced a growth boom,
whereas most African economies have stagnated or deteriorated. This lack of growth has
been a major factor in reinforcing war and dictatorship throughout the continent, just as it
threatened to do in Europe after World War II.
Indeed, the immediate impetus for the original Marshall Plan was the United
Kingdom’s announcement that it had run out of funds to support the Greek government,
which was fighting a Communist insurgency. Communism had already taken root in Europe
at the end of the war, and insurgencies and Communist parties were gaining ground
throughout the rest of the continent.
Most existing proposals,
The plan had four components. The first
including Brown’s, represent
a great misunderstanding of involved the way aid funds were gathered and spent.
the intention of the original The United States was the source; it channeled
Marshall Plan and the way it all grants through an independent funding and
worked. monitoring mechanism with its own global and local
institutions. These included the Economic Cooperation
Administration (ECA), which ran the entire program, with headquarters in Washington and
small missions in every Western European country. Each country had a special ECA account.
The receiving countries formed their own regional coordinating body, the Organisation
for European Economic Co-operation; this was a forerunner of both the Organisation for
Economic Co-operation and Development (OECD) and the European Union.
The second component was the intensive involvement of the private sector. The
original initiative was run by business leaders, including the top administrator, Paul Hoffman
of Studebaker Motor Company Inc., then a major carmaker based in Indiana. The ultimate
recipient of each loan—in effect, the unit of economic development—was an individual
entrepreneur or business, not a government agency or nongovernmental organization (NGO).
Funds went directly to European governments, but they were required to use it to make
loans to local businesses. The borrowers later repaid the loans to these governments, which
could then lend them out again. This virtuous circle meant that all money spent on public
projects would come from loans, most of which were repaid. It also helped ensure a focus
on restoring the commercial infrastructure—such as ports and railroads, supply chains, banks
and other financial institutions, and telecommunications networks—that would further boost
economic activity.
Third, each European government made economic policy reforms to support their
domestic private sectors. They made it easier for all businesses, from upstart entrepreneurs
to midsized manufacturing and larger enterprises, to thrive. The closest that Brown’s modern
proposal came to enabling business-sector development was the provision to cut trade
barriers in donor countries. The original Marshall Plan did the opposite: It cut trade barriers
in recipient countries, thereby increasing the markets and prospects for the entire region
through increased trade.

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 marshall plan

The fourth component was a regional coordinating body that handled the
distribution of funds among countries. This ensured that countries (and their resident
businesses) would compete for funds. If one country did not cooperate, another was happy
to take its funds.
It was a fortunate circumstance that these four components, and the pro-global-
business sentiment underlying them, could be put into place. Although some isolationists in
the U.S. Congress, focused on the cost of the enterprise and opposed to intervening outside
U.S. borders, rejected the plan, most U.S. politicians understood that domestic fortunes
would rise with those of a prosperous, peaceful Europe. There was also a political consensus
that business was the primary source of prosperity and stability; after all, American industry
had just won the war. And no competing system of economic development arose to offer an
alternative; the current, prevailing approach to foreign aid, with its reliance on government
agencies and NGOs, would not emerge until the 1960s.

Marshall Plan Economics Today

Most of today’s Marshall Plan for Africa proposals have little in common with the
original Marshall Plan. But there are some important similarities between Europe then and
Africa now. One is the sense of urgency. Africa is in danger of economic and social collapse,
whereas Europe was under threat of Soviet advance. The second similarity is the recognition
that the speed of implementation is critical. The original
plan lasted only four years, and most of the present-day A real Marshall Plan for Africa
plans at least aspire to offer help in a similar time frame. would represent something
Third, the financial scale of the original Marshall Plan that this continent has never
was similar to today’s proposals; both involved spending seen on a major scale—a
about $20 billion per year in today’s dollars. private-sector support
project.
But the original plan’s focus on the private
sector is missing in today’s African aid visions. Brown’s
plan, for example, fosters government-led development with an emphasis on grants to social
service agencies and NGOs: the same old aid-to-Africa idea in a bigger package. The MCA,
as proposed by the Bush administration, offers major aid packages to governments of poor
countries that put in place economic reforms and that improve human rights and democratic
institutions. While potentially positive for entrepreneurship, this, too, fails to completely
capture the spirit of the original Marshall Plan. The only element the MCA’s mission has
completely in common with the original Marshall Plan is economic reform. But the MCA
provides its primary aid to government-led development, not business-sector support.
A real Marshall Plan for Africa would represent something that this continent has
never seen on a major scale—a private-sector support project. This lack of business-support
history in the region is poorly understood. For example, in a June 26, 2006, appearance on
the Charlie Rose Show with Bill and Melinda Gates (announcing his multi-billion-dollar gift to

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the Gates foundation), Warren Buffet said that “a market system has not worked in terms of
poor people.” In reality, it was never given a chance.1
Of course, the new Marshall Plan would not look exactly like the original. Africa
today is not the same as Europe in 1947. Despite the ravages of World War II, Europe then
was in better shape than Africa is now, especially sub-Saharan Africa. The Marshall Plan
aimed to restore the European economy to its prewar prosperity. Sub-Saharan Africa has
never had such prosperity to restore. It has always been poor. Yet the essential elements of
the original Marshall Plan offer a way forward that any program of development aid must
follow.
A genuinely effective Marshall Plan for Africa should concentrate exclusively on
business development. It should have its own institutions designed to match those of the
original plan. Last time, the U.S. Congress created a commission to oversee the plan. The
new plan should require an international commission to provide oversight. There should also
be a structure equivalent to the ECA to collect and manage the funds on the donor side.
Under such a plan, an African country would become eligible by putting policies in place to
foster business development; each member government would then have its own revolving
fund in a special account. In the original Marshall Plan, governments spent the repaid loans
on economic infrastructure projects approved by the ECA. A Marshall Plan for Africa should
establish a similar structure. Given Africa’s size and diversity, there might be regional ECAs
rather than a single one for the whole continent.2
A plan like this would not be redundant; it would complement the existing private-
sector efforts in Africa—such as those sponsored by the Africa Development Bank (ADB),
the International Finance Corporation (IFC, the private-investment arm of the World Bank),
the Grameen Bank and other microlending institutions, and the emerging networks of
Chinese investors. These private sector efforts are all beneficial, but they are tiny compared
to the public sector aid going into Africa today. And the existing business-related efforts
have limitations that constrain their effectiveness. The ADB, for example, makes more loans
to government agencies and NGOs than it does to private companies, and neither it nor

1. For another example, the major aid agencies met in Ghana in September 2008 in a High-Level Forum
on Aid Effectiveness. They listed many problems in the aid system they wanted to fix, including too many
foreign consultants and insufficient donor collaboration on the ground. But they failed to mention the
business sector at all! And The Economist—a leading magazine of classical liberalism—reported on the
meeting with a favorable full-page article that also failed to mention business.
2. The original Marshall Plan offers an overall structure, but actual progress depends on whether the
local people can move to the new business system the Marshall Plan promotes. There is a widespread
view in many low-income economies that business cannot work there because it runs counter to cultures
But in his 2005 book Africa Unchanged, the Ghanaian economist George Ayittey argues that traditional
African culture was not anti-business. Instead, he shows how post-colonial African governments—with
the help of foreign aid—stifled the African business sector. Ayittey’s book is a call to action, with the
ultimate aim of empowering local entrepreneurship.

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the World Bank insists on pro-business policies, as the Marshall Plan did. The World Bank’s
Doing Business project ranks countries on ten indicators of how easy the local government
makes it to start and run a business.3 A country like Mozambique, which ranks 140th out
of 175 countries analyzed by the World Bank in its Doing Business reports for pro-business
policy (www.doingbusiness.org), still qualifies for multilateral loans. The IFC is excellent,
but it cannot meet every business development need on the continent. The Grameen
Bank—the microlending institution founded by Nobel Peace Prize winner Muhammad
Yunus—is also excellent. But it fosters unregistered, tiny businesses, not the midsized, more
formal businesses that can move an economy forward more quickly, and that often need
help more, because government agencies sometimes see them as competition. China still
invests primarily in those companies that work closely with Chinese companies, or in African
branches of Chinese enterprise; while this investment is better than a system that funds only
governments without private enterprise involvement, it hardly represents an open business
environment.
In the new Marshall Plan, the funds themselves should be dedicated to a variety of
purposes. Above all, they should not go for government-designed economic development
plans, whose track record has not been successful. Competitive regional funds would
support activities based on best practices accumulated over the history of aid, from the
original Marshall Plan to today. Almost every multinational, national, and NGO aid agency,
for example, has some unit or program in place that does, indeed, help the private sector.
For example, the U.S. government’s Overseas Private Investment Corporation maintains
thirty-seven equity funds that provide financing and technical assistance to small and
midsized enterprises in emerging markets; the French Agency Française de Développement
has a business development program called Promotion et Participation pour la Coopération
Economique (PROPARCO); aid agencies in the United Kingdom and the Netherlands have
similar programs; and the European Bank for Reconstruction and Development and the Inter-
American Development Bank have supported a variety of business-focused funds in Eastern
Europe and Latin America, respectively.

The Business of Business and Business Schools

This leads to the last key element of a Marshall Plan for Africa: As with the original,
the business sector must lead it. Administrators and decision makers should, once again, be
drawn from that sector, present in flesh as well as spirit. Like the original, the plan should

3. The World Bank’s Doing Business series provides an inventory of what makes up a thriving business
sector. Overall, prosperous countries rank high on the list, and low-income countries rank low on the list.
The ten elements tracked by Doing Business are important indicators of the environment for business and
entrepreneurship: (1) starting a business, (2) dealing with licenses, (3) employing workers, (4) registering
property, (5) getting credit, (6) protecting investors, (7) paying taxes, (8) trading across borders, (9)
enforcing contracts, and (10) closing a business.

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focus on rebuilding business infrastructure. In Africa, that would mean not just hardware—
upgrades in electricity distribution, telecommunications, and transportation—but also a
sort of software, the creation or improvement of financial institutions, business schools and
associations, anticorruption units, and courts, to enable its business community to expand.
Projects with a business core tend to be less popular than government- or NGO-
based plans—after all, charity touches the heart, and business does not. The original Marshall
Plan started out with the support of only 14 percent of the U.S. public. But an aggressive
information campaign by the Committee for Economic Development, a group of American
business leaders, won over the public. Something similar
The overall effect would might be needed for this new plan, but business leaders
represent the sum of many have been conspicuously absent from the growing
small actions. That’s how a debate on African poverty. There is a historical reason
market system works. for this: In the 1960s, when their nations were formed,
most African political leaders decided specifically to
develop through government investment, not private investment. Because the businesses
in their nations were largely owned by non-Africans (Indians, Lebanese, Syrians, French,
British, and Portuguese), the political leaders felt that supporting businesses would not
help governments deliver services to their own people. In addition, in those years just after
Sputnik, it was not clear whether state-centered economic development patterned after
Soviet or Chinese Communism would succeed or fail. Now we know.
Despite its scale and speed, the original Marshall Plan was an incremental program.
It built on what came before—it made existing European businesses stronger. A Marshall
Plan for Africa would do the same: It would take different kinds of African businesses a
step further in their development. The overall effect would represent the sum of many small
actions. That’s how a market system works. It could also be a template for other distressed
parts of the world—both in sub-Saharan Africa and in post-conflict areas.

Bypassing the Aid Trap in Pakistan and Haiti

In late 2009, Congress approved $7.5 billion in aid to Pakistan for social and
economic development. The action incited controversy by requiring that the U.S. secretary of
state report to lawmakers on whether Pakistan’s civilian government keeps effective control
over its military, because many observers accuse some in the Pakistani military of having
tolerated or even aided Islamic extremists since the 1980s.
But the Congress’ action itself should raise questions. After all, does Pakistan, or the
U.S. Agency for International Development (USAID), or any other agency that will implement
the aid actually know how to successfully spend these funds?
The United States has given Pakistan more than $10 billion in development aid
since 1954. What has become of those funds? It certainly has not helped produce the kind of

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stability and prosperity that would help Pakistan offer its people an alternative to extremism.
Nothing indicates that an additional $7.5 billion will yield better results.
All, however, is not yet lost. It will take time to disburse and spend the funds, and
there could be a chance to recast the support in a more promising way—the Marshall Plan.
Pakistan, ranked eighty-fifth in the Doing Business index, is less antibusiness than most poor
countries, so a Marshall Plan there has a reasonable chance of success.
A Marshall Plan would help Pakistan’s efforts to encourage its local business sector.
The efforts are there: In August 2009, Prime Minister Syed Yousaf Raza Gilani established the
first Business Persons Council; it has fifty-three members from the local business community
and is headed by the minister of finance. The council is to meet monthly “to recommend
measures for improvement in business climate in Pakistan and develop a business and trade
sector strategy for the country.” This is a major shift from tradition, in which the government
Planning Commission was solely in charge of economic policy. Foreign aid should work with
this new effort rather than at cross-purposes with it.
Former Secretary of State George Marshall famously suggested fighting the spread
of Communism in Europe through local business. That strategy could contribute to the battle
against Islamic extremism. The current aid package should become a Pakistan Marshall Plan—
before it’s too late.
The tragedy in Haiti also has attracted an outpouring of aid from governments and
nongovernmental organizations in the developed world. That is only for the good.
But what happens afterward, when Haiti moves from relief to recovery?
There are several obstacles to a Marshall Plan approach in Haiti. First, recall that
most people in the aid world misunderstand what the Marshall Plan actually did. For example,
in early news reports after the crisis, former President Bill Clinton was described as working
on such a plan, while Dominique Strauss-Kahn, the head of the International Monetary Fund,
called for a “Marshall Plan for Haiti,” with foreign governments, companies and NGOs doing
the rebuilding and foreign investment setting up factories. But none of that has anything to
do with the original Marshall Plan.
Again, local businesses, not foreign governments, companies or NGOs, were the
centerpiece of Marshall’s original plan. Beyond these specific calls, most aid agencies think
“Marshall Plan” means more support for doing what they are already doing. Unfortunately,
that is not the case. Haiti has received enormous amounts of aid—of the wrong kind—over
the past decades, and those same aid agencies are ready to repeat the same mistakes as
before. Aid agencies would have to make massive changes to support local business instead.
Second, the government of Haiti favors the current aid system and suppresses its
local business. Again, the World Bank’s Doing Business project ranks countries on how easy
the local government makes it for a local citizen to start and run a business: Haiti ranks 151
out of 183 countries. On the key indicator—“Starting a Business”—Haiti ranks 180 out of

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183. Clearly, Haiti’s government does not empower its citizens starting and running local
businesses. And traditional aid does nothing to change that.
The original Marshall Plan offers some guidance on how to overcome these
two obstacles. First, a Haiti Marshall Plan would not
Haiti has received enormous work through existing agencies, but rather set up a
amounts of aid—of the wrong
separate entity led and staffed by people with business
kind—over the past decades,
backgrounds. Second, European countries had to enact
and those same aid agencies
are ready to repeat the same policies that enabled their local businesses to qualify
mistakes as before. for the funds. Haiti would need to do the same. Of
course, Haiti is starting from a much worse position than
postwar Europe, which had a thriving business sector before the Second World War. That
means there is plenty of need for government agencies and NGOs to provide advice, training
and other “soft” infrastructure, such as legal reform, to local Haitian business.4

Channeling George Marshall

In his speech, George Marshall was very clear that the “breakdown of the business
structure of Europe during the war” was the problem that aid most needed to solve:
“Our policy is directed not against any country or doctrine but against hunger, poverty,
desperation, and chaos. Its purpose should be the revival of a working economy in the world
so as to permit the emergence of political and social conditions in which free institutions can
exist. Such assistance, I am convinced, must not be on a piecemeal basis as various crises
develop.”
Marshall’s logic applies just as well to the poorest nations today: A thriving business
sector is the key to improving political and social conditions. And the poorest economies
today need that sort of help. The first Marshall Plan accomplished even more than its creators
had hoped; if its successor is designed with the same conceptual base, then history could
repeat itself in another part of the world.

Appendix: Related Research

Our essay centers on the power of business to transform the economies of the
poorest nations, just as it has transformed those of the now-industrial world. We emphasize
“business” rather than the broader philosophical questions about “capitalism” in order
to stress the uncoordinated, micro elements of economic transformation. And we use the
Marshall Plan as the example of a policy initiative to let loose individual market forces, as
opposed to planning initiatives.

4. In the case of Haiti, another asset that can help: its diaspora. Haitians in other countries, especially the
United States, know how local business works in the same way prewar Europeans remembered prewar
European business. Many of these diaspora Haitians are eager to return and help rebuild their country–if
they can know their efforts will be worthwhile.

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 marshall plan

There is a rich body of scholarly research on problems and opportunities in

economic development in Africa since 1960, which we consulted and list in our bibliography.
Our essay does not attempt to comment directly on or do justice to that work. Our discussion
does, though, fit squarely within the tension in approaches to Western aid to Africa between
“transformations” and more “marginal steps,” as in William Easterly’s essay “Can the West
Save Africa?” We clearly fall into the second category.
This tension in economic research and practice is as old as the postcolonial period
in Africa itself. Gordon Brown’s big push to end African poverty, which we discussed in our
essay, or Jeffrey Sachs’s call for a financial big push in his
popular treatise The End of Poverty call to mind the “BigIndeed, it is precisely the
Push” suggested in the earlier economic writings of Paul micro, business-promoting
Rosenstein-Rodan and Walt Rostow, who argued that
features of the Marshall Plan
for Europe that led us to
coordinated, macro changes were required to produce
recommend its application
“balanced growth.” Reflecting a more Hayekian spirit to the thornier problem of
of uncoordinated elements of growth, Albert Hirschman stimulating African economic
emphasized “unbalanced growth.” This debate, well growth.
chronicled in Easterly’s essay, continued into the 1990s,
as researchers debated whether “shock therapy” or “gradualism” was the better policy
course for economies in transition from Communist central planning to more decentralized
market mechanisms.
And, in the past decade, the Big Push idea has returned again to Africa. In The
End of Poverty, Sachs makes a compelling moral argument for the West to save Africa. But
as a matter of economics, how? Sachs argues for a U.S. aid budget of 0.7 percent of GDP,
substantially higher than the present level. How such largesse is to lead to transformation
and growth is not clear, however. It is also by no means clear whether “aid” is the answer if
“growth” is the question, as Craig Burnside and David Dollar; William Easterly, Ross Levine,
and David Roodman; and Raghuram Rajan and Arvind Subramanian have persuasively
argued.
While Sachs evokes the imagery of the Marshall Plan for Europe, he seems to think
of the Marshall Plan as a top-down Big Push mechanism. As we argue here, we do not accept
this reading of the intent or execution of the Marshall Plan. Indeed, it is precisely the micro,
business-promoting features of the Marshall Plan for Europe that led us to recommend its
application to the thornier problem of stimulating African economic growth.
Paul Collier, a distinguished Oxford scholar of African development, writes
eloquently in The Bottom Billion that African societies coexist with the twenty-first century
but that their reality lies in the fourteenth century: “civil war, plague, ignorance.” As Easterly
notes in his essay, though, although African countries score poorly on measures of bad
government and civil war, which Collier and others stress, their relative overrepresentation in

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 marshall plan

these is less than that for income, poverty, and social indicators emphasized by economists
and aid officials.
In his wonderful text of economic analysis and compelling stories, William
Easterly’s The White Man’s Burden assumes the anti-Big-Push mantle in evaluating aid and
the contemporary African experience. Easterly is critical of aid institutions and the lack of
emphasis on business on the practice of aid. And he rightly points out that Big Push ideas are
periodically recycled—from Lord Hailey’s 1938 survey for the Committee on African Research
for the British government to the Millennium Development Goals and exhortations from
Jeffrey Sachs or Bono almost seventy years later—with little evidence of success in between.
Although we very much agree with Easterly in spirit, we also can agree somewhat
with Collier that, “Aid is part of the solution, not part of the problem.” More precisely: “Aid
can be, should be part of the solution, not just part of the problem.” But the question is
how?
There is, for example, a lack of consensus among leading economists on a list of Big
Push policy actions, the application of which would raise growth. Easterly cites a statement by
leading academic economists during a 2004 conference, called the Barcelona Development
Agenda, that “there is no single set of policies that
We are aware that all can be guaranteed to ignite sustained growth.” The
interventions, including the May 2008 report of the World Bank-sponsored Growth
one we propose here, must Commission accepted this statement. By contrast,
confront the basic political
much more consensus among economists exists for the
economy question of why
economics might be pursuing power of a vibrant business sector in making possible
antigrowth policies in the entrepreneurship, innovation, and growth. Easterly’s
first place. essay notes, for example, that the largest sustained per-
capita growth outliers in recent years are the East Asian
tigers—India, China, and Africa’s Botswana and Mauritius—all thanks to business, not aid.
Again, our reading of economic research and development practice does not
lead us to share the polar view that aid programs are necessarily unproductive or harmful.
Even Easterly ends his book with ways to improve aid, rather than just eliminate it. Indeed,
we admire in broad brush the U.S. Millennium Challenge Account (MCA) initiative, which
Hubbard helped design, for its attempt to condition additional aid on institutional reforms
that could promote business development. Upon closer inspection, though, the MCA reverts
to a top-down approach—again, more of an explicit attempt at “transformation,” to use
Easterly’s term, than we recommend here.
But a Marshall Plan for Africa and other poor countries would be an important
positive step in reforming Western aid and increasing the likelihood of its success in
advancing economic growth. Yes, attaining this goal requires financial commitments, but

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 marshall plan

it also demands the decentralized structure, business-promoting features, and key roles for
business leaders that characterized the Marshall Plan for Europe.
We are aware that all interventions, including the one we propose here, must
confront the basic political economy question of why economics might be pursuing
antigrowth policies in the first place. Raghuram Rajan and Luigi Zingales have described, for
example, a development trap as an initial allocation of endowments such that constituencies
created by those endowments successfully support bad policies that reproduce those initial
constituencies over time. In Africa, they argue, a relatively small, educated urban middle class
has often sided with a small ruling elite in opposing wide and deep market reforms. They
argue that sequencing of reforms is likely important. Our Marshall Plan approach would do
exactly this. Education and business skill development can be externally supported. Then
external support can encourage reforms that produce growth. Economic growth can create
greater opportunities, which in turn reduce the incentives of the privileged to defend their
rents, and instead cause them to focus on reforms that remove impediments to taking
advantage of opportunities.
Our overriding point remains an agreement with George Marshall’s very clear
observation that the “breakdown of the business structure of Europe during the war” was
the problem that aid must solve. That solution is much more about normalcy than it is about
grand transformation, as Marshall himself clearly realized.

References
Ayittey, George. Africa Unchained, New York: Palgrave MacMillan, 2005.
Burnside, Craig, and David Dollar. “Aid, Policies, and Growth.” American Economic Review 90 (September 2000).
Collier, Paul. The Bottom Billion. New York: Oxford University Press, 2007.
Easterly, William. “Can the West Save Africa?” Working Paper No. 14363, National Bureau of Economic Research,
September 2008.
Easterly, William, Ross Levine, and David Roodman. “New Data, New Doubts: A Comment on Burnside and Dollar’s ‘Aid,
Policies, and Growth.’” American Economic Review 94 (June 2004).
Hailey, William. An African Survey. London: Oxford University Press, 1938.
Hirschman, Albert. The Strategy of Economic Development. New Haven: Yale University Press, 1958.
Hubbard, R. Glenn, and William Duggan. The Aid Trap: Hard Truths About Ending Poverty. New York: Columbia Business
School Publishing, 2009.
Rajan, Raghuram, and Arvind Subramanian. “Aid and Growth: What Does the Cross-Country Evidence Show?” Review of
Economics and Statistics 90 (2008).
Rajan, Raghuram, and Luigi Zingales. “The Persistence of Underdevelopment: Institutions, Human Capital, or
Constituencies?” Working Paper No. 12093, National Bureau of Economic Research, March 2006.
Rosenstein-Rodan, Paul. “Problems of Industrialization of Eastern and Southeastern Europe.” Economic Journal 53 (1943).
Rostow, W.W. The Stages of Economic Growth. Cambridge: Cambridge University Press, 1960.
Sachs, Jeffrey. The End of Poverty: Economic Possibilities for Our Time. New York: Penguin Press, 2005.

[ 19 ]
 The Occupation and Economic Policy in Japan
1945–52

by Louis A. DiMarco
Faculty, Command and General Staff College,
Fort Leavenworth, Kansas

Louis A. DiMarco retired as a Lieutenant Colonel in the United States Army in 2005 after more
than twenty-four years of active service as an armored cavalry officer. He is a PhD candidate at
Kansas State University and will defend his dissertation on U.S. Army occupation operations, 1865
to 1952, in the fall semester of 2010. Currently DiMarco is on the faculty of the Army Command
and General Staff College, Fort Leavenworth, Kan. where he teaches military history and elective
courses on the history of modern urban warfare and modern warfare in the Middle East. DiMarco
has authored several important Army doctrinal manuals including FM 3-06, Urban Operations
(2002). He was a contributing author to FM 3-24, Counterinsurgency (2006). DiMarco has written
and lectured on a variety of military affairs topics including cavalry and reconnaissance, urban
warfare, and counterinsurgency. His work has been published by the Association of the U.S. Army,
the Combat Studies Institute, and a variety of professional journals including Armor, Military
Review, Proceedings, and Parameters. His most recent published works are a paper entitled
“The U.S. Army General Staff–Where Is It in the Twenty-first Century?” published by the Small
Wars Journal in March 2009, and the book War Horse: A History of the Military Horse and Rider
(Westholme Publishing, 2008).

On September 3, 1945, Japan formally surrendered to the United States.

During the next two months, almost 500,000 American occupation troops under
General Douglas MacArthur, the Supreme Commander for the Allied Powers (SCAP),
entered the country.1 They entered a country whose economy was destroyed by aerial
fire bombing, submarine blockade, and devastating nuclear attack. For seven years,
from 1945 to 1952, all aspects of Japanese society, including the Japanese economy,

1. The Eighth Army included eight combat divisions and several separate regimental combat teams,
organized into three corps, totaling more than 230,000 troops. The Sixth U.S. Army began landing on
September 25. It also consisted of eight combat divisions in three corps (including the V Marine Amphibious
Corps) totaling approximately 250,000 troops. The Sixth Army had responsibility for the islands of Kyushu,
Shikoku, and southern Honshu. These troop strengths reflected the high-water mark of the occupation at
the end of October 1945. Supreme Commander Allied Powers, General Headquarters, Reports of General
MacArthur. MacArthur in Japan The Occupation: Military Phase, Volume 1 Supplement (Hereafter referred
to as Reports of MacArthur) (Washington, DC: Government Printing Office, 1966), 28, 56, 54, 36.

[ 20 ]
 WWII, japan

were subject to the unchecked authority of the occupying military forces of the United States.
One of the tasks of the American occupation command was to assist the Japanese economy
in recovering from the war. Thirty-five years later, a major American magazine, Time, featured
as its cover a collage representing the Japanese economy under the admiring headline, “How
Japan Does It: The World’s Toughest Competitor.”2 The Japanese economic recovery was
complete, and in 1981, thirty-five years after the end of the occupation, Japan’s economic
might rivaled that of the United States. Now, at the dawn of the twenty-first century, as the
U.S. government and military again find themselves aiding war-torn countries struggling to
establish themselves economically, American leaders may look back on the apparent success of
the occupation of Japan for clues to successful economic reconstruction. However, they should
do so with some caution.
A close examination of American economic policy during the occupation of Japan
demonstrates that the art of postwar economic recovery is a complex process over which the
occupying power has only limited influence and control. In Japan, occupation economic policy
initially limited itself to simply democratizing the Japanese economy. Japanese recovery was
not an occupation objective. Later, the Cold War forced the occupation to focus on Japan’s
successful economic recovery. However, as the American command took direct control of
managing Japan’s economy, it was unable to improve what by 1950 had become a desperate
situation. Japanese economic recovery after World War II did not happen until the outbreak
of the Korean War dramatically altered the economic conditions in Japan and around the
world. What the Americans were successful in doing, however, was setting conditions such
that Japan was prepared to take advantage of favorable economic circumstances when they
presented themselves.

Surrender
The Americans based the surrender documents signed on the USS Missouri in
September 1945 on the capitulation terms for Japan agreed to by the Allies at the Potsdam
Conference in Germany and announced on July 26, 1945. The major features of the surrender
terms were that the Allies would occupy Japan; Japanese sovereignty was limited to the home
islands; Japanese military forces were to completely disarm and then return to their homes;
Japan was to continue to exist as a nation state; war criminals would be punished; and,
responsible government would be established by the freely expressed will of the Japanese
people. The Japanese initially dismissed peace under the terms of Potsdam.3 However, the

2. S. Chang and Edwin M. Reingold, “How Japan Does It,” Time, March 30, 1981.
3. Potsdam Proclamation, July 26, 1945, reproduced at Hyper War: Pacific Theater of Operations Web
site, http://www.ibiblio.org/hyperwar/PTO/Dip/Potsdam.html (accessed September 19, 2009).

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 WWII, japan

atomic attacks and the Soviet Union’s entry into the war forced the Japanese leadership to
accept the American surrender conditions on August 11, 1945.4

The State of Japan

By August 1945, Japan was a country devastated by fifteen years of war. The
population of 72 million was mostly located on the four large home islands of Kyushu,
Shikoku, Honshu, and Hokkaido. Twenty-three percent of the population lived in the many
large cities. The largest urban areas were Tokyo, population 2.8 million; Osaka, population
1.1 million; and Kyoto, population 870,000. Japan had seven additional urban areas with
populations over 200,000.5 Japan was a very class-conscious society not long removed from
feudalism. Approximately 70 percent of the population were tenant farmers. The balance
of the population were industrial workers. Roughly a third of the urban population fled
or was evacuated from the cities because of the air attacks. This mass migration from the
cities included an estimated 8,500,000 persons, and helped spread discouragement and
disaffection for the war throughout the islands.6
The war and defeat cost Japan 41.5 percent of its national wealth.7 Much of the
damage was done by the Allied air offensive; however, the U.S. strategic bombing survey
concluded after the war that “by August 1945, even without direct air attack on her cities

4. The atomic attacks on Hiroshima and Nagasaki on August 6 and 9, 1945, tipped the strategy
arguments ongoing in the Japanese command in favor of the peace advocates. On August 10, the Swiss
government passed to the U.S. government a note from the Japanese government stating that “the
Japanese Government are ready to accept the terms enumerated in the joint declaration which was issued
at Potsdam on July 26th, 1945…with the understanding that the said declaration does not comprise
any demand which prejudices the prerogatives of His Majesty as a Sovereign Ruler.” The American
response indicated that “the ultimate form of government of Japan shall, in accordance with the Potsdam
Declaration, be established by the freely expressed will of the Japanese people.” The Americans also made
it clear that “from the moment of surrender the authority of the Emperor and the Japanese Government
to rule the state shall be subject to the Supreme Commander of the Allied powers.”
Formal diplomatic messages between the United States and Japan in Documents on American Foreign
Relations, Vol. VIII, July 1, 1945–December 31, 1946. Edited by Raymond Dennett and Robert K. Turner.
(Princeton, NJ: Princeton University Press, 1948), 105–108. The most complete history of the atomic
attacks on Hiroshima and Nagasaki is Richard Rhodes, The Making of the Atomic Bomb (New York: Simon
and Schuster, 1995). Two books that detail the Japanese decision-making in July and August 1945 are
Richard B. Frank, Downfall: The End of the Imperial Japanese Empire (New York: Penguin, 2001) and
Herbert P. Bix, Hirohito and the Making of Modern Japan (New York: Harper Perennial, 2001). Frank also
discusses in detail U.S. decision making and the American command’s estimates regarding the actual
invasion. Another very complete close examination of the invasion plan, Operation Downfall, is found in
D.M. Giangreco, Hell to Pay: Operation Downfall and the Invasion of Japan, 1945–1947 (Annapolis, MD:
Naval Institute Press, 2009).
5. Statistics Bureau, Japanese Ministry of Internal Affairs and Communications. Population of Japan:
Final Report of the 2000 Population Census (Statistics Bureau, Japanese Ministry of Internal Affairs and
Communications, 2001).
6. War Department, United States Strategic Bombing Survey Summary Report (Pacific War) (Washington,
DC.: Government Printing Office, 1946), 21.
7. Dennis Smith, Japan Since 1945: The Rise of an Economic Superpower (New York: St. Martin’s Press,
1995), 31.

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 WWII, japan

and industries, the overall level of Japanese war production would have declined below
the peak levels of 1944 by 40 to 50 percent solely as a result of the interdiction of overseas
imports.” Still, the results of the unrelenting air attacks, particularly the firebomb attacks, were
devastating. The bombing survey reported, “in the aggregate some 40 percent of the built-up
area of the 66 cities attacked was destroyed. Approximately 30 percent of the entire urban
population of Japan lost their homes and many of their possessions.” In addition, physical
productive capacity [was reduced] by roughly the following percentages of pre-attack plant
capacity: oil refineries, 83 percent; aircraft engine plants, 75 percent; air-frame plants, 60
percent; electronics and communication equipment plants, 70 percent; army ordnance plants,
30 percent; naval ordnance plants, 28 percent; merchant and naval shipyards, 15 percent;
light metals, 35 percent; ingot steel, 15 percent; chemicals, 10 percent.
Thus, regardless of Japanese peak industrial capacity, the war had destroyed a good
portion of it. The survey concluded that, overall, “the physical destruction resulting from the
air attack on Japan approximates that suffered by Germany.”8
The attacks not only affected the economic capability of the country, but also the
psychology of the people. In the last nine months of the war, Japanese civilian casualties
from air attack were approximately 806,000. Approximately 330,000 of these were fatalities.
In comparison, the Japanese military suffered approximately 780,000 casualties to the air
campaign throughout the entire war. War morale on the home front declined precipitously
through the course of 1945 as the homeland acutely felt the effects of the disintegrating
war situation. Famine, caused mostly by the strategic submarine offensive against Japanese
shipping, was having a major effect on the population as well. Caloric intake by the
population averaged 2,000 calories daily in 1941. By 1944, it was 1,900 calories per day,
but by August 1945, it was 1,680 daily per individual. This produced a major increase in the
incidence of beriberi and tuberculosis. Only 10 percent of the Japanese people felt that Japan
could not achieve victory in December 1944. Nine months later, in August 1945, that number
had risen to 68 percent. By the time of surrender, 64 percent of the population stated they
had reached a point where they felt they personally could no longer continue to support the
war effort. These feelings manifested themselves in a loss of faith in both the military and
civilian leadership.9 Thus, the civilian population was psychologically ready for the war to end
in August 1945 and ready to accept the U.S. occupation.

8. War Department, United States Strategic Bombing Survey, 17–20. Quote from 18.
9. These numbers include the atomic bomb attack casualties known in 1946. The principal cause of
civilian death or injury was burns. Of the total casualties, approximately 185,000 occurred in the initial
attack on Tokyo on March 9, 1945. Individual Japanese did not hold the Emperor responsible for the
adverse war situation. Approximately 65 percent of the population attributed their attitudes to the air
campaign while 25 percent viewed the naval blockade as the major cause of their negative war view in
the summer of 1945. Ibid., 20–21.

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 WWII, japan

The Occupation Plan

A key assumption in the initial planning for the occupation of Japan was that it
would follow the invasion of the home islands. The American plan to seize Japan, Operation
Downfall, consisted of two phases. Phase One was the occupation of the southern island of
Kyushu; code-named Operation Olympic. The army planned Olympic to occur on November
1, 1945. The second phase was the invasion of the main island, Honshu, code-named
Operation Coronet, projected for March 1, 1946. In June 1945, the Joint Chiefs of Staff (JCS)
informed theater commanders in the Pacific that, as a contingency, they were to prepare
plans “to take immediate advantage of favorable circumstances, such as a sudden collapse or
surrender, to effect entry into Japan proper for occupational purposes.” However, there was
no particular emphasis on this planning. The War Department saw “no evidence that sudden
collapse or surrender of Japan is likely.”10 In the summer of 1945, Operation Downfall was
the highest planning priority.
The surrender of Japan took the American military in the Pacific completely by
surprise. The military government section of MacArthur’s headquarters was barely formed
when the army began preparing to move to Japan. Fortunately, initial planning for a short-
notice occupation predated the formation of the military government section. In response
to the JCS directive to begin planning in case of a collapse of the Japanese government,
MacArthur’s plans section developed the Operation Blacklist plan. A draft of this plan was
published in July 1945, and on July 16 the first version of the plan was used as a basis of
discussion between MacArthur’s staff and Admiral Nimitz’s Pacific Ocean Areas staff who had
their own naval-focused occupation plan, code named Operation Campus.11
The purpose of Operation Blacklist was to guide American forces in the event that
the Japanese government surrendered either before or during the conduct of Operation
Olympic. The plan assumed a “reasonable probability of active post-surrender resistance of
considerable proportions within Japan Proper, particularly by suicidal elements of the armed
forces who will take advantage of any weakness on the part of our forces.” The relatively
simple plan called for the complete occupation of the four home islands of Japan and Korea
in a systematic, phased manner by U.S. forces: XXIV Corps to occupy Korea; Sixth Army
to occupy Kyushu, Shikoku, and southern Honshu; and Eighth Army to occupy northern
Honshu, including Tokyo, and Hokkaido. The plan called for the initial Phase I forces to be
in country and occupy their assigned zones, four key lodgment areas, within thirty days of
the order to execute the occupation. Troops allocated to Phase I were primarily from the
Operation Olympic troop list and each of the four Phase I objectives were assigned to an

10. Message from the JCS to General MacArthur, General Arnold, and Admiral Nimitz, June 14, 1945,
quoted in Ray S. Cline, Washington Command Post: The Operations Division. (Washington D.C.: Office
of the Chief of Military History, 1951), 344.
11. Army Forces in the Pacific (AFPAC), Basic Outline Plan for “Blacklist” Operations to Occupy Japan
Proper and Korea After Surrender or Collapse, August 8, 1945, 1; Reports of MacArthur, 3–4.

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 WWII, japan

Army or Marine corps-size unit. Phases II and III of the Blacklist plan anticipated adding
additional corps and expanding the occupation throughout the four islands. The major tasks
of the occupation were to destroy any military opposition to imposition of the surrender;
disarm and demobilize the Japanese armed forces; control communications routes; institute
military government and ensure the maintenance of law and order; and recover allied
prisoners of war.12 MacArthur’s headquarters disseminated Blacklist to subordinated units on
August 8, 1945, seven days prior to the communication of the surrender agreement by the
Japanese government. It became the basis for the physical occupation of Japan and the initial
activities of the occupation army forces. Though Blacklist provided guidance for the military
operations necessary to physically occupy Japan, its policy guidance was sparse. Washington
provided the guidance for governance of Japan.

JCS 1380
Douglas MacArthur, his personal history, and his philosophies, had a large impact
on the occupation of Japan. Equally important but less
well-known was the guidance MacArthur received from The major tasks of the
the State-War-Navy Coordinating Committee (SWNCC) occupation were to destroy
through the Joint Chiefs of Staff (JCS). The JCS provided any military opposition to
their initial guidance to MacArthur on August 29, 1945, imposition of the surrender;
disarm and demobilize the
in a “Statement on United States Initial Post-Surrender
Japanese armed forces;
Policy for Japan.” Part II of the initial guidance stated: “In control communications
view of the present character of the Japanese society and routes; institute military
the desire of the United States to attain its objectives with government and ensure the
a minimum commitment of its forces and resources, the maintenance of law and
Supreme Commander will exercise his authority through order; and recover allied
prisoners of war.
Japanese government machinery and agencies, including
the Emperor, to the extent that this satisfactorily furthers
United States objectives.”13 The decision to govern Japan through the Japanese government
was the defining policy of the entire occupation as described by the SCAP official history:
On August 30, GHQ, AFPAC [General Headquarters, Army Forces in the Pacific]
issued an amendment to Operations Instructions No. 4, which materially altered
the missions assigned to the Army commanders who soon would be arriving on
the Nippon homeland. Instead of actually instituting “military government,” Army
commanders were to supervise the execution the policies relative to government
functions which GHQ AFPAC, was to issue directly to the Japanese Government;
likewise the functions of the Armies with respect to the disarmament and

12. Ibid., 1–25.

13. U.S. Department of State, “Statement on United States Initial Post-Surrender Policy for Japan,”
August 29, 1945, Bulletin, Vol. XIII (1945), 423–427.

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 WWII, japan

demobilization of the Japanese armed forces were changed from ’operational

control and direction’ to ’supervision of the execution’ of orders transmitted to the
Japanese by GHQ AFPAC.
This was called “passive” military government, in contrast to “direct” military government
practiced in Germany.14 This policy guidance from Washington fundamentally changed the
approach to military government in Japan. It also rendered much of the military government
organization in AFPAC irrelevant.
More formal and specific guidance came in JCS Directive 1380/15, published on
November 15, 1945. This very clear and complete document more definitively stated U.S.
policy but did not fundamentally alter the initial policy guidance. It became a checklist of
tasks for SCAP to accomplish in Japan. However, the document did not dictate how to
achieve goals. It gave SCAP objectives, and almost unlimited powers. It only required that
MacArthur report his actions to the Joint Chiefs. The initial guidance issued in August, and
the formal JCS Directive issued to MacArthur in November, gave SCAP a very clear mission
statement:
The ultimate objective of the United Nations with respect to Japan is to foster
conditions which will give the greatest possible assurance that Japan will not again
become a menace to the peace and security of the world and will permit her
eventual admission as a responsible and peaceful member of the family of nations.15
Within his clear mission statement and the specific guidance of JCS Directive 1380/15,
MacArthur had free rein to achieve the objectives of the United States government in the
best way that he knew how.

Organization of the Occupation

General Douglas MacArthur was the commander of the occupation of the Japan
and designated the Supreme Commander Allied Powers by President Harry Truman. In
addition, he was the commander of AFPAC.16 MacArthur had wide-ranging powers to
implement the occupation, but he did not develop occupation policy. The State-War-Navy
Coordinating Committee (SWNCC) determined U.S. national policy regarding Japan. The
committee then sent its policy recommendations to the department secretaries and then
to the president for approval. With the president’s approval, the JCS issued the policy as a

14. Reports of MacArthur, 25–27, n.68.

15. Joint Chiefs of Staff, “Basic Directive for Post-Surrender Military Government in Japan Proper,”
November 3, 1945, National Diet Library, http://www.ndl.go.jp/constitution/e/shiryo/01/036/036tx.html
(accessed September 8, 2009).
16. AFPAC was to command the U.S. invasion of Japan. MacArthur was designated commander on April
4, 1945. Reports of MacArthur, 67-69; Carl J. Friedrich and Associates. American Experiences in Military
Government in World War II (Hereafter referred to as American Experiences) (New York: Rinehart &
Company, Inc., 1948), 322.

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 WWII, japan

directive to the occupation commander. Ensuring Allied input to policy was the responsibility
of the Far Eastern Commission (FEC), made up of the eleven countries that were at war
with Japan. The commission met in Washington, and thus its input was mostly through the
SWNCC. The Allied Council for Japan (ACJ) represented the allies directly to SCAP. The ACJ
comprised four members: the United States, the Soviet Union, the British Commonwealth,
and China. The council was located in Tokyo and met every two weeks. MacArthur was
designated the U.S. representative to the council. However, the ACJ had no formal authority
over SCAP and its actions were purely advisory and therefore ineffective. SCAP took the
policy directives of the JCS, created specific implementing instructions, issued directives to the
Japanese government, and supervised their execution.17
Though the occupation of Japan was “indirect,” control by the occupying force
was in many ways more complete than in Germany because the FEC and ACJ did not
have a large effect on operations. SCAP did not have any major requirement to coordinate
and compromise occupation policy and procedures with allies. However, the fact that the
occupiers operated through an intact Japanese government structure that had the ability to
protest, negotiate, interpret, and ultimately influence occupation policy somewhat mitigated
SCAP authority.18
Two general headquarters (GHQ) had responsibilities for the occupation: GHQ SCAP
and GHQ AFPAC. MacArthur commanded both; they were collocated; and many of the staff
sections were simultaneously part of both organizations.
The major difference between the two headquarters However, the fact that
was that SCAP activities and authority were confined the occupiers operated
to Japan but included all services as well as allies; through an intact Japanese
government structure that
AFPAC had authority of all U.S. Army resources in the
had the ability to protest,
Pacific but not allies or other services. The SCAP staff negotiate, interpret,
was responsible for occupation policy directives and and ultimately influence
dealing directly with the Japanese national government. occupation policy somewhat
The AFPAC staff was responsible for operations of mitigated SCAP authority.
the occupation forces and supervision of Japanese
compliance with SCAP occupation directives through the military government apparatus
assigned to occupation units. AFPAC also had responsibility for counterintelligence,
censorship, public safety, military police, and provost marshal operations.19

17. The eleven countries were: China, the United States, the United Kingdom, the Soviet Union, France,
Netherlands, Canada, Australia, New Zealand, India, and the Philippines. Because of its size and location,
the FEC was a slow operating organization. Also, because China, the United Kingdom, the United States,
and the Soviets all had veto authority, it was not very effective at providing guidance on critical issues.
ACJ had no formal relationship with the FEC. MacArthur rarely attended the ACJ meetings. Reports
of MacArthur, 69-71; American Experiences, 323; Douglas MacArthur, Reminiscences (Greenwich, CT:
Fawcett Publications, Inc., 1964), 333–334.
18. Smith, 35.
19. Reports of MacArthur, 71–73.

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The SCAP staff at its height in 1948 consisted of 3,200 personnel.20 The staff
communicated with the Japanese government through written memorandum known as
SCAPINs (short for SCAP index). The Japanese government organized a special ministry-level
organization, called the Liaison and Coordination Office, whose only function was to facilitate
communication between SCAP and the Japanese government. This office worked directly
for the Japanese prime minister. SCAP transmitted SCAPINs to the liaison office, which then
transmitted the memorandum to the proper Japanese ministry or agency. The SCAPINs had
the force of law to the Japanese government, which often translated them directly into
Imperial decrees or laws for execution by the Japanese people and government.21
On the SCAP staff, the Economic and Science Section (ESS) was directly responsible
for policy development, policy execution, liaison with, and supervision of the Japanese
government on economic matters. Major General William F. Marquat, who was a longtime
staff officer for General MacArthur and an excellent administrator, led the section for most of
its existence. Marquat, however, had no particular background in science or economics. The
EES consisted of nine divisions: antitrust and cartels; finance; import-export; industry; labor;
legal; price control; research and statistics; and science and technical. Each division chief was
an expert in that division’s subject, and in some cases, such as labor, the chiefs also were
experts on Japan. Personnel in the division were a mixture of professional military officers,
reserve officers serving on active duty because of their specialized civilian expertise, expert
civilians hired by the army, or experts from other government departments (such as Justice
and Treasury) assigned to SCAP specifically for the mission requirements of the occupation.22

The Economy
JCS economic guidance to SCAP in JCS Directive 1380/5 precluded the SCAP from
taking “any responsibility for the economic rehabilitation of Japan or the strengthening of

20. Smith, 36.

21. Reports of MacArthur, 71–73; Eiji Takemae, The Allied Occupation of Japan (New York: Continuum,
2002), 114–115.
22. The first division chief of ESS was Colonel Raymond C. Kramer, a New York department store
executive in peacetime, Kramer was an assistant to the Deputy SCAP Chief of Staff before establishing
the ESS in September 1945. General Marquat was a professional army officer who was part of the
“Bataan Gang” that served with MacArthur in the Philippines before the war. Marquat was the staff
engineer officer before the war and MacArthur’s chief of air defense artillery during the war. Despite
having no specific economic knowledge, Marquat’s subordinates noted the quality off his administrative
and executive skills. He took over the ESS from Kramer in December 1945 and remained in the position
until the occupation ended in 1952. General Marquat served his last three years in the army as the chief
of the Army Civil Affairs Division (CAD) and retired in 1955. Marquat’s chief of staff in ESS was Colonel
William T. Ryder, who established himself in army history by being the first army paratrooper to jump
from an airplane. He was a veteran of the airborne operation in Sicily and retired from the army in 1966
as a Brigadier General. Time, “Foreign News: About Face,” October 1, 1945; Bowen C. Dees, The Allied
Occupation and Japan’s Economic Miracle: Building the Foundations of Japanese Science and Technology
1945-52 (Richmond, Surry UK: Japan Library, 1997), 42–55; Theodore Cohen, Remaking Japan: The
American Occupation as New Deal (New York: The Free Press, 1987), 74–75; Cohen describes the hiring
process for SCAP experts in detail, 103-107.

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the Japanese economy.” The guidance did not preclude the Japanese from improving their
economic condition; it only made clear that it was a Japanese, not an occupation force,
responsibility. The American occupation’s initial concern with economics in Japan was limited
to economic issues related to democracy, security, and health and welfare. Security aspects
of economics involved reactionary elements within the labor movement, dismantling the
arms industry, reparations, and unemployment that could lead to unrest. Health and welfare
concerns involved improving the agricultural capacity of the country.23 Despite an emphasis
on Japanese responsibility, the JCS occupation directive devoted two of its three sections of
guidance directly to issues of the economy and finance (a total of ten out of nineteen pages).
Further, for SCAP to accomplish its primary mission of fostering “conditions which will give
the greatest possible assurance that Japan will not again become a menace to the peace and
security of the world and will permit her eventual admission as a responsible and peaceful
member of the family of nations,” it was impossible for SCAP not to be concerned with
Japan’s economic rehabilitation.
SCAP could not avoid involvement with the Japanese economy through most of
the occupation, from 1945 to 1952. This period divides into three distinct policy eras: the
progressive era, which lasted until approximately 1947; the conservative era, which began
in 1948; and the Korean War era, beginning in the summer of 1950. In the progressive
period, SCAP focused on “democratizing” and demilitarizing the Japanese economy. Major
policy programs of this period were revitalization of the labor movement, land reform,
decartelization, and the purge of militant leaders. President Roosevelt’s “New Deal” economic
policies strongly influenced the progressive policy period. The conservative period that
followed focused on stabilizing the economy and the rehabilitation of Japanese industry as a
bulwark against communism. The Cold War and resurgence of the Republican Party in U.S.
politics had major effects on policy in this era. The Korean War period saw Japan fulfill the
role of logistics base for U.S. military operations in Korea. The latter period also marked the
beginning of the sustained Japanese economic recovery that led to what some have called
the Japanese economic “miracle.”

The Labor Movement

The JCS guidance to SCAP specifically addressed the issue of labor reform: “Require
the Japanese to remove, as rapidly as practicable, wartime controls over labor and reinstate
protective labor legislation. Require the removal of all legal hindrances to the formation
of organizations of employees along democratic lines.”24 Steps toward organizing labor in
Japan began soon after the occupation forces arrived. Within a short time, membership in
organized labor surged. By 1947, there were about 25,000 different unions with a combined
membership exceeding five million. By 1950, there were seven million union members.

23. Joint Chiefs of Staff, “Basic Directive for Post-Surrender Military Government in Japan Proper.”
24. Ibid.

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With the rapid growth in organized labor and increased Cold War tension between
the U.S. and the Soviet Union came the danger of increased Communist influence in
Japan through the labor movement. General MacArthur was not overly concerned with
communist influence, but both Japanese government officials and the SCAP Intelligence
Staff (G2), counterintelligence section were. Japanese officials and the G2 both monitored
the increasing influence of Communists in the labor
By 1947, there were about movement. MacArthur remained uninterested in
25,000 different unions with Communist labor efforts until January 1947 when a
a combined membership group of labor organizations threatened a national
exceeding five million. By
general strike. MacArthur encouraged the Japanese
1950, there were seven
million union members. government to deal with the unions and avoid a strike.
Labor leaders, especially the Communists who controlled
large segments of the movement, considered the strike
necessary to demonstrate their national political power and were determined that it go
forward, despite the government offering wage increases of up to 40 percent. On the eve
of strike, SCAP got directly involved, and MacArthur notified the unions that he would use
the power of the occupation forces to break any effort to strike. The unions backed down,
the workers received their pay increases, and Communist influence in labor organizations
diminished greatly.25
Attempts by Japanese Communists to influence the labor movement through
Japanese army veterans who had converted to Communism in Soviet POW camps also
proved unsuccessful and increased the backlash against Communism among the Japanese
population. Because of the problems with radicals, Communists in particular, as well as a
worsening economic situation, SCAP permitted the Japanese government to exert more
control over labor beginning in 1947. SCAP approval of greater government control of unions
created an anti-American backlash among organized labor. SCAP’s senior labor expert during
the occupation, Theodore Cohen, estimated that this single policy change permanently
alienated approximately a third of Japan’s electorate from the occupation army and the
United States.26
After the occupation was over, MacArthur admitted that the reorganization of
Japanese labor, to make it a progressive and positive aspect of society and the Japanese
economy, “was only partially successful.”27 However, despite SCAP and the Japanese
government’s pullback from reform in the later period of the occupation, the labor reforms
achieved some notable successes. Wage increases won by unions were an important aspect
of mitigating the effects of rampant inflation in the occupation’s early years. The unions also

25. Cohen, 277–300.

26. Ibid., 461–462.
27. Reports of MacArthur, 216; Charles A. Willoughby and John Chamberlain, MacArthur, 1941–1951
(New York: McGraw-Hill Book Company, Inc., 1954), 332; MacArthur, 353-354; Takemae, 318–324.

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won important concessions in working conditions. Finally, though the right to strike was
later curtailed by both SCAP and the Japanese government, organized strikes remained an
important aspect of Japanese labor-management relations after the occupation.28

Land Reform
Though most economic policies were dictated from Washington, one of the most
important economic reforms that SCAP embarked on was not directed by the JCS. In 1945,
non-owners worked more than half of the land under cultivation in Japan, and roughly
seventy percent of all farmers were involved in some sort of tenancy. Non-resident property
owners dominated land ownership in an almost feudal manner. SCAP saw land reform
as a solution to two problems: food shortages, and potential radicalization of the rural
peasants by subversive groups. MacArthur was personally in favor of the idea because it was
a concept his father had advocated but been unable to implement while military governor
of the Philippines during the Philippine War. In October 1945, SCAP ordered the Japanese
government to develop legislation for land reform. In January 1946, SCAP rejected the
legislation as too conservative and developed its own land reform plan. SCAP land reform
policy was adapted by U.S. Department of Agriculture experts from the prewar writings
of Japanese university intellectuals.29 The land reform legislation, developed by SCAP with
input from the Allied Council Japan (ACJ), became law in October 1946. Implementation of
the land reform was largely complete by 1948, and by 1949 it had reallocated two million
hectares of arable land. The reform reduced the number of landless tenant farmers to 7
percent; 57 percent of rural families became farm owners; another 35 percent became part
owners, part tenant farmers; and in total, independent farmers cultivated 90 percent of all
cropland.30 Historian Dennis B. Smith’s analysis concluded that though “economically, the
occupation’s land reform did not have an immediate impact … It did, however contribute to
a subsequent significant increase in agricultural produce … [and it] was of vital importance to
the recovering Japanese economy in the 1950s and into the 1960s.”31 Critically, land reform

28. Takafusa Nakamura, The Postwar Japanese Economy: Its Development and Structure,1937–1994
(Tokyo: University of Tokyo Press, 1995), 31.
29. SCAP land reform policy was based on the wartime work of U.S. Department of Agriculture Asian
agriculture expert Wolf Ladejinsky. Ladejinksy based many of his ideas on his extensive study and
communication with Japanese agricultural experts. Ladejinksy wrote the Army Civil Affairs Guide for
agricultural policy in Japan. His guide became the basis for SCAP land policy. He later went to Japan and
became a special adviser on the SCAP staff for land reform policy. In his later career, he advised on the
very successful land reform policies in Taiwan and also in South Vietnam, where land reform efforts met
with little success.
30. Takemae, 339-344; Geoffrey Parrett, Old Soldiers Never Die: The Life of Douglas MacArthur
(Holbrook, MA: Adams Media Corporation, 1996), 521; MacArthur, 358–359.
31. Smith, 52. Land reform also dramatically increased the income of the rural communities and the
productivity of agriculture land. These had the net effect of increasing the domestic food supply and
increasing the domestic market for consumer goods. These effects did not impact the Japanese economy,
however, until after the Korean War. Cohen, 375; Nakamura, 30.

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policy won the rural population firmly to the side of occupation command. Land reform was
a great economic success and an even greater political success.

Decartelization
One of the most important direct SCAP reforms was decartelization. The JCS
specifically directed SCAP to break up the large industrial and banking magnates that
controlled much of the Japanese economy: “You will require plans for dissolving large
Japanese industrial and banking combines or other large concentrations of private business
control.” The Americans believed that these organizations, known as the zaibatsu, had a
strong influence, for business reasons, on Japan’s expansionist war policy. The zaibatsu were
conglomerates dominated by a few powerful families that “controlled the major part of
the industry, mining, finance and commerce of Japan, and in large part, [the] livelihood of
the people of Japan.”32 They stifled free enterprise in all but a few sectors of the economy.
American economic experts on the SCAP staff saw them as undemocratic monopolies and
believed they directly contributed to Japan’s aggressive war policy. In addition to being
monopolies, SCAP considered the zaibatsu to be a corrupting influence in Japanese society.
The corporations had ties to corrupt police and politicians, as well as to organized criminal
groups. Immediately after the peace, 70 percent of stockpiled Japanese military supplies
and over a billion yen worth of Japanese construction material were illegally acquired by
the zaibatsu. This occurred with the knowledge of corrupt Japanese police and government
bureaucrats. This economic cache allowed the zaibatsu to resist SCAP anti-monopoly efforts,
survive and even flourish in the first months of the occupation. SCAP was also initially
hampered in its efforts to break up the cartels by the lack of a detailed understanding of the
zaibatsu organization or a plan to dismantle them.33
Through 1946 the SCAP anti-zaibatsu program slowly began to take shape. It was
led by the SCAP ESS’s Antitrust Division, which was composed of U.S. Justice and Treasury
Department specialists with extensive experience prosecuting antitrust actions in the United
States. Antitrust actions by SCAP occurred in two phases. The first phase, executed mostly
in 1946, focused on the well-established zaibatsu. In the first months of the occupation, the
SCAP program attacked individual corporate owners. SCAP identified a total of fifty-seven
members of eleven zaibatsu families and confiscated their securities and restricted their
participation in corporate management. In addition, targeted individuals lost 35 percent of
their assets through public sale. Then SCAP dismantled the organizations themselves. The
Antitrust and Cartels Division supervised the dissolution of the forty-five largest holding
companies, which freed 250 operating companies from their control. It also dissolved the

32. Supreme Commander for the Allied Powers, Economic and Scientific Section, Mission and
Accomplishments of the Supreme Commander for the Allied Powers in the Economic and Scientific Fields
(Hereafter referred to as SCAP EES History) (Economic and Scientific Section, 1949), 20.
33. Takemae, 76–77.

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zaibatsu-dominated control associations, which stifled competition. The campaign against the
zaibatsu in the first year of the occupation was largely successful.
In the second phase of the decartelization program, SCAP sought to make the
destruction of the zaibatsu permanent. The National Diet of Japan passed an antimonopoly
law in March 1947, “the law for the elimination of excessive concentrations of economic
power.” The law represented the second phase of the anti-zaibatsu actions. Under the
law, SCAP investigators examined 325 of the largest nonfinancial companies in Japan to
determine if they should be broken up.34 This second phase of the decartelization campaign
was less than fully successful. SCAP pursued the program for more than two years. During
that time, the Japanese, who saw the policy as a brake on economic recovery and believed
it threatened jobs and pensions, hated and resisted the program. Guidance for identifying
which companies were targeted for decartelization was very vague. The program’s unclear
standards created reluctance in many of Japan’s most important business sectors to invest in
any type of development for the future. In addition, most Americans did not understand that
the zaibatsu system represented the Japanese cultural trait of community cooperation. The
zaibatsu were more than profit-making business enterprises and had no equivalent in the U.S.
culture or economy. Much of Japanese society and the economy did not compete with the
zaibatsu system, but rather complimented it. Thus, attacking the zaibatsu attacked one of the
historic foundations of the Japanese economy and was opposed by all segments of Japanese
society.35
Another issue that influenced the second phase of the anti-zaibatsu program was
the U.S. domestic political situation. As the SCAP anti-zaibatsu actions reached their peak in
1947, the focus of U.S. domestic politics changed dramatically from when SCAP investigators
developed their policy recommendations in 1946. The 80th U.S. Congress was elected in
the fall of 1946 and convened in January 1947. As a result of the elections, the Republican
Party had the majority in both houses of Congress for the first time since 1933. The political
view of the new Congress was anti-New Deal and pro-
business. This was exactly the opposite of the view of the Thus, attacking the zaibatsu
79th Congress, wherein Roosevelt New Deal Democrats attacked one of the historic
foundations of the Japanese
controlled both houses.36 In addition, the personnel in
economy and was opposed
the War and State Departments changed, and the focus by all segments of Japanese
of U.S. foreign policy in 1947 began to shift to Cold society.
War concerns. George Kennan, the State Department’s
top strategist, was made aware of the decartelization program and commented to Secretary
of Defense Forrestal that “the ideological concepts on which these anti-zaibatsu measures

34. SCAP EES History, 20–23.

35. Cohen, 356–359.
36. Cohen, 360.

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rested bore so close a resemblance to Soviet views about the evils of ‘capitalist monopolies’
that the measure could only have been eminently agreeable to anyone interested in future
communization of Japan.”37 In October 1947, Under Secretary of the Army William Draper
reviewed the anti-zaibatsu program and concluded that it was too aggressive.
The decartelization program began in 1946, had its greatest influence in 1947,
and ended uncompleted in 1948. This was largely the result of the change in U.S. policy
toward Japan contained in National Security Council Paper (NCS) 13/2. Also, congressional,
Department of State and Department of Defense opposition to SCAP anti-zaibatsu reforms
slowed down the reform process significantly. Of the more than 300 companies investigated
for deconcentration of economic power in the program’s second phase, only twenty-seven of
the companies were broken up or reorganized. As the Japanese government regained control
of economic policy, it began to roll back many of the anti-zaibatsu policies. By 1952, many
of the companies reorganized under the deconcentration laws were reunited under new
names.38
Though the SCAP efforts to break up large corporations were not completely
successful, the anti-zaibatsu program had many positive results and moved Japan significantly
toward the goal of a democratic economy. In particular, the major family-led zaibatsu were
decisively affected by the initial SCAP-mandated reorganizations. The reforms removed
individual family influences and replaced them with professionally trained executives. In
the cases where conglomerates attempted to reestablish themselves after the occupation,
financial and business networks were much looser than previously. In the period when the
Americans investigated the zaibatsu and the large companies, small- and medium-sized
companies were able to take advantage of the moment and establish themselves. New
businesses that originated during this period included the Komatsu, Canon, Nikon, Sony, and
Honda corporations.39 The decartelization policies also promoted intense competition within
the Japanese economy, which spurred modernization and technological advancement.40
Though some critics argue that SCAP went too far with its antitrust operations, others argue
that SCAP ended the anti-zaibatsu program too soon. Certainly, however, the structure of
Japanese business was more open and democratic after the SCAP reforms than before.

Economic Purges
Another technique used by SCAP to democratize the economy, and to generally
improve economic opportunity, was to purge the most conservative pro-militarists

37. George Kennan, Memoirs, 1925–1950 (Boston, MA: Little, Brown and Company, 1967), 409.
38. Cohen, 367; SCAP EES History, 21.
39. John Dower, Embracing Defeat: Japan in the Wake of World War II (New York: W.W. Norton &
Company, 1999), 533–534.
40. Nakamura, 27.

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from positions of authority within Japanese business. The purge of prominent militarist
businessmen was part of a larger political purge that was the SCAP equivalent of the
denazification process occurring simultaneously as part of the occupation of Germany.
The political purges affected every sector of Japan, including local and national politicians,
all manner of civil servants including teachers and police, and business leaders. The purge
of Japanese economic leaders was very controversial within SCAP because, unlike the
denazification process, SCAP could not identify a single, easily recognizable purge criterion,
such as membership or affiliation with the Nazi Party. Ultimately, General MacArthur
personally justified the economic purge, insisting, “it be generally assumed, in absence of
evidence to the contrary, that any persons who have held key positions in any such [business]
institutions, agencies or organizations are active exponents of militant nationalism and
aggression.” In total, the economic purge screened 6,951 individuals, barred 186 from key
positions in business, removed 453, and barred another 914 from eventually taking key
positions. Thus, in the entire Japanese economy, only approximately 1,500 persons were
affected by the economic purge. MacArthur predicted, and in fact the economic purge had,
virtually no effect on the performance of the Japanese economy. However, it did much to
forward the perception of the democratization of the economy.41
A second major purge that did affect the Japanese economy and had long term
effects on United States–Japanese relations was the Red Purge of Communists, suspected
Communists, and sympathizers, which began at the start of the Korean War. The most
intense period of firings was between July and October 1950. This purge was partly a
response to the “Red Scare” associated with the beginning of the Korean War. It was
also a function of strong anti-Communist sentiment that existed within the SCAP G2
apparatus under Major General Charles A. Willoughby, and within the Japanese conservative
government under Prime Minister Shigeru Yoshida. There was also evidence that the Japanese
Communist Party was becoming increasingly radical and hostile to parliamentary government.
The Korean War ignited the trend toward confrontation. During the months of the purge,
11,000 people were discharged from various positions in private businesses for communist
activity. Japanese courts upheld the firings on the grounds that the Communist Party
threatened the “basic rights of others.” Eventually, a total of 22,000 workers were dismissed
due to Communist affiliations.42 The Japanese labor movement viewed the “Red Purge” as an
antilabor effort masked by the veneer of anti-communism. This view reinforced a strong anti-
American sentiment among organized labor, which viewed the purge as part of a deliberate
campaign by the American government against labor.43

41. Cohen, 170; Government Section, SCAP, “General MacArthur’s Comment on Newsweek Article
entitled ‘Behind the Japanese Purge–American Military Rivalries,’ Published January 27, 1947,” Political
Reorientation of Japan, September 1945 to September 1948 (Washington DC: Government Printing
Office, 1950), 549; Ibid., “General Summary of Purge Statistics,” 553.
42. Cohen, 449–453.
43. Ibid., 461–462.

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Midcourse Correction
The appointment of George C. Marshall as secretary of state and the creation of the
Department of Defense in 1947 under James Forrestal marked a decrease in SCAP autonomy
and greater direct Washington control of policy.44 By 1948, SCAP had achieved many of the
initial occupation objectives, and much had changed since the SWNCC and the JCS provided
initial policy guidance after the Japanese surrender. Relations with the Soviet Union had
steadily deteriorated and the two nations and their allies were on the verge of a Cold War.
China was falling apart, and it was apparent that the nationalist government was not going
to be a strong ally for stability in Asia, if it survived. As George Kennan reflected later, Japan
was the key to American national security issues in Asia: “If at any time in the postwar period
the Soviet leaders had been confronted with a choice between control over China and control
over Japan, they would unhesitatingly have chosen the latter.” Thus, in Kennan’s mind, Japan
was the Cold War prize in Asia and the U.S. objective had to be keeping Japan firmly under
U.S. influence.45 Thus, the changing world situation necessitated a change in U.S. policy
toward Japan.

Draper and Dodge Policies, 1948–1952

Even before Kennan’s visit to Japan, the War Department was taking steps to
reevaluate the economic situation in Japan. A reevaluation was necessary because, two
years into the occupation, industrial production in Japan was only 45 percent of the 1930
to 1934 averages. Similarly, exports were 10 percent, and imports were 30 percent, of the
1930–34 averages. Additionally, the U.S. government was providing $350 million annually in
emergency relief to Japan. Even more discouraging, there were no signs of improvement in
the Japanese economic situation or of an end to U.S. support. In September 1947, and again
in the Spring of 1948, newly appointed Under Secretary of the Army William H. Draper and
a number of business experts conducted fact-finding missions to Japan.46 Draper’s analysis of
the economic situation in Japan was that MacArthur’s economic instructions in JCS 1380/5
were as misguided as those initially issued for Germany, and that they showed the strong
influence of the anti-industrial Morgenthau plan proposed in 1944 by Secretary of the
Treasury Henry Morgenthau. Draper’s analysis of the economic situation recognized the lack
of economic improvement and underscored Japan’s importance to American security policy.
Japan suffered from uncontrolled inflation, a lack of capital, unemployment, and a thriving
unregulated black-market economy. Draper recommended that SCAP assume direct control

44. Smith, 40.

45. Kennan, 374–377.
46. Draper was a prominent Wall Street banker before World War II. During World War II, he served on
active duty in a variety of command and staff positions. In 1945, he was a brigadier general and General
Lucius Clay’s chief economic advisor for the occupation of Germany. He was selected as Under Secretary
in 1947 by Secretary of War Kenneth Royall primarily to supervise occupation operations in Germany and
Japan.

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of the economy and that revitalization of the Japanese economy be the command’s economic
priority. MacArthur sensed the changing U.S. policy and requested that Draper send SCAP
an economics expert to help revitalize the Japanese economy. Draper arranged for the
appointment of a Detroit banker, Joseph M. Dodge, as the financial adviser to SCAP. Dodge
arrived in Japan in February 1949.47
In 1948, building up Japanese industrial capability became the occupation priority.48
The U.S. government backed this change of policy with an implementation directive directly
from President Harry Truman to SCAP in December 1948. The directive, a product of
Draper’s economic analysis, was aimed at cutting occupation costs, reviving the Japanese
economy, and increasing Japanese trade. It required a balanced Japanese national budget,
a strengthened tax system, tightening credit, wage stabilization, price controls, increased
industrial output, stabilization of the yen, the promotion of exports, and more efficient food
production and distribution.49 Dodge arrived in Japan in early 1949 to begin a three-month
study of the economic situation and formulate more detailed U.S. directives to revitalize the
economy. Dodge concurred with Draper’s assessment that the fundamental problem with
the Japanese economy was its uncontrolled national budget, which was the primary reason
for the country’s out-of-control inflation. Dodge insisted that SCAP force the Japanese
government to implement a severe austerity program designed to balance the national
budget and to stop the runaway inflation.
Dodge’s policies, known as the “Dodge Line,” focused on controlling inflation and
balancing the government’s budget. It imposed severe fiscal limitations on the Japanese
government, increased taxes, caused dramatic cuts in public works programs and education,
caused layoffs of government workers, and eliminated or drastically decreased government
loans and subsidies to business. Virtually every sector of Japanese society was adversely
affected by the Dodge Line. The policies were hugely unpopular. By 1950, the new economic
policies had curbed Japanese inflation and balanced the government budget. However,
unemployment steadily rose. More than a million Japanese lost their jobs as a result of
Dodge’s forced austerity measures. Riots occurred all over Japan and many small- and
medium-sized businesses collapsed. Tensions in both the work force and management were
high and suicides were on the rise. In addition, the winter of 1949–50 was particularly harsh
and added to the misery of the Japanese people. Many believed the country was on the verge

47. William H. Draper, Interview with Jerry N. Hess, “Oral History with General William H. Draper Jr.,”
January 11, 1972, Harry S. Truman Library & Museum, http://www.trumanlibrary.org/oralhist/draperw.
htm#53 (accessed April 3, 2010); Howard B. Schonberger, Aftermath of War: Americans and the
Remaking of Japan (Kent, Ohio: Kent State University Press, 1989), 161–163, 198–199. Theodore Cohen
also relates how the Morgenthau plan ideas, incorporated in JCS 1067 guidance for postwar Germany,
had a strong influence on JCS 1380. Cohen, 30.
48. Takemae, 76–77.
49. Ibid., 468-470; Tatsuro Uchino, Mark A. Harbison, translator, Japan’s Postwar Economy: An Insider’s
View of Its History and Future (Tokyo: Kodansha International LTD., 1978), 48–49.

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of revolution.50 By the summer of 1950, there was no sign of overall economic improvement
and observers of the Japanese economy sensed a coming economic depression. All of that
changed in June 1950 when the communist forces of North Korea invaded South Korea and
began the Korean War. That event saved the Japanese economy.
The Dodge Line remains a controversial policy in Japanese economic history.51 It
threw the Japanese economy into chaos, but also had some positive effects on the situation
in Japan. It definitely reduced inflation, and had some positive influence on exports: In 1949,
demand for Japan’s commodity exports roughly doubled the 1948 volume, and the growth
in exports exceeded the total growth in production; black market prices fell and the black
market disappeared as a factor in the Japanese economy; rationing and prices controls were
reduced and then abolished; and beer halls reopened
Historians and economists and bananas were available for sale for the first time
still debate whether the since the end of the war.52 It also had effects beyond the
Dodge Line was vital to the economic, facilitating a direct line of communications
Japanese recovery or merely between senior Japanese government officials and the
occurred at the same time.
high U.S. government officials outside of SCAP.53 Some
SCAP economists believe that, despite the harshness
of Dodge’s policies, they laid a firm foundation that “began […] a significant and sustained
recovery associated with a marked slowing down of the previous inflationary spiral.”54
Historians and economists still debate whether the Dodge Line was vital to the Japanese
recovery or merely occurred at the same time.

Economic Recovery
Japan’s economic recovery began with the Korea War. As Japanese economist and
historian Tatsuro Uchino described it, “The Korean War not only triggered immense changes
in the economic situation but was also to have an influence on the future of postwar Japan
that was nothing less than prodigious.”55 The war created a market for Japanese goods and
a cash flow for Japanese industry. The war brought $2.3 billion into the Japanese economy

50. Takemae, 470; Uchino, 52–53. Theodore Cohen makes the point that, although there was significant
job loss as a result of Dodge’s policies, “new private employment took up the slack. By November 1949,
six months after the Diet enacted Dodge’s deflationary budget, paid industrial employment reached a
new record postwar high.” Cohen, 452.
51. Ibid., 50.
52. Ibid., 52; Sherwood M. Fine, “The impact of the Korean War on the Japanese economy,” The
occupation of Japan: the impact of the Korean War. The proceedings of a symposium, 16–17 October
1986 (Norfolk, VA: the General Douglas MacArthur Foundation, 1990), 138. Sherwood M. Fine was a
SCAP economics advisor during the occupation.
53. Dower, 544; Cohen, 460.
54. Fine, 138.
55. Uchino, 55.

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 WWII, japan

between 1951 and 1953. In the first year of the Korean War (through July 1, 1951), United
Nations purchases of goods and services in Japan totaled $330 million. By April 1952, that
number had increased to $620 million. The U.S. military spent another $1.75 billion in the
three years after the war ended. All aspects of the Japanese economy shared in the Korean
War-stimulated expansion: Metals and machinery production led the way, chemicals and
forced production were also strong, and all other components of the economy enjoyed
moderate increases.56 These vast expenditures were the impetus required to begin Japan’s
economic recovery.
The Korean War had a massive direct impact on the Japanese economy; it also
had an equally important indirect impact. The war affected global economic patterns and
contributed to the end of recessions in many nations. Japan was one of the few nations
with excess capacity in engineering products, and thus, international orders for machine
products increased dramatically. Likewise, Japan’s shipyards began to receive orders, and soon
shipbuilding became a leading export sector.57 This demand for exports stimulated additional
sectors of the Japanese economy not directly related to war efforts. With the increase in
exports, Japanese industry had the capital to begin modernizing industrial infrastructure.
Also, for the first time since World War II, Japan had the ability to import significant amounts
of food. During the Korean War, Japanese food consumption finally reached pre-World War
II levels.58 Another important aspect of the Korean War was that it absorbed the energies
of SCAP HQ, thus effectively ending U.S. control of Japan earlier than the formal end of the
occupation.

Conclusions
In September 1951, the United States hosted the San Francisco conference that
resulted in forty-seven countries signing a peace treaty with Japan. The San Francisco Treaty
went into effect on April 28, 1952. By that time, Japan’s economy was stable and expanding
beyond its prewar capabilities. Despite very specific initial guidance to the contrary, American
occupation forces in Japan were intimately involved in the Japanese economy and its recovery.
Despite direct U.S. policy intervention, by 1950, after almost five years of occupation, there
was no dramatic improvement in the Japanese economy. The best that could be said about
the American influence was that it avoided total economic collapse, political chaos, and
famine. The Dodge Line was the Americans’ most impressive effort to help the Japanese
economy, and its results were ambiguous. The Japanese themselves considered the Dodge
policies a failure. A simplistic view attributes Japan’s economic recovery primarily to the
influence of the Korean War.

56. Dower, 540–543; Fine, 139.

57. Dower, 542.
58. Fine, 141; Dower, 544.

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 WWII, japan

Though the Korean War was important to Japan’s economic recovery, the
occupation’s policies were equally important. The occupation’s overall contributions to the
Japanese economy outweigh any negative aspects of the Dodge Line, and may have been
more important to the sustained Japanese economic miracle than the economic boost
provided by the Korean War. American contributions to Japanese success included the specific
economic policies regarding labor, decartelization, and land reform. American contributions
also included important policies that resulted in political stability, security, and progressive
education. The occupation’s sensitivity to Japanese cultural and economic history also was
important to economic success. A key to Japan’s economic success was the fact that the
country was politically stable and secure during the seven years of American occupation.
The American military protected Japan from external military threats and the American
government and SCAP blocked any potential outside political interference in Japanese
affairs. Elections at all levels, and several changes of national leadership, occurred in Japan
during the occupation without any serious questions of irregularity in the political process.
Complementing the occupation’s success in ensuring stable politics was its ability to preserve
law and order throughout the period, first through the quick deployment of a massive
occupation force, and then through the rapid rehabilitation of the Japanese police. Political
unrest, external interference, or internal violence never imperiled economic progress.
One of the occupation’s areas of greatest success was education. American reforms
in this area complemented the Japanese cultural emphasis on education. Much of the
eventual success of the Japanese economy was the result of an educated workforce. Though
education reform did not have immediate effects during the occupation period, it prepared
the workforce such that, as the conditions in Japan improved during the Korean War, a skilled
and educated labor pool was available to take advantage of the opportunity for technical
renovation and economic expansion.59
A final contribution of the occupation forces to economic success was flexibility and
cultural sensitivity. When the war ended, the occupation forces were trained and prepared to
govern Japan directly through an imposed military government. However, the atomic attacks
changed the anticipated nature of the Japanese surrender, and the United States quickly
changed its plans and decided to administer occupied Japan through the existing Japanese
government and its institutions. In addition, the army of occupation, with some exceptions
in the interest of expanded democracy, made a determined effort to improve upon existing
Japanese institutions and customs rather than build completely new ones on a foreign
model. The nature of the American occupation allowed prewar Japanese economic trends
and characteristics such as technological development, business networks, and industrial
development to continue into the postwar era. In this way, the occupation accelerated

59. Smith, 50.

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 WWII, japan

positive economic trends in Japanese society that were uniquely Japanese and that, in many
cases, had deep historic roots.60
The American occupation of Japan from 1945 to 1952 contributed to Japan’s
emergence as a major global industrial power in the 1960s. However, the American
contributions to Japanese industrial success were not primarily in the form of economic
policy and programs. Labor reform, agricultural reform, the breakup of the zaibatsu, and
removing the most extreme militarists from leadership positions were positive and important
changes; however, they did not immediately or fundamentally change the Japanese economic
situation. Likewise, the Dodge Line did not stimulate rapid economic recovery. Economic
policies were important, but the overall American contribution to the economic situation
in Japan went beyond merely economic issues. Other important American contributions to
economy recovery were indirect. The occupation ensured political stability and democracy,
enforced the rule of law, and created a modern education system. These noneconomic
factors created an environment conducive to economic growth. That environment,
combined with the important direct economic reforms of the occupation, accelerated and
complemented positive features of the Japanese economy that already existed. Together,
these factors facilitated economic success but did not instigate it. The U.S. contribution to
what would become the Japanese economic miracle was ensuring that, when economic
opportunity presented itself as it did during the Korean War, the Japanese economy and
people were positioned to take advantage of it.

60. James L. Huffman, “Discussion of Sherwood M. Fine’s The impact of the Korean War on the
Japanese economy,” The occupation of Japan: the impact of the Korean War. The proceedings of a
symposium, 16-17 October 1986 (Norfolk, VA: The General Douglas MacArthur Foundation, 1990), 144.

[ 41 ]
 Post-Conflict Planning and Execution in Korea

by Marcus Noland
Deputy Director and Senior Fellow,
Peterson Institute for International Economics

Marcus Noland, deputy director and senior fellow, has been associated with the Peterson
Institute since 1985. His work encompasses a wide range of topics including the political economy
of U.S. trade policy and the Asian financial crisis. His areas of geographical knowledge and interest
include Asia and Africa. He has written extensively on the economies of Japan, Korea, and China,
and is unique among American economists in having devoted serious scholarly effort to the
problems of North Korea and the prospects for Korean unification. He won the 2000–1 Ohira
Memorial Award for his book Avoiding the Apocalypse: The Future of the Two Koreas. Noland was
a senior economist at the Council of Economic Advisers in the Executive Office of the President of
the United States, and has held research or teaching positions at Yale University, the Johns Hopkins
University, the University of Southern California, Tokyo University, Saitama University (now the
National Graduate Institute for Policy Studies), the University of Ghana, the Korea Development
Institute, and the East-West Center. In addition to several books, Noland has written many scholarly
articles on international economics, U.S. trade policy, and the economies of the Asia-Pacific region.
He has served as an occasional consultant to organizations, such as the World Bank and the
National Intelligence Council, and has testified before the U.S. Congress on numerous occasions.
The author would like to thank Jennifer Lee for research assistance.

S
outh Korea is arguably the premier development success story of the last
half-century. Fifty years ago it had a per capita income lower than that of
Mozambique or Bolivia; today it is richer than Portugal. And, as spectacular as
South Korea’s economic performance has been, its political development has been as
impressive, if not more so: In the space of a single decade between 1987 and 1997,
leadership of the South Korean government went from an authoritarian strongman
(General Chun Doo-hwan) to his elected but hand-picked successor (General Roh Tae-
woo) to an elected centrist civilian politician (Kim Young-sam) to a former dissident
(Kim Dae-jung).

The contrast with North Korea is stark: During the same period, it experienced
a famine that killed perhaps 3 to 5 percent of the population, and remains mired in an

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 korea

anachronistic Stalinist dynasty that systematically denies its populace the most elemental
human, civil, and political rights.
Same people, same peninsula, very different outcomes.
It would be natural to ascribe these very different trajectories to the differences
in tutelage that the two halves of the peninsula received from their respective patrons, the
United States and the Soviet Union. And, while there is certainly much in this notion, less
commonly appreciated about the South Korean experience is that the period between the
establishment of U.S. military governance immediately following the Second World War
defeat of Japan in 1945 to the initiation of a wide-ranging reform program by Park Chung-
hee in 1963 were years of relative stagnation. Between 1953 and 1962, in purchasing power
adjusted terms, the economy grew 3.4 percent annually (fig. 1). In the following decade,
growth accelerated to 8 percent a year. For 45 years starting in 1963, the economy averaged
over 7 percent growth annually, and experienced only two years of economic contraction:
1980, after the second oil shock and the assassination of President Park Chung-hee, and
1998, at the nadir of the Asian financial crisis. The period of rapid growth commenced a
decade after the Korean War armistice, and fifteen years after the founding of the republic.

Figure 1. GDP Growth Rate (3-year Moving Average)

20%

15%

10%

5%

0%

-5%

-10%
8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6
194 195 195 195 195 195 196 196 196 196 196 197 197 197 197 197 198 198 198 198 198 199 199 199 199 199 200 200 200 200

Source: Kim (2009) & Author’s Calculation.

This paper will argue that, while constructive, narrowly construed American support
during the initial period of military occupation and the later period of rebuilding following the
1953 Korean War armistice was not central to South Korea’s subsequent success.
The paper proceeds by first examining the diplomatic maneuvering over the
“Korean question” and the initial attempt to establish administration in South Korea
following the defeat of Japan in the Second World War. The next section reviews and
assesses the economic policies applied. The third section addresses the political economy
of establishing institutions of governance in post-conflict situations through the lens of the
Korean experience. It goes without saying that it is practically impossible to write about this
history in 2010 without the U.S. experiences in Afghanistan and Iraq coming to mind. The

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 korea

fourth section considers the issue of “portability”: the extent to which the South Korean
experience may reflect unique and irreproducible conditions. The fifth applies these ideas by
comparing the South Korean experience to the contemporary case of Afghanistan. Some
conclusions and policy recommendations are contained in the final section.

Diplomacy and Administration1

Annexed by Japan in 1910, the Koreans were promised their independence “in
due course” by the United States, United Kingdom, and China at the Cairo Conference in
1943, which was reaffirmed at Potsdam in 1945. The State Department began planning
for Korean trusteeship that would involve China, the United States, and the Soviet Union.
State Department planning recognized the possibility of an interim U.S. military government,
but this was not accompanied by any real operational preparations, and State Department
documents through 1945 bear little resemblance to what would eventually transpire. Planners
in both the State and War Departments (the latter would be the lead agency until 1947) were
mainly China or Japan specialists with little knowledge of Korea.
The war ended before the victorious powers could reach agreement on a trusteeship
formula and the United States and USSR hastily agreed to assume responsibility for
accepting the surrender of Japanese forces and temporarily occupying the country, dividing
responsibility in accordance with an American proposal at the 38th parallel, which previously
had been identified as a possible boundary of Russian and Japanese spheres of influence in
1896 and 1905.
With Soviet forces moving into the Korean Peninsula from the north, in August
1945, troops under General John R. Hodge were rushed from Okinawa to Korea. The
choice was purely expedient, based on proximity, not any special training or expertise in
administration, but in this respect it was reflective of general practices and not unique to the
Korean case. It was not until October that the first civil affairs units began to arrive, and they
had been trained for the Philippines, not Korea.
Technically Korea was an “occupied,” not a “liberated,” territory. General Douglas
MacArthur gave Hodge a relatively free hand since, technically, the operation was an
“occupation” and there was no indigenous political entity with whom to share power.
By the time of Hodge’s arrival there was considerable agitation on both sides of
the peninsula, and he initially made a mistake in announcing that hated Japanese colonial
administrators would be retained, a decision that was reversed a week later. The 70,000
Japanese colonial administrators (including key technicians) disappeared rapidly and, by the
spring of 1946, all were gone.

1. This section draws primarily on accounts found in McCune (1946, 1947), Henderson (1968), Cumings
(1990), and Matray (2005).

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 korea

Yet it was not evident who would replace them. A leftist People’s Republic of
Korea had been declared in September (which Hodge would ban in December.) The Korean
nationalist movement was highly fragmented. There were local nationalists and prominent
personages. There was the Korean Provisional Government in exile in Shanghai, which U.S.
authorities blocked from returning to the peninsula until November. There was a communist
faction allied with the Soviet Union (from which the leadership of North Korea would come),
many members of which had been jailed by the Japanese and were released from confinement
when the Japanese surrendered in August. Finally, there was a U.S.-based faction led by Rhee
Syngman, who, upon his return in October, proved to be a polarizing, not unifying, figure.
There were intergenerational splits within these groups as well. Within South Korea there were
numerous political parties, including four with significant following: two on the left and two
on the right. As contemporary observer George McCune noted, “In the opening stages of
recruiting personnel, American military government leaned heavily upon wealthier Koreans and
those who could speak English,” lending a rightward tilt to U.S. administration (McCune 1947,
612).
Moreover, what little operational planning had occurred before the occupation
assumed that the division of the peninsula was temporary, and little thought was given to
establishing permanent stand-alone institutions of governance for the southern half of the
peninsula. In McCune’s words, “The Korean occupation was primarily a political and economic
problem rather than military. General Hodge was prepared militarily but not politically or
economically,” (McCune 1946, 34) and “Since the end of the war American policy toward
Korea has tended to drift without definite direction” (McCune 1946, 33).
In the December 1945 Moscow conference, representatives of the United States,
Soviet Union, United Kingdom, and China agreed to a trusteeship of up to five years.
Understandably, the agreement was unpopular with
the Koreans. Furthermore, the U.S. and Soviet military Moreover, what little
commands could not reach agreement on a formula to
operational planning
had occurred before the
hold elections. As the Moscow conference formula did
occupation assumed that the
not play out, the United States came up with plans for division of the peninsula was
the United Nations to supervise nationwide elections, but temporary, and little thought
with Soviets in opposition occupying half the country and was given to establishing
holding a veto on the UN Security Council, this proposal permanent stand-alone
was a nonstarter.
institutions of governance
for the southern half of the
In the absence of a path to independence, the peninsula.
United States tried to “Koreanize” the administration
and established a Korean Interim Legislative Assembly (December 1946) in the U.S.-occupied
zone. However, American “advisors” continued to wield real power with respect to the former,
and the latter accomplished little.

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 korea

These moves were too little, too late. As McCune presciently wrote, “Unfortunately,
many observers concluded that civil war was inevitable sooner or later in Korea…Under these
conditions, the simultaneous withdrawal of American and Russian military forces would, no
doubt, precipitate civil war…the only solution for the dilemma, therefore, lay in arriving at
some workable arrangement whereby a middle-of-the-road Korean regime could be installed
in authority…under the joint guarantee of the occupying powers. The alternative was the
division of Korea into two colonies, or at least two puppet states, and it was hard to foresee
a situation more inequitable for the Korean people or more dangerous for Russian-American
relations” (McCune 1947, 622–3).
In 1948, independent states staking claim to the whole peninsula were declared in
the U.S. and Soviet zones of occupation. On June 25, 1950, North Korea invaded
South Korea.

Post-Conflict Economic Policy2

As observed previously, in contrast to liberated areas such as the Philippines, Korea,
as part of colonial Japan, was classified as a belligerent with local institutions unable to
immediately assume political control. Hence, bilateral economic assistance between 1945 and
1948 was delivered bureaucratically through the program for Government Appropriations for
Relief in Occupied Areas (GARIOA), financed out of the military appropriation. In addition to
the $326 million of GARIOA assistance, a trivial amount of aid ($0.6 million) came through
the United Nations Relief and Rehabilitation Program, administered multilaterally, but financed
mainly by U.S. contributions (72 percent).
Legislatively, GARIOA’s objective was to provide “such minimum supplies for the
civilian populations of such [occupied] areas as may be essential to prevent starvation, disease,
and unrest” (Wolf 1960, 15). More than 90 percent of the aid consisted of finished goods,
particularly foodstuffs and medical supplies, which could be immediately distributed without
further processing. GARIOA-financed imports also included coal and oil following the North
Korean cutoff of electricity transmission across the border. By 1947, as the Cold War began
to emerge, the program was being justified in terms of fostering local political developments
amenable to U.S. interests.
The starting point in August 1945 was not auspicious: Agricultural and industrial
production was well below prewar levels and much of the physical plant and equipment barely
functioning. On the ground, U.S. officials were forced to push beyond to the relief-oriented
GARIOA guidelines, particularly in regard to the management of capital stock and enterprises
inherited from the departed Japanese colonialists. Twenty-three-year-old Army sergeants found
themselves managing factories and mines. Not until 1947 was there a good survey of vested
assets, primarily inherited from the departing Japanese. The absence of such a survey would

2. This section draws primarily on Wolf (1960), Krueger (1979), Mason et al. (1980), and Chung (2007).

[ 46 ]
 korea

hamper rehabilitation efforts. Inflation hit triple digits. The ranks of the unemployed swelled
with the return of 500,000 refugees from other parts of the Japanese empire. Crime and
gang activity surged.
According to Charles Wolf (1960), lack of intermediate inputs was a major
constraint on production in both agriculture and industry. Through mid-1948, more than
a half million metric tons of fertilizer were imported under GARIOA, making possible the
highest level of fertilizer application in Korean history. Agricultural output rose 11 percent
and was 20 percent above the prewar level. But this is really more akin to reconstruction than
development, and Wolf admits that the provision of additional inputs would have been met
with diminishing returns.
Until 1947, the implicit assumption in U.S. policy was that the peninsula would
be reunited; hence, there was no need to plan for an independent, self-sustaining South
Korea. As that hope faded, emphasis began to shift from humanitarian aid to economic
development. In 1948, the U.S. Congress passed the Economic Cooperation Act (Marshall
Plan), and the first government-to-government pact signed in December 1948 was the
Republic of Korea-United States Agreement on Aid. The agreement set priorities (power
generation to offset the loss of North Korean-generated electricity and fertilizer production)
and specified the policy conditionality for U.S. assistance (which the South Koreans resented).
On January 1, 1949, the United States recognized the Republic of Korea (South
Korea) and responsibility for U.S. aid was transferred from the Army to the Economic
Cooperation Administration (ECA), the forerunner of the U.S. Agency for International
Development (USAID). While the goals of GARIOA were addressing immediate civilian
consumption relief and indirectly fostering a “healthy” political environment, according to the
1949 ECA report to Congress (as quoted by Wolf), the purpose of the ECA was “to assist the
Korean people in establishing a sound economy and educational system as essential bases
of an independent and democratic state” (Wolf 1960, 48). Thirty million dollars in remaining
funds were transferred from GARIOA to the ECA and, in early 1950, the ECA requested
a $350 million Congressional appropriation for South Korea for the period 1951–53.
This request was rejected, and Congress instead authorized a series of smaller interim
appropriations, which, together with the remaining GARIOA funds, totaled $140 million.
Ironically, Secretary of State Dean Acheson’s “clarification” of U.S. policy toward Asia in the
wake of the Communist forces’ victory in the Chinese civil war placed South Korea outside
the U.S. “defensive perimeter” and undercut the administration’s advocacy of aid to South
Korea (Wolf 1960, 49).
Following the June 1950 North Korean invasion of South Korea, an additional $90
million for aid was appropriated, but with the war under way, the situation reverted to the
pre-1949 ante: Administration of the program was returned to the Army, with a focus on
relief rather than development. In April 1951, development assistance, apart from relief, was
formally suspended. Author Anne Krueger concludes that “the delay in passing the ECA bill

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 korea

effectively prevented the inauguration of any sustained development program before the
outbreak of the Korean War” (1979, 16).

Assessment
Analysts give the short-lived ECA program relatively high marks. South Korea
was envisioned as an agricultural exporter. Programmatically, emphasis was on boosting
available power through expanding coal and thermal power production and developing
fertilizer production. Krueger (1979, 17) attributes 72 percent of the increase in agricultural
production to input increases; hence, aid-supplied inputs should be credited with “a
substantial portion” of the increase in agricultural production, which was realized.
The U.S. administration made advances in other avenues as well, including the
divestiture of assets seized from the departing Japanese and public education. All four major
South Korean political parties supported distribution of Japanese-owned lands. The Left also
wanted dispossession of absentee Korean landlords. All wanted nationalization of industry,
though the right envisioned assets eventually being taken over by Korean big businesses.
The U.S. military government established the New Korea Company to administer
vested lands. It began the process of establishing ownership records. In March 1948, the
New Korea Company was abolished and replaced by the National Land Administration—
charged with divesting the land holdings. By September 1948, more than 96 percent of the
Japanese-owned land had been sold, and in 1949 most of the land held by absentee Korean
landlords had been sold. The land reform reduced the share of rented land from 60 percent
to 15 percent, and the share of tenants to between 5 and 7 percent of all cultivators. The
immediate impact was reduction in output (presumably due to disruption of the provision of
inputs), but the long-run impact is universally regarded
The land reform reduced the as positive, both directly on agricultural productivity and
share of rented land from indirectly through backward and forward linkages with
60 percent to 15 percent, the manufacturing sector. Much less progress was made
and the share of tenants to on the divestiture of industrial assets.
between 5 and 7 percent of
all cultivators. The immediate In the field of public education, the U.S.
impact was reduction in military authorities assumed responsibility for
output… but the long-run rehabilitating public education, both to remake the
impact is universally regarded existing Japanese nationalist curriculum and to deal with
as positive, both directly on
the shortage of teachers resulting from the deportation
agricultural productivity and
indirectly through backward of the Japanese. These efforts appear to have been
and forward linkages with the successful: Between 1945 and 1948, the number of
manufacturing sector. elementary and secondary school pupils increased 82
and 183 percent, respectively. The number of available
teachers increased 55 percent, 569 percent, and 268 percent, at the elementary, middle,
and secondary levels, respectively. The U.S. authorities also established “civic” schools for

[ 48 ]
 korea

those outside the normal school age range, and adult literacy increased significantly. These
educational advances presumably had large payoffs in later years, once the government
adopted more sensible economic policies. Some innovations introduced by the United States,
such as coeducation and local control of schools, did not survive the transfer of control to
South Korean authorities.

Post-Korean War Efforts

In certain respects, the situation changed following the Korean War, but exhibited
continuities in other ways. Three-quarters of aid between 1953 and 1960 was commodities:
half food; most of the rest oil or fertilizer; and only 16.5 percent going directly to support
manufacturing, figures similar to those observed in the earlier period. Formally, the South
Koreans were in charge, but from 1953 on, the United States recognized a responsibility
for ongoing economic and military assistance, and South Korea became, in essence, a client
state. That year, a new agency, the Foreign Operations Administration (FOA), was established
to deal with the reality that the peninsula would not be reunited and South Korea would
have to go it alone.
It appears that U.S. assistance was associated with a certain amount of overstaffing
and corruption. One issue took on greater salience in the postwar years. Foreign soldiers
needed some local currency to pay for items purchased in the local economy. The host
government makes a local currency (in this case, the Korean won) transfer to the troops’
sponsoring entity, which agrees to pay back this advance. The payment terms are subject to
negotiation. In the case at hand, during the 1950s, South Korea had an overvalued currency.
From the standpoint of this repayment issue, it was in South Korea’s interest to maintain
the overvalued currency and, hence, maximize the hard currency inflow from the United
States and United Nations. There is a self-reinforcing aspect to this policy: The exchange
rate overvaluation will tend to depress exports and, hence, magnify the importance of the
transfer in a country’s balance of payments earnings. Both Krueger (1979) and respected
South Korean economist Cho Soon (1994) argue that this transfer issue was a significant
consideration in South Korean exchange rate policy in the 1950s. Growth or non-transfer
sources of foreign exchange earnings, a reduction in the value of the transfer (though a
drawdown in the number of foreign troops, for example), or a reduction in unilateral aid will
tend to mitigate the incentives to pursue such a distortionary policy.
In sum, U.S. assistance kept South Korea afloat during two critical periods of
distress; midwived a successful land reform; and contributed to a significant expansion of the
educational system. It was less successful in encouraging the divestiture and rehabilitation of
formerly Japanese-owned industrial assets, and contributed to some undesirable side effects.
As Krueger concludes, “Given the destruction and dislocation that had been experienced by
the economy, it seems reasonable to conclude that the aid inflow was extremely important
in preventing further deterioration in the situation in 1945–47 and in permitting the
reconstruction in 1948–49” (1979, 19).

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 korea

The Formation of Institutions of Governance

At the end of the Second World War, the Korean nationalist movement reflected a
wide ideological spectrum and was geographically dispersed: Rhee Syngman, the student of
Woodrow Wilson who would eventually lead South Korea, had been in exile in the United
States for 30 years; Kim Il-sung and other Korean Communists had fled to the Soviet Union;
there was a provisional government in exile in Shanghai; and there were nationalists who
had remained underground in the peninsula. U.S. and Soviet military authorities provided
civil order, but this was not a solution to the political vacuum that had been created by
the expulsion of the Japanese. After the division of the peninsula in 1948, both Rhee and
Kim confronted the same formal problem: namely, how to mobilize political support and
create institutions through which to govern. Specifically, the former exiles faced a lack of
institutional capacity (and hence had to rely, at least initially, on their respective patrons) and
a basis for political loyalty, which could be compelled via repression or bought through the
creation and distribution of economic rents. (Think of Iraqi exiles returning to power—the
fragmentation, lack of local governmental organizations, reliance on patrons, strong-arm
tactics, and corruption as a political adhesive.)
The expropriation of Japanese assets—both land and industrial—was one source of
potential rents that could be channeled to political supporters. Another route was to create
them via policy intervention. South Korea inherited an economic legacy of state intervention
from the Yi dynasty, through the Japanese colonial occupation (1910–45) that carried into the
period of independence, reflecting the dirigiste character of Japanese administration and the
continuation of extensive controls by the U.S. military authorities in the immediate postwar
period. An interventionist strategy that would permit the dispensation of political favors
would amount to a continuation of past practices.
At the end of the Second World War, approximately 94 percent of the industrial
assets in Korea were in the hands of the colonial government or Japanese citizens; when
the Japanese were repatriated, they left behind roughly 2,500 businesses (Chung 2007,
92). Starting in 1947, the U.S. government began selling or giving away formerly Japanese-
owned businesses under the Divestiture of Enemy Property Program. But the divestiture of
assets accelerated once Rhee took power. The Repatriated Property Law was promulgated in
1949. It stipulated that property be sold at “the market price” but that payment could be by
installments over as long as fifteen years, subject to a 10 percent down payment.
In certain respects, the approach was eminently sensible: Until property rights
were secure and the assets were in private hands, it was unlikely that there would be any
complementary investment and upturn. The extended payment terms were almost required
by definition, inasmuch as few Koreans could mobilize the personal or corporate wealth
to pay cash on the barrelhead for these assets. Yet divestiture with low initial payments
required was almost an invitation to corruption, and would require a very rigorous divestiture
procedure.

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 korea

In actuality, the system was rife with favoritism and corruption. Chung (2007)
estimates that the purchase prices for formerly Japanese-owned assets were, on average, less
than half their true value—and these conditions were specified in nominal terms. The real
value of repayment would be eroded by inflation. So, for example, a purchaser on a ten-year
installment in 1955 would have seen the real burden of his debt reduced by more than half.
In principle, the disposal of these assets was to occur through public auctions. If
no buyer could be found after two auctions, then the property could be sold to a selected
buyer. In reality, however, it appears that these procedures were routinely ignored, and Chung
(2007) estimates that only about one-quarter of sales occurred via auctions. The majority
of the divestiture program beneficiaries were individuals who had some prior connection to
the asset. Again, on one level this makes sense: Former employees of these enterprises are
precisely the ones who would have the best understanding of the assets’ underlying worth
and the requisite knowledge to operate the plant and equipment. But it also had the effect
of channeling economic bounties toward “collaborationists.” In other cases, local investors
simply paid a “repatriation cost” to the Japanese owner to secure the title, claim ownership,
and circumvent the divestiture program altogether. The potential for building a political
machine through such mechanisms is obvious.
Economic policy under Rhee also reflected the “urban bias” that was typical in
developing countries of the period, signaling both the greater affinity of the governing elites
with urban residents, and their fear that urban discontent, particularly in the national capital,
could be politically destabilizing. According to Cho Soon, the goal was maximizing the value
of American aid in the aftermath of the Korean War, which had devastated the country. Aid,
which facilitated politicized rent distribution, financed most of the capital accumulation and,
at its peak in the late 1950s, roughly 80 percent of imports (fig. 2). South Korean policy could
be summarized as the “three lows”: maintenance of a low price for grain (courting urban
residents who could most easily challenge the regime); a low—that is, overvalued—

Figure 2. GDP growth rate (Three-year moving average)

450 100

400 90

350 80
70
300
US$ (millions)

60
250
50
200
40
150
30
100 20
50 10
0 0
3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3
195 195 195 195 195 195 195 196 196 196 196 196 196 196 196 196 196 197 197 197 197
Foreign Aid Received Foreign Aid / Imports (%) Foreign Aid / GDP (%)

Sources: Collins and Park (1989); World Bank’s World Development Indicators; Bank of Korea

[ 51 ]
 korea

exchange rate; and low interest rates. The latter two conditions create excess demand for
foreign exchange and bank loans, respectively, which then creates political opportunities for
distributing rents (as well as incentives for corruption). The low interest rate policy had the
further consequence of discouraging saving and capital accumulation.
Rhee was eventually driven from power by urban discontent with poor economic
performance, repression, and corruption, and was followed for a brief period by a weak
government, led by Premier Chang Myon. A military government led by General Park
Chung-hee took control in 1961. Park lacked any common basis for establishing legitimacy.
As a former officer in the Japanese army, he could not lay claim to nationalist credentials.
Coming from a poor, rural background, he was not a member of the yangban (gentry) class
and could not position himself as the continuation of a traditional ruling lineage. As David
Steinberg (2007) observes, Park had overthrown a government backed by the United States
(the last coup in Korea was in 1392), and, having been involved in the 1948 Yosu Mutiny, a
communist-instigated revolt (he was later pardoned), he was regarded as politically suspect
by the United States. He sought legitimacy through his ability to defend the country against
Northern aggression and economic development.3
When Park seized power, gross domestic saving net of aid was derisory (fig. 3).
Gross investment, financed mostly by aid, stood at a bit more than 10 percent of GDP, and
the current account was in rough balance. After two years of poor economic performance,
the military government unified the existing multiple exchange rate system, devalued
the currency, raised the real interest rate, and initiated a series of wide-ranging reforms.
Domestic saving net of aid began rising rapidly (looking at figure 3, one can understand why
development economists adopted Rostow’s take-off metaphor). Domestic investment began
rising even faster.

Figure 3. South Korean savings and investment, 1960–2009

50

40

30

20
(% of GDP)

10

-10

-20
0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8 0 2 4 6 8
196 196 196 196 196 197 197 197 197 197 198 198 198 198 198 199 199 199 199 199 200 200 200 200 200
Gross Savings Gross Capital Formation
Gross Savings-Investment Balance Domestic Savings (net of aid)
Sources: Bank of Korea, Economic Statistics System; World Bank World Development Indicators

3. See, for example, footage of his 1961 visit to Washington and speech in Seoul upon his return:
http://www.youtube.com/watch?v=tdIMyvnwoQs&feature=related.

[ 52 ]
 korea

In this context, it is worth asking whether developments occurred during the period
of stagnation that set the stage for the remarkable response once the policy environment
changed. The answer is “yes.” American aid directly contributed to the rapid expansion
of education within South Korea and made overseas education and training possible
for thousands of South Koreans. Many returnees played important roles, both in policy
formation, where American-trained technocrats played a prominent role, as well as in
industry, where skills development supported industrialization.
Later, international aid was used to establish institutions such as the Korea Institute
for Science and Technology (1966) to acquire foreign technology and adapt it to South
Korean circumstances, and the Korean Development Institute (1971) to rigorously analyze
development issues.
In addition to these official capacity-building programs, some transfer of technical
and management skills undoubtedly occurred through contact with U.S. military forces, but
its significance is difficult to assess. Likewise, local firms certainly benefited from participation
in local military procurement programs, and later from offshore procurement programs during
the Vietnam War.

Portability vs. Irreproducible Conditions

The purpose of this conference is to analyze the pursuit of economic growth and
how best to achieve it in post-conflict environments. Before focusing on the issues of policies
and practices that are potentially transferable from the Korea experience to another milieu,
it is worth considering whether South Korea’s experience over the past two generations
can largely be explained by particular (and largely irreproducible) historical circumstances.
It may be that South Korea was “deceptively poor” and much of its outstanding growth
performance reflected convergence from a perturbation back to a long-run, steady-state
growth path.
As seen in table 1, in the 1950s, among the limited number of countries for which
such data are extant, South Korea had the world’s third-highest ratio of human capital
embodied in the workforce to the contemporaneous level of per capita income, presumably
because most of the capital stock had been destroyed in the Korean War. An indicator of
preexisting Korean technical prowess would be the simple observation that Koreans (possibly
with the assistance of American or Soviet engineers) were able to keep industrial assets
functioning in the period immediately following the expulsion of the Japanese. Moreover,
in the following decades, South Korea accumulated human capital more rapidly than
comparable developing countries (a phenomenon abetted by a postwar demographic bulge
of young people that facilitated training through conventional educational institutions),
and, following the economic reforms of 1963, increasing numbers of university graduates
specialized in science and engineering, presumably of particular importance in the expansion
of industrialization.

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 korea

Table 1. Human capital and per capita income, mid-1950s

Human Per Capita Ratio of Human Capital
Country Year Capital Index Income Index to Per Capita Income
Japan 1955 1673 519 3.2
South Korea 1955 494 217 2.3
The Philippines 1956 738 277 2.7
Israel 1954 1200 609 2.0
Thailand 1955 302 181 1.7
Greece 1956 693 468 1.5
Malaysia 1957 334 351 1.0
United States 1955 2293 2443 0.9
Italy 1956 787 971 0.8
Turkey 1955 267 365 0.7
Argentina 1955 760 1059 0.7
Mexico 1955 352 637 0.6
Spain 1955 389 652 0.6

Note: Human capital index is educational expenditure embodied in the labor force. See Psacharopoulos
(1974). Values for Japan, Mexico, Spain, Turkey, and the United States interpolated from 1950 and 1960
observations; values for Greece and Italy interpolated from 1951 and 1961 observations; values for Argentina
and Thailand interpolated from 1947 and 1960 observations.
Per capita income is purchasing power adjusted figure in international dollars from the Penn World Tables.

Human capital takes a long time to produce (roughly twelve years of schooling
for a secondary school graduate) and, once in the labor force, human capital of a particular
vintage lasts a long time (perhaps forty years or more). In contrast, physical capital is subject
to relatively rapid accumulation—and scrapping as newer-vintage capital embodying
technological progress becomes available. South Korea invested roughly 30 percent of
GDP for several decades. Moreover, if one believes that human and physical capital are
complements in that effective usage of recent-vintage physical capital requires skill and/
or that high levels of human capital are positively associated with the ability to absorb
technological innovations from abroad, then economies with high levels of human capital
relative to physical capital are likely to experience rapid rates of total factor productivity
growth. In short, South Korea was well-positioned for rapid economic growth. At least some
of what occurred would appear to be simply an example of neoclassical convergence from an
unusual starting point.
Paradoxically, South Korea (along with several other high-performing Asian
economies) also may have benefited from unusual endowments—specifically a relative lack
of natural resources—in two ways. Figures 4 and 5 are projections of labor, capital, human
capital, and arable land endowments onto a two-dimensional diagram.4 The average world
endowment is represented by the intersection in the center of the triangle of the three rays
emanating from its vertices. As one gets closer to the corner, the relative abundance of that

4. It would be desirable to have such projections for the late 1940s or 1950s, but 1968 is the earliest
date that this data can be assembled for a large group of countries.

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 korea

factor increases. So, for example, in figure 5, it is clear that Japan is very land-scarce (i.e., it is
far from the land vertex), and that Japan has a higher capital-to-labor ratio than South Korea,
which, in turn, has a higher capital-to-labor ratio than Taiwan.

Figure 4. Endowment triangle: labor,

human capital, land (1968 data).

HK

4 Jap
0.25
Ger Tai
Aus
KOREA Sng
2

Swd Nor HK
Isr
Ita Phl
1 Den
1
Fra
US Per
Fin Ind
Can Grc
Mal Tot 2
Tha Chi
Spa Mex
0.25 Bra Tur
Pak 4
Arg
Tun

Land 0.25 1 2 4 Labor

Figure 5. Endowment triangle: labor,

physical capital, land (1968 data).

Land

4 0.25
Arg
2

Tun Can
Bra
1 Tur 1
Pak Spa
US
Tha Grc
Mex Tot 2
Per Den Fin
Chi Swd
Phl Fra
0.25 Ind Mal 4
Ita Aus
UK Isr
Nor
KOREA Ger
Jap
Tai HK Sng
Labor 0.25 1 2 4 Physical K

[ 55 ]
 korea

Given their factor endowments, we would expect extremely land-scarce

economies such as Japan, South Korea, Taiwan, Hong Kong, and Singapore to have begun
manufacturing activities relatively early in their development (as measured by per capita
income), and to specialize relatively intensely in these activities (Leamer 1987). In all of these
cases, the development of export-oriented manufacturing was facilitated by easy access
to sea transportation, a condition that may or may not be present in future post-conflict
situations.
This relates to the third, and probably irreproducible, initial condition: namely,
the comprehensive land reforms undertaken with encouragement from the United States,
which could have reinforced backward and forward
…the development of export- linkages and encouraged productivity increases in the
oriented manufacturing was agricultural sector. The result was “growth with equity”
facilitated by easy access
as the share of tenants or half-tenants fell from 67
to sea transportation, a
condition that may or may percent of the rural population to 15 percent in 1954.
not be present in future post- This condition is probably irreproducible, as it is hard to
conflict situations. imagine situations in which an incumbent government
has enough political capital to take on something as
fundamental as a land reform. It is virtually impossible to imagine a democratically elected
government having the political power to overwhelm opposition to such a fundamental
change. But certain post-conflict situations might present a possibility wherein outside actors
with no real ties to the landlord class, or an indigenous government with weak ties to the
local rural elite backed by strong foreign patrons, might be able to take this on. This aspect of
South Korea history is unlikely to be reproduced in future post-conflict situations, however.

Mapping South Korea and Future Post-Conflict Cases

South Korea, during the decade 1953 to 1962 (i.e., between the conclusion of
the Korean War and the take-off associated with the Park reforms), had the following
characteristics:
• ethnically homogeneous population;
• postwar devastation; large displaced population;
• populace mostly rural freeholders;
• relatively high level of education, literacy, technical skills;
• internal security provided by authoritarian government;
• secure borders; conventional external security threat deterred in part by foreign
forces;
• small modern sector of the economy characterized by cronyism, corruption; and,
• highly dependent on outside patrons for economic, political, and security support.

[ 56 ]
 korea

As an example, how does contemporary Afghanistan stack up? One might

characterize Afghanistan today as follows:
• ethnically fragmented;
• chronic war-related devastation; some internally displaced population;
• mostly rural;
• low level of education and literacy;
• opium production important to rural livelihood;
• quasi-democratic government provides insufficient internal security;
• insecure borders; insurgency with some degree of external support;
• customary, Islamic, and modern legal systems operating in parallel;
• little modern economy to speak of; and,
• highly dependent on outside patrons for economic, political, and security
support.

Hence, there are some similarities and some divergences. With respect to
population, Afghanistan is multiethnic and has a much lower level of literacy and human
capital than South Korea did in the 1950s and, all things being equal, both characteristics
are likely to be impediments to economic development and political stability—not necessarily
insurmountable, but impediments nonetheless.
Both societies were largely agrarian, though the South Korean population of the
1950s probably embodied greater industrial skills than does the population of Afghanistan
today, in part because of an influx of population from the more industrialized North Korea
during the war. Given its endowment and location, one would expect South Korea to begin
industrializing at a lower level of per capita income, and to do so more intensively, than the
more resource-abundant Afghanistan. Once industrialization got under way in earnest in the
1960s, South Korea’s access to sea transport was an asset that Afghanistan obviously lacks.
Furthermore, Afghanistan has the additional and significant challenge of having a major cash
crop—opium poppies—that is illicit, with its marketing controlled by insurgents or criminal
gangs with no loyalty to the state.
In both countries, the governments consisted of counter-elites who “returned” to
power, in the case of the Koreans, after the end of Japanese colonialism, and in the case
of Afghanistan after the overthrow of the Taliban regime. In principle, the elected Karzai
government should have more popular legitimacy than Rhee’s government did, though its
inability to provide internal security and apparent resort to fraud in the most recent election
makes it doubtful that popular support is any greater (and could, in fact, be less). Moreover,
in addition to the resurgent Taliban, Karzai presumably faces more severe potential challenges
to his authority from various warlords than Rhee ever did. This is to say, Afghanistan is less
secure both physically and politically than South Korea was following the Korean War.

[ 57 ]
 korea

In both cases, the governments were strongly dependent on outside support. Aid
financed more than half of South Korean capital accumulation and imports during the 1950s,
and the U.S.-UN presence ensured conventional security. Nevertheless, despite the Rhee
government’s dependence on outside patrons, the difference in state capacity between South
Korea then and Afghanistan today appears stark. In Afghanistan today, the state literally
does not control the countryside. The simplest sorts of information that would allow one to
do rational public policy planning are missing, fragmentary, or unreliable. To cite an example,
Afghanistan does not report births or deaths, or the volume of international trade. According
to the World Bank, in 2008, GDP was $10.6 billion and aid was $4 billion, meaning that
Afghanistan is more dependent on outside assistance than South Korea was at its peak.

Policy Recommendations
So the situation in Afghanistan today does not look very good. But it did not look
very good in South Korea in the 1950s either, when it was seriously suggested that a line
be added to the U.S. government budget for transfers to South Korea since, in effect, it
would be a ward of the state in perpetuity. One of the basic arguments of this paper is that
things can change quickly: South Korea looked bleak in the 1950s, but then experienced
an astonishing period of growth. The following policy recommendations are offered with
the understanding that there may be as many differences as similarities between South
Korea’s history and future post-conflict cases. Some aspects of the South Korean experience
reflect historically specific conditions and are not reproducible, and one should have low
expectations as to what can be accomplished in post-conflict environments, at least in the
short run.
First, basic internal security is a prerequisite for sustained growth. It is easier said
than done, but until security is established it is difficult to imagine sustained growth.
Second, even before security is established or complete political stability achieved,
there are things that can be done. In the case of South Korea, the education and training
of thousands of Koreans was underwritten by the international community. The immediate
payoffs may not be high (or even evident). Most of these individuals did not return to South
Korea, at least immediately. But it is important to establish a cadre of technically competent
people whose talents may only become apparent when the policy environment changes, as
occurred in South Korea. This group of mainly U.S.-trained technocrats was critical in South
Korea.
Third, while foreign forces are operating in theater, procurement programs can be
used to upgrade and expand the capacity of local private sector firms, as occurred in South
Korea.
Fourth, objective conditions matter: In the Afghanistan case, its lower population
density, landlocked borders, and greater opportunities for making a livelihood in the

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 korea

countryside, all augur against it industrializing in the same way that South Korea did.
Agriculture will remain more important for a longer period in Afghanistan than it did in South
Korea. As a consequence, initiatives such as rural road building, establishment of electrical
service, agricultural extension services, and agronomy will be of first-order importance, both
for generating economic development and for engendering political loyalty and stability.
There is no simple policy template applicable everywhere.
Finally, just as some aspects of South Korea’s experience appear to be irreproducible,
some characteristics of other post-conflict situations have no real counterpart in South
Korea’s history. An example would be the Afghan opium poppy problem. South Korea’s land
reform effectively improved the lives of its cultivators and was a boon both politically and
economically. However, in the Afghan case, the preferred policy—diversification of production
away from the production of opium poppies—unless handled extraordinarily carefully, is
likely to depress rural incomes, at least in the short run, undermining both the economy
and support for the government. The international community could be very important in
terms of providing resources to make production of other crops economically preferable to
continued poppy cultivation, supporting labor-intensive manufacturing to absorb displaced
farmers, or even buying up the opium crop to deny the Taliban revenues from the opium
trade. But South Korea’s experience offers no guidance on these critical issues.

References
Cho, Soon. 1994. The Dynamics of Korean Economic Development. Washington, DC: Institute for International Economics.
Chung, Young-Iob. 2007. Korea in the Fast Lane. Oxford: Oxford University Press.
Collins, Susan M. and Won-Am Park. 1989. “External Debt and Macroeconomic Performance in South Korea,” in Developing
Country Debt and Economic Performance, Vol. 3, ed. Jeffrey Sachs and Susan M. Collins (Chicago: University of Chicago
Press), 151-370.
Cumings, Bruce. 1990. The Origins of the Korean War, Vol. II. Princeton, NJ: Princeton University Press.
Henderson, Gregory. 1968. Korea: The Politics of the Vortex. Cambridge, MA: Harvard University Press.
Kim, Nak Nyun. 2009. “The Long Term Trend of South Korea’s GDP and International Comparison,” Working Paper 2009-5.
Seoul: Naksungdae Institute for Economic Research. [In Korean].
Krueger, Anne O. 1979. The Developmental Role of the Foreign Sector and Aid. Cambridge, MA: Harvard University Press.
Leamer, Edward E. 1987. “Paths of Development in the Three-Factor, n-Good General Equilibrium Model,” Journal of
Political Economy 95, no. 5: 961–99.
Mason, Edward S., Mahn Je Kim, Dwight H. Perkins, Kwang Suk Kim, and David C. Cole. 1980. The Economic and Social
Modernization of the Republic of Korea. Cambridge, MA: Harvard University Press.
Matray, James I. 2005. Korea Divided. Philadelphia: Chelsea House Publishers.
McCune, George M. 1946. “Politics in Korea,” Far Eastern Survey, 15, no. 3: 33–7.
McCune, George M. 1947. “Government and Politics in Korea,” The Journal of Politics. 9, no. 4: 605–23.
Psacharopoulos, George. 1973. Returns to Education. San Francisco: Jossey-Bass.
Steinberg, David I. 2007. “The Development of the Republic of Korea—Models, Lessons, and Warnings,” unpublished paper.
Wolf, Charles. 1960. Foreign Aid: Theory and Practice in Southern Asia. Princeton, NJ: Princeton University Press.

[ 59 ]
 Post-Conflict Economic Planning and Execution
in South Vietnam

by Rufus Phillips
Former USAID; CIA

Rufus Phillips, author of Why Vietnam Matters: An Account of Lessons Not Learned, was a
young Army officer in August 1954, detailed to the Saigon Military Mission where he served as
pacification advisor to the Vietnamese Army. He also served as a civilian advisor to the Vietnamese
Civic Action program in 1956 and was subsequently assigned to Laos until late 1959, supporting
civic action. From 1962 through 1963, as Assistant Director for Rural Affairs in USAID’s Saigon
mission, he was responsible for counterinsurgency and rural development. From 1964 until 1968,
he was a consultant to USAID, then to the State Department, making five trips to Vietnam, and also
acted as an advisor to Vice President Hubert Humphrey. Richard Holbrooke, in his foreword to Why
Vietnam Matters, says that in the 1960s Phillips was, “probably the best informed American on
events in the country [Vietnam] as a whole, and perhaps the American most trusted and listened
to by the Vietnamese.” In early 2009, Phillips served as an informal consultant to a team preparing
an assessment of Afghanistan for General Petraeus. In July 2009, he went to Kabul as a volunteer
to assist an Afghan nongovernmental organization, the Free and Fair Elections Foundation of
Afghanistan (FEFA), in monitoring the Afghan elections. In his private career, Phillips was president
of an international consulting engineering firm with projects in more than forty countries in Asia,
Latin America, the Middle East, Africa, and Europe, as well as serving as an elected official in
Fairfax County, Va.

I
n looking back at post-conflict economic planning and execution in Vietnam,
one has to keep in mind that this was the era of the Cold War with no notion of
export-driven growth except for minerals and bulk agricultural products, no OPIC,
no Free Trade agreements, and certainly, little idea of expeditionary economics.

In order to understand some fundamental differences in how the economic aid

program was formulated and implemented when South Vietnam first emerged as an
independent state after 1954, it is useful to compare it with a later period of economic aid
to South Vietnam from 1961 to 1963. The latter period is when the Vietcong insurgency
threatened to overwhelm the South Vietnamese government and President Kennedy decided

[ 60 ]
 south vietnam

to come to its rescue to prevent that from happening. The author was directly involved during
both periods.
The period to which the term “post-conflict” most accurately applies began after
the Geneva Accords in 1954, when Vietnam was divided at the 17th parallel in Central
Vietnam by the Geneva Ceasefire Agreement and South Vietnam arose out of the ashes as an
independent state. After an internal conflict against sectarian forces that was not over until
late 1955, South Vietnam became a republic with Ngo
Dinh Diem as its president. A constitution was adopted The inherent limitations of an
economic aid program based
the following year with an elected national assembly.
on an unclear understanding
At this time, France withdrew its troops and economic
of the basic problems of the
support and the United States became practically South country and the mentality of
Vietnam’s sole source of economic and military aid. The its leaders was a particularly
country would remain largely peaceful for the next three critical problem during the
years. first period but not clearly
recognized as such at the
There was a significant difference in our time.
economic aid mission’s approach to working with
the Vietnamese government during the first and second periods. The characteristic of
mutuality was largely absent in the first but present during the second, despite great political
differences that arose between the Kennedy Administration and the Diem government.
The inherent limitations of an economic aid program based on an unclear understanding of
the basic problems of the country and the mentality of its leaders was a particularly critical
problem during the first period but not clearly recognized as such at the time.
Even though the Vietnam War era is long past and current world political, military,
and economic conditions have greatly changed, the author believes there is something to be
learned from that experience. What seem constant are American difficulties in dealing with
post-conflict or active insurgent situations in failing states. The author believes that these
difficulties stem not only from conditions inherent in such countries but also in a larger sense
from within ourselves, our attitudes, and the people and government institutions we deploy
to the countries we are trying to help.

Background
In 1946, France launched an armed campaign to take Vietnam back under colonial
rule. Large-scale Vietnamese resistance began beneath the banner of the League for the
Independence of Vietnam (Vietminh) headed by Ho Chi Minh. This was the beginning of the
Indochina War; Vietnam was its main theater.
In 1949, France granted limited independence to Vietnam, recognizing Emperor
Bao Dai as its chief of state. For a variety of reasons, the Truman Administration decided in
1950 to help France in its war against the Vietminh, giving military aid directly to the French

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 south vietnam

but insisting that technical and economic aid go directly to the Bao Dai government. A U.S.
Special Technical and Economic Mission (STEM) began its work in 1950. French jealousy and
anger erupted over direct American contacts with the Vietnamese. Soon thereafter, French
General de Lattre de Tassigny would tell Robert Blum, STEM’s first director, “Mr. Blum, you are
the most dangerous man in Vietnam.”1 Blum had to be withdrawn. No postwar planning was
undertaken since the war’s outcome remained uncertain.
At the time of Geneva in 1954, the Vietnamese economy, although damaged by
war, was still tied to France. Vietnam produced rice, rubber, timber, tea, coffee, spices, copra,
and cacao, and mined coal, phosphate for fertilizer, and some gold, almost all for export to
France. In turn, most finished goods, and all vehicles and machinery, were imported from
France. The managers and entrepreneurs were all French except for the overseas Chinese
in the south. Higher-class Vietnamese received limited educational opportunities with most
being employed in the colonial administration or at submanagerial levels in French-owned
enterprises. A few were trained as doctors and lawyers. The vast majority of the population
lived in rural areas, was largely illiterate (about 80 percent) and relied on subsistence farming
for a living.
After Vietnam was divided in August 1954, Vietminh regular forces evacuated
north, according to Geneva, while the French armed forces along with the Vietnamese army
evacuated south. Some 900,000 civilian refugees also fled. The division of the country had
profound economic as well as political effects. The south had provided the north with rice
and other food products, while the north was the sole source of coal to produce electricity as
well as cement and fertilizer for the south. The textile mills were all in the north, furnishing
half of the entire country’s demand. In the south, more than a million acres of Mekong Delta
rice land had been abandoned or damaged by the invasion of sea water and the clogging of
drainage canals. The Saigon–Hanoi railway lay in ruins as did much of the road network and
bridges in important provinces, particularly those in the center.
During the immediate postwar period (1954–1955), it was doubtful South Vietnam
would survive as it lurched from one crisis to another. The author was an eye witness to
the chaos of those early days with the refugees coming south, the Vietnamese army in
disarray, the French defeated and disgusted with themselves but still not ready to let go, the
Binh Xuyen gangster sect controlling Saigon and the National Police, Hoa Hao and Cao Dai
religious sect forces originally trained and armed by the French in almost open rebellion, the
Vietnamese Army Chief of Staff, General Nguyen Van Hinh, threatening a coup, and Ngo
Dinh Diem installed by Emperor Bao Dai as prime minister in June 1954, but with little control
over anything.

1. Pentagon Papers, Volume One, Gravel Edition (Boston, MA: Beacon Press, 1971), 73.

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 south vietnam

Challenges Facing the U.S. Economic Aid Mission

The existing economic aid mission, no longer called STEM but now the U.S.
Operations Mission (USOM), faced enormous challenges. The first was helping the fledgling
South Vietnamese government resettle the refugees fleeing south, most of whom were
Catholics from rural villages with a history of having resisted the Vietminh. A special
Vietnamese Refugee Commission was set up by Prime
Minister Diem to provide emergency aid to the refugees In the crisis atmosphere,
(most having fled with only the clothes on their backs) there was little coordinated
in temporary tent cities and subsequently in resettled
American thinking at higher
levels or in the field about
villages. USOM created a Field Service to provide
some of the fundamental
assistance. For the first time, American personnel were problems of an emerging,
stationed outside of Saigon working directly with independent South Vietnam.
Vietnamese counterparts. Such an outreach beyond No overall approach was
USOM’s Saigon headquarters would not happen again developed that integrated
for another seven years. By the end of 1957, most
political, economic, and
military thinking into an
refugees had been resettled successfully in new villages
integrated plan.
and the Field Service quietly expired.
While concentrating initially on the refugees, USOM began trying to address
South Vietnam’s economic needs on practically every front: repairing war-damaged roads
and bridges, land development and reform and rehabilitating idled rice land, changing the
currency from the French piastre, establishing a national bank and laws for the banking
system, improving public health facilities, building elementary schools, improving the
somnolent Vietnamese civil service by creating a school for public administration, and
organizing and training the Civil Guard to replace the army in its internal security role (more
later).
In the crisis atmosphere, there was little coordinated American thinking at higher
levels or in the field about some of the fundamental problems of an emerging, independent
South Vietnam. No overall approach was developed that integrated political, economic,
and military thinking into an integrated plan. The rapid rise of the Diem government as a
stable force by late 1955 mesmerized the American government, which suddenly found
itself the sole source of economic assistance needed for South Vietnam’s survival. There
was inadequate recognition that Vietnam was being led by an inexperienced but proud
and nationalistic leadership suffering from the lack of capable administrators and forced to
deal with a bifurcated, partially destroyed national economy, a governance vacuum in the
countryside—the wellspring of the previous insurgency, as well as from the need to defend
itself simultaneously against the possibility of resurgent rural guerrilla activity and from an
overt invasion by a superior army from the north. USOM deployed its usual technical divisions
of agriculture, education, public health, public safety, and public works, each working in its

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particularly technical field with its counterpart ministry. With the exception of the Field Service
personnel working directly with refugee resettlement, it was all top down, not bottom up.
The Americans had difficulty understanding the Vietnamese. A prominent
Vietnamese characterized his countrymen this way:
The Vietnamese acquired a new mentality of the revolutionary nationalist—bitter,
uncompromising, destructive. Having no responsibility for the running of their
country, they had no opportunity to learn how to preserve, to develop, to build—in
a word, to think and act constructively.2
The underground nature of Vietnamese politics before 1954, with its pattern
of betrayal to the French Sûreté or assassination by Communist “death squads,” left a
heritage of distrust which made cooperation difficult. There was also an inherent fear of
foreign domination—what did the Americans really want, and could they be trusted to
look after Vietnam’s best interests and not just their own? This bundle of attitudes, not
well appreciated, affected how the emerging Diem regime governed, tending to favor an
authoritarian centralization of power. It also biased the selection of Vietnamese administrative
and military personnel in favor of personal trust rather than competence.

American Economic and Military Aid

From 1955 on, American aid took up the burden of supporting South Vietnam
from the French, with the largest part of the American aid going for military support. The aid
program would accomplish a lot given the nature of South Vietnam’s economic problems and
the nascent Vietnamese government’s weaknesses, but it did not play the role it might have
in addressing one of the country’s most serious problems: the lack of effective governance,
including development and security in the countryside.
The United States had little relevant experience to go on in dealing with South
Vietnam. The Marshall Plan worked in countries with a prior history of organized government
and developed economies with public and private sectors. It was not a good model, but
it influenced American assumptions about South Vietnam, particularly that technical and
financial assistance given directly to central government ministries would do the job. Beyond
existing French and Chinese entrepreneurs not acceptable to the Vietnamese for nationalistic
reasons, there was almost no Vietnamese private sector. The need for mutuality between
governments in dispensing aid was ignored, as reflected in the failure to consider the creation
of a joint Vietnamese-American commission for rural reconstruction similar to Taiwan, where
the Joint Rural Reconstruction Commission (JCRR), headed by three Chinese commissioners
and two American, was already achieving significant success.3 Instead, the International

2. Richard W. Lindholm, Viet-Nam: The First Five Years (Ann Arbor, MI: Michigan State University Press,
1959), 34.
3. John D. Montgomery, The Politics of Foreign Aid: American Experience in Southeast Asia, Council on
Foreign Relations (New York: Frederick A. Praeger, 1963), 161–162.

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Cooperation Administration (ICA) in Washington kept the traditional economic aid structure
with its technical divisions intact—the Americans over here, the Vietnamese over there.
The table below provides a picture of American aid levels during the fiscal years
1954 through 1957 (beginning July 31 of each year), which amounted to almost a billion
dollars. About 70 percent, averaged over the four-year period, went for military support (for
the reorganization, training, equipping, and pay of the regular armed forces),4 10 percent
in the two first years for refugee assistance and about 20 percent for other economic and
technical assistance.

Table 1. American aid 1954–19585

(In thousands of U.S. dollars)

Economic and
Fiscal Year Military Support Refugee Aid Tech Assistance Total

1954–55 234,800 55,785 29,715 320,300

1954–55 234,800 55,785 29,715 320,300

1955–56 109,000 37,000 50,500 196,500

1956–57 173,000 -- 82,900 255,900

1957–58 155,000 -- 54,000* 209,000

Total 671,800 92,785 217,115 981,700**

* Includes a $25 million loan
** This amounts to about $5.9 billion in current dollars

Of total U.S. economic and technical assistance in fiscal year 1956–57, for example,
about $15 million was agricultural, of which $10 million went to land development/rural
resettlement; about $13 million to industry and mining, of which $10 million was tentatively
allocated for the creation of an Industrial Development Center (more about this later); almost
$29 million for transportation (mainly highways and bridges), $6 million for public health;
$4.4 million for education, $8.3 million for public administration, of which $5.8 million
supported the police including the Civil Guard; and of the remaining $6.7 million was allotted
to program administration.

4. The question has been asked, Why so much for military aid? This assistance supported a South
Vietnamese force level of 150,000, which military planners figured, probably correctly, was the minimum
blocking force necessary to face an army of 400,000 in the north.
5. Lindholm, 317. (Original figures taken from International Cooperation Administration records.)

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The Commercial Import Program

The way American aid was handled would create a political problem. With our
aid accounting for over 50 percent of the Vietnamese national budget, in order to avoid
inflation while also financing local currency expenditures for mutually agreed-upon programs,
a commodity import program was implemented. The program allowed private Vietnamese
importers to purchase import licenses by exchanging Vietnamese piastres for U.S. dollars at
the official rate of thirty-five to one, with the dollars then being used to import commercial
goods and equipment. The counterpart funds thus generated supported the cost of economic
and military aid programs. Vietnamese government revenue sources were limited mainly to
import duties. For several years, the black or free market rate for the Vietnamese piastre was
more than twice the official rate, fostering favoritism and corruption in the distribution of
import licenses, enriching a few major importers but bringing few benefits to the Vietnamese
majority. It gave the impression that the United States was supporting South Vietnam for its
own economic benefit, as the percentage of total imports coming from the United States
grew rapidly from practically zero to as much as 30 percent.

Land Development and Reform

Land development largely succeeded in resettling refugees and giving a chance
to central Vietnam’s crowded population to move and obtain land ownership. Much of the
resettlement took place on open land on the high plateau, where Vietnamese hard work and
the introduction of new crops, such as kenaf, made it successful.
Land reform in the southern Delta, where almost all rice farmers were tenants, also
had some success. In 1954, French and Vietnamese landlords owned most of the available
rice land in the Delta. With the technical assistance of an American advisor, Wolf Ladejinsky,
who had worked on land reform in Japan and Taiwan, a reform program was launched.
American aid contributed approximately $4 million toward administrative costs but refused
to support any land acquisition costs, which had to be undertaken by the Vietnamese
government from its own very limited resources, necessarily reducing the scope of the
program. The French reimbursed their landowners, thus offering that part of the available
land to the program for free. Some 685,000 hectares of rice land, roughly a third of such
tenanted land in South Vietnam, was made available for redistribution to former tenant
farmers who had occupied the land for at least two years.6 However, the size of the program,
leaving significant amounts still in landowner hands, limited its effectiveness in addressing the
psychological and political as well as economic needs of the Delta’s farmers and contributed
to discontent which the Vietcong later exploited.

6. Wesley R. Fishel, ed., Problems of Freedom: South Vietnam Since Independence (New York: Free Press,
a division of Crowell-Colliers Publishing Company, 1961),153–175.

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Education, Health, and Public Administration

With the French already providing aid for secondary and higher education, USOM
focused on primary and technical education. Approximately 1,200 village schools were
constructed with USOM support, and rural village enrollment increased from practically zero
to an estimated 700,000 over a three-year period. However, this reached less than half the
rural school-age population. USOM also provided significant assistance to vocational and
pedagogical education.
In health, USOM focused on malaria eradication, which reached an estimated six
million out of ten million Vietnamese in rural areas. Hospitals in provincial capitals were
refurbished, dispensaries were improved or newly constructed in districts, and basic rural
health stations were established and equipped with health kits in more than 3,000 hamlets
and villages. (There were about 2,500 villages and 10,000 hamlets within village boundaries
in South Vietnam).
A National Institute of Public Administration was established in Saigon, supported
by Michigan State University under contract with USOM. In a collaborative effort, Michigan
State assisted with the curricula and provided key professors. An agricultural college also was
established in the Vietnamese highlands, but its scale was too small to meet government
and private needs. Gradually the Vietnamese civil service would improve, but there still was a
grave shortage of civil administrators in the provinces when the author returned in 1962.

Planning and Industrial Development

Economic planning by USOM consisted mainly of annual programming exercises on
a technical division-by-division basis, with a preamble that attempted to tie all its parts into
a coherent whole. There was not, as previously noted, any overall U.S. government strategic
planning covering all aspects: diplomatic, political, economic and social, intelligence and
military. No special effort was made to come up with a comprehensive approach, despite the
need to deal with a complex security challenge while converting half of a colonial economy
into a nation and an economic whole.
In 1956, a United Nations (UN) Mission undertook a survey of South Vietnam’s
economic prospects. Working with the Vietnamese planning directorate, within six months
the UN produced a First Draft Five-Year Plan for Economic and Social Development for the
years 1957 through 1960. Consultation with all Vietnamese sectors and ministries was
inadequate as the survey lasted only three months. About 80 percent of total investment
over five years was proposed for the public sector, leaving 20 percent for private endeavors.
Whether USOM signed on wholeheartedly to the plan is not clear. Some of the major projects
envisaged would get under way and be finished, such as a hydroelectric dam with turbines
(financed by the Japanese) to provide power to the Saigon area. The plan, based on an
assumption of continued peace, was overtaken by the renewed Vietcong insurgency, which
became a serious problem in late 1959.

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The encouragement of industrial development including agricultural industries was,

unfortunately, a relatively minor part of the American aid program. The responsible USOM
Division of Industry and Mining had only one technician assigned—a mining expert—from
1955 through 1958. While Vietnamese suspicion of
Economic planning by USOM foreign investment arising from the French colonial
consisted mainly of annual experience was a hindrance, the Vietnamese private
programming exercises on a
sector lacked experience and capital. Resident Chinese
technical division-by-division
entrepreneurs in the south already dominated much of
basis, with a preamble that
attempted to tie all its parts the private economy, but the Vietnamese were unwilling
into a coherent whole. to increase that dominance. To the contrary, pressure
was put on the Chinese to divest themselves of some
monopolies such as rice milling. The availability of foreign capital was also limited, initially
by the lack of an investment law but even more by uncertainly regarding South Vietnam’s
longer-term future.
Despite early joint USOM-Vietnamese planning for an Industrial Development
Center, it took a number of years to become operational. In the interim, the Vietnamese
government created its own National Investment Fund. The fund did assist a number of small
local industries (a Saigon dairy, rice mills, sugar mills, textiles, brick making, leather works,
soap factories, plastics, charcoal ovens, etc); however, its loans over a three-year period
amounted to only 80 million piastres, about $2.2 million at the official exchange rate or $1
million at the unofficial rate.
USOM on an ad hoc basis also tried to assist a number of industrial development
projects, such as reviving the silkworm industry in Central Vietnam, a joint Vietnamese-
American paper-making venture, a sugar growing and milling venture, and several others.
These projects foundered, either because of unreasonable requirements imposed by ICA
headquarters in Washington or because of Vietnamese bureaucratic and political hindrances.
By the time the long-discussed Industrial Development Center began operation in 1960, the
Vietcong insurgency had become a serious national security threat (the National Liberation
Front was formed that same year), and the country became much less attractive to outside
investors. Overall there was little opportunity for foreign private investment to play a role
in South Vietnam’s development between the end of the French Indochina War and the
resumption of the insurgency, or during the long war that persisted thereafter.

Governance, Development, and Security in the Countryside

In order to fill the political vacuum in the countryside after Vietminh regulars
evacuated north, the Saigon government undertook two major efforts. The first consisted
of the temporary occupation by the Vietnamese Army of the territories formerly controlled
by the Vietminh. These operations began early in 1955 and were concluded by year’s end.
Marked by troop civic action efforts, including food relief to an underfed population, public

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health, and public works (mainly the repair of roads and bridges), a modicum of government
was established and a favorable impression made on the population. An extreme shortage
remained, however, of competent civilian administrators and technicians to follow up. The
key ministries of public health, agriculture, public works, and education had few civil servants
with anything except office experience who also were willing and suited for work in the
countryside. The author became the sole advisor in the field to Vietnamese units carrying out
these operations.
In 1955, to help bridge the Saigon-village gap, the Vietnamese government created
a special commission for Civic Action to dispatch civilian teams to the countryside. Started
on a shoestring with Vietnamese government funding,
ten-man teams with skills in public health, public works, The USOM director’s
education, and public information were trained and rejection was characteristic
of the aid mission’s myopic
launched to work directly in the villages. In contrast with
failure to understand
traditional Vietnamese functionaries in white suits, they the need and urgency of
dressed in traditional villager black pajamas, including redressing the absence
the director, Kieu Cong Cung. The author became his of government in the
advisor. countryside, and the fact that
security to be provided by
Because the Vietnamese government badly the Civil Guard would only
lacked internal funding, Cung sought support from be effective if it was linked to
USOM Mission Director, Leland Barrows, for local positive economic, social, and
costs and the import of tools, medical kits, and other political development.
materials. He also asked for American community
development advisors. Barrows turned him down flat, saying he saw little need for a special
village development program; the ministries could handle it. If Communist-inspired violence
arose, he said, it would be up to the Civil Guard to put it down. Under pressure from the
U.S. ambassador, Barrows would eventually sign a limited agreement covering only imported
commodities, which took months to deliver.
The USOM director’s rejection was characteristic of the aid mission’s myopic
failure to understand the need and urgency of redressing the absence of government in
the countryside, and the fact that security to be provided by the Civil Guard would only be
effective if it was linked to positive economic, social, and political development. Ironically,
several years later USOM changed its mind and wanted to support Civic Action with
community development advisors and funds, but it was too late: The program had died.
Security was not an inhibiting factor in South Vietnam during the largely peaceful
era from mid-1955 through 1958, but a failure to address the issue then would incur a
terrible cost later when the original Vietminh insurgency was reborn as the Vietcong. The
United States insisted on taking the Vietnamese Army out of its territorial security role in
the countryside and turning it into a regular army with corps and divisions to stop a North

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Vietnamese invasion over the 17th parallel. The U.S. Military Assistance Advisory Mission
(MAAG) became entirely occupied by the conversion of the Vietnamese Army into a
regular force.
The Civil Guard was supposed to replace the army in its internal security role. Under
a contract with Michigan State University supported by USOM, trainers and advisors with
American conventional police experience were hired, resulting in a Civil Guard unequal to
the task of rural security. Standing up an adequate Civil Guard was further complicated by an
internal dispute within the U.S. Mission over who should be responsible for its training and
equipment, USOM or MAAG. This paralyzed the effort for two years. Eventually resolved in
favor of MAAG, the change came too late to be effective. Thus, the need for adequate rural
security forces was not addressed.

The Beginnings of Counterinsurgency, 1961–1963

During 1960, the South Vietnamese government was clearly losing the insurgency
battle to the Vietcong. At the same time, relations had deteriorated badly between the
American Embassy and the U.S. Operations Mission (USOM) on the one hand and the Diem
government on the other. Then in 1961, with the Cold War still near its apex, the Kennedy
administration decided it must support the South Vietnamese to defeat the Vietcong, in
what Khrushchev called a “war of national liberation.” American military advisors were
introduced toward the end of that year. The South Vietnamese had just started the Strategic
Hamlet Program, essentially a village self-defense effort, but their budget was limited and
many essential elements—including economic development and compensation for local labor
for hamlet construction—were absent. The province chiefs were running up numbers of
completed hamlets on paper but the reality was less encouraging.
In June 1962, the author went to Vietnam at USAID Washington’s request to
survey how our economic aid program might support counterinsurgency. A true American
expert in rural development came from Taiwan to help. While the author surveyed how the
Vietnamese approach to counterinsurgency, called the Strategic Hamlet Program, actually
functioned in the provinces, the other team member surveyed USOM and Vietnamese
government capabilities and resources. USOM at this time had only three of its staff of 110
stationed outside of Saigon. The survey resulted in the creation of a special office of USOM
Rural Affairs, separate from and at a level above the technical divisions. Designed to work
jointly with the Vietnamese government in a spirit of mutuality, that spirit extended to having
Rural Affairs provincial representatives, who were all volunteers, live on the local economy.
The Vietnamese working for Rural Affairs were treated as associates, not employees.
Also out of the survey came the devolution of American aid and Vietnamese resources
down to the provinces to support economic and social development in conjunction with
counterinsurgency. This was a first in the history of American aid in Vietnam and would go

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hand-in-hand with local security operations carried out mainly by local security forces backed
up by the Vietnamese army.
The survey found the Strategic Hamlet Program underfunded, not only because of
Vietnamese government budget limitations, but also because of crippling funding procedures
which required local expenditures to have pre-audit approval from Saigon. In addition, while
there were agricultural, health, and education programs with resources at the national level,
the ministries were administratively incapable of decentralizing their operations to the province
and local levels.
Without going into too much detail, Rural Affairs worked at the national government
level with a special Strategic Hamlet office to prepare joint plans and flexible budgets for
each province with the participation of the province chief. Authority for spending was then
decentralized to a joint Vietnamese–American committee at the provincial level composed of
the Vietnamese province chief, the American military advisor, and the Rural Affairs provincial
representative. Initially, a special U.S. piastre fund was used to jump-start the effort, but when
that was exhausted the same procedure was followed with Vietnamese government funds.
A special supply system was developed based on using private shipping contractors to get
materials such as fertilizer, seed, livestock, sheet roofing, and cement down to the provinces
and distributed to the hamlets. The result was that agricultural resources and support services
existing at the national level suddenly became available to the population. Personnel from
USOM’s technical divisions and from a Taiwan technical mission provided backup assistance in
the field. Little was given away; most agricultural assistance was financed on a loan basis to
individual farmers to be paid back from increased livestock and crop yields.
The results of the program in one year were pretty spectacular. Not only was the
security aspect of the Strategic Hamlet Program buttressed, but the inherent entrepreneurship
of even the poorest Vietnamese farmers was tapped. A pig-raising program reached over 5,000
farm families with an improved breed of pig while introducing entirely new methods of animal
husbandry. Pigs were brought to market within a few months. New cash crops were introduced
to farmers who had had no cash in their pockets for several generations. More than 1,000
elementary schools were built in one year on a self-help basis (increasing pupil enrollment by
almost as much as the previous three-year program had during peace time). A national rice
surplus was generated, making exports possible for the first time since 1959. While a real start
was made in converting the Strategic Hamlet Program into something more permanent than
numbers, it was undermined by the violent end of the Diem government in November 1963
by a military coup. It should be noted that, despite the grave political differences between
the Kennedy administration and the Diem government over its handling of the Buddhists, the
Vietnamese-American joint committees in the provinces continued dispensing Vietnamese
government funds right to the end.

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Some Conclusions
We have already heard from others at this conference about how post-conflict
planning and execution of economic assistance has varied widely according to the history and
nature of the country involved. Nowhere was this more the case than in South Vietnam, given
its colonial background and divided status.7
Ironically, it would take until 1962 before approval was given for decentralizing aid
to the provinces and setting up joint Vietnamese-American committees at the provincial level
to expend funds for a combination of rural development and counterinsurgency operations.
The ability to spend funds locally for a variety of supporting efforts at the provincial
level and below also made it possible to maximize local initiative and tap into the Vietnamese
entrepreneurial spirit, implementing national programs for increasing rice production with
improved seeds and fertilizer; introducing new crops; installing wind mills for irrigation; vastly
increasing livestock production with entirely new techniques; as well as building other self-
help projects such as schools, fish ponds, wells, and farm-to-market roads. A joint approach
could have been achieved earlier but was never tried.
Unfortunately, the decentralized joint approach to combating the insurgency by
helping the rural population was cut short by the coup against Diem. It would not be revived
by a truly combined interagency approach to counterinsurgency and development until some
five years later, after the Tet Offensive in 1968.
Planning for South Vietnam at the Washington agency level never adequately took
into account the full spectrum of that country’s political and military, as well as economic
and social, challenges. Each U.S. government agency with overseas responsibilities dealt with
South Vietnam through its own particular silo perspective.
In the initial post-conflict situation in Vietnam, American aid did many things
right, but some key things not at all or very wrong. This was temporarily corrected later in
the 1962–63 period, but it was too late to have a lasting effect. It seems incomprehensible
in retrospect that we should have paid so little attention to the possible return of a rural
insurgency in South Vietnam in the late 1950s, yet we did the same thing in Afghanistan
after 2002. Let us hope that we do not blind ourselves to such possibilities in future
involvements, and that we keep firmly in mind that establishing security in the countryside
is an essential condition for everything else worthwhile happening, such as expeditionary
economics. The two can proceed together but without the first, little else is possible.

7. Comparing South Vietnam with South Korea, which seems most similar, the latter had been divided
before the north invaded in 1950 and had had a functioning government since 1946. Also, after the
Korean War, no underground insurgent organization supported by the north was left behind in the
south. Similar to Vietnam, the United States did pick up practically the entire foreign aid burden, but a
significant number of U.S. troops stayed behind to prevent an invasion from the north—not the case with
South Vietnam, which was supposed to block such an invasion by itself until the Southeast Asia Treaty
Organization (SEATO) came to its aid.

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A Few Lessons
What will be said comes not only from the author’s personal experience in Vietnam,
but also from some hard thinking about what went wrong there and what still seems not
completely right about what the United States is currently doing.
The first lesson concerns the need to think through the real nature of the problem
we are trying to help another country solve. That requires a deep understanding of the
history, culture, and way of thinking of the people we are trying to help. It also calls for an
understanding of the enemy the host country is facing, and for a realistic understanding of
our own capabilities and weaknesses, as well as those of our allies and others we are likely
to work with, such as the UN. Out of that should come an overall strategy with a realistic
view of what needs to be done and how to achieve it. Most importantly, we must understand
that our task is to persuade, cajole, and pressure with subtlety the host country and its
leadership to solve its problems with our support, not to try to solve them ourselves. Within
the framework of the general effort, opportunities can and should be found for undertaking
a more entrepreneurial approach to help lift the local economy. Ideas and actions to stimulate
local initiative while matching it with outside investment and advice should be facilitated.
We should strive for a unified approach and a mutuality of effort between us, the
outsiders trying to help, and the country that is being helped. Specifically, wherever possible,
if the country is really weak in getting development and governance down to the population
at the local level, we should try to create mechanisms which facilitate that. Something along
the lines of the Joint Commission for Rural Reconstruction approach in Taiwan should be
considered. It got things done while preserving Chinese sovereignty, an important and touchy
consideration, the need for which we seem to be constantly rediscovering. Also, we should
never underestimate the entrepreneurial capabilities of the local population, no matter how
illiterate, when presented with real opportunities.
Wherever we are engaged, we should make it a truly joint effort on our own side
and not be paralyzed by divisive interagency issues. Fortunately the attitude of our military
favors more civilian participation. On the civilian side, we urgently need to gear up to meet
the need, hopefully with personnel adequate for the job and equipped with open minds
toward incorporating new ideas such as expeditionary economics.
Lastly, bureaucracies don’t succeed in these kinds of struggles; people do. Hence,
we should be very careful about the people we send to failing states with internal problems.
We need people not just with the capacity for cultural understanding, but with a generous
ability to work with other people—ours and theirs. Such circumstances place a premium on
individual initiative, political sensitivity, and a willingness to take reasonable risks.
Finally, within general policy guidelines we should devolve maximum responsibility
and flexibility to the field while keeping second-guessing by Washington to a minimum. This
should open up greater opportunities for an expeditionary approach to economics at the local
level free of preconceived, more abstract notions at higher levels.

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 Out of Sight, Out of Mind:
Post-Conflict Economic Planning in the Balkans

by Patrice C. McMahon
Associate Professor, University of Nebraska–Lincoln

Jon Western
Five College Associate Professor, Mount Holyoke College
and the Five Colleges, Inc.

Patrice McMahon is an associate professor at the University of Nebraska–Lincoln. McMahon’s

research interests include global governance, ethnic conflict and cooperation, post-conflict
reconstruction, and transitional justice. She is the author of Taming Ethnic Hatreds: Ethnic
Cooperation and Transnational Networks in Eastern Europe (2007), and the co-editor of American
Foreign Policy in a Globalized World (2006) and International Human Rights and Diversity (2004).
She currently is working on a manuscript on the role of NGOs in peace-building. Her work has
appeared in Foreign Affairs, Political Science Quarterly, Democratization, and Ethnopolitics and
has been supported by the American Council for Learned Societies, the Department of State, the
National Research Council, the National Council for East European and Eurasian Research, and the
Carnegie Corporation of New York.

Jon Western is Five College Professor of International Relations at Mount Holyoke College and
the Five Colleges, Inc. He is the author of Selling Intervention and War: The Presidency, the Media,
and the American Public (Johns Hopkins University Press, 2005) and co-editor of Global Giant:
Is China Changing the Rules of the Game (Palgrave, 2009). He is near completion on a book
manuscript that examines U.S. efforts at state building in historical and comparative perspective.
Prior to joining the Mount Holyoke faculty, Western served as a Peace Scholar-in-residence and the
coordinator of the Dayton Upgrade Project at the United States Institute of Peace. He has taught
at Columbia University and The George Washington University. From 1990–1993, he served as a
Balkans analyst in the Bureau of Intelligence and Research at the U.S. Department of State, and
from 1988–1989, he was a Presidential Management Intern with the Office of Chief of Staff of the
U.S. Army. He holds a PhD from Columbia University, an MPP from the University of Michigan, and
a BA from Macalester College.

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 the balkans

T
he Balkans is often offered as one of the best examples of the international
community’s generosity and goodwill toward countries torn apart by civil
conflict. Although it took Western countries more than three and a half
years to decide on the exact role they would play in the disintegrating Yugoslav
state, by November 1995, with the signing of the Dayton Peace Accords, the United
States and Europeans became decisively and extensively involved in post-conflict
reconstruction in Bosnia. In June 1999, many of the same actors also took the lead in
Kosovo’s reconstruction. Since then, the international community has spent billions
of dollars and committed thousands of troops to assist in post-conflict reconstruction
and development in the Balkans. In important and positive ways, these efforts have
been laudable. The site of the worst violence in Europe since World War II, the region
has been largely free of bloodshed since large numbers of foreign troops made
their way to this corner of Europe to implement the Dayton and the Rambouillet
agreements for Bosnia and Kosovo, respectively. Despite ongoing political turmoil,
Bosnia remains a unified, if weak, multiethnic state. Kosovo, though plagued by
political and economic troubles, has maintained a commitment to democracy and has
joined European intergovernmental organizations since it unilaterally declared its
independence in February 2008.

It is also true, however, that aspirations for the region have not been fulfilled,
the countries’ economies are spiraling, and the future of these newly independent states
remains precarious. Bosnian nationalist politicians continue to fan the flame of nationalism,
and its economy is the second poorest in Europe, behind only Kosovo.1 With 42 percent of
the country officially unemployed, it is almost impossible for foreign businesses to negotiate
the country’s tangled, dysfunctional ethnic institutions, and corrupt bureaucracies.2 Similarly,
although Kosovar Albanians initially embraced the challenges of statehood in early 2008, the
state continues to battle both political tensions and economic stagnation. Public satisfaction
with the government and the international community has declined markedly.3 A large part
of this sentiment is due to Kosovo’s deteriorating economic conditions; 45 percent of the

1. Patrice C. McMahon and Jon Western, “The Death of Dayton: How to Stop Bosnia from Falling
Apart,” Foreign Affairs 88, no. 5 (2009): 69-83.
2. Paul Taylor, “Bosnia’s Economic Shackles,” The New York Times, April 19, 2010, http://www.nytimes.
com/2010/04/20/business/global/20inside.html?scp=1&sq=bosnia%27s+economic+shackles&st=nyt .
3. United Nations Development Programme, Early Warning Report, 2010, http://www.ks.undp.org/
repository/docs/Fast_Facts_27_ENGEditedFinal-1.pdf (Accessed April 14, 2010).

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country is officially unemployed, and a 2009 World Bank study defined 60 percent of the
country as “poor” or “extremely poor.”4
Given the extensive commitment and the seemingly mixed results, we examine
a series of interrelated questions: What conditions did the international community face
when it became involved in these areas? Which international actors were primarily involved
in post-conflict planning, and what were their priorities? Finally, what do these separate
but overlapping exercises suggest for post-conflict planning and economic development
in post-conflict countries? We argue that in both Bosnia and Kosovo, the international
community struggled, and ultimately failed, to grasp the complexities of managing the often
competing pressures of three simultaneous transitions: a post-socialist transition, a post-
secession transition, and a post-conflict transition. The prewar economies of both Bosnia
and Kosovo were based on inefficient socialist models of production and administration and
were designed and integrated into the single economic unit of Yugoslavia. Although there
were notable economic advantages to secession, these new states were simultaneously
burdened with an array of bureaucratic and political decisions. Violent conflict also decimated
much of the economic infrastructure in both countries, creating political and economic
patterns that continue to constrain post-conflict reconstruction efforts. This is not to say that
the triple transitions alone undermined the region’s
Although there were notable economic progress; it is also true that the international
economic advantages
community failed to discern the fundamental difference
to secession, these new
states were simultaneously between economic reconstruction and development,
burdened with an array of and thus the need to address microeconomic—as well
bureaucratic and political as macroeconomic—reforms. Developments in Kosovo,
decisions. moreover, suggest that although international actors
“learned” from their missteps in Bosnia, acknowledging
the importance of the region’s nascent small business community following the 1999 war,
they in fact failed to adopt the necessary reforms to sustain and channel this activity into
state institutions.
We begin this paper by examining the socialist economic legacy of Yugoslavia
and the effects of the war on the economies of Bosnia and Kosovo. We then examine
international priorities and involvement in Balkan reconstruction. Using current economic
data and surveys, we conclude by arguing that many of the same conditions that shaped
international priorities in Balkan reconstruction continue to shape economic development and
hinder economic growth.

4. World Bank, Kosovo Poverty Assessment, 2007, http://web.worldbank.org/WBSITE/EXTERNAL/

COUNTRIES/ECAEXT/EXTECAREGTOPHEANUT/0,,contentMDK:21761784~menuPK:511551~pagePK:6421
5727~piPK:64215696~theSitePK:511545~isCURL:Y,00.html (accessed April 14, 2010).

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I. Setting the Stage

Throughout most of the second half of the twentieth century, Bosnia-Herzegovina
and Kosovo were part of the Socialist Federal Republic of Yugoslavia (SFRY) that emerged
after World War II under the leadership of General Josip Broz Tito. Under his rule, Tito
merged a patchwork of eight nationalities, six republics, three major religions, two
autonomous regions, and two alphabets under a single Communist Party rule. Yet, despite its
socialist label, the SFRY did not fall under the Soviet sphere during the Cold War, and it fared
much better than its socialist neighbors. While maintaining rigid single-party political control,
the country developed a decentralized workers’ self-management economic system—a
model of development that was significantly different from the Soviet-based socialist centrally
planned economies. This system blended elements of liberal market principles—some private
sector development and export-led growth strategies with extensive levels of trade with the
West—with a socialist model of state ownership and centralized economic planning.

Economic Crisis
Despite relative economic success in the 1960s and 1970s, Yugoslavia began
a significant economic downturn in the late 1970s. It borrowed heavily to invest in
infrastructural development and to import Western goods necessary to build and upgrade
the capacity of its export industries. The global recession and oil price spikes disrupted global
demand for Yugoslavia’s exports, and the subsequent rise in global interest rates sparked
a debt crisis that nearly crippled the country. The country’s economic slide corresponded
with the death of Tito in 1980, prompting elites to start the process of political change that
would ultimately lead to bloody violence and Yugoslavia’s political unwinding. To manage the
Yugoslav patchwork without Tito, the country’s succession plan resulted in the creation of a
nine-member collective presidency, with representatives of each of the six republics and two
autonomous regions (one was Kosovo within the Serbian republic) as well as cumbersome
ethnic and republic quotas for representation in most state-level agencies.
From the outset, this complex power-sharing arrangement was unable to manage
the country’s political and economic problems, particularly the disparities between the
republics in the north (Croatia and Slovenia) and the more underdeveloped south (Bosnia and
Serbia, which included Kosovo, Macedonia, and Montenegro). Many of Yugoslavia’s leading
export industries and its vibrant commercial sectors were situated largely in the north, and per
capita GDP in Slovenia and Croatia was twice the national average and almost three times the
levels of the country’s two most underdeveloped regions—Bosnia and Kosovo.5 Conversely,
economic development in the southern republics was more dependent on the state and
socialist planning to support large, state-owned industries such as heavy manufacturing,
agriculture, and mining.

5. Susan Woodward, Balkan Tragedy: Chaos and Dissolution After the Cold War (Washington, DC:
Brookings, 1995), 53–55.

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Throughout the 1980s, the Yugoslav federal government frequently diverted

resources to the underdeveloped republics and their large state-owned enterprises at the
expense of the more internationally competitive market-based export industries located in
the north—a process that simultaneously exacerbated both economic problems and political/
ethnic tensions in the country. Consequently, unemployment and inflation soared; from
1980 to 1988, unemployment throughout the federation fluctuated between 14 percent
and 18 percent, with the highest rates in Bosnia (hovering at 20 percent throughout much
of the decade) and Kosovo, moving from 40 percent to a peak of 58 percent in 1988.6
Inflation, meanwhile, surged throughout the decade, rising to nearly 1,200 percent in
1988. In response, Serb leaders called for greater recentralization of political and economic
authority and, after 1987, with the rise of Slobodan Milosevic, invoked a virulent form of Serb
nationalism to press their demands on the federation. Meanwhile, politicians in Slovenia and
Croatia demanded greater political and economic liberalization and, in early 1990, revoked
the Communist Party’s monopoly on political power, beginning the move toward secession.
In a country with significant regional disparities and weak central political
institutions, the deep economic distress of the 1980s fueled a resurgence of ethnic
nationalism and chauvinism. Ultimately, the secessionist aspirations of the more economically
advanced republics of Croatia and Slovenia, alongside Serb unwillingness to allow this
to happen, pushed the country to war. By mid-1991, the Yugoslav Federation unraveled.
Following their declarations of independence in June 1991, Slovenia experienced a brief six-
week conflict, followed by a more intense five-month conflict in Croatia.

The Bosnian War

Following Slovenia and Croatia’s secession, the focus turned to Bosnia. In 1991,
Bosnia was ethnically mixed—40 percent Bosnian Muslims, just over 30 percent Bosnian
Serbs, and just under 20 percent Bosnian Croats. With the collapse of the SFRY, both Bosnia’s
Muslims and Croats rejected the idea of remaining in a rump Yugoslav federation dominated
by Serbia and voted for independence in early March 1992. Two days after the referendum,
Bosnian Serb militias, operating in conjunction with the Yugoslav National Army and with
extensive levels of material support from Serbia, launched a major military offensive. Within
six weeks, the militias had consolidated control over substantial portions of northern and
eastern Bosnia and placed a siege on the capital city of Sarajevo. For the three and a half
years that followed, the war decimated the Bosnian economy. Bosnia’s economy was based
principally on state-owned heavy manufacturing, mining, and timber industries—Bosnia was
host to most of Yugoslavia’s military plants and industry. During the war, industrial production
fell more than 90 percent, while unemployment rose to above 90 percent.7 Most of the

6. Ibid.
7 Zlatko Hertic, Amela Sapcanin, and Susan L. Woodward, “Bosnia and Herzegovina,” in Good
Intentions: Pledges of Aide for Post Conflict Recovery, ed. Shepard Forman and Stewart Patrick (Boulder,
CO: Lynne Rienner Publishers, 2000), 317.

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country’s infrastructure was destroyed or severely damaged. More than 2,000 roads, nearly
100 bridges, and almost all rail lines were damaged or destroyed.8 Nearly one-third of all
residential properties were damaged. Most municipal services were disrupted—sanitation
systems, water systems, electrical grids, power stations. Human capital was severely degraded
as nearly half of the country’s residents were displaced, and a significant portion of the
country’s prewar technicians, administrators, and skill laborers were killed, wounded, or left
the country as refugees.
The violence also spawned an unofficial and unregulated wartime economy. Almost
all large state-owned enterprises shut down as the violence escalated and war profiteers,
militias, and local leaders expropriated the property and resources. Prior to Yugoslavia’s
breakup, interrepublic boundaries were nonexistent, and despite Bosnia’s “independence,”
the country’s borders during the war were largely unregulated and extensive levels of illicit
trade flowed into Bosnia from Serbia and Croatia. Militias, paramilitaries, and organized
criminal gangs freely floated across the front lines and borders, engaging in extensive levels of
interethnic trade. Peter Andreas’s study of the wartime black market suggests that the level of
illicit entrepreneurial activity was so great that it, in fact, sustained the war.9
This black market economic activity also permeated the international peacekeeping
and humanitarian assistance efforts. Collectively, the United Nations Protection Force
(UNPROFOR) and the Bosnian wartime government
registered more than a thousand so-called humanitarian Peter Andreas’s study of
organizations that were allowed to move in and out the wartime black market
suggests that the level of
of the country. According to Sarajevo’s leading daily
illicit entrepreneurial activity
newspaper, Oslobodenje, many of these organizations was so great that it, in fact,
were local shop owners who engaged in black market sustained the war.
activities—buying and selling commodities, produce,
and consumer goods.10 In fact, even during the height of the siege, fresh produce and retail
goods were frequently smuggled into the city through international humanitarian corridors.
Elsewhere in the country, local leaders routinely cut side deals and patronage
arrangements with militia and military leaders. In the Bihac region of Bosnia, Fikret Abdic, an
entrepreneur and industrialist who built Agrokomerc—Yugoslavia’s leading agri-food business
prior to the war – expropriated state property and resources and exploited his ties to both
Zagreb and Belgrade to build a large fiefdom in Bihac.11 Meanwhile, Belgrade’s influence

8. Elizabeth M. Cousens and Charles K. Cater, Toward Peace in Bosnia: Implementing the Dayton Accords
(Boulder, CO: Lynne Rienner Publishers, 2001), 89–90.
9. Peter Andreas, Blue Helmets and Black Markets: The Business of Survival in the Siege of Sarajevo
(Ithaca, NY: Cornell University Press, 2008).
10. Peter Andreas, “The Clandestine Political Economy of War and Peace in Bosnia,” International Studies
Quarterly 48, no. 1 (2004): 38.
11 Abdic was later convicted in 2002 of war crimes and is serving a twenty-year sentence in Croatia.

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was ever-present in the Serb-controlled areas, while Croatia’s economic influence dominated
activity throughout much of Herzegovina. The Croatian dinar, for example, was the
functional currency in Herzegovina, while the Yugoslav dinar was the currency in the Serb-
controlled areas.

The Kosovo War

As an intricate part of Serb history, the idea of Kosovo was much more powerful
than the reality. Long considered the cradle of Serb civilization, over a period of four
decades, the region went from being Serb-dominated to overwhelmingly ethnic Albanian
(approximately 85 percent) by 1990. Still, it was the idea of Kosovo that invoked some of the
most virulent Serb nationalism of the 1980s and 1990s. Slobodan Milosevic revoked Kosovo’s
autonomous status in 1989 and the Serb government dissolved Kosovo’s parliament in 1990.
The political pressures added greater pressure on a population already reeling from economic
dislocation. Despite an effort to industrialize parts of Kosovo in the 1960s and 1970s, the
experiment largely failed, and Kosovo’s economy remained the poorest in the country,
principally based on state-owned agriculture and agri-business, with some mining.12
The political crackdown of the 1990s worsened the situation—economic activity
fell by nearly 50 percent as unemployment soared to nearly 60 percent.13 A significant
exodus of young Albanians not only contributed to a “brain drain,” further weakening an
already devastated economy, but the young Kosovar Albanian diaspora in Europe was able
to generate significant wealth and radicalize the population. They formed and bankrolled the
Kosovo Liberation Army (KLA), which ultimately challenged Serb domination of the province
and helped trigger the international efforts to block Milosevic, and ultimately the NATO-led
air war that began in March 1999.
Nearly one million people (45 percent of the population) were displaced by the
short war in Kosovo. The combined effects of the bombing campaign, sabotage, looting, and
ethnic reprisals brought the economy to a standstill. Communications, electrical services, and
water and sanitation systems were damaged or ceased to function during the conflict. The
population displacement, coupled with the extensive use of land mines, halted most of the
agricultural production for the year. Although the war lasted for less than two months, the
diaspora-led KLA had extensively infiltrated Kosovo’s shadow government prior to the NATO
campaign. Both before the war, and in its immediate aftermath, the KLA forces relied on
various means of extortion and imposed various types of user fees and taxes to develop their
economic and political power.14

12. Graciana del Castillo, Rebuilding War-torn States: The Challenge of Post-Conflict Economic
Reconstruction (London: Oxford University Press, 2008), 138.
13. Woodward, Balkan Tragedy, 53–55.
14. del Castillo, Rebuilding War-torn States, 148.

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When the international community descended on the region following the

conflicts in Bosnia and Kosovo, the war’s effects were obvious and horrible. Not only did the
international community have to contend with the devastation of war, but also it had to work
with newly independent—and still contested—political entities and economies that were
complicated by a socialist past that left its mark in the form of aging, ineffective industries
and populations unaccustomed to the market economy.
Prior to the war, the Bosnian and Kosovar economic The combined effects of the
bombing campaign, sabotage,
infrastructures were integrated into a unified, single
looting, and ethnic reprisals
Yugoslav economic unit. The state-owned enterprises brought the economy to a
(SOEs) operated within a planning and administrative standstill.
structure with supply networks, distribution lines,
and production processes coordinated by economic and political authorities for the SFRY.
The entire economy would have to be completely reconfigured. Furthermore, the conflicts
themselves produced new political and economic forces with powerful interests in preserving
their newfound wealth and status. Finally, the transition to a market system would require
a range of new legal institutions and laws related particularly to property rights, commercial
transactions and contracts, as well as a new administrative and political capacity to adjudicate
competing claims on economic authority and dissolve state-owned property and resources.

II. International Priorities and Economic Development

It is fair to say that postwar international efforts in both Bosnia and Kosovo have
been significant and, in many ways, unprecedented. In terms of international assistance and
foreign troops per capita, as well as the breadth and depth of involvement, the international
community’s engagement has been both obvious and essential to the region’s achievements
thus far.15 The questions we consider here are not related to the international community’s
intentions; instead, we are primarily concerned with international priorities, particularly the
role of economic development in the international community’s planning and priorities.

Bosnia
The Dayton General Framework Agreement for Peace (Dayton) that ended the war
and prescribed the postwar governing structures and priorities contained eleven annexes
that carefully laid out the military and civilian responsibilities of the international community,
as well as the leading international agencies responsible for the implementation of various
activities. NATO supervised compliance with the military provisions while several actors,
including several UN agencies, the European Union (EU), the Organization for Security and
Co-operation in Europe (OSCE), and the European Bank for Reconstruction and Development

15. See James Dobbins et al., America’s Role in Nation-Building (Santa Monica: Rand Corporation,
2003) and James Dobbins et al., The UN’s Role in Nation-Building: From the Congo to Iraq (Santa
Monica: Rand Corporation, 2005).

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(EBRD), were specifically mentioned as key international agents. The roles for some actors,
like the World Bank as coordinator for reconstruction, and the United States as a leading
provider of international assistance, were implicitly acknowledged but not specifically
delineated in the agreement.16 Yet, early in the postwar period, Bosnian authorities drew
heavily on the assistance of the International Monetary Fund (IMF), World Bank, and U.S.
government to establish budgeting and treasury management techniques, and on the
EU to improve and monitor customs. Given the large number of intergovernmental and
nongovernmental organizations that were already active in Bosnia and anticipated for its
reconstruction, the Dayton Accords created the Office of the High Representative (OHR)
to oversee and coordinate civilian activities on the ground. Broader, strategic oversight
was handled by the Peace Implementation Council (PIC), which included more than fifty
governments when it was created.
Despite the complicated architecture created by Dayton, international priorities
were focused more on physical reconstruction than economic development.17 The prevailing
view among the international community was simple: Rebuilding Bosnia’s infrastructure
and meeting the humanitarian needs of the population was the top priority. The implicit
assumption was that reconstruction would stimulate economic development and growth.
At the first formal pledging conference in Brussels in December 1995, donors were asked
to support a four-year, $5.1 billion Priority Reconstruction and Recovery Program (PRRP),
prepared by the Bosnian government with the assistance of the World Bank, the EC, and
EBRD.18 Planning for the PRRP started in January 1995, and its key objectives were to
initiate a broad-based rehabilitation process that would jump-start economic recovery and
growth; strengthen government institutions; and support a transition to a market economy.
Despite these claims, a series of subsequent donor conferences made it apparent that
international donors would not put up the money deemed necessary for Bosnia’s recovery
and, perhaps as a consequence, only a small amount of international assistance actually went
to “employment generation” or economic development specifically. Of the $225 million
promised in 1998, for example, only $50 million was allocated for employment generation,
while the rest went to infrastructural assistance.19 Between 1995 and 1998, the international
community promised almost $3 billion to Bosnia, while Foreign Direct Investment (FDI)
amounted to just $73 million during the same period, making it clear that aid, rather than
investment, would be more forthcoming.20

16. Cousens and Cater, Toward Peace in Bosnia, 39.

17. International Crisis Group, “Is Dayton Failing? Bosnia Four Years after the Peace Agreement,” Europe
Report No. 80 (Brussels: International Crisis Group, 1999).
18. Hertic et al., “Bosnia and Herzegovina,” 319.
19. Ibid., 325.
20. These numbers, however, are also disputed, with the World Bank estimating that Bosnia received
$140 million total in DFI for 1997 and 1998.

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As important as international assistance and political reconstruction were to

postwar planning and implementation, economic development was not wholly ignored. In
fact, the IMF successfully coordinated international agreements on debt reduction and initial
improvements in monetary and fiscal policy, and by 1998, all of Bosnia had committed to an
economic strategy based on three macroeconomic pillars: the use of a fixed exchange rate,
fiscal discipline, and large-scale external assistance.21 The international community also put
significant effort into establishing the Central Bank of Bosnia and Herzegovina, strengthening
the banking system throughout the country, and establishing a functional currency. Despite
impressive results on these fronts and especially in Bosnia’s financial sector, many international
observers, such as the International Crisis Group (ICG), faulted the international community’s
“unbalanced approach” and reliance on macroeconomic, rather than micro-level, reforms.22
An emphasis on institution building and increasing the state’s capacity are necessary for
governance and fighting corruption, but, the ICG maintained, so too are microeconomic
reforms. Up until 2001, in fact, little was done to create the conditions necessary to
encourage foreign investment or to foster a stable, inviting business environment. In
particular, the ICG report emphasized the small ways that the international community
could have fostered a more innovative and vibrant private market. “Burdensome regulatory
procedures, high and numerous taxes, unfair competition from illegal operators, numerous
capricious inspections and an ineffectual judicial system” all conspired to create an “extremely
forbidding” business environment that stifles innovation and limits economic growth.23 The
situation has been further complicated by the multiplicity of international organizations with
their overlapping agendas and responsibilities, making it difficult to sort out who is ultimately
responsible for economic development. By 2005, the World Bank reported that, out of 155
countries, Bosnia ranked 123rd for ease of starting a new business.24

Dayton’s Structural Flaws

Further complicating the Bosnian experience is the complex political structures
created by Dayton. The expediencies of ending the war led to a power-sharing agreement
that created a weak central state with most of the power delegated to two entities: the Serb-
dominated Republika Srpska (RS) and the Muslim- and Croat-dominated Federation of Bosnia
and Herzegovina (the Federation). The weak central government has a complex set of ethnic

21. These were the use of a fixed exchange rate as a nominal anchor, fiscal discipline, and large-scale
external assistance on concessional terms. See The IMF’s Staff Country Report No. 98/69, “Bosnia and
Herzegovina: Selected Issues,” August 1998.
22. International Crisis Group, “Bosnia’s Precarious Economy: Still Not Open for Business,” Europe
Report No. 115 (Brussels: International Crisis Group, 2001).
23. Ibid., 9.
24. Gayle Tzemach, “A resilient Bosnia makes up for lost time,” The New York Times, July 7, 2006,
http://www.nytimes.com/2006/07/07/business/worldbusiness/07iht-wbbosnia.2143450.html (accessed
April 20, 2010).

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quotas for national institutions and administrative agencies. As a result, ethnicity, rather than
merit, often determines key administrative and bureaucratic staffing decisions. This structure
also produces extensive patronage networks and corruption, directly undermining economic
growth. In the decade that followed the signing of Dayton, Bosnia’s public sector continued
to be shaped, if not directed, by its socialist past, with nearly half of the country’s GDP being
consumed by the public sector.
Furthermore, under this system, each entity has the authority to have its own
government as well as its own economic and social policies, including its own economic
regulatory and legal infrastructure. Thus, the two
In the decade that followed entities have developed different commercial laws and
the signing of Dayton, approaches to the dispensation of state property. For
Bosnia’s public sector example, privatization moved quickly in parts of the
continued to be shaped, if RS—with key nationalist and wartime militia leaders
not directed, by its socialist
postured to take advantage of quick liberalization.
past, with nearly half of
the country’s GDP being Conversely, in the Federation, privatization of the
consumed by the public major SOEs has been much slower, caught up in the
sector. patronage networks of elites. The result has been a
patchwork of regulatory frameworks, laws governing
property rights, and commercial laws, with a relatively weak judicial system to regulate
and enforce a range of commercial transactions and property rights claims. Organized
criminal activity, including the trafficking of narcotics, women, and contraband, often moves
throughout the country with relative ease. Within this system, the international community’s
focus on economic development has been limited by the de facto division of the country.

Kosovo
International involvement in Kosovo faced significant obstacles from the outset.
Over half of the residential housing stock was damaged or looted during the war. More
than half of the province’s population fled the fighting, and almost all SOEs were closed.25
Importantly, the initial transition from war to peace included a transfer of political and
economic authority from Serbia to the United Nations protectorate, a handing over of power
that was also intentionally left ill-defined. Finally, Kosovo was moving from a socialist system
to market-based one. Armed with “the lessons of Bosnia,” the international community
jumped into Kosovo’s reconstruction in the summer of 1999. One of the most decisive
lessons from its work in Bosnia was avoiding the problem of having too many principals
with overlapping agendas. To avoid this pitfall, the UN created the United Nations Interim
Administration Mission in Kosovo (UNMIK) to perform the interim governing duties of
Kosovo and coordinate the international effort to promote self-government in Kosovo.

25. del Castillo, Rebuilding War-torn States, 139–140.

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Kosovo’s civilian reconstruction, thus, consisted of a streamlined structure of four civilian

pillars, and while different international organizations, including the OSCE and EU, were
given specific leadership duties, each pillar head reported to the Special Representative of
the UN’s Secretary-General (SRSG) who directed UNMIK activities.26 Only Pillar IV, directed by
the European Union, dealt with economic issues and primarily economic reconstruction.27 At
least in the beginning, the European Commission worked closely with the World Bank, the
United States and other major donors to coordinate international assistance and development
activities in Kosovo.28
Within a year of UNMIK’s creation, however, an EU-World Bank report indicated
that, at a minimum, reconstruction and development in Kosovo over the next four to five
years (roughly through 2004) would require at least $2.3 billion in external assistance.29 The
international community, led mainly by European countries, responded generously, pledging
more than $3 billion within the first few years, with more than 400 nongovernmental
organizations (NGOs) flocking to Kosovo, ostensibly to help with the region’s political and
economic development.30 Despite an explicit focus on reconstruction and humanitarian
assistance, an effort also was made to address microeconomic reforms and microfinancing.
Based on the experiences of microfinancing in Bosnia and Albania, the Kosovo Micro
Enterprise Bank (MEB Kosovo) was established in 1999 to provide banking services as well
as loans to small businesses.31 Founded at the initiative of several international financial
institutions and investment companies, including the EBRD and the International Finance
Corporation (which is part of the World Bank Group), MEB Kosovo was created in large
part to encourage the activities and development of Kosovo’s between 18,000 and 20,000
microenterprises and small- and medium-size enterprises (SMEs), half of which were
functional in 2000. This bottom-up focus on small business was due to the unique situation
that had developed in Kosovo during the 1990s. During Belgrade’s crackdown on the region
in the 1980s, Serbia took control of all the state-owned businesses and the education
sector. Consequently, Kosovar Albanians turned to creating their own small businesses with
the help of émigré remittances. Thus, a vibrant small-business community existed when
the international community arrived in Kosovo in 1999, facilitating reconstruction and

26. UNMIK’s four Pillars are: I. Humanitarian, led by UNHCR; II. Civil Administration, led by the UN; III.
Democracy Building, led by OSCE; and IV. Reconstruction, Recovery and Economic Development, led by
the EU.
27. William G. O’Neill, Kosovo: An Unfinished Peace (Boulder, CO: Lynne Rienner Publishers, 2002).
28. Curt Tarnoff, Kosovo: Reconstruction and Development Assistance, Congressional Research Service
report for Congress, June 7, 2001.
29. Tarnoff, 3.
30. Steven Rattner and Michael Froman, Promoting Sustainable Economies in the Balkans: Task Force
Report No. 27 (New York: Council on Foreign Relations Press, 2000), 22-23; see also O’Neill, 38-39.
31. World Bank, Kosovo Micro Enterprise Bank, a case study report, http://siteresources.worldbank.org/
INTEMPOWERMENT/Resources/14830_Kosovo-web.pdf (accessed April 23, 2010).

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early economic development efforts. A returning Pristina Serb, in fact, noted, “The city is
blossoming. They have done so much in one year.”32

Planning and Priorities

The international community’s strategy in Kosovo contained five basic elements:
relief and reconstruction; the development of an institutional framework; the development of
a legal environment; commercialization and privatization; and the promotion of the private
sector.33 As in other post-Communist countries, an emphasis was placed on establishing
stable macroeconomic policies, but this task was made far more difficult in Kosovo because
of the region’s ambiguous political status. Legally a part of Serbia, the international
community had a difficult time imposing macroeconomic policies on a region that lacked
sovereignty, and Kosovo thus could not participate in international organizations or enjoy the
economic benefits given to independent states. Furthermore, it has never been clear who
should be responsible for property rights within Kosovo.
While UNMIK created a special structure to adjudicate claims on residential property
rights, commercial property rights—and especially the property rights of the large state-
owned enterprises—were largely deferred. Privatization of state property is inherently difficult
to conduct by an interim administration because of the uncertainty over political authority. In
Kosovo, this was most apparent in the case of the Trepca Mining and Metallurgical Complex.
According to Graciana Del Castillo, in 2000, UNMIK initiated efforts to lure foreign firms to
assist with reconfiguring the plant and its equipment, resuming operations and restoring
some 2,000 jobs. The effort faltered, however, after local Serb and Kosovar Albanians balked
at the presence of foreign managers and engineers and
Legally a part of Serbia, the
concluded that the privatization was “handing the most
international community
valuable piece of real estate in the Balkans to foreign
had a difficult time imposing
macroeconomic policies companies.”34
on a region that lacked Unlike Bosnia, however, Kosovo was left
sovereignty, and Kosovo largely unburdened by the former Yugoslav structures,
thus could not participate in
and new institutions could be created anew without
international organizations or
enjoy the economic benefits needing to wrestle power away from inefficient
given to independent states. bureaucracies. Given the thriving unofficial economy,
international actors worked to integrate the informal
grey economy into legal businesses that paid money to the Kosovar government. Initial
efforts to harness illegal private activities were modestly successful, and within a year,
from December 2000 to September 2001, the number of businesses registered more than
tripled. Small businesses, fueled by a mixture of cash from the diaspora and a remarkable
entrepreneurial spirit, were hampered nonetheless by limited access to reasonably priced

33. Ibid., 13.

34. del Castillo, Rebuilding War-torn States, 152–153.

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credit. Over time, the success of efforts to foster a stronger business community that
worked within legal structures was obstructed by the international community’s refusal to
address fundamental issues related to the country’s final status. Thus, despite positive initial
entrepreneurial activities and an acknowledgement of the need for long-term economic
development, the international community’s presence and involvement in Kosovo drifted
and its support for deciding on the region’s final status declined, undermining the region’s
ability to develop politically or economically. Some contend that the international community
did not just lose focus in Kosovo, but that some international actors actually demonstrated a
disinterest in trying to develop the Kosovar economy. By 2004, the international community’s
economic strategy in Kosovo was blatantly amiss; the United Nations Development
Programme (UNDP) was left outside the pillar structure and UNMIK’s senior staff retained
a short-term political focus rather than a long-term economic perspective. A Western
European diplomat serving in Pristina acknowledged: “The rule of diplomats is killing Kosovo;
development doesn’t come about through decreed standards, but from economics.”35 The
problem was a lack of focus on economic development. The EU was the central organization
in charge of Pillar IV, but it turned out that the office in Kosovo lacked the necessary contacts
with EU offices in Brussels as well as other major economic players. Most apparent was the
international community’s unwillingness to fully support or engage in meaningful discussion
about Kosovo’s final status, which not only meant that it tended to be more reactive
and engage in short term thinking, but also that this political quandary, at the very least,
prevented Kosovo from benefiting from membership in various international organizations
that admitted only sovereign states, thereby restricting its access to development banks.

III. Effects and Learning

The international community’s experiences in the Balkans demonstrate that
concerted effort can help to save lives and restore peace, even in hostile situations. Yet, for
all the success in ending the violence, the international record on post-conflict economic
development and creation of long-term sustainable economic and political institutions
is disappointing. With regard to post-conflict economic planning in particular, too little
attention was given to four separate but related issues: the legacies of socialism and the
specific post-socialist challenges for both Bosnia and Kosovo; the impact of war termination
on the political and economic policies of new states; the importance and need for
coordination and accountability from international actors; and the fundamental difference
between reconstruction and development, particularly the need to emphasize the latter.
First, the international community was slow to integrate the logic of a post-
socialist economic transition in these post-conflict countries. Part of this was due to the fact
that many analysts understood prewar Yugoslavia as a “special” socialist state (meaning

35. International Crisis Group, “Collapse in Kosovo,” Europe Report No. 155 (Brussels: International
Crisis Group, 2004), 36.

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politically and economically different from Soviet-style countries in Eastern Europe), but they
failed to appreciate the specific economic challenges of Bosnia and Kosovo—the two most
underdeveloped regions in Yugoslavia. To take one example, a USAID report, published
in 1997, reveals the extent to which the U.S. government glossed over the economic
complexities in Bosnia:
There are positive elements in Bosnia’s pre-war economic situation which may smooth
the road towards economic reconstruction and democratic reform. The country has
significant productive capacity and potential for creating jobs. The relative openness of
the former Yugoslav economy, the limited but growing presence of private enterprise,
and established links to international markets even during the Communist period
can serve as a foundation for post-war reconstruction. A sizable portion of Bosnia’s
pre-war exports were directed to western and other convertible currency markets and
Bosnia traditionally had a balance of payments surplus. The country also has a resilient,
entrepreneurial, and well-educated population capable of leading the way to economic
recovery and a democratic peace. Further, the country has a tradition of municipal
autonomy and decentralized administration that offer promise for local democratic
governance.36

In fact, Bosnia’s export markets and private enterprise developments comprised

only a small slice of the republic’s prewar economy. Furthermore, because of the large
numbers of state-owned enterprises in Bosnia, the majority of workers in skilled labor,
management, technical and administrative classes, and other professions were trained in a
particular socialist market system. In this regard, Bosnia—and especially the Bosnian-Croat
Federation within post-Dayton Bosnia—had more in common with the heavily industrialized
regions of countries like Slovakia than they did with the more market-oriented economies
of Slovenia and Croatia. Repositioning and retraining human capital, as well as structural
adjustment and privatization processes, proved slow and laborious in Bosnia and Kosovo, for
three principal reasons: (1) genuine political concerns over labor dislocation, property rights,
and the distribution of revenues from privatization; (2) the legal and regulatory constraints
and challenges of large-scale privatization; and (3) the endemic corruption by both post-
communist and new economic elites operating in a weak regulatory environment. Thus,
even without the wars, Bosnia and Kosovo would have confronted significant challenges to
economic development.
Second, despite the unified international front on the need to assist both Bosnia
and Kosovo, there were often disagreements and tensions among key international actors
over how peace-building should take place. This meant that decisions made to terminate

36. USAID, Congressional Presentation, 1997, http://www.usaid.gov/pubs/cp97/countries/ba.htm

(accessed April 23, 2010).

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the war and policies used to foster peace and democracy often undermined each other,
negatively affecting political and economic development. The contradictions inherent in both
ending the war and making peace led to a series of compromises on Bosnia’s institutional
framework that recognized and affirmed many wartime political elites and their shady
economic activities. Consequently, Bosnia’s duel-entity system allowed easy exploitation and
corruption by leading nationalist elites to consolidate their economic power over key state
resources. Thus, Bosnia emerged as an independent state with a weak central government,
while Kosovo existed as an international protectorate within another sovereign state for
almost a decade before its unilateral declaration of independence. In Bosnia, the lack of
political clarity and the international community’s unwillingness (or inability) to follow through
on integrationist elements of the Dayton agreement and, in Kosovo, to finalize its status, not
surprisingly undermined international confidence and the willingness of investors to become
involved.
Research conducted from September 2008 to March 2009 indicates the lingering
effects of these political indecisions on the business environments in these countries.
According to the Enterprise Surveys, the top three obstacles to doing business in Bosnia are
political instability (25 percent), tax rates (18 percent), and political practices/informal sector
(13 percent), while access to finance was only identified by about 12 percent of firms.37 For
small firms (1–19 employees), tax rates and political instability and practices represented the
largest challenges; for medium-size firms (20–99 employees), the top challenges were political
instability, tax rates, and access to finances; while for large firms (100 or more employees),
tax rates, political instability, and an inadequately educated workforce represented the largest
obstacles.
Political uncertainty in Kosovo produced similar trends. UNMIK initially moved
in with an ambitious agenda that blended economic reconstruction with a micro-level
private-sector economic development strategy. The initial reconstruction effort, funded with
international assistance, fueled the construction sector and the demand for raw materials
and building materials, but almost all of the initial activity was dependent on UNMIK, as well
as the extensive flow of other forms of assistance. Questions about UNMIK’s interim political
authority, as well as uncertainty over final status, deterred the few foreign investors who were
interested in Kosovo. Meanwhile, the KLA’s influence in the postwar Kosovo government
contributed to even more insecurity. Corruption and suspect business and regulatory practices
dissuaded local entrepreneurs from investing in new enterprises. Surveys conducted from
October 2008 to February 2009 indicate that constraints on business there are largely
the result of electricity/infrastructural issues (33 percent), corruption (22 percent), and

37. World Bank, Bosnia and Herzegovina: Country Profile 2009, Enterprise Surveys, http://www.
enterprisesurveys.org/documents/EnterpriseSurveys/Reports/Bosnia_and_Herzegovina-2009.pdf (accessed
April 1, 2010).

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unfavorable practices 1438 percent).39 For small firms, electricity (30 percent), corruption (25
percent), and crime (17 percent) are the top problems; for medium firms, they are electricity
(47 percent), inadequately educated workforce (18 percent), and unfavorable practices (17
percent); and large firms indicated electricity (almost 80 percent), crime (15 percent), and
corruption (1040 percent).41
Third, these tensions and coordination problems were exacerbated as donor fatigue
eventually developed towards both countries. Despite initial postwar economic planning that
began nearly a year before the end of the war, and which focused on the need to develop
a fair allocation of economic resources, American negotiators made it clear that the U.S.
priority during, and for, the Dayton negotiations was to end the war. The sheer size and
scope of the international effort defied easy coordination—even if the international donors
agreed on strategic priorities. The unprecedented number of NGOs that were involved in the
reconstruction, political development, civil society development, and ethnic reconciliation
often overwhelmed the small Balkan countries. Bosnia too often became a donor’s
playground for experimentation. Coordination on key projects was often cumbersome—
some major reconstruction projects were started and not completed, and some were simply
overlooked. In other instances, the assistance packages earmarked for critical projects were
dropped or delayed. More broadly, economic development was often seen as something that
would emerge organically from physical, infrastructural reconstruction. In Bosnia, the OHR
often refused to use its authority to impose legislation on critical legal and regulatory reforms
of property rights, commercial transactions, and judicial authority and other critical issues
to break political impasses. Many of these reforms are still stalled and continue to plague
private-sector development and economic growth.
Finally, although in Kosovo there was a noticeable shift in attitude, if not policy,
regarding the importance of economic development and the need to harness and encourage
small businesses, there is still significant confusion over what is—and should be—the
international community’s economic priorities and policy. The international community’s
unbalanced approach, with its emphasis on macroeconomic policy, is surprising, given that
international experts recognized early on that, although big investments get publicity, future
prosperity and cooperation in the Balkans “depends less on large-scale projects conceived
for political reasons than on the development of small investments that help to create small
firms and small-scale entrepreneurs—in industry, agriculture, commerce, and services. Small-
scale capitalism can become the backbone of economic recovery and eventual economic

38. World Bank, Kosovo, Republic of: Country Profile 2009, Enterprise Surveys, http://www.
enterprisesurveys.org/documents/EnterpriseSurveys/Reports/Kosovo-2009.pdf (accessed April 1, 2010).
39. Ibid.
40. Ibid.
41. Ibid.

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prosperity in the Balkans.”42 Despite the attention and the obvious need for microeconomic
reforms, little of this happened in the Balkans. In part, this is because of the complexity of
the international architecture and the inability of certain actors, namely the EU in Kosovo, to
make microeconomic reforms a priority.
One of the clearest lessons in Bosnia is that whatever reforms were made, they
were only possible when the international community presented a clear and unified front.
Although significant progress was made in Kosovo to present a strong international front in
1999, this unity disintegrated quickly and there was still considerable confusion as to who
was ultimately responsible for economic development—the European Union, the UN, the
Stability Pact, the Southeast European Cooperation Initiative, the High Level Steering Group,
or the World Bank. In both countries, who and how economic priorities were established was
never firmly decided.43

Conclusion
After fifteen years in Bosnia and more than a decade in Kosovo, both countries
continue to struggle politically and economically. It is undeniably true that the international
response has been impressive in commitment of money, troops, and resources, and these
efforts helped end two violent episodes in Balkan history. Yet, more will need to be done
to prevent a return to instability. There were clearly missed opportunities in both Bosnia
and Kosovo along the way; economic development does not flow organically from simple
economic reconstruction efforts. Private-sector development and market capitalism are
not simply self-executing. The shape and form of economic activity emerge from political
contestation and institutional design. And in both Bosnia and Kosovo, the layering of post-
socialist, post-conflict, and post-secession transitions have created significant obstacles and
challenges. This complexity, and the failure of international actors to understand or appreciate
it, has ultimately contributed to the political and economic problems that continue to fester.
Neither Bosnia nor Kosovo suffered from too little foreign assistance; indeed, the
fact that both countries were awash in cash has contributed to many of the problems we
have discussed. In both cases, entrenched nationalist elites have been able to take advantage
of weak political institutions and structures to enrich and empower themselves and their
political allies. Post-socialist legacies, with their bloated public sectors, have proven to be a
recipe for corruption and political division. But, so too have lax efforts to press for critical
administrative rules, regulatory structures, and basic elements of rule of law that are vital to
the proper functioning of private markets.

42. O’Neill, 147.

43. Rattner and Froman, 38-39.

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Post-Invasion Economic Planning for Iraq and Afghanistan

by Michael O’Hanlon

Michael O’Hanlon is a senior fellow in foreign policy at the Brookings Institution, where he
specializes in U.S. defense strategy, the use of military force, homeland security, and American
foreign policy. He is also director of research in the foreign policy program at Brookings. He is a
visiting lecturer at Princeton University and adjunct professor at Johns Hopkins University, and a
member of the International Institute for Strategic Studies and the Council on Foreign Relations. He
was a member of the secretary of state’s International Security Advisory Board in 2009 and was an
informal advisor to General David Petraeus during his 2008–2009 CENTCOM review of Mideast
security strategy. O’Hanlon’s latest books are Toughing It Out in Afghanistan (with Hassina Sherjan,
Brookings, 2010), The Science of War (Princeton University Press, 2009) as well as Budgeting for
Hard Power (Brookings, 2009). He is working on a book on the future of nuclear weapons policy,
while contributing to Brookings’ Iraq, Pakistan, and Afghanistan indices. O’Hanlon has written
several hundred op-eds in newspapers including The Washington Post, The New York Times, The Los
Angeles Times, The Washington Times, and The Japan Times.

Planning for economic recovery and reconstruction was minimal for both
the war in Afghanistan of 2001 to the present and the Iraq war of 2003 to the
present. In the first case, this was largely a matter of necessity. The conflict was
clearly precipitated by the terrorist attacks of September 11, 2001, and effectively
forced upon the country; there was little practical choice about whether to respond
militarily, and whether to do so soon. The notion of fighting a war in that country
was also outside the planning framework of Central Command (CENTCOM); this
fact can be criticized at one level, since military organizations should plan for many
scenarios they do not really expect ever to fight. But few independent scholars ever
countenanced the kind of military operation that resulted in the fall of 2001 and
onward. By contrast, the Iraq war was in Richard Haass’s phrase a “war of choice”—
and the choice was made over a period of roughly eighteen months, during which
ample opportunity for planning clearly existed. Moreover, since the United States
military had fought against Iraq in 1991 in Operation Desert Storm and remained
in state of low-grade conflict against Saddam’s regime thereafter (with ongoing
air patrols and occasional U.S. strikes by cruise missiles or aircraft), the notion that this war

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could have been a surprise to the planning establishment is not credible. While preparations
were made for certain potentialities, such as large refugee flows or oil well fires, the lack
of attentiveness to not only economic recovery but also restoration of basic stability was
a blunder of historic proportions that, in fact, many contemporary observers had warned
against prior to the conflict. The casual assumptions of the Bush administration, and Central
Command under General Tommy Franks, seem to have been that enough of the Iraqi security
forces would survive the war to quickly coalesce into an army and police force for a viable
post-Saddam regime, and that oil revenues would fund the nation’s recovery with little need
for significant outside assistance. These assumptions were badly wrong.

Iraq
Before delving into economic matters in particular, several broad observations about
the overall nature of planning for post-Saddam Iraq are needed to set the stage for further
analysis and critique.
The post-invasion phase of the Iraq mission was probably the least well-
planned American military mission since Somalia in 1993, if not Lebanon in 1983, and its
consequences for the nation were arguably worse than any set of military mistakes since
Vietnam. The U.S. armed forces simply were not prepared for the core task that the United
States needed to perform when it destroyed Iraq’s existing government: to provide security,
always the first responsibility of any sovereign government or occupier.
Unfortunately, in the Iraq operation, the U.S. defense planning system did not
work. Indeed, it failed badly in planning for the aftermath of Saddam’s fall from power.
The first three phases of the operation, including the buildup, initial preparatory actions
(largely by covert teams), and the main air–ground thrust, were impressive. However, what
is now commonly called Phase IV was handled so badly that its downsides have now largely
outweighed the virtues of the earlier parts of the operation. In other words, while it has
achieved a worthy goal in the removal of Saddam, on balance the U.S. operation in Iraq has
probably become a subpar performance of the U.S. armed forces and of the government writ
large.
It would of course be unfair to blame all the troubles in post-Saddam Iraq on the
lack of a proper stabilization plan. Given the history of Western colonialism in the region and
other factors, it was bound to be difficult for any coalition of Western countries to invade,
occupy, and help rebuild Iraq.
But the absence of a post-Saddam plan—for security, and also for economic
recovery—was a striking and extremely unfortunate aspect of the operation. Lest there be
any doubt about the lack of a plan, one need only reference the Third Infantry Division’s
after-action report, which reads: “Higher headquarters did not provide the Third Infantry
Division (Mechanized) with a plan for Phase IV. As a result, Third Infantry Division transitioned

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into Phase IV in the absence of guidance.” A broader Department of Defense (DoD) report
on the war similarly observed that “late formation of Department of Defense [Phase
IV] organizations limited time available for the development of detailed plans and pre-
deployment coordination.”1 Since military organizations were the primary U.S. government
organizations on the ground when Saddam fell and shortly thereafter, and since they were,
as noted, not even prepared for the immediate task of keeping order, it goes without saying
that they were also unprepared—as were other organs of the government—for relief and
development work.
Many people outside the Pentagon did recognize, and emphasize, the centrality
of the post-Saddam security mission. Some were at the State Department, though the
department’s Future of Iraq Project produced an extremely long and somewhat unfocused
set of papers.2 Other analysts were also prescient, and much more cogent, in their emphasis
on the need to prepare for peacekeeping and policing tasks. One of the more notable was
a study published in February 2003 by the Army War College. It underscored not only the
importance of providing security, but also of taking full advantage of the first few months of
the post-Saddam period when Iraqi goodwill would be at its greatest.3
These think tank studies and reports did not, of course, develop precise estimates
of how many troops would be needed to stabilize post-Saddam Iraq or lay out detailed rules
of engagement for restoring security. General Shinseki, the Army chief of staff, provided
Congress some clear advice on the former point when he estimated that “several hundred
thousand” troops might be needed for the overall operation. Even that estimate was very
vague, however. Plans for economics were even less concrete.
Previous CENTCOM plans for overthrowing Saddam were not perfect either.
Throughout much of the 1990s, they relied on a brute-force approach to seizing Iraq that
had its own downsides, such as the likelihood that surprise would be totally sacrificed
during a lengthy buildup period. Also, a major revision of the war plan begun late in the
decade by General Tony Zinni may not ever have been completed.4 However, they laid a
groundwork that could have been built upon in the year leading up to the March 2003
invasion. Subsequent plans could have refined Zinni’s concept for reestablishing order and
extended the logic to beginning the economic recovery effort. Instead, the plans were

1 David Rieff, “Who Botched the Occupation?” New York Times Magazine, November 2, 2003, 44, 58.
2 Michael Elliott, “So, What Went Wrong?” Time, October 6, 2003, 34–37.
3 Conrad C. Crane and W. Andrew Terrill, Reconstructing Iraq: Insights, Challenges, and Missions for
Military Forces in a Post-Conflict Scenario (Carlisle, PA: Army War College, February 2003); see also,
Edward P. Djerejian et al., Guiding Principles for U.S. Post-Conflict Policy in Iraq (2003), 5-6; and Ray
Salvatore Jennings, “After Saddam Hussein: Winning a Peace If It Comes to War,” U.S. Institute of Peace
Special Report 102 (Washington, DC: U.S. Institute of Peace, 2003).
4. Tom Clancy with General Tony Zinni and Tony Koltz, Battle Ready (New York: G.P. Putnam’s Sons,
2004), 18–22.

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effectively discarded. According to General Tommy Franks, while planners spent many hours
in discussions about Phase IV, and while Franks himself always cautioned that this stage of
the operation could take years, it ultimately was assumed that much of the regular Iraqi army
would survive and be available to play a large role in keeping postwar order.5 It was further
assumed that Iraq’s natural wealth would provide the basis for economic recovery, and that
civilian institutions would remain intact to carry out the recovery activities.6
Many basic tasks that should have been seen as necessary in Iraq—policing the
streets, guarding huge weapons depots, protecting key infrastructure, maintaining public
order—were simply not planned for.7 The same was true of job creation, infrastructural
revitalization, and related economic tasks. Instead, post-invasion planning was conducted
largely out of the office of Under Secretary of Defense Douglas Feith. That effort was
reportedly unfocused, shallow, and too dependent on optimistic scenarios that saw Ahmed
Chalabi (or perhaps some of Saddam’s more moderate generals) taking charge without the
need for a strong U.S. role in the stabilization mission. Even as it became apparent that the
initial assumptions were wrong, the Pentagon was unresponsive. The initial post-invasion
chaos was famously attributed by Donald Rumsfeld to the fact that “freedom’s untidy,” not
that Iraq had become an anarchic environment that only U.S.-led coalition military forces
were in a position to stabilize.8
Admittedly, many of the critical tasks involved in stabilizing Iraq had more of a
State Department flavor to them than a military one—getting reconstruction going quickly,
employing unemployed Iraqis, figuring out a proper de-Baathification strategy, determining a
process to select new Iraqi leadership—so military planners do not deserve principal criticism
for the shortcomings here. In his book, General Franks is thus on reasonable ground in
saying he wished that Secretary Rumsfeld and Secretary Powell had forced their respective
departments to work better together, since the Pentagon needed the State Department’s
help. However, uniformed planners knew the command arrangements, were aware of
the relative marginalization of the State Department in the process, and also knew how
important it was that someone have responsibility for these types of political and economic

5. “…our planning assumption was that we would guide the Iraqi interim government in building a
military and a paramilitary security force drawn from the better units of the defeated regular army. These
units would serve side-by-side with Coalition forces to restore order and prevent clashes among the
religious and ethnic factions…” Tommy Franks, American Soldier (New York: HarperCollins, 2004), 419.
6. George Packer, The Assassins’ Gate: America in Iraq (New York: Farrar, Straus, and Giroux, 2005),
100–148; Michael R. Gordon and Bernard E. Trainor, Cobra II: The Inside Story of the Invasion and
Occupation of Iraq (New York: Pantheon Books, 2006), 457–474.
7. For more, see Anthony H. Cordesman, The Iraq War: Strategy, Tactics, and Military Lessons
(Washington, DC: CSIS, 2003), 493-508.
8. George Packer, “War After the War: What Washington Doesn’t See in Iraq,” The New Yorker,
November 24, 2003, 4, 8; Don Eberly, Liberate and Leave: Fatal Flaws in the Early Strategy for Postwar
Iraq (Minneapolis, MN: Zenith Press, 2009), 133–151; and Packer, 66–99.

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tasks. In that sense, they were too willing to be quiet, in the hope that somehow the problem
would sort itself out.9 The greater blame, however, lies with Secretary Rumsfeld, who asked
for full authority of all aspects of the Iraq war including post-invasion reconstruction, as well
as with the White House and President Bush, since it was Mr. Bush who gave Rumsfeld the
authority he requested.
Although violent resistance from hard-core Baathists and jihadists was perhaps
inevitable, the willingness of Iraqi “fence sitters” to
Many basic tasks that should
take up arms against the coalition out of frustration
have been seen as necessary
in Iraq—policing the streets, appears to have increased over time. Indeed, while
guarding huge weapons estimates of the strength of insurgencies are never
depots, protecting key reliable, it is nonetheless striking that the Iraq resistance
infrastructure, maintaining was estimated to number only 5,000 hardened fighters
public order—were simply in mid to late 2003, but later thought by some U.S.
not planned for. The same
officials to approach 20,000 by mid-2004. Wasting
was true of job creation,
infrastructural revitalization, those precious first weeks and months gave this third
and related economic tasks. group—the fence sitters—a perceived rationale to take
up violence, too.10 It created a dynamic in Iraq in which
high levels of street crime and economic malaise combined with the growing insurgency
increased the population’s insecurities, which then also impeded economic recovery activities.
With the security environment and the economy both stagnant, dissatisfaction grew, and the
resistance thus had more potential recruits to draw upon—among not only Sunni but Shia
communities as well.11
Opinion polls in the occupation’s early months showed a general happiness among
Iraqis that Saddam was gone. That translated into a certain goodwill toward occupation
forces, or at least a willingness to tolerate their presence as a necessary means of ensuring
stability.12 Wasting this moment of Iraqi cooperation was to lose something that could
never be recovered thereafter. This was not just a matter of winning a popularity contest.
The general population’s willingness to provide intelligence on the resistance, always a key
ingredient in any successful counterinsurgency, is also always a function of the perceived risks
of doing so. Citizens are more likely to provide information when convinced it will help defeat
an insurgency; they are less likely to take such risky steps if they see the tide of battle favoring
the rebels. If a major effort had been made to nip the resistance in the bud, that effort
could have developed self-perpetuating momentum. Establishing early momentum would

9. Franks, American Soldier, 424, 544.

10. Jim Krane, “U.S. Officials: Iraq Insurgency Bigger,” Philadelphia Inquirer, July 9, 2004.
11. See, for example, Ahmed S. Hashim, Insurgency and Counterinsurgency in Iraq (Ithaca, NY: Cornell
University Press, 2006), 250–260; for trends in Iraq during this period, see Brookings’ Iraq index at www.
brookings.edu/iraqindex.12 See Iraq index at www.brookings.edu/iraqindex.
12 See Iraq index at www.brookings.edu/iraqindex.

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have made a huge difference in the subsequent course of the coalition’s counterinsurgency
operation.
Those officers who did limited planning for the post-Saddam phase of operations
at CENTCOM should have realized that their efforts were not receiving proper emphasis,
support, or visibility. In the end, their efforts were not successful. CENTCOM did not have
an overall framework for ensuring at least a modicum of security throughout most of the
country that was conveyed to forces on the ground in advance. As a result, most division
commanders had not worked out concepts of operations for the period after the Baathist
regime fell. Their key officers had to resort to improvisation in whatever localities they found
themselves; lower-ranking individual unit officers had no idea what was expected of them.
Hospitals were looted, major buildings destroyed, shops ransacked, and chaos allowed to
reign as American soldiers stood by. A country that, for all its struggles, had enjoyed some
semblance of stability in the latter Saddam years quickly become one of the most violent
places on Earth—not so much in terms of the ongoing resistance, which while brutal was
limited in scale (especially at first), but particularly in the growing prevalence of street crime
throughout the country.
As the summer and fall of 2003 advanced, and it became obvious that the initial
happy assumptions about post-Saddam Iraq were wrong, planning for a range of activities
including economic recovery and development did, of course, begin. The initial thinly-staffed
Office of Reconstruction and Humanitarian Assistance under retired General Jay Garner was
superseded by more muscular efforts (and the creation of the Coalition Provisional Authority,
led by Ambassador Jerry Bremer).13 And some good things were done. However, the initial
plans emphasized large-scale infrastructure too much, the use of American contractors too
much, and the wisdom of young and energetic but inexperienced (and often technically
unprepared) American officials too much. Iraqi institutions were not built up or employed
in decision making and management processes as much as they should have been. Good
security conditions were assumed when, in fact, the reality was otherwise.14
There also were problems of basic government organization, structure, and
process. In addition to the mistake of giving DoD sole responsibility, the early period saw little
opportunity for other agencies to weigh in on decisions such as the banning of Baathists
(often the only experienced technicians) from government employment. Organizations such
as the Office of Stabilization and Reconstruction at the State Department did not yet exist.
Flexibility in the use of government funds was too lacking, while freedom for contractors to
operate as they saw fit was too great.15

13. Gordon and Trainor, Cobra II, 457–474.

14. Special Inspector General for Iraq Reconstruction, Hard Lessons: The Iraq Reconstruction Experience
(Washington, DC: Department of Defense, 2009), 323-337.
15. Special Inspector General for Iraq Reconstruction, Hard Lessons, 323–337.

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The kind of job-creating activities that were probably most important for giving
Iraqis a sense of empowerment, creating jobs, and thus defusing the budding insurgency,
were deemphasized in the early years except in a few cases, such as military commanders
with their so-called CERP funds. (These were the Commanders’ Emergency Response Program
funds and allowed quick projects to increase employment opportunities and bring visible
improvement to the streets of Iraq as soon as possible.)16 In addition, a philosophy of laissez-
faire economics prevailed among many of the American
A country that, for all its partisans given responsibility for making decisions in Iraq
struggles, had enjoyed some
during that first year after the invasion—leading among
semblance of stability in the
latter Saddam years quickly other things to initial decisions, often later reversed, to
become one of the most disband or sell off state-owned enterprises (despite the
violent places on Earth—not numbers of jobs they provided) and liberalize investment
so much in terms of the and banking laws far beyond regional norms.17
ongoing resistance, which
To be sure, there was logic to many aspects
while brutal was limited in
scale (especially at first), but of the planning, such as the ultimate desirability of
particularly in the growing reducing subsidies for consumer goods.18 And, some
prevalence of street crime good steps were taken, such as making the Iraqi dinar
throughout the country. convertible and stable as a currency.19 It also should
be recalled just how much the Iraqi economy and
infrastructure had deteriorated over the decades of Saddam’s rule, including oil production
facilities and most other foundations of productive activity.20 However, the pace and scale of
the attempted free-market reforms proved disruptive and polarizing to Iraqis, and distracted
many American officials from the task of creating jobs.

Afghanistan
Once the Taliban was deposed and it became apparent that Osama bin Laden was
in hiding in Pakistan, the U.S. military effort became quite limited—the strategy espoused a
“light footprint” and a minimalist approach. International economic and development aid
was also modest in scope. The desire for a small military footprint was motivated in part
by the Bush administration’s aversion to nation-building, in part by Secretary of Defense
Rumsfeld’s desire to validate a new kind of warfare that deemphasized ground forces, and

16. Larry Diamond, Squandered Victory: The American Occupation and the Bungled Effort to Bring
Democracy to Iraq (New York: Henry Holt and Company, 2005), 289–310.
17. Rajiv Chandrasekaran, Imperial Life in the Emerald City (New York: Alfred A. Knopf, 2007), 102–126.
18. Ambassador L. Paul Bremer III, My Year in Iraq (New York: Simon and Schuster, 2006), 392.
19. Peter R. Mansoor, Baghdad at Sunrise: A Brigade Commander’s War in Iraq (New Haven, CT: Yale
University Press, 2008), 344.
20. Ali A. Allawi, The Occupation of Iraq: Winning the War, Losing the Peace (New Haven: Yale
University Press, 2007), 114–131, 249–265.

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 iraq and afghanistan

in part by incipient planning for the Iraq invasion. The general view that Afghanistan did not
welcome foreigners or a strong central government (even of its own people) also contributed
to the prevailing philosophy.21 But the broader lack of interest in Afghanistan’s welfare was
consistent with America’s long-standing view of Afghanistan as a country of limited strategic
importance. The United States was more interested in opposing and tearing down things it did
not like there—starting with the Soviet occupation itself, then the Soviet-installed Communist
government, and then the Taliban—than in building up anything viable to replace these
enemy regimes.
As a result, as outlined further below, the United States and its partners were
reluctant to undertake a significant security operation in Afghanistan after the fall of the
Taliban. They were reluctant, too, to undertake a substantial economic development plan with
adequate resources. They were particularly remiss, therefore, at not achieving an effective
integrated strategy involving security, economic, and political elements of the type crucial in
counterinsurgency.22
At the Bonn Conference of December 2001, which involved many nations including
Iran as well as representatives of many Afghan groups, Hamid Karzai was selected to be
Afghanistan’s interim leader, a choice that most Afghans and many countries favored. Karzai
attempted to appoint a cabinet reflective of the ethnic balance of Afghanistan. This objective
may have been well intentioned, but it also had the negative effect of creating a quota system
that sometimes precluded putting the best people into key jobs.23 His government was also
understaffed and under-resourced. Much of Washington’s interest in this phase of the effort
was in working with regional warlords to continue to pursue al-Qaeda operatives, an approach
that tended to further undercut the central government. Inattention to institution-building in
matters such as judicial reform, together with the use of development contracts that benefited
from only modest oversight, also tended to reinforce Afghanistan’s historic problem with
corruption.24 Those aid efforts that did occur also tended to bypass the Afghan government,
forgoing opportunities to build up institutional capacity that the country needed, while also
making it very hard to coordinate the multiple assistance efforts of multiple donors.25

21. Seth G. Jones, In the Graveyard of Empires: America’s War in Afghanistan (New York: W.W. Norton
and Co., 2009), 109–133.
22. David Kilcullen, The Accidental Guerrilla: Fighting Small Wars in the Midst of a Big One (New York:
Oxford University Press, 2009), 112–114.
23. Seth G. Jones, “The Rise of Afghanistan’s Insurgency: State Failure and Jihad,” International Security
32, no. 4 (Spring 2008): 12.
24. Seth G. Jones, Counterinsurgency in Afghanistan (Santa Monica, CA: RAND, 2008), 83–85.
25. Alastair J. McKechnie, “Rebuilding a Robust Afghan Economy,” in Robert I. Rotberg, ed., Building a
New Afghanistan (Washington, DC: Brookings Institution Press, 2007), 123–124; and Ashraf Ghani and
Clare Lockhart, Fixing Failed States: A Framework for Rebuilding a Fractured World (New York: Oxford
University Press, 2008), 108–109.

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 iraq and afghanistan

Various positive steps were taken. In 2004, a new constitution written by the
Afghan Constitution Commission was approved by a traditional Afghan mechanism
known as a loya jirga.26 Later that year, Karzai was elected president in a national election.
Parliamentary elections were held in September 2005. Outside countries gradually increased
their commitments and aid to Afghanistan as well. However, they tended to do so at a
pace slower than the situation required—and not fast enough to keep the Taliban from
regrouping.
From 2002 through 2005, U.S. troop levels grew from around 5,000 to 19,000, as
the security situation worsened somewhat and efforts to build up Afghan security forces and
extend the reach of the central government gradually increased.27 In August 2003, NATO
officially took command of the International Security Assistance Force (ISAF) that had been
established under a United Nations mandate in Kabul in 2002. ISAF included some American
troops, but others remained organized (and commanded) separately in a counterterrorism
operation that continued to be known as Operation Enduring Freedom. In 2004, ISAF began
gradually to assume responsibility for security outside of the capital, first setting up a base
in the relatively peaceful north. By October 2006, ISAF had taken over security responsibility
throughout Afghanistan, breaking the country up into five regional commands (East, West,
North, South, and Central). It took five years to get to that point, however; until then, ISAF
was focused primarily on Kabul.28 These trends didn’t change the fact that, for a country of
30 million people, the NATO-ISAF capabilities were still meager. And while monthly fatalities
for foreign troops rarely exceeded single digits, casualty trends were inching upward.29
U.S.–NATO efforts to build Afghan security forces were modest as well. By the
end of 2005, only 50,000 Afghan forces (comprising both the army and national police)
were assigned to duty throughout the country; even fewer were competent, equipped, and
reliable. In these early years of the war, the so-called “lead nation” concept was employed,
under which different countries took responsibility for different main tasks within the country:
the United States oversaw the creation and training of the Afghan army; Germany, the police;
Japan, the disarmament of militias; the United Kingdom, counternarcotics efforts; and Italy,

26. One aspect of this constitution is the degree of power entrusted in the central government,
including the president’s right to hire and fire governors. As one manifestation of this, between late
2007 and mid-2009, Karzai replaced more than 80 percent of Afghanistan’s thirty-four governors. See
Department of Defense, Progress toward Security and Stability in Afghanistan (June 2009), 43.
27. Much of this is drawn from Jason Campbell, Michael O’Hanlon, and Jeremy Shapiro, “Assessing
Counterinsurgency and Stabilization Missions,” Foreign Policy Paper 14 (Brookings, May 2009); and
Michael E. O’Hanlon and Adriana Lins de Albuquerque, “Afghanistan Index” (Brookings, February 23,
2005), www.aed.usace.army.mil/faqs/Afghanistan%20Index.pdf (accessed June 22, 2009).
28 Ali A. Jalali, “The Legacy of War and the Challenge of Peace Building,” in Robert I. Rotberg, ed.,
Building a New Afghanistan (Washington, DC: Brookings Institution Press, 2007), 45.
29 United Nations Office on Drugs and Crime, “Afghanistan Opium Survey 2008: Executive Summary,”
(Vienna: August 2008), 19.

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 iraq and afghanistan

the justice system. This effort was poorly coordinated and later judged largely unsuccessful.30
Over time, even as foreign troop capabilities grew, the security situation in Afghanistan
continued to worsen.
From an economic standpoint, the picture is not as bad. Some indicators such as
overall economic growth, per capita income, and volume of trade have risen steadily over
the last few years while inflation largely has stabilized. Afghanistan remains very poor, but
according to government statistics, more than 80 percent of the Afghan population now
lives in districts that have a basic package of health-care programs, up considerably from 9
percent in 2003. This has translated into significant improvements in the rate of vaccinations
as well as a decline in infant and child mortality rates. More than 6 million children currently
attend more than 9,000 schools, compared with fewer than 1 million during the Taliban
period. Gender equity also is improving; 2 million of the students are girls, and 40,000 of the
142,000 teachers are women. Telephone usage has increased dramatically to an estimated 7
million Afghans, compared with 1 million in 2002.
The international community deserves some credit for what progress has occurred,
even if it has not done nearly enough, and even if efforts began very slowly. Aid efforts
were not accorded substantial bureaucratic clout or financial support in Washington in the
early going.31 Aid efforts gradually expanded after the United Nations Assistance Mission in
Afghanistan was created in March 2002. A U.S. decision to support construction of the ring
road finally occurred in 2003—though the onset of the Iraq war that year also interrupted
various other efforts that had begun around the country, and, in general, plans and
procedures to guide aid efforts were slow to form.32
After Afghanistan’s presidential and
Some indicators such as
parliamentary elections in 2004 and 2005, the overall economic growth, per
international community pledged about $10 capita income, and volume
billion as part of an Afghanistan Compact with of trade have risen steadily
the Karzai government.33 By this period, Provincial over the last few years while
Reconstruction Teams (PRTs) were being widely inflation largely has stabilized.
deployed, too. The concept was developed in 2002
but applied in only a limited number of places at first. A PRT is a team of experts charged
with kick-starting development efforts (even under difficult security conditions) and helping

30. International Crisis Group, Afghanistan: The Need for International Resolve (Brussels: February 2008),
ii, 5.
31. James F. Dobbins, After the Taliban: Nation-Building in Afghanistan (Washington, DC: Potomac
Books, 2008), 117–144.
32 Sarah Chayes, The Punishment of Virtue: Inside Afghanistan After the Taliban (New York: Penguin
Books, 2006), 150–158; James Dobbins et al., America’s Role in Nation-Building: From Germany to Iraq
(Santa Monica, CA: RAND, 2003), 146–148.
33. International Crisis Group, Afghanistan, 7.

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 iraq and afghanistan

to strengthen local governments by providing advice and prompt resources. Eight PRTs were
operating by late 2003 and fourteen by late 2004, in large part thanks to Lieutenant General
David Barno, who promoted the concept assertively when he was commander of the ISAF
mission.34 At this point in early 2010, twenty-six PRTs are operating in Afghanistan, covering
most of the country’s thirty-four provinces.
Twelve PRTs are U.S.-led; fourteen are directed by other nations. Although PRT
work is mostly nonmilitary in nature, a dearth of available civilian personnel means that the
teams are composed primarily of military officers; of the fifty to 100 people in any given
U.S.-led PRT, only three or four typically have been U.S. government civilians or contractors.35
Some PRTs run by other countries, such as the British and Canadian teams in Helmand and
Kandahar, are larger and better balanced between military and civilian personnel.
Even if, on balance, the economic strategy for Afghanistan has been marginally
better than Iraq—despite having had a better “excuse” of getting off to a bad start due
to the unpredictability of the war—there have been major problems even beyond the very
slow start. Naturally, the declining security situation itself has been a major problem, as it
has precluded normal economic activity in recent years since roads have been very difficult
to use and other requirements for normal commerce—such as dependable justice systems—
have been lacking. Beyond that, certain policies were
The international community probably directly counter to what would have been
deserves some credit for
most beneficial. In the early years of the war, for
what progress has occurred,
even if it has not done nearly example, the emphasis on drug eradication drove many
enough, and even if efforts peasant farmers toward the Taliban, as it eliminated
began very slowly. their main source of income without any alternative
within reach.36
Despite these efforts, life remains very tough for the typical Afghan. An estimated
42 percent of the population still lives below the poverty line (defined as a monthly income of
$14 or less), while an additional 20 percent lives only slightly above it. Only about 23 percent
of the population has regular access to potable water, and in 2009 just 12 percent had access
to adequate sanitation. Only one-fifth of the total Afghan population has had even limited
access to electricity from the public grid.

34. Michael J. McNerney, “Stabilization and Reconstruction in Afghanistan: Are PRTs a Model or a
Muddle?” Parameters (Winter 2005–2006), www.carlisle.army.mil/usawc/Parameters/05winter/mcnernet.
pdf (accessed May 1, 2009), 38.
35. Subcommittee on Oversight and Investigations, Committee on Armed Services, U.S. House of
Representatives, Agency Stovepipes vs. Strategic Agility: Lessons We Need to Learn from Provincial
Reconstruction Teams in Iraq and Afghanistan, 110th Cong., 2d sess., 2008, armedservices.house.gov/
pdfs/Reports/PRT_Report.pdf (accessed May 1, 2009). 13.
36. Juan Cole, Engaging the Muslim World (New York: Palgrave Macmillan, 2009), 190.

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 iraq and afghanistan

Conclusions
Neither of the aid and economic reconstruction efforts in Iraq and Afghanistan
went very well. In Iraq, the effort was somewhat slow to begin, and then emphasized large-
scale infrastructure projects run by American contractors, together with an overemphasis
on creation of a pure free-market system. In Afghanistan, the effort was very slow to begin,
failed to involve Afghan ministries sufficiently, badly exacerbated corruption, and stumbled
for years on key issues such as drug policy and agriculture. Neither was particularly starved
for resources, at least after the first year or two, yet neither has been impressive on balance.
In Afghanistan, some of the results were better than in Iraq, but this was largely due to the
fact that Afghanistan’s initial level of development was so rudimentary that some degree of
progress was not hard to achieve. Unfortunately, in that country more than in Iraq of late,
gains have been threatened by a worsening security environment (though it is worth noting
that even in Iraq, even after all the progress in security of the last three years, private sector
investment remains limited given that the country is still fairly violent and unsettled).
There is huge room for improvement on the economic side of these missions. A
decade into such combat, our military forces are much better at all levels—doctrine, training,
equipment, leadership, tactics, and force sizing—in these kinds of operations. But it is not
clear that comparable lessons have been identified, learned, or acted upon in regard to
civilian and economic activities.

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 Remodeling Pre/Post Conflict Development Assistance
for Weak and Failing States

by Dr. David A. Anderson

Professor, Command and General Staff College,
Fort Leavenworth, Kansas

Dr. David A. Anderson is a retired U.S. Marine Corps officer. He is now a professor of strategic
studies and Odom Chair of Joint, Interagency, and Multinational Operations at the U.S. Army
Command and General Staff College, Fort Leavenworth, Kan., where he teaches strategic and
operational studies, as well as economics. He is also an adjunct professor for Webster University,
where he teaches various international relations courses, including International Political Economy
and Globalization. He has published numerous articles on military, economics, and international
relations related topics.

F
ailing and post-conflict states pose one of the greatest national and
international security challenges of our day, threatening vulnerable
populations, their neighbors, our allies, and ourselves. Struggling states can
provide breeding grounds for terrorism, crime, trafficking, and humanitarian
catastrophes, and can destabilize an entire region. Experience shows that managing
conflict, particularly internal conflict, is not a passing phenomenon. It has become a
mainstream part of our foreign policy.1

The stability and economic viability of weak and failing states around the world is
of growing concern. Exacerbated by global economic events, an increasing number of these
states are in, or on the verge of, chaos, collapse, or civil war. Some need security intervention,
while all need significant development assistance. However, development assistance
approaches employed by the United States, the Organization for Economic Cooperation and
Development (OECD), and the international financial institutions they support, have resulted
in few successes in facilitating enduring development and have only marginally insured
assisted states against instability. All the while, the cumulative needs of weak and failing

1. Ambassador John E. Herbst, Coordinator for Reconstruction and Stabilization, U. S. Department of

State, June 7, 2010.

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 weak and failing states

states continue to outpace the financial will and/or ability of donor nations, many of whom
now carry debt burdens comparable to their annual Gross Domestic Product (GDP).2 The
manifestation of this is exemplified by the recent EU/Greece debt crisis and the subsequent
$1 trillion bailout. The debt burden carried by developing countries aggravates the problem.
Misguided and underfunded foreign aid has now proven problematic to donor nations who
find themselves having to pit their domestic needs against the needs of the weak and failing
developing countries, which now often require military intervention.
Going forward, more prudent, development-focused aid approaches must be
employed and nurtured in order to derive the most impact from increasingly scarce aid funds.
Approaches that focus on the best interest of recipient nations include targeted development
aid, including nurturing small business development; facilitating Foreign Direct Investment
(FDI); and promoting trade. The net effect will be more prosperous, optimistic, and stable
countries—countries less likely to need military intervention. After painting the situational
picture, this paper will address ways and means to facilitate such development-promoting
activities, including those of the U.S. military.

U.S. Foreign Aid and Practice

The United States has employed various foreign aid approaches since the Truman
administration. The original intent of aid was to facilitate the reconstruction of post-World
War II Europe and Japan, promote stability, and prevent the spread of Soviet Communism.
Since then, U.S. foreign aid has been utilized in various ways to respond to global events.
The enduring structure of modern U.S. foreign assistance is grounded in the Foreign
Assistance Act of 1961 (FAA). Foreign aid objectives include “promoting economic growth
and reducing poverty, improving governance, addressing population growth, expanding
access to basic education and health care, protecting the environment, promoting stability in
conflict regions, protecting human rights, curbing weapons proliferation, strengthening allies,
and addressing drug production and trafficking.”3 The thought was that, by focusing on
these broad objectives, the United States would achieve its national security intent, show the
“humanitarian nature” of Americans, and create a global economic environment that leads
to the export of American products and services. Foreign aid is also seen as a direct means
to prevent future crises among recipient countries, the belief being that development begets
stability.

2. The G-20 countries comprise roughly 90 percent of global GDP, 80 percent of global trade, and
67 percent of global population. The IMF predicts that G-20 countries will collectively carry a debt-
to-GDP ratio of 86 percent for 2010. Of even greater concern is the debt-to-GDP ratio forecasted for
the advanced G-20—those providing the majority of Official Development Assistance (ODA). They are
projected to carry a debt burden equaling 106 percent of their collective annual GDP for 2010 (Source:
IMF, World Outlook, March 14, 2009).
3. Curt Tarnoff and Marian Leonardo Lawson, Foreign Aid: An Introduction to U.S. Programs,
Congressional Research Service, April 9, 2009, 3.

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 weak and failing states

In accomplishing the aforementioned objectives, there are thirty-three different

established U.S. foreign aid goals, seventy-five priority areas, and 247 directives, stretched
over twelve departments and twenty-five agencies, with no national strategy document
linking them together.4 Many have argued that this decentralized structure lacks necessary
synergy or focus of effort and is, therefore, ineffective and confusing, particularly for partner
nations and recipient nations to implement.5
The United States continues to be the largest contributor of foreign aid; however,
at 0.2 percent of annual GDP, its contributions rank lowest among developed nations.
Comparatively speaking, foreign aid outlays average less than 1 percent of the annual federal
budget, while the FY 2009 defense budget represented 13.34 percent of the federal budget.6
To further put this into perspective, for the period from 2005–2009, the United States spent
anywhere from five to nine times more on financing its national debt than on foreign aid.
Figure 1 provides a historical year-by-year comparison of U.S. foreign aid as a percent of
annual GDP. As shown in figure 1, the annual percentage of budgetary outlays for foreign aid
has stabilized at near-historic lows.

Figure 1. Foreign aid as % of GDP

3.5

2.5

2
(% of GDP)

1.5

0.5

6 9 2 5 8 1 4 7 0 3 6 9 2 5 8 8 0 1 4 7 0 3 6
194 194 195 195 195 196 196 196 197 197 197 197 198 198 198 197 198 199 199 199 200 200 200

Source: Greenbook, U.S. Department of Commerce, CRS calculations.

4. Jonathan Yip and Tom Dan, “In Need of Assistance,” Harvard Political Review (November 16, 2009): 2.
5. Marian Leonardo Lawson and Susan B. Epstein, “Foreign Aid Reform: Agency Coordination,”
Congressional Research Service, August 7, 2009.
6. http://www.gpoaccess.gov/usbudget/fy2009/browse.html (accessed March 16, 2010).

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 weak and failing states

The preponderance of foreign aid goes to middle-income countries such as Israel

and Egypt to preserve Middle East peace. Funds also go to developing countries such as
Afghanistan, Pakistan, and Colombia to combat terrorism and narcotics trafficking, as well
as countries in sub-Saharan Africa to combat such things as HIV/AIDS and malaria.7 The top
recipients of U.S. foreign aid for fiscal year (FY) 2008 are shown in figure 2.

Figure 2. Top foreign aid recipients, FY 2008

(appropriations in millions, US$)
0 500 1,000 1,500 2,000 2,500 3,000 3,500

Israel 2,380
Afghanistan 1,957
Egypt 1,706
Jordan 936
Pakistan 738
Iraq 605
Kenya 599
South Africa 574
Columbia 541
Nigeria 486
Ethipia 455
Georgia 429
West Bank/Gaza 407
Mexico 403
Sudan 392

Source: USAID and State Department.

Less than 50 percent of U.S. foreign aid is ever actually committed to development
projects that directly promote economic activity and job creation in developing countries.
Poverty-focused development assistance for FY 2008 accounted for only 47 percent of U.S.
foreign aid budget and one-half of 1 percent of the total federal budget.8
U.S. foreign aid is often described as merely a foreign policy instrument by policy
experts—a pragmatic response to national security interests, with mercantilist underpinnings
and not for the long-term well-being of the recipient state. Many of the countries receiving
U.S. development assistance over the years are poorer today than they were before receiving
the aid.9 Furthermore, the vast majority of foreign aid outlays are to purchase U.S. goods/

7. Curt Tarnoff and Marian Leonardo Lawson, Foreign Aid: An Introduction to U.S. Programs,
Congressional Research Service, April 9, 2009, 7–18.
8. Bread for the World and Bread for the World Institute, “Bread for the World Applauds Obama’s Focus
on Job Creation,” Bread for the World, posted January 27, 2010, http://www.bread.org (accessed March
8, 2010).
9. Richard W. Rahn, “Turn Off Foreign Aid,” Washington Times, September 2, 2003.

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 weak and failing states

services and contingent upon supporting U.S. strategic interests.10 For example, the United
States requires countries seeking Economic Support Funds (ESF) to grant in return immunity
for U.S. nationals from prosecution by the International
Many of the countries Criminal Court.11 Other voiced concerns regarding
receiving U.S. development U.S. foreign aid policy and international development
assistance over the years are
assistance include “phantom aid,” or aid “not genuinely
poorer today than they were
before receiving the aid. available to fight poverty.”12 Approximately half of all
Official Development Assistance (ODA) provided by
developed countries has been categorized as phantom aid. Examples of phantom aid include:
• debt relief;
• subsidies on exports to developing countries;
• food aid which disposes of agricultural surpluses resulting from government
subsidies;
• provision of surplus commodities of little economic value;
• administrative costs;
• payments for care and education of refugees in donor countries;
• grants to nongovernmental organizations (NGOs) and to domestic agencies to
support emergency relief operations; and
• technical cooperation grants which pay for the services of nationals of the donor
countries.13

The OECD consistently reports that the United States has the highest share of
phantom aid among its organizational membership.
Although serving a diminished role since 9/11, the U.S. Agency for International
Development (USAID) has managed the majority of U.S. foreign aid. USAID is tasked
with providing nations long-term development assistance programs designed to generate
“sustainable economic development and improve government and non-governmental
capacity to meet the basic needs of their population.”14
Over the years, U.S. diplomatic objectives and Congressional funding have come
into conflict with development objectives in recipient countries. This has proven problematic,

10. Tarnoff and Lawson, Foreign Aid, 26.

11. OneWorld.net, “The Purpose of Aid,” http://uk.oneworld.net/guides/aid?gcid=CJn94ZC3-
p8CFQYMDQod3h3Lbw.
12. ActionAid, “Africa: Real Aid?,” AfricaFocus, posted July 17, 2006, http://www.africafocus.org/
docs06/aid0607a.php (accessed March 11, 2010).
13. Romilly Greenhill, Real Aid: Making Technical Assistance Work, Action Aid International (July 5,
2006): 5–6.
14. Lawson and Epstein, Foreign Aid Reform, 6.

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 weak and failing states

particularly when aid is provided in support of U.S. strategic interests, but its effectiveness
is judged on development outcomes. These diplomacy and development misalignments,
accompanied by funding inconsistencies, have often set USAID up for failure—being
held accountable for development failings that it had no means to circumvent. Over the
years, these often-repeated circumstances have led many political and academic pundits
to conclude that USAID development assistance efforts are ineffective. Significant cuts in
USAID’s personnel and annual budget have accompanied ill fortune.15 USAID personnel
(scientists, engineers, and technical experts) have been significantly reduced from the field of
8,600 experts they had built up to in 1962. Current staff number approximately 2,400. These
field experts were often able to work closely with host countries. As a result of persistent
personnel cuts, USAID programs are now primarily executed by U.S. contractors, often with
the host country playing a limited role.16
In order to separate strategic foreign policy objectives from economic development
objectives, the U.S. government created the Millennium Challenge Corporation (MCC) in
2004. The MCC was established as an independent government entity mandated to reward
nations pursuing political and economic reforms in three broad categories: (1) ruling justly, (2)
investing in people, and (3) promoting economic freedom. Since its inception, MCC has been
consistently underfunded. Of the $15 billion requested for the period 2004–2009, Congress
only funded $8.3 billion.17 Furthermore, the MCC Act
prohibits assistance to most weak and failing states.18 In 2007, these sources
In 2006, the U.S. Secretary of State created exceeded foreign aid by 169
percent.­In 2007, combined
the position of Director of Foreign Assistance (DFA) as
private contribution
a means to consolidate State Department and USAID flow—via remittances,
assistance efforts, and to guide and coordinate with private organizations and
other department and agency stakeholders. This philanthropy—from all
arrangement has proven a bit problematic in that the contributing countries totaled
DFA does not control all foreign assistance efforts, and $519 billion.
significant assistance programs like the MCC and the
Office of the Global AIDS Coordinator do not fall under his authority.19 20
In startling contrast to U.S. government-funded aid, U.S. private organizations and
philanthropy have significantly outpaced U.S. foreign aid. In 2007, these sources exceeded

15. Ibid., 19.

16. Ibid., 29.
17. Curt Tarnoff, Millennium Challenge Corporation, Congressional Research Service report for Congress,
June 26, 2009, 2, 19.
18. Liana Sun Wyler, Weak and Failing States: Evolving Security Threats and U.S. Policy, Congressional
Research Service report for Congress, August 28, 2008, 9.
19. Larry Nowels and Connie Veilette, Restructuring U.S. Foreign Aid: The Role of the Director of Foreign
Assistance, Congressional Research Service report for Congress, June 16, 2006.
20. Tarnoff and Lawson, Foreign Aid, 24.

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 weak and failing states

foreign aid by 169 percent.­21 In 2007, combined private contribution flow—via remittances,
private organizations and philanthropy—from all contributing countries totaled $519 billion.
This was five times greater than public contributions made up of ODA and other government
aid to poor countries.22

Official Development Assistance

In 1970, acting members of the Development Assistance Committee (DAC) of the
Organization for Economic Cooperation and Development (OECD) signed United Nations
General Assembly Resolution 2626 committing to provide 0.7 percent of their respective
annual GDP for Official Development Assistance (ODA) to help developing countries. Over 90
percent of international aid comes from the twenty-two OECD countries on whose behalf the
Development Assistance Committee (DAC) takes coordination responsibility.23 Unfortunately,
most OECD nations, including the United States, have failed to completely meet their
obligation. Compounding matters is the lack of commitment to the poorer developing
countries. Per figure 3, during the period between 1970 and 2007, just under a quarter of
all ODA was spent to support the poorest countries.24 The cumulative financial consequence
has been staggering. Between 1970 and 2008, the shortfall in development assistance was
57 percent, or $3.6 trillion. As a result, approximately 40 percent of the global population
still lives on less than $2 a day.25 The problem is most acute in Africa. Whereas North America
represents 5 percent of the global population and approximately 34 percent of global wealth,
Africa represents 11 percent of the global population and a mere 1 percent of global wealth.
Consequently, North America is considered by many to be the most stable continent, and
Africa, the least.

Unallocated LDCs (Least

MADCTs (More Advanced Developed
by income Countries)
Developing Countries and 22%
Territories) 24%
Figure 3. Average portion of 4%
ODA received, 1970–2007 Other LICs
(Low Income
UMICs (Upper Middle Countries)
Income Countries) 15%
4% LMCs (Low Middle
Income Countries)
31%

Source: OECD, April 2009

21. Hudson Institute Center for Global Prosperity, Index for Global Philanthropy and Remittances
(Washington, DC: Hudson Institute, 2009), 16.
Complicating matters even further has been the growing complexity of global
22. Ibid., 19.
23. OneWorld.net, “Foreign Aid Statistics Briefing,” http://uk.oneworld.net/guides/aid/statistics?gclid.
(accessed February 17, 2010).
24. Anup Shah, “U.S. and Foreign Aid Assistance,” Global Issues, posted April 13, 2009, http://www.
globalissues.org/article/35/foreign-aid-development-assistance (accessed February 17, 2010).
25. Ibid.

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 weak and failing states

aid infrastructure, the proliferation of donor means, disintegration of ODA, and a plethora
of aid earmarking.26 Even though ODA is intended to be provided under bilateral and
multilateral concessional terms, it has been quite the opposite. As alluded to earlier,
assistance is often tied to inhibiting conditions (e.g., forcing the recipient nation to spend
aid money on the purchase of the contributing nation’s goods/services and nonsustainable
infrastructure projects). In countless cases, aid has had little relationship to the needs of
developing countries’ long-term development. In 2005, approximately $100 billion in Official
Development Assistance was contributed by developed countries to developing countries,27
of which only $40 billion was spent on development-related projects and programs.28 The
remaining funds were spent on emergency or humanitarian relief, technical cooperation, debt
relief, and food aid.29
Most ODA is provided under bilateral arrangements; however, 30 percent of ODA
is multilateral aid. The OECD has voiced growing
concern over the erosion of multilateral funding, In 2005, approximately
particularly by the United States—monies destined for $100 billion in Official
the International Monetary Fund (IMF), World Bank Development Assistance was
contributed by developed
Group, and regional development banks. The United
countries to developing
States is frequently accused of spending too much countries, of which only
on humanitarian assistance and crisis countries at the $40 billion was spent on
expense of stable developing countries. The OECD development-related projects
has been pressuring the United States to spend more and programs.
on stable developing countries to facilitate long-term
development, while at the same time, the U.S. Congress is assessing the value of multilateral
aid and whether to eliminate it from the congressional foreign aid portfolio.30

Millennium Development Goals

In 2000, leaders from around the world set the ambitious goal of freeing the world’s
population from the clutches of “extreme poverty, hunger, illiteracy and disease” through
what they call Millennium Development Goals (MDG).31 The underlying purpose for the
establishment of MDGs was to increase funding for development assistance with a focus on

26. International Development Agency, “Aid Architecture: An Overview of the Main Trends in Official
Development Assistance Flows” (paper presented at the first meeting of the IDA15 Replenishment
negotiations, Paris, March 5–6, 2007).
27. Jean-Michel Severino and Olivier Ray, “The End of ODA: Death and Rebirth of a Global Public
Policy,”, Working Paper Number 167 (Washington, DC: Center for Global Development, 2009), http://
www.cgdev.org/content/publications/detail/1421419, 17.
28. Ibid.
29. Ibid.
30. Josh Rogin, “Lugar: No More Money for Development Banks Until Reform,” Foreign Policy (March
10, 2010) http://thecable.foreignpolicy.com/ (accessed March 11, 2010).
31. United Nations, The Millennium Development Goals Report (New York: United Nations, 2009): 3.

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 weak and failing states

advancing the world’s poor. Great emphasis was to be placed on halving extreme poverty by
2015,32 because poor countries, trapped by persistent deprivation, are more likely to resort
to conflict as a means for change. In his 2009 book Wars, Guns, and Votes: Democracy in
Dangerous Places, Paul Collier asserts that countries with an annual per capita income of
less than $2,700 are more likely to experience political upheaval, insurgencies, civil war, and
coups. Around the world, there are fifty-three countries with average per capita GDPs less
than $2 per day.33
Similar to ODA funding, the MDGs have been consistently underfunded, falling
victim to competing donor nations’ priorities, risk aversion, and the global recession. For
example, on average, G-834 donor countries have fallen short, annually, by $35 billion of their
2005 aid pledged and by $20 billion in aid pledge to Africa.35 Consequently, at the 2008
Afghanistan donor conference in Paris, nations consented to providing $22 billion over five
years, well short of the $50 billion Afghanistan requested and needs.36
MDG progress has been underwhelming. If you exclude China’s progress in reducing
poverty, the rest of the world’s poverty reduction success (approximately 10 percent) is offset
by the sheer numbers of the added people subsequently born into poverty.37 It is projected
that as much as 99 percent of global population growth between 2005 and 2012 will be
derived from developing countries.38
The lack of movement is most acute in sub-Saharan Africa. In 1981, 53 percent
of the sub-Saharan African population lived on less than $1.25 per day. In 2005, the figure
was 51 percent. If you use US$2 per day as your base figure, the percentage outcome is
significantly worse. In 1981, the sub-Saharan African population living on less than $2 per
day was 74 percent. In 2005, the figure was 73 percent.39 During this same period, the
number of the poorest of the poor in sub-Saharan Africa—those living on less than $1.25

32. Ibid., 4.
33. Ibid., 77.
34. The G-8 consists of the following countries: Canada, France, Germany, Italy, Japan, Russia, the
United Kingdom, and the United States.
35. United Nations, Millennium Development Goal Gap Task Force: Report 2009, (New York: United
Nations, 2010).
36. OneWorld.net, “Poverty in Afghanistan,” posted July 13, 2008, http://uk.oneworld.net/guides/
afghanistan/development (accessed April 13, 2010).
37. Anup Shah, “Poverty Around the World,” Global Issues, posted March 1, 2010, http://www.
globalissues.org/article/4/poverty-around-the-world (accessed March 9, 2010).
38. Ellen Carnevale, “More Than Half the World Lives on Less Than $2 a Day,”
Population Reference Bureau, http://www.prb.org/Journalists/PressReleases/2005/
MoreThanHalftheWorldLivesonLessThan2aDayAugust2005.aspx (accessed February 26, 2010).
39. World Bank, Poverty Data: A Supplement to World Development Indicators 2008, (December 16,
2009): 10–11. ISBN: 978-0-8213-7386-6.

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 weak and failing states

per day—has almost doubled, rising from 200 million in 1981 to 380 million in 2005.40 The
consumption rate of the poor in sub-Saharan Africa was also a mere seventy cents in 2005.41
If this trend continues, by 2015, one-third of the world’s poor will live in sub-Saharan Africa.42
A study conducted by the United Kingdom Department for International Development
indicates that a country with a $250 GDP per capita, on average, has a 15 percent chance
of facing internal conflict over five years, while a country with a per capita income of $5,000
has a risk of less than 1 percent.43

Trade
If development assistance provided to poor developing countries is assessed
based upon trade outcome, it has failed miserably. During the past fifty-five years, the least
developed countries’ (LDCs) share of global trade has shrunk from 3 percent to 0.7 percent.
U.S. trade with LDCs represents 1 to 2 percent of all U.S. trade.44 If the United States were
to reduce 1 percent of its Chinese imports and instead used the funds to purchase LDC
merchandise, it would double LDC annual exports.45 In 2005, research conducted by Christian
Aid concluded that poor developing countries in sub-Saharan Africa had lost $272 billion
in business over the previous twenty years due to their markets being forced open “as a
condition of receiving aid and debt relief.”46
The United States has established few
If development assistance
provided to poor developing
bilateral Free Trade Agreements (FTAs) with developing
countries is assessed based
countries. The African Growth and Opportunity Act upon trade outcome, it has
(AGOA), the largest act of its kind, provides sub- failed miserably.
Saharan exports liberal access (short of a free trade
agreement) to the United States. Unfortunately, the act, and the programs and initiatives in
support of the act, have done little to promote much-needed economic diversity in sub-
Saharan Africa or trade with the United States. For example, agriculture and manufacturing
exports to the United States remain grossly underrepresented when compared to petroleum

40. Richard Fix, “New Data Show 1.4 Billion Live on Less Than U.S. $1.25 a Day,” PovertyNet, posted
August 26, 2008, http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:21881954~pageP
K:64257043~piPK:437376~theSitePK:4607,00.html (accessed February 26, 2010).
41. Ibid.
42. Ibid.
43. Susan E. Rice, “The Threat of Global Poverty,” The National Interest (March 2006): 76.
44. Sandra Polaski, Jim McDermott, and Cham Prasidh, “Trade Preferences for Least Developed
Countries: Views from Cambodia and the U.S. Congress,” discussion hosted by the Carnegie Endowment
for International Peace, http://www.carnegieendowment.org/events/?fa=eventDetail&id=1038, July 17,
2007: 1.
45. Polaski, McDermott, and Prasidh, “Trade Preferences for Least Developed Countries,” 2.
46. Kati Dshedshorov, “The Cost of ‘Free Trade’ to Africa’s Poor: $272 Billion,” Christian Aid, posted
June 20, 2005, http://www.commondreams.org/news2005/0620-20.htm (accessed March 15, 2010).

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and mining imports. Furthermore, the benefits of AGOA are overwhelmingly captured by
three oil-exporting countries: Nigeria, Angola, and Gabon.
Seventy-eight percent of U.S. exports to sub-Saharan Africa involve only six
countries.47 Eighty-four percent of sub-Saharan exports to the United States are generated by
merely five countries.48 Eighty-three percent of U.S. imports from the region are petroleum
based. Most of the remaining imports are natural resource dominated.49
There are a number of government entities promoting/facilitating trade, or
activities supporting business entrepreneurs that could lead to trade, such as the Trade
and Development Agency (TDA), the Overseas Private Investment Corporation (OPIC), and
independent agencies such as the Inter-American Foundation and the African Development
Foundation. However, they almost all are U.S.-business-centric or too underfunded to make a
notable difference.
Indicative of the general lack of trade and trade-promoting emphasis with sub-
Saharan Africa is the absence of U.S. Foreign Commercial Service officers assigned to AGOA-
eligible countries. Merely ten of the forty-one AGOA-eligible countries50 have U.S. Foreign
Commercial Service officers assigned to promote U.S. businesses interests and activities in
sub-Saharan Africa.

Undermining Subsidies
There is mounting international criticism of subsidies provided by developed
countries to sectors of their economies. Particular concern surrounds agricultural subsidies
that directly undermine the export competitiveness of developing countries producing
similar commodities. In 2001, the United States, Japan, and the European Union spent seven
times more on agricultural subsidies to their own farmers than on development assistance
for developing countries.51 In 2005, agricultural subsidies provided to U.S. farmers by the
U.S. government were comparable to its total foreign aid outlays—excluding Iraq and
Afghanistan.52 53 The United Nations (UN) has weighed in with its own criticism, noting that
the amount of development assistance provided to developing countries approximates the

47 J. Diemond, U.S.-African Trade Profile, U.S. Department of Commerce, International Trade

Administration (Washington, DC: Government Printing Office, July 2009),10.
48 Ibid., 12.
49 Ibid., 13.
50 Africa Growth and Opportunity Act, “Countries Eligible for AGOA Benefits,” http://www.agoa.gov/
eligibility/country_eligibility.html (accessed March 16, 2010).
51 Shah, “U.S. and Foreign Aid Assistance,” 19.
52 Nathan Ketsdever, “U.S. Farm Subsidies, Abolish,” International Debate Education Association, posted
March 31, 2007, http://www.idebate.org/debatabase/topic_details.php?topicID=613 (accessed March 13,
2010).
53 Randy Schnepf and Jasper Womach, Potential Challenges to the U.S. Farm Subsidies in the WTO: A
Brief Overview, Congressional Research Service report for Congress, October 25, 2006.

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amount of subsidies paid by developed countries to their domestic producers of competing

products/commodities.54
The World Trade Organization’s (WTO) Doha Development Round of trade talks has
languished for years over issues such as agriculture subsidies, as well as other trade issues
likely to displace jobs and adversely impact national incomes. A study conducted by the
Peterson Institute for International Economics asserts that a successful conclusion of the Doha
Round would increase global GDP from $300 billion to $700 billion. It also indicated that
“helping developing countries trade more effectively by developing ports and customs, easing
red tape and improving the service sector could increase world exports by $340 billion.”55
A 2008 study by Kym Anderson and Bjorn Borg indicates that, if realistic across-the-board
cuts in subsidies and trade barriers were to result from the Doha Round, a cumulative benefit
of some $3 trillion would occur, most of which would be directly reaped by developing
countries.56

Foreign Direct Investment

Countless empirical studies have proven that Foreign Direct Investment (FDI)
positively effects economic growth.57 FDI is an important source of finance to any nation’s
economy; it is of critical importance for developing nations. FDI brings capital, technology,
management skills, expertise, higher wages, and the prospect of greater diversification of
a country’s economy and exports. At the end of 2008, 70 percent of all U.S. FDI was in
developed countries, while the remaining 30 percent was invested in developing countries.58
In general, these investment ratios are similar to those of other developed countries’ direct
investment in developing countries. Africa, particularly sub-Saharan Africa, where the need
is greatest,59 receives less than 1 percent of U.S. FDI.60 In 2006, out of the $1.4 trillion in FDI

54. Roger Thurow and Geoff Winestock, “Bittersweet: How an Addiction To Sugar Subsidies Hurts
Development,” The Wall Street Journal, September 16, 2002, Section A, page 1.
55. Jonathan Lynn, “Doha deal could boost world GDP $300-700 billion: Study,” Reuters, August 16,
2009 http://in.reuters.com/article/idINLF59345320090816.
56. Kym Anderson and Bjorn Borg, “Free Trade, Free Labor, Free Growth”, Project Syndicate (March 11,
2008) http://www.project-syndicate.org/commentary/anderson1 (accessed March 16, 2010).
57. Kimura Hidemi, “Analyzing the Effects of Foreign Aid: A Gravity-Equation Approach,” Research
Institute of Economy, Trade & Industry, IAA, posted April 25, 2007 http://www.rieti.go.jp/en/rieti_
report/081.html.
58. James K. Jackson, U.S. Direct Investment Abroad: Trends and Current Issues, Congressional Research
Service, November 5, 2009, 4.
59. Twenty-two of the thirty-six worst performing states on Foreign Policy’s “Failed States Index” for
2009 were in sub-Saharan Africa. Furthermore, thirty-three of the fifty Least Developed Countries (LDCs)
of the world are in sub-Saharan Africa. United Nations Conference on Trade and Development, World
Investment Report 2009 (New York: United Nations), 45.
60. Jackson, “U.S. Direct Investment Abroad,” 3.

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around the world, sub-Saharan Africa received a mere $17 billion, or approximately 0.12
percent.61 To put this into investment perspective: Sweden has drawn 18 percent more U.S.
FDI than all of Africa.62
U.S. programs that help Least Developed Countries (LDCs) attract FDI (e.g., GSP,
AGOA, Everything But Arms, etc.) have worked only marginally. FDI in LDCs has generally
been focused on natural resource extraction. The overwhelming majority of U.S. FDI in Africa
is in the oil and mining sectors, and not in needed sectors such as the previously mentioned
manufacturing and agriculture sectors.63 Only four countries account for 81 percent of U.S.
FDI in sub-Saharan Africa.64 In 2008, ten countries accounted for almost 82 percent of all FDI
into Africa, again primarily invested in oil and mining.65 The UN Conference on Trade and
Development (UNCTAD) has repeatedly reported that this type of investment does not “lend
itself to broad-based, sustainable, economic growth.”

Development Assistance Going Forward

Although there is no quick fix…the international community must
intervene with a holistic approach involving security, aid, democracy
building, and trade policy.
Paul Collier66

International Efforts
U.S. foreign aid and OECD development assistance models have not effectively
facilitated economic development. The World Bank has reiterated this observation, noting
that most fragile states recognized in 1980 are still struggling today.67 The World Bank further
estimates that, under current conditions, “a fragile state is likely to remain so for 56 years,
and the probability of a fragile state experiencing a ‘sustained turnaround’ in any given year is
a mere 1.8%.”68
Arguably, development efforts have been halfhearted, underfunded, improperly
focused, and, more often than not, applied in a disjointed, reactive, and self-serving way.

61. Dambisa Moyo, Dead Aid: Why Aid is Not Working and How There is a Better Way for Africa (New
York: Farrar, Straus and Giroux, 2009), 98–99.
62. Ibid., 4.
63. Jackson, “U.S. Direct Investment Abroad,” 14.
64. Ibid., 16.
65. United Nations Conference on Trade and Development, World Investment Report 2009: Transnational
Corporations, Agricultural Production and Development, (New York: United Nations, 2010), 44.
66. Danielle Skinner, “Author, Economist Speaks to Africa Command Staff on African Security,
Politics, and Development,” U.S. AFRICOM, posted March 4, 2010, http://www.africom.mil/getArticle.
asp?art=4108&lang=0.
67. Wyler, “Weak and Failing States,” 9.
68 Ibid.

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 weak and failing states

Furthermore, the manner in which aid has been applied has actually reduced democracy, not
expanded it.69 The truth is, donor nations generally act first out of self-interest. They may
speak ideologically; however, they act very pragmatically—particularly the United States.70
Over time, U.S. foreign aid, and ODA in general, has eroded into an international
“bare bones” insurance policy against conflict/instability. The goal of donor nations is no
longer to eliminate conflict/instability, but merely to ensure that it is kept at perceivably
manageable levels. Unfortunately, by not appropriately
funding and properly focusing development efforts, Arguably, development
efforts have been halfhearted,
aid-contributing nations are, in essence, opting for less
underfunded, improperly
insurance coverage. The disturbing result to date has
focused, and, more often than
been a less stable world, one that requires more, not not, applied in a disjointed,
less, military intervention. As developed nations work to reactive, and self-serving way.
resolve budgetary imbalances, development assistance
outlays must come out a winner in the process, and phantom aid must become a thing of the
past.
Collaborating in order to gain economies of scale, synergy, and economic/
stabilization multipliers among donor country projects is also a must. The effect of foreign
aid on economic development is inversely related to the number of projects requiring
coordination with donor countries. For example, Cambodia, Bangladesh, and Nicaragua
receive 250–400 donor missions annually;71 this fragmentation has a tendency to overwhelm
recipient countries, leading to poor project outcomes.72
Led by the G-20, donor nations and NGOs must also do a better job coordinating
and collaborating development assistance efforts. Multilateral aid institutions such as the
World Bank, IMF, regional development banks, the International Fund for Agricultural
Development, and other organizations such as UNCTAD and UNDP, need to play an increasing
role in funding and/or determining development assistance priorities and beneficiaries.
Developing countries practicing good governance and the rule of law that have
sound economic policies (e.g., fiscal, monetary, and trade) in place should have priority,
including for debt relief. Additionally, development assistance priorities should be based
not only upon the impact on the recipient country, but also the likely positive effect on
neighboring countries.

69. Simeon Djankov, Jose G. Montalvo, and Marta Reynal-Querol, “Does Foreign Aid Help?,” Cato
Journal 26, no. 1 (2006): 24.
70. David A. Anderson and Randall D. McCauley, “Ideology or Pragmatism? U.S. Economic Aid, Military
Assistance, and Foreign Military Sales: 1950-2007,” Strategic Insights, 8, Issue 3 (2009).
71. Severino and Ray, “The End of ODA,” 6.
72. Djankov, Montalvo, and Reynal-Querol, “Does Foreign Aid Help?,” 24.

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 weak and failing states

U.S. Efforts Going Forward

In addition to supporting G-20 and multilateral institutions, the U.S. bilateral
development assistance efforts must be consistent with international priorities, without
compromising U.S. national security. Greater emphasis must be placed on supporting weak
and failing developing countries. Special preference should be given to countries likely to
deteriorate into conflict, thereby requiring military intervention.
The President [Bush], in his 2005 National Security Presidential
Directive (NSPD) 44, asserts that “the United States should work ...
to anticipate state failure, avoid it whenever possible, and respond
quickly and effectively when necessary and appropriate...”73
A better development assistance model would reduce the need for growing
defense budgets and military deployments around the world. In other words, it is better to
invest in preventing conflict through prudent development assistance than have to grow
militaries to combat them. To do so effectively, the United States needs to establish an
official development strategy that includes interagency guidance for dealing with developing
countries, particularly those that are weak and/or failing. This strategy must separate
development assistance from the broad category of foreign aid and render the development
assistance function (Department of Development Assistance [DDA]) a separate coequal
to diplomacy (State Department) and defense (DoD). All development assistance-related
personnel and activities from other departments and
A better development agencies should be consolidated within the DDA. USAID
assistance model would in its entirety—including all its inherent functions for
reduce the need for growing practical reasons—should be subsumed into it as well.
defense budgets and military
Since USAID is already the vanguard of U.S. efforts to
deployments around the
world. In other words, it is prevent state failures, it also should be the functioning
better to invest in preventing nucleus of the new department.74 To be fully effective,
conflict through prudent the DDA will require a greatly expanded personnel
development assistance than structure, a budget, and the autonomy to act with
have to grow militaries to other nations and institutions.
combat them.
Individual department (State, DoD, and
DDA) functioning should be separate; however, development assistance and stability/
reconstruction efforts should be planned and executed synergistically. For example, U.S.
ambassadors to weak and failing developing countries, Geographic Combatant Commanders
(GCC), State Department agencies/representatives, the National Intelligence Council (NIC),
development assistance specialists and private sector experts need to jointly “assess to invest”
in troubled countries. This type of effort has begun with the State Department’s Office of

73. Wyler, “Weak and Failing States,” 1.

74. Ibid., 14.

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the Coordinator for Reconstruction and Stabilization (S/CRS). The role of S/CRS is “to lead,
coordinate and institutionalize U.S. Government civilian capacity to prevent or prepare for
post-conflict situations and help stabilize and reconstruct societies in transition from conflict
to peace, democracy, and a market economy.”75 S/CRS has been working toward establishing
a whole-of-government approach in order to execute this function effectively. Interagency
coordination for early warning conflict assessment of weak states is occurring among S/CRS,
DoD, USAID, and the intelligence community, as well as other government organizations.76
DoD has responded swiftly to its DoD 3000.05 mandate to expand its capacity
to address stability operations and conflict prevention or “shaping” operations. However,
efforts to build up weak countries have been incomplete due to issues with interagency unity,
personnel staffing, and program funding.
The Civilian Stabilization Initiative (CSI), passed by Congress in 2009, authorized the
creation of a 4,250-person civilian Response Readiness Corps (RRC). However, the hiring of
the 250 permanent “Active Response Corps” personnel and the identification of the 2,000
existing federal government employees necessary to fill the “Standby Response Corps”
has been progressing very slowly.77 Efforts to hire the remaining 2,000 reserve component
personnel (the “Civilian Reserve Corps”), has yet to begin. As such, S/CRS has only the means
to address a few weak developing countries.78 These issues continue to call into question
the United States’ will [emphasis added] to effectively attend to weak and failing developing
countries.79
Not only must the aforementioned challenges be overcome, but so too must the
application of funds. The U.S. development assistance model going forward must have an
unconstrained, fundamental goal of investing prudently, carefully weighing funding means
with short-term needs and long-term development objectives.
In general, development assistance given directly to governments in the form of
grants has adversely affected economic growth and increased government consumption.80
However, assistance given to governments for education and health programs has proven
successful in places like Africa81 and has enhanced the respective governments’ legitimacy.
Others also have advocated grants for building export-oriented infrastructure capacity. The
World Bank estimates a need for infrastructure projects valued at $32 billion to improve

75. Lawson and Epstein, “Foreign Aid Reform,” 14.

76. Ibid.
77. Ibid., 6.
78. Ibid., 11.
79. Ibid., 2–3.
80. Djankov, Montalvo, and Reynal-Querol, “Does Foreign Aid Help?” 2.
81. David B. Skarbek and Peter T. Leeson, “What Can Aid Do?” Cato Journal 29, no. 3 (2009): 395.

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and enhance development throughout Africa.82 Otherwise, development assistance should

come in the form of loans to better hold the recipient governments accountable and
avoid nurturing a culture of aid dependency. Both grants and loans increasingly should go
directly to the private sector. Capital provided to the private sector seems to be the greatest
inducement device for development, coupled with money provided to families.83 Ultimately,
private-to-private investment promotes the greatest amount of economic growth.84

FDI Efforts
A country that establishes the rule of law and largely eliminates
corruption, allows free markets to operate, establishes free trade,
maintains low taxation and government spending, does not
excessively regulate, and establishes a stable currency will attract
sufficient domestic and foreign investment to grow rapidly, without
foreign aid.
Richard W. Rahn85
Rahn’s comment may very well be true. Certainly, aid alone cannot solve economic
problems. In fact, the literature provides inconclusive evidence that aid will even lead to
investment, or investment to economic growth.86 However, investment-focused development
and technical assistance can help build the economic foundation that leads to FDI in
developing countries and can help reverse capital flight resulting from conflict.87 88 The United
States certainly could facilitate the direct investment process through bilateral investment
arrangements and by creating incentives for U.S.-based businesses to establish plants and/or
facilities in developing countries.
Incentives should go to businesses willing to invest outside the natural resource
sector and in countries with little domestic capital. Inducements should include such things
as tax breaks, low interest loans, and generous political risk insurance. With this in mind,
along with the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA), OPIC
funding needs to be significantly increased. OPIC is an underfunded success story.

82. Arthur Waldron, China in Africa (Washington, DC: The Jamestown Foundation, 2008), 70–71.
83. Ibid.
84. Djankov, Montalvo, and Reynal-Querol, “Does Foreign Aid Help?,” 2.
85. Rahn, “Turn Off Foreign Aid,” 1.
86. William Easterly, “Can Foreign Aid Buy Growth?” Journal of Economic Perspectives 17, no. 3 (2003): 33.
87. John Bray, “The Role of Private Sector Development in Post-Conflict Economic Recovery,” United Nations
Development Programme, posted September 2007, http://www.undp.org/cpr/content/economic_recovery/
Background_2.pdf.
88. Dirk Willem te Velde, “Understanding developed country efforts to promote foreign direct investment
to developing countries: the example of the United Kingdom,” Transnational Corporations (2007), http://
www.allbusiness.com/trade-development/trade-developmeny-finance/11650390-1.html (accessed March 29,
2010).

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Additionally, aid designed to facilitate the “growth of commercially viable private

sector businesses” is money well spent.89 Low-interest loans provided to small- to medium-
scale farmers, small- to medium-size businesses, and microfinancing programs must be
greatly expanded. Empowering entrepreneurs in all sectors is an economic multiplier with
little to no equal. Done right, FDI in developing countries can be a “win-win” proposition for
both the host and investing countries.90

Trade Policy
Foreign direct investment often leads to the production of tradable goods, and
in turn, trade empowers countries to buy what they need by way of what they sell. Trade
should facilitate the collective prosperity of all who participate. However, trade is often
approached as a zero-sum game of winners and losers. The losers typically are the developing
countries exploited by the developed countries. This habitual outcome must change for the
greater good. The WTO Doha round of trade talks
needs to come to a conclusion that is favorable to Empowering entrepreneurs
developing countries. Specifically, developing countries in all sectors is an economic
must be afforded the opportunity to take full and fair multiplier with little to no
equal.
advantage of their endowments (e.g., agricultural
capacity and abundance of cheap labor) in the conduct
of international trade. A less-than-favorable Doha Round outcome for developing countries
likely will result in greater instability in the developing world.
The United States needs to increase the number of bilateral and multilateral
trade agreements it has with developing countries, and to broaden its general preference
arrangements. Many of the current provisions limit the quantity, condition (e.g., processed
and semi-processed), and types of goods that can enter the United States cost competitively.
An interesting study conducted in 2000 by The Ohio State University shows
a negative correlation between trade and the likelihood of military conflict. The study
demonstrated that trade agreements make military conflicts less probable.91 The study
examined a broad array of Preferential Trade Agreements (PTAs) between 1950 and 1985.
Countries involved in PTAs are 30–45 percent less likely to get into a military dispute with
each other, while two disputing non-trading countries escalate to war 11 percent of the time.
Disputes among PTA partners escalate only 2 percent of the time.92

89. Ibid., 5.
90. Ibid., 2.
91. Jeff Grabmeier, “Trade Agreements Help Prevent Military Conflicts, Study Shows,” ScienceBlog,
2000, http://scienceblog.com/community/older/2000/D/200003374.html (accessed March 30, 2010).
92. Ibid.

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Military Role
External militaries have an important role, a complementary role to
economic development and gradual improvement of the politics.
Without it, you may never get the economic recovery if the security
situation is not safe enough to get the investments.
Paul Collier93
The U.S. military’s role in post-conflict stability and reconstruction operations in Iraq
and Afghanistan has called into question the military’s expectations in conducting future
pre- and post-conflict stability operations. In Iraq, ill-equipped U.S. government agencies left
the military to perform interagency functions from the seat of its pants. Even funding for
the State Department’s stabilization efforts was largely provided by the DoD through Section
1207 authority of the National Defense Authorization Act.
Over the past three years—exemplified by the creation of the S/CRS’s response
corps, the CSI that provides for the manning and equipping of S/CRS, and the encouraging
cooperation and capacity-building of the State Department, USAID, the Justice Department,
etc.—the interagency ability to plan and execute stability promoting activities is slowly
progressing. These capacity-building efforts must continue to the point where the military
is relegated to more narrowly focused stability functions, while remaining the facilitating
conduit for reconstruction efforts led by other institutions, organizations, and agencies.
Military efforts, in conjunction with the host country, coalition partners, U.S. departments/
agencies, international institutions/organizations, and NGOs should focus on peace-building,
“Golden Hour” activities.94 These activities would include those which empower the populace
and promote long-term economic growth and development, such as security and security
capacity-building; rule of law; property rights; humanitarian assistance; providing emergency
capital to facilitate business activities; reestablishing financial frameworks; and repairing or
selectively enhancing economic infrastructure.
Pre-conflict stability efforts should be planned and executed similarly to post-conflict
efforts via respective ambassadors, State Department representatives, GCCs on behalf of the
DoD, and the S/CRS and DDA experts representing the development function. S/CRS should
be the working day-to-day conduit between the DoD and the Department of Development
Assistance.
In support of the aforementioned efforts, the military needs to be prepared to
gather critical information with and/or for S/CRS and on behalf of the DDA and other

93. Skinner, “Author, Economist Speaks to Africa Command Staff.”

94. A post-conflict period of approximately six to twelve months in which “actions must support
expectations and the local population must experience improvements in quality of life” in order to secure
their support. Franklin D. Kramer et al., “I-Power: The Information Revolution and Stability Operations,”
Defense Horizons no. 5 (2007), http://www.ndu.edu/CTNSP/docUploaded//DH%2055.pdf.

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interagency organizations/entities—information that will empower them to plan, coordinate,

and execute pre- and post-conflict stability and reconstruction efforts. The necessary
critical information should be sought through established, comprehensive questionnaire
matrices managed by S/CRS. USAID has established a starting point with its Tactical Conflict
Assessment and Planning Framework (TCAPF). TCAPF is a broad, four-question, tactical-level
tool designed to help civilian and military personnel working in an unstable environment
identify “the root causes of instability at the local level, targeting efforts to address those
causes of instability, and tracking progress in terms of real measures of effect, rather than just
output.”95

Conclusion
As idealistic as the aforementioned recommendations appear, particularly those
requiring multilateral cooperation, they must be tenaciously pursued. Ultimately, global
problems require global solutions, whose cost must be borne by those that can afford them.
Today’s budgetary environment dictates exceedingly prudent and focused development
assistance outlays. Therefore, clear measures of performance and effectiveness must be
established and closely monitored in order to secure the financial support of donor countries.
Recognizing that there are continually more development needs than financial will or
wherewithal, emerging donor nations such as China, India, Russia, and Brazil must be
encouraged to play an increasingly coordinated role in development assistance.
Current global environmental realities necessitate aggressive U.S. bilateral efforts.
That being said, the complexities of the suggested changes in this article, coupled with
competing U.S. interests and budgetary constraints and concerns, make significant change
unlikely in the near term, therefore leaving the military with its resources the primary
executing agent going forward.

95. Jim Derleth, Mirko Crnkovich and Eric Kotouc, Summary of the Tactical Conflict Assessment and
Planning Framework (TCAPF), USAID Office of Military Affairs (September 2009).

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 Stabilization and Reconstruction in Conflict
and Post-Conflict Since 9/11

by James Stephenson
Senior Advisor, Stabilization and Reconstruction,
Creative Associates International, Inc.

James “Spike” Stephenson, retired senior Foreign Service officer with the U.S. Agency for
International Development, is the senior advisor for stabilization and reconstruction at Creative
Associates International, Inc. His last duties in USAID included thirteen months as mission director
in Iraq, and service as a senior advisor to the State Department’s coordinator for reconstruction
and stabilization. He previously served as mission director in Serbia/Montenegro and Lebanon,
and in various positions in Egypt, Barbados, Grenada, El Salvador, the Philippines, and Washington.
Stephenson frequently lectures at the military service colleges and various universities, and trains
deploying units in counterinsurgency. The author of Losing the Golden Hour, he also has been
published in various journals and quoted or acknowledged in military field manuals. Before joining
USAID, Stephenson practiced law in Columbia, South Carolina. He holds a bachelor’s honors
degree in English literature and a juris doctor from the University of South Carolina. A former army
officer, he is a decorated veteran of the Vietnam War.

In the fall of 2001, approximately 100 CIA operatives and 300 special
operations forces drove the Taliban and Al-Qaeda from Afghanistan in a little over
two months. Eight years, almost 1,000 American lives and $200 billion later, we
soon will have a U.S. military force of 98,000 and a $38 billion foreign assistance
program arrayed against a resurgent Taliban that effectively controls large swaths of
Afghanistan.1 Our ally—and exit strategy—the Karzai government, is corrupt, largely
viewed by Afghans as illegitimate and by virtually all as massively ineffective at
delivering essential services and governance to its constituents. To the east, our fickle
ally, Pakistan—also corrupt and impoverished—sanctuary to the Taliban, Al-Qaeda
and a stew of other Afghan insurgents, is unstable and perched atop a stockpile of
nuclear weapons. Having gained little from billions of dollars of military and foreign
assistance during the last eight years, the United States just promised Pakistan an

1. Curt Tarnoff, “Afghanistan: U.S. Foreign Assistance,” Congressional Research Service Report for
Congress, June 25, 2010, http://fas.org/sgp/crs/row/R40699.pdf.

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additional $7.5 billion in foreign aid, in addition to a continuation of high levels of military
assistance. One could argue that our position is precarious. How we got there is a cautionary
tale worth telling, in the hope that we can right our course and avoid the missteps of
the past.

The Perverse Impact of Iraq Reconstruction

Secretary of Defense Donald Rumsfeld clearly did not want the armed forces to
engage in nation building in Afghanistan, but when the Department of State and the U.S.
Agency for International Development (USAID) arrived in the wake of the Taliban defeat, the
Pentagon was appalled by their paucity of personnel and financial resources. The response of
the Pentagon was not to militarize foreign assistance to then-peaceful Afghanistan; but angst
over the State Department and USAID approach did lead Secretary Rumsfeld to demand that
the Department of Defense (DoD) be responsible not only for the 2003 invasion of Iraq, but
also for any postwar reconstruction. National Security Presidential Directive (NSPD) 24 gave
Rumsfeld the authority he sought. Although USAID was brought into the late-stage planning
at DoD, the State Department was closed out and largely ignored. To manage postwar Iraq
reconstruction, DoD created the Office of Reconstruction and Humanitarian Assistance
(ORHA), made up of a handful of retired officers, DoD civilians, USAID officers, and,
reluctantly, several officers seconded from the State Department. ORHA was a modest effort,
whose leadership was convinced that the major postwar risk was humanitarian suffering, and
that its mission would conclude in a matter of a few months. USAID was, however, allowed
to plan for a longer-term stabilization and reconstruction program, drawing on its experience
in other post-conflict countries, most recently the Balkans and the former Eastern Bloc. As it
was, ORHA had barely reached Baghdad when it was unceremoniously informed of its demise
and the succession of the Coalition Provisional Authority (CPA), led by Ambassador L. Paul
Bremer III, reporting to the secretary of defense. There was nothing modest about the CPA.
Although it initially had only a few billion dollars of appropriated funding for reconstruction
(inherited from ORHA), the CPA, fueled by DoD hiring, quickly grew to some 4,000 souls—at
the time, nearly four times larger than USAID’s entire Foreign Service.2 The Pentagon was
in charge, and its approach to reconstruction was to “go big.” It was going to rebuild Iraq
and then hand it back to the Iraqis and leave. Seated in Baghdad, the CPA quickly opened
regional offices to reach into every province of Iraq. Senior advisors and staff were assigned
to every government ministry as surrogates. Ambassador Bremer was the legal and de facto
leader of Iraq, and issued general orders to effect his authority.
Although the CPA had a statement of broad goals for rebuilding Iraq, it never had
a coherent strategy with carefully phased activities to achieve objectives. Instead, it tried to

2. Personnel reporting from DoD on the numbers deployed to the CPA was so poor that no exact
number is attainable.

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do everything at once. CPA personnel, often hired for their political loyalty, served for as little
as three months, and typically had no prior experience in stabilization and reconstruction.
USAID was reduced to an executing agency, with little input in program decision making.
Much of the plan it had developed under ORHA was either abandoned or gutted of funding
to fuel other CPA priorities. By July 2003, it was clear that the CPA was going to need more
money—a lot more money—and Bremer ordered his staff to prepare a reconstruction plan
and budget to be sent to Congress. Developed in the span of a few weeks, the $18.4 billion
plan that went to Congress was heavily focused on rebuilding physical infrastructure—
electricity, water, sewerage, oil, transportation, communications, rail, hospitals, schools,
security, etc. To foreign assistance professionals, it was a staggeringly extravagant program
that ignored the hard-learned lessons of fifty years of foreign aid, but $18.4 billion was
pocket change to DoD.
Stabilization and
reconstruction is an enabling Stabilization and reconstruction is an enabling
process that follows a critical process that follows a critical path dictated by political,
path dictated by political, economic, social, and physical forces that often are
economic, social, and outside the control of the practitioners. It is rarely about
physical forces that often are
simply rebuilding a country’s physical infrastructure. The
outside the control of the
practitioners. CPA’s tenure in Iraq was doomed by Iraqi desire and
demand for self-determination. Before the ink was dry
on the $18.4 billion supplemental appropriation, the Bush administration was forced to agree
that the CPA would end June 30, 2004, and hand sovereignty back to a transitional Iraqi
government. The CPA would be replaced by an embassy. Unfortunately, the painful transition
from DoD/CPA control to State Department control, mandated by NSPD 36, was heavily
influenced by the extant, unprecedented structures of the CPA and the inherited $18.4
billion plan. The transition negotiations between the State Department and DoD resulted in
an American embassy, albeit smaller than the CPA, but still the largest in the world. The CPA
reconstruction program was realigned to provide more funding for democracy, governance,
agriculture, civil society and economic growth, but remained heavily tilted toward physical
infrastructure. Although more effort was made to enable Iraqis to rebuild their own country,
the original design of the CPA program determined a course that had the U.S. government
still attempting to rebuild it for them. At the time, no one knew the adjustment to an
inherited, ill-conceived program for Iraq would reverberate for so long or so profoundly.
Afghanistan, which was, then, a backwater—was destined for a makeover.

Stabilization, Reconstruction and Expeditionary Civilians

Stabilization is the process of establishing enough governance, security and
economic activity to enable the process of reconstruction, which is the longer-term
rebuilding of institutions of civil society, governance, security, and the economy. In Iraq,
reconstruction was begun before stabilization was achieved. Stabilization has to be highly

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visible, and this militates toward many small community projects, including ones that promote
entrepreneurship and enabling the creation of small and micro-enterprises that marginally
improve people’s lives. Stabilization buys the time for reconstruction, which takes longer
and may be largely invisible to the average citizen. By concentrating on large infrastructure,
which is capital intensive and takes years to complete, the CPA squandered the opportunity
to convince the average Iraqi that his life was going to be better. Iraqi disappointment
and frustration fed the insurgency. Even the U.S. forces—who joked that CPA stood for
“Can’t Provide Anything”—quickly learned of the need for visible stabilization efforts. The
Commander’s Emergency Response Program (CERP) became the vehicle for maneuver units
to engage in thousands of projects at the community level. CERP was not perfect, and the
quality of implementation varied with the expertise
of the officer dispensing it, but it addressed a void By concentrating on large
that anyone on the ground could see. USAID also infrastructure, which is capital
implemented community development projects, but its intensive and takes years
to complete, the Coalition
program was initially constrained by funding decisions
Provisional Authority
of the CPA. The realignment enabled USAID to dedicate
squandered the opportunity
$400 million to economic policy, market reform and to convince the average Iraqi
private sector development, as well as greater efforts at that his life was going to be
the community level to create an environment for Iraqis better.
to improve their quality of life, and for entrepreneurs to
either start or expand small enterprises.
In Afghanistan, the State Department and USAID embarked on an effort to build a
strong central government from the top down, where none ever had effectively governed.
Stabilization was never achieved. The U.S. program was Kabul-centric, with most Afghans
oblivious to any efforts to improve their lives. No community development efforts were
undertaken, in spite of the success of the World Bank National Solidarity Program, which
enabled thousands of projects in rural villages. Recognizing the problem, the CPA began
in 2003 to form Provincial Reconstruction Teams (PRT), military units with civilian advisors
from the State Department, USAID and the Department of Agriculture, tasked with working
with local government to implement relatively small projects. While the PRTs met with some
success, performance and methods were decidedly mixed. USAID initially staffed most PRTs
with a single personal services contractor, while the State Department tended to use junior
Foreign Service officers. PRTs also were severely limited in their effect in southern and eastern
Afghanistan by the security challenges of movement in a hostile environment. In spite of the
limitations, the State Department decided in 2005 to build PRTs in Iraq, where they also were
hampered by deteriorating security and, again, had modest impact. PRTs are deeply resented
by non-governmental organizations (NGOs) operating in the same space, who argue that
military personnel delivering the same assistance creates identity confusion and makes targets
of the NGOs, who have traditionally been viewed as neutral and accorded “humanitarian

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space.” The more salient point is that NGOs, unlike PRTs, generally use local citizens to
continually engage communities and local government. PRTs typically engage a community
by arriving in an armed military convoy. Often they are unable to leave their bases for weeks
at a time due to security threats. Essentially military units with a few civilian advisors, the
PRTs in Afghanistan generally have between eighty and 100 personnel. Given that the cost of
deploying a soldier to Afghanistan is $1 million a year, PRTs are an enormous investment for
very little return.3
By 2004, senior members of Congress and the Bush administration, alarmed by
the poor mobilization and implementation of the reconstruction efforts in Afghanistan and
Iraq, sought a mechanism within the U.S. government to better plan for and implement
stabilization and reconstruction, using the full range of the government’s civilian assets, in
coordination with U.S. military forces when necessary. While legislation did not pass until
2009, the State Department in 2004 created the Office of the Coordinator for Reconstruction
and Stabilization (S/CRS) as the operational component of the State Department’s
reconstruction and stabilization activities. S/CRS is charged by Congress and the secretary
of state with building and maintaining an expeditionary, innovative, and interagency civilian
capability to plan, manage, and conduct U.S. stabilization operations on behalf of the
secretary of state and chiefs of mission overseas.4 It is tasked with cooperating closely with
DoD, but its limited funding and staff are dwarfed by the military’s capabilities. S/CRS has had
only a marginal role in Afghanistan and Iraq.
S/CRS seeks to monitor countries at risk of failure, and to maintain a small Standby
Component of interagency professionals prepared to deploy in Advance Civilian Teams
anywhere in the world, within days. It is building a Civilian Response Corps of interagency
professionals to deploy more within thirty to sixty days to support the advance teams. The
planned Civilian Reserve Corps of as many as 5,000 private citizens with critical skills has not
been funded by Congress. While members of the Standby Component and Civilian Response
Corps have deployed as individuals to address specific needs, and assessment teams have
performed discrete missions in support of country teams, to date S/CRS has deployed no
Advance Civilian Teams to manage stabilization and reconstruction efforts. Indeed, State has
used S/CRS and the Civilian Response Corps to staff the needs of ad hoc efforts such as the
Special Representative for Afghanistan and Pakistan.5

3. Christopher Drew, “High Costs Weigh on Troop Debate for Afghan War,” The New York Times,
November 14, 2009, http://www.nytimes.com/2009/11/15/us/politics/15cost.html.
4. U.S. Department of State, “Office of the Coordinator for Reconstruction and Stabilization,“ http://
www.state.gov/s/crs/index.htm.
5. U.S. Department of State, “Conflict Prevention and Post-Crisis Stabilization: An Integrated Approach,”
Office of the Coordinator for Reconstruction and Stabilization, posted May 28, 2010, http://www.crs.
state.gov/index.cfm?fuseaction=public.display&shortcut=JDKH.

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Even as S/CRS sought to establish itself as the coordinator of U.S. government

stabilization efforts, it has endured constant criticism and attack from various quarters. The
Special Inspector General for Iraq Reconstruction (SIGIR) recently proposed creating the U.S.
Office of Contingency Operations, which would absorb S/CRS and parts of USAID and other
agencies and report to the national security advisor. The staff of the Senate Foreign Relations
Committee is circulating draft legislation that would terminate S/CRS and create a joint
State Department–USAID office, reporting directly to the secretary of state. These efforts are
indicative of the lack of confidence within the government that S/CRS will ever be capable of
performing its expeditionary mission.
Skepticism of S/CRS appears to be strongest at DoD, which embraced stabilization
and reconstruction—which the military calls Stability Operations—in 2005 with Defense
Directive 3000.05, which raised stability operations to the same level of importance as
combat operations. It states that “stability operations tasks are best performed by indigenous,
foreign or U.S. civilian professionals,” but “nonetheless, U.S. military forces shall be prepared
to perform all tasks necessary to establish or maintain order when civilians cannot do so.” It
also directs the principal deputy secretary of defense for personnel and readiness to develop
“methods to recruit, select and assign current and former DoD personnel with relevant
skills for service in stability operations assignments.”6 In 2008, the Army issued its first Field
Manual (FM 3-07) for Stability Operations, and is becoming increasingly sophisticated at
stabilization and reconstruction. In 2007, exercises in stability operations were incorporated
into mission readiness exercises for all brigades deploying to Afghanistan and Iraq. In
theater, U.S. forces are experimenting with methodologies that use development experts and
indigenous personnel to engage with communities and traditional governance structures.
While Defense Secretary Robert Gates has been an outspoken advocate for funding the
S/CRS Civilian Reserve Corps, he has nevertheless ordered DoD to build its own Civilian
Expeditionary Workforce, and that effort is under way. Finally, the Capstone Concept for
Joint Operations—which seeks to envisage how the joint forces will operate in the future
and in what environments—recognizes relief and reconstruction as a key component of how
joint forces will operate. It was signed by the chairman of the Joint Chiefs of Staff in January
2009.7

The Shrinking of USAID

USAID’s slow slide toward the abyss accelerated during the Clinton administration
as, first, Congress cut USAID’s operating budget, forcing it to reduce its force of Foreign
Service officers. To compensate and continue to perform its mission, USAID increasingly

6. U.S. Department of Defense, Directive 3000.05, http://www.usaid.gov/policy/cdie/sss06/

sss_1_080106_dod.pdf
7. U.S. Joint Forces Command, “Capstone Concept for Joint Operations Released,” USJFCOM Public
Affairs, posted January 23, 2009, http://www.jfcom.mil/newslink/storyarchive/2009/pa012309a.html.

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utilized personal services contractors, many of whom were retired or involuntarily separated
former Foreign Service officers. These contractors could be salaried with program funds,
which, contrary to the operating budget, continued to grow. The second blow was the
administration’s innovation of inviting other departments and agencies of the government
to encroach on the foreign assistance program. It was the nascence of what would later be
heralded as “a whole-of-government approach.” The Departments of Treasury and Justice
not only carved out swaths of foreign assistance, but also asserted their ownership of what
they had taken. The Departments of Commerce and Agriculture strengthened their own
foreign assistance services and participation in foreign assistance programs. The Department
of State reserved more Economic Support Funds for its own use. At the same time, Congress
began to mandate State Department ‘coordinators’ for special assistance programs in the
Balkans and former Soviet states. Increasingly, these coordinators not only made policy,
but also dictated the method of implementation and dispersed funding. USAID’s share of
funding and influence diminished, in Washington and overseas. Faced with shrinking power,
influence, and operating budgets, USAID shed many of its specialized officers—in health,
education, engineering, and science—and relied more and more on obtaining those skills
by contract from the private sector. In some countries, missions were closed because USAID
simply did not have sufficient operating funds to keep them open. The end of the nineties
seemed like the nadir for USAID. The next decade was worse.
The George W. Bush administration’s disastrous venture with the ad hoc CPA did
not sway it from other ventures. Instead, it continued to diminish USAID by creating new
institutions to implement large elements of foreign
Faced with shrinking power, assistance that had traditionally been the province of
influence, and operating USAID. In 2003, the president created the President’s
budgets, USAID shed many Emergency Plan for AIDS Relief (PEPFAR), a five-
of its specialized officers— year, $15 billion initiative managed by a global AIDS
in health, education,
coordinator reporting to the secretary of state.8 USAID
engineering, and science—
and relied more and more was but one of a half-dozen agencies tasked with
on obtaining those skills by its implementation. In 2008, PEPFAR was renewed
contract from the private until 2013, increased to a commitment of $48 billion,
sector. and expanded to cover other infectious diseases,
further eroding USAID’s health portfolio. In 2004, the
president created the Millennium Challenge Corporation (MCC) to form partnerships with
some of the world’s poorest countries and provide large-scale grants to fund country-led
solutions for reducing poverty through sustainable economic growth.9 To date, the MCC

8. President’s Emergency Plan for AIDS Relief, http://www.pepfar.gov/agencies/c19390.htm; Fiscal Year 2009:
PEPFAR Operational Plan, June 2010, http://www.pepfar.gov/documents/organization/124050.pdf, 10.
9. Millennium Challenge Corporation, “About MCC,” http://www.mcc.gov/mcc/about/index.shtml.

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has signed compacts with twenty countries for $7 billion. As of July 2008, it had disbursed
only $235 million of the $7.5 billion provided by Congress.10 The MCC tends to be popular
with conservative think tanks as an innovative approach to foreign assistance, but has
been criticized by development professionals and Congress for slow implementation and
questionable achievements. However, it has been embraced by the Obama administration,
and Congress continues to provide the MCC with funding, though at levels significantly
below the administration’s requests.
The Bush administration’s worst blow to USAID occurred in 2006, when it appointed
Randall L. Tobias as the first U.S. director of foreign assistance, to serve concurrently as
the administrator of USAID. Tobias was responsible for overseeing all foreign assistance
activities of the U.S. government. In addition to his direct responsibilities for USAID, Tobias
was charged with directing the transformation of the U.S. government’s approach to
foreign assistance. Responsible for providing strategic direction and guidance to all other
foreign assistance programs delivered through the various agencies and entities of the U.S.
government, including MCC and the global AIDS coordinator, he reported directly to the
secretary of state and held the rank of deputy secretary of state. USAID was stripped of
its policy, program, and coordination functions, which were moved to the Department of
State.11 The “F process,” launched by Secretary of State Condoleezza Rice in January 2006,
was designed to place USAID under more direct control of the State Department.12 The new
F Bureau, staffed by State Department and USAID personnel, was tasked with integrating
foreign assistance planning and resource management across the two agencies. This radically
altered the relationship among USAID, the State Department, and Congress. USAID no longer
submitted its annual budget request directly to the Office of Management and Budget.
Instead, the F process integrated USAID programs into the foreign operations budget request
of the Department of State. USAID had lost it voice in policy, and no longer controlled either
its budget or the programming of it.
These events spawned alarm in the development community, Congress, and
think tanks. Numerous studies were published, most arguing for the rebuilding of USAID’s
capabilities and autonomy. Some went so far as to argue that USAID’s authorities and
independence be restored and the agency elevated to cabinet level. Others argued for
abolishing USAID and rewriting the Foreign Assistance Act of 1961. Still others argued for
absorbing USAID into the Department of State. No consensus had been reached by the
beginning of the Obama administration, though the weight of opinion in the development

10. Noam Unger and Margaret L. Taylor, “Capacity for Change, Reforming U.S. Assistance Efforts in Poor
and Fragile Countries,” Center for Strategic and International Studies/Brookings, April 2010: 12
11. Ibid., 10
12. Weddle, Ryan, “What’s Next for the ‘F’ Process,” Devex, posted March 30, 2009, http://www.devex.
com/articles/what-s-next-for-the-f-process.

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community seemed to favor a return of USAID’s authorities and autonomy, at least to the
status quo ante, and a significant increase in its personnel. The confirmation of Hillary
Clinton as secretary of state was warmly greeted by the development community, given her
foreign affairs credentials and her long history of support for foreign aid and USAID. Clinton
spoke of “smart power” and the “three D’s of diplomacy, defense and development.” Many
thought that the pursuit of these concepts heralded the elevation of USAID. They were soon
disabused. For eleven months, while no nomination was forthcoming, USAID was led by a
career officer, supervised by the deputy secretary of state for management and resources.
No authorities were returned to USAID. Secretary Clinton did support and win funding for
significant increases in USAID and State Department personnel. She spoke often of her
desire to strengthen USAID, but also spoke of the need for diplomacy and development to
serve policy and be closely coordinated. It appeared to many that the USAID the secretary
supported was one she envisioned either within the State Department or closely supervised
by it. The secretary remained ambiguous, if not opaque, about her intentions.
In July 2009, Secretary Clinton announced the Quadrennial Diplomacy and
Development Review (QDDR), a “process to guide us to agile, responsive, and effective
institutions of diplomacy and development, including how to transition from approaches no
longer commensurate with current challenges” and “offer guidance on how we develop
policies; how we allocate our resources; how we deploy our staff; and how we exercise our
authorities.”13 In August 2009, President Obama signed a Presidential Study Directive (PSD-7)
ordering an interagency review of all U.S. global development policy, led by the National
Security Council (NSC) and National Economic Council. This seemed unprecedented, coming
only months after the QDDR was announced, and was widely viewed as a slap at the more
parochial QDDR. It came after Senators Kerry and Lugar introduced the Foreign Assistance
Revitalization and Accountability Act (S.1524) to rebuild USAID and strengthen evaluation
of foreign aid programs. Finally, under increased scrutiny for his failure to nominate a new
USAID administrator, President Obama announced the nomination of Rajiv Shah to lead
the agency. At his confirmation hearing on December 1, 2009, Shah testified, “Not since
the founding of USAID in 1961 and the passage of the Foreign Assistance Act have we had
such an opportunity to fundamentally re-imagine our nation’s development strategy and
strengthen the organization that leads it.”14 Just weeks later, Shah was tapped by President
Obama to lead U.S. efforts to respond to the devastating earthquake in Haiti, and Shah
received high marks for his performance; however, Secretary Clinton put her chief of staff,
Cheryl Mills, in charge of all funding decisions, raising questions about who was really
in charge.

13. U.S. Department of State, The Department of State’s Quadrennial Diplomacy and Development
Review, July 10, 2009, http://www.state.gov/r/pa/prs/ps/2009/july/125956.htm.
14. Rajiv Shah, “Testimony Before the Senate Committee on Foreign Relations,” USAID, posted
December 1, 2009, http://www.usaid.gov/press/releases/2009/pr091201.html

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Perhaps no one but President Obama knows what the convergence of the QDDR,
PSD-7, and Congressional efforts will produce with regard to the future of USAID and
U.S. foreign assistance. The publication of the results of the QDDR has been delayed, and
the NSC has reportedly agreed to hold the publication of the PSD review until after the
release of the QDDR. (A draft summary of the PSD-
7 recommendations was leaked in April 2010.) It Perhaps no one but President
is reasonable to assume, though not certain, that
Obama knows what the
convergence of the QDDR,
Congress will hold off on bringing S.1524 to the floor
PSD-7, and Congressional
until both the QDDR and PSD results are officially efforts will produce with
released. In the meantime, there are signs that the State regard to the future of USAID
Department continues to expand its influence over and U.S. foreign assistance.
USAID and foreign assistance, both in Washington and
the field. For example, according to a March 2010 survey by the American Foreign Service
Association (AFSA), the State Department’s International Cooperative Administrative Support
Services initiative to consolidate administrative services at U.S. embassies worldwide, is being
used to force USAID to use incompatible, less efficient, more costly systems of the State
Department, rather than being used to increase efficiency and reduce costs. The authors of
the survey concluded that “USAID’s ability to support its staff and carry out its development
goals overseas is in serious jeopardy.”15
Nowhere is USAID’s subordination to the State Department more evident than in
Afghanistan and Pakistan.

AFPAK
January 22, 2009, two days into the Obama administration, Secretary Clinton
announced the appointment of Richard Holbrooke as the special representative for
Afghanistan and Pakistan. Stating that nowhere was “the need for a vigorous diplomatic
approach more apparent than in the two regions that epitomize the nuance and complexity
of our interconnected world,” she acknowledged that many “Foreign Service and Civil
Service and Foreign National colleagues have been engaged on behalf of issues related to the
Middle East and to Afghanistan and Pakistan for years, sometimes, as we know, at great peril
and personal sacrifice,” and promised their work would “continue to be the underpinning of
everything our government does to achieve peace and stability in these regions.” She went
on to state that Mr. Holbrooke’s task would be to “coordinate across the entire government
an effort to achieve United States’ strategic goals in the region. This effort will be closely

15. American Foreign Service Association, “ICASS AFSA Survey Results,” The Vanguard 4, no. 2 (2010)
http://www.afsa.org/usaid/0410vanguard.pdf

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coordinated, not only within the State Department and, of course, with USAID, but also with
the Defense Department and under the coordination of the National Security Council.”16
In the ensuing months, it became clear that Mr. Holbrooke was far more than
a coordinator of strategic goals. Within a few months, the country team in Afghanistan
was reorganized and included, in addition to the ambassador, a deputy ambassador
and a coordinating director for development and economic affairs, to whom the USAID
mission director reported. (USAID mission directors normally report to the ambassador.)
In Pakistan, the USAID mission director was replaced with a USAID officer known to Mr.
Holbrooke from the Balkans. In August, former ambassador Robin Raphel was appointed
to the U.S. Embassy in Islamabad as the State Department’s nonmilitary aid coordinator for
Pakistan. Mr. Holbrooke announced that his team would develop an assistance strategy
for both Afghanistan and Pakistan that—in a departure from USAID’s normal operating
modality—would utilize fewer U.S. contractors and NGOs; disburse funds directly to
government entities, local contractors and NGOs; and significantly increase the number
of U.S. government employees in both countries to
Given endemic corruption directly implement the strategy. By year-end, the U.S.
in both government and government civilian presence in Afghanistan tripled to
the private sector, the plan almost 1,000, most ostensibly to be placed outside of
to disburse funds directly Kabul in PRTs, District Support Teams, and with military
to both (the Afghan and
maneuver units. In Pakistan, USAID was completely
Pakistani) governments and
local contractors and NGOs reorganized to implement the new strategy, though
would seem fraught with risk significant USAID staff increases were slower to be
of both failure and the theft realized.
of funding.
It is too soon to know whether the new
strategies for Afghanistan and Pakistan will be
successful, but there are a number of factors inherent to both countries and the AfPak
approach that raise concerns. Transparency International’s Corruption Perceptions Index ranks
Afghanistan as the world’s second-most corrupt country, ranking 179th out of 180 countries
evaluated. Pakistan fairs slightly better, ranking 139th, but still scores only 2.4 out of a
possible 10.17 Given endemic corruption in both government and the private sector, the plan
to disburse funds directly to both governments and local contractors and NGOs would seem
fraught with risk of both failure and the theft of funding. The use of U.S. contractors and
NGOs, who hire local personnel and also utilize other local contractors and NGOs, provides

16. Hillary Rodham Clinton, “Secretary Clinton With Vice President Joe Biden Announce Appointment
of Special Envoy for Middle East Peace George Mitchell and Special Representative for Afghanistan and
Pakistan Richard Holbrooke,” U.S. Department of State, posted January 22, 2009, http://www.state.gov/
secretary/rm/2009a/01/115297.htm.
17. Transparency International, Corruption Perceptions Index 2009, http://www.transparency.org/policy_
research/surveys_indices/cpi/2009/cpi_2009_table.

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the U.S. government with a form of insurance. When U.S. contractors or NGOs fail to meet
the terms of their agreements or lose funds due to fraud, waste, or abuse, they usually settle
without legal action, but may be easily pursued in U.S. federal court. They are responsible
and liable for the actions of their subcontractors and grantees. When they are removed and
the U.S. government enters into contractual relationships directly with foreign governments,
contractors and NGOs, recourse is through local courts and processes with little chance of
recovering funds lost, embezzled, or simply wasted.
Stabilization and reconstruction, particularly in dangerous environments, is an art
traditionally practiced by a small cadre of experienced officers from the State Department,
USAID, a handful of other agencies, and a handful of contractors and NGOs. The business
model being pursued by AfPak, particularly in Afghanistan, requires larger numbers of
experienced personnel than are available in either USAID or the State Department. Both have
resorted to temporary hires, but many of these are reported to have neither stabilization and
reconstruction experience, nor overseas development experience. Even few State Department
Foreign Service officers are trained and experienced to do stabilization and reconstruction.
To expect temporary hires—essentially personal services contractors—to successfully engage
in an effort so complex after a few months of training is unrealistic, if not dangerous.
That would be the case in a permissive environment, which Afghanistan and Pakistan are
decidedly not. Even before the “civilian surge” to Afghanistan, the security environment
prevented PRT and embassy personnel from providing adequate oversight to field activities.
In dangerous environments, the State Department’s security protocols, which cover USAID,
place crippling restrictions on mobility—usually for valid reasons. USAID contractors and
NGOs do not fall under those restrictions. While they must take extraordinary care to protect
their personnel, they generally are adept at successfully performing their tasks, which involve
operating “outside the wire.” This reality is borne out by the increased use of U.S. NGOs and
contractors in Afghanistan during the past year, in spite of State Department claims to the
contrary.
Since the embassy bombings in Kenya and Tanzania in 1998, security
considerations—including Inman-compliant buildings, armored vehicles, bodyguards,
static guard forces, and secure communications—have greatly increased the costs of
fielding embassy staff. While there is no argument that both the State Department and
USAID, particularly the latter, need significant increases in Foreign Service staff to meet
global challenges, there also is no argument that it is costly. Embassy facilities will have
to be expanded, or new ones built. If the cost of fielding a single soldier for one year in
Afghanistan is $1 million, what is the cost of fielding a single Foreign Service officer there?
To a certainty, it is no less, and a lot more than the cost of fielding an individual working for
a contractor or NGO. Personnel numbers at USAID and the State Department declined during
the past decades because Congress was not disposed to provide the funding to maintain
them. Absent the national security threat that conditions in Afghanistan and Pakistan pose,

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what is the likelihood that Congress will continue to provide funding for expanded personnel
numbers, much less the capacity to surge large numbers of personnel to the next threat? Is
the AfPak business model even sustainable?

A Leaner, Sustainable Model

The United States actually has, in recent history, a successful model of how to fight
a counterinsurgency: El Salvador. When that conflict flared in the late 1970s, the searing
experience of Vietnam was fresh, and Congress was deeply skeptical of U.S. involvement in
another guerilla war. President Reagan, determined to check Communist expansion in Central
America, but faced with stiff opposition in Congress, agreed to limit military intervention
to a U.S. Military Group (Milgroup) of fifty-five advisors who would train and equip the
El Salvador Armed Forces (ESAF).18 The Milgroup advisors, many of whom were Special
Forces highly trained in counterinsurgency, were not allowed to accompany into combat
the forces they trained. ESAF officers were also trained in the United States, and, for a brief
period, Salvadoran soldiers were trained at a base in neighboring Honduras. Congressional
opposition also contributed to keeping in check the number of State Department, USAID,
and other personnel assigned to the U.S. Embassy in San Salvador. (At peak, USAID had only
thirty-six Foreign Service officers in-country, and an approximately equal number of personal
services contractors working alongside.) Although Milgroup bridled at the inefficiencies
of the limitations, they turned out to be a blessing.19 Unable to go “big,” Milgroup was
forced to invest time, intelligence, equipment, and training to enable the ESAF to defeat
the insurgency, rather than do it for them. It took twelve years. While the ESAF was slowly
becoming proficient, the State Department and USAID worked with the government and
civil society to enable reform of the social, economic, and political system that had fueled
the insurgency. Most significantly, USAID worked with the Salvadoran private sector to
create organizations that supported entrepreneurs in the creation or expansion of micro,
small, medium, and large enterprises in agriculture, services, industry, and export. Technical
assistance and credit enabled the process. With USAID assistance, economist Arnold
Harberger of the University of Chicago and his team of “Chicago Boys” were brought in
by FUSADES (The Salvadoran Foundation for Economic and Social Development) to design
and help implement a comprehensive neo-liberal economic reform program. This program,
with the bottom-up enabling efforts, became the engine of El Salvador’s economic recovery
and sustained growth in GDP. Community development programs empowered villagers and
undermined the influence of the FMLN (the Marxist insurgency). Again, this was not a linear
process, but one of steady progress with frequent setbacks. Undoubtedly, the breakup of the
Soviet Union, which removed significant materiel support for the insurgents, helped, but by

18. Major Paul P. Cale, “The United States Military Advisory Group In El Salvador, 1979-1992,” Small
Wars Journal http://smallwarsjournal.com/documents/cale.pdf, 13.
19. Ibid., 14.

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the beginning of peace negotiations in 1990, El Salvador was a different country than it had
been in 1980. When the war ended by negotiation in 1992, the former FMLN insurgents,
through peaceful elections the next year, became the loyal opposition in the legislature. In
2009, an FMLN candidate won the presidential elections and there was a peaceful transition
of power. El Salvador remains a peaceful democracy with a free market economy. The cost of
victory to the United States was approximately $4 billion and a score of civilian and military
casualties.
The model the United States employed in the countries of the former Eastern Bloc
and the Balkans also utilized small numbers of highly qualified personnel with significant
monetary resources at their disposal. Originally, the State Department wanted only a single
USAID affairs officer in each embassy, but later recognized it needed USAID Missions. None
of these were particularly robust. (For example, the USAID mission in Serbia and Montenegro
had only seven Foreign Service officers and nine personal service contractors to manage a
fully integrated development program that averaged $200 million per year.) As in the case
of El Salvador, the modalities used by the State Department and USAID were at least partly
driven by decades of declining operating budgets and consequent reductions in personnel.
This was particularly acute at USAID, whose corps of Foreign Service officers by the late
1990s had been reduced to just over 1,000. USAID had always utilized contractors and
NGOs to implement foreign assistance programs, but the declines in personnel meant that
the ratio of program managers to contracts and grants shrank significantly. Still, the model
of enabling countries to reform and rebuild themselves, rather than doing it for them, was
served well by relatively modest numbers of capable, experienced Foreign Service officers
leveraged by contractors and NGOs that also used small numbers of expatriate personnel and
larger numbers of local citizens. During my tenure in Iraq, 2004–2005, the USAID mission
had 102 expatriates and 103 Iraqi nationals to manage a program of $5 billion with 9,000
projects. Our fifty contractors and NGOs employed daily as many as 70,000 Iraqis, though
more than half were day workers. The program during that period is generally conceded
to have functioned well, and I never wanted, nor asked, for additional personnel. Success
in post-conflict transition or counterinsurgency is predicated on the right enabling strategy,
implemented by experienced practitioners with time and patience. Throwing more money
and personnel at a bad strategy is a waste of both, as are misguided efforts to try to force a
timeline that cannot be forced.

Rational National Security Reform

The Foreign Assistance Revitalization and Accountability Act (S.1524), as written,
would restore USAID’s policy and planning and strengthen its human resource capacity, but
is ambiguous with regard to the agency’s authority over its own budget. If USAID’s budget
remains under the control of the Department of State, its influence and capability will
continue to decline. In that event, the recommendation of the special inspector general for

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Iraq reconstruction for the creation of the U.S. Office for Contingency Operations may be the
most viable option for reforming U.S. capacity to conduct stabilization and reconstruction
abroad. However, if the absorption of USAID by the Department of State is reversed by
legislation or executive action, USAID should also be designated as the coordinator of U.S.
government stabilization and reconstruction operations. Should that occur, a number of
concurrent actions should be initiated.
USAID’s Bureau of Democracy, Conflict and Humanitarian Assistance (DCHA) should
be expanded by folding its Office of Military Affairs, Office of Transition Initiatives and Office
of Civilian Response into a new Bureau of Stabilization and Reconstruction (BSR). S/CRS
should be abolished and its responsibilities and functions transferred to the BSR, which would
have interagency staffing from the State Department, DoD, and other agencies, including in
senior Foreign Service and general officer supervisory positions. BSR staffing in Washington
should be only as large as necessary to monitor failed and failing states, plan for contingency
operations, and maintain the capacity to simultaneously field two Advance Civilian Teams,
anywhere in the world. The Standby Component in Washington should be supplemented
by offering modest pay incentives to 500 qualified State Department and USAID Foreign
Service officers, wherever serving, willing to deploy on twenty-four hours notice for up to a
year. Members of a reduced 300-member Civilian Response Corps, drawn from other federal
agencies, should receive the same incentive payments. The Civilian Reserve Corps should be
abandoned. Continuous training should be provided to all BSR officers and reserves, including
training with the military to develop stabilization and reconstruction skills. BSR and the
military should develop flexible models for civilian-military cooperation in the field, but not be
wedded to any single model, including the use of U.S. contractors and NGOs and their local
employees.
Finally, stabilization and reconstruction operations are different than USAID’s other
development assistance operations, and different than the Department of State’s normal
diplomatic postings. Officers attracted to stabilization and reconstruction are a different breed
from those attracted to more normal postings. The fact is that stabilization and reconstruction
are most often practiced in dangerous environments under primitive living and working
conditions. It is not for everyone. Both USAID and the Department of State should develop a
cadre of officers with the inclination and skills for stabilization and reconstruction, and cease
the practice of requiring all officers to bid (volunteer) for assignments to countries where the
United States is engaged in stabilization and reconstruction. The civilians who do stabilization
and reconstruction are as different from the rest as Special Operations Forces are from the
rest of the military. In fact, they are very much like Special Operations Forces and operate in
the same environments—they just do it unarmed.

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 Planning for Stability Operations:
The Personal Lessons of Two Wars

by Ronald E. Neumann, Ambassador (Ret.)

President, American Academy of Diplomacy

Formerly a Deputy Assistant Secretary, Ronald E. Neumann served three times as Ambassador:
to Algeria, Bahrain, and finally to the Islamic Republic of Afghanistan from July 2005 to April
2007. Before Afghanistan, Neumann, a career member of the Senior Foreign Service, served
in Baghdad from February 2004 with the Coalition Provisional Authority and then as Embassy
Baghdad’s principal interlocutor with the Multinational Command, where he was deeply involved
in coordinating the political part of military. Ambassador Neumann is the author of a number
of monographs and articles, as well as a book on his time in Afghanistan titled The Other War:
Winning and Losing in Afghanistan.

P
lanning for economic development in Afghanistan began late. It was
hampered by conceptual problems and resource deficiencies. Then fighting
interrupted or slowed project completion. The fighting and weak law
enforcement discouraged investment after some promising starts. The fighting also
pulled international resources to the combat areas, often the most difficult in which
to achieve results. Calmer areas, where more could have been accomplished, were
grossly underfunded as a result.

Reflecting on my experience in Afghanistan as well as Iraq leads me to question

some of the emphasis we are putting on planning; to argue for greater focus on
implementation and methods to revise plans once operations begin; and to confront the
brutal fact that we do not yet have answers for some of the most critical areas of economic
and security stabilization that we repeatedly discuss. We need to consider that:
• How we conceptualize the past will be both a source of planning and also a blind
spot that will inhibit our effective reactions to what goes wrong the next time.
By recognizing this, we can to some degree mitigate the dangers of this human
failing.
• Planning is useful more for the process than for the resulting plan itself. No matter

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how well or poorly a plan stands up to reality, the work of planning can explore
many issues and build a responsive team for the actual operation. That said, it is
critical that we accept the limited utility of planning, lest “implementing the plan”
becomes the definition of success. Following the plan closely only makes sense if
the plan’s assumptions and capabilities measure up to reality. This is particularly the
case if planning seriously underrates the time necessary for social transformation
and creating preconditions for investment. The problem of differentiating between
training and social transformation is one that still looms large in Afghanistan.
An underlying problem is that planning works best when it can conceptualize an
“end state” in a reasonably specific time frame. Little in the experience of national
economic development suggests that we can precisely describe the end state of
social and political development occurring over lengthy periods. Our expectations
of how much change we can produce quickly are open to serious question and
risk public disappointment based on excessive expectations.
• Execution trumps planning. What we didn’t know at the beginning, how a
situation develops and, in the case of war, how the enemy learns and reacts, will
all require changes in the plan. Recognizing this has many consequences, of which
some of the most important for planning are:
– Early establishment of multiple lines of situational reporting; truth beats turf
and no one is entitled to control evaluation.
– Horizontal information flows must be planned for, including extra staff
assigned and reporting channels exercised.
– Evaluation of how the plan needs to change must be done in the field, and
this needs extra staff from the beginning.
– Leaders must be willing to recognize when their own plans and ideas are
flawed and change accordingly.
Finally, I want to reflect on some critical areas about which all of the discussion,
from military field manuals to academic conferences, has failed to find solutions for problems
the discussants have deemed crucial to solve. Three issues illustrate the point, although there
are others:
• Police: Suppression of crime is essential for the growth of the licit economy.
Increasing recognition of the early importance of law enforcement has not been
accompanied by a design for how to accomplish this. The United States has
built armies successfully, but we have not yet demonstrated that we can build a
functioning police force quickly, particularly in the midst of an insurgency. Both
Iraq and Afghanistan are works in progress, and what progress we have made is
more in the line of building paramilitary forces than enforcement of justice.

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• Justice systems: Standing up a functioning system of generally honest courts is

critical to stability. But programs designed to date are, at best, long term. How
to meet the pressure for justice quickly enough to help meet the demands of
stabilizing a post-conflict society continues to elude us.
• Employment: Early employment to soak up potentially disaffected manpower is
critical, but again, our recognition of the need is well ahead of any demonstrated
success in solving this problem, or even a theoretical solution.

Lessons from the Past: The Strengths and Weaknesses of Analysis

Civilians are as prone as the military to fight the last war as they prepare for the
next. Flawed or inappropriate lessons drawn from the past may impede policy execution for a
significant length of time. The case of Afghanistan is useful in this regard.
In Afghanistan, there was no advance planning for stabilization since no one
had intended to fight a war there until the September 11, 2001, attacks. A little more
than a month later, we were engaged in hostilities. How the Bush administration then
conceptualized the stabilization issue initially was driven more by analysis of the recent past
and flawed understandings of the country than by the resources needed in Iraq. The new
administration, particularly but not only Defense Secretary Rumsfeld, viewed past stabilization
efforts in Bosnia and Kosovo as seriously flawed. In this view, excessive international
engagement had rendered the two areas semipermanent wards of the international
community. The result was seen as stifling the local initiative essential for the Balkan
politicians and population to help themselves. This, in turn, left the United States and the
international community stuck with long-term military and economic support requirements
with no short-term ability to withdraw.1
The resulting decision to have a much lighter footprint, and thus to avoid
overdependence on foreigners, was reinforced by the fear that a large troop presence
would create a backlash in Afghanistan, famous for the xenophobia of its population. The
administration wanted to get in and out quickly to avoid the perceived dangers. From this
analysis, in retrospect seriously deficient, a number of mistakes flowed. Too few troops were
sent to stabilize the country. NATO offers to send additional forces were rebuffed, and those
that were allowed to deploy were confined to the capital area.2 The fear that NATO forces
would get in the way of a rigorous hunt for terrorists reinforced the resistance to NATO
deployments outside Kabul.3

1. Michael R. Gordon and Bernard E. Trainor, Cobra II: The Inside Story of the Invasion and Occupation of
Iraq (New York: Pantheon Books, 2006), 251.
2. James F. Dobbins, After the Taliban; Nation-Building in Afghanistan (Dulles, VA: Potomac Books, 2008),
124–125.
3. Ibid.

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Without foreign forces, local strongmen had to be relied on to maintain order and
cooperate with counterterrorist forces; the so-called “warlord strategy.” This, in turn, created
a situation in which the new central government started life not only with minimum authority
itself, but also an excessive dependence on a variety of thugs and militia leaders who would
later come to be viewed as a central part of the corruption problem. These early mistakes
sowed the seeds of many of the problems we were later to deal with and that we still are
confronting. For the present purpose, however, the point is that these mistakes reflected a
considered analytical view of the past. One may wonder what strongly held analytical views
now espoused by many may be seen in the future as similarly mistaken. And, of course,
underlying our slowness to adapt was the mistaken view in 2002 that the war in Afghanistan
was over. Those considering troop levels and economic assistance in 2002 were not aware
that within three years the war would begin to expand. Later on, resistance to changing the
troop requirements may have been part of the reason that there was so little response to the
reports from myself and then-General Eikenberry in 2005 that we would face intense fighting
by the summer of 2006.4
Of course, as time went on, the resource constraints of Iraq did loom ever larger in
hampering our ability to resolve emerging problems. The Bush administration’s refusal to fund
a $600 million supplemental economic budget in Fiscal Year (FY) 2006 that I recommended5
was probably a result of the need for funds for Iraq. The loss of these funds restricted work in
agriculture and road construction that could have advanced Afghanistan’s economy and job
creation. Because remaining funds had largely to be concentrated in support of our troops,
we lost the opportunity to work in calmer areas of the country, several of which are now the
scene of fighting.
Troops were similarly limited as expressed in the quote of the chairman of the Joint
Chiefs of Staff, Admiral Mullen, that “In Iraq we do what we must, in Afghanistan we do
what we can.”6 However, these effects of the engagement in Iraq came later. They were not
the cause of the initial mistakes, which stemmed from an analysis of the past that was deeply
flawed in the lessons it drew for the future.
Similar conceptual problems afflicted civilian development experts, causing them to
stick too long with flawed doctrine. In the decades before the Afghan war, developmental
theory moved steadily away from a concentration on infrastructure towards an emphasis on
training indigenous personnel (capacity building) and building indigenous institutions. The

4. Ronald E. Neumann, The Other War: Winning and Losing in Afghanistan (Dulles, VA: Potomac Books,
2009), 52, 205.
5. Neumann’s book discusses this issue at length.
6. House Armed Services Committee, Security and Stability in Afghanistan: Status of U.S. Strategy and
Operations and the Way Ahead, 110th Congress, 2007, The Gavel Blog, posted December 7, 2007,
http://www.speaker.gov/blog/?m=200712&paged=4.

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combination of staff reductions and changes in doctrine led USAID virtually to disband its
capabilities for large infrastructure development and to resist reengaging in this area.
Early assistance efforts in Afghanistan concentrated on humanitarian relief. Our first
true development budget did not emerge until FY 2004. Even then, there was bureaucratic
resistance to heavy involvement in road building and electric power, now widely accepted
as critical to economic development, investment, and job creation. There was a considerable
bureaucratic struggle before the United States took up building the Kandahar–Kabul
highway. Other parts of the key “ring road” around Afghanistan were left to putter along in
the hands of other donors.
There were many valid reasons for the change in the focus of development theory.
The point is not to debate them but only to note the restraint caused by theory—quite
possibly correct in other countries—when applied in Afghanistan. Analogy and history
are important teachers but they can also lead to an ingrained resistance to accepting new
facts and conclusions. Mitigating these risks requires that both planners and senior officials
rigorously and continuously question their basic assumptions. Senior leaders, in particular,
must set the tone for such debate rather than resisting challenges to their ideas. In the words
of Oliver Cromwell, “…[T]hink it possible you may be mistaken.”7

The Limitations to Planning

Having planned so badly for Afghanistan and Iraq,8 we are now obsessed with how
to plan better. This is good, and nothing in this paper should be taken to denigrate the need
for better planning in the future. However, as we learn from the past and try to improve
our planning, it is important not to lose sight of a number of weaknesses inherent in any
planning process.
One has already been discussed: the possibility that our planning may be based on
flawed assumptions from the past. Another is that planning, a theoretical exercise after all,
may seriously overrate our ability to make changes. I will come back to this later, but for now,
I want to focus on the effect that political pressure for rapid results may drive planners to
accept assumptions they believe to be excessively optimistic.
This is a difficult area because, at the end of the day, the civilian leaders must make
the decisions. That is the nature of our democratic system and a fundamental guarantee of
our freedom. But disciplined acceptance of decisions, once made, should not be confused
with a principled need to speak truth to power. Secretary of Defense Gates has stated this

7. Oliver Cromwell to the general assembly of the Church of Scotland, August 3, 1650, http://www.
olivercromwell.org/quotes1.htm.
8. Stuart W. Bowen, Jr., Hard Lessons: The Iraq Reconstruction Experience (Washington, DC: U.S.
Government Printing Office, 2009). This report of the Special Inspector General for Iraq Reconstruction is
particularly painful reading in this regard.

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point forthrightly and explicitly in a most unusual address to the cadets of the U.S.
Naval Academy:
But mark my words and make no mistake, the time will come for each one of
you when you must stand alone in making an unpopular difficult decision; when
you must challenge the opinion of superiors or tell them that you can’t get the
job done with the time and resources available; or when you will know that
what superiors are telling the press or the Congress or the American people is
inaccurate. These will be moments when your entire career is at risk.

To be ready for that moment, you must have the discipline to cultivate integrity
and moral courage here at the Academy, and then from your earliest days
as a commissioned officer. Those qualities do not suddenly emerge fully
developed overnight or as a revelation after you have assumed important
responsibilities. These qualities have their roots in the small decisions you will
make here and early in your career and must be strengthened all along the way
to allow you to resist the temptation of self before service. And you must always
ensure that your moral courage serves the greater good: that it serves what’s best
for the nation and our highest values – not a particular program nor pride nor
parochialism.

For the good of the Navy, and the Marine Corps, for the good of the armed
services, and for the good of our country, I urge you to reject convention and
careerism. I urge you instead to be principled, creative, and reform-minded –
leaders of integrity.9

He is right. Planners must be willing to state explicitly their doubts that a mission
can be accomplished in the time or with the resources provided. Sometimes the price paid
for such advice can be high, as was the case with General Eric Shinseki’s calculation of the
troop levels needed for Iraq, but this is the price of being a true professional. Good policy
cannot be made on the basis of bad information or by bottling up doubts and questions.
Demanding quicker results can be a useful goad to progress—or a disastrous mistake. We
must encourage sufficient debate to know the difference.
A second point that relates to the same issue is the need to include in the planning
those with enough experience to raise critical questions. The fragmentation of the planning
process for Iraq and the exclusion of civilian experts from the State Department and USAID
have been extensively discussed. Our military colleagues are fantastic planners, far better

9. Robert M. Gates, Remarks (Forrestal lecture, United States Naval Academy, Annapolis, MD, April 7,
2010), Defense Department Public Affairs, http://www.defense.gov/speeches/speech.aspx?speechid=1444.

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than most of their civilian colleagues. But there are limits to their knowledge, and when
the military dominates the planning process in areas where it cannot be expected to have
adequate knowledge and training, mistakes will creep in. This is not a criticism of the military,
but rather recognition that no one institution can be expert in everything—a point fully
recognized in the new manuals on counterinsurgency and stabilization.10
This point has been broadly recognized in the call for a “whole-of-government”
approach to planning. Often lost in this discussion are the limits to technical knowledge
based solely on United States or technical experience. Western experts, no matter how high
their level of technological experience, have repeatedly proved insufficiently aware of foreign
political and social constraints on the ideas they were proposing. The result was often that we
expended a great deal of money and time for very little
result. A few examples may illustrate the point. Planners must be willing
to state explicitly their
In Afghanistan, under pressure from Defense doubts that a mission can be
Secretary Rumsfeld, the U.S. military took on a pilot accomplished in the time or
project for customs and border control on the Afghan- with the resources provided.
Iranian border west of Herat at Islam Qala. The theory
was that, if we ran an effective operation, the Afghans would see the value of what we
were doing and adopt the procedures shown. We ignored Afghan ministries and other
foreign donors who were also engaged in customs issues. The effort failed. The Ministries of
Interior (responsible for the Border Police) and Finance (responsible for customs) fought over
jurisdiction, and probably over access to bribes. U.S. civilian and military advisors quarreled
over responsibility. Other foreign advisors gave contradictory advice that Afghan officials
drew on to resist ideas they didn’t like. The problem was not the technical soundness of the
approach, but that it ignored local political issues. The result was that General Eikenberry and
I decided together to move the project back into civilian hands and start from scratch to build
a policy consensus involving the Afghan government and foreign donors. In that endeavor,
we could have profited from technical help from Customs professionals from the Department
of Homeland Security. However, by that time the constraints of operating in Iraq made
getting the necessary expertise painfully slow. Technical advice was needed, but it needed to
be melded with political direction that understood the nature of local resistance and how to
overcome it. By itself, technical advice took us nowhere.
Another example can be drawn from the energy sector. Extremely good people with
senior experience in the energy business were sent to Afghanistan. Their ideas of necessary

10. U.S. Army, The U.S. Army Stability Operations Field Manual, No. 3-07 (Ann Arbor: University
of Michigan Press, 2009); United States Institute of Peace with the United States Peacekeeping and
Stability Operations Institute, Guiding Principles for Stabilization and Reconstruction (Washington, DC:
U.S. Institute of Peace Press, 2009); U.S. Army and U.S. Marine Corps, The U.S. Army/Marine Corps
Counterinsurgency Field Manual (Chicago: University of Chicago Press, 2007).

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economic policy changes in Afghanistan were generally accurate, but they lacked any
experience in how to design a political strategy to bring the Afghans on board and achieve
unity of advice from other foreign donors involved. Their technical advice was correct, but
without a political strategy based on an understanding of Afghan realities, it wasn’t going
anywhere.
Multitudes of similar examples exist. Achieving progress in the Afghan agricultural
sector requires technical advice, but it is not the same as designing an agricultural policy in
the United States. Convincing conservative Afghan farmers to change is very different from
advising progressive U.S. farmers who have an understanding of modern agriculture. We
have been engaged in economic development since the 1960s. Only a few countries have
made real development breakthroughs. This lengthy experience should stand as a warning
that technical advice by itself, no matter how necessary, is insufficient to bring about rapid
change. Diplomacy and development are true professions, involving skills that we must
harness. They can be reinforced but cannot be replaced by simply bringing in experts from
the Departments of Justice, Agriculture, or others, no matter how useful the knowledge they
bring. No single organization in our government has shown itself capable of doing without
the expertise of others. Turning over more nonmilitary duties to our capable armed forces
should be approached with considerable caution based on experience to date.
Two other weaknesses in planning are worth noting, not to resist planning, but to
understand its limitations. One is excessive demand for certainty of future needs. The other
is excessive expectations of the rapidity with which work can be accomplished. The first is
seen in demands for projections of cost over time. In Afghanistan, I was repeatedly asked to
lay out a comprehensive plan for road building. “What will this cost over a defined time?”
and “show me the total package” were frequent queries from the Office of Management
and Budget (OMB), Secretary Rice, and many others. The questions were not unreasonable.
The problem was that they tended to assume total knowledge and a certain ability to define
the “end state,” when, in fact, we were still learning in ways that changed our planning
assumptions. When assumptions had to change, so did costs. If early assumptions are
mistakenly perceived as too dependable, then changes in the costs are too easily seen as plan
failure rather than experience gained. There may be failure, but that is not always the case.
Road building is an example. Initially, the United States did none. Then, it planned
for the Kandahar–Kabul highway and a few major roads. Over time, we realized that the
lack of roads was an impediment to commerce and projection of governance as well as a
security problem. We then proposed a number of additional major roads, several of the most
important being included in the failed request for a 2006 supplemental budget. Then, as the
fighting grew worse, we understood better the need for a rapid program of roads in certain
areas. This led to a further request to fund roads that would connect every province capital in
the areas of combat to the provinces’ respective district centers. Even this plan insufficiently
resourced road construction in other areas of the country that were calm but not stable, and

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where roads could have helped provide economic progress and an expanded projection of
governmental authority.11
At any point in this learning curve, we could and did make projections for the
total package costs. The problem lay both in things we did not know and in the way the
deteriorating security situation demanded responses much faster than would be the case in
normal development, wherein the road not built one year can wait for the next. Whether
one considers this a natural learning curve or our mistakes, the fact remains that projecting
total costs too early risked locking us into budget ceilings that would later prove inadequate.
My point is only that the assumptions of any planning process can lock one into budget
calculations that then become an obstacle to change, because change itself is viewed
politically as a failure of the plan.
This problem is exacerbated by unrealistic expectations of speed. Too often, we have
mistaken training and equipping, in which to a large extent we know how long a program
will take, with the need for social transformation, which can be a very long and uncertain
process. We spent a lot of time and money training
and equipping Afghan police at lower levels before My point is only that the
we realized how thoroughly a corrupt and heavily assumptions of any planning
process can lock one into
politicized police command structure would have to be
budget calculations that
changed from the top down. Many of those trained in then become an obstacle
the early days disappeared from the ranks—although to change, because change
not from the pay rosters—and far too much of the itself is viewed politically as a
equipment was stolen or sold. As crime increased, failure of the plan.
including kidnapping for ransom, land swindles,
and shakedowns, investment fell off, Afghan businessmen fled the country, and foreign
investment interest dried up.
Accountability is critical to development but is neither practiced nor understood
by the Afghan government. We can project the time needed to train accountants or project
managers. We are far less successful in projecting how to bring about, through training, the
willingness to implement change. Maintenance of equipment, roads, and buildings—in short,
of everything—is a perennial problem in developing countries. It is often among the last
things to change in the transformation of a country into a developed nation. Yet rarely have I
seen our planning take into account realistic projections of the time needed for such change.
We build a training program and then are surprised when change doesn’t occur.

11. We understood the need for roads in the rest of the country, but could not project what other
donors would agree to fund. This lack of knowledge was not so much a lack of donor coordination as
an inability of anyone to project long-term funding by multiple countries that, like us, depended on
domestic political processes to establish actual funding levels. Additionally, since we were having great
difficulty getting even the most critically needed resources, we thought it was politically unrealistic to
propose a massive U.S.-funded program for the whole country.

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Planning remains important to develop ideas, draw out unforeseen linkages,

and train those who will have to execute an operation how to work together across
institutional lines. Planning a complex stability operation, however, will never have the
certainty of planning a freeway. There will be too many things we don’t know. Our ability to
conceptualize and define an end state, so essential to proper planning, will remain weak at
best. And the enemy will have a vote. If changing plans is seen as a failure, we only make
adaptation harder. We need to plan but we must educate our leaders to understand the truth
of Eisenhower’s comment that “Plans are nothing; planning is everything.”

Execution Trumps Planning

Eisenhower’s precept forms the core of the need to focus relentlessly on execution—
of the mission, not just the plan. This fact is well understood by those working in Afghanistan
and Pakistan but needs repeating because, at senior levels and particularly in academic
discussion and editorials, debate seems so often to focus on policy to the exclusion or
diminishment of execution. A policy to use local forces to secure pipelines in Iraq was a failure
for years, and then began to produce better results. The difference was not in the policy, but
in how it was carried out: What changed were the selection of leaders and groups and the
structuring of incentives and penalties.
In Afghanistan, personal relationships and trust are keys to success. However,
establishing those requires that our personnel, whether civilian or military, have a broad
understanding of the political, tribal, and social context
Planning remains important in which they are working. This takes time on the
to develop ideas, draw out ground and identifying military and civilian personnel
unforeseen linkages, and with the right traits of character to function effectively
train those who will have to
in ambiguous environments over long periods of time.
execute an operation how
to work together across Not everyone has the character traits to do this well,
institutional lines. even with training. Until we get past the one-year tour,
at least for key positions, and stop defining efficiency
reports largely in terms of accomplishments that can bear fruit in one year, our execution will
remain less than we want it to be.
Operational execution also depends on having the right mix of authorities, funding,
and personnel. On the civilian side, this apparently logical precept has been hard to put into
practice. During my time in Afghanistan, we had one USAID development officer in each
Provincial Reconstruction Team (PRT). This was inadequate to begin with, but was rendered
more so by requiring projects to run through large contractors, the so-called implementing
partners, because USAID lacked the staff to do otherwise. The development officers in the
field lacked the authority and funds to spend money directly on small projects and, had
they had it, they still lacked the personnel to oversee and audit projects. To make these field
personnel effective, they needed a package of funding, flexible authority, and sufficient

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staff to manage such funding. We now are deploying many more civilians to Afghanistan.
Whether they will have the authorities and funding necessary, understand their circumstances
well enough to make sensible decisions, and stay long enough to be effective, are all
conclusions we will need time to determine.
One could go on extensively about the importance of execution. Some of that is
better left to manuals and training, but understanding the importance of execution can
suggest some basic elements that need to be in place to increase the likelihood of its being
effective. One element is the need for quickly establishing multiple lines of situational
reporting. This runs against the grain of management controls and perhaps against human
nature (i.e. “It’s my program. Who are you, from another unit, agency or country, to evaluate
my results?”).
Yet in complex operations that mingle the need for technical, tactical, social, and
political knowledge, few people have the combination of skills and background that would
encompass the full gamut of required knowledge. This is part of the problem that General
Flynn pointed at in his recent critique.12 I saw it graphically illustrated when we used mixed
civilian and military teams to examine, at a provincial level, developments in one police
program where our intention was to avoid funding
militias. Our military and civilian trainers were trying Until we get past the one-year
tour, at least for key positions,
hard, but they did not have the local knowledge to
and stop defining efficiency
really know who they were training and detect the reports largely in terms of
manifold ways in which local power brokers were accomplishments that can
manipulating the system. Political analysts, not just bear fruit in one year, our
from the U.S. Embassy but also drawing on experts execution will remain less
from the United Nations and the European Union, were than we want it to be.
able to identify one problem after another. But, left on
their own, the civilians would only have produced critical reporting, not implemented changes
to improve the program. Making needed changes required pulling the different perspectives
together.
Pressure for success exists in the chain of command. While few will be so
unprofessional as to falsify their reporting, the pressure to report progress is real, and there
rarely is any desire to report or hear bad news. The problem is magnified by our extensive
reliance on contractors. Pressures within company management to report success may be
greater than they are in governmental ranks. Whether they are or not, a contractor is paid
to implement the program he has accepted, not to report that the program itself may be
badly conceived or inadequate to meet its strategic objectives. That sort of analysis is not the

12. Major General Michael T. Flynn, Captain Matt Pottinger, and Paul D. Batchelor, Fixing Intel: A
Blueprint for Making Intelligence Relevant in Afghanistan (Washington, DC: Center for a New American
Security, 2010).

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contractor’s job, and as they would rarely be thanked for reporting it, they may be forgiven
for not doing so.
The fact remains, however, that correct understanding of complex situations
benefits from accurate reporting by many agencies and authorities. British General Bernard
Montgomery in World War II understood this and used a network of young officers, his so-
called “directed telescopes,” to supplement reporting within the chain of command. It was
deeply irritating to his commanders but invaluable to Montgomery’s understanding of the
situation. Truth beats turf, and no one is entitled to control evaluation.
Information sharing is not a problem particular to our intelligence operations. As
we increasingly recognize the importance of drawing in multiple sources of expertise from
multiple agencies (“whole of government” in the jargon of the moment), it is important
to recognize that horizontal information flows do not happen easily. Mission requirements
and best intentions to inform and coordinate horizontally across agency lines repeatedly fall
victim to the pressures of meeting other requirements generated within individual agency
or unit chains of command. In thirty-seven years in government, I have seen no operation in
which such coordination took place easily or without constant attention and emphasis from
senior levels. Coordination must be planned for, whether by fusion cells, liaison officers, or
other means. This often will require extra staff. Even then, the reporting channels need to be
exercised, in training if possible, so that staff learn how to operate effectively in the cultures
of other organizations, seek needed information, and keep it moving in a two-way flow.
Plans will, and must, change, but evaluating how a plan needs to change must
be done primarily in the field. Washington is too far away from the operational realities to
understand the detailed challenges, and too far removed in time to oversee the execution
of plans. The fact that Washington has gotten very good at demanding incredible levels of
reporting that immobilize action officers who could actually be accomplishing something
only underlines the point that micromanagement is not a substitute for execution. In my
experience, the need for continuous reevaluation and strategic reexamination is particularly a
problem for understaffed civilian agencies.
U.S. military staffs are usually sufficient to handle these functions and understand
their necessity, and can draw forward additional staff (although this does not always happen,
and Iraq has many documented examples). The civilians are handicapped from the start:
Staffs are much smaller.
Normal USAID programs receive strategic evaluation only over a period of years.
Because of years of personnel reductions, USAID missions are stretched to find enough
experienced personnel just to handle program management. They usually are not staffed
to handle a high density of continuous evaluation. My repeated requests for an increased
number of senior USAID staff were unsuccessful because USAID had no one to send. While
hiring is now increasing, it will take some years to develop the senior staff and planners

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needed for complex operations. But the problems will not wait. Legal authority to use
experienced retirees on a long-term basis to fill the gaps should be sought.13 The need to staff
complex operations with personnel sufficient to evaluate progress must be recognized.
The same is true of the State Department. The involvement of multiple agencies
in the field requires additional policy oversight, and therefore embassy staff, to keep the
multiplicity of players coordinated. That has been recognized in Iraq and Afghanistan with the
creation of new structures such as a rule-of-law coordinator and senior economic coordinator
positions. However, these need to be recognized for what they are: experiments. Over time,
they should be evaluated and lessons drawn to inform future staffing of expeditionary
deployments. The State Department in particular needs to get over its long-term tendency to
understaff and “make do” with what it has. The instinct is understandable, based as it is on
the years-long reluctance of administrations from both parties to adequately staff the State
Department (and USAID). Yet the fact remains that it is far easier to cut back later on unneeded
staff than to ramp up after problems develop. The prolonged delays in actually fielding the
civilian “surge” in Afghanistan, or making the Iraq PRTs operational, are stark demonstrations
of the need to plan for larger staffs earlier and build surge capacity for the future.
Perhaps the most crucial aspect of successful execution of stabilization efforts has
nothing to do with budgets, staff numbers, plans, or legal authorities. Rather, it is the open-
mindedness of leaders to see mistakes in their own plans and assumptions and make changes
accordingly. The instinct for when to change, and when to stop fiddling and let others get on
with an operation, is a basic characteristic of great leaders. It cannot be wholly taught, but it
can be developed with training and experience—and it needs to be valued, not suppressed.

Areas of Ignorance
Planning for stability operations has received enormous attention over the last several
years. Conferences, papers, and the development of military and civilian doctrine have made
progress, even as we have fought two wars to give us additional scope for learning and study.
It is odd, therefore, that there has been no systemic effort to identify areas in which, having
deemed solutions critical, we have failed to find any. We know these unresolved problems
exist—areas in which experience teaches that progress will be slow but stability operations
demand rapid progress. We are grappling with these problems daily in Afghanistan, as we did
in Iraq. However, we have not identified conceptually areas in which, so far, we have no proven

13. Current law limits the use of retired State Department and USAID officers to a few months of
service annually to prevent retirees from drawing both a salary and a paycheck that would exceed what
they made as full-time employees. Many articles regard double dipping as close to a sin. However, since
retirees won’t work for free, their services to the State Department are available only a few months a
year, insufficient to deal with mid-level gaps. The military has certain exemptions from this limitation in
the use of retired officers. Pete Smith’s “Double Dipping,” Government Executive, February 11, 2002,
http://www.govexec.com/dailyfed/0202/021102ff.htm, takes a more favorable view of paying retirees.

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solutions, nothing we have yet tried has been adequate to the needs, and new thinking is
needed for the future. This is not a matter of discovering new areas of importance. Rather,
it is about confronting the fact that areas of defined importance exist in which performance
may not be able to meet our operational requirements. Some of the experiments now
ongoing in Afghanistan may provide the answers but, if we engage again, we will need
better starting theories.
For this discussion, I have identified three problems as examples, although there
are probably others. Each shares with the others common characteristics: The issue is highly
critical to stabilizing a situation, needs rapid progress, affects the economy, and historically,
in multiple countries, has always been an area requiring years of effort to produce change. In
other words, each is an area in which historical experience raises doubts about the possibility
of a rapid solution. The three areas are police, justice sector reform, and jobs.
The widespread recognition of the early importance of law enforcement has not
been accompanied by a successful design for how to accomplish this. The United States has
not yet demonstrated that we can build a functioning police force quickly, particularly in the
midst of an insurgency. In Afghanistan and Iraq, we tried to meet the need for rapid policing
with efforts to use local forces—either those already existing or quickly established—because
fielding law enforcement would not wait on the creation of wholly new institutions built
from scratch, as we did with the armies. In both cases, early efforts failed. Local forces were
corrupt, partisan, or both. Early efforts to train and equip the police were slow in starting
and generally resulted in multiple failures. Whatever success we may now be seeing in Iraq,
the jury is very much out in Afghanistan, and everywhere we may be making progress is on
the basis of long-term engagement that does not meet the correctly defined need for rapid
progress early in a complex stabilization operation.
The United States has not yet There are many reasons for this. Some are
demonstrated that we can
particular to each situation, but some are systemic
build a functioning police
force quickly, particularly in matters that need solutions. On our side, there is the
the midst of an insurgency. fact that the United States is poorly positioned to
undertake a mission of rapidly constructing a new
police force. We have no national police doctrine. We have no gendarmerie-type force that
might be more suitable than experience in local police departments (our source for many
trainers) for a mission that often combines paramilitary with justice functions, and military
trainers lack police experience. We have no national police force from which to draw trainers,
nor will local (U.S.) police departments release large numbers of officers to undertake foreign
training. We are therefore forced to rely on contractors drawn from a limited pool of retired
officers. The contractors often have legal limits on how much they can be deployed in actual
operations, thereby limiting their ability to mentor police at the local level. In short, the
United States has only two discernable attributes for the job of police training: enthusiasm
and money. They are useful but not sufficient.

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Even early insurgency situations increase the problems. Local policing, by police
who live in and know the community, often increases crime prevention. Yet in an insurgency,
the police who live among the population are extremely vulnerable to threat and attack at
home.14 Local forces reflect local power bases, often corrupt and rarely competent. Rapid
recruitment at the local level is particularly open to penetration by sectarian groups, if not the
insurgents themselves. The solutions we are experimenting with or have found thus far in Iraq
and Afghanistan all take time, and time is the commodity least available early in stabilization
efforts. We also have the accumulated experience of a variety of “quick fix” efforts that
failed.15
As insurgencies expand, the police training emphasis shifts to paramilitary skills.
While understandable, this results in a loss of attention to law enforcement. Crime expands
and economic activity slows. This reinforces the perception of weak governance. Clearly,
the lack of proven solutions for how to quickly put at least minimally qualified police on the
street requires new thinking. Perhaps the entire concept of trying to draw from existing forces
needs to be challenged. In the early part of the twentieth century, there was some success in
the Caribbean in building new local police forces led by U.S. officers. British officer-led local
forces in the Persian Gulf, Jordan, and India were similarly successful. These were colonial
models that we may not want to contemplate. There may be other, better ideas, but thus far
we have not identified them.
Another intractable area is the justice sector. Increasingly, discussion is focusing on
the fact that police are not enough. The courts must function. The guilty must be convicted
and incarcerated, and the innocent freed. Not accomplishing this stimulates rebellion, yet
imprisonment by foreigners causes untold resentment. We know these things. However,
justice is, of all sectors, the one that most needs to be handled by locals. Perhaps every
situation will be too different to generalize. In Iraq, there were respected judges and vestiges
of respected institutions. Security and construction of facilities were part of the early answer,
and security can be provided more quickly than institutional development. In Afghanistan, the
system was shattered by years of war, but there are traditional methods of dispute resolution
that now are getting increasing attention as possible gap fillers. Other countries should be
studied as well. If we have to do this again we need a faster approach, but one that locals
will accept and respect. How to do this quickly enough to meet the demands of stabilizing a
post-conflict society continues to elude us.
Finally, there is employment. Iraqis and Afghans repeatedly warned us—warned me,
in many cases—that we had to soak up potentially disaffected manpower before resentment

14. This problem is not limited to Afghanistan and Iraq. When I served in Algeria (1994–1997), the same
vulnerability largely knocked the police out of the fight in the early part of the struggle.
15. In Afghanistan, these included police “rebalancing,” development of the Afghan National Auxiliary
Police, community police forces (AP3), and possibly Focused Distinct Development. Two years into the
program, we lack systematic analysis to see whether the process has actually changed anything over time.

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fueled insurgencies. This is now well understood in stabilization theory, and is the premise
of this conference. Again, our recognition of the need is well ahead of any demonstrated
success. Cash for work is part of the solution. It was pushed hard by General Chiarelli in Iraq16
and we used it repeatedly in Afghanistan as far as our means would allow. While useful, this
was at best a bandage on a gaping wound that needed suturing. Cash for work could not
absorb the mass of manpower needing employment nor keep them employed.
State industries could be put back in operation to some extent in Iraq, but most
were economically noncompetitive, so keeping them
In Afghanistan, the system in business was a bottomless pit for resources. Just
was shattered by years of analyzing which ones could have a reasonable chance
war, but there are traditional
to stand on their own, what their assets and liabilities
methods of dispute resolution
comprised, and finding spare parts and raw materials
that now are getting
increasing attention as for the potentially viable businesses would have been
possible gap fillers. a mammoth undertaking. Certainly, it would not have
been rapid.
In Afghanistan, there was little industry to start with. Moving contracting to
local firms was difficult when there was a lack of every trained skill, from electricians to
plumbers. Even asphalt for roads had to be imported as there was not a single functioning
plant in Afghanistan. Private investment is the engine of growth in our own society, but in
the midst of chaos, few are ready to invest. New laws may be necessary, along with newly
trained judges and police to enforce them. The conference theme touches on the need
for entrepreneurial progress but, however valid the theory, nothing in our experience to
date suggests that entrepreneurs can quickly emerge without some measure of security or
assurance that business can function with some certainty about costs and risks.
There is extensive literature on how to encourage economic growth and job
creation, but nothing that suggests it can be accomplished quickly. Short-term fixes, from
cash for work to paying pensions and salaries of state employees, come with massive bills
and no clear exit path. We know the result that is needed. As yet, we have little idea how to
accomplish it.

16. David Cloud and Greg Jaffe, The Fourth Star: Four Generals and the Epic Struggle for the Future of
the United States Army, (New York: Crown Publishing Group, 2009), 159–160, describes Chiarelli’s efforts
and some of our interaction on the subject.

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Conclusion
Thinking about stabilization operations has made great strides. New doctrine has
been developed. A new capacity is being built in the State Department, and both the State
Department and USAID are increasing their personnel. Bitter lessons of what not to do have
been learned through experience. As these studies continue, we need to watch for the
lessons we may learn wrongly. We must avoid letting the idea of planning become a Holy
Grail quest in which every failure to be all-knowing is seen as policy failure. Attention to
execution needs to equal the attention we are giving to planning, including paying more
attention to adequate staffs and interagency information flows and coordination. We also
need new efforts to identify areas in which we clearly have not yet “cracked the code” on a
feasible solution that can be delivered within our likely implementation time frame. Failure to
find answers in the areas of police, justice, and employment may predestine future operations
to failure. There is still a lot to do and to think about.

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 Implementing
Expeditionary and Entrepreneurial Economics:
Iraq and Afghanistan

by Nicholas H. Riegg, PhD

Professor of Strategy, U. S. Army Command and General Staff College,
Fort Leavenworth, Kansas

Nicholas H. Riegg holds a PhD in macro and developmental economics and a BA in international
relations. A diplomat and economist with the Department of State for thirty years, he has been to
fifty-two countries and served in key economic positions in Taipei, Beijing, London, and Colombo
(Sri Lanka). In Washington, he has worked in the Offices of Monetary, Investment, and Trade Affairs,
on the Economic Policy Staff, in the U.S. Treasury’s Office of Development Assistance, and was
the State Department’s Director of South Asia Regional Affairs. A former member of the National
Advisory Council on International Monetary (and Foreign Assistance) Affairs, he has critiqued
hundreds of large development loans from United States and international agencies to several
dozen countries around the world. In 1998–99 he was a “diplomat-in-residence” and instructor of
graduate political economy at the Fletcher School of Law and Diplomacy. Before joining the Foreign
Service, he worked on Wall Street, and for eighteen months was a civilian hospital administrator in
Vietnam. He has been at CGSC since 2001.

O
ne can hardly argue with Carl Schramm’s call for more emphasis on
entrepreneurial economics, in our assistance programs generally and
in post-combat and post-catastrophe zones particularly (Schramm
2010). I would add also that, were we to apply his principles proactively in those
countries that Barnett calls the “Gap states” (Barnett 2004) or others may refer to
as dysfunctional democracies, we might be able to reduce the likelihood of future
chaos or combat in them. Unfortunately, Schramm’s vision is not an easy one to
implement. Not only do governmental policies and institutions get in the way of
entrepreneurship, but many cultures also have traditions, norms, and values that
inhibit its development. In times of insecurity and adversity, entrepreneurs are loath
to risk life and fortune, and knowing how to run a small proprietary business is not
the same as knowing how to run a large-scale corporation.

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That said, there are a handful of countries and political entities, mostly in East Asia,
that have pursued a form of entrepreneurial economics in modern times to good effect. I am
referring in particular to South Korea, Taiwan, Hong Kong, Japan, Singapore, Malaysia, and
China. (Historically, one could refer to the United States, Britain, and most European states.)
Each has followed policies that began with an emphasis upon export-oriented, labor-intensive
manufacturing. Considerations that propelled their adoption of this approach included the
following:
• Only the manufacturing sector could employ their large unemployed populations.
• Their own internal markets were too small or poor to absorb the output of large-
scale manufacturing, but the global market was not so restricted.
• Lacking much capital, they could not export capital-intensive goods, so they had
to focus on exports of labor-intensive, light-industrial consumer goods such as
clothing, footwear, toys, furnishings, and various assembled items.
• By exporting labor-intensive goods, they could earn hard currency (foreign
exchange) that they could use to import machinery and other capital goods
needed to build up additional industrial capacity and grow their economies.
• As their governments had small budgets and little business expertise, it made a
lot of sense to encourage private-sector entrepreneurs to undertake the needed
investments. Some had also had experience with state-owned enterprise, which
had often proven incapable of achieving sustained or efficient growth.

With experience, most of these Asian countries found that certain principles of
governing were useful in sustaining, promoting, and strengthening entrepreneurship and,
thereby, economic growth. They included:
• adopting and enforcing clear fundamental rules and laws;
• making timely decisions on matters of importance;
• adjudicating commercial disputes;
• keeping taxes/duties on needed industrial inputs and capital goods low;
• promoting national saving by keeping taxes and duties on luxury goods relatively
high;
• establishing good zoning practices—neither too flexible nor too rigid—that
encourage competitors, suppliers and wholesalers to settle in relatively close
proximity;
• organizing security for industrial zones;
• providing infrastructure after firms set up, or at least after they commit to setting
up shop;

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• depending on the degree of underdevelopment, governments might initially target

sectors to help, particularly with loan financing;
• running well-balanced budgets and budget surpluses, both to contain inflation
and to make government an effective saver (thus allowing it to extend financing to
target sectors directly or via banks and other financial intermediaries);
• properly regulating labor markets to keep them open, competitive, and market
directed; and,
• protecting real and intellectual property rights.

For any country which finds itself in need after a war, natural disaster, or the
breakdown of its economy for any reason, this recent Asian model of economic growth
(led by entrepreneurship) and the enumerated practical principles of governance are useful
reference tools. Both Iraq and Afghanistan should look to the Asian model for guidance.

Entrepreneurs and Democracy

Before I analyze the situations in Iraq and Afghanistan, let me specify a few points
as to why I support a greater emphasis on entrepreneurship in our economic assistance
efforts. Free markets and private enterprise are not only critical to achieving high standards
of living for the greatest number of people in an efficient manner; even more importantly,
they are critical to effective and sustained democracy. Without going into arguments that
democracy beyond the village is generally a very expensive, resource-intensive, literacy-
dependent type of political system that requires a strong economy to support it, I will just
focus for a moment upon the competitive nature of democracy.
Democracy draws upon the marketplace of ideas in its search for appropriate
policies and solutions to problems. As different people have different preferences, interests,
and experiences, not everyone is going to support the same approach to any set of problems.
Typically, democracies form competitive political parties to develop and champion alternative
policy packages. If parties are to remain independent, and if new parties are to be allowed
to form, the parties need to have independent sources of support. If parties were to rely
solely upon the government or some other single source of support, they would soon
become subject to manipulation by that single source and be at risk of losing their policy
independence.
Independent private enterprise and other independent poles of economic power
(e.g. unions, non-governmental organizations (NGOs), philanthropies) are what provide
the parties with their financial and resource independence. Moreover, without private,
entrepreneurial enterprise (i.e. if there were only state-owned enterprises), there would
probably be no independent unions, NGOs, or philanthropies, for all would be subject to the
whim of the state or bureaucrats. In short, private enterprise is critical to the existence of
independent political parties and other institutions that are central to democracy. As the old

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saying goes, power corrupts and absolute power corrupts absolutely; ergo, were the state all-
powerful, with no strong private sector, corruption would reign and true liberty would
be lost.

Societal Checks and Balances

The surest path to assuring that authoritarian government does not loom large
on the international stage is to encourage the development of private, independent,
entrepreneurial activity in each nation state. We often speak of the importance of checks
and balances within government. Equally or more important are societal checks and balances
outside of government. A well-designed government, with all the appropriate governmental
checks and balances, that exists within a society that does not have a good balance itself, is
unlikely to long endure.
Historically, there have been monarchial and other forms of authoritarian
government in part, I would suggest, because of a lack of balance among different poles of
social power. Monarchies have typically come out of the
The surest path to assuring
landed classes with dominion over large numbers of
that authoritarian government
people and the consequent ability to levy taxes and raise does not loom large on the
armies. While monarchs and their supporting landed international stage is to
elites prior to the nineteenth century may have faced encourage the development
challenges from the church, there were few or no other of private, independent,
poles of power to challenge or balance the equation.
entrepreneurial activity in
each nation state.
Occasionally, militaries would become sufficiently
independent and powerful that they could overthrow a monarch, thereby exchanging one
form of authoritarianism for another. Only the Athenian Greeks, the early Romans, and a
few other states—all of which had well-established commercial (economic) sectors capable
of checking and balancing the agricultural elites, clergy, and military—were able to make
democracy work for extended periods of time, prior to the American experience.

Entrepreneurs: Checking and Balancing

The existence of a strong, independent entrepreneurial sector is vital to balancing
and arbitrating among the traditional poles of power, including the church, landed elite,
military, regional leaders, clans, and tribes. In the modern era, the private entrepreneurial
sector has also been a bulwark against many or most forms of extremism and a force pushing
for decisiveness and the negotiation of differences within representative government. While
generally supporting a full public debate of issues, private business likes to see a decision at
the end of the day. Some decision is usually better than none. A bad decision can be worked
around, while no decision leads to ambiguity, uncertainty, and no sure way to move forward.
To the point, a strong entrepreneurial sector generally pushes political parties to resolve
issues, not keep them open forever.

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While private enterprise within any society is vital to maintaining those societal
checks and balances important to the preservation of democracy, modern, large-scale
entrepreneurial enterprise, however, has not developed well or naturally in many countries. It
is not simply that governments have gotten in the way, though often they have. Frequently,
large segments of many societies have been suspicious and apprehensive about private
enterprise. If entrepreneurial economics is to be brought to these people successfully,
economic policy makers need to understand and address their fears, interests, and
motivations. More particularly, proponents of EE need to understand and affect the positions,
interests, and attitudes of opinion makers and accepted leaders.

Supporting Free Markets and Entrepreneurs

While U.S. military planners did not think much about economic matters prior to
the invasion of Iraq, a number of civilian agencies and international organizations did. Paul
Bremer, as head of the Coalition Provisional Authority (CPA), promulgated a number of
laws designed to appeal to investor and entrepreneurial interests, including improvements
in intellectual property rights and equal or fair treatment of foreign investors in Iraq (CPA-
1). Ministries were reorganized, central banking experts were found, useful monetary rules
were promulgated, and 193 state-owned enterprises (SOEs) were identified and evaluated.
Initially, most of the SOEs were considered too inefficient and obsolete to merit government
assistance and (never executed) plans were laid to “restructure” them, a euphemism for
privatization. That the World Bank was on board with the idea of moving Iraq toward a more
entrepreneurial economy is shown in a July 2004 report, which said:
For the people and economy of Iraq to regain prosperity and a position
of leadership in the region, they must lighten and eventually shed the dead weight
of state-owned enterprises (SOEs). That reform—a difficult undertaking anywhere,
but one that has been successfully accomplished in many countries—represents an
essential step in modernizing and rebuilding Iraq’s economic strength….
Antipathy to private and particularly foreign investment is strong in Iraq,
a legacy such a campaign will also have to address…. Although Iraq lacks most of
the laws, regulations, and associated institutions required to permit the smooth
development and implementation of a SOE-reform program, it has time to rectify
this deficiency….
Foreign investment is a critical contribution to the reconstruction process,
both in general and for state enterprises in particular. Nevertheless, misplaced fears
about foreign investment among some Iraqis could act as a brake on the enterprise
reform program. In fact, the fear is exaggerated…. Countries that are part of the
global trading system compete with one another to attract foreign investment,
valuing foreign investors as a very welcome and useful means of creating new
jobs and building the local economy. To insure that Iraq also welcomes foreign

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investment as a critical contribution to the reconstruction process, an extensive

public education program is needed to bring popular apprehensions out into the
open, discuss them and lay them to rest. (World Bank 2004)

Though the World Bank was advocating SOE reforms as early as 2004, most SOEs
were left to languish and sit idle until June 2006, when the Department of Defense (DoD)
decided to restart many of the SOEs. UPI correspondent Pamela Hess, writing on January 9,
2007, painted the situation thusly:
When then-viceroy Paul Bremer took over the civilian administration of Iraq
in 2003, he had an intricate plan to transform the state-owned socialist economy
into a beacon of free enterprise in the heart of the Middle East. Central to his plan
was the sale of some 200 state-owned enterprises to the highest bidder to bring in
fresh capital, streamline operations and boost profits. That in turn would drive the
rest of the economy.
The ambitious “shock therapy” plan failed. Foreign investors could not
be lured into the uncertain political and security situation in Iraq, hundreds of
thousands of Iraqis’ livelihoods depended on the state-run manufacturing plants.
Not a single state-owned enterprise has been transitioned to private ownership.
All of the 193 state-owned enterprises have sat idle since 2003 with
the exception of a single heavy industrial plant not far from Baghdad. More than
500,000 Iraqis, however, are on the payrolls of the idle factories, drawing some
$800 million a year off the already strained Iraqi budget, according to a study
prepared for the U.S. State Department.
Three years on, a small Pentagon office has conceded the ideological
battle for now and is attempting to restart the state-owned enterprises. The idea
now is not to remake Iraq’s economy, but rather to put the Iraqi people back to
work. (Hess 2007)

Under the direction of Deputy Under Secretary of Defense Paul Brinkley, formerly
an engineer in Silicon Valley, the Task Force for Business and Stability Operations (TFBSO) took
some 400 U.S. business leaders and technical experts (and some European firms) to Iraq to
meet and assist the SOEs. Some sixty-six factories belonging to thirty-five SOEs have been
restarted as of April 2010. TFBSO also reportedly, “facilitated contracts worth more than
$1 billion between foreign private investors and Iraq’s state-owned enterprises, and helped
provide jobs for 250,000 Iraqis” (McKinsey 2010).
While one might be a little skeptical that TFBSO was truly instrumental in restarting
the sixty-six factories, and that the $1 billion was anything more than expressed intentions
that could well be cancelled, it is still a fact that TFBSO was trying to restart large-scale
enterprise in Iraq. As they were SOEs and not private sector firms, they do not quite qualify

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as truly entrepreneurial efforts, but were a step in a generally good direction. That the SOEs
could not be privatized, and that private entrepreneurs were unwilling or unable to do much
of anything in these industrial sectors between the invasion of Iraq in 2003 and the present,
is proof of how difficult it is to get entrepreneurs leading recovery and development in a post-
conflict situation.

Inappropriate Industrial and Cost Analysis of SOEs?

Looking again at the SOEs in Iraq, one wonders if an appropriate analysis was done
of their operational capacities. The World Bank and early U.S. appraisals concluded that they
were so obsolete it was almost not worth putting them back to work. As said before, many
sat idle until 2006, and many remain idle today.
Certainly, the SOEs are unlikely to be able to compete on the international market
and by U.S. standards are burdened with obsolete equipment. But the economic question
to be asked is: Can they generate sufficient marginal revenues to cover marginal costs? Are
they sufficiently viable to be able to sell output and services to one another, generate some
profit, and begin a program of rejuvenation? If rejuvenated (and if populist resistance could
be overcome), could they be partially or wholly privatized?
The other point to be considered is that if keeping them open—even if subsidized—
helps to maintain employment and a generally higher level of economic activity such that
more civil turmoil is avoided, will that be cheaper than the military cost of having to cope
with a higher level of turmoil? Had these questions been asked early on in our occupation of
Iraq, perhaps we could have avoided some of the problems we have had.

The Question of Security and Secure Industrial Parks (SIPs)

Much emphasis has been put on the need for security as a precursor for strong
entrepreneurial activity in a country. In Iraq and in Afghanistan, we have focused on making
the entire country secure. Our forces, of course, are limited in size and in their capacity
to keep the peace everywhere, all the time. To encourage entrepreneurs, it may not be
necessary to have countrywide security. Sure, it would be nice and preferable, but perhaps
not necessary.
Entrepreneurs may well be attracted if there are simply protected zones in which
they can operate. Historically, foreigners set up cantonments in China and India in which their
entrepreneurs could, and did, securely operate. Those operations in turn had a demonstration
effect on the populace outside the cantonments, leading to a broader appreciation of what
“modern” approaches to business and commerce could bring. As business outside the
cantonments expanded, so too did the interest of the local population in improving security
grow.
Throughout modern Asia, export processing zones and other secure areas have also
been used to spur entrepreneurship and overcome traditional resistance to modernization. A

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similar approach might be used in Iraq and Afghanistan, and indeed some businessmen and
others in each country have been pushing for what we might term Secure Industrial Parks
(IIER 2009). It may be an idea worth our military’s time to consider. Certainly it should be
easier to secure a dozen such parks within each country than the whole of each.

Obstacles to Entrepreneurs
When speaking with U.S. military officers who have served in Iraq, one gets the
impression that nobody in the U.S. or Iraqi governments spent much time trying to restart any
type of major industry, public or private, between 2003 and 2006. One major, commanding
a company in the city of Abu Ghraib, told me there was a milk processing plant that sat idle
for lack of parts until late 2008, when he began to send letters about it to Baghdad. Finally,
someone took an interest, and in early 2009 the plant resumed operations, which in turn
stimulated the local dairy industry. Whether the plant was an SOE or a private operation the
officer did not know.
A March 18, 2009, Wall Street Journal report by Gina Chon chronicled other types
of problems in getting the private sector up and running.
NAHRWAN, Iraq — Brick-factory owner Dhary al-Shimary is thinking of calling it
quits after 30 years in business, even though Iraq’s demand for bricks has never
been higher. “Iranian bricks are invading Iraq,” says Mr. Shimary, whose soot-
belching factory on the outskirts of this trash-strewn town employs 300 people.
“And the government is doing nothing to help us.”
From bricks to buses to rice, Iranian imports have poured into markets
across war-torn Iraq. The goods are providing Iraqis with many cheap products
they otherwise can’t afford or make themselves. But they’re also undermining
local industries that are struggling to compete at a time when job creation is a top
priority for both Baghdad and Washington….
The 2003 U.S. invasion, and the looting and violence that followed, forced
Mr. Shimary and his fellow factory owners to shut down. Sunni insurgents gained
sway in the surrounding Diyala province, and Nahrwan’s factory complex, which
once employed more than 50,000 workers, became a ghost town.
In 2006, local officials persuaded Mr. Shimary and other owners to return,
promising stable supplies of fuel and electricity. Mr. Shimary reopened his factory
and hired back part of his work force…. Mr. Shimary, who currently employs about
200 workers, says he can make about 40,000 bricks on a good day. But he and
other factory owners say erratic fuel and electricity supplies mean there are many
bad days.…
To the frustration of the brick-makers in Nahrwan, the Iraqi government,
cities and their subcontractors continue to buy Iranian bricks. Earlier this year, the

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Basra Investment Commission announced a $1.5 billion housing and shopping

complex that will be built by an Iranian company using Iranian-made materials. Most
of the new schools and municipal buildings in Karbala are made of Iranian bricks.
The experience is similar in industries across Iraq. The country’s
transportation ministry bought more than 400 buses and trucks from Iran in 2007
and 2008, drawing the ire [of] Iraq’s struggling State Company for Automotive
Industry. (Chon 2009)

Whether Iraq is beginning to rebuild its economy, and whether it is becoming more
entrepreneurial and efficient, are difficult questions to answer. Whatever is happening, it
is not happening fast. Before trying to derive lessons from our Iraqi experience that might
help us better assist countries in the future, I believe it will be useful to review some very
basic concepts of economic development and critical relationships between the political and
economic worlds.

Capital Accumulation
The sine qua non of sustained economic development for any economy is the
accumulation of capital, be it human, financial, or physical. Improved management and
use of existing capital, labor, and land can in the short run give a boost to productivity and
growth, but only a steady increase in capital will ensure a continuous rise in per capita income
and most, if not all, other indicators of human well-being. Capital is only increased by saving
and investment, including investment in education and the accumulation of knowledge.
Entrepreneurs are both savers and investors. They actively save for downturns in
the business cycle, for unforeseen circumstances and to fund expanding operations. They
“passively” contribute to societal savings when, for example, they accumulate funds in a
bank for a week or two in anticipation of paying wages to their employees. Savings, whether
actively or passively generated, can be made available by the banks and other financial
intermediaries as loans to other members of the community, until such time as the saver/
entrepreneur decides to use them. When entrepreneurs invest, they do so with their own
savings, with profits, with funds from shareholders, and with funds borrowed from friends,
families, banks, and financial markets. A major source of savings and funding of investments
in most industrial societies comes from the depreciation reserves of large, long-established
firms.

Infrastructure Does Not Lead Development

While saving and investment is a critically necessary condition for economic
progress, it is not a sufficient, stand-alone factor. The type of capital accumulated and the
types of industries established at a particular time on the path from severe underdevelopment
to advanced development is also very important. For example, many studies have shown,

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somewhat counterintuitively, that the building of physical infrastructure and heavy industry
in an otherwise poorly developed country will do very, very little to promote economic
development. In poor country after poor country, we have seen roads, bridges, water and
irrigation systems, electrical grids, and telecommunication systems built by USAID, the World
Bank, and other well-meaning organizations simply fall into disrepair and disuse without ever
stimulating a sustained increase in local livelihoods. It was on the basis of such understanding
that the Carter administration in the 1970s shifted USAID’s focus from the building of
infrastructure to “helping the poorest of the poor,” which for different reasons also did not
lead to sustainable development.

Light Manufacturing First

Unlike building a house, which starts with a foundation, most economies are built
by constructing the roof first. Only a dictator like Stalin can build what often is considered
the capital-intensive, heavy industrial and infrastructure foundation of an industrial economy
before he builds the roof—i.e. the roof is the light industry and commercial operations that
provide the demand for the foundation. As shown by
Many studies have shown,
the successfully emerging Asian economies, as well somewhat counterintuitively,
as American economic history, modern economic that the building of physical
development almost always is led by the establishment infrastructure and heavy
of simple, labor-intensive manufacturing industries, industry in an otherwise
frequently those producing textiles and clothing. As poorly developed country will
do very, very little to promote
such industries grow, diversify, and competitively seek to
economic development.
improve productivity and quality, they effectively form
a market into which heavy industry can sell, and it then becomes sensible to build up those
heavier industrial sectors and associated infrastructure.
The other big advantage to developing large, labor-intensive manufacturing
industries such as textiles, clothing, and footwear in a country that has just come through a
war or economic chaos is that those manufacturers can absorb vast numbers workers who
might otherwise be unemployed and subject to insurrectionist propaganda.
Notwithstanding our collective economic knowledge of how successful countries
have approached development, our policies in Afghanistan and Iraq have gone in the
diametrically opposite direction. Where the TFBSO touts its expenditure of some millions
of dollars to help restart a mere sixty-six to ninety-six SOE factories, the U.S. Army’s Project
Contracting Office (PCO) for Iraq reports spending $10.8 billion on 3,422 large-scale, state-
owned and state-managed infrastructure projects (PCO 2010). In short, the Army, like other
well-intentioned but inadequately informed parties of the past, thought that restoring and
improving Iraq’s state-owned infrastructure would stimulate sustained economic growth.
That unemployment and underemployment still range between 20 percent and 40 percent
of the workforce is testament that the infrastructure-heavy, helping-the-state strategy is

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not the most effective approach. Perhaps if half to two-thirds of what we gave the Iraqis
for infrastructure had instead been made available as loans and grants to private-sector
entrepreneurs, training of private-sector personnel, or even SOEs involved in manufacturing,
we might see a more fully employed, stable and evolving Iraq than we now see.

Giving Too Much Away

Worse still, the Army not only put $10.8 billion into infrastructure, and only a
pittance toward entrepreneurial stimulation, it also gave everything to the Iraqi government
(or to ill-structured local cooperatives) at no cost and with no conditions attached. Such
largesse simply breeds contempt. It conveys the impression that the United States owes
Iraq restitution for the invasion and undermines the message that countries that act the
way Iraq acted under Saddam Hussein will suffer the consequences. Also, by simply giving
everything away, we missed a great opportunity to help Iraq develop a more powerful private,
entrepreneurial sector within its economy.
For example, we certainly could have conditioned our assistance on electrical power
generation and distribution by insisting that Iraq draw up and begin implementing a plan to
rationally price the electricity and begin privatizing the industry. Toward those ends, we could
have structured our assistance as a loan at commercial interest rates that would have been
shifted to more advantageous rates and possibly reduced or forgiven as Iraq made progress
on rationalizing and privatizing the sector. The same could have been done for our assistance
to Iraq’s oil sector and public water system.
Had we wanted to strengthen democracy by strengthening the role of provincial
and local governments as checks upon the power of the central government, we might have
conditioned more of our aid upon Baghdad transferring more authority and responsibility to
them. For example, our assistance in building and improving village roads and bridges might
have been conditioned on (1) those assets being transferred to the control and responsibility
of the local or provincial governments, and (2) those levels of government being given the
right to charge user fees or raise certain taxes for their own use (including infrastructure
maintenance) and budgetary independence.
We have also missed opportunities to strengthen local governance and financial
systems by giving away too much in infrastructure assistance directly to local governments.
Our Provincial Reconstruction Teams (PRTs) and U.S. Army company commanders have had a
standard practice (based on orders from higher command) of asking village and community
leaders what infrastructure they need to improve economic conditions. The Army or USAID
then goes in, builds what is needed, and simply turns it over to the local community, free of
charge. If instead we insisted that the community pay for some or all of these projects, we
might get more respect and more active participation by the community in them. Such a
program might stimulate the development of municipal bonds and bond markets, a greater
focus on the need for charging adequate user fees and properly maintaining the new

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infrastructure, and probably more efficient, cost-effective approaches to construction and a

greater use of local talent and resources.
Programs which, for extended periods of time, have simply given away food and
other humanitarian assistance also have not helped to strengthen market systems. We have
done this not only in Iraq and Afghanistan but in virtually every country where we have
provided such assistance. While there might be good reason in the first few days after a natural
disaster or the end of a war to throw bags of food off
We have also missed
the backs of trucks to help the starving multitudes, it is
opportunities to strengthen
inadvisable to do so for a protracted period of time. local governance and financial
Such giveaway programs undermine local systems by giving away
too much in infrastructure
farmers and merchants and otherwise undercut efficient
assistance directly to local
markets. They build a sense of entitlement, undermine
governments.
the work ethic, result in much waste, and build the
impression that the government can and should provide services without the people paying
taxes or any other form of compensation.

Food Auctions and Registering Aid Recipients

Following the initial phase of a crisis, food and humanitarian aid, I would suggest,
should be auctioned to merchants or sold directly to the needy. If the merchants or needy
do not have cash, then IOUs should be accepted. Such a program would support local
entrepreneurs and help minimize waste and disruption of traditional markets.
The U.S. government (USAID Food for Peace) and international programs like the UN
World Food Program should have standard procedures for creating IOU systems. For example,
they should have a standard master agreement with the host government, register needy
recipients, and extend the recipients credits or chits to buy donated food. Registered recipients
who receive credits and chits would have an obligation in the future, when their conditions
improve, to repay the credit received. Repayment might be in the form of cash, community
service, the payment of additional taxes, or another form. The agency distributing the food and
humanitarian supplies and services might retain control of the IOUs, chits, and credits collected,
might put them into Marshall Plan-type counterpart accounts, hand them over to the host
government, or even auction them off at discount to financial intermediaries.
As developing census-type information about a nation’s residents is an important
element in controlling insurgencies, it is very much in the interest of an occupying military
to see the implementation of an IOU system for the development of food aid, for it can be a
means for developing census-type information. That is to say, IOUs would only be accepted
from people who register with the aid givers, and such registration would include addresses,
numbers of people and names in a family, occupations, and references and reference
addresses. In the case of Iraq, a formal census was deemed infeasible in 2003–2005 due to

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political sensitivities. Lacking census-type data, the multinational forces in Iraq were greatly
inhibited in their counterinsurgency efforts; had an IOU system for food aid been in place,
those efforts would have been ameliorated.

Stabilization Operations
Since about 2006, military planning principles have focused on what is called
full spectrum warfare. It has five elements, the first three of which reflect the traditional
wafighting concepts of deter, seize the initiative, and dominate. The last two, however, are
new: stabilize and enable civil authority. They focus on what needs to be done following a
war, natural disaster, or other humanitarian crisis. Military officers are increasingly taught to
consider the political, economic, societal, cultural, and informational aspects of a situation
as they try to bring order out of chaos, and particularly when they are dealing with an
insurgency. The military is no longer an organization that specializes in the use of brute
force. It is now one that develops all sorts of knowledge about countries in which it currently
operates or may in the future. And it has fairly capable officers and personnel that can
undertake a wide variety of tasks.
Until now, most officers have looked upon economic stabilization as the need to
get utilities and infrastructure restored rapidly at whatever cost. Their focus has been on what
they call SWEAT: sewers, water, electricity, and trash. The Army Corps of Engineers and other
groups plan what needs to be done, let contracts, and pay for the work—often hiring local
construction firms as well as foreign ones.
The Army’s objective is to get the infrastructure in place and provide short-term
employment. It does not place a high priority on organizing a well-structured local authority
or private sector company that will charge rational user fees and provide good management
and maintenance for the infrastructure once it is built; that is rather an afterthought. Military
planners also tend not to think that, if what they are providing has value, there should be
users who are willing to pay for what they are getting. If they did, they might get more “buy
in,” participation, and respect from the local community. More stable communities might be
built and private enterprise strengthened.
Along these same lines, the military seems to have a weak system for setting
priorities in what it builds. Logically, it should help build what the people (including private
enterprise) want most and cannot provide for themselves. Yes, help people to have access
to useable water, but beyond that the military should place the onus on—and trust in the
capabilities of—the local people to provide for themselves. The common man is far more
capable of caring for his family’s needs than many aid providers or the military believes. The
military and aid providers should lead where necessary, but not do everything for the resident
population. Let them, or require them, to decide if they first want new roads, factories, or
irrigation canals rebuilt–including how to organize and fund each project. Rely upon them
to determine if they need (and can afford) formal social safety nets, or whether they can

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provide for their truly destitute through informal, more traditional means. Only as people take
responsibility, individually and collectively, for themselves does the reality set in that democracy
means, in large part, that the electorate, not some distant nobleman, charismatic leader, or
impersonal government, has the privilege of paying for everything itself. There is no free lunch.
The usual method for determining priorities in a free market system is based on
pricing and economic rates of return. After the military provides water and a very few other
essential services, additional economic outlays should, in consultation with local leaders and
communities, go to projects that yield the highest rates of return. It may be an industrial park
or factory complex, rather than the telephone system. Perhaps, stand-alone generators for
businesses would be smarter to install than citywide grids that only appease consumers. It may
take time to introduce rational prices, and provisions may be needed to assist the destitute—
and to avoid severe public backlash—but the principles
of rational pricing and investing first in positive, high- Only as people take
rate-of-return sectors should be clear. responsibility, individually and
collectively, for themselves
There is not room in this article to go into all does the reality set in that
the principles or tactics of expeditionary economics, but democracy means, in large
the point is that priorities should be set by something part, that the electorate,
more than the “seat of the pants” and what seems not some distant nobleman,
to the layman to be common sense. Too often we are
charismatic leader, or
impersonal government, has
siphoning resources into low-return investments, giving
the privilege of paying for
circuses to the masses, buttressing bureaucracies, and everything itself.
undermining rational economic actors. Sometimes we
seem to be giving the keys to a high-priced car to a person who has no idea how to drive it,
much less maintain and repair it.

Electoral Form Matters

Another key ingredient to success in helping a country recover from war or
overcoming chaos and dysfunctionality is getting governance right. In Iraq, it appears that we
have, with the best of intentions, not just allowed but ignorantly encouraged its leaders to
adopt one of the most indecisive, corruptible forms of democracy imaginable. As the proverb
says, the road to Hell is paved with good intentions. With tragically ill advice from the UN and
our acquiescence, Iraq has adopted an extreme form of proportional representation. Unlike in
the United States where we elect a single, resident congressman to represent each relatively
small electoral district, Iraq has huge electoral districts that elect ten to seventy representatives
at a time! Asking electors to be cognizant of the qualifications of even ten, much less seventy,
people to be elected from a single district (or shown on a party’s list of candidates), as is the
case in Baghdad, is absurd.
Moreover, to win a seat in a large district like Baghdad, a candidate theoretically only
has to garner one-seventieth (or less than 2 percent) of the votes cast. The result has been

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predictable; namely, the creation of hundreds of small, weak, often venal, righteous, divisive,
special-interest parties and the consequent election of many incompetent and corruptible
people to the parliament. These so-called representatives, who may or may not reside in the
districts they represent, are not even elected as individuals. They simply are persons listed
on a “victorious” party’s slate of candidates and wholly beholden to the unelected leaders
and directors of the party. Not surprisingly, politics in this type of system often is conducted
outside of the parliament proper and in the back rooms of the party bosses.
As so many parties vie for support in such a system, each party has to scramble hard
to win support, which leads them to offer favors and perks to their followers and supporters,
often in the form of jobs in SOEs or pork barrel projects subject to graft. That corruption is
rife in such a system is logical and a demonstrated fact. With so many competing interests in
parliament, it is also no surprise that passage of needed legislation is subject to the demands
(almost blackmail) of a number of very small parties, often including demands that are
mutually exclusive. The result is all too frequently legislative gridlock, procrastination, and
indecisiveness; ergo, dysfunctional government.
These types of problems with proportional representation (any system in which
there are two or more representatives—not just one—for each electoral district, and/or
parties that are represented in parliament according to the percentage of the total votes they
win) have been seen in many places, not just Iraq. They were the hallmarks of the French
Fourth Republic and the reason that DeGaulle insisted on ending proportional representation
when the Fifth Republic was founded. Proportional representation problems have been a
standard of Italian politics for most of the last sixty-five years. If one divides Latin America
between countries that, on the one hand, have had proportional representation and, on
the other hand, states that have not used that system, it becomes very clear that those
using proportional representation are the countries with the lower per capita incomes,
other negative human development indicators, and frequently instability and corruption in
government. Those nations with single-member constituencies tend to have higher per capita
incomes, etc.
So, with such historically bad results for proportional representation, why was it
adopted in Iraq? The main reason put forward by the UN was that it would avoid the need
for a new census and the dissension that might have arisen by dividing the nation into
smallish electoral districts. There also seemed to be an academic interest in having as much
diversity as possible represented in the parliament, and some desire to have a system that
could not easily be dominated by some particular group (like rejuvenated Baathists). Perhaps
a milder or temporary form of proportional representation could have achieved these aims
and not created as many problems as the one actually adopted.
In regard to the possibility of a more entrepreneurial approach to development,
Iraq’s chosen form of government makes such an approach almost impossible. To really
move the country toward a free market and entrepreneurship, most of the SOEs should,

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over the medium- to longer term, be privatized. That, however, would be the death knell
of many small parties, as they would lose opportunities for the graft and corruption they
need to survive. They would lose the ability to get supporters hired by SOEs dependent on
their votes. They would lose support of the SOE unions that have engineered work rules and
featherbedding to the point that most SOEs employ 30 percent to fourfold more people than
an efficient private sector firm would employ.
Some countries with large SOE sectors have been able to hive them down. We have
seen it happen in former Soviet states, Eastern Europe, Scandinavia, the United Kingdom,
China, Taiwan, Sri Lanka, and a few other places. Most of the success stories, however,
have been in states without a high degree of proportional representation, if any, in their
parliaments. Accordingly, while it is still theoretically possible to downsize the role of SOEs in
Iraq, it is not likely as long as the current proportional representation system continues.

Managing Unions
Another major factor in keeping SOEs alive and discouraging entrepreneurial activity
in many countries has been the operation of large, politicized labor unions. Too often, large
labor unions have bid up wages or employment levels in SOEs beyond optimal, market-
clearing norms. As the salaries of union officials are mainly a function of the number of
employees who pay union dues, any cut in union members in an SOE will pari passu reduce
union leaders’ salaries. A 30 percent cut in union positions in an SOE might cut a leader’s
income by 30 percent. Thus, union leaders generally oppose the restructuring of SOEs and
their privatization.
Countries that are not careful in how they regulate unions can also find themselves
in a situation in which the unions move beyond legitimate representation of workers’ interests
into the role of cartel players inhibiting the functioning of market forces or organizing
misguided political activities, such as national strikes. When potential entrepreneurs see
monopolistic or cartel-like labor unions dominating labor relations, many refrain from going
into business. When they see large, powerful unions, as in Greece, vehemently opposing
fiscal and monetary responsibility, organizing violent strikes against the state, and otherwise
dominating much of the political landscape, entrepreneurs will have grounds for not believing
in the nation’s stability or the security of their potential investments. The result is obvious.
So what position has the United States taken toward large, powerful, national-level
unions in Iraq and Afghanistan? We seem to have wholeheartedly supported them without
qualification, oversight, limits, or regulation. At least one union has already mounted a strike
in Iraq, and it seems that several have opposed, as predicted, restructuring and privatization
of the SOEs. We might have encouraged the Iraqis to limit union organizations to separate
industries, or even factories or companies, in order to keep their power more commensurate
with the probable infant industry status of most entrepreneurial firms that hopefully may
come into being during the next few years.

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We clearly have not endorsed any limits on unions, and it appears there is little
developed law in Iraq that applies to free unions. That said, steps have been taken to develop
law and codes recommended by the International Labor Organization (ILO). However, as
the ILO is an advocate for labor, its recommendations may well be slanted in favor of Iraq’s
unions to the detriment of potential entrepreneurs, investors, and those laborers striving
to move either from unemployment or less productive jobs (e.g. in subsistence farming) to
more productive jobs. Time will tell if the Iraqis have gotten it right on labor policy, but there
is enough uncertainty that entrepreneurs are likely to remain quite hesitant for years about
investing in the country.

Other Iraqi Considerations

Iraq, unlike many middle-income countries and unlike Afghanistan, does not suffer
from a shortage of foreign exchange, thanks to its oil wealth. If it can put itself on a more
secure and stable political footing and bring more rationality to economic policies, it certainly
should have adequate foreign exchange to import the precision equipment and other types
of capital goods it would need to develop a modern, well-diversified manufacturing sector. As
stressed above, however, the big question is whether the country can achieve the necessary
political stability given its system of proportional representation, the potential threat posed
by large, possibly unstable unions, and the depressing effects the many SOEs have upon the
development of a well-diversified, well-balanced, strong pole of entrepreneurial power. At
the moment, the lack of adequate poles of alternative power that might check and balance
the sectarian poles seems to suggest that, at best, Iraq faces a future of internal division and
stagnation.
Given Iraq’s history, it would be surprising if the military or something akin to the
Baathists would allow such a situation to long continue. Hopefully, some leader will make
it clear that a change must be made in their extreme form of proportional representation
and entrepreneurial enterprise must be more affirmatively endorsed. I am actually a little
optimistic that Ayed Alawi may become such a leader. A couple of years ago in an editorial
piece in The New York Times, he acknowledged the disutility of the current electoral system;
however, I am unsure of his stand regarding a better balance between SOEs and private
enterprise.

Afghanistan
The foreign exchange position of Afghanistan is diametrically opposite to that of
Iraq. The Afghanis have next to no export industry, other than illegal poppies and opium. If
the country is ever to prosper, it will undoubtedly have to travel the tried-and-true path of
developing clothing and other labor-intensive, export-oriented manufacturing firms. Even if
it discovers exportable mineral, gas, or petroleum wealth, it will still have a need to develop
a manufacturing industry. No other industry has the capability to absorb the vast amount of

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excess agricultural labor that Afghanistan now has. As the government has no significant
tax revenue, no royalty income, and no accumulated wealth on which to draw, there is
little or no way it can establish SOEs the way Iraq and other socialist-leaning countries have.
By default, Afghanistan will have to rely upon private sector, entrepreneurial effort and
investment if it is to prosper. To some degree, such entrepreneurship would benefit from
foreign direct investment, particularly for the global marketing of products.
Whether Afghanistan will be able to follow an entrepreneurial path to development
will depend on a couple of noneconomic factors, as well as the usual needs of good property
and commercial law, functioning labor markets, a stable currency, and so on. In particular,
society, its tribes and clans, will have to end their fighting and establish real peace and
adequate security. Society will also have to embrace factory culture, probably including
the legitimacy of young, unmarried women working in factories where occasionally male
supervisors might check on the quality of their work. The alternative may be to develop and
rely on women supervisors, possibly brought from other cultures where they are permitted
to interact with men. If these societal issues can be worked out, Afghanistan will still have
to compete with other countries to attract investment capital. Investors will need a reason to
choose Afghanistan versus, for example, Kenya, Nicaragua, or Bangladesh.
On the positive side, Afghanistan has an electoral system that is different from
Iraq’s and less prone to small-party politics. Rather than being asked to vote for a party
slate of up to seventy candidates as in Iraq, Afghanis in parliamentary elections cast a single
vote for a single person, not for a party. Unlike the United States, where we only elect
one representative from each electoral district, Afghans may have as many as five people
representing a single district. The five sent to Kabul are
the five who received the largest number of votes in the Whether Afghanistan
district. While Afghanistan has eight main ethnic groups, will be able to follow an
entrepreneurial path to
rarely are there more than five in any given district; so, if
development will depend
each ethnic group votes as a bloc, each is likely to have on a couple of noneconomic
its own representative. factors, as well as the usual
The only problem with this system is that, in needs of good property and
commercial law, functioning
a district where there are (for example) five people to
labor markets, a stable
be elected, it is possible for a highly popular candidate
currency, and so on.
to take 50 to 80 percent or more of the vote. Each of
the remaining “winners” might then be elected on the basis of getting only 1 to 12 percent
of the vote. The system minimizes the role of parties in political processes, but still allows
some very marginal actors to become parliamentarians. It would seem not to promote as
much graft and corruption as the Iraqi system, but that remains an open question. From all
appearances, there is much graft and corruption in both systems.

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Weaknesses of the Entrepreneurial Approach

As we push for a more entrepreneurial approach to U.S. foreign assistance,
including in post-conflict situations, we need to be candid about the weaknesses and
sometimes the dark sides of entrepreneurship. No system is perfect. Most of the defects can
be mitigated, but not necessarily easily. The ones I would highlight that need to be addressed
are as follows:
• A large percentage of entrepreneurial efforts (EE) in any economy fail.
• EE firms usually start small and take a long time to move to large-scale production.
• EE can lead to large differentials in income sustained over decades due to luck,
fortune, and positive externalities (due to maturation of systems) as much as to
marketplace merit.
• There are slick operators and shyster entrepreneurs who follow questionable
ethics, give presents or bribes, or engage in graft with politicians and rise to
power.
• EE can lead to growth-depressing monopolies and inequities in income and
wealth.
• Although short- to medium term, natural (market, not government, induced)
monopolies may not be a wholly bad thing, and may lead to economies of scale,
they are a dangerous and difficult beast to control or euthanize in the longer term.
• EE is hard to start in insecure situations.
• Government may at times have to act as an entrepreneur to kick-start the process.
• Entrepreneurs who come out of historic elites (the gentry, priesthood, clan leaders,
or the military) may combine their economic power with their traditional power to
dominate or exploit society.
• While every entrepreneur seeks a corner (monopoly) in his sector, a well-managed
society will assure free entry into each sector to keep competition alive and deny
monopolistic impulses.

Summary and Conclusion

Entrepreneurial economics is what has fueled America for the last 250 years. It has
been the force that has transformed much of Asia over the last sixty years. Those models are
worthy of respect and review when a nation is trying to recover from war or other chaotic
conditions. Beyond economics, strong, independent entrepreneurial poles of power are
critical to checking and balancing other social poles of power—including the military, clerics,
unions, academics, bureaucrats, political parties, the media, ethnic groups, tribes, and clans—
to maintain a strong democratic system.

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The Coalition Provisional Authority started with an agenda for building a more
entrepreneurial economy in Iraq, and advocated a privatization of state-owned enterprises.
That effort floundered. Much has gone into building infrastructure, but that has rarely
stimulated entrepreneurial effort. The insurgency and insecurity has discouraged much
entrepreneurship; possibly shifting more effort to securing industrial parks and zones might
help. We have given too much away. In the future, perhaps we could use aid to leverage
(require) economic reforms to create an environment more conducive to entrepreneurial and
market activities.
In pursuing economic objectives, we must not forget the importance of good
government. We have acquiesced in Iraq’s adoption of a form of extreme proportional
representation, which may inhibit its capacity to make needed decisions, pursue rational
market policies, or even sustain democracy. The country’s
capacity to manage its labor unions and ensure free In the future, perhaps we
labor markets is also a question. Afghanistan has could use aid to leverage
different problems and far fewer natural resources (require) economic reforms to
create an environment more
than Iraq.
conducive to entrepreneurial
Unquestionably, these two countries and and market activities.
many others would benefit from adopting more
entrepreneurial approaches to development. Social and security conditions impede the
process. Finally, no system is a panacea, but most problems with entrepreneurial approaches
can be mitigated.

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References
Barnett, Thomas P.M. 2004. The Pentagon’s New Map. New York: G.P. Putnam’s Sons.
Chon, Gina. 2009. “Iran’s Cheap Goods Stifle Iraq Economy,” Wall Street Journal, March 18. Accessed June 18, 2010.
http://online.wsj.com/article/SB123732669334561799.html.
CPA-1. Coalition Provisional Authority (CPA) Regulations 2003 and 2004; Section on Orders, particularly Order 12 of 12
June 2003; Order 18 of 7 July 2003; Order 39 of 20 December, 2003; Order 56 of 6 March, 2004; Order 64 of 5 March,
2004; and Order 83 of 1 May, 2004. Accessed September 15, 2010 at http://www.iraqcoalition.org/regulations/.
CPA-2. Coalition Provisional Authority (CPA) Documents 2003 and 2004; Section on State-Owned Companies. Accessed
September 15, 2010 at http://www.iraqcoalition.org/business/industries/.
Desai, Raj M. 2009. Iraq’s Economy Needs More Than Security. Brookings Institution. October 23. Accessed June 18, 2010.
http://www.brookings.edu/opinions/2009/1023_iraq_economy_desai.aspx.
Encyclopedia of the Nations. “Iraq Country Overview.” Accessed June 18, 2010. www.nationsencyclopedia.com/economies/
Asia-and-the-Pacific/Iraq.html.
Gunter, Frank R. 2009. “Liberate Iraq’s Economy.” The New York Times, November 15. Accessed June 18, 2010. http://www.
nytimes.com/2009/11/16/opinion/16gunter.html?_r=1.
Hess, Pamela. 2007. “Restarting the Factories of Iraq.” United Press International, January 9. Accessed June 18, 2010.
http://www.spacewar.com/reports/Restarting_The_Factories_Of_Iraq_999.html.
Inter-Parliamentary Union (IPU). Council of Representatives of Iraq, Electoral System. IPU. Accessed June 18, 2010. http://
www.ipu.org/parline/reports/2151_B.htm.
Iraqi Institute for Economic Reform (IIER). 2009. Seminar on Stimulating Investment through Safe Economic Zone(s). IIER.
Accessed June 1, 2010. http://iier.org/i/files/docs/IIER_recommendation_Safe_Zones_-English-.pdf.
McKinsey & Company. 2010. “Stabilizing Iraq’s Economy.” McKinsey Quarterly, March. Accessed June 18, 2010. www.
mckinseyquarterly.com/ Stabilizing_Iraqs_economy_An_interview_with_the_DODs_Paul_Brinkley_2553.
Nagl, John, and Daniel Rice. 2009. “A Jump Start for Iraq’s Private Sector.” Wall Street Journal, July 7. Accessed June 1,
2010. http://online.wsj.com/article/SB124693328868303861.html.
U.S. Department of the Army. 2007. Capacity Development: A Foundation for a Sustainable Future. Army Iraq Project
Contracting Office (PCO). Accessed June 18, 2010. www.rebuilding-iraq.net/pls/portal/docs/page/pco_content/home/
downloads/cd_brochure.pdf.
Schramm, Carl J. 2010. “Expeditionary Economics.” Foreign Affairs, May/June.
U.S. Department of Defense. Fact Sheet. Task Force for Business and Stability Operations in Iraq (TFBSO). Accessed June 18,
2010. http://tfbso.defense.gov/www/factsheet.pdf.
United Nations Industrial Development Organization (UNIDO). 2010. “UNIDO Supports Iraq’s Efforts to Rehabilitate State
Owned Enterprises.” ReliefWeb, March 22. Accessed June 1, 2010. www.reliefweb.int/rw/rwb.nsf/db900SID/myai-83T59L.
United Nations. 2010. “Iraq Electoral Fact Sheet.” www.un.org/News/dh/infocus/iraq/election-fact-sht.htm.
The World Bank. 2004. “Working Paper No. 2: State Owned Enterprises Reform in Iraq.” July 26. Accessed June 18, 2010.
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 Post-Conflict Planning and Execution: Progress,
Challenges, and a Framework for Moving Forward

by Frederick W. Kagan
Resident Scholar and Director, American Enterprise Institute
for Public Policy Research

Frederick W. Kagan is an American resident scholar at the American Enterprise Institute (AEI)
and a former professor of military history at the U.S. Military Academy at West Point. He earned a
BA in Soviet and East European studies and a PhD in Russian and Soviet military history, both from
Yale University. He worked as an assistant professor of military history at West Point from 1995–
2001 and as an associate professor of military history from 2001–2005. The courses he taught at
West Point included the history of military art, grand strategy, revolutionary warfare, and diplomatic
history. Kagan and his father, Donald Kagan, together authored While America Sleeps: Self-
Delusion, Military Weakness, and the Threat to Peace Today (2000). The book argued in favor of a
large increase in military spending and warned of future threats, including from a potential revival
of Iraq’s WMD program. Kagan also authored the “Real Iraq Study Group” report as the AEI’s rival
to the ISG report of James Baker and Lee H. Hamilton in December 2006. The AEI report, titled
Choosing Victory: A Plan for Success in Iraq, was released on January 5, 2007, and Kagan was said
to have won over the ear of President George W. Bush, strongly influencing his subsequent “surge”
plan for changing the course of the Iraq war.

T
he importance of economics during and after wars has long been understood,
and history is rife with examples. Crushing reparations payments imposed by
the victorious Allies after World War I destroyed not only Germany’s economy,
but also the proto-democratic Weimar Republic, leading to Hitler’s rise. Learning
from that lesson, the United States implemented the Marshall Plan after World
War II to help rebuild the economies of both its allies and its former adversaries.
Even victory in the Cold War required massive efforts by western European states
to reconstruct the economies of their former Eastern European adversaries. Failures
by the United States and the international community to plan adequately for post-
conflict economic development in the Balkans, Iraq, and Afghanistan, on the other
hand, has severely impeded conflict resolution in those countries and may render
stabilization achievements in Afghanistan ephemeral.

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for moving forward

War is the use of force to achieve political ends. Politics is primarily the mechanism
by which the distribution of power and resources are determined in a given state. It is not
possible to devise a coherent political end state that does not also include an economic end
state. Among other things, an economic order is implicit in any political order, whether we
realize it or not. The responsible planning of war thus requires not only a clear set of political
objectives, but also a clear understanding of the economic as well as military requirements for
achieving those political objectives.
Recent failures to develop such understandings stem from a number of causes, some
structural, some intellectual, and some political or even emotional. The Bush administration
took office in 2001, having campaigned against the “nation-building” activities its predecessor
had undertaken in the Balkans. The theory of national security underlying Secretary of Defense
Donald Rumsfeld’s efforts to shape the Pentagon and the entire military structure was that the
military should focus on short, sharp, decisive, and precise operations against fielded enemy
military forces characterized by the greatest possible use of advanced technology and the
smallest deployments of personnel. Failure by the administration to plan adequately for post-
conflict reconstruction, let alone development, was an almost inevitable, if deeply lamentable,
consequence of this theory. The Obama administration, unfortunately, appears to have
accepted the same aversion to “nation-building,” which the president has explicitly eschewed
in the case of Afghanistan.
Structural constraints on such planning result from the way the U.S. government is
organized. The military does not have staff sections, career fields, units, or doctrine designed
to plan for political and economic outcomes of major conflicts. It has made enormous strides
in finding ad hoc mechanisms for conducting such planning in conjunction with other
agencies, but it is unable (and, for the most part, reluctant) to build structural capabilities that
would institutionalize such planning in military organizations. The State Department has the
legal mandate to conduct economic development abroad through USAID, its implementing
arm. But the State Department has no organic ability to
It is not possible to devise a
develop large-scale plans and operationalize them, and
coherent political end state
it has largely failed to develop any such capacity during
that does not also include an
economic end state. the last nine years of conflict. USAID has the ability to
develop concrete plans to conduct particular large-scale
projects abroad, but it has neither the mandate nor the resources to design strategic programs
blending economic objectives with political goals. Only the National Security Council (NSC),
in fact, has the theoretical mandate to coordinate political, military, and economic activities
in support of a single set of strategic objectives. The NSC, however, has no ability to develop
plans of its own.
Perhaps the most significant constraint, however, is an intellectual one. The
enormous international development community is overwhelmingly dedicated to alleviating
poverty and its consequences. A core assumption within that community is that the alleviation

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of poverty is a task of overriding importance that must continue regardless of the economic,
political, and military structures (or lack thereof) of poor countries. To ensure access to such
countries, the development community has worked tirelessly to be seen as politically neutral
in internal conflicts and remain completely independent of the political objectives of major
donor states, to say nothing of their militaries. At the individual level, these efforts have led
to the execution of countless projects designed to provide water, food, medical care, and
other basic needs to impoverished populations. At the state level, they have led to a focus on
large-scale, long-term infrastructure projects that are “locally sustainable”—that is, can be
supported by whatever political, economic, and military structures (as well as local customs
and mores) prevail. These concepts are embodied in the Foreign Assistance Act of 1961 that
established USAID (and remains the legal basis for the notion that economic assistance, even
in post-conflict environments, is the State Department’s purview). None of these attitudes or
approaches is conducive to cooperation between the development community and the U.S.
government, let alone military, on the construction of coherent political-economic-military
plans for post-conflict situations.
There is thus no simple structural solution to the challenge of improving the
U.S. government’s ability to plan and conduct post-conflict economic operations. All of
the possible options for rearranging boxes on wire diagrams have their own significant
drawbacks. USAID could, and probably should, be an independent organization with a new
mandate aimed not primarily at alleviating poverty, but at supporting American national
security objectives through economic means (alleviating poverty is, of course, one of those
objectives, but it need not be the overriding one). The current ethos within USAID, however,
is not conducive to such a transformation in the short term. Even if it were—and there even
now are “insurgents” at USAID working to change the culture—any such transformation
would wrench USAID away from the mainstream development community, further
complicating efforts to align international programs with U.S. or even Western interests.
Establishing an independent USAID with such a new mandate may well be the best long-term
solution to the problem, but it most likely will require a generation to complete.
Both the lures and the drawbacks of relying on the American military in the
meantime are readily apparent. The attraction of such a solution is the military’s enormous
capability to both plan and execute on a global scale, and the fact that the military is entirely
focused on achieving America’s national security goals and would, therefore, naturally align
economic activities with those goals. We already have seen, moreover, the tremendous
benefit that derives from joint civilian-military teams operating in pursuit of military-political-
economic objectives, supported by the military’s infrastructure.
But the drawbacks of such an approach are manifest. The military, to begin with,
does not support it. The armed forces have reluctantly involved themselves in political and
economic reconstruction faute de mieux, but they rightly regard their direct involvement in
those activities as distracting from the core military tasks that only they can perform. The

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civilian agencies have been even more hostile, actively resenting the intrusion of uniformed
personnel into areas they regard as their own core competencies. Militarizing the provision
of economic assistance also would rapidly alienate a significant portion of the international
development community—relations between military efforts along these lines in Iraq and
Afghanistan and many of the international NGOs operating there have ranged from wincingly
correct to hostile. It will not be possible in any short period of time, perhaps ever, to closely
coordinate American economic efforts explicitly run by the U.S. military with international
developments efforts.
Other solutions can be considered, such as providing the National Security Council
with a robust planning staff, creating an operational division in the State Department with
these capabilities, or inventing an entirely new agency. All of them have serious pitfalls. Apart
from the likely unwisdom of turning the NSC into yet another large bureaucracy, there is a
real danger in requiring it to do both planning and oversight of many large-scale operations
at once. Such a requirement, at minimum, would either severely hinder the NSC’s ability to
focus on a single extremely urgent challenge, or would risk a continuous loss of focus on
secondary problems as the NSC remained caught up in day-to-day challenges.
The most serious problem with trying to turn the State Department into such
an organization is that any such effort fundamentally misunderstands what the State
Department is. America, like any other state, needs a diplomatic corps whose job is
primarily to observe, report on, and communicate with other states. The task of planning
and conducting large-scale economic or even political operations is antithetical to such an
organization. One need not even expound on the challenges associated with creating an
entirely new agency.
Concluding that there is no simple structural solution does not mean that there
is no solution. On the contrary, the United States has made significant strides in the last
eight years, both in understanding the challenge and in finding ways to work the systems
we already have to manage it. Let us briefly consider what already has been learned before
evaluating what remains to be done.

Progress
By far the most important progress made in the last decade in this area has been
the emergence of the concept of “economic assistance to counterinsurgency.” This concept
emerged from the recognition that traditional international aid and development programs
would either fail during, or actively fuel, insurgencies. The international community wasted
enormous sums of money on large and small infrastructure projects that were abandoned,
useless, unwanted, or destroyed by insurgents in both Iraq and Afghanistan. In both
countries, but particularly in Afghanistan, the international aid effort has had seriously
damaging consequences. The reasonable desire to employ local nationals has led to a
devastating brain drain in Afghanistan, as the best and the brightest sign up with NGOs

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rather than with their government or Afghanistan’s limited private sector. The effort to work
through local companies has led to crushing corruption and the establishment of a new
“aid elite” within Afghanistan whose wealth distorts the economy and the government
profoundly. The American aid community increasingly is coming to recognize all these
challenges, and some efforts are under way to unwind the worst practices in Afghanistan (the
United States no longer provides reconstruction assistance to Iraq), but much more remains to
be done.
The militarization of development has shown its effectiveness in these conflicts. The
most prominent example is the Commander’s Emergency Response Program (CERP), which
allows military commanders to allocate funds directly to local economic projects that can
support the counterinsurgency effort. In some cases, CERP money was used almost entirely
to create jobs for military-aged males who otherwise would be drawn to the insurgency
for cash. In other cases, CERP money was used more creatively to empower local elites or
would-be elites who were willing to lead their communities toward accommodation with the
United States and the government in Baghdad or Kabul.
For all the flaws of the effort
Other American agencies became involved in—and, in
there, the United States and
some cases, central to—such efforts at all levels. Deputy
the international community
Under Secretary of Defense Paul Brinkley established also have helped the Iraqis
a group in Iraq devoted to restarting state-owned reconstitute a thin layer of
enterprises that had been shuttered earlier because the expertise on which they
United States (rightly) prefers free-market rather than can build to construct the
social fabric necessary to
centralized economies. Brinkley reasoned (soundly)
generate their own economic
that in the midst of an insurgency it was folly to have
momentum.
factories idle that could be employing military-aged
males and distributing income in their communities. Embedded Provincial Reconstruction
Teams (PRTs) in Iraq also worked closely with their parent military units to coordinate civilian
and military outreach efforts, both politically and economically.
The net result of these military efforts and the civilian efforts conducted separately
by USAID and other agencies in Iraq has been positive. These efforts helped the Iraqis increase
the generation and transmission of electricity, reconstitute their devastated oil infrastructure,
clear irrigation canals and restart agriculture, and many other things that were important in
bringing the insurgency under control, but that also set Iraq on a course toward sustainable
economic development. For all the flaws of the effort there, the United States and the
international community also have helped the Iraqis reconstitute a thin layer of expertise on
which they can build to construct the social fabric necessary to generate their own economic
momentum. As noted above, the efforts in Afghanistan have produced much more mixed
results.
It has been fascinating to watch the emergence of a cadre of civilian leaders in the
State Department, USAID, and other agencies committed to rethinking the way economic

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assistance should work. The resistance within those organizations to these “insurgents”
is great, however. Unless these individuals and others like them are given control over the
direction of economic assistance in their agencies for a protracted time, the progress we have
seen is very likely to prove ephemeral.
The progress we have seen on the military side likely will prove more enduring,
as the change in understanding of the need to plan for, conduct, and support economic
activities during counterinsurgencies and post-conflict scenarios has penetrated much more
broadly throughout the officer corps. Its impact will be infinitely more limited, however,
because it is operative only where the U.S. military is present in large numbers. American
officers who do understand the challenges properly, but who are stationed in Sana’a or
Islamabad, have very little ability to implement their understanding, as we have seen. Even
enlightened USAID officials in those capitals have been very circumscribed in their ability to
educate their host-nation partners, let alone implement programs on their own.
Two major challenges, therefore, will be institutionalizing the advances in our
thinking we already have made, and finding ways to expand the applicability of the new
approach to areas where the U.S. military is not in control.

What Remains To Be Done

Improvements in America’s ability to provide economic assistance to
counterinsurgency and post-conflict reconstruction are important, but ultimately insufficient,
for the United States sets its objectives much higher than those of empires. When America
intervenes abroad, its aim is never to remain in occupation and govern the conquered
territory. The desired end state of all American interventions is the departure of American
military forces and the return to normal relations with a successful, peaceful, and stable
state whose interests roughly align with ours. Americans rightly regard as unsuccessful
interventions and withdrawals that leave behind instability or chaos—and the concomitant
danger that future interventions will be required. Achieving this kind of success requires
more than pacifying an insurgency, ending violence, or turning it over at a reduced level to a
host-nation government. It requires helping the host nation develop the tools it will need to
remain peaceful and stable long after American forces and, ideally, substantial assistance, are
gone.
American and international aid efforts generally focus either on delivering goods
and services directly to the people or building the capacity of the host-nation government
to deliver goods and services to its own people. They generally do not focus on building the
capacity of the private sector to perform its critical economic and political roles. The influx
of international cash into “Afghan-first” programs has, indeed, led to greatly expanded
capacity in the Afghan private sector. The nature of this expansion, however, is much more
likely to generate instability and undermine progress over the long term than support and
sustain improvements in governance and security. U.S. and international assistance in Iraq,

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on the contrary, probably has provided less of a stimulus to the development of indigenous
economic capacity, but also done less damage to the prospects for long-term stability.
The enormous disparity between the national wealth of the two countries, the
expectations of their people, and the educational levels of the population go a long way
toward explaining the differences. Iraq already had a robust economy (at least when
compared with Afghanistan), oil wealth, and a highly literate and technically sophisticated
population. It also had extremely good transportation infrastructure and relatively advanced
(again, by comparison with Afghanistan) infrastructure for generating and distributing
electricity, oil, gas, and other natural resources. There was a brain drain from Iraq, but it
took the form of elite flight from a combat zone much more than the removal by NGOs of
talented Iraqis from the government and labor pool.
The structure of government in Iraq and Afghanistan also played an important role,
however. The post-Coalition Provisional Authority (CPA) Iraqi government was designed to be
relatively decentralized for a state whose wealth comes primarily from oil. From the outset,
the United States and its partners worked to create relatively strong provincial governments
and set the legal frameworks that would hinder efforts by the central government to
emasculate the provinces by tightly controlling the flow of cash to them. It is notable that one
of the key pieces of “benchmark” legislation that the United States continually pressed for
was the Provincial Powers Law, which codified the relationship between the provinces and the
central government.
The net result of these two factors has been the relative success of U.S. and
international efforts to develop government capacity without fundamentally distorting
the Iraqi economy through the disbursement of international aid money. The proof of
that success is in the relatively smooth transition from the Iraqi government’s reliance on
international assistance to the substantial withdrawal of that assistance and the government’s
reliance on its own sources of revenue and means of expenditure. U.S. and international
efforts to support the development of Iraqi private enterprise beyond the most local level
have been rudimentary by comparison. It is not clear what effect those limited efforts will
have on long-term stability in Iraq.
In addition to its many other economic and political woes, Afghanistan has suffered
from the establishment of a hypercentralized governmental structure created by the United
States and the international community after the fall of the Taliban, largely out of fear of the
centrifugal forces that threatened to tear the country apart. This hypercentralized structure
relies entirely on the government of Kabul to extend its reach to local communities through
the medium of provincial line ministers with extremely limited capacity and provincial
governors who are centrally appointed and have almost no autonomy or power. Since the
Kabul government has proven unable (and, in many cases, unwilling) to extend its power to
localities, the international community has responded by contracting directly with Afghan
firms, not for small- or medium-scale projects, but for enormous tasks—such as providing

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international troops with fuel, regional construction projects, large hydroelectric projects,
security, and so on. Much, if not most, of the money involved in these contracts has bypassed
the Afghan government, in part because donors fear its corruption. However, the result of
that effort to bypass corruption has generated even greater corruption, as powerful officials
have taken both direct and indirect control of the nominally independent companies that
receive most of the international aid. The international aid effort, thus, has helped subvert the
development of a healthy private sector, and instead facilitated the takeover of the private
sector by government officials and their friends and relatives. This obvious corruption—
characterized much more by conflicts of interest than financial malfeasance—actually is a
major driver of insurgency in Afghanistan today, as the powerful elite excludes and punishes
its rivals using international money.
There is an inherent tension between the need to develop a strong government
structure in ungoverned spaces and the desirability of setting conditions for the emergence
of a robust private sector. Insecure government actors feel threatened by the development
of centers of power beyond their control. They also can fall into a mentality that says “get it
while the getting’s good,” stealing egregiously for fear they will lose their power soon. The
symptoms of these phenomena are visible in Afghanistan, particularly in the flight of capital
(mostly generated from international aid) from the country to Dubai and elsewhere, and the
concentration of enormous amounts of wealth in the hands of a very few individuals.
Moving forward in Afghanistan will require finding ways to manage and contain
this corruption, punishing some offenders, but probably encouraging others to move from
being “robber barons” to capitalists, distasteful though that approach seems.
But is it possible to prevent this phenomenon from repeating itself in Yemen,
Somalia, Sudan, or any other desperately poor country that receives, or might receive, the
focused attention of the international community? It is not clear, but there are at least some
basic outlines of a way to mitigate the problem, if not solve it.

Concentrate Efforts Before the Crisis Comes

Once the United States is mobilized to attack a crisis, the priority is on speed of
action. That priority drives a tendency to use whatever local structures are most readily
available, regardless of the long-term consequences. In Afghanistan, it meant relying on
warlords and their militias in 2001, and then on NGOs to deliver aid and services thereafter.
In Iraq (and possibly Afghanistan today), it meant attempting to transition security
responsibilities to indigenous forces too rapidly. In both cases, it meant trying to pour money
into governmental and economic structures that were not able to absorb it, let alone disburse
it properly. It also meant, especially in Afghanistan, providing enormous amounts of aid of all
varieties before the legal mechanisms were in place to guide the movement of money outside
of a very few ministries.

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In other countries that have benefitted from America’s concerns with terrorism,
crisis decision making repeatedly has undermined prospects for long-term stability. Pouring
billions of dollars of aid into the Pakistani military and state, without any adequate controls
over its expenditure, certainly has undermined progress toward the real establishment of a
civilian government independent of the military and controlled by the rule of law. A similar
phenomenon is occurring on a much smaller scale in Yemen, where an American focus on
Yemeni military cooperation against al-Qaeda in the Arabian Peninsula (AQAP) has led to
aid efforts that strengthen the authoritarian Yemeni government, which is complicit in the
Salafist movement from which AQAP springs, but whose corruption also fuels the resentment
that fills the terrorists’ ranks. International aid efforts in Somalia have been hijacked almost
entirely by the al-Qaeda-affiliated al-Shabaab terrorist group that controls much of the
country. If the United States intervenes in Somalia or Yemen, it will not have developed any
local partners, mechanisms, or strategies for operating
outside of the current structures that have contributed Moving forward in
Afghanistan will require
directly to the collapse and fragility of those two states.
finding ways to manage
There may be no way for the United States and contain this corruption,
and the international community to shape the internal punishing some offenders,
dynamics of states in the absence of foreign military but probably encouraging
presence, but it is at least worth a try. As a matter of
others to move from being
“robber barons” to capitalists,
priority, the United States and its international partners
distasteful though that
immediately should put together working and planning approach seems.
groups to come to consensus about the fundamental
problems besetting states like Somalia and Yemen, and ways of addressing them that
recognize the failure of the institutions currently in place. Such planning efforts will have to
evaluate the long-term requirements for, and feasibility of, private sector development to
balance the strengthening of government institutions that certainly is required. These efforts
likely will lead to much more serious ones to address the challenges of rule of law and legal
frameworks that beset such states with even vaguely functional governments (as opposed
to Somalia, for instance). They will require shifting the emphasis of international aid and
development efforts away from immediate poverty alleviation and toward the development
of stable institutions that can endure over the long term.

Set and Maintain the Necessary Legal Framework

The more urgent the crisis, the less the international community is likely to balk
at corruption, illegality, and the absence of meaningful rule of law. The international
development community’s focus on complete neutrality also undermines its ability to use
the resources it provides as leverage to improve the legal functioning of the states in which
it operates. The absence of functioning legal frameworks, however, dooms weak states to
pervasive corruption and rentier status, often despite the presence of significant potential
resource wealth. The international community simply has not made it a priority hitherto to

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encourage and cajole weak states to improve their legal and judicial structures. Moreover,
it has not developed any significant ability to help weak states improve their legal systems.
International efforts to improve the rule of law in Afghanistan have failed spectacularly, for
example.
The absence of functioning legal systems also perverts long-term economic
development by facilitating corruption and deterring responsible international investment
in the private sector. The inability to attract such responsible international investment
makes weak states more attractive to investors who are willing to deal in bribes and other
illegalities in return for high returns and/or monopolistic privileges. Such deals, in turn,
tend to entrench power brokers inside the government and outside at the expense of open
competition. Such distortions of the economy increase disaffection and often fuel political
and communal violence, perpetuating the vicious cycle. Again, the urgency of responding
to political, military, or humanitarian crises undermines what limited international will exists
to focus on creating viable and stable legal structures. It is all the more important, therefore,
that the international community develop doctrine, procedures, and tools for addressing legal
frameworks in weak and failing states before the crises hit.

Enforce the Rule of Law and Financial Ethics on International Donors

as well as the Host Nation
NGOs and private companies that violate international or local laws, or behave in
ways that harm the countries in which they operate, should be publicly identified and, when
necessary, sanctioned. The understandable reluctance to exclude or chastise those who
work in distressed countries must give way to the recognition that their methods of working
sometimes do more harm than good. Sanctions for poor practices can include public criticism,
withholding of grants and other resources, calls for others to withhold donations, and, in the
worst cases, legal action.

Give High Priority to Economic and Political Intelligence and Find Ways
to Share Analytical Conclusions
One cannot treat a disease that has not been diagnosed. Understanding the flows
of money in any economy is hard; in distressed countries, it can be even harder, especially
when local power brokers make use of offshore sanctuaries with liberal banking and
investment rules to conceal their activities. The international community has developed
some bodies that can track certain kinds of money flows extremely well, particularly those
which combat international organized crime and terrorist financing. However, those bodies
and their capabilities are not necessarily well suited to the very different challenge of
understanding how power brokers influence the movement of money in an economy in ways
that undermine stability and sometimes security.
Terrorist threat finance cells are generally targeting organizations: They look for
bad actors and their interrelationships in order to take specific actions—freezing assets,
arresting criminals, taking down financial networks. Organized-crime fighters function in

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roughly similar ways. Not enough of such bodies exist in the world to both do their daily jobs
and track illicit activity in individual states of secondary interest to the international financial
system or focus on counterterrorism. The international community would do well to make the
capabilities of such bodies that do exist more robust.
Developing the level of understanding needed to evaluate ways in which
international assistance or local wealth is being used to undermine stability is a requirement
for intelligence organizations rather than law
It also is remarkable that the
enforcement bodies, however. Also, it is a requirement
international community has
for which capabilities in most Western states’ not developed a system for
intelligence structures are sorely lacking. Economic blacklisting local companies
intelligence has long been a weak point in the known to do business with
West—analyses of Soviet economic performance, for insurgents and terrorists, or
example, were notoriously inaccurate. The current engage in fraudulent, corrupt,
or illegal behavior on a large
focus on counterterrorism intelligence continues to
scale.
pull talent and resources away from this traditionally
underdeveloped area of intelligence. That tendency will have to change if the United States
and its partners are to stand any chance of understanding the effects of local political and
economic dynamics on security and long-term stability.
We’re not talking about industrial espionage here. The problem is that the absence
of meaningful rule of law allows power brokers in weak states to act without the kind of
transparency that would be required in any developed country. Even the task of laying out
how boards of directors of various public, semipublic, and private companies in Afghanistan
interlock is a significant analytical challenge—something that would be the work of an
hour for problems of similar complexity in any Western state. Intelligence organizations
could piece this information together, often rather quickly, if other priorities did not push
it to the background. Even when they do have the information, however, they find it very
difficult to develop appropriate ways of sharing it without compromising their own sources
and methods, and without appearing to be engaged in active measures of the sort that are
regarded as illegal—or at least improper—for intelligence agencies.
In reality, any effort to bring transparency to activities that local power brokers
prefer to remain opaque is likely to generate retaliation and responses from those power
brokers. One part of the solution is to require such transparency as a condition of receiving
international aid and/or contracts. It is remarkable, for example, that websites identifying
Afghan companies that can receive contracts in various regions and specialties do not
identify the owners or boards of those companies. It also is remarkable that the international
community has not developed a system for blacklisting local companies known to do business
with insurgents and terrorists, or engage in fraudulent, corrupt, or illegal behavior on a
large scale. These and other media would be means by which the most important results of
economic intelligence could be shared.

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Use International Legal Structures where Local Structures Cannot Function

It is vital to understand what local legal structures can do and what they cannot
do. For the most part, formal legal regimes in weak and failing states will be unable to resist
pressures from strong power brokers, in the government or outside it. Relying on indigenous
legal systems to compel such power brokers to comply with the law and international norms
is very likely to lead to failure, as we have seen in Afghanistan and elsewhere. It is easy to
mistake this problem for a lack of capacity. The absence of adequate numbers of courts,
judges, clerks, and the other accoutrements of formal justice definitely limits the ability of
indigenous legal systems to enforce the law, but removing those capacity constraints is not
tantamount to giving legal structures the ability to stand up to those who effectively control
the state.
In such situations, the international community will have to rely on other means to
control corruption and abuse of power by government officials and other power brokers at
the highest levels. The analogy to organized-crime task forces and major case units is apt. In
the United States, federal and state governments undertake prosecutions against individuals
too powerful for local communities to handle on their own. In a similar way, the international
community will have to use its own legal mechanisms against malefactors too powerful for
local governments to handle.
The moral and ethical basis for such legal intervention is that the international
community acquires rights and interests in the way states function when those states receive
significant amounts of international aid. The legal basis is usually more straightforward,
since international laws regarding narcotics, organized crime, human trafficking, money
laundering, and so on generally suffice to provide leverage against power-broker networks.
Among other things, networks significant enough to pose a threat to the states from which
they emerged generally also diversify their interests into other countries, laying themselves
open to legal actions there, and in the international arena in general.

Conclusion
Sound policy planning seeks enduring solutions rather than fleeting ones. It is hard
to plan for such solutions, and harder still to bring them about. Concerns about political
will, interference in the affairs of sovereign states, the difficulties of gaining consensus
among a wide variety of international actors, and coordinating military and civilian activities
all undermine attempts to design political-economic-military strategies that can succeed
over the long term. Structural and intellectual problems add to the difficulty. But the price
of insouciance is high, both to the affected country and its people and to the international
community. The ideas described above are only the sketch of some aspects of a framework
for tackling this problem. Until and unless we put the search for long-term, sustainable
solutions at the center of our strategic planning, however, we will be putting out the same
fires time and again.

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 Economic Regeneration in Unstable
and Conflict-Affected Areas

by Clare Lockhart
Director, Institute for State Effectiveness

Clare Lockhart is director and co-founder of the Institute for State Effectiveness, which focuses
on transforming unstable societies through balancing state, market, and civil society solutions in
such countries as Afghanistan, Haiti, Nepal, Pakistan, Sierra Leone, Somalia, and southern Sudan.
She also directs the Market Building Initiative at the Aspen Institute, which focuses on supporting
the emergence of market institutions in conditions of post-conflict and poverty. Lockhart, who
co-wrote Fixing Failed States: A Framework for Rebuilding a Fractured World, serves as an advisor
to senior military and civilian leaders on a number of reviews and panels relating to global
security and economic issues. Lockhart and her co-author were jointly ranked No. 20 on Foreign
Policy magazine’s “Top 100 Global Thinkers of 2009.” Before founding ISE, Lockhart was living in
Kabul, Afghanistan, as a UN advisor to the Bonn Agreement, a series of pacts intended to rebuild
Afghanistan after the U.S. invasion. Previously, she managed a program on institutions at the World
Bank. Lockhart is a member of the Bar of England and Wales.

Shortcomings in Existing Approaches to Post-Disaster Economic Development

M
ost recent attempts to respond to disaster, stabilize and heal societies
after conflict, and confront fissures in the polity have treated questions
of economic growth and vitality as an afterthought at best. Where the
market and support for economic growth are highlighted as key concerns, the policy
frameworks and implementation mechanisms to address these issues have proven
inadequate, inappropriate to the context, and often counterproductive.

The Conceptual Lacuna

Broadly, there have tended to be four mental “traps” that obscure the perspective
of some otherwise very smart, experienced thinkers and practitioners from understanding the
challenge of economic development:

The aid delivery model

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In a crisis or post-conflict context, the imperative for many external actors is to

“deliver aid.” While in some contexts the delivery of humanitarian response is indeed critically
important, actors often confuse the requirement for a well-designed response to a crisis with
a development process in itself (where it is assumed that the society, polity, and/or economy
require “development”) and the disbursement of aid funding, managed through aid projects.
This confuses a process that usually is endogenously driven, at times with exogenous
catalysts, with the import of fragmented, often uncontextualized projects. Frequently, key
actors agree on a continuum from security to humanitarian aid to development. Yet at each
of these stages (which in themselves are artificially constructed), the market economy as
a distinct sphere of activity, the institutions that underpin it, and the requirement of the
provision of meaningful economic activity for the people of the country are overlooked.
Outcome is confused with process, and while development is equated with the disbursement
of funding through projects, the proliferation of such projects actually undermines those
elements necessary for a market economy to function.
Through this approach, the aid community in
general—embodied in donor financing agencies, UN A multiplicity of aid actors
agencies, private contractors and non-governmental leads to a coordination
challenge, in which projects
organizations (NGOs) —all practice a form of the
often exist outside the logic
administrative model derived from a central planning of the market or public policy
approach rather than a management model built frameworks.
through a competitive market economy. Over the last
decade, donors have clustered around the “Millennium Development Goals,” basing their
own programming on a set of predefined goals—and encouraging country governments to
follow suit. These goals are worthy, but not always the first preconditions for revitalization
of a damaged economy, or indeed for efforts to change the nature of a criminal economy.
One of the goals is universal primary education, for example—an undisputable good—but
without secondary and vocational training, a society is unlikely to be able to manage its own
economy, polity, and society.
A multiplicity of aid actors leads to a coordination challenge, in which projects
often exist outside the logic of the market or public policy frameworks. At the same time,
they are so numerous that policy makers and diplomats alike, without the balancing
mechanism of the market, the organizing principles of law, and the structure provided by
policy frameworks, face the challenge of coordinating multiple activities.1 The volume of
donor funding available allows donor agencies to set aid-system wages by fiat at levels far

1. For a fuller description of the pathologies of the “aid complex,” see Ashraf Ghani, Clare Lockhart,
and Michael Carnahan, “Closing the Sovereignty Gap,” Overseas Development Institute Opinions 44
(2005); and Ashraf Ghani and Clare Lockhart, ”The Promises and Perils of Aid,” in Fixing Failed States: A
Framework for Rebuilding a Fractured World (New York: Oxford University Press, 2008), 85–114.

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higher than the indigenous civil service and market would permit, drawing personnel away
from both the government and entrepreneurial and productive activities into a parallel set of
organizations.

The Foreign Direct Investment (FDI) model

For other actors, the imperative in the field of economic regeneration is attracting
foreign direct investment into the country. Attention is therefore paid to identifying and
persuading foreign investors and companies to locate their activities in a given context and
set up their own operations in the form of direct or franchised entities. While attraction of
capital investment can be entirely appropriate, this overlooks two latent assets that may well
exist within a country context: the availability of capital and the existence of domestic firms. It
also overlooks the opportunity to generate an ecology of domestic firms through investment
in human capital and firm formation, and the concomitant generation of ownership by
domestic stakeholders in the rule of law.

The primacy of the market

For much of the 1990s and into the new millennium, the “Washington Consensus”
dominated the thinking of many development experts, privileging a set of prescriptions to
be applied to developing countries in order to enable economic development.2 Very broadly,
the approach was to remove the state to allow the market to flourish. The Washington
Consensus, in its original form, set out ten prescriptions for developing country governments,
ranging from privatization of state-owned enterprises (SOEs) to trade liberalization. Many
experts sent through technical assistance programs to post-conflict contexts throughout
the 1990s and 2000s sought to apply these precepts without sufficient consideration
of contextual variations, including conditions of instability, poverty, and institutional
deterioration in postwar contexts. Often, therefore, the prescriptions, while potentially
sensible in theory, would lead in practice to the privatization of SOEs at low prices and
market distortions through nepotistic processes. As a result, this did not lead to the
expected activation of economic entitlements, investment, job creation, or improvements
in production, but rather perpetuated the generation of illicit and unproductive activities.
Increasingly, the Washington Consensus itself has been challenged for its monolithic nature,
its lack of suitability to developing contexts, and its overreliance on the market as a self-
regulating mechanism at the expense of an understanding of the role of public policy making.
In any environment, the role of the state versus the market and civil society is not mutually
exclusive—there is a balance to be struck between the three depending on the specific
institutional, capacity, economic, and political constraints on the ground.

2. John Williamson, ed., set out the ten precepts of the Washington Consensus in “What Washington
Means by Policy Reform” in Latin American Adjustment: How Much Has Happened? (Washington, DC:
Institute for International Economics, 1990).

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The presence of an “enabling environment” or an “investment climate”

Recognizing the shortcomings of the Washington Consensus, both in its lack of
adaptability to context and its overemphasis on free market conditions, development actors
including the International Financial Institutions (IFIs) softened their approach in the early
2000s, focusing on an “enabling environment” conducive to growth, or an “investment
climate.”3 Elements implicitly or explicitly contained within an enabling environment might
include: security, rule of law, security of land tenure, and access to capital. As Derick
Brinkerhoff has pointed out, however, the term is so broad that it can mask, rather than
generate, conceptual clarity.4 The elements outlined above certainly correlate with, and may
at times enable, a growing economy. However, these factors alone provide little in the way
of a usable roadmap, tools or techniques, or knowledge as to how to create, sequence,
prioritize, and implement the systems denoted by each of the outcomes. The frameworks and
checklists applied assume that the enabling environment either exists or does not, rather than
understanding how an enabling environment might emerge.

The Implementation Lacuna

While national or development agency documentation often does indicate job
creation and economic growth as important or vital goals, as evidenced by the conceptual
lacuna, development policies and approaches often are not geared towards the creation of
indigenous employment and economic growth. In practice, worthy objectives are not met, as
they fall down at the implementation phase. Six key syndromes are evident in this respect:

Lack of focus on implementation

The business world has discovered the importance of implementation and execution
as a counterpart to strategy formulation; any business bookstore now is cluttered with titles
ranging from Execution: The Discipline of Getting Things Done, by Larry Bossidy and Ram
Charan (200), to Executing Your Strategy: How to Break it Down and Get It Done by Mark
Morgan, et al. (2008). The policy and aid world have not internalized such lessons. All too
often—compounded by the political cycle of three to five years, and the rapidity of change in
fashion of “donor speak” for new concepts and themes—strategies will be drawn up, agreed

3. See for example: UN Economic Commission for Africa, “Private Sector Development Strategy:
Directions for the World Bank Group,” (Addis Ababa, Ethiopia: UNECA, 2002), http://www.uneca.org/
itca/governance/Documents/PSD_strategy_DIRECTIONS %20FOR%20THE%20WORLD%20BANK%20
GROUP.pdf.
4. See Derick W. Brinkerhoff, “The Enabling Environment for Implementing the Millennium Development
Goals: Government Actions to Support NGOs” (Paper presented at the George Washington University
conference “The Role of NGOs in Implementing the Millennium Development Goals,” Washington,
DC, May 12–13, 2004), 2. For an example of a donor document on the enabling environment, see for
example: World Bank, “Enabling Environment for Civil Society in CDD Projects,” Community Driven
Development Learning Module, Washington DC, April 19, 2001.

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upon, and set aside as new plans are developed. This is a key blockage to implementation of
a core program of broadly agreed-upon objectives.

Reliance on the machinery of the aid complex

Aid funding channels ensure that most aid funding goes through aid agencies to a
narrow group of NGOs and foreign contractors, rather than in support of public policy goals
with implementation supported by the domestic private sector. By relying predominantly
on an administrative fiat, in the form of the aid complex, and failing to open the space for
legitimate private sector activity, the entities empowered essentially are anticompetitive and
often uncompetitive. Organizations that thrive under such conditions are the offspring of the
aid complex—the NGOs and contractors that rely on their prequalified status with NGOs and
donors—and the mafia cartels that flourish in an anticompetitive environment. Moreover,
those who staff the aid complex tend in general not to have the mental models, skills,
or experience conducive to foster business growth,
In an era of lean government,
and usually are selected either without any entry public sector jobs are less
requirements, or from the academic community without plentiful, and without scaled
the needed entrepreneurial, management, and business investment to nurture
experience. economic opportunities, the
private sector job market
In contrast, in those societies that have also may remain limited.
transformed successfully, public funding was channeled The growth areas for young
through local development authorities and ministries people, whether skilled or
(for the economy, finance, housing, or infrastructure) semiskilled, tend to be in
according to clear a bidding processes for domestic subservient positions to
foreigners in companies and
contractors, thereby laying the basis for the creation
NGOs related to the aid
and expansion of a private construction industry. These complex.
firms then provide not only jobs and training for the
domestic population, but also a lower cost form of implementation—as projects do not need
to be micromanaged through multiple contractual layers from a distance—and a means of
ensuring that people are stakeholders in a system of rule of law.

Marginalization of the population—especially youth

Partly as a consequence of the reliance on foreign contractors—whether private or
nonprofit in legal status—and partly as a result of failing to focus on opening up participation
in the economy to new and hitherto excluded or marginalized populations, much of a
developing country’s population can feel marginalized and disempowered in terms of the
reconstruction or regeneration process. This is particularly the case with youth, especially
young men, who can play a pivotal role either in the creation of stability or a return to
instability. In an era of lean government, public sector jobs are less plentiful, and without
scaled investment to nurture economic opportunities, the private sector job market also may
remain limited. The growth areas for young people, whether skilled or semiskilled, tend to

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be in subservient positions to foreigners in companies and NGOs related to the aid complex.
Further, as little investment in the capacity of the next generation occurs through conscious
and tailored effort to invest in higher education, secondary education, and vocational training
suitable to a country’s employment needs, positions often go unfilled and labor is imported
from other countries to fill gaps.

Failure to understand the context—especially the illegal and the war economy
Assistance intended to further economic development often is hobbled by a failure
to take the existing context as a starting point. Often, the context is described in terms
of desirable outcomes rather than feasible, clear-eyed analysis of the real opportunities or
constraints, and the processes and informal behaviors that may not correspond with the
formal rules. In particular, the existence and dynamics of the existing informal, illegal, and
criminal economy often are not heeded. Without understanding these realities and the vested
and entrenched interests they create, progress in terms of building legitimate economic
interests can remain elusive.

Failure to take a granular, sector-specific and hands-on approach—where necessary—to

overcome market failure
In line with an approach that minimizes the role of the state and the “invisible
hand” of the economy, business and economic development approaches often remain vague
and laissez-faire. This overlooks the experience of many countries in laying the basis for a
flourishing agricultural, industrial, or services economy, through a “visible hand,” in which
public policy approaches and the design of instruments—whether financial instruments,
taxation policy, creation of special zones, coordination on infrastructure provision, or the
coordination on education policy and so on—were essential preconditions to growth. It
also overlooks the requirement that different sectors, and different regions of any particular
country, will require different approaches.

Failure to understand opportunity and risk

The ability to assess opportunity and risk—not to be confused with threats—is
inherent to entrepreneurial activities and any form of action, whether in the public or private
sphere. The question is not whether risk exists, but what approaches are taken to identify
and manage this risk. In the developed world, much expertise exists in assessing opportunity
and risk and devising approaches to manage it. While risk guarantees and other instruments
can provide important support in this regard, similar approaches are yet to be established
in developing countries with the precision and scale necessary to allow for activities that
account for risk in a coherent manner.

The Impact of Sidelining Economic Development and Job Creation

When the Institute for State Effectiveness (ISE) conducted an interview of the chief
UN negotiators of peace agreements over the last two decades, to discuss the design and

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implementation of those peace agreements, these diplomats universally agreed that their
single biggest regret was neglecting economic development.5 These actors assumed the
primacy of politics, with the idea that a focus on the economic components of peace would
follow subsequently.
The effect of neglecting economic development, especially in a country afflicted by
poverty or dealing with the aftermath of a conflict or disaster, should be evident. Some of the
most observable consequences include:

1) The failure to create stakeholders in a system of law and order, attributes

that are required—not least through the enforceability of contracts—for a
legitimate business sector to thrive. Licit private sector stakeholders can, if
appropriately organized and structured, represent a powerful lobby for healthy
politics and legitimate governance.
2) The failure to provide jobs for the youth—especially young men who otherwise
will be available for recruitment for criminal activities—which exacerbates
unemployment and disaffection of the population.
3) The failure to pay attention to corrupt financial and economic networks for
and deepens the criminalization of the economy—which in turn affects the
criminalization of the polity, in which corrupt interests converge around illicit
activities and can metastasize into larger syndicates. Further, this discourages
legitimate businesses from operating.
4) The reliance on the aid complex distorts the legitimate economy by setting
wages and prices at artificial levels—not determined by the market but based
on the donors’ ability and willingness to pay using taxpayers’ money—thereby
limiting the competitiveness of the economy. Further, the aid complex itself,
as described above, creates coordination problems, as neither public policy
frameworks nor market mechanisms are used to guide prioritization and sort
activity, leading to many bottlenecks in the system.
5) The failure to grow the economy limits the potential of the national treasury
to collect revenue, which otherwise could be directed toward national
priorities, including maintaining services for the population such as health
and education, and investing in infrastructure and security to enable
further growth.

5. See: Ashraf Ghani and Clare Lockhart, “Writing the History of the Future: Securing Stability Through
Peace Agreements,” Journal of Intervention and Statebuilding 1, No.3 (2007); and Ashraf Ghani,
Clare Lockhart, and Blair Glencorse, “Assessing Linkages between Diplomatic and Developmental
Peace-Building Efforts,” in Ending War, Consolidating Peace, ed. Mats Berdal and Achim Wennmann,
International Institute for Strategic Studies Adelphi Series, (New York: Routledge, Taylor & Francis Group,
2010).

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Some examples of countries that have suffered the tragedy of a natural disaster or
war and have then seen a large-scale international mission to assist their recovery include
Kosovo, Afghanistan, Southern Sudan, and Haiti. In none of these cases has full use of the
catalytic power of economic assistance been used. In Kosovo, for example, very little attention
has been paid to developing rule of law mechanisms, particularly in those areas relating to
licensing, the tendering of goods and services, and strengthening contractual mechanisms.
In contrast, those privatization initiatives carried out under the auspices of the international
mission were widely perceived to be opaque and mishandled. Little effort was made to
identify sectors that would drive growth in Kosovo—including agriculture, construction, and
services—or to link vocational training, credit, and marketing activities to those areas. Neither
were remittances conceptualized as a funding flow that could be leveraged more coherently
to support economic activity.6
In Afghanistan, a vision and plan were prepared for the country’s economic
revitalization in the months after the 2001 Bonn Agreement. This approach included some
activities designed to recreate the fundamentals for trade and investment, including the
issuance of a new currency across the country; the removal of trade barriers with neighbors;
the provision of microfinance and risk guarantees; and efforts, sector by sector and region
by region, with the business community to create jobs and restart or start anew firms
and industries on a selective basis.7 The motto adopted was “aid as a catalyst for trade
and investment,” and the long-term vision put forward was of Afghanistan as a center of
productivity and a land bridge between South and Central Asia and the Gulf, leading to an
economically sovereign country that would meet its own costs while providing opportunity
and enfranchisement as stakeholders for its citizens. While this vision and its plans were put
forward by Afghan leaders and several entities (including the World Bank, Asian Development
Bank, and some country partners), for the most part, the donor community decided not to
support this construct, adopting instead a model based on foreign taxpayer funding through
aid agencies and subcontractors to projects. The central tension between these two models—
the former focused on growing the economy, creating jobs, and raising revenues, and the
latter focused on channeling foreign funding to foreign contractors—has not yet been
resolved.
In Southern Sudan, similar tensions existed between a model based on growing the
economy to create jobs and raise revenue, and one based on raising and implementing aid

6. See Institute for State Effectiveness, “Kosovo: Developing A Strategy for the Future,” ISE report,
September 2007.
7. These approaches were summarized, inter alia, in President Hamid Karzai, “A Vision for Afghanistan,”
speech presented in Tokyo, Japan, January 2002; the Afghanistan National Development Framework,
April 2002; Ashraf Ghani, Progress Against Promises, Afghan Government, (Kabul: Afghan Government,
2002),; and UN Development Program, et al., “Securing Afghanistan’s Future,” document prepared for
International Conference, March 31–April 1, 2004. All available at the Institute for State Effectiveness,
http://effectivestates.org/resources.htm.

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programs. Now, more than five years after the Comprehensive Peace Agreement (CPA) was
signed, and shortly before Southern Sudan is to host a referendum on independence as part
of that agreement, much recrimination and bitterness exists in the failure to manage and
synchronize the various donor funds, appeals, and projects. At the same time, the key internal
mechanisms of the Southern Sudanese institutions have gone comparatively neglected. An
agenda to use aid catalytically to underwrite the real drivers of growth—vocational training,
strategic infrastructure (in particular to link the region
and north and south Sudan), improved access to capital, A culture of rule of law
the provision of strategic support to the entrepreneurial enables generation of licit
community, and effective revenue, customs, and other
rather than illicit economic
activity, leading to sustainable
public finance functions—has not been seized.
employment and an
While the relief and reconstruction in response expanding base of tax and
to the earthquake in Haiti is perhaps too recent to customs revenue for the
judge, the same pattern emerges—an overreliance on national treasury.
aid and the organizations of the aid complex and an
underreliance on domestic stakeholders, including the business community, youth, and other
groups who could have engaged to a far greater extent in reconstruction activities. One
indication of this problem is evident in a recent report from the UN, which points out that,
of the almost $2 billion of humanitarian aid distributed in Haiti since January 2010, only $6
million has been channeled through the Haitian government—representing less than one-
third of 1 percent.8

Reframing the Challenge and the Opportunity

It is clear that the culmination of approaches prevalent to date are not achieving
their stated objectives in a range of high-priority contexts, and that a key imperative exists
for a renewed approach to the stabilization and rebuilding of societies in which economic
regeneration plays a major part. The problem is widespread: Beyond the G20 and the N11,
there are dozens of countries whose people are mired, unnecessarily, in poverty. Of the fifty
poorest countries, thirty-eight are currently in or recently emerging from conflict. In these
contexts, often there is an imperative for a frontline first response and political and security
stabilization—saving lives comes first. But unless sustainable economic development is
squarely on the table, in conjunction with the nurturing of resilient institutions and societies,
such crises will continue to plague the populations on a recurring basis.
For many societies, a key challenge from both a security and a developmental
perspective is the disenfranchisement of citizens—especially the youth—from opportunities

8. See UN Office of the Special Envoy to Haiti, “International Assistance to Haiti: Key Facts as of August,
2010,” United Nations, http://s3.amazonaws.com/haiti_production/assets/22/Overall_Financing__Key_
Facts_original.pdf.

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to carve out a future, whether within the public service, productive enterprise, or civil society
engagement. The key opportunity, therefore, lies in creating opportunity for individuals
and groups of citizens—making them stakeholders in a legitimate system. Broadening
participation then goes hand in hand with rule of law, and an agenda of shared prosperity
rather than division of spoils. A culture of rule of law enables generation of licit rather than
illicit economic activity, leading to sustainable employment and an expanding base of tax and
customs revenue for the national treasury.
A number of countries have made the transition from instability, poverty, conflict,
and natural disasters to peace and prosperity.9 The obvious examples include the postwar
reconstruction of Europe and Japan, the transitions in Eastern Europe through the accession
processes, and newer examples of the “East Asian tigers” and emerging success stories in
Africa. ISE’s Market Building Initiative has mapped many of these transitions over the last
five years and finds that, while each story is different, a common set of patterns underlay
each transition. Not least of these was an understanding on the part of the leadership of the
country of the relative advantages of the country, and a setting of public–private partnerships
that rightsized, according to the context, the balance between state and market. Each put
at the forefront an agenda of economic prosperity, and each put investing in the country’s
human capital, according to the needs of the public and private sectors, as a foremost priority
that underwrote the social contract with the citizenry.
What is required, instead of a stovepiped approach to aid, is humanitarian affairs,
security, rule of law, and a developmental agenda that places broad-based, even-handed
economic activity as a high priority, whether in efforts to rebuild societies after conflict or
disaster. This will require a far smarter set of approaches from those agencies and bodies
wishing to assist in this endeavor, including:
1) an ability to read the context concerned and understand the latent assets as
much as the liabilities in the society—not least the entrepreneurial energies
of the people—while retaining a clear-eyed view of the criminal and informal
economies;
2) a smarter set of ways to form shared national agenda and partnerships
between national leaders of governments, business, and society with
international actors, and engage ranges of stakeholders;
3) generation of a new set of instruments that are proven to catalyze and support
domestic activity and generate or nurture the growth of farms and firms;
4) approaches that understand and nurture the linkages between people, jobs,
markets, infrastructure, and institutions; and,

9. See Ghani and Lockhart, Fixing Failed States, 33–52, and the International Security Exchange (ISE)
series on successful transitions.

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5) breaking out of the mold of thinking in terms of countries, to looking at

specific sectors and zones of each country in granular form, as well as cross-
border opportunities for economic cooperation and joint projects.

Who Should Do What?

Much debate in the U.S. context currently focuses on how USAID should be
regenerated as the U.S. government’s development arm. In much of this debate, two
fundamental distinctions are lost. The first is between the concept of development as
a process—in which the disbursement of aid may be an ingredient but only when used
with careful design—and aid itself. Interestingly, USAID stands for United States Agency
for International Development, but increasingly over the last years has become, by its
own admission, a disburser of aid and manager
of contracts rather than an agency that is truly
While the large international
organizations quite rightly
catalytic of international development. The second
face scrutiny and criticism,
is between a single organization—USAID—and the there are no organizations
range of organizations and tools within the United yet that can replace the IMF’s
States, ranging from the Overseas Private Investment role in monitoring revenue
Corporation (OPIC) and the Export-Import Bank (Ex-Im) collection, the UN’s role in
to the enormous wealth and knowledge in America’s
facilitating peace agreements,
or the World Bank’s role in
universities, foundations, private sector, and voluntary
designing and implementing
organizations. In forming policy and partnerships with large-scale national programs.
countries and regions, the United States therefore
should look to a broad range of policy tools, organizations, and leaders. Models that have
worked include the U.S. development programs that formed the Marshall Plan as well as the
U.S. efforts in South Korea and Taiwan.
In focusing on organizations internal to the U.S. government, and on questions of
direct implementation of aid, the debate has perhaps lost the opportunity to understand the
potential of the United States to exercise leadership and influence through agenda setting
and collaboration with international and global organizations and actors. Such international
and multilateral mechanisms can provide platforms for burden sharing and alliance
building as well as amplifying effect and building consensus. While the large international
organizations quite rightly face scrutiny and criticism, there are no organizations yet that
can replace the IMF’s role in monitoring revenue collection, the UN’s role in facilitating peace
agreements, or the World Bank’s role in designing and implementing large-scale national
programs. Up until now, however, few of these organizations have focused specifically on
economic growth and job creation in a manner sensitive to the local context. Indeed, many
of the success stories saw the leadership rejecting the advice of such organizations, yet
prevailing in their chosen path. There is perhaps an opportunity to reexamine the mandates,

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policies, instruments, and capacities of such organizations to see how they can best
contribute to an agenda of job creation and economic growth.
The military may or may not have a direct role in formulation or implementation of
such agenda in any given context. Options for the military’s role include:

Analysis and Agenda Setting

An agenda of job creation and entrepreneurship could have an advocate in the
military—especially given that, in many contexts, the traditional aid actors that dominate the
development discussion tend to suppress support for a market-building approach. Where
the military conducts analysis of stability drivers, understanding the broader context of
governance and economics, and the dynamics of exclusion and inclusion from institutions,
the results could help inform the collective analysis of routes to establishing order through
responsible sovereignty and inclusion of citizens in an agenda of prosperity. Such analysis
could help map informal economies and identify support mechanisms for the legal economy
and enhance understanding as to where entrepreneurial opportunities can be generated.

Managing and leveraging its own impact

Where military bases and deployments exist, they act as influencers by default on
the local economy through the leverage of the military’s purchasing power on stimulating
local markets and value chains, and the provision of infrastructure including roads,
telecommunications, and power supply. Careful analysis should be conducted on how that
impact can best be managed or even utilized for positive objectives, and how to avoid or
minimize a negative impact through unintentionally reinforcing monopolies and criminal
syndicates.

A new approach to organization of risk

The military also can change the understanding of risk and partner with
entrepreneurs by ensuring demand, creating certainty, bringing other parties to the dialogue,
reducing transaction costs, and creating risk-management frameworks, which reduce
uncertainty for the entrepreneur.

A focus on implementation
Through its culture, the military is a results- or effects-based organization. In
contrast, many aid agencies are process- or inputs-based, measuring their success according
to the amount of money disbursed or projects managed. While it may not be desirable to see
military actors leading on an economic agenda as ideally others would lead on it, learning
from their culture of implementation and engaging in partnerships to improve design,
monitoring, and implementation could be productive.

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 Operationalizing Expeditionary Economics

by Kori Schake
Research Fellow, Hoover Institution, Stanford University
Associate Professor, United States Military Academy

Kori Schake is a research fellow at the Hoover Institution and an associate professor of
international security studies at the United States Military Academy. During the 2008 presidential
election, she was senior policy advisor to the McCain-Palin campaign, responsible for policy
development and outreach in the areas of foreign and defense policy. During President George W.
Bush’s first term, Schake was the director for Defense Strategy and Requirements on the National
Security Council. She was responsible for interagency coordination for long-term defense planning
and coalition maintenance issues. She also served as the Deputy Director of the State Department’s
Policy Planning Staff.

L
et me start out by saying I agree with Carl Schramm’s critique of what the U.S.
government is doing wrong. We are failing to nurture economic development
in places where our war strategy requires it. We are not funding and teaching
the small enterprise dynamism that has produced American economic success. We are
approaching economic development in the ways easiest for us to administer rather
than those most likely to produce the desired outcomes.

Where I have doubts about the concept of expeditionary economics is in the

practicalities of application. Specifically, I am not persuaded by the argument that the military
should expand its span of control to encompass economic development as a central task. The
military is the only part of the “whole-of-government operations” that is doing its job well.
That does not, however, mean it should undertake yet more of the work that needs doing.
When the country has soldiers, sailors, airmen, and Marines in harm’s way, the
nonmilitary agencies have an ethical responsibility as well as a practical need to get good at
their jobs, and fast. These are not luxury occupations that the civilian arms of our government
engage with the world: they are central to the tasks of American national security policy.
Instead of making the U.S. military into the U.S. Agency for International Development
(USAID), we should make USAID good at its job.

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As Dr. Schramm continues to refine and expand his proposals, I would consider
three areas in which those of us who support integrating small-enterprise economic
development into our operations need to win the policy arguments and change U.S.
government practice. The first is improving the basic understanding of economics, both in
the executive branch and in the Congress. The second is funding nonmilitary development
activity. The third is using the interagency process to coordinate unique departmental
activities, correcting for the current militarization of activity in theaters of military operations.

Lines of Authority
Economic development is not the work of the Department of Defense. Statutorily,
that responsibility lies with the Department of State, USAID, the Export-Import Bank, the U.S.
Trade Representative, the Department of Commerce and the Department of the Treasury.
However, we have poorly defined authorities for the U.S. government agencies operating in
war zones—as Dr. Schramm points out, the U.S. military is responsible for spending one-fifth
of U.S. government foreign assistance.
Moreover, the nonmilitary agencies are not at war. They are not dedicated to the
success of interventions in Iraq, Afghanistan, and other places military forces are operating.
They are not operating at the same tempo as DoD is operating. They are not running the
same risks as DoD personnel run in times of war. They have seen nowhere near the increases
in either base operating budgets or supplemental spending to provide material support for
their efforts.
Lest we think these differences are new, let me cite Dean Acheson’s stringent
summing up of attitudes on December 8, 1941:
Washington awoke, a capital at war. The indecisions, hesitations, and doubts of
the past year, the pretenses and fumblings, were gone. Argument over, the country
and its capital turned to what Americans like and do best, action. In a few months
half a continent and a hundred and thirty million people were transformed into the
greatest military power the world had seen. Amid this burst of energy the State
Department stood breathless and bewildered like an old lady at a busy intersection
during rush hour. All around it vigorous, effective people were purposefully on their
way to do jobs that needed doing. Nowhere was this more true than in making
and executing plans for economic dealings with friends, enemies, and neutrals
all over the world. The object was to corner all useful materials for our side and
preclude the enemy from getting them. These were not operations for which State
Department officers were trained or fitted, though they reeked of foreign policy.1

1. Dean Acheson, Present at the Creation (New York: WW Norton, 1969), 39.

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Lines of Activity
The Department of Defense has gotten into the business of economic development
because the nonmilitary agencies, in particular USAID, have failed to deliver on their
responsibilities of creating a foundation for economic prosperity.
Because it is the agency most dedicated to success of the mission in war; the agency
with the greatest funding and freedom of action (both in policy terms and in operations in
country); the agency to which Congress and the public give the greatest deference; because
the wars we are fighting are counterinsurgencies that blend civilian and military means; and
because there have been unmet practical needs, DoD has become a significant player in
development.
In order to respond to immediate exigencies affecting our troops’ ability to
accomplish their military missions, Congress established Commander’s Emergency Response
Funds (CERP). Their purpose is to “enable local commanders in Afghanistan and Iraq to
respond with a nonlethal weapon to urgent, small-
scale, humanitarian relief, and reconstruction projects The Department of Defense
and services that immediately assist the indigenous has gotten into the business
population and that the local population or government of economic development
because the nonmilitary
can sustain. The Department of Defense defines urgent
agencies, in particular USAID,
as any chronic or acute inadequacy of an essential good
have failed to deliver on their
or service that in the judgment of the local commander responsibilities of creating
calls for immediate action.”2 a foundation for economic
These funds have been used for repairing and
prosperity.
reconstructing water and sewer lines, increasing food
production and distribution, providing health care services and school supplies, constructing
roads and bridges, removing trash, and even providing payments to individuals being released
from detention.
Economic development is specifically a purpose of CERP funding, as is providing
sources of local employment. But CERP funds are short term in nature and generally confined
to less than $500,000. Commanders utilize the funds to repair damage caused by our
operations, and build popular support for them. They act autonomously and respond to
localized conditions and community requests. It is difficult to see how this approach could
become the basis for establishing small enterprise entrepreneurial economies in war zones.
We are not a military particularly well-stocked with economists, interested in
problems of jump-starting and sustaining prosperity, or a military in which dedicated study in
those areas would be seen as the path to senior ranks. Soldiers, sailors, airmen, and Marines
have a full-time job developing proficiency in the skills of warfare.

2. U.S. Army Handbook 09-27, Chapter 4.

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Our military is involved in economic development not because it is statutorily

assigned the activity or qualified to undertake it. No military service organizes, trains, and
equips to run economic activity in war zones. No unified or specified commander has
responsibility for economic development. DoD is in the
It is extraordinarily difficult development business simply because it’s important to
work to discern why an the war effort and no other agency of government is
economy isn’t functioning doing the work that needs doing.
well and establish the
foundations that it might. I do not mean to minimize the degree of
difficulty associated with spurring development in war-
torn societies. They tend to have a tangle of many different kinds of problems—security,
legal, sociological, economic, political fractionalization, inhibitiors to initiative resulting from
living under authoritarian oppression, difficulty establishing and sustaining trust—that well-
functioning societies can barely comprehend.
It is extraordinarily difficult work to discern why an economy isn’t functioning well
and establish the foundations that it might. Lots of smart people get it wrong, as the travails
of policy choices in the “developing world,” the patchy record of interventions by the World
Bank and International Monetary Fund, and the number of outside investors that lose money
in emerging markets can attest.
Moreover, other departments have not been entrusted by Congress with streams
of funds to be spent at the discretion of their commander-equivalents. The nonmilitary
departments are underfunded for their baseline work, and they are not given supplemental
funding for responsibilities that accrue to them in wartime.

Military Development
Yet the question remains: Should the U.S. military be the agency of our government
that undertakes development work? I would argue that it should not.
First, it already has a full-time job. Military leaders are concerned about whether
the educational and operational demands of counterinsurgency are crowding out other
warfighting skills. A significant shift in emphasis has occurred over the past five years,
especially in the Army and Marine Corps, as the land forces studied what was not working in
current wars and adapted, developing new doctrine and tactics and growing leaders capable
of conducting successful counterinsurgency campaigns. The Army has just pared back its
requisite tasks for initial military training—doing less, better—because leadership determined
that their expectations of soldiers had grown to unmanageable proportions. Adding another
major area of expertise, and one far removed from their core warfighting skills, would
overload the system.
Second, although counterinsurgency doctrine depends to a greater degree than
other types of conflict on consent and participation of the population in the affected area,

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the military will have a difficult time overcoming its inherent bias toward military operations
as the first priority. Sequential, rather than integral, security and economic lines of operations
are likely to remain the norm. Given the importance Dr. Schramm accords to moving quickly
to establish economic activity, this situation argues for having another agency acting to
initiate and nurture economic undertakings as its priority.
Third, I think it unlikely that the military will consider itself superior in understanding
to development professionals. As Dr. Schramm says, “U.S. military planners and U.S.
troops on the ground often turn to U.S. and international development agencies or non-
governmental organizations (NGOs) for practical guidance on improving local economic
conditions.” Besides additional understanding, often in the form of local connections and
expertise, they also bring additional resources the military would want to harness, or at least
work in conjunction with, which makes it unlikely the military would be in a position to direct
their activity.
Fourth, friction between security and economic priorities will remain a problem
even as security demands decline. If, as Dr. Schramm suggests, “it is not enough merely to
restore the economy to a level resembling the pre-crisis status quo […] The economy is often
part of the original problem,” then development tasks likely will continue after security tasks
wind down. Pressures to draw down troops likely will be a function of security rather than
development, which could shortchange development efforts if the military is in charge of
development.
Fifth, as Dr. Schramm so vividly points out, entrepreneurial capitalism is messy. In
addition to businesses succeeding and failing, the necessary legal, property, banking, and
other reforms disrupt existing political, economic, and social relationships. Entrepreneurial
capitalism will appear to many people who did not grow up in a capitalist culture as picking
winners and losers, and with that come resentments and perceived allegiances. Especially
in a country riven by war, existing structures may be important to restoring security. To cite
just two examples: sheiks discouraging insurgent activity in Sunni areas of Iraq, and Afghan
warlords preventing Taliban incursion. We may need existing power structures to achieve our
war aims. Putting the military into the business of assisting some economic activities and not
others will have consequences for their ability to operate militarily.
Dr. Schramm’s argument for the military undertaking expeditionary economics
makes it sound as though all the detrimental effects would come with continuing the
current approach to development; however, many new dynamics will be set into motion by
establishing property titles not currently clarified, forcing transparency in banking practices,
facilitating competitors to long-standing monopolies, and the emergence of nouveaux riches.
We very seldom know enough to predict how those effects will affect the society, act to
forestall negative consequences, and encourage positive consequences—and the military
(as one of the few successful socialist societies in the world) is perhaps least well positioned
among sectors of American society to understand these forces and explain them to others.

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Sixth, the military is likely to be more cautious than would a development agency
about partnering with local businesses because of concern about potential infiltration. The
Bechtel example Dr. Schramm uses in his Foreign Affairs article is instructive in this regard.
Military exigencies of supply required rapid construction of infrastructure. Congressional
mandate gave preference to American companies. While much economic good could have
come from identifying Iraqi construction firms, questions about reliability in rapidily achieving
the work and vulnerability to sabotage by insurgents on the payroll were significant concerns.
Finally, I’m wary of Dr. Schramm’s call to have the military show the development
community, NGOs, and international institutions like the World Bank and International
Monetary Fund their business. Leading a revolution in development, as Dr. Schramm suggests
they should, would have the military become not just proficient at economic activity, but also
invest in debunking the thinking and practices of the IMF and World Bank, major donor-
country development agencies, and NGOs. Dr. Schramm envisions that once they have
figured out development, “the military could then use the various means of influence at its
disposal to steer international development practices in the direction of the new doctrine.”
That seems a burden we should not be adding onto the shoulders of a military already
fighting two wars.

If Not Them, Who?

If expeditionary economics provides a superior means of advancing the economic
agenda on which the success of the war effort depends, but the military is not the means of
carrying out the economic agenda, where should responsibility reside? I believe we should
make the agencies whose job is already to advance development competent to do so.
Principally, this means USAID, but it cannot be considered in isolation from the
Department of State. Traditionally, USAID was an independent agency; during the 1990s,
Congress forced partial integration of the two departments. USAID, however, continues to
view itself as independent. The agency’s culture also has more than a whiff of sanctimony
about its own virtue in promoting development independent of politics, as compared with
the tawdry business of advancing American national interests—which is part of the reason
Congress forced the merger.
Foreign assistance also took a major turn during the George W. Bush administration
with the creation of the Millennium Challenge Corporation (MCC) approach, which changed
the rubric for providing assistance from absolute need to willingness of governments to
improve their performance along a set of governance criteria. The argument for MCC
was that aid is put to best use by governments that establish accountability, both to their
constituents and to donors. Instead of funding big infrastructure activities that enrich
despots, MCC funds provided a contractual basis for governments to develop the means of
self-sufficiency. Successful developing countries have been, to some extent, siphoned off from

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the general USAID pool and into MCC accounts. While the approach has been successful, it
has deepened the culture wars within the State Department and USAID.
One final factor affecting development assistance has been the burgeoning
of private philanthropy on a monumental scale. The Gates Foundation and other major
donors have brought the practices of successful business into the development field, again
challenging canonical aid practices. The best of our diplomats and development experts
capitalize on these positive changes; many, however, as Dr. Schramm points out in his earlier
work on development theory, resist the change.

Congress and Competence

Congress also plays a looming and often complicating role in development
assistance. Strings attached to development assistance and funding for international
development programs are well known. Perhaps less visible is the budgetary distrust of
Congress for the Department of State and USAID. Congress is deeply skeptical of funding
Department of State and USAID activity; this must be overcome if we are to enable the
agencies to perform their statutory tasks well.
The Department of State has no real culture of long-term budgetary analysis. The
development of State Department budgets has been
with the under secretary for management, who lacks The reasons for Congressional
a rigorous and transparent process of establishing confidence in the Department
of Defense merit examination
priorities, stress-testing budgetary projections, and
in determining how to
producing budgets. The reasons for Congressional build that confidence in
confidence in the Department of Defense merit the budgetary rigor of the
examination in determining how to build that Department of State.
confidence in the budgetary rigor of the Department
of State. In DoD, the comptroller often is considered the second-most important person in
the department—even more than the chairman of the Joint Chiefs of Staff. The comptroller
affects the department by ensuring the secretary’s priorities are followed by funding streams,
and, more importantly, turns off money to components that are not responsive to the
secretary’s directives. Until recently, the State Department did not even have an equivalent
position; to Secretary Clinton’s credit, she established a second deputy secretary charged with
those responsibilities. The State Department does not produce a long-term budget, equivalent
to DoD’s Future Years Defense Program, which projects costs over a five-year timeline so
Congress can see what will be needed and grade the department’s performance in producing
it. State does not have an in-house budget red team like DoD’s Office of Program Analysis
and Evaluation that double-checks costs. The Secretary of Defense regularly meets with his
“Big Four,” the Congressional majority and minority leads on the committees of Defense
Authorization and Appropriation, to talk through department activities. All these have, over
time, built within Congress a culture of trust in DoD money management that the State

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Department needs also to develop if it expects to secure needed funding and be granted
reprogramming and prioritization authority.
The Fiscal Year (FY) 2011 Department of State/USAID budget clocks in at $52.8
billion. By way of contrast, the FY 2011 Department of Defense budget request is for $708.3
3

billion.4 The State Department and USAID do not, of course, have a million people under
arms, but it is still striking that the entirety of our diplomatic and development activity—to
include all of foreign aid—constitutes less than one-tenth of our defense spending.
The last three secretaries of state (Powell, Rice, and Clinton) all have argued
vociferously for increases in department funding and personnel. Beginning with a diplomatic
corps of roughly 5,000 people, Secretary Powell persuaded Congress to approve an increase
of 1,000. This end-strength increase was intended to provide a “training float;” that is,
to buy time in the careers of diplomatic and development professionals for education and
training. While Powell did achieve the first important managerial training, the personnel
largely were required to man the newly established U.S. Embassy in Iraq. Secretary Rice
also persuaded Congress to increase Department of State end strength by roughly another
thousand, and Secretary Clinton’s Quadrennial Diplomatic and Development Review is
expected to call for significantly further increases in personnel.
Yet no one analyzing the deficiencies of U.S. foreign policy or the workings of
the interagency contends that the Department of State and USAID are adequately manned
or resourced. Washington practically is papered over with commissions looking into how
to better manage “whole-of-government” operations—by which they mean the practice
of national security policy, involving as it should the coordinated activity of several U.S.
government agencies.5 The Council on Foreign Relations described the State Department as
being in “a profound state of disrepair, suffering from long-term mismanagement, antiquated
equipment, and dilapidated and insecure facilities.”6 Mark Safransky makes the case even
more uncharitably:
State needs to overhaul its personnel system and FSO culture to embrace the reality
that interagency teamwork at the inception of policy planning is the only way the

3. U.S. Department of State, President’s Proposal for the FY 2011 State Department and USAID Budgets,
http://blogs.state.gov/index.php?/mobile/display/1986.
4. Office of Management and Budget, Federal Budget Fiscal Year 2011 Fact Sheet, http://www.
whitehouse.gov/omb/factsheet_department_defense/.
5. See, for example, Council on Foreign Relations, State Department Reform (Washington, DC: Council
on Foreign Affairs Press, 2001), http://www.cfr.org/publication/9114/state_department_reform.html;
Project on National Security Reform, Transforming National Security for the 21st Century, http://www.
pnsr.org/; and Center for Strategic and International Studies, Beyond Goldwater-Nichols http://csis.org/
program/beyond-goldwater-nichols.
6. Council on Foreign Relations, http://www.cfr.org/publication/9114/state_department_reform.html
7. Mark Safransky, “State Department Must Reform or Die,” New Atlanticist Blog, posted October 15,
2009, http://www.acus.org/new_atlanticist/state-department-must-reform-or-die.

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USG will be able to effectively advance its interests and nurture stability. The age
of ambassadors or even mano-a-mano superpower summitry is over, even among
great powers because State cannot execute policy across the DIME bureaucratic
spectrum much less bring in the private sector on its own. It has neither the
imagination nor the power to go it alone. For that matter, State is having enough
trouble just managing its core functions plus public diplomacy and development aid
(the last two so poorly they should be hived off immediately).7

Even Secretary Clinton has endorsed reform of her departments. In budget

testimony this year, she said:
In order for us to pursue an ambitious foreign policy to both solve and manage
problems, to address our interests and advance our values, we have to reform both
State and USAID. And to do so, we have to create a Department and an agency
that are funded the right way, where the people doing this work have the tools and
authorities that they need. This is particularly important in dangerous regions like
Iraq and Afghanistan.8

The Myth of Whole-of-Government Operations

We simply should not tolerate the nonmilitary agencies performing so badly,
especially when the country’s war aims depend upon it. We need to build the competence in
civilian agencies, not transfer more of their functions to the Department of Defense.
The U.S. government remains in the worst position: paying homage to “whole-
of-government operations” without having the capacity to conduct them. The military
undertakes a wide range of activities outside their expertise, but understandably subordinates
all nonmilitary activities to their military priorities. Nonmilitary agencies resent the
“militarization” of the spectrum of international activity but do not have the capacity to carry
out their mandates, and the policies that guide activity are of questionable provenance, with
“the interagency” often used as a way to evade rather than affix responsibility.
If Dr. Schramm’s very good ideas for a different approach to development, an
approach that relies on the economic activity that has made our own society prosperous and
is the most important fingerprint of American soft power, are to be operationalized, we need
to build departments capable of understanding and applying the approach.
Achieving this will require succeeding in three areas: educating people both in the
executive branch and in Congress of the need for a different approach; securing funding
to incentivize the activity within the Department of State and USAID; and coordinating the
discrete development and security operations performed by the different departments.

8. Secretary of State Hillary Clinton, remarks on the State Department and USAID’s Budget, on April
23, 2009, to the House Appropriations Subcommittee on Foreign Policy, 111th Congress, 1st sess.,
http://www.america.gov/st/texttrans-english/2009/April/20090423145655xjsnommis0.7469141.
html&distid=ucs.

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Better Education
First and foremost, we must win the battle of ideas within the executive branch of
government. This means persuading those committed to the current approach that we have a
better way to achieve their objectives.
The people who are successful in the Department of State and USAID are those
who make do. They are people you can throw into the deep end of the pool and they will
not drown; but, we never teach them to swim. Moreover, because they have succeeded
without learning to swim, they undervalue swimming lessons. In the Department of Defense,
a soldier, sailor, airman, or Marine will spend about seven years of a twenty-year career in
education and training. They are promoted both on the basis of their performance and their
potential to succeed in higher grades. In the civilian
Both for accountability and
for the ethos of the agency, agencies, we do not invest in the future success of our
USAID should be funded professionals, and we should.
such that it can perform The Department of State has no War College,
development assistance as
much less a graduated series of schools to teach
an in-house activity, growing
necessary skills and shape a culture of common purpose.
expertise and returning to the
lead of this essential activity. The State Department teaches foreign language, but
little else. In the military, an officer would have basic
training, officer candidate school, staff college, war college, and several training programs
specific to their field. We need to educate and train our civilians with the same commitment
to their professional development. It is almost impossible for the directors of the Foreign
Service Institute to imagine successful mid-career professionals assigned to a full year of
diplomacy, studying together with their families and diplomats from countries we want long-
standing links to, in the manner of the military’s National Defense University. We need this.
Dr. Schramm appreciates better than most of us the degree of difficulty in getting
USAID to abandon its current, atavistic approach. In its defense, allow me to say that,
historically, USAID has been very good at its job. With the end of the Cold War, Congress
drastically cut funding for foreign assistance. What had traditionally been the work of USAID
experts was contracted out, and that continues to haunt the work of USAID. It has become a
contracting agency more than an operational agency, and it is a great loss to the country.
Both for accountability and for the ethos of the agency, USAID should be funded
such that it can perform development assistance as an in-house activity, growing expertise
and returning to the lead of this essential activity. We need USAID to be once again as good
at its job as the military is at its job; only then can we incorporate development into the
operations of our military.
Secretaries Rice and Clinton have committed significant effort to restoring USAID.
It is partly a task of imagination—envisioning a successful approach, as Dr. Schramm has—
partly resourcing, partly identifying and recruiting in significant numbers qualified personnel

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with the right entrepreneurial attitudes, and partly a task of leadership in restoring confidence
and mission clarity. Flood the entry levels with talented people, give them a vision of what the
organization should be, unleash their initiative, reward innovation, and promote those who
exemplify the qualities we want to see in the organization. We could in the span of five years
change the culture and performance of USAID: It is not an intellectually difficult problem, but
merely a managerially difficult problem—the kind American businesses undertake successfully
all the time.
There is a discussion to be had whether the Office of Stability and Reconstruction
should continue to exist as part of the Department of State, be transferred to USAID, or even
continue to exist at all. It has contributed little to stability and relief operations, which means
the argument is totemic but not operationally important.
If we should fail at that task, it will be necessary to have a secretary of state and
director of USAID to enforce a policy their subordinates do not support. This is common
practice in the command-driven environment of the Department of Defense. Secretary Gates
has fired a secretary of the army, a secretary of the air force, a chief of staff of the air force,
the combatant commander for U.S. Central Command, and numerous lower-level leaders.
It is commonplace for military personnel to object to a policy during its formation,
but salute and enforce it once their commander in chief has exercised his prerogative
and chosen a course of action. Just such a balance has been in place since the Clinton
administration with “don’t ask, don’t tell.” Their only other option is to resign their
commissions. No such subordination exists in the culture of the Departments of State
and USAID.

Once Again, Congress

Even having persuaded the departments concerned or enforced a more
entrepreneurial approach to development policy, Congress would remain a major obstacle.
There is no lack of business sensibility in the Congress; many members, even most, come
from a business background. But once in Congress, political sensibilities take hold. Nowhere
is this more evident than in the risk calculus of development assistance. While most members
of Congress are well aware that fully half of new businesses fail in America, and will
concede the point that a greater proportion would fail in circumstances of less rule of law,
established commercial jurisprudence, and free flow of capital, they would blanch at voting
for development assistance of which 50 percent will be squandered.
It’s a hard sell to constituents that a congresswoman has just wasted fully half the
tax dollars she spent, but it is not an unwinnable argument. The Department of State is
notoriously reticent to roll its sleeves up and fight its case in the Congress. It is stated as fact
by diplomats that “there is no constituency for foreign assistance”—as though businesses
that rely on overseas production or immigration or need trade tariffs reduced are unimportant

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in our political process. The State Department just does not do the hard work of winning its
argument, and it must be emboldened to do so.
My sense is that the argument most likely to persuade Congress to permit the more
freewheeling approach to development Dr. Schramm advocates is the acknowledgment
that the status quo is worse. It is uncomfortable to think that we would lose money on half
the development projects undertaken, but it is inestimably worse to continue to pursue an
approach that squanders more than half our investment. We are spending money in ways
that cannot produce the desired outcomes; if we shift our approach we have at least a fifty–
fifty chance of achieving them.
Moreover, the connection between what makes our own economy successful
and the approach we are undertaking abroad is sure to resonate more with Congress than
mandarins of the development community making pronouncements their record does
not support.

Fund the Activity

There is simply no substitute for funding the activity we want undertaken. Success
cannot be bought on the cheap—otherwise the good people of the Department of State
and USAID would already have achieved it. As a government, we must invest in building the
departments we need, even when money is tight.
Some argue that the State Department and USAID spend money poorly, have
dysfunctional cultures, and cannot be altered to perform as does DoD. This may be true, but
all that can be concluded in the present circumstances is that the proposition is untested.
The State Department and USAID have been corroded by long-term underfunding.
They lack the ability to budget, in part, because they have been starved for resources so long
they can no longer imagine a horizon line of sufficiency.
Yet with the exception of strings on foreign assistance, the Department of State
has historically been granted 95 percent of the budget it requests. The real impediment to
adequate funding for the State Department and USAID is the White House, not the Congress.
The president needs to stand behind a massive increase in State Department/USAID funding
in order to produce the capacity for our country to develop and carry out integrated political,
economic, and security strategies.

Make the Government Work

After developing the capacity within departments, we will need to orchestrate their
unique capabilities soundly. This requires both an effective National Security Council staff and
a process for disciplining departments and individuals with considerable latitude to impede
what the White House wants done.

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I find it instructive to recall that we are a people made great by distrust of our
own government. Ours is a government designed by people with a real fear of centralized
power insulated from accountability. On this basis alone, most of the proposals for making
the interagency function effectively run aground. There will be no Goldwater-Nichols for the
interagency because departments are accountable to Congress as well as to the president:
Anyone who believes the White House is making a mistake has the option of running to
Congress or journalists to make their case. Far from being a hindrance to governance, this
permeability to outside influence is a real source of strength for our United States.
Instead of flailing against federalism within the executive branch, we should
embrace it philosophically and work with the current of it to coordinate activity. This is most
easily done by persuasion: appointing competent cabinet secretaries that command the
loyalty of their subordinates and manage their portfolios to maximize unity of effort.
Needless to say, this is often the exception in presidential administrations, partly
because the president has overriding political exigencies that appointing specific people
addresses and that removing them once their inadequacies are apparent would be costly with
important constituencies, and partly because these jobs are demanding and it is difficult to
predict who will excel in them.
However, you cannot take the politics out of high-level government policy. If we are
to succeed in creating a whole-of-government effort to achieve our war aims, we must build
departments capable of achieving our aims and lead them with the vision and managerial
competency that American businesses bring to their work. As the great pitcher Satchel Paige,
whose memory is so beautifully enshrined in the Negro Leagues Baseball Museum in Kansas
City, Missouri, advised young pitchers, “throw strikes; home plate don’t move.”

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 A Structural Approach to Future Stability
and Reconstruction Operations

by Ginger Cruz
Deputy Inspector General, Special Inspector General
for Iraq Reconstruction

Ginger Cruz is SIGIR’s Deputy Inspector General. Since joining SIGIR in 2004, she has spent
nearly two years in Iraq interacting with United States, Coalition, and Iraqi officials at every
level in examining the multitude of accountability challenges affecting the Iraq reconstruction
program. Cruz has played a key role in preventing, detecting, and deterring waste, fraud, and
abuse associated with U.S.-funded reconstruction projects in Iraq. Her many accomplishments
include supporting the production of over 300 audits and inspections, the publication of over
twenty quarterly reports to the Congress, and the development and execution of SIGIR’s complex
lessons-learned regime. Prior to joining SIGIR, Cruz served as a deputy assistant secretary at the
Department of Housing and Urban Development; a news director, investigative reporter, anchor,
and producer for two NBC affiliates; a communications and policy director for the governor of
Guam; and a vice president for a federal consulting firm.

T
he Special Inspector General for Iraq Reconstruction (SIGIR) was created by
the Congress in 2003 to address the unique oversight needs generated by the
significant financial investment of U.S. taxpayers in Iraq’s reconstruction. Six
years and more than $50 billion later, the Iraq reconstruction experience has provided
a plethora of hard lessons about the limits of the U.S. government to conduct
stability and reconstruction operations (SRO). After lengthy study, SIGIR has come
to the conclusion that the single most important element inhibiting improved SRO
performance is the lack of an institution tasked with planning and executing SROs,
and accountable for their outcomes.

The Need for SRO Reform

It has been a long- and wisely-held belief in our Republic that not every problem
needs a government solution. But certain matters arising under constitutionally mandated
duties—such as providing for the national defense—necessarily will require robust and

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and reconstruction operations

intelligent government action. For example, if existing systems fail to protect our national
security interests, then they must be reformed. Thomas Jefferson recognized the appropriate
basis for government reform when he observed:
I am not an advocate for frequent changes in laws and constitutions. But laws
and institutions must go hand in hand with the progress of the human mind as
that becomes more developed, more enlightened, as new discoveries are made,
new truths discovered and manners and opinions change. With the change of
circumstances, institutions must advance also to keep pace with the times. We
might as well require a man to wear still the coat which fitted him when a boy as
civilized society to remain ever under the regimen of their barbarous ancestors.1
The failed approach to SROs presents just such a circumstance for institutional
advancement.
The truth that the existing SRO system has failed is widely recognized. As the new
U.S. National Security Strategy notes:
[The] international architecture that was largely formed in the wake of WWII
is buckling under the weight of new threats.… Our ability to advance peace,
security and opportunity will turn on our ability to strengthen both our national
and multilateral capabilities…. We need to assist existing institutions to perform
effectively. When they come up short, we must seek meaningful changes and
develop alternate mechanisms.
But “admiring the problem” is not progress. Reform requires action. And the most
critical reform necessary to building a new and successful SRO strategy is the creation of
an institution clearly authorized to lead what is fundamentally an interagency mission in an
integrated fashion.

Expeditionary Economics and SROs

“Expeditionary economics” is a cutting-edge concept brought forward by the
Kauffman Foundation to explore ways in which the U.S. government might develop new
tools to better integrate economic development into stability and reconstruction operations.
This essay discusses SROs from three perspectives: (1) why they pose a “wicked” problem; (2)
why current approaches to managing them are not working; and (3) why a new organization,
jointly owned by the Defense and the State Departments, would best address the problem.
The Council on Foreign Relations characterized SROs this way:
. . . straddling an uncomfortable perch between conventional warfighting and
traditional development assistance, .... These operations require a mix of skills and

1. Thomas Jefferson to Samuel Kercheval, July 12, 1810.

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and reconstruction operations

training addressing a range of issues, including establishing public security and the
rule of law, facilitating political transitions, rebuilding infrastructure, and jump-
starting economic recovery. To complicate matters, stabilization and reconstruction
missions must operate in far more demanding and hostile environments.
SROs are best understood as “wicked problems,” a term coined in a seminal
paper by Horst Rittel and Melvin Webber at Berkeley in the 1970s.2 Wicked problems are
impossible to solve in conventional ways because of their complex, contradictory, and
shifting requirements, which resist traditional analysis and resolution. They are characterized
by hidden connections that can cause attempted solutions to spawn manifold unintended
consequences. Wicked problems are difficult to define, and thus they require sustained and
focused attention with a willingness to think outside the
The “missing middle” box for a solution.
concept aptly recognizes SROs have been termed “super wicked
that SROs are not part of
problems.”3 These relatively new national security
some ambiguous continuum;
they have definite scopes phenomena contain diverse and complicated operational
and durations, discrete sets aspects that render them vulnerable to failure, including
of programs, and identified the urgency of resolution (a state’s well-being is at
outcomes. stake), the absence of a central management authority
(no one is in charge), and the aggravating effects of the
current approach (in which the lack of unity of command destroys unity of effort).
Recent congressional reviews characterized SROs as the “missing middle;” that is,
the space between quick-impact tactical programs (such as the Commander’s Emergency
Response Program) and long-term development programs (USAID’s traditional mandate).
The “missing middle” concept aptly recognizes that SROs are not part of some ambiguous
continuum; they have definite scopes and durations, discrete sets of programs, and identified
outcomes.
With this in mind, current structures should be redeveloped to address these sui
generis enterprises, developing an institution with resources necessary to protect U.S. national
security interests. The U.S. Army’s Peacekeeping and Stability Operations Institute and the
U.S. Institute of Peace similarly recognized the unique space filled by SROs in a 2009 joint
publication, which described SROs as “nested” within “conflict-sensitive development.”
“Stabilization aims to prevent the renewal of violent conflict; conflict-sensitive development
seeks to enable a long-lasting peace.”4

2. Rittel, Horst W. and Melvin M. Webber, “Dilemmas in A General Theory of Planning,” Policy Sciences 4
(1973): 155–169.
3. Richard Lazarus, Georgetown University Law Center, is credited with coining the term “super wicked
problems.”
4. “Guiding Principles for Stabilization and Reconstruction,” U.S. Army Peacekeeping and Stability
Operations Institute and the U.S. Institute of Peace, 2009.

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and reconstruction operations

The Basis for Reform

In the 1960s, international development became a national priority and the
government created the U.S. Agency for International Development (USAID) to address
it. When the United States wanted to greatly accelerate the pace of its nonmilitary space
activities, a new civilian agency, the National Aeronautics and Space Administration, was
created. More recently, the Department of Homeland Security was created to allow for
common direction across a number of interagency policy arenas to ensure that U.S. national
security interests are better protected.
More than $100 billion has been spent on the Iraq and Afghanistan SROs. These
efforts are nearing the ten-year mark, with more than 6,500 military and civilian lives lost
along with tens of thousands of Afghans and Iraqis. The hardest lesson from both SROs—the
need for unity of command and unity of effort—remains effectively unaddressed.

The Whole-of-Government Fallacy

The long-standing need to promote operational “jointness” among military
branches came to a head in the early 1980s. Years of proposals and counterproposals
eventually resulted in 1986 legislation (known as “Goldwater-Nichols”) that forever
changed—and improved—the way our military operates. Joint operations became
the standard by which U.S. forces have since consistently achieved superiority on the
battlefield. Significant efforts have been put into a “Beyond Goldwater–Nichols” reform
effort addressing the entire national security architecture. The U.S. Office for Contingency
Operations (USOCO) proposal is an element within that effort.
Currently, the U.S. government is pursuing what is termed a “whole-of-
government effort” aimed at mitigating weaknesses in SRO coordination and integration. The
problem with whole-of-government efforts is that everyone is in charge of something, but no
one (below the president) is in charge of everything; and, as is often said, “When everyone
is in charge, no one is in charge.” More important, no one is accountable. Thus, whole of
government alone cannot be the solution to the endemic issues that burden SRO execution.
SIGIR has chronicled the whole of government failures in Hard Lessons: The Iraq
Reconstruction Experience (available at www.sigir.mil). While whole of government is an easy-
to-digest term, it has been used to perpetuate an endless stream of ad hoc organizations that
have attempted and been unable to manage SROs. As one insightful treatise on this subject
puts it, speaking of the current SRO management regime, “we are not the sum of our parts.”

State’s Office of the Coordinator of Reconstruction and Stabilization

In recent years, the government has recognized the weaknesses of SRO
management and has acted to try to remedy them. The Department of State’s Office of the
Coordinator for Reconstruction and Stabilization (S/CRS) was first instituted by the Bush
administration through National Security Presidential Directive-44 in 2004 to provide a new

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and reconstruction operations

civilian corps to staff SROs. In October 2008, Congress formally authorized the office, which
is officially tasked with coordinating and leading “integrated U.S. Government efforts,
involving all U.S. Government agencies with relevant capabilities, to prepare, plan for, and
conduct reconstruction and stabilization (R&S) activities.”5 Since then, S/CRS has received
more than $340 million for operations and programs.6 But its accomplishments in Iraq and
Afghanistan have been meager.
Today, S/CRS does not have any staff in Iraq, has fewer than twenty personnel in
Afghanistan, and is focused on efforts such as strategic planning in Bangladesh, conflict
assessment in Panama, and teaching life skills to disenfranchised youth in Morocco.7 A State
Department inspector general report of the S/CRS work in Afghanistan found that the U.S.
ambassador there “disbanded the Integrated Civil–Military Action Groups set up by planners
from S/CRS and transferred its responsibilities to the pol-
While whole of government mil-section,” referring to S/CRS as a “temporary staffing
is an easy-to-digest term, it source.”8
has been used to perpetuate
Notwithstanding its operational shortcomings,
an endless stream of ad
hoc organizations that have S/CRS has done much good work. It has thought
attempted and been unable through the mechanics of establishing a functioning
to manage SROs. civilian response corps and developed training and
planning elements including a conflict assessment
framework. SIGIR does not advocate discarding the work accomplished to date by its
dedicated staff. However, after several years of support for the concept of S/CRS, SIGIR
believes much more work to institutionalize its concept is necessary. As a recent Brookings/
Center for Strategic and International Studies report noted, “The substantive contributions S/
CRS has advanced with regard to interagency coordination and collaboration on stabilization,
reconstruction, and conflict transformation could develop further and have a greater impact
within a more effective model.”9

5. U.S. Department of State, “1 FAM 026, Office of the Coordinator for Reconstruction and Stabilization
(S/CRS),” Foreign Affairs Manual Volume 1—Organization and Functions (Washington, DC: State
Department General Services Office, 2008), http://www.state.gov/documents/organization/84120.pdf.
6. Serafino, Nina M., “Peacekeeping/Stabilization and Conflict Transitions: Background and Congressional
Action on the Civilian Response/Reserve Corps and other Civilian Stabilization and Reconstruction
Capabilities,” Congressional Research Service report, February 17, 2010.
7. U.S. Department of State, “Smart Power in Action: 2009 Year in Review,” Coordinator for
Reconstruction and Stabilization.
8. U.S. Department of State, “Report of Inspection: Embassy Kabul, Afghanistan,” Report No. ISP-I-10-
32A, Department of State Inspector General, February 2010.
9. Unger, Noam, Margaret L. Taylor and Frederick Barton, “Capacity for Change: Reforming U.S.
Assistance Efforts in Poor and Fragile Countries,” Brookings/CSIS, April 2010.

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The Limitations of a Civilian Surge

The apparent shortcomings of the so-called “civilian surges”—attempted in both
Iraq and Afghanistan—stem from the absence of a management structure that can efficiently
and effectively utilize staff resources. The constant stream of new temporary organizations
with corresponding temporary hiring authorities resulted in a confusing web of ill-defined
entities, frequently with conflicting or noncomplementary missions. Good advance planning,
sober analysis, and well-managed, agile responses —consistent with well-developed SRO
doctrines and a well-exercised reserve corps—would clearly provide a more productive
approach.
Moreover, given the absence of a unity of command point, harmonizing SRO
efforts in a host nation with those of other bilateral donors and international organizations is
virtually impossible. Host nation officials are impeded from making meaningful progress on
many critical issues because of “interlocutor fatigue.”

Stability Operations and COIN

Given the decline of the civil affairs components of the U.S. military over the past
few decades and the increased and occasionally inappropriate dependence upon contractors
to fill key roles in SRO engagements, the military has been actively working to develop
the tools necessary to meet today’s SRO challenges.
Combatant commanders and their troops must now Good advance planning,
know more about contracting and finance, foreign sober analysis, and well-
cultures, economic development, and reconstructing managed, agile responses
—consistent with well-
infrastructure.
developed SRO doctrines
The military now needs to “employ a mix of and a well-exercised reserve
familiar combat tasks and skills more often associated corps—would clearly provide
with nonmilitary agencies…. Soldiers and Marines are a more productive approach.
expected to be nation builders as well as warriors.
They must be prepared to help reestablish institutions and local security forces and assist in
rebuilding infrastructure and basic services. They must be able to facilitate establishing local
governance and the rule of law.”10
The military also receives a majority of funding for SROs. Over the past six
years, stability operations and counterinsurgency doctrine have been developed and
institutionalized—but the effects of the doctrine are yet to be fully realized. They have
provided a basis from which the military now is heavily involved in SRO tasks previously
assigned to civilians.”11

10. U.S. Department of the Army, “Counterinsurgency,” U.S. Army Field Manual FM 3-24, December 15,
2006.
11. U.S. Department of Defense, Directive 3000.07, December 1, 2008.

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Stability operations at the Defense Department (DoD) now are on an equal footing
with offensive and defensive operations, and implementations in the field in both Iraq and
Afghanistan have demonstrated that the military is engaged well beyond the limits of support
to the warfighter. These dramatic evolutions in the field have yet to be reflected in the civilian
SRO policy and structures—a point not lost in the DoD Irregular Warfare Directive, issued
in 2008, which noted the importance of supporting “integrated civilian–military teams for
steady-state and surge activities, and lead them if civilians are unable” (emphasis added). The
Defense Department appears to assume the existence of a civilian capacity able to effectively
address the challenges common to post-conflict situations. But that capacity does not exist,
and without a strong institution empowered to take on SROs, the ability to bring such a
capacity to bear simply is not currently possible.
The SRO management answer is not simply to increase civilian capacity. More
resources will not solve the problem. It is necessary to build a new civilian–military integrated
capacity solely focused on SRO planning and execution.

The CERP Example

Perhaps the best illustration of the problems inherent in SROs as now executed,
and how a U.S. Office for Contingency Operations could ameliorate them, can be seen in
the evolution of the Commander’s Emergency Response Program (CERP). First developed
as a tactical tool for commanders and funded with Iraqi money seized during the war, the
program rapidly evolved. In 2010, it has surpassed $6 billion in U.S.-appropriated funds,
which have been applied in Iraq and Afghanistan. There is currently no program office
managing efforts in the Pentagon; rather, the decentralized program has evolved in the
field and is governed by various policies instituted by the U.S. Army, which has fiduciary
responsibility for the funds.
SIGIR has concluded that, with simplified and appropriate controls, CERP, as
originally conceived, can be a critically important tactical tool for commanders in the field.
However, as other rebuilding funds dried up, CERP began to expand into a de facto long-
term, large-scale reconstruction program, at times funding multimillion-dollar infrastructure
and economic development programs. But CERP did not have the benefit of adequate
planning or contract management, let alone sufficient coordination with civilian agencies that
possess development expertise and also may be working in the host country. This resulted in
waste and poor outcomes.
USOCO would not interfere in CERP’s small-scale “hearts and minds” operations,
necessary in particular in the immediate aftermath of combat. Instead, USOCO would provide
a management structure responsible for supporting commanders in the longer-term, more
complex programs needed for SROs. Further, USOCO would study the effects and impact of
CERP programs and disseminate information to their staff and commanders, so that better
decisions would be achieved over time.

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The Fourth “D”

If there is one overarching problem that stands out from the study of recent SRO
efforts, it is the lack of unity of command. The military is clearly in charge of defense efforts.
The State Department is clearly in charge of diplomacy. USAID is clearly tasked with long-term
development. But an emerging consensus has identified a new field, one that sometimes
is characterized as a combination of the “three Ds,” as they are known—and in this fourth
area, there is no one in charge.
One way to understand this point is to look at the programs applied and the
outcomes expected in SRO environments. In traditional development, a water plant is built
to improve water quality in a particular village, with a long-term goal of alleviating poverty.
In an SRO, the primary goal of building that water plant is to achieve a political outcome—
stabilization—while the improvements to water quality are a second-order effect. Road-
building projects not only are used to stabilize an insecure area, but also to keep military age
young men employed and out of the insurgency’s ranks. Economic development in this case
is a second-order effect.
As currently constructed, SRO projects are awkwardly implemented in terms of
their “effectiveness” in development terms, and military-led projects are met with the
common accusation that “foreign aid” has been “militarized.” In both cases, the standard is
inapposite.
SRO projects are not traditional aid, and should not be measured in the same way
as are long-term development programs. By the same token, SROs do have a critical military
component, and should not be viewed as being the same as traditional development aid.
Taking the military out of the equation and handing SRO activity to an entity divorced from
the Defense Department would be just as wrongheaded because of the security imperative
in SRO operations. SROs are a distinct discipline and must be treated as such with sufficient
focus, resources, and capability.
If one agrees that SROs are a unique discipline, then it stands to reason that it
is one best carried out by an institution that has the authorities and resources necessary
to succeed. Today, no one entity that owns this mission—instead, it is diffused across
government and run by a constantly morphing “adhocracy.”

What Would This New Organization Look Like?

In order to help make the concept concrete to the reader, we have called the new
organization the U.S. Office for Contingency Operations—or USOCO—because every federal
agency needs a catchy acronym. While the concept can be adapted to several models,12

12. Alternately, USOCO could be created as an office within the Defense Department or the State
Department.

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the most successful construction would have USOCO headed by a presidentially appointed,
Senate-confirmed director who would report jointly to the secretary of defense and the
secretary of state. The concept envisions three deputies, one appointed by the secretary of
state, one by the secretary of defense, and one by the administrator of USAID.
The organization would be the focal point for contracting in the field—an element
that has been critical to the operations, with contract personnel outnumbering U.S. troops in
both Iraq and Afghanistan. It would develop and employ streamlined contingency contracting
regulations, track all U.S. expenditures with a consolidated information technology platform,
and prepare and justify budgets. It would be the single point for host-government entities to
understand the SRO program at work in their countries.

Figure 1. USOCO areas of purview

Peace Building Conflict Post-Conflict/Stabilization Long-Term Development

Military

USOCO

State/USAID

Conceptually, USOCO would engage upon a presidential declaration, much like

the Federal Emergency Management Agency engages the whole of government during
national disasters. The intervention would be time limited, with USOCO “nesting” within the
military and Department of State/USAID efforts. Upon the completion of SRO efforts, work
in a host nation would revert to full-time agencies such as USAID and the State Department,
which would continue to advance more traditional
If one agrees that SROs are
development and diplomacy throughout the duration
a unique discipline, then
it stands to reason that it of the SRO and beyond. In military parlance, USOCO
is one best carried out by would be a “Phase IV” organization that would take
an institution that has the on many of the tasks currently outlined in stability and
authorities and resources reconstruction operations policy.
necessary to succeed
USOCO would bring together varied SRO
mission elements that currently are spread across various agencies, key among them
rule of law efforts. Rule of law programs in Iraq and Afghanistan currently are run along
two different tracks with significant participation from the State Department, ad hoc
organizations created under the U.S. Central Command, and the Justice Department.13
USOCO also would bring in elements of the Office of Transition Initiatives at USAID, elements

13. International Criminal Investigative Training Assistance Program.

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from the Department of Treasury’s Office of Technical Assistance, and elements of the
Department of Defense’s Stability Operations functions.

Field-Centric Focus
Critical to its success, USOCO would need to be charged with managing SRO efforts
in the field, which it would coordinate with the chief of mission (COM) and the commanding
general (CG). A common criticism of this idea is that it simply amounts to a third layer of
coordination for the COM and CG. However, closer analysis would reveal that COMs and
CGs currently are spending inordinate amounts of time coordinating with myriad federal
entities—both ad hoc and permanent—and that is just on the U.S. government side. Hours
more are spent each week coordinating with international organizations, nongovernmental
organizations (NGOs), and the host nation. During an SRO, the USOCO director would
manage all stabilization and reconstruction assets. Importantly, the director would shoulder
complete accountability and responsibility for the SRO budget, contracting, expenditures, and
outcomes, and would be a valuable team member to the COM and CG.

Government Must Be Entrepreneurial

Just as new businesses spring up to meet new challenges and obsolete businesses
must fold, so too must government be flexible and adaptive to new demands. Forcing post–Cold
War era institutions to take on new missions has not proven successful. Much ink has been spilled
during the last two years over the loss of personnel at
Just as new businesses spring
USAID, the need to rebuild the State Department, and the
up to meet new challenges
significant shifts ongoing at the Defense Department to and obsolete businesses must
fill the resulting gaps in civilian capacity. Change has been fold, so too must government
slow in coming; perhaps, as one conference participant be flexible and adaptive to
humorously put it, “The reason we don’t create new new demands.
agencies in government is that once they are created, you need a wooden stake and garlic to get
rid of them!” That is not a good enough reason, however, to continue along a failing path.
The spirit of entrepreneurship also must apply to government. Instead of holding on to
outdated structures and endlessly cobbling them together in coordination meetings to take on
these high-priority matters as additional duties, consider the benefits of creating a new, modestly
sized organization that would focus solely on SROs.
The benefits of creating a “new agency” are numerous. It could be designed from the
ground up, with the latest ideas from national and international experiences informing its design.
Information technology could be harnessed to support this agency and provide data needed
to inform better policy. Contracting and finance would be streamlined, and spending priorities
harmonized. Foreign partners and international organizations would have a single point of
coordination through which they could coordinate with all the appropriate elements of the
U.S. government.

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The cost of maintaining this organization would be far less than the waste resulting
from poor coordination and failed execution in just one moderately sized SRO.14 During
periods of low activity, the permanent staff would be engaged in planning, reworking
strategy, and conducting exercises internally and with other agencies; it would, as well,
evaluate past programs to discern lessons learned and best practices in the field of SROs.

A Home for a New Civ-Mil Organizational Culture

Key to the success of this new organization would be its reporting chain. It would
ideally belong to both the military and civilians, thus creating an institutional space where a
new “civ-mil” organizational culture can flourish. This amounts to a “Goldwater-Nichols”
reform for the interagency, albeit on a more limited scale.
Much discussion has been focused on the need to train individuals in the new ways
of irregular warfare. But the question has to be asked: Where do these trained professionals
go after training to build their craft? Promotions will remain predicated on mastering one
discipline or the other. If they go back into the military, they inevitably will be focused on
military missions. If they are placed in a civilian agency, their mandate will be dictated by their
home agency, and once again true formation of civ-mil best practices will rely on individual
relationships that can overcome the stovepipes of government.
Further, creation of a new institution is one sure way to mitigate the problem of
“personality.” As has been pointed out innumerable times in the course of SROs in Iraq,
Afghanistan, and the Balkans, frequent turnover of personnel and personality clashes have
frustrated appropriate outcomes. The surest solution is to build an institution around a
robust, properly staffed, properly resourced commitment to forging a new path to manage
SRO missions.

Communicating a New Narrative

The creation of an institution that focuses on SROs will allow for more robust
dialogue to emerge on the issue of when and why the United States will pursue an SRO.
Informed discussion of the nuances of this emerging field will have a home—media will
know where to turn for questions, experts will know where to direct ideas, best practices
will have somewhere to germinate. The Congress and administration would have a focal
point around which to refine and test ideas. Gradually, a narrative can be developed that
would have the potential to build public support for something better—a smarter approach
to tomorrow’s problems. Today’s downward spiral would be replaced by mutually reinforcing
elements—improved understanding leading to improved outcomes, leading to more public,
and eventually, more political support.

14. Rough estimates for a standing capacity of 200 staff would run approximately $30 million annually.
Estimate of waste as a result of management failures in Iraq alone is $5 billion (SIGIR estimate).

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Creation of an empowered organization also would give Congress an entity to hold

accountable for results and provide a home for the fractured funds currently spread among
multiple agencies. Rice bowls would be replaced by family style budgeting, in which shared
priorities would guide expenditure of funds. Temporary measures to shift money from one
agency to another, resulting in poor accountability and mismanagement, would be replaced
by clear lines of authority, improved controls, and an ability to evaluate programs over the
longer term to identify ways to advance policy.
Dual-key approval—in a sense having an agency that reports to both the State and
Defense Departments—is not a wholly new idea. This concept was used as a basis for the
“conflict pools” developed by the British government to pay for SRO operations. Dual-key
approval also has been endorsed by Defense Secretary Robert Gates in a December 2009
memo to Secretary of State Hillary Clinton.15 USOCO’s management of an SRO budget
would, in effect, operationalize the dual-key approach under the two cabinet agencies and
streamline execution and results with the policies and strategies.

Tying it Back to Expeditionary Entrepreneurship

USOCO would provide an institutional nucleus around which the military, in
conjunction with civilian experts, could develop the new thinking, and more importantly, the
new operational elements needed in the field to succeed. This paper has provided an outline
of an idea that could lead to SRO success, but the path to better outcomes will require much
more engagement from affected departments and agencies, and the U.S. Congress. Any
successful reform also will require political will and support for clearly defined goals and
objectives in an SRO and sufficient funding for operations. Success also is dependent upon a
humility and understanding of host-nation culture, customs, formal and informal structures,
and the underlying causes of instability in a fragile or failing state.

The Economy, Efficiency, and Effectiveness Imperative

Current realities drive the need to improve efficiency and effectiveness in SROs. The
global financial crisis has severely affected the ability of donor nations to contribute to these
very costly military and stability operations. At the same time, the global financial crisis also
has exacerbated tensions in fragile and failing states, heightening the threat of instability
and further raising the stakes of U.S. national security and, indeed, the security of the world.
With declining funds and increased risk, the gap between resources and results is widening.
The best way to narrow that gap is through improved economy, efficiency, and effectiveness
through the creation of an accountable entity. We have to get smarter about how we
approach these wicked problems, and we have to do so now.

15. Defense Secretary Robert Gates, “Options for Remodeling Security Sector Resistance Authorities,”
memorandum to Secretary of State Hillary Clinton, December 15, 2009, http://www.washingtonpost.
com/wp-srv/nation/documents/Gates_to_Clinton_121509.pdf?sid=ST2009122303054 (accessed
November 11, 2010).

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Towards a Post-Conflict Economic Development Doctrine

by Colonel Jeffrey D. Peterson

Academy Professor of Economics, Department of Social Sciences,
United States Military Academy

Colonel Jeffrey D. Peterson is responsible for West Point’s economics program. He was
commissioned into the army from West Point in 1987 as an armor officer with a BS in civil
engineering. As an armor officer, he served in a variety of leadership and staff positions in the
United States, Korea, Cuba, and the Middle East. Most recently, he served as the commander for
a cavalry squadron based at Fort Lewis, Washington. While in command, the squadron deployed
to Baghdad, Iraq and conducted counterinsurgency operations from July 2006 to September
2007 during the height of sectarian violence in Baghdad and the beginning of the “surge.”
His experience in using economics as part of an overall plan to establish stability in his area
of responsibility motivated his desire to research the military’s role in economic development
in a post-conflict environment and the importance of economics as a component of successful
counterinsurgency operations.

Author’s note: The contents of this paper are based solely on the author’s interpretation of the
challenges faced by military units in their efforts to use economic resources as a critical component
of a counterinsurgency strategy in Iraq and Afghanistan. The contents of the paper are the views
of the author and do not represent West Point, the U.S. Army, or the Department of Defense. Any
questions concerning this paper should be directed to Colonel Jeffrey D. Peterson, Department of
Social Sciences, West Point, NY, 10996 (jeffrey.peterson@usma.edu).

Since Operation Enduring Freedom began in 2001, the U.S. military has
struggled with the inextricably linked challenges of establishing security and
promoting economic development in Iraq and Afghanistan. Military units and
multiple civilian organizations have expended vast resources to build the Afghanistan
and Iraq economies using traditional means of development: bilateral aid, centralized
planning, and large infrastructure development—largely at the expense of an
organized effort to build businesses to support local economies. Unfortunately
for the Afghan and Iraqi people, these development efforts have not lived up to
expectations. Indeed, many of the large projects now lie abandoned, illustrating

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the inherent waste and ineffectiveness of centrally planned economic development programs.
In hindsight, many development projects in Iraq did not meet the needs of the local
population. The projects were ill-advised and unsustainable in the long run.1
U.S. forces deployed to conflict zones focus on one objective: establishing sufficient
security so civilian agencies can assume responsibility for transitioning the society toward
long-term stability. However, this goal can only be achieved by going beyond traditional
military operations. As recent history shows, military forces must use economic resources
to reinforce or enhance security operations. Faced with this obvious need to incorporate
economic development into the overall stabilization mission, the army updated its doctrine to
include economic development as a critical component of counterinsurgency and stabilization
operations—a mission the Department of Defense assigned as a core mission given
comparable priority with conventional military operations.2
Economic development supports the most important task of the counterinsurgent:
protecting the local population. Protecting the citizenry is a multifaceted challenge that
requires precision military operations resulting in the capture of insurgents, while also
minimizing damage to the affected citizens. Precise military operations require accurate
intelligence, much of which comes from the local population. For the military to obtain
that information, the local community must have an incentive to risk their lives and families
by providing intelligence about the local insurgency. Used properly, economic resources
tip the individual citizen’s cost-benefit analysis in favor of cooperation through sustained
employment, wealth generating opportunities, and
personal control over his or her own future. The local Used properly, economic
population must believe that providing information to resources tip the individual
the counterinsurgent has a higher expected payoff than citizen’s cost-benefit analysis
supporting the insurgency. Improved security reduces in favor of cooperation
through sustained
the expected cost of supporting the counterinsurgent,
employment, wealth
but economic development creates the real benefit that
generating opportunities, and
makes supporting coalition forces much more appealing. personal control over his or
Despite the importance of incorporating her own future.
economic development into a counterinsurgency
campaign plan, there is no consensus about the military taking a lead role in development
policies. To be sure, there are many who believe the military should have little to do with
economic development—including some in uniform. Even if one agrees that the military

1. A detailed description and history of the challenges facing reconstruction in Iraq is provided in Stuart
W. Bowen, Jr., Hard Lessons: The Iraq Reconstruction Experience (Washington, DC: U.S. Government
Printing Office, 2009).
2. Department of Defense, DoD Directive 3000.05, “Military Support for Stability, Security, Transition, and
Reconstruction (SSTR) Operations,” November 28, 2005.

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should assume responsibility for economic development, there is further confusion about how
the military should go about building economies. Although military doctrine acknowledges
the importance of economic development in counterinsurgency and stabilization operations,
the doctrine lacks detail concerning implementation. In the absence of detail, the military
turns to economic development experts who rely on policies that have been found wanting in
any environment, especially a post-conflict environment. As a result, the expected benefit to
the local community of economic development has been largely disappointing.
This paper takes a pragmatic approach in asserting that the military should be
temporarily in charge of economic development at the tactical and operational level in
a nonconducive environment where the risk is too high for civilian presence in the local
community. First, such authority needs to be given to the military because economic
development should start immediately, even though the environment remains insecure. The
only personnel available to initiate economic development throughout the operational area
are military units capable of operating in these dangerous zones. In many ways, military
personnel find themselves as “reluctant economists” because there is no one else available
to provide immediate and locally relevant development advice. Second, the economic
development required during the early stages of counterinsurgency must be locally driven to
make immediate differences in the lives of the citizens. Since military units are present within
the community, they are best equipped to gather the local information that will enhance
economic development. Finally, economic development is but one facet of counterinsurgency
operations that must be integrated into an overall campaign plan executed by the military
commander. Development is not something that can be outsourced to an external agency in
hopes that it will support the overall campaign plan. The military commander is responsible
for integrating all resources in his area of responsibility and should have decision-making
authority over development decisions until the security environment improves enough for
civil-military integration.
Proceeding from the premise that the military should be in charge of economic
development at the tactical and operational level until security is sufficiently established, a
more specific doctrine needs to be written that provides pragmatic guidelines for supporting
the reestablishment of a destroyed economy or, in some cases, working in partnership
with the local population to establish an economy for the first time. The generalities in
current doctrine are insufficient to guide action in a coherent manner to generate sustained
economic development. The underlying theme of the doctrine should be rooted in a theory
that is within the realm of execution by the military and a proven means of long-term growth:
market-based firm formation that results in wealth generation and sustainable employment.

Primacy of Firm Formation

Students of military stabilization doctrine will quickly point out that private
development and enterprise creation already are included as one component of an economic

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development plan.3 While this is true, the doctrine falls short in merely mentioning private
development as a small component of a centrally planned process of building economies.
Instead, the doctrine should elevate firm formation to the central focus of the military’s efforts
in promoting economic development. The return of every development dollar spent should
be measured in one of two ways: by the number of businesses formed, or by the number of
sustainable jobs created. By focusing development efforts on these two objectives, the local
economy has the best chance of growing and improving the lives of the citizens.
Elevating firm formation to a central position among all development efforts is
more than a nuanced interpretation of current doctrine because it provides a means of
unifying all development efforts and spending. Short-term contracts for picking up garbage
become opportunities for identifying capable entrepreneurs and dependable labor in the local
community. Commanders use emergency response funds to establish local businesses with
the potential to support families and provide local employment. Infrastructure projects are not
solely provided to outside firms, but are used to develop local contracting firms and improve
the labor skills of the local population. Every project focuses on improving the economic
climate to favor the establishment of privately owned enterprises. In doctrinal military terms,
firm formation becomes the decisive economic task at the tactical and operational level, and
the primary means of revitalizing an economy.
Prioritizing private firm formation also complements the emphasis in
counterinsurgency strategy on protecting the local population. Much like positioning U.S.
forces among the people for their protection, economic development also must occur
among the people for their benefit. The problem with most large infrastructure problems is
that they do not have an immediate benefit to citizens. To a family who cannot turn on a
light to eat dinner in their home, the promise of a new
power plant being operational in five years does little Elevating firm formation to
a central position among all
to win their support. However, a generator operated by
development efforts is more
a local entrepreneur provides them an opportunity to
than a nuanced interpretation
immediately improve their quality of life. Establishing of current doctrine because it
local businesses that improve life for the local population provides a means of unifying
wins their support and buys time for completion of all development efforts and
larger infrastructure projects. spending.

Private firm formation that generates wealth

and jobs gives the local population a future worth defending—which means they have an
incentive to provide the necessary information for precision military operations. By involving
and supporting local businessmen and leaders, development will meet the needs of local
citizens in a way that matters to them. They will take ownership of the businesses’ success

3. U.S. Army, Field Manual No. 3-07, “Stability Operations,” October 2008, http://usacac.army.mil/cac2/
repository/FM307/FM3-07.pdf, 3-15–3-17.

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and break their dependency on aid and grants. Members of the population will have more
control over their destinies and take steps to maintain that control.
Finally, private sector development complicates the targeting problem for the
insurgent and creates an opportunity to reduce popular support for the insurgency. Large
infrastructure projects are easy targets for insurgents, and the resulting delays in completion
make the government appear incapable of protecting itself. Conversely, privately owned firms
are dispersed throughout the population, which reduces the impact of a single attack. To
make matters worse for the insurgent, an attack against a locally owned business is an attack
on the population itself. In a fight in which the population is the “prize,” this is bound to be
much less effective than an attack on the government to weaken its perceived legitimacy.
These attacks will alienate the local population from the insurgent—which is exactly what the
counterinsurgent desires.
As an example to illustrate the insurgent’s targeting dilemma created through
private-sector development, consider electricity infrastructure projects in Iraq. Certainly, the
power generation and distribution system of Iraq needed repair for the long-term health of
the economy. However, working on the infrastructure did not deliver adequate electricity to
the local residents. Attacks against the infrastructure delayed completion indefinitely, while
making the government of Iraq and coalition forces incapable of improving the population’s
quality of life. If the coalition had simultaneously pursued a large-scale effort at local power
generation, there would have been multiple benefits. Most important, the local population
would have immediately received electricity. Second, local entrepreneurs could run the local
generators as self-sustaining businesses. Finally, an attack or seizure of the generators by the
insurgency would be a direct affront to the local populations and undermine the insurgent’s
credibility.
Elevating firm formation to the central theme of post-conflict economic
development has a unifying effect for all development investments and aligns well with
counterinsurgency doctrine. Supporting the establishment of firms is the best means of
winning the support of local citizens by meeting their everyday needs. However, there
remains a need for specific guidance and actions that a military unit can adopt as part of its
campaign plan. The next section of this paper will address these concerns.

Towards a Doctrine for Post-Conflict Economic Development

There is no one-size-fits-all solution to post-conflict economic development.
Variance in conditions across countries and within countries makes application of a
development template problematic. Some communities require clean water more immediately
than electrical power. Others may prefer improving education to improving irrigation systems.
Therefore, each situation must be addressed with an understanding that a prescriptive
checklist will not be the source of a development solution. However, there are some principles
that will create conditions to increase the likelihood of success.

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The military should embark on an information campaign to manage the external

and internal expectations of what is possible for economic development and firm formation.
Externally, the local population often believes that the U.S. military is capable of delivering
essential services and jobs instantaneously. If these outcomes do not materialize, locals often
believe it is because the U.S. military chooses to withhold benefits rather than not having the
capacity to deliver immediately. Internally, the military needs to realize that firm formation is
a nonlinear process that takes significant time and failure to (ultimately) succeed. Creating
an entrepreneurial economy is an unpredictable and messy trial-and-error process requiring
a great deal of patience.4 All participants in the development process should realize that
building businesses takes time, and should not be frustrated by the fits and starts of growing
a local economy.
To assess economic progress, the military should focus on measuring economic
outcomes instead of resource inputs. Military commanders who are assigned a sector for a
maximum of one year desire to make an impact and show progress during their deployment.
The desire for progress lends itself to focusing on inputs such as the amount of money
spent or projects initiated rather than economic outcomes such as the number of businesses
and jobs created. For example, progress should not be measured by the number of schools
opened, but rather by the number of children educated. Commanders should measure the
actions of local citizens to determine progress. The
number of shoppers at a market reveals perceptions All participants in the
about security and availability of goods. Tracking the development process
number of hours a business is open also can reveal should realize that building
businesses takes time, and
beliefs about security levels and market demand.
should not be frustrated by
Regardless of the specific metric, the guiding principle the fits and starts of growing a
is to look for indicators that reveal the population’s local economy.
perceptions and measure economic outcomes.
Measuring progress in quality of life for the local population will be difficult until measures of
effectiveness that capture economic outcomes are used routinely.
Tolerance levels for corruption should be established using a cost-benefit analysis
that weighs the cost of corruption against the benefit of the economic investment. Of
course, a commander wants to minimize corruption that robs the public, reduces the impact
of investments, and even may fund the insurgency. However, reducing corruption to zero is
unrealistic, and resources may be wasted fighting corruption that could be better used to
further firm formation. Commanders should weigh the benefit of business development in
terms of local support gained, businesses opened, and jobs created, even if some corruption
results from a specific development program.

4. A discussion of how an entrepreneurial based economy is unpredictable and “messy” is provided by

Dr. Carl Schramm, “Expeditionary Economics: Spurring Growth After Conflicts and Disasters,” Foreign
Affairs 89, no. 3 (2010): 92–95.

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 towards a post-conflict economic
development doctrine

One example to illustrate this point deals with the sale of black market gasoline in
Baghdad.5 Gasoline sales were controlled through a centralized distribution and rationing
system. A black market for gasoline quickly emerged because the demand for gasoline
was higher than the amount supplied at artificially low government prices. The market was
nothing more than individuals selling gasoline out of plastic containers along the main roads.
Clearly, these impromptu gas stations were technically illegal and could be exploited by the
local militia through stealing gasoline or taking some of the profits from the businessmen.
But just as clearly, the gasoline sold along the road was enabling businesses to run their
generators, providing financial resources to families, and allowing people to purchase
gasoline more quickly. Shutting down the fuel points might reduce militia financing, but it
also would alienate a significant portion of the local population. A commander must consider
both sides of the cost-benefit analysis before deciding to fight the supposed corruption. In
this example, allowing the black market fuel points to continue operations could be more
beneficial than removing a potential financing source for the militia.
Potentially, the most important principle for achieving sustainable, locally driven
security in any region is gaining the support of the local community by allowing it to
participate in the development process. Increasing the number of local actors with a
significant stake in developing their local economy and maintaining a secure environment is
vitally important, and this is precisely what large, centrally planned infrastructure projects fail
to do. Foreign military forces will not be able to identify and contain all threats. Local citizens
and leaders are better situated to identify insurgents as they possess cultural insight, are
intimately familiar with the local environment, and are deeply rooted in the local community.
They know who the bad guys are and who does not belong in the community. Encouraging
local leaders and citizens to invest themselves in their own economy and security gives them a
reason to identify the insurgents: protecting these community benefits.
Development at the community level is especially important in countries governed
by local leaders who wield power through traditional, cultural means and are resistant to a
centrally controlled national government. While utilizing these traditional power structures
may appear to undermine the national government, they provide a mechanism for using
development resources in a manner most important to the local citizens and serve as an
interim mechanism for enforcing contracts and property rights. A possible means of gathering
local input is provided by the Needs Assessment Handbook of Community Development
Councils (CDCs) in Afghanistan, which prioritizes needs of various regions in Afghanistan
based on responses from CDC members throughout the country.6 Gaining input of CDC
members provides a better understanding of what needs are most important to certain

5. This anecdotal example is based on the author’s personal experience during a deployment to Iraq
in 2006–2007. The intent is to illustrate the tradeoffs facing a commander in the decision to combat
corruption, not to be illustrative of anticorruption measures in general.

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 towards a post-conflict economic
development doctrine

regions in Afghanistan. Local representatives are much more aware of the problems facing
their communities and, as a result, much better equipped to understand viable solutions.
The more emphasis placed on a strategy of local development focused on firm formation,
the more successful military units will be in meeting the needs of the local population and
establishing a foundation for sustainable economic development.
The last critical component of a military doctrine for firm formation is the removal
of bureaucratic obstacles to investment decisions using development resources. A critical
component of a successful, entrepreneurship-based economy is the relative ease of starting
a business. Similarly, commanders should face fewer constraints on where they make
investments in the local economy, and they should have final decision-making authority over
disbursement of development funds in his or her sector. As long as the commander is held
responsible for the accountability of the funds and results in firm formation, he or she should
have the authority to make investment decisions based on the unique situation in his or her
sector and specific investment opportunities in the community.

Conclusion
The U.S. Army most likely will face future challenges in integrating economic
resources into stability or counterinsurgency operations. In the absence of civilian capacity
due to insufficient security and the lack of a proven economic development theory for post-
conflict situations, the army should develop its own economic doctrine that capitalizes on the
entrepreneurial spirit resident in most cultures. This doctrine should place firm formation at
its center, thereby providing a unifying focus of development activities on building businesses
and creating sustainable employment. The tenets of such a doctrine outlined in this paper are
a starting point for incorporating development into an overall counterinsurgency strategy that
hopefully will improve the security situation while speeding the transition to civilian oversight
and continued prosperity for the local community.

6. ANDS Working Group, Afghanistan Community Development Councils: Needs Assessment Handbook,
ANDS Working Group, October 5, 2005, http://www.ands.gov.af/ands/andsconts/consultation/Civil_
Society_Organizations/src/CDC%202.pdf (accessed December 1, 2009).

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 How Ideas Become Doctrine:
The Evolution of Military Thought in an Era
of Complex, Rapid Change

by Clinton J. Ancker, III

Director, Combined Arms Doctrine Directorate
U.S. Army Combined Arms Center, Fort Leavenworth, Kansas

In August 1995, Colonel Clinton J. Ancker III was assigned to the U.S. Army Command and
General Staff College. After six months temporary duty (TDY) as the chief of the Military Liaison
Team to Albania, he assumed his current job as the director of the Combined Arms Doctrine
Directorate, U.S. Army Command and General Staff College, Fort Leavenworth, Kan. Colonel Ancker
retired in June 2001 and returned as a Department of the Army (DA) civilian to be the director,
Combined Arms Doctrine Directorate, U.S. Army Combined Arms Center, Fort Leavenworth, Kan.
Ancker has earned numerous awards and decorations during his career.

T
o understand how ideas become doctrine, it is necessary to understand what
doctrine is, how it fits with other bodies of knowledge about the conduct
of operations, and why these distinctions are important. Then, one must
understand where doctrine comes from, how it changes, and what criteria are used
to sort through and adopt specific changes from the variety of possible changes.

What is Doctrine?
The definition of doctrine in both joint forces and army dictionaries is:
“Fundamental principles by which the military forces or elements thereof guide their actions
in support of national objectives. It is authoritative but requires judgment in application.”1
This definition is both too broad and too simplistic to cover the body of practices that make
up doctrine. The U.S. Army has expanded upon this basic definition to include much more
that just “fundamental principles.”

1. U.S. Department of Defense, Department of Defense Dictionary of Military and Associated Terms,
Joint Pub 1-02 (12 April 2001, as amended through 31 October 2009), 168–169; U.S. Army, Operational
Terms and Graphics, Field Manual 1-02, September 2004 (with change 1–2, February 2010), 1–65.

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 how ideas become doctrine

The formal definition does not adequately cover what is meant by doctrine. There
are lots of theories about what doctrine is. One says that doctrine is what 50 percent of the
force does.2 This is the empirical idea that whatever is actually happening on operations is
the real doctrine being used by the armed forces. There is some truth to this. When practical
experience leads units to take a certain approach to solving a tactical problem, then that
approach is the principle that guides the employment of forces. A good example would be
the approach taken in the early stages of Operation Enduring Freedom in which U.S. Special
Forces, working with the Northern Alliance in Afghanistan, provided ground control for the
massive application of air power that broke the back of the Taliban. Some posited that this
represented a new doctrine for the U.S. armed forces.3
Another theory is that doctrine is whatever the senior officer present says. Again,
there’s a certain amount of truth to this. There’s a marvelous scene in the movie Gettysburg,
where Col. Joshua Chamberlain is confronted with a situation in which the written doctrine
and practical experience he has relied upon so far simply is not going to work. His unit, the
20th Maine, is defending a key piece of ground, the loss of which probably means the loss of
the entire battle. The scene plays out like this:4
After beating several Confederate attacks, one of Chamberlain’s subordinates,
Captain Spear, comes up to him:
SPEAR. Sir, half our men are down, most of the rest are wounded. The left is too
thin, sir.
CHAMBERLAIN. How are we fixed for ammunition?
SPEAR. It’s almost gone.
VOICE, off camera. Sir, it’s running out. We don’t have much left to shoot with.
Some of the boys got nothin’ at all.
SPEAR. Sir, sir, what’ll we do for ammunition?
SERGEANT KILRAIN. Sir, we ought to pull out. We can’t hold them.
CHAMBERLAIN. No, we can’t do that.
SPEAR. We can’t hold them again, sir, you know that.
CHAMBERLAIN. If we don’t, they go on by and over the hill and the whole flank
caves in. We can’t run away, if we stay here we can’t shoot. So let’s fix

2. LTG Don Holder, “Quadripartite Doctrine Conference,” (PowerPoint presentation, slide 4, July 20,
2001).
3 See Stephen Biddle, Afghanistan and the Future of Warfare: Implications for Army and Defense Policy
(Carlisle Barracks, PA: Strategic Studied Institute, U. S. Army War College, 2002) for a discussion of both
sides of the debate.
4 “Bayonets,” Gettysburg, DVD, directed by Ronald F. Maxwell (1993; Burbank, CA: Turner Entertainment
Co. and Warner Home Video, 2000).

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 how ideas become doctrine

bayonets. We’ll have the advantage of moving down the hill. They gotta be
tired, the Rebs, they gotta be close to the end. So, if we—Ellis, wait Ellis,
you take the left wing, I’ll take the right. I want a right wheel forward of the
whole regiment.
SPEAR. What, you mean charge?!
CHAMBERLAIN. Yes, but here’s what we do. We’re going to charge swinging down
the hill. Just like we pulled back the left side of the regiment, now we’re going
to swing it down.
Now that’s the senior officer deciding what’s going to guide the employment of
force at that particular time. And while you wouldn’t find that solution in any of the texts
Chamberlain had studied, he adapted to the situation—
Best practices are adaptations and, some would say, saved the Union that day.
of a procedure used in the
However, what we are discussing is the body
midst of an operation to
address a specific situation. of knowledge that constitutes formal doctrine. From
here on out, when I use the term doctrine, I mean
policy about the conduct of operations that has been approved by the secretary of the army
for use by the force worldwide, which is codified in written or electronic publications and
distributed to the force as whole. We refer to this as “departmentally approved” doctrine.5
To understand how doctrine changes, you should understand where doctrine fits into a
continuum of knowledge. This continuum runs from concepts about how the force might
operate in the future, to doctrine, to lessons learned, to best practices, which are local
adaptations of doctrine or, in some cases, entirely new procedures.
At any given time during both actual operations and training for those operations,
there are constant modifications to the body of knowledge that guides employment. These
modifications first show up as what we call best practices, a term we’ve adopted from
business. Best practices are adaptations of a procedure used in the midst of an operation to
address a specific situation. For example, months ago insurgents in Iraq took note of the fact
that U.S. soldiers were tearing down posters critical of the Iraqi government and the U.S.
presence in Iraq. So the insurgents started connecting booby traps to these posters. Soldiers
quickly figured out the trick and soon spread the word not to touch the posters. Once the
enemy technique lost its effectiveness, our “best practice” was abandoned as it had lost its
relevance. Thus, it never became doctrine, although it guided the actions of the force for
awhile. Another superb example is the Culin device, developed to allow tanks to get through
the hedgerows in Normandy, France immediately after D-Day. It was a local solution to a local
problem that had no value once the army was out of the hedgerows, but was invaluable at
the time.6

5. U.S. Army, “Official Publications,” The Army Publishing Program, Army Regulation 25-30 (1 October,
2004) 16–17 (hereafter referred to as AR 25–30).

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Sometimes there also are best practices that have longer-term application. These
are often captured as “lessons learned.” A lesson learned is simply a best practice that has
wider applicability, often for an entire theater of operations, but still is focused on a specific
problem rather than a general problem. The U.S. Army’s tactic of taking on German tanks
from the sides or rear because our tank cannons were unable to penetrate the frontal slope
of German tanks in World War II is an example.7 These three examples of best practices and
lessons learned all are techniques that were developed in the field, and approved for wider
use and dissemination by commanders in the field, but never became true doctrine.
Some lessons learned and best practices do become doctrine. As mentioned
earlier, what distinguishes doctrine from other categories of information is that doctrine has
been authenticated by the army for use worldwide. This process of formal approval at the
Department of the Army level distinguishes doctrine from the other categories of knowledge.
While best practices are approved at the local level for local use, and lessons learned often
are approved at a higher command level for use by a wider audience (but still limited in time
and space), doctrine is approved at the departmental level for armywide use. Within doctrine,
we further distinguish these categories of information: fundamental principles; tactics,
techniques, and procedures (collectively known as TTP); terms; and, symbols. The terms are
the language of the profession, and symbols are graphics used to convey specific information
in a visual manner. Each of these specific categories is defined in the top-level doctrine
manual and in army and Training and Doctrine Command (TRADOC) regulations.8
To complete the continuum of knowledge, there is one more category of
information important to understanding how ideas get into doctrine. This category is
concepts. Concepts are ideas about how we might operate at some time in the future. They
are hypotheses along the lines of, “if we do this, then we should see an improvement in
performance in this area.” What distinguishes concepts from doctrine is that concepts have
not been validated (more on this later), but form the basis for tests to determine their validity.
They are not to be used in operations, but only for hypothesis testing.9

Why is Doctrine Important?

All armed forces invest considerable resources in developing and teaching doctrine.
One might ask why. Who cares if we are operating from “approved” doctrine or simply

6. Anthony Bevor, D-Day: The Battle for Normandy (New York: Viking, 2009), 257.
7. David E. Johnson, Fast Tanks and Heavy Bombers: Innovation in the U.S. Army 1917–1945 (New York:
Cornell University Press), 194–195.
8. U. S. Army, Operations, Field Manual 3-0 (February 2008), D-1–D-2 (hereafter cited as FM 3-0
(2008)); U. S. Army, U.S. Training and Doctrine Command, “Doctrinal Publications,” The U. S. Army
Training and Doctrine Command Doctrinal Literature Program, TRADOC Regulation 25-36 (1 October
2004), 17–19, (hereafter cited as TR 25-36).
9. See “Concepts,” TR 25-36, 17. For the best explanation of the relationship between doctrine and
concepts see General J. N. Mattis, Memorandum for U. S. Joint Forces Command, Subject: Joint Concept
Development Vision (Norfolk, VA: U. S. Joint Force Command, 28 May 2009).

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adjusting to specific circumstances during operations? If best practices work, why the need
for approved doctrine?
First—and probably foremost—at the upper end of the doctrine continuum:
fundamental principles. Adoption of these often determines some very basic things, such as
how the nation organizes the armed forces, what kinds of equipment and other technologies
to acquire, and how the force will be trained and educated. As a fundamental principle
for the organization of the army and equipping it prior to World War II, leadership decided
that the army should fight enemy tanks not with tanks, but rather with tank destroyers. As
a result, the army did not field tanks with powerful cannons capable of defeating German
armor head-on. It turned out to be a bad mistake.10 On the other hand, a fundamental
principle adopted during the interwar years was that the air component of the army needed a
great deal of autonomy to develop its technology and doctrine outside the parochial interests
of the ground force. As such, the Army Air Corps developed the most technologically
advanced bombers in the world, which gave them a strategic impact in the war that probably
would not have happened otherwise.11 Today, we have significantly changed our training
tasks and facilities because we have adopted as a fundamental principle that we must be as
adept at stability operations as we are at combat operations.12
The second reason doctrine is important is that it allows us to disseminate hard-
earned lessons about what does and doesn’t work. Thus, we don’t have to do discovery
learning for every problem we face. We can discard tactics and techniques that don’t work
and adopt those that have been successful in the past. As the definition states, doctrine
“requires judgment in application.” All tactics and techniques need to be applied in creative
ways with an eye toward how the enemy might react, but there are some things that just
work and others that don’t. Doctrine tries to capture those that work so not everything must
be learned by everyone through trial and error.
Third, doctrine provides a common standard for how we will conduct operations.
This allows us to rapidly change task organization without having to go through a long,
drawn-out process of familiarizing new units with how a given headquarters operates. It
allows units to assume that, given certain types of missions, they can rely on other units
to perform certain tasks without requiring close coordination, allowing for much faster
adaptation and enabling units to spend time on the things that have changed instead of
having to learn everything about the new unit from scratch. For example: When a unit is
assigned an area of operations (AO) by its higher headquarters, because everyone uses a

10. Johnson, Fast Tanks and Heavy Bombers, chapter 14.

11. Johnson, Fast Tanks and Heavy Bombers, 12–165.
12. FM 3-0 (2008), 3-3, 3-10; U. S. Army, Training for Full Spectrum Operations, Field Manual 7-0 (12
December 2008); U. S. Army, G-3/5/7, “HQDA Approved (41) Unit FSO METLs – 2010,” presented 24
May 2010.

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common doctrine, unit personnel can assume with great confidence that within the AO they
can do all the things that doctrine says are inherent responsibilities and authorities associated
with an AO assignment.13 Further, the higher headquarters that assigns the subordinate an
AO can assume that the unit will carry out those specific
It allows units to assume
responsibilities.
that, given certain types of
Finally, doctrine provides a common language missions, they can rely on
for the conduct of operations. While often derided other units to perform certain
as “jargon,” in fact this is an extremely important tasks without requiring
function. With a common language, a commander can
close coordination, allowing
for much faster adaptation
convey a great deal of information very precisely with
and enabling units to spend
very few words. Conversely, when there is no common time on the things that have
understanding of the meaning of given terms, it can changed instead of having to
cause confusion and even death. One need only look at learn everything about the
the Israeli experience in Lebanon in 2006 to see what new unit from scratch.
happens when the language used to conduct operations
is neither precise nor easily understood.14

The Origins of Doctrine?

The origins of doctrine are many and varied. We’ll start at the highest levels:
national character and national policy. A nation’s fundamental doctrine often is a reflection
of national character. Doctrines that distinguish between mission command and directive
command are perhaps the best example. While these two terms are not necessarily used in
the two types of doctrine, the ideas behind them are fundamental to how one approaches
command and control in operations.
Mission command is based on the idea that operations are the province of chance,
chaos, human intervention, and what military theorist Carl von Clausewitz calls the “fog
and friction” of war.15 Mission command accepts that plans are only a starting point for
operations, and recognizes that the circumstances that exist at the start of an operation, from
the strategic to the tactical levels of war, will change frequently. Changing circumstances
create opportunities and threats, and these in turn will demand rapid action, either to take
advantage of an unforeseen opportunity or react to an unforeseen threat. Given the rapidly
changing nature of operations, mission command demands that subordinates take the

13. U. S. Army, Tactics, Field Manual 3-90, (July 2001), 2-13, paragraph 2-40.
14. Matt M. Matthews, We Were Caught Unprepared: The 2006 Hezbollah-Israeli War, The Long War Series
Occasional Paper 26 (Fort Leavenworth, KS: Combat Studies Institute, 2008) 26–28; The Commission for
the Examination of the Events of the 2006 Campaign in Lebanon (The Winograd Commission), The Second
Lebanon War: Final Report (January 2008–translated), paragraphs 115, 187, and footnote 534.
15. Carl von Clausewitz, On War, trans. and ed. Michael Howard and Peter Paret (Princeton, NJ: Princeton
University Press, 1976), 119–121.

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initiative to act based on the specific circumstances in which they find themselves, rather
than wait for orders from a higher commander that may arrive too late or be based on a false
interpretation of events. Mission command is based on trust and mutual understanding. It
relies on individual initiative and individual decision making. It breeds people who are used to
acting on their own in the absence of detailed guidance.16 A military that can execute mission
command relies on a society that vests its citizens with the responsibility to make their own
decisions, gives individuals rights, and allows them to take risks. In short, it demands a
society that values individuals and grants its citizens responsibility. Most nations based on the
European tradition of classical liberalism fall into this category.
The opposite of mission command is detailed command. Detailed command is based
on the idea that the more senior the leader, the better informed he is and therefore better
equipped to make most decisions. It also is based on the idea that combat is deterministic,
that it can be studied as a science, and that with adequate preparation, information, and
resources, outcomes can be predetermined. Detailed command requires subordinates to
follow orders and not to deviate from them. Marxist societies—societies based on historical
determinism and with a belief that Marxism was a scientific philosophy that could determine
the future by studying the past—relied heavily on detailed command.17 When society
determines where you can live and where you can work and penalizes free thought and
action, it is difficult, if not impossible, to create a military that is adept at initiative and
creative thinking. In fact, the Russian Army developed detailed instructions concerning
the amount of information needed to attempt various kinds of operations, scientifically
determined rates of advance for given force ratios, and a whole host of other “scientific”
approaches to the conduct of war. For a one-party state that bases its existence on terror and
suspicion of contending factions, the idea of independent thinkers is often anathema. If you
can’t trust dissenting opinions, you simply can’t execute mission command.18
Another area in which society and national policy impact doctrine is observance
of the norms of warfare. The Geneva and Hague conventions expressly prohibit certain
actions and demand others with respect to the treatment of civilians and prisoners of war,
the proportional use of force, and what is permissible with respect to civilian casualties
(euphemistically called collateral damage). One need only look at the post-World War II trials
of Japanese commanders for their treatment of prisoners to see how this applies.19 Within

16. U. S. Army, Mission Command: Command and Control of Army Forces, Field Manual 6-0 (August
2003), 1-17–1-19.
17. U. S. Department of the Army, The Soviet Army: Operations and Tactics, Field Manual 100-2-1 (16
July 1984), 2-11–2-12.
18. Stephen Biddle, Military Power: Explaining Victory and Defeat in Modern Battle (Princeton, NJ:
Princeton University Press, 2004), 49.
19. D. Clayton James, The Years of MacArthur: Triumph and Disaster 1045–1964 (Boston: Houghton
Mifflin Company, 1985), 93–108.

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their culture and society, this treatment was perfectly acceptable. The fact that the United
States has prosecuted its own soldiers for violating these conventions shows that we hold
them in high regard, even when we fail to live up to their requirements. The current doctrine
on interrogation techniques has been ruled by the White House to be the only acceptable
approach. So here we have a doctrine that has been dictated by the highest levels of
leadership in our government in order that it reflects our national values.20
Society also impacts doctrine when it determines the types of operations it wants
its military to undertake. For a long time, it was U.S. policy to rely on its isolation and navy
to protect it from attack. The U.S. Army was a small organization designed to either keep
the peace on, or expand, the frontier. It was not designed to fight European armies or to
fight outside of the United States. As late as post-World War I, the army justified keeping
horse cavalry in part because it was deemed useful to patrol the border with Mexico, even
though experience in World War I severely questioned the utility of horse cavalry in European
conflicts.21
Recently, government policy has directed that the armed forces treat stability
operations as equal with combat operations. While the army had accepted stability
operations being conducted simultaneously with combat operations in the 2001 version of
its basic doctrine, Field Manual (FM) 3-0, it still held that stability operations were conducted
primarily post-conflict and were a lesser included capability to a military designed to conduct
major combat operations.22 The growing demand for the military to conduct operations
such as peacekeeping in the Balkans, humanitarian relief efforts in Somalia and Haiti, and
conduct counterinsurgency in Iraq and Afghanistan required that army doctrine significantly
change how we approached stability operations. A Department of Defense (DoD) directive
that placed stability operations equal with combat operations23 meant that we had to
increase our stability operations doctrine, make adjustments to our organizations, train our
forces differently to include mandatory training on stability operations, and make substantial
changes in how we trained our officers and non-commissioned officers (NCOs).
Another way that ideas get into doctrine is the study of military history, both over
the course of centuries and recent operations. Studying what has worked or not worked in
the past is the most used, and sometimes misused, method for creating doctrine. History
can, if studied superficially or with a predetermined idea in mind, be found to support almost

20. President, Executive Order no. 13491 “Ensuring Lawful Interrogation Techniques,” January 22, 2009,
Sec. 3, paragraph (b) states that only techniques in FM 2.22.3 (Human Intelligence Collection Operations)
may be used for interrogation.
21. Johnson, Fast Tanks and Heavy Bombers, 27.
22. U. S. Department of the Army, Operations, FM 3-0 (June 2001), 9-1, 9-3, paragraph 1-51, 1-52.
23. U. S. Department of Defense, Military Support for Stability, Security, Transition, and Reconstruction
(SSTR) Operations, Department of Defense Directive 3000.05 (November 28, 2005). (Hereafter cited as
DODD 3000.05.)

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any notion of combat.24 History does not provide concrete lessons that give an answer to
solving any specific problem. However, to borrow an analogy from one of my graduate school
professors, the study of history as a guide to action is similar to playing lots of bridge. You
are never dealt the same hand twice; therefore, no two games are ever exactly alike. But if
you play a lot of bridge, you begin to see patterns—things that usually work, things that
may work but are a gamble, and things that rarely work, but may in certain circumstances.25
From a study of both your own experience and the experience of others, you can develop a
sense of how a hand might be played to best advantage. So it is with history. History does
not provide the answers, but it can illuminate what generally has worked in the past, what
generally has not worked, and what has worked only as a last ditch gamble to stave off
defeat in a seemingly hopeless situation. And, as with bridge, when you are faced with a
specific set of circumstances, the trick is to figure out how that situation resembles those that
have been faced before, and how you might play it out, recognizing all the time that your
opponent—whether in bridge or combat—is trying to do the same thing and actively trying
to both deceive you and defeat your plans. When writing doctrine, it is just as important to
be able to determine how circumstances differ from the past as it is to discern how the past
may illustrate appropriate lessons.26
The growing demand for
the military to conduct The counterinsurgency manual created at Fort
operations such as Leavenworth in 2006 is a good example of the impact
peacekeeping in the Balkans, of history on doctrine. The team that wrote it studied a
humanitarian relief efforts wide variety of past insurgencies to determine successful
in Somalia and Haiti, and approaches to defeating insurgency, but also recognized
conduct counterinsurgency
that a religion-fueled insurgency has important
in Iraq and Afghanistan
required that army doctrine differences from one fueled by Marxist ideology or
significantly change how anticolonialism.27
we approached stability However, history is not the same as recent
operations.
operational experience, though it may resemble it
superficially. Recent operational experience usually is
a response to a specific environment and enemy, used to improve immediate performance
against a known threat and make short-term adjustments to TTP. The 1973 Arab-Israeli
conflict is a good example. The United States had just come out of a decade of combat in
Vietnam and was refocusing its doctrine on the Central European battlefield, against an

24. The exact quote, attributed to Paul Bronsart von Schellendorf is: ‘It is well known that military
history, when superficially studied, will furnish arguments in support of any theory.” I have been unable
to verify the origin of the quote, but it certainly is a valid sentiment.
25. Paraphrased from a lecture by Professor Gordon Craig, Stanford University, 1977.
26. Williamson Murry and Richard Hart Sinnreich, ed., The Past as Prologue: The Importance of History
to the Military Profession. (New York: Cambridge University Press, 2006).
27. U. S. Department of the Army, Counterinsurgency, Field Manual 3-24 (15 December 2006).

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echeloned Soviet force that had a formidable advantage in number of troops and equipment.
The 1973 Yom Kippur War seemed to replicate, in many respects, what we thought we
would face in Central Europe: The antagonists had weapons and doctrine similar to our own
(the Israelis) and our opponents (the Arabs were largely equipped and trained by the Soviets).
The army studied the outcome of this war and drew a large number of lessons about how
certain Soviet technologies and tactics stacked up against our own. We changed much of our
doctrine regarding maneuver, fires, and the overall conduct of warfare based on our analysis
of this recent experience of an ally. The result was a significant new doctrine for the army
called the active defense.28
This example leads directly to yet another way that ideas make their way into
doctrine: through experiments, exercises, and simulations. No sooner had we adopted active
defense as our fundamental approach to fighting the Soviets, than a number of critics—both
in an out of uniform—called into question some of the basic assumptions of the doctrine.
Active defense was very much an attrition approach in which maneuver took a decided back
seat. As in many doctrinal areas, there are competing ideas about the efficacy of various
approaches. I’ve already highlighted one example in the disparate approaches of mission
command versus detailed command. The debate about active defense centered on whether
doctrine should focus primarily on attrition (destroying sufficient enemy resources to render
them incapable of continuing to pursue their aims), or on the alternative of maneuver
(positioning forces in such a manner that it becomes clear to the enemy that he no longer
has the advantage and should concede the fight). Both approaches are simplistic, and
both always include elements of the other, but they do constitute fundamentally different
approaches. The faction favoring maneuver argued that we could never win a war of attrition
against the Soviets based on their far greater material resources. In a grinding, slogging battle
of attrition, we simply couldn’t withstand the sheer numbers the Soviets would put on the
battlefield.29
The army began a series of experiments and simulations to test out the validity of
active defense, and we convinced ourselves through these simulations that we could not, in
fact, prevail in an attrition fight. From that conclusion, we derived a series of experiments and
simulations to develop a new doctrine that replaced active defense a short six years after it
was codified. The new doctrine, AirLand Battle, was based much more on maneuver to attack
flanks, the integrated use of air and ground forces to separate attacking Soviet echelons,
and the use of new equipment that would allow us to strike deep behind the front lines

28. U. S. Department of the Army, Operations, Field Manual 100-5 (July 1976); For a discussion of the
development, see Major Paul H. Herbert, Deciding What Has to be Done: General William E. DePuy
and the 1976 edition of FM 100-5, Operations, Leavenworth Papers Number 16 (Fort Leavenworth, KS;
Combat Studies Institute, 1988).
29. John L. Romjue, From Active Defense to AirLand Battle: The Development of Army Doctrine 1973–
1982 (Fort Monroe, VA: U.S. Army Training and Doctrine Command, 1984), especially Chapter 2.

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to destroy or delay substantial Soviet forces before they could engage our frontline ground
forces. This doctrine was instrumental in justifying what became known as the “big five:” the
Abrams tank, the Bradley fighting vehicle, the Apache attack helicopter, the multiple-launch
rocket system, and the Patriot air defense missile.30
Simultaneously, the army created the National Training Center (NTC) at Fort Irwin,
California, where the opposing force (OPFOR) was designed to replicate a Soviet Motorized
Rifle Division. The OPFOR was trained to fight like the Soviets, and the instrumentation used
to determine the outcome of fights was programmed to duplicate the capabilities of Soviet
systems. Here we had a large-scale, full-up ground exercise that pitted a Soviet surrogate
against the best the U.S. Army could field. The results pointed out weaknesses in our
tactical doctrine, resulting in wholesale rewrites of large portions of our lower-level doctrinal
manuals. Between computer simulations, experiments involving think tanks and role players,
and exercises at the NTC with large force-on-force maneuvers, we fundamentally changed
much of our doctrine, from the fundamentals of how we would take on a Soviet force, to
specific small-unit tactics.31
Technology also drives changes in doctrine. Sometimes the changes are simple and
straightforward. The introduction of rifled muskets, smokeless powder, and the machine
gun changed the doctrinal formation of infantry units from massed columns and lines to
smaller, more spread-out formations that relied on fire and movement rather than volley
fire and bayonets. The microchip has changed our doctrine dramatically. One need only
look at the precision strike capability of the Air Force and some artillery pieces to see where
single precision-guided munitions have replaced mass formations of bombers and massive
artillery barrages. The number of precision weapons used has grown dramatically and are the
weapons of choice for many situations in which mass fires used to be the only answer.
It is not always simple to predict or forecast the impact of technology, however.
What seems evident at first glance often doesn’t work out in practice. When the Army Air
Corps was trying to determine its doctrine and structure in the 1930s, the technology of the
time seemed to favor heavy bombers flying in formation as the solution to applying aviation
technology to defeat an enemy’s industrial capabilities. The Air Corps invested in heavy
bombers at the expense of fighters because, for a time, the bombers actually were faster
than fighters, and the prevailing thought was that heavily armed bombers flying in formation
could easily protect themselves with massed machine gun fire against enemy fighters. This
also was predicated on the inability of an enemy to predict the path of a bomber formation
in time to mass large numbers of short-range fighters to attack the bomber formations. The

30. U. S. Department of the Army, Operations, Field Manual 100-5 (20 August 1982); Romjue, From
Active Defense to AirLand Battle.
31. Anne W. Chapman, The Origins and Development of the National Training Center 1976–1984 (Fort
Monroe, VA: U.S. Army Training and Doctrine Command, 1997).

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accuracy of the Norden bombsight promised pinpoint destruction of specific targets if used
in daylight when the bombardier could physically see his target. When the United States
entered World War II, the Army Air Force deployed heavy bombers to England and began
to execute its doctrine. Unfortunately, several things had changed in the meantime. Fighters
had become faster and had weapons that could attack formations outside the range of the
bomber’s machine guns. Radar allowed the enemy to track incoming bombers and mass
fighters against them. Bombers flying in formation (required to put up a defensive shield)
meant that only a small number of bombers would actually fly over a specified point target.32
These technological changes, in turn, resulted in a significant change in the bomber doctrine
during World War II.
In the 1990s and early in this century, the lessons of Grenada, Panama, Desert
Storm, Kosovo, and the initial operations in Afghanistan seemed to indicate that improved
sensors, precision strike, highly accurate direct fire, and the ability to move fast with global
positioning systems would allow much smaller numbers of troops to defeat any potential
enemy land force. When the enemy massed, that doctrine held true. But as in most
“revolutions” in military affairs, the enemy adapts to our technology in ways that we often
don’t foresee. They adopt tactics that negate much of the technology, such as blending in
with the population, creating realistic decoys that deceive our sensors, or simply refusing to
mass. This leads to further modification of doctrine to account for the enemy’s adaptation, so
the enemy’s ideas on how to fight us end up being reflected in our counters to their doctrine.
Thus, we went from an idea or concept of Rapid Decisive Operations to one of persistent
conflict.33
The international and political environment impacts doctrine directly. What is
acceptable at one point in time may not be acceptable later. In 1967, Israel launched a
preemptive strike on Arab states. Sympathy from many nations lay with Israel, which was still
seen as the underdog and victim of the Holocaust. Yet six years later, the idea of preemption,
even though it was part of the Israeli Air Force doctrine, was deemed unacceptable by the
United States. This prevented the Israelis from launching a preemptive strike prior to the 1973
war. Even the natural environment, which we now refer to when talking about environmental
concerns, has an impact on doctrine. The army has a field manual on environmental
considerations and specific places in our orders to address the environmental impacts of
operations.34

32. Johnson, Fast Tanks and Heavy Bombers, 164–165.

33. U. S. Joint Force Command J-9, A Concept Framework for Rapid Decisive Operations (22 October
1999); on persistent conflict, see FM 3-0 (2008), 1-1–1-3.
34. U. S. Department of the Army, Environmental Considerations in Military Operations, Field Manual
3-100.4 (15 June 2000); U. S. Department of the Army, The Operations Process, Field Manual 5-0 (26
March 2010). Appendix E, “Army Operation Plan and Order Format,” specifies a specific paragraph
to address environmental concerns and assigns an appendix to an annex to further expand on
environmental considerations.

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The current political environment makes it common, if not mandatory, that we

conduct operations with coalition partners. This has led to a great increase in the doctrine
that deals with coalition operations. But the impact of coalition partners goes far beyond just
accounting for them in our plans and doctrine. We receive a considerable amount of input
from foreign nations that makes its way into our doctrine. NATO has produced a large body
of doctrine in its more than fifty years of existence, much of which has been incorporated
into U.S. doctrine. In the early stages, much of NATO doctrine was derived from U.S.
doctrine. This is no longer the case. For example, NATO
The concept process is to counterinsurgency doctrine has been written under the
state a military problem, supervision of the Dutch. The U.S. Army also takes part
propose a possible solution in the American, British, Canadian, Australian, and New
that is outside current Zealand Armies program (ABCA). The recent version
doctrine, and then test that
of Field Manual (FM) 3-0, Operations, includes some
hypothesis using experiments,
seminars, and simulations basic concepts that were developed through the ABCA
to determine if the idea has program and now have found their way into not only
merit. U.S. Army doctrine, but also joint doctrine.35
When discussing how ideas get into doctrine,
concepts occupy a particularly important place. Concepts are an area in which one can
propose ideas that are entirely outside the realm of the currently possible or complete
departures from current practices. They are the realm of thought experiments, how we
might operate differently in the future.36 Both the joint community and the army have
formal and well-supported concept development programs. These concepts cover a wide
variety of topics, from wholesale changes in approach to specific technical requirements.
Concepts explore ideas that are not totally unconstrained, but are sufficiently different that
they can’t be adopted without extensive testing. The concept process is to state a military
problem, propose a possible solution that is outside current doctrine, and then test that
hypothesis using experiments, seminars, and simulations to determine if the idea has merit.
These tests can be as simple as a computer simulation or seminar to explore the concept
using a wide range of subject matter experts, or as complex as full-up organizational and
real world exercises. In the early 1990s, TRADOC proposed a concept for a new digitized
division using many new techniques and technologies.37 To test this idea, TRADOC took one
of the active duty divisions and changed its organization, gave it a suite of sophisticated

35. The American, British, Canadian, Australian Armies Program, The Continuum of Operations (April
2005). Large parts of this concept became part of FM 3-0 (2008); see chapter 2 “The Continuum of
Operations.”
36. Mattis, Joint Concept Development.
37. U.S. Army Training and Doctrine Command, TRADOC Pam 525-5 Force XXI Operations: A Concept
for the Evolution of Full-Dimensional Operations for the Strategic Army of the Early Twenty-First Century
(Fort Monroe, VA: 1 August 1994).

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automated command and control systems, and then did extensive modeling and simulations
in garrison to see what they could and couldn’t do. They then took one of its brigades
and sent it to the NTC to operate against our OPFOR in real time, at real distances, using
all of the available sensors and systems to test out the ideas behind the digitized units.
Finally, the army conducted a division field training exercise in which all the command posts
deployed. Through a series of computer-generated scenarios, they tested out new software,
systems, and techniques for command and control. After this Division Advanced Warfighting
Experiment, TRADOC convened a group of senior officers and evaluated how well each of
the ideas, organizations, and technologies had functioned. Those that survived the test and
validated their utility then made their way into doctrine, organization, and materiel fielding.38
Geography impacts doctrine in a number of different ways. A nation that does not
contemplate deployments to widely varied terrains can develop a doctrine that is applicable
only to its immediate environment. Israel is such a nation. Since World War II, the Japanese
have had a national policy that their armed forces are only a defensive force for the nation
of Japan. That has significantly constrained the types of environments for which they have
to prepare doctrine. Great Britain, for many years, did not assess the need to prepare for war
against large-scale armies on the continent of Europe because they felt that the Royal Navy
would be their shield, and therefore much of their doctrine was focused solely on imperial
policing.39 On the other hand, since World War II, the United States has had to be able to
operate anywhere in the world, and as a result has doctrine for virtually every climate and
landform, from mountains, to jungles, to deserts. Because our operations often are at great
distances from the United States, we need a doctrine for transporting and sustaining forces at
these distances.40
Finally, of course, doctrine is influenced by the threats we believe we may face.
There is an ongoing debate today within the armed forces about the nature of future conflict.
There are those who see the current threats, primarily non-state actors, as not only the
predominant threat but the only real threat for which we have to prepare. This perspective
would argue for a doctrine optimized for this threat. During the Cold War, we had a doctrine
that was optimized to fight the Soviets. Most of our doctrine started with a discussion of
the Soviet threat and then proceeded to elucidate how that particular part of the doctrine
literature would address a specific Soviet threat. For example, our artillery doctrine focused

38. The author attended the video teleconference during which these decisions were made.
39. Barry R. Posen, The Sources of Military Doctrine: France, Britain, and Germany Between the World
Wars (Ithaca, NY: Cornell University Press, 1984). See chapter 5, “Britain.”
40. U. S. Department of the Army, Desert Warfare, Field Manual 90-3 (24 August 1993); U. S.
Department of the Army, Jungle Operations, Field Manual 90-5 (16 August 1982); U. S. Department
of the Army, Mountain Operations, Field Manual 3-97.6 (28 November 2000); U. S. Department of the
Army, Army Deployment and Redeployment, Field Manual 3-35 (April 2010).

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on how to support maneuver arms fighting against a Soviet ground offensive and how to
counter the massive Soviet artillery forces with counterfire.

The Criteria for Adoption as Doctrine

Which ideas actually become doctrine is a matter of filtering many often divergent
ideas through a number of different lenses. I’ve already mentioned the idea of determinism
versus chaos, or the science versus art, argument. If you view the inputs through a lens that
says there are laws and identifiable cause-and-effect relationships that can be measured and
studied, you get a very different view than if you look at them from the standpoint of chaos
theory, which say even minor changes in initial conditions can cause major difference in
outputs. A good example of this already has been touched upon: the design of the Army Air
Force in World War II. Taking a scientific approach that assumed cause and effect were clear,
relatively simple, and measureable, the planners for the air war in Europe designed a force
that turned out to be far from what was needed or even intended. As just one measure,
the number of planes they thought were needed was off by almost an order of magnitude,
simply because the number of variables they didn’t even consider was greater than those they
did—and of the ones they did consider, their estimates simply didn’t turn out to be close.41
When you look at these inputs from the art, or more aptly, the chaos theory of
combat, you tend to allow for the unexpected and not become tied to initial projections.
This may be more applicable to how doctrine approaches preparation for combat than to
the technology side. If you believe that technology will never lift the fog of war, that we will
never have a complete—or even nearly complete—picture of the enemy, then doctrine allows
much greater latitude for surprises and consequently
Which ideas actually become you keep larger forces in reserve.42
doctrine is a matter of
filtering many often divergent We also filter our doctrine and its inputs
ideas through a number of through theories of conflict. There is a vast difference
different lenses. between a doctrine based on Clausewitz and one based
on Antoine-Henri Jomini. If you are a disciple of Giulio
Douhet, you tend to ascribe much more capability to air power than you would if you were a
skeptic.
So, given the wide variety of inputs and the vast array of possible choices, how do
we decide which ideas become doctrine? It is a fact that not all ideas are good ideas, and not
all good ideas fit with everything else we have to consider. There are a number of criteria that
we use to determine if an idea should be adopted, and at what level and in what format.

41. Barry D. Watts, Foundations of U.S. Air Doctrine: The Problem of Friction in War (Maxwell Air Force
Base, AL: Air University Press, 1984), especially chapter 5.
42 U. S. Department of the Army, Tactics, Field Manual 3-90 (July 2001), paragraphs 1-23–1-37, Figure
1-4.

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The first criterion is simple: If directed by higher headquarters—and that can be

any organization from the Department of Defense, Department of the Army, TRADOC, or
the Combined Arms Center—we simply comply with orders. As I mentioned earlier, the DoD
directed that we make stability operations equal with combat operations.43 We didn’t need to
think too hard about whether we should do this or not. In 2005, the Department of the Army
reversed previous guidance and directed that we create a modular corps headquarters. That
changed how we approached the doctrinal role for both the division and theater army.44 In
the mid-1990s, TRADOC directed that we not use the then-joint term of Military Operations
Other Than War, which caused us to rethink how we would categorize those operations that
had previously been discussed under this collective noun.
But beyond those cases where a higher headquarters directs a change in doctrine,
there are other specific criteria we use. Sometimes we are presented with ideas that on
the surface appear plausible but may conflict with alternate approaches to the problem.
When we send a manual out for review by the army we often are presented with differing
suggested approaches to specific issues. This is where we have to establish and apply a set of
criteria to determine which ideas go into doctrine and which do not.
The first criteria, and in many respects the most important (as much as we
can determine it), is that the proposed idea should have been validated at some level of
confidence. Adopting an idea that has not been validated in some form or fashion is a very
bad practice. There should be a reasonable level of confidence that what is proposed will
work as intended. Validation can come from a number of sources. The best, by far, is that the
idea has been used on actual operations, which guarantees that it works in certain situations.
It also can be validated by exercises, as much of our doctrine was during the latter part of
the Cold War by units going through the NTC. An idea also can be validated by modeling
and simulation. Validation is really the first and most important prerequisite for adoption.
If an idea can’t be shown to work, at some level of confidence, then it is either tossed out
without further consideration or put in the queue for validation through appropriate venues.
Sometimes, those ideas that are rejected then make their way into concepts to be looked at
for future adoption, when technology or organization structures might make them work.
The next criterion we look at is the value added by the proposed idea. Some ideas
are proven to work at some level of confidence but require a significant change in how
the army operates. Probably the best example of such an idea is what became known as
Effects-Based Operations (EBO). This idea gained significant support in the joint community
in the late 1990s and early 2000s, based to a large extent on its adoption and use by the
U.S. Air Force. A considerable body of conceptual ideas was translated into techniques and

43. See DoDD 3000.05.

44. U. S. Department of the Army, Office of the Deputy Chief of Staff, G-3/5/7, Memorandum, Re-
Design of the Unit of Employment (X) to Function as a 3-Star Command (19 May 2005).

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procedures, used in a number of experiments, and adopted by some units in the field. As
the ideas behind EBO matured, it rapidly became evident to the army that what was being
proposed was, to a very large extent, merely a repackaging of ideas that already were fully or
partially embraced by the army. To have adopted Effects-Based Operations would have meant
a huge rewrite of existing doctrine and a complete set of new terms to replace existing ones,
and the end result would not significantly have altered how the army approached operations.
Adoption would come at a huge cost in education, training, and rewriting of existing
doctrine. In the end, the army decided that whatever value might have been added was far
outweighed by the costs of change. The bottom line is that there is only so much institutional
energy devoted to change, and we need to conserve that energy for changes that prove to
have the greatest added value.45
A related idea is that we need to balance the impetus for change with the disruptive
effect that change has on the force. As mentioned before, there is value in having a common
language and common approach to operations. But this applies only if there is a common
language and understanding of how actions will be synchronized or coordinated. As much
as we like to think that the information age makes passing information easier, it is not all
that simple. For a change in doctrine to be effective, several things must happen. First, the
doctrine must be developed. Then, it must be sent to the field, and the field alerted that
the change has taken place. This means much more than just posting the new doctrine on
a website or otherwise making an announcement: The field must read the doctrine and
understand it. Simultaneously, personnel must know what doctrine the new ideas replace
and consciously remove the old concepts and language from their repertoire. They then
must internalize the new doctrine, understand its application and implications, and become
proficient at it. This may be simple for fairly straightforward techniques, but much more
complicated for more involved ideas. If you really want the force as a whole to retain the
ability to work together with the effectiveness and efficiency born of a common approach,
then everyone has to change at the same time. In an organization as large and complex at
the army, this takes a considerable amount of time. It requires education programs, devotion
of time and training resources to develop proficiency, and practice to retain that proficiency.
Given all the other demands on time, changes in doctrine can become a significant drag on
performance if they are not truly value-added and adopted by the force as a whole. Partial
adoption of key elements by only some of the force can result in serious disconnects during
the conduct of operations.46

45. For an explanation of Effects-Based Operations, see U. S. Joint Forces Command, Commander’s
Handbook for an Effects-Based Approach to Joint Operations (Norfolk, VA: Joint Warfighting Center, 24
February 2006); FM 3-0 (2008), paragraphs D-11–D-34, states that the army would not adopt the joint
approach.
46. Moshe Kaplinsky, “The IDF in the Years before the Second Lebanon War,” Military and Strategic
Affairs 1, no. 2, (2009), 29.

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We also consider the overall utility of the proposed change. Many techniques and
procedures exist that have been validated and are useful, but their use is relegated to specific
environments or units, or depends simply on the personalities involved. To be adopted in
doctrine, the proposed change should be widely applicable, in the sense that it would be
useful to a large number of similar units and in a wide variety of environments. Further, there
should be some expectation that the proposed idea or change will be valid for a significant
period of time. A specific technique driven by a specific enemy approach to operations is of
little long-term value if the enemy will simply change its techniques in response. It’s not that
capturing and disseminating the ideas are not important, but the rapidly changing nature of
the threat often means that specific countermeasures are only applicable for a short period
of time in a specific geographical location, and thus don’t ever end up in doctrine. These
are what I described earlier as best practices. They often are disseminated internally within
organizations using their own intranet or captured by the Center for Army Lessons Learned
(CALL) and published as CALL publications targeted to a specific geographic region. For
example, CALL has published guides addressing specific techniques that only are applicable
in Iraq or Afghanistan and would not have much utility elsewhere.47 The doctrine community
does carefully review these documents, however, and those techniques that appear to be
broadly applicable to the force and have some longevity
then are adopted into doctrine. Given all the other demands
on time, changes in doctrine
Last, we assess whether or not the proposed
can become a significant drag
idea is consistent with our broad approach to operations on performance if they are
and fosters the kinds of traits we want in our force. not truly value-added and
A technique that restricts subordinates’ freedom of adopted by the force as a
action, stifles initiative, or overly controls operations whole.
is inconsistent with the army’s view of the nature of
operations in general. Although it might work and be effective and efficient in some cases,
the long-term negative impact on subordinates’ initiative may cause us to discard it. Certainly,
the best example of this recently has been interrogation techniques. There are some that may
be effective but simply don’t conform to how we believe our forces should behave. Another
example would be overly prescriptive checklists for the conduct of certain kinds of operations.
Although they may have been proven effective in certain circumstances, if they foster a
predictability that could be exploited by a thinking, adaptive enemy, we probably would not
adopt them.
One other criterion is that the proposed idea may simply be unaffordable with
respect to some resource, whether people, organizational structure, technology, or money.
We might like to have a dedicated “constabulary” force optimized for stability operations or

47. U. S. Army Combined Arms Center, The First 100 Days: Tactics, Techniques, and Procedures, Soldiers
Handbook No. 07-15 (Fort Leavenworth, KS: Center for Army Lessons Learned, January 2007).

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counterinsurgency, but the cost to the force may be too great. Given the limited manpower
allocated by Congress to the army, having a large number of specialized forces may mean
putting other capabilities at risk. The need to retain a balanced force that can adapt to a wide
range of threats may make it impossible to optimize for any specific threat, regardless of how
immediate that threat might be. Optimization in one area necessarily means fewer capabilities
in other areas, given fixed resources. During the recent
The need to retain a balanced reorganization of the army from the Cold War structure
force that can adapt to a wide to our current modular formations, original designs
range of threats may make called for increasing the military intelligence corps by
it impossible to optimize for
100 percent. While everyone acknowledged the critical
any specific threat, regardless
of how immediate that threat importance of intelligence, such growth would have
might be. come at the expense of other critical capabilities. A
compromise was reached that did expand the military
intelligence corps, but this growth had to be balanced with other needs, and the doctrine
had to account for the risk in this decision and determine ways of operating that would
mitigate that risk.

The Impact of Organizations Outside of the Military on Doctrine

Many organizations outside of the military have affected, and been affected by,
army doctrine. The first example shows just how important a common understanding can
be. During the Los Angeles riots that followed the Rodney King trial, the California National
Guard was called out to help the Los Angeles County Sheriff’s Department quell the riot.
At one point, an infantry squad was working with a sheriff’s team as they were trying to
apprehend some suspected fugitives holding up in a house. As the team got ready to move
in on the house, they told the squad to “cover us.” Now to the sheriff’s team, this meant
“stand by to provide help if needed and keep your eyes open.” To the National Guard, it
meant “provide covering fire,” and they opened up with their weapons—not at all what the
sheriff wanted, and certainly not behavior consistent with civil law enforcement.48 Words
have meaning.
A good example of the impact of closer cooperation with civilian agencies was the
development of Field Manual (FM) 3-07, Stability Operations, dealing with restoring stability
to a troubled region and facilitating returning control of that area to civilian authorities.
This process has a lot to do with civil administration and the functions we often take for
granted that allow a civil society to work effectively. As such, much of the work needed to
restore a civil society in disarray is—or should be—the responsibility of agencies other than
the military. There are a host of U.S. government and non-governmental agencies that can

48. Gary Klein, Streetlights and Shadows: Searching for the Keys to Adaptive Decision Making
(Cambridge, MA: The MIT Press, 2009), 260.

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and should take part in the reconstruction of a shattered state. So, as we developed the
stability operations manual, we spent a considerable amount of time working with other
government agencies to ensure that what we put in the manual was not only consistent
with what the other agencies were doing, but also presented in such a way as to facilitate
the necessary interaction. The first and most important effect of this coordination was that
the army adopted the USAID Fragile States Strategy as an organizing principle for how we
approached the various phases of reconstruction.49 Further, we took the State Department’s
Post-Conflict Stability Tasks list as a further organizing structure for many of the specific tasks
that the army adopted as the foundation for how we would approach our support to the
State Department and other government agencies working within a nation to restore normal
civil life.50 Additionally, we have deliberately changed some of our terminology to make
it easier to understand by those not steeped in military jargon. For example, we replaced
“logical lines of operation” with “lines of effort,” as
the latter was much easier and more intuitive as a In order to create a manual
description of specific developmental paths we might that reflects the significantly
be following. We also have made a serious attempt to changed civilian structure
reduce the number of acronyms in those manuals that
that resulted from the 9/11
attacks, we have been
might be read by outside audiences. Further, we sent
working with the Department
these manuals to many agencies outside of the military of Homeland Security, the
for them to provide comments, both to facilitate our National Guard, and other
interaction with other agencies and to help make them federal agencies such as
more understandable to those agencies. FEMA to develop a manual
that is nestled within the
One of the operations that has gained civilian response concept,
significant importance during the past few years is the National Response
civil support: those operations that the armed forces Framework and the National
perform to support civil authorities within the United Incident Management System.
States, its trusts and territories. These operations
are much more closely circumscribed by United States laws (such as the Posse Comitatus
Act, which restricts what the federalized army forces can do within the boundaries of the
United States). In order to create a manual that reflects the significantly changed civilian
structure that resulted from the 9/11 attacks, we have been working with the Department
of Homeland Security, the National Guard, and other federal agencies such as FEMA to
develop a manual that is nestled within the civilian response concept, the National Response

49. U. S. Agency for International Development, Fragile Stats Strategy (January 2005); U. S. Department
of the Army, Stability Operations, Field Manual 3-07 (October 2008), 1–10. (Hereafter cited as FM 3-07)
50. U. S. Department of State, Office of the Coordinator for Reconstruction and Stabilization, Post
Conflict Reconstruction Essential Tasks (April 2005); FM 3-07, 2-4–2-5.

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Framework and the National Incident Management System.51 The creation of this federal
response framework has caused significant changes in doctrine, and even the structure of the
army, designed to support the civilian authorities.

Conclusion
The bottom line in all of this is that ideas get into doctrine in a number of different
ways. What all or most of them have in common is that first, they address a real-world need;
second, they have been proven at some level of confidence to actually work; and third, they
have a sponsor—a unit that has made something work or a person in a position of influence
that causes the idea to be examined. It is important to note that many of the examples I’ve
provided, and many more examples in our current doctrine, have come from thoughtful
individuals who have studied a problem, articulated a solution, and managed to convince
someone in the military that the idea has merit. The military constantly is looking for solutions
to some very tough problems. These problems often are presented by a clever, adaptive, and
thinking enemy that taps into the commercial, academic, and scientific communities for its
ideas on how to thwart us. We do the same. Changing a large organization like the military is
never easy, nor is it cost-free. But that doesn’t mean we shouldn’t change—in fact, we have
to. And the military has no lock on good ideas, so we borrow them from anyone with insights
on how best to address these constantly changing challenges. The challenge internally comes
from sorting through a myriad of ideas to find those that meet our criteria. If you understand
the criteria, then getting ideas into doctrine is not as mysterious or difficult as it may seem
at first.

51. U. S. Department of Homeland Security, National Incident Management System, December 2008;
U. S. Department of Homeland Security, National Response Framework (January 2008); U. S. Department
of the Army, Civil Support Operations, Field Manual 3-28 (to be published in July 2010).

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 Kauffman Foundation Expeditionary
Economics Conference

Opening Dinner Keynote Speech

Tuesday, May 25, 2010

by Niall Ferguson
Laurence A. Tisch Professor of History, Harvard University
William Ziegler Professor of Business Administration,
Harvard Business School
Senior Research Fellow, Jesus College, Oxford University
Senior Fellow, Hoover Institution, Stanford University

Born in Glasgow in 1964, Niall Ferguson was a Demy at Magdalen College and graduated
with First Class Honours. After two years as a Hanseatic Scholar in Hamburg and Berlin, he took
up a research fellowship at Christ’s College, Cambridge, subsequently moving to a lectureship at
Peterhouse. He returned to Oxford in 1992 to become fellow and tutor in Modern History at Jesus
College, a post he held until 2000, when he was appointed professor of political and financial
history at Oxford. Two years later he left for the United States to take up the Herzog Chair in
Financial History at the Stern Business School, New York University, before moving to Harvard
in 2004. His first book, Paper and Iron: Hamburg Business and German Politics in the Era of
Inflation 1897–1927 (Cambridge University Press, 1995), was short-listed for the History Today
Book of the Year award, while the collection of essays he edited, Virtual History: Alternatives and
Counterfactuals (Macmillan, 1997), was a UK bestseller and subsequently published in the United
States, Germany, Spain, and elsewhere.
In 1998 he published to international critical acclaim The Pity of War: Explaining World
War One (Basic Books) and The World’s Banker: The History of the House of Rothschild (Penguin).
The latter won the Wadsworth Prize for Business History and was also short-listed for the Jewish
Quarterly/Wingate Literary Award and the American National Jewish Book Award. In 2001 he
published The Cash Nexus: Money and Power in the Modern World, 1700-2000 (Basic), following
a year as Houblon-Norman Fellow at the Bank of England. In 2003 he wrote and presented a
six-part history of the British Empire. The accompanying book, Empire: The Rise and Demise of the
British World Order and the Lessons for Global Power (Basic), was a bestseller in both Britain and
the United States. His most recent book is the best-selling Ascent of Money: A Financial History
of the World (Penguin, 2008), which also aired on PBS. He has just completed a biography of the
banker Siegmund Warburg and is now working on the life of Henry Kissinger.

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W
ell, thank you very much indeed, Bob, for that wonderfully generous
introduction. I’m just feeling so embarrassed that I forgot to bring
my flag with me. Could you tell me next time that we’re doing flags?
When I heard, General, that there was a new field called “Expeditionary Economics,”
my spirits soared because I suddenly had this vision of Paul Krugman being sent to
Somalia. But I shouldn’t have gotten my hopes up. It’s not quite that.

What I’m going to do briefly this evening is try and kick off this hugely important
conference by saying some provocative things, some of which will annoy you, because I think
you need to be annoyed in order to make a conference really succeed. This conference should
have happened years ago. For years now—for seven years, perhaps longer if you go back to
Kosovo and Bosnia—American military personnel have been asked again and again to do the
one thing, really the only thing, that they are not trained to do. That is to start a free market
economy. I used to say to my students, if you had to pick one group of Americans who knew
nothing about the free market economy, you would pick the military, who are sheltered from
it throughout their lives. And so, of course, it was an extraordinarily unrealistic task to say to
the U.S. military, once you’ve kicked down the doors which you do so brilliantly, could you
then please create a free market economy, not forgetting a stable democracy? So this should
have happened years ago.
Well, years ago, I suppose I was thinking about these questions, and the question in
particular that Carl Schramm raised in his superb Foreign Affairs piece, which I think launched
the new subfield of “Expeditionary Economics.” And I must admit, I was not a great optimist
seven years ago, partly for the reason I’ve just given you: that we really were attempting to
do something which we weren’t equipped to do. I’ve pulled together some data here from
four countries in which the United States military has played some part in recent years, merely
to confirm Carl Schramm’s point that, if we are to judge American military interventions by
their economic results, it is certainly too early to declare victory, not with these unemployment
rates: 18 percent in Iraq, 47 percent in Kosovo, 29 percent in Bosnia. Not when Afghanistan’s
economy grows because half of its GDP is the result of transfers, aid from abroad. We have a
very long way, indeed, to go. And it’s clear to anyone who thinks seriously about the subject
that if we can’t get the economics right, then our experiments with democratizing these
countries are hardly likely to succeed.
In 2004, I published a book entitled, Colossus, which made everybody cross. It
made everybody cross because it said that the idea of an American empire was in fact a
good one—a power that could intervene to deal with the problem of failed states and rogue

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regimes. So that obviously antagonized the liberals. But then, having said it was a good idea,
I proceeded to say why this idea was unlikely to succeed, which annoyed all the conservatives.
So my friend, Andrew Sullivan, said, “Congratulations, Niall, you’ve been in this country for
two years and you’re about to alienate everybody.” Let me, for those of you who passed this
book by, just recap the argument that it made. I said that there were three basic problems
with the project of American empire insofar as it was, despite not using that term, behaving a
lot like empires in the past. If you go into Mesopotamia and you go into Afghanistan, you’re
not the first to do this, and all the previous contestants called themselves empires. So I said
there are three deficits that this empire suffers from that make it highly unlikely to be as
successful as its British predecessor, and the first deficit was a manpower deficit. I argued that
there never were going to be enough American troops on the ground effectively to stabilize
countries like Iraq. One way that I tried to show this was just to do some ratios. Remember,
this was written in 2003–2004, well before the surge was even dreamt of. And one of
the ratios that I pointed out was the ratio of British troops to Iraqis in 1920 when Britain
successfully quelled an insurgency. In 1920, the population of Iraq was quite small, and the
British force in Iraq was about the same size as the American force in Iraq has been in recent
years. So the ratio of Iraqis was twenty-three to every one British serviceman. Compare that
with the situation in 2007, when it was 160 Iraqis for every one American serviceman. And
then the situation in Afghanistan last year, where the forces are even more thinly stretched.
It’s very hard to do what you’ve been doing, compared with the odds that previous imperial
forces contemplated in places like Iraq and Afghanistan. This is a tough assignment, and
one reason that the surge was so desperately needed was that, for a long period after 2003,
there were not sufficient troops in Iraq to stabilize that country and prevent a civil war, which
essentially broke out.
The second deficit that I suggested was a source of weakness for the United
States was the attention deficit. By that I meant the attention of the public. The U.S. voter
expects results in a two- to four-year time frame. This is not a realistic time frame for any
exercise in state-building. Whatever undertaking you look at, and these are just the most
recent polling data for Afghanistan—same story, of course, could be found for Iraq—public
commitment to [the] difficult work of state-building and post-conflict reconstruction is very
fickle. It fades. And this is quite different from previous great powers, which tended to have
a much longer time horizon for their quasi-colonial or overtly colonial undertakings. So the
proportion of Americans thinking that it’s a mistake going all the way back to 2001 has just
crept inexorably up. At worst, it was more than two-fifths.The third deficit that I want to
talk about this evening was the one which I think was most prescient when I published the
book. I said that the biggest deficit that would undermine America’s nation-building or state-
building projects was actually financial, and that the increasing reliance of the United States
on foreign capital, even in good times, was likely a source of weakness. You see, in the past,
if you wanted to run a country like Iraq or Afghanistan, you exported capital to it. That’s how

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most imperial projects functioned. The British Empire was based on savings being exported
to Asia, to Africa, to the Caribbean. But as I try to argue in Colossus, that’s not the way the
U.S. works. The U.S. for years has imported capital from the rest of the world to finance its
deficits. I want to show you some numbers that I imagine you haven’t seen, but they are
sobering. These are projections for the ratio of debt—public debt—to gross domestic product
for four countries: Portugal, Ireland, Greece, and Spain. You may have heard these countries
referred to as the “pigs” by some rather impolite journalists. The Bank for International
Settlements projects that if there were no change to policy in these countries, by 2040, the
debt–GDP ratios would range from 300 percent to—in the worst case, Greece—400 percent.
Even if these countries make adjustments to their fiscal policies, particularly tackling the
problem of aging populations, they still have debt–GDP ratios above 100 percent. They never
come down below that. Shocking. Hardly surprising there’s a huge crisis in the Euro zone with
countries behaving in this irresponsible fashion. Shame on the pigs. Right? Now let me show
you the figures for the United Kingdom and the United States. Ladies and gentlemen, they’re
worse. They’re markedly worse. The UK is actually the most atrocious. On present fiscal policy,
we end up with a debt–GDP ratio of more than 500 percent, but the U.S. is worse than
Greece—450 percent if we carry on the way we’re going. Now, why am I telling you this? I’m
telling you this because it has profound implications for the resources that will be available to
you in the military as you carry out your roles in the years to come.
Here’s what I call some nasty fiscal arithmetic. The IMF recently calculated what
fiscal adjustment countries would have to make to stabilize their public debt burdens at a
rate of 60 percent, looking ahead to 2030, making that the target. For the Japanese, it’s
the monumental task of tightening fiscal policy by 13 percent of GDP, either through tax
increases or spending cuts. Britain is next in line: 12.8 percent. Then it’s the pigs, except that
before you get to Portugal, just behind Greece, is the United States. The United States would
have to make a fiscal adjustment of 8.8 percent of gross domestic product to stabilize its
public debt–GDP ratio, at pre-crisis levels. I liked the wine tonight, but I find myself sobered
up very quickly by these figures.
Let me show you some more. Here we are. I actually wanted to call a recent article
in the Financial Times “Pigs R Us,” but the editor wouldn’t let me. If you calculate what the
United States will be spending on interest on the debt if we don’t radically change fiscal
policy, you arrive at the astonishing conclusion that by 2040, all our federal tax revenues will
be consumed by interest payments. All. Now, that isn’t going to happen because it can’t
happen, but it tells you that this country and my country, that both of the major English-
speaking powers, are on a completely unsustainable fiscal path, and I see no sign at this point
in Washington of any will to address this. Why does this matter for military men? You know,
sometimes people say to me at Harvard, “But I’m not interested in finance.” And I say, “But
finance is interested in you,” and this chart illustrates just how interested it is.

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Over time, you can see a convergence between these two lines. One is the defense
budget as a share of federal revenues, and as you can see it’s in a historic downward
trajectory. And the other is the percentage of federal revenues that go on interest payments
on the debt. The chart is projected forward rather optimistically by the White House to 2015.
In a short period of time, I believe by 2015, these lines could cross. It only takes a small
increase in interest rates—as markets become spooked by the ever expanding scale of our
borrowing—to be spending more on the interest on the debt than on the entire military of
the United States. Think about how that will constrain us as it constrained—to name just one
other power in the past—Britain after 1945. But meanwhile, as the Western world spends its
way into a fiscal crisis, the “bottom billion” are still dirt poor. This is a little list of some of the
poorest countries in the world, ranked by gross national income per capita, by the UN Human
Development Index, because there’s a close correlation to the degree of political and civil
freedom, and the number of wars they’ve been involved in since the end of World War II: the
Central African Republic, Uganda, Rwanda, Chad, Tajikistan, Tunisia, Eritrea, Guinea-Bissau,
Liberia, Sierra Leone, Burundi, Ethiopia, the Democratic Republic of Congo, Afghanistan,
Somalia. These are the problem cases, the worst cases, the broken states, the failed states,
the places where not only poverty is most egregious, but also the places where some of the
most dangerous organizations in the world—organizations that threaten our security—can
flourish, can breed with impunity. What can we do about these countries, only a small
number of which the United States has ever had any involvement in? Can we do anything?
Well, let me offer you some historical and economic reflections on a very, very
important question that needs to be clearly understood before there can be any economic
expeditions, with or without Paul Krugman. There are two ways of thinking about poverty
in countries of the sort I’ve just described. You can say they’re poor for reasons beyond their
control. Because of a lack of aid—we haven’t given Jeff Sachs enough money to give them.
Because of the wicked British or the Belgians; because of legacies of colonialism; because of
the aftermath of colonialism, dependency. Remember dependency? Just because of where
they are, its geography. Because it’s so darn hot there, its climate. Because the disease is so
rife; because they’re cursed with resources. Some of them have got diamonds and some of
them have got oil. The resource curse is why they’re poor. Because their populations are so
young. Because they’re ethnically so divided. You can think of a great many reasons why
a country can be poor despite the best intentions of the people who govern it. But there’s
a whole other way of thinking about this problem, which says that some countries have
overcome those disabilities—and I’m not just talking about Alabama. We can, I think, more
credibly explain the extreme poverty of the bottom billion in terms of civil war, authoritarian
rule, the lack of the rule of law, rampant corruption, excessive bureaucracy, protectionism, tax
evasion and chronic deficits, high inflation, [and] defaults of debt. And also, we can blame it
on aid. One important line of argument that we could associate with the work of Bill Easterly
or my friend, Dan Bisenmoyer [sp], points out that when we thought we were helping, we

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were in fact harming; that one of the biggest mistakes made in the period after 1945 was
to think that [aid] could solve the economic problems of poor countries by throwing money
at them. We were talking at dinner that this can work on a micro scale. You can destroy the
economics of a village by giving them two thousand dollars. Even [in] the world of television
documentaries, this works. I was filming recently in a very poor part of Peru and the one, the
fixer I was working with said, “We’re going to this village because we know it’s safe.” And
I said, “What do you mean, safe? I don’t do dangerous stuff. I’m a professor. That’s why I
became a professor.” He said, “No, no, not shining path dangerous. It’s just that there are
some villages where National Geographic have filmed in the past and they’ve always been
completely economically corrupted by that experience because of the amounts of money that
Nat. Geo. have paid out to the locals. It doesn’t take much.”
The big challenge for this conference, it seems to me, is to accept the dichotomy,
the dilemma that I’ve just sketched, and see if you can figure out a way of moving beyond
doling out aid and creating dependency. The big question for expeditionary economics,
which I think you have to grapple with tomorrow, is: How can you improve the incentives
for potential entrepreneurs who we know are there, trapped in the dysfunctional societies of
Somalia, of Sudan, of tribal Afghanistan, ethnically riven Iraq. They’re there. We know from
the success stories of Western economies and, as I’ll say in a moment, Asian economies, what
gets you out of poverty. It’s entrepreneurs and innovation. It’s start-up companies. How can
we get that to happen there?
Well, you could begin with some of these countries. These countries are ranked
according to the number of days that it takes you to start a company. In Guinea-Bissau, it
would take you 213 days if you wanted to start a company because of the kind of chronic
bureaucracy and red tape that Hernando De Soto has talked about. And these are just the
world’s worst. No surprises to find Haiti there in third place; then it’s the DRC. Venezuela has
the distinction of taking 141 days to set up a company, unless you’re a friend of President
Chavez, in which case it’s 141 minutes. Notice, incidentally, we have some successes that we
can boast about. That’s something that works in Afghanistan now. If somebody wants to set
up a company in Afghanistan, it’s a week—a week’s paperwork. But in Iraq, it’s seventy-seven
days, according to the World Bank. So, some of this is not actually tremendously difficult to
do. We just need to make it easier for the entrepreneurs to start their businesses by stripping
away the bureaucracy, the red tape—oh, and all the bribes that have to be paid.
The good news, ladies and gentlemen, is that there is a way out of poverty. We
know the way out. We know the way out because there are countries that have found the
way out, and they found the way out without our help, without aid. On the contrary, it was
precisely because they didn’t accept large checks from the West that countries like China and
India and Brazil have been able to break out of the trap of decades, or indeed centuries of
stagnation and grow in ways that, if Jim O’Neill at Goldman Sachs is right, will take China’s
economy ahead of the United States in terms of GDP by 2027—and India will overtake the

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United States, if this future is correct, by 2050. Notice it’s a really exciting prospect. Jim and
his friends at Goldman Sachs came up with the idea of the “Next 11,” the eleven countries
that they see following the footsteps of the bricks.
What makes our world so puzzling is that more and more countries are cracking
the problem of how to get rich. It’s just the hardened cases, that bottom billion of people,
who can’t seem to figure it out. But just think for a moment what these charts imply. Take
a step back. This is the last point that I want to make. They imply that we have a new rival.
A new rival that already is engaging in expeditionary economics, and that rival is China.
Here’s some data. In January of this year, Chinese investors made direct investments in 420
different overseas enterprises in seventy-five countries, totaling $2.36 billion. That’s one
month’s Chinese FDI. Most of this went either to Asia or to Africa, and it was overwhelmingly
concentrated in two sectors: [in] communications and in transportation and petrochemicals.
The number of Chinese being deployed overseas as labor service personnel is also startlingly
high. It’s up by, what, nine thousand nine hundred (9,900) according to the most recent data.
Total labor service personnel overseas by the end of January this year: 770,000, and that is
almost certainly an understatement.
So we are going to have a debate about “Expeditionary Economics,” but we should
be mindful that there is already an expedition out there, and it’s out there operating in some
of precisely the most unstable and impoverished countries that I’ve been talking about.
China’s model of expeditionary economics is very, very different from the one that I think Carl
has in mind. It’s a model in which Chinese monopoly companies do deals with local dictators;
give them infrastructure in return for control of commodities. Deploy Chinese workers who
settle, often permanently, in the places where they’re employed. I don’t think we can have
this discussion without being mindful of that alternative model, because right now in many
parts of the world, and particularly in sub-Saharan Africa, they are making the running. And
I’ve been reflecting on what that might mean. Maybe, ladies and gentlemen, this is the old
face of empire, the face we’ve grown all too familiar with, and maybe this—oh, how very
annoying—maybe this is the new face of empire, and this is the real expedition that we need
to worry about.

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 Kauffman Foundation
Expeditionary Economics Conference

Luncheon Keynote Speech

May 26, 2010

by General William E. Ward

Commander, U.S. Africa Command

General William E. “Kip” Ward became the first commander of U.S. Africa Command in Stuttgart,
Germany, on October 1, 2007. U.S. Africa Command is one of six unified geographic commands
within the Department of Defense unified command structure, responsible for all U.S. military
activities and relations within Africa. General Ward’s military service has included overseas tours in
Korea, Egypt, Somalia, Bosnia, Israel, two tours in Germany, and a wide variety of assignments in
the United States, including Alaska and Hawaii. Prior to assuming his current position, General Ward
was Deputy Commander, Headquarters U.S. European Command, Stuttgart, Germany. He previously
served as the Deputy Commanding General/Chief of Staff, U.S. Army Europe and Seventh Army. While
in this capacity, he was selected by the secretary of state to serve as the U.S. Security Coordinator,
Israel-Palestinian Authority, where he served from March through December 2005.

I
don’t have a clue why you all have an infantryman up here talking to you this
afternoon. So when I finish this, if you can help me understand, maybe we’ll all
achieve some measure of success. But in all seriousness, I am very, very happy to be
here, because as I’ve listened to the things that have been discussed as this conference
has proceeded, it is very plain to me that there are clearly Americans who are doing
things that are concerned—correction, who are concerned—about what is happening
in the interest of Americans globally. And a point was made on this last panel, and I
think it may have been made by Bob, when he talked about how you have things that
we are doing understood by folks in Kansas and Missouri and how important that is.
And it gets to a saying that I often use as I have now worn the cloth of our nation for
these almost 39 years. And that saying, or quote, that I use talks to how each of us has
to get out of our foxhole, go down range, turn around, look back at it from someone
else’s perspective and you see it totally differently. And we as Americans don’t do that
enough.

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I was happy to come into the panel here and heard several points being made that
talk to listening, and how listening is so instrumental; and understanding, and then that
understanding that leads to implementation of programs that ultimately will, in fact, make a
difference. And so I come here this afternoon certainly humbled with this opportunity, but at
the same time eager to talk to this distinguished group of partners from a range of disciplines
and areas, to address what I have come to know is such an important element in our ability
to maintain stability globally, or at least help to do so.
Now maybe during the Q&A, I’ll talk a bit about my command in more detail than
I had intended to do in my prepared remarks. But I wanted to give you an idea of what I
have experienced as I now go into this task that the president of the United States and the
secretary of defense asked me to do as we stood up a brand-new command. I heard a couple
of comments that really lets me know that even today still, what U.S. Africa command is
about is still not well understood, and it’s a result of how, quite candidly—and I’ll be candid in
this audience—how we got started. As you know, our process of how we are nominated by
the president and confirmed by our Senate for these positions—the gag order gets placed on
us and we can’t say too much until certain points in time. Well, in my case, that point in time
came about the 25th of September, 2007, once the Senate confirmed me for this position
after having gone through a process very similar to that when I was confirmed as the deputy
commander at U.S. European Command. And that was a four-star billet because, given the
responsibilities that the Commander of EUCOM has as the Supreme Allied Commander–
Europe, I had the day-to-day business of running the forces that were assigned to EUCOM,
the United States Army Europe, United States Air Forces Europe, Naval Forces Europe, and
Marine Corps Forces Europe. As Ray pointed out, when the decision was made to reorganize,
to restructure how the Department of Defense looks at its programs and activities in Africa,
that four-star billet at EUCOM went away as we created and stood up the United States
Africa Command.
Having said all of that, the timing was right. It did need to occur because a part
of the world that has a billion people—one billion people—it is three and a half times the
size of the continental United States. To fly from the north of Africa to the south of Africa,
it’s like flying from New York to Moscow. To fly from the east coast of Africa to the west
coast of Africa is like flying from St. Louis—even, say, Kansas City—to Honolulu. It is a huge
continent. Fifty-three distinct, different, varying countries; 800 ethnicities; over a thousand
languages and dialects. Now, if you want a complex environment, you start dealing with that
and dealing with it in a way that does what Secretary Gates has asked me to do. He said,
“Skip, we need to do our very best to help prevent crises as opposed to being in the position
of having to react to a crisis.” So that’s what your—and it is your—United States Africa
Command, is about.
But what I’d like to do now is give you some perspective insofar as the things that
I see as its Commander, insofar as how what we do—not in a stovepipe vacuum—but what

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we do as it relates to other things that are being done; how we do that in a way that helps
do two things, and this is talking to the folks here in Kansas: Protect American lives and
promote American interests in a continent the size and complexity that I just told you about.
Before I get started, let me do something that my time in Africa has caused me
to be very, very adept at, because this is a room full of potentates and dignitaries. So, since
I might get chastised for not introducing each of you potentates individually, I’m going to
say, “All protocol observed and I’m happy to be here with all of you as distinguished folks
in this room.” But there is a quick story, since this an economic—expeditionary economic—
conference, that I think I’d like to mention to you.
You know, about five months ago, a very good friend of mine, of my wife Joyce
and I, came to visit us and [he] lived in New York—lives in New York—and before coming
to Germany where our headquarters was located, he went to one of the banks there in
New York and walked in and asked for a $5,000 loan. And the loan officer said, “Well, fine,
but we’re going to need some collateral.” My buddy said, “Well, I’ve got a brand new car
outside, just bought it, [would] that be okay?” The loan officer goes outside, looks at the
car. It’s a—and I’ll be political correct being in America—it was a Cadillac as opposed to a
BMW or a Mercedes. But this was a Cadillac. Brand new STS, top-of-the-line model. The loan
officer said, “Well, $5,000, that is adequate collateral,” and said, “We’re going to secure
your loan.” So the loan officer went and parked the car down in the garage of the bank,
and my buddy came over and spent two weeks with us. Had a great time and we really
enjoyed having him there. He goes back home and returns to the bank and said, “Okay, I’m
going to pick up my car and repay the loan,” and the tally was done and, well, $5,000 plus
the interest on the loan of two weeks, $15 or $16. He paid it and everyone was happy. The
loan officer said, “But while you were gone, sir, we kind of did a bit of a check here.” You
know, Google—you can do anything on Google these days. They found out that my buddy
was a millionaire. In fact, he’s a multimillionaire. He’s one of my special buddies. “And so
why did you have to borrow $5,000 from us to take this trip to Europe?” My friend looked
at him and said, “Well, where else in New York can I park for two weeks for sixteen bucks?”
Entrepreneur? He probably is.
But all kidding aside, when I received the invitation—again, I was drawn to this
event because of the basic question for the United States, How we as a nation can best
mobilize our resources and our capabilities to help our partners and to help them prevent
crises? Helping nations overcome the ravages of war and establish sustainable stability is hard
to do. I say that from some multiple personal experiences, and I can also say that while we
have done a lot of good in most of these situations, I believe we all agree we can and must
do better, as our track record—as has been pointed out by a panel I just heard recently—is
less than perfect. Even under favorable conditions, we know that there is work that needs to
be done. We had a panelist who offered to be the expert, but citing Bosnia where we had
the Dayton Accords and a robust international presence to ensure its implementation efforts

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across, I call them the “three Ds”—development, diplomacy, and defense—as my Command
describes our work and how those things are being integrated. These three Ds were not
adequately resources nor harmonized in Bosnia or Kosovo, as was pointed out.
So when we think about how to bring about economic stability and growth in
future cases where conditions may be austere, the agreements not as rock solid or enforced
and where international presence—and U.S. presence, for that matter—is limited, planning
effective responses across the three Ds is complex indeed. And I’ve given some thought to
this, as some of you know, and what I’d like to do is spend a few moments recapping a
concept that I developed after my experiences in three post-conflict or unstable situations:
My time in Somalia as a Brigade Commander in 1992 and 1993, as Commander of the
Stabilization Force in Bosnia and Herzegovina in 2002 and 2003, and as a U.S. Security
Coordinator in Palestine and Tel Aviv in 2005. Now, although all three were different in terms
of the nature of the environment, the United States involvement in them, and the terms of
peace that they presented, were notable in some very common points of reference.
First, the victims of the conflict suffered needlessly long after the end of hostilities.
And there was little sense of lasting stability in any of those locations. Donated resources
were either nonexistent or being too easily siphoned off through corruption, and I’ve heard
about that this morning as well. Organized crime, violent extremism, and other groups
surfaced where governance was weak and could not be restored.
Now, these reflected how strategic challenges in post-conflict situations were met
with well-intentioned strategic responses that we’ve heard from several discussions of many
of those, yet the tactical challenges were greater, and the tactical responses across the three
Ds were not as successful. Achieving stability is first and foremost a tactical problem, seen
and understood from the perspective of the individual people victimized by the conflict—
again, a theme that you have heard repeated by members of the panel most recently before
you.
I called my concept, “The Horizon of Hope,” and wrote about it four years ago in an
article that appeared in the Joint Forces Quarterly, and it’s freely available from the National
Defense University website still today. Now, my main point was that the most important thing
to instill in the minds of the people affected by a crisis situation was the belief that things
would be okay and that a decent acceptable to them, in their environment, was attainable
over time. Now, that future might be off on the horizon, but the people would come to
believe that through our assistance and their lead, there is a path to that horizon, and that
path would not be straight, but as long as it was present and visible, stability was possible.
Now, I described the construction of that path as involving three lines of effort. And
the Ds, as I said, we describe as defense, diplomacy, and development. Four years ago, I was
talking about security, economic development, and societal development. What I stressed
was how these lines of effort needed to reach each individual affected by the conflict, and

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at the strategic level—not just talk about broad brush strokes of making them work. But my
experience in these situations is that the effectiveness of our response is measured tactically,
and very deliberately, by the people. So it succeeds when very basic questions are answered
in the minds of the victims: What will happen to me? Where will I get food and medical help?
How will I provide for my family? How will I provide for them if they are sick or injured? Who
will lead us? Will that leadership serve my interests? Will they help us or try to steal from us?
What about tomorrow? Will I have some way of taking care of my family [tomorrow] and the
day after? The same questions that human beings ask all over the world.
Now, I talked about that in the article, how we needed to have expeditionary
responses along all three of those lines of effort to alleviate the immediate needs and
concerns of the people so that they in fact do believe there is a horizon of hope. And the
various programs that you just were engaged in hearing about, contributed to the dialogue
about, all had those elements as a part of them, be they the Marshall Plan or any other post-
conflict recovery scenario that we have experienced.
With those deliberate activities, the horizon of hope becomes closer to the people.
Now, although my opinion is a little biased, I am very comfortable in saying that we have
a good handle on both the expeditionary and deliberate aspects of crisis response on the
security side, and I’m referring to more than just the defense aspects. I’m including police,
border control, customs, [and] Coast Guards; but when I say “good handle,” I mean that
we understand that we need to define these aspects of the problem and deal with them
in a very deliberate way: making deliberate plans, implementing those plans, and assessing
the results. Now we may not get the resources that we need to make sure the environment
eventually changes, but we know what’s required to cause that change to occur. We’re
good at assessing risk and taking actions to mitigate that risk in the security domain, but we
do struggle mightily on the economic side as has been pointed out here. There is so much
more that is beyond anyone’s single control. I experienced that firsthand in Bosnia as I saw
how millions of dollars were donated—were supposed to spur economic development and
growth—and ended up either disappearing or going into someone’s pocket. That sometimes
occur because the funds were sent directly to donors who thought that other things were
[more] important than what the people needed and didn’t address what, in fact, was
important for the people. It goes back again to how we listen and how we understand.
As I was in the Middle East, [I] had the great fortune of working with Jim
Wolfensohn, and as I was putting together the security aspects of that time, the withdrawal
from Gaza, Jim Wolfensohn was working the economic plan that would cause that part
of that country not to dissolve. The economic plan did not work. It sure wasn’t because
Jim Wolfensohn didn’t know what was needed at the time. It was because of a lack of
implementing the appropriate policies, the role that governments play in making sure that
those policies are in place, and then allowing the entrepreneurial spirit that existed in that

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location to continue to flourish with a different set of procedures, from export regime
to market identification—all established, but not allowed to function because of
government policy.
Now, I want to talk a little bit about Africa in a broad sense because the U.S. has
already engaged in post-conflict support in a couple of places there. But the conditions
and the approaches to that support differ greatly from Iraq and Afghanistan now, or as I
experienced in Somalia in 1993. I’ll touch on what I think some of those differences are as
may be instructive to this discussion as part of this conference agenda. First, some challenges
we faced in Africa came about from conditions left unresolved from conflicts of the distant
past—some back to independence movements over a half century ago. Social structures and
governments built during that time tended to be fragile. They are often concentrated on
the capitals. Governance and public service do not always extend throughout the country.
Some security sectors are structured and organized for protection of the regime and not the
people. The result? Routine episodes of instability, even among the stronger nations. You
recall what happened in Kenya two-and-a-half years ago, where too often we see changes in
constitutions so that leaders can stay in power longer, or coups, or the suppression of media
or questionable elections.
Second, there are conditions that inhibit economic development now, in relative
peacetime, that certainly come into play in post-conflict scenarios. As I was in Bosnia working
with the United Nations Commissioner there, one of the things that we saw as an important
step to take was a program called, The Implementation of—and at the time Paddy Ashdown
called these things—Bulldozer Reforms: removing impediments to business development
because of laws that existed, instituted by the government. And, as was pointed out, two
governments in that federation, neither of which [was] doing what they ought to have been
doing for advancing the country.
Corruption, piracy, trafficking of various commodities illegally, organized crime,
illegal exploitation of resources, overfishing because countries don’t have the ability to patrol
their territorial waters, their economic exclusion zones, and pervasive poverty not being
addressed: all conditions that inhibit economic growth. And while that is not news to any
of us here, it is important to recognize that opportunities are indeed out there, and in great
numbers, if we’re not shy about leveraging these post-conflict scenarios to our advantage
and to the advantage of the people. Our economic response has to be faster. Has to be
faster. It is not given that a public U.S. face on the response is desirable. Right now, several of
our closest partners in Africa are very clear that a visible U.S. presence is counterproductive.
The Africans overall are much more sensitive about foreigners on their soil than other parts
of the world. This was the source of much angst about the establishment of my command
back in 2007, as some of our partners saw how we were conducting post-conflict stability
and reconstruction operations in Iraq and Afghanistan, and how that they would not tolerate
such intrusion anywhere on the African continent. Now, while we—just a little bit of an

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anecdote. Do you recall the notion of my Command when it was stood up; [that] we’re going
to be stationed in the continent of Africa [was] one of the big selling points. At least, one of
the big talking points. Well, the first thing that I asked Secretary Gates: “Boss, we need to
knock that off,” because as we were approaching that from our point of view, it was being
received by the Africans in a totally different perspective, counterproductive to what we
wanted to be doing.
The good news is, he listened to me— “Skip, you’re right” —and knocked it off,
but it took us now these past three years to reverse some of the notion that we were another
occupying force given the culture, the history of that continent, and the colonial past that
was still fresh everywhere. As we have convinced many of them that we never intended to
create such a presence in Africa of large bases, stationing garrisons and troops, squadrons,
battalions, [and] wings, we have been able to reverse those perceptions and work in ways
that are indeed taking advantage of the will that we now see. What the Africans really want
is African solutions for African problems, and as Nelson Mandela has said, “But with the help
of our friends.” In that help, the economic peace absolutely critical and essential.
Now, my experiences thus far in Africa tell me that [this] will continue to be the
case; that our solutions must be their solutions. We must be a part of the problem resolution;
they must lead the problem resolution. We also have to be concerned about the things that
we do that cause regional instability or potential thereto. Fifty-three nations, all different,
diverse, and [with] a history. How do we understand that?
So what approaches do we consider as we look to improve our ability to rebuild
war-torn economies and spur growth in post-conflict situations? I’m a soldier, and my
experiences taught me one thing that I believe applies universally. It is vitally important,
as I’ve said, to understand a situation from the perspective of our partners, because those
perspectives will differ from ours and from our ability to do what we think is important on
their behalf. They would drive us to different solutions once we listen to them than we might
have otherwise developed on our own.
The angst expressed over the setup of U.S. Africa Command gives us useful
examples. As many of you know, the Command was formed primarily because, as Ray
pointed out, we needed to reorganize how we did our work on the continent. Africa is
growing, and continues to grow in strategic importance to the United States. Even during our
economic downturn, the economic growth of the continent of Africa was almost 3 percent—
even during the downturn. It is projected to be, next year, 4.8 percent, and in 2012, 5.4
percent. Across the continent, there are technology leaps occurring like crazy.
As Africa in the past for us did not hold a top priority for any combatant command,
our policy, our programs, [and] our activities were disjointed across the three Ds, across those
areas I described as I wrote The Horizon of Hope. So establishing a U.S. Command whose
focus was solely on Africa as its priority made a lot of sense then and still does today, and will

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be even more so fifty years from now. But because we didn’t pay enough attention to African
perspectives, the [inaudible] of the Command generated a wholly different reaction. Now
we’ve—over time, these past three years—demonstrated that our goal is partnership and
to provide tailored programs that help build their security capacity. Now, partners no longer
have angst. They want to know what we can do to help as opposed to, Why are we there?
But it took understanding from their perspective and applying that to our communications,
our programs, and our activities, and then making a point to tell our partners that we do not
impose our solutions on them. We listen. We learn, and we use their perspectives as the basis
for building programs and activities that we provide on behalf of: Who? On behalf of the
people of Kansas and the interests of the United States of America. Why? Because Africa is a
continent of a billion people. By 2050, their population might double. Three-and-a-half times
the size of the continental United States. Resources, minerals, [and] markets that we ignore at
our peril if we aren’t paying attention today.
Now, there are a lot of things that we try to do, and I know from my experiences
that differences in perspectives have an impact on many of our discussions about social as
well as economic models, including post-conflict reconstruction. Terms like democracy and
capitalism can be disturbing to some, and the appearance of us imposing our form of the
business model or the government model sometimes just doesn’t work, teammates. So what
do we do? How do we deal with that in a place that’s important where other sovereign
nations are also involved?
I believe that the solution does, indeed, lie in approaches that meet the immediate
needs of the people; that capitalize on their needs; that take into account their desires and
use their talents to move ahead in providing stability and certainty so that they indeed see the
“horizon of hope;” and then engage them in ways that allows them to rebuild their lives as
well as their nation. As I said, it may not necessarily match the way we think is most efficient
in the long run, but it will build trust. Also, as I heard earlier today, this business is about
sustained security engagement. There are no quick fixes. We have to build relations, build
trust and confidence. That requires engagement, and that’s what your United States Africa
Command is doing in conjunction with our interagency partners, our international partners,
and our nongovernmental partners: building that trust that will last.
Now, another point concerns other people’s perceptions about the acceptability of
military presence or the military lead, and I’ve heard a couple of comments about that as well.
And since there have been some provocative statements made early in the conference, I think
I may make a couple here if you’ll permit me to do so.
Now, I recall in Bosnia how the stabilization forces had such a visible role in stability
and were seen as very effective by the people. But many years after Dayton, the other
organizations were seen [as] less effective. Things weren’t happening, and there were times
when the military wanted to push things along, or others thought that perhaps the military

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should take a greater role in the overall implementation of the Dayton Accords. People were
saying, “Well, if that organization can’t do it, can’t the military get the economy going?
Maybe they can help, or maybe they can do it better.” I don’t think so. But in the absence
of anything going on, it is our nature to do something. And as I was talking to one of the
leaders of one of the African nations when he asked me about taking care of his neighbor,
I said, “Mr. President, you don’t want me to take care of your neighbor. You need to take
care of your neighbor.” This was a negative situation going on with his neighbor. When
the U.S. military performs civil military operations, it is always under the authority of a U.S.
government agency, and our construct is to the Department of State and U.S. Agency for
International Development. For the past two years, Secretary of Defense Bob Gates, Admiral
Mike Mullen, and each of the combatant commanders—Kip Ward included—have testified
before Congress that our interagency construct needs to be more robust, and even to the
point of the secretary saying, “If it means taking resources from the Department of Defense.”
Because we know that the long-term guarantor of stability is not at the end of a tank round
or a 500-pound bomb; it comes from development that is sustained and works for the
people. Our agencies charged with doing that—as has been mentioned here several, several
times—don’t have that capability, but that doesn’t mean it is okay not to continue to push for
it. And that’s why we remain advocates for our interagency partners in that regard.
We do have training. We can dig wells, we can build clinics, we can clear mine
fields, but other agencies have the mission and skills to manage various reconstruction
efforts when properly resourced and when properly integrated. Fully resourcing USAID, fully
resourcing the Department of State to do this, is a message that we will continue to put
forward. And the fact that it doesn’t work isn’t reason for [us] not to continue to push for
it to work. We have a saying that we kind of use, and that is: What do we do to cause our
teammates to be better every day? And then [in] U.S. Africa Command—that’s my charge to
every one of the teammates. How you do things today to cause your teammate to be more
successful at what she does? And in our context, it’s across the gym, the joint interagency,
[and] international programs that we deal with, such that our efforts are more coherent and
cohesive and moving ahead.
Now, I’ll come to a close here shortly for some questions. I heard the comment
about the Command, and who we are and what we do, and how we have integrated
into the Command construct [in] the interagency. I will tell you simply, it is not where I see
it going in the future, but it is not because of a lack of will and intent on the part of our
interagency partners. It goes back to a resourcing issue that I think, if addressed over time,
those things that AFRICOM is doing as well as Southern Command, European Command to a
degree, Pacific Command, and eventually Central Command, are reflective of the increasing
importance of the partnership amongst the interagency.
What we know is that predicting what the future will be doesn’t happen. As Yogi
Berra says, and you know the famous quote from Yogi Berra, “One thing about that future;

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we just can’t predict it.” So what do we do today to posture ourselves for that unpredictable
future? You’ve got to kind of start where we are, take those constructs and make them as
flexible, as adaptable, as you possibly can to cause our ability to be preventive as opposed to
reactive—the very best that it can be.
My challenge that I would assign to myself as well as to you is that we all place
ourselves in the shoes of the women, the men, [and] the children that we seek to help.
Why? Because a stable continent of Africa is good for the people of Missouri. It’s good for
American interests and, when we do that, we will indeed do what those of us who wear this
cloth are asked to do—protect and preserve our Constitution. And that’s what we do. The
ideas that will emanate from this conference, [insofar] as they help us get after that key piece
of stability—and I am in violent agreement; it is the economic stability that’s important—
will do just that. We will continue to make this our priority, but in addition to that, we will
also continue to cause our efforts as best we can to be integrated with the efforts of other
partners who operate in that environment—not just our interagency partners, not just our
international partners, but also our business partners who have the talent, the skills that
will cause economic development to exist that will indeed cause this horizon of hope to
be present, that will prevent those scourges of terror [and] instability that threaten us all,
wherever we may be.

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 Kauffman Foundation
Expeditionary Economics Conference

Dinner Keynote Speech

Wednesday, May 26, 2010

by Richard Haass
President, Council on Foreign Relations

Richard Haass is president of the Council on Foreign Relations, a position he has held since July
2003. The Council on Foreign Relations is an independent, nonpartisan organization in the United
States dedicated to the study of and dissemination of ideas on American foreign policy. Until June
2003, Haass was director of policy planning for the Department of State as well as U.S. coordinator
for policy toward the future of Afghanistan and U.S. envoy to the Northern Ireland peace process.
Previously, Haass was vice president and director of foreign policy studies at the Brookings
Institution. He also was special assistant to President George H.W. Bush and senior director for
Near East and South Asian affairs on the staff of the National Security Council from 1989 to
1993. Haass is the author or editor of eleven books on American foreign policy, including War of
Necessity, War of Choice: A Memoir of Two Iraq Wars (Simon and Schuster, 2009) and one book on
management. A Rhodes Scholar, he holds a BA from Oberlin College and both master and doctor
of philosophy degrees from Oxford University. He has received honorary doctorates from Hamilton
College, Franklin & Marshall College, Georgetown University, and Oberlin College.

B
ob set the bar high. Get prepared to be disappointed. There’s nothing worse
than being told you’re witty and funny. You’re bound to disappoint. But, to
cut to the chase at the other end, there’s actually no relationship between the
quality of the plan and whether it ends up in the circular file or not. And I don’t—so
there’s no lesson to be learned from that, other than, if you can, choose who you
give your plan to. That’s really the only lesson of that.

I’m going to talk for a bit. As you would know/expect, I got no guidance
whatsoever from either Carl or Bob, so this is going to be a little bit random and rambling.
And then I’ll try to reserve the bulk of the time for you all to raise points and all that—

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questions, comments, criticism…though go easy on the criticism. As every married man in

this room knows, the entire concept of constructive criticism is so overrated. So just go easy
on me.
Iraq. I’m going to talk about Iraq. I’ll say a few minutes about it and then talk
about some of the lessons and try to tie it into the work here of Professor Schramm who
wrote—who was actually made famous by an important magazine. It was the magazine that
carried the freight here. And it’s an inside joke at the Council on Foreign Relations. And then
afterwards, we can talk a bit—I don’t feel, you know, we can talk about Afghanistan. I have
been singularly unsuccessful in the course of my career in dealing with multiple aftermaths;
not just Iraq, but also Afghanistan. And in some cases, I was so unsuccessful I never reached
the aftermath, such as Cypress. But we’ll talk about it.
Iraq, as you know, the decision was made to go to war in the spring or summer
of 2002. I found that out personally one day when I went into my regular meeting with
the national security advisor, then Condi Rice, saying that I had gathered momentum, was
moving towards going to war, and I thought that was a particularly bad idea. And when I
was in about reason two, I got cut off and Condi said, “Save your breath. The president’s
already made up his mind.” And what was interesting about that, again, it was July 2002 and
there had never been a National Security Council meeting on the subject to weigh the pros
and cons of going to war. But be that as it may, that was the decision, and we also know
it wasn’t just me who reached that conclusion. The Downing Street memoranda that were
published by Richard Dearlove, the same conclusion was reached. It was around late spring,
early summer of 2002. We can talk about why that was done, but my own hunch was, after
9/11, the president and the administration wanted to send a large message to the world, and
that Afghanistan, however successful it looked at the time, was not simply—was not deemed
to be large enough to send a sufficient message. The accomplishment—and it was a real
accomplishment at the time—was simply not seen as large enough. And then for the roughly
next six to eight months, from the middle of 2002 to early 2003, what the administration
essentially did was prepare the public case, prepare the congressional case, and it ultimately
culminated in Colin Powell’s presentation to the United Nations in early 2003. You know,
before that, you had the passage of Resolution 1441, which if you are a student of UN
resolutions was a remarkable resolution and accomplishment. But again, it’s an interesting
historical question whether the administration would have taken yes for an answer. At
the end of the day, that question was never quite raised because Saddam was saying—he
never gave an unqualified yes. He gave what you might call a qualified yes, but not quite an
unqualified yes. So the march to conflict continued.
Before the war began in early 2003, already though, there had been planning for
the aftermath because it seemed highly likely that we were going to get there. The Office
of Special Plans at the Pentagon was set up in the fall of 2002 at the direction of Doug
Fife. We ourselves, in September, wrote the longest memo I’ve ever been associated with in

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government about the aftermath. Any of you who have worked in government know that
anything over three pages is death. This was a fifteen-page memorandum with appendices.
The secretary shared it—Secretary of State Powell shared it with the president, the vice
president, national security advisor, the secretary of defense, the chairman, and others. I
don’t know if it did end up in the circular file, but it certainly had, from what I can tell, zero
impact whatsoever. ORHA, the Office of Reconstruction and Humanitarian Assistance, which
Jay Garner ultimately took over, was set up early in 2003, in January. And what’s interesting
about it is not just that it was set up so late, but it was put under the control of the Defense
Department, and one of the lessons I would say is [that] planning should by and large, I
think, not be put under the purview of one agency. It’s inherently involving a whole range of
activities, and either I would have the NSC or some cell that reports to the NSC be in charge
of it. And Garner’s appointment was very interesting also because his one previous principal
experience that made him the choice was that he was involved in the large humanitarian
effort at the end of the previous Iraq war, when all the Kurdish refugees were streaming
towards the Turkish border. And many people in government this time around thought that
the only problem after this current Iraq war was going to be humanitarian crisis, like the
other, and that informed a lot of the initial thinking. They thought it was essentially going to
be a replay of that and, hence, the choice in many ways of General Garner. And even before
all this had become […] was the Department of State’s Future of Iraq project when that
began as early as late 2001, and this was umpteen various studies looking at specific parts
of Iraq. Jim Fallows and others have written about it. My own hunch is, having looked at a
lot of it and watched at the time, I thought it bore almost no relationship to reality, and you
had all these experts brought in, producing reams and reams of material, but actually I wasn’t
that surprised that it didn’t have a lot of traction. It was—and in a funny sort of way, there
is a danger in planning getting too detailed. And this was that, because you can’t predict
exactly how everything is going to work out. So it’s a plan down to several orders of detail
[that] seemed to me to be a mistake. But if you haven’t looked at it and you’re interested,
it’s interesting because particularly the one on the economy and infrastructure called for “a
new economic empowerment system to increase simultaneously the supply of capital and
entrepreneurship.” And they talked about a flourishing private sector and so forth, and set
out all the things that would hopefully bring that about. But again, it wasn’t read by anyone
as far as I could tell. And as I said, General Garner was appointed early in 2003, two months
barely before the war began in late March.
The war itself went on, as you recall, for about, I don’t know, six or seven weeks.
May 1 was the “mission accomplished” banner, and then quickly, when the United States
wasn’t able to follow up, you had the looting and the rest, and I would simply point that
out because the looting and the initial disarray created a far greater challenge than what
would have been the case had it not happened—both physically in the destruction of the
infrastructure of Iraq, but also psychologically. It bred a certain contempt for authority that

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I believe Iraq still hasn’t recovered from. But one of the lessons, obviously—to get ahead of
myself—is that all things being equal, you want to use more troops rather than less. Colin
Powell was on to something. Better to have too many than too few.
And second of all, early really matters. There’s very little in life, I’ve discovered,
whether it’s raging conflicts or negotiations or what have you, that resemble[s] French
wine: Very little about these situations improve with age. But rather, the passage of time
can really work against you, and that’s what happened here. Every day that went by, the
scale of the problem grew significantly. In any case, several months later in 2003 it was clear
that things were not working. Jerry Bremer was announced, that he would replace General
Garner. Bremer arrived in Iraq in May. We can […] lots of historical dispute, but basically the
important decisions were made to disband the military or to accept the fact that it had self-
disbanded, if you will, and not to try to rebuild it, to bar from political life not just the top
echelon but [a] fairly significant slice of the Baath party. That experiment lasted for about a
year with the Coalition Provisional Authority. Formal, rather than some ways actual, authority
was transferred to the Iraqis about a year later—in June 2004, if my dates are right, and over
the next several years, as everyone here knows, things deteriorated significantly through
about 2006, give or take. You had then the height of the civil war. You then had the so-called
series of Security Council—National Security Council decisions that led to the so-called surge.
This was actually a lot more than that. Again, I expect most or all of you know: changes in
strategy as well as simply adding more forces, and [an] attempt to win over many of the
Sunnis, and that began the beginning of the improvement in the security situation in Iraq,
and we’re now therefore at the point [that] we are now several years into the status of forces
agreements, various milestones. The biggest one by the end of 2011, all U.S. forces to be out
of the country. The situation’s improved rather dramatically. I gather you talked about it today.
We can talk about it afterwards. My own sense is it’s still in no ways out of the woods. It’s not
passed the kind of Malcolm Gladwell “irrevocably positive tipping point.” I would say things
could still unravel, though I don’t think they are likely to unravel to where they were three or
four years ago. But what matters, to some extent—there’s degrees of messiness, and I think
degree matters.
I would simply say one thing about the aftermath, which is, when you look at the
war, if you look at March and April, which were the two months of the conventional phase
of the battle—[the] so-called battlefield phase, the combat phase—139 U.S. troops lost their
lives during that phase. Or, as another way of saying it, 99 percent of those American soldiers
who lost their lives came in the aftermath phase, and similar percentages with the dollars
spent. That the cost again at the battlefield phase was something on the order of fifty-odd
billion [dollars]. I know Michael O’Hanlon’s here and these numbers can be crunched different
ways, but on the order of magnitude fifty-odd billion. And that’s less than one-tenth by far,
or one-fifteenth, of the money that was spent subsequently, all of which just underscores the
importance of aftermaths.

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[I] talked a little bit about the place. Let me talk about some of the lessons of all
that, because clearly the aftermath proved to be far more difficult and far more costly by
every measure than people thought. The first lesson I would suggest, and it’s so obvious that
it’s borderline dumb, is to have a plan. The idea that aftermaths take care of themselves, or
a lesser included case, is to me the single worst idea out there. It’s not a lesser included case.
It’s neither lesser nor included. It’s maybe in many ways more difficult, and it certainly is not
included. It’s qualitatively different. It’s got to be tailored for the country in question. You
really have got to look at what it is you’re inheriting. And as I said here, the lack of a plan
made the inheritance much worse because of what happened the first few months.
And then you’ve also got to think really hard about what your goals are; what level
of ambitions you have. You may decide in some cases, you know—Dave Petraeus used to use
the phrase, “Iraq good enough.” Well, you’ve got to decide in every one of these cases, every
situation, what is good enough for you? How ambitious are you going to—do you want to
have a place where everyone’s going to be reading the Federalist papers in translation? Okay.
Well, that’s one definition of good enough. You can have more modest definitions of good
enough, and indeed if you’ll look a little bit at the differences now, say, between what we’re
doing in Afghanistan and what we’re doing in places like Somalia and Yemen, I actually think
the “good enough” debate is beginning to enter into American foreign policy because we
can’t do ambitious interventions across the board. We simply lack the capacity to do it. And
all I’m suggesting is you ought to think hard about that beforehand, because your definition
of what is good enough will have consequences, obviously, for resourcing as well as for
strategy. What made it more difficult in the case of Iraq is [that] these questions were simply
not asked, but less answered.
[The] second, I think also fundamental, issue is the question of security and
governance. And let me just take a step back, because I’ll talk about this a little bit more later.
But in all of these aftermaths, there really are these three components of the security, the
politics, and the economics. And I actually think you can only have a fair debate about the
idea that Carl has developed in this context. Because the world is not academic departments.
On college campuses, you have departments of economics, departments of politics, and the
rest. Well, in Iraq and Afghanistan, you don’t. You simply have one place, and economics
and politics and security all comingle. And so I don’t think you can—I don’t believe you can
think clearly about the economic component of this without thinking about the relationship
with the others—questions of priority and questions of sequence. And I actually think that’s
the beginning of wisdom. It’s not the answer, but I think it’s the beginning, or at least it’s the
right question, which is: What do you see as the proportionality and what do you see as the
sequencing, because you can’t have economics that will succeed absent a context. And it’s
the politics and the security that, as much as the economics, forms the context.
It’s interesting though, as I say, because so much of the debate in the academic
literature is between the political people and the economics people. Do you want democracy

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first or development first? And my answer is: neither. You want security first. I think it was
Robert Benchley who was once asked, when he was a student like 150 years ago, and he
was unprepared for the question, for the exam at Oxford. And it was, “Please write an essay
of a thousand words on the Cod War between the British and the Norwegian governments.”
And Benchley said, “I’m sure both the British and Norwegian governments have very
interesting positions, but I for one would like to take the position of the fish.” And in this
case, the security, I think, is the fish that one has to give a lot of attention. You can’t have
reconstruction absent security. Investors will not invest. Local businesses cannot function.
Reconstruction, as soon as it happens, projects will get destroyed. The security concerns
won’t become a funnel, or will essentially divert all the funds that would otherwise go into
an economic activity. Again, it argues for more troops early on. Always easier to draw down
than build up, and you want to make use of local forces, in part, because you don’t want all
those people being unemployed going on the market. What we’ve learned the hard way is
young men who get demobilized quickly become angry young men. Most of them don’t have
tremendous skill sets. They’ve got fairly limited skill set[s], and you want to keep them busy
doing what they’re doing. And what it took us five years to do in Iraq should never have even
had to happen. Or, if it was true as some claim that the army had self-demobilized, it should
have been then—the first order of priority should have been to remobilize it, to have people
recreate their units as best we could. But there was nothing worse than having hundreds
of thousands of unemployed young men. Even worse, with their guns, with nothing else to
do. And you couldn’t create other jobs for them overnight. They didn’t have the skills; you
didn’t have the conditions. So one of the things you want to do is keep locals busy in what
they’re doing; in this case, in security. It makes you also want to think twice before you overly
demobilize local security establishments.
I mentioned the politics before. You want to think twice before you do things like
elections. I think elections should largely wait for as late in the process as you can, rather than
early on.
Okay, talk about the economic side. Important. When we wrote our memo in
September 2002 about it, we, like others, were pretty optimistic about Iraq. And the memo
we wrote, and I quote from it, said, “Iraq enters a post-conflict economic situation with
certain advantages. There are significant oil resources that should provide a ready supply of
cash.” And then we even said, “We are very optimistic,” and said, “Reconstruction in Iraq
could break the historical mold and become self supporting.” One of the few times Paul
Wolfowitz and I ever agreed was when he testified several months later in March 2003 and
said, “The oil revenues of that country could bring between $15 [and] $100 billion over the
course of the next two or three years. We’re dealing with a country that can really finance its
own reconstruction.” Well, we were all wrong. Everybody was wrong in the optimism. What
didn’t matter was whether they had the oil in the ground or what the price of oil was. What
mattered was whether the conditions existed to get the oil out of the ground and, quite

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honestly, the conditions didn’t exist. Companies couldn’t pump, couldn’t drill. People couldn’t
explore or wouldn’t explore given the deteriorating security situation. It’s only recently that
oil production levels have probably approached prewar levels because, again, investment has
been very slow to come back into Iraq.
Other than no worrying about security, what else would we say are lessons? More
consistent with what Carl was saying is that local entrepreneurs and employees should be
involved as much as they can. There’s one extraordinary story in Imperial Life in the Emerald
City, which was written by a Washington Post Iraq correspondent who talked about one
U.S. contractor that sent the laundry of civilian officials in Baghdad to Kuwait to be washed.
I mean, you don’t have to read Foreign Affairs to know that that is really nuts, that things
had reached that point. There is a case, I think, for some decentralization and localization
of grant-making authority, and you say, “Sure, we’re going to make some mistakes. There’s
going to be some corruption and the rest, but that’s the immediate advantage of having
things decentralized as soon as possible— you get money out, and again, yes, you’ll make
some mistakes.” But better to basically get some hits, even though you’re going to have
some out sooner rather than later. If you wait to get everything organized and perfect, you
will miss many opportunities to make a difference. I think you want to have as much role as
the external power you need to, but not more than you need to. And I think it’s obviously
a delicate balancing act, but again, you want to keep things small. One of the interesting
case studies in Iraq, and I don’t know if anyone’s done it seriously, should be about electricity
generation. It has proved a frustrating—I mean, even now in Iraq you still don’t have twenty-
four hours, in most places, a day of available electricity. It’s about, I think, eighteen hours a
day even now, plus or minus. One of the mistakes we made, and this is actually again very
consistent with Carl’s thinking, is we wanted to build these large power stations. Well, the
problem with building large power stations is: It costs a lot of money, it was all done at the
top, it took a long time, and they made wonderful targets for terrorists. I really think we
would have done a lot better early on if we’d gone into a couple of Wal-Marts and we’d
bought as many generators as we could and brought them over, and we could have had
something that could have been quickly dispersed, much less expensive, and wouldn’t have
provided a target for terrorists. And again, it may not have had economies of scale; it may not
have been elegant. But again, there’s something to be said for down-and-dirty approaches
that just work.
Also, what you want to do, and something I have some experience with in Northern
Ireland and Cypress, is where you can, you want to create programs that—either inherently
or through various types of challenges for participation—benefit more than one group
in a society. And the whole idea is to get buy in from different groups. It forces a degree
of cooperation. In the case of Cypress, for example, when I was the U.S. envoy, I went to
Congress and I got a several hundred million dollar pot of money created for a reconstruction
fund, and monies could only be dispersed if the projects helped both the Greek and Turkish

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communities. And I think those kinds of conditional funding approaches are not bad for
some of these conflicts, particularly in places like Iraq where, in the center, you had all the
communities pretty much cheek by jowl anyhow. So there were some opportunities to
do that.
Now, all this said, Iraq is the example of one tremendous success, and it’s called
Kurdistan. Kurdistan is the successful case of post-conflict development, and it’s so interesting
because that’s where you’ve had security from day one; you’ve had a political process. And
even though you have tremendous oil wealth and the top-down approach, which is always a
mixed blessing, you also had conditions that allowed for bottom-up approaches. And you had
essentially the natural, if you will, entrepreneurship, and business activity of the Kurds has
been allowed to take root. So what’s so interesting about Iraq is that, for those of you who
like case studies, it is at once a case study of what to do and what not to do—simultaneously
in the same country—and I don’t know if that’s unique, but my hunch is it might be.
So what else would I say about aftermaths? And then I will stop. When you think
about the aftermath phase in terms of economics, I do think it’s useful to disaggregate the
relief phase from the development phase. It’s the kind of debate we’re having about Haiti
now. Because I think in the relief phase, in the initial phase, I’m not sure you have the luxury
of certain types of decentralized, bottom-up approaches. Sometimes, in the relief phase,
you’ve got to get things right. You’ve got to get maximum help in quickly for maximum
number[s] of people. It probably requires a larger state role because, again, your purpose at
this stage is not to make the patient well, but it’s the emergency room. The purpose of this
phase is to keep the patient alive. And only once you get them through the phase of relief,
of the post trauma, whether it’s an earthquake or a major storm or a civil war, only once you
stabilize the person can you move them out of the emergency room. So I think in the first
phase of relief, I do think it makes sense to have a largely top-down, centralized approach,
and then later on, I think, as things get more normal, then I believe the opportunities for
decentralization come up a lot more.
Second of all, before you go into a situation—or more broadly before you invade a
country—it’s really a good idea to understand it. This may also seem borderline dumb, but I’m
impressed by how often in American history we forget it. Indeed, one of the principal books
about Vietnam was Fire in the Lake by Frankie Fitzgerald. And the principal conclusion of the
book is [that] the United States never understood enough about Vietnamese culture to get
as involved as we did in the sinews of that society. And one of the sad things to me about
Iraq, it’s one of the signs that Americans probably don’t read history, is why we got involved
in Iraq and didn’t really understand a lot of the things going on inside it, which we now have
learned. But it’s been a fairly expensive and painful education.
Thirdly, as anyone who has gone through the Kennedy School would know, policies
and plans are no better than the assumptions they’re based on. So if you assume that you’re

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going to be met by a welcoming population and there’s not going to be any friction in
the rest, you plan accordingly. But someone might want to question the assumption, and
assumptions just seem to me extraordinarily dangerous things, and one of the areas where
the Bush administration—this is forty-three—did themselves no favor was by not having a
process that systematically challenged assumptions. Though I will say, to their credit, because
the intelligence community got a lot of blame for having been wrong on weapons of mass
destruction and the rest, the intelligence community did call it right on the aftermath. Time
and time again, the National Intelligence Council and others produced papers that said, “This
is what the aftermath is going to look like. It is: The potential for chaos is extraordinarily high
given the nature of Iraqi society and culture. The potential for sectarian strife is extraordinarily
high.” I know this because I worked with Paul Pillar, and I actually commissioned several of
these studies about the aftermath. And in part, I commissioned them because I thought I had
a pretty good sense of where they were going to come out, and I wanted to influence the
planning for the aftermath. But again, this was rejected because it was seen as inconsistent
with some of the policy preferences, and many people were worried that, if the aftermath
was seen as extraordinarily difficult, it may cause second thoughts about the decision to
go to war itself. So there was tremendous institutional resistance to what the intelligence
community was correctly predicting about the aftermath.
Another conclusion is, obviously, the policy execution, and implementation is at
least as important as policy design. And that comes through time and time again.
All this said, I think we have to be careful to not overlearn the lessons of Iraq.
I’m not sure there’s that many more Iraqs in our future, something of that scale and that
ambition. Indeed, I actually think Iraq and Afghanistan are likely to be seen as exceptions. I
mean, if we had been having this dinner twenty years ago, it would have been inconceivable
that we would have said in the post–Cold War moment, given the strategic opportunities
of the United States, that the two great investments for American foreign policy were going
to be Iraq and Afghanistan; it would have been inconceivable that any person in this room
would have said that. And, I think, for good reason, because I actually think it’s strategically
seriously flawed that we have allowed ourselves to be so diverted by these two cases. But I
would also say that I think looking forward, looking at everything from the world strategically
to our fiscal situation, it’s very hard for me to imagine that these are going to become
models. And so, to think that future aftermaths are going to begin essentially on the Afghan/
Iraq scale is an assumption at least I would not accept, and we might want to think about
much lighter approaches with much lighter footprints than necessarily doing, if you will, a
third extraordinarily large aftermath.
Whichever way we go, heavy or light, I don’t think this ought to be the principal
role for the military. I actually feel one of the problems in American society is we ask the
military to do way too much because it’s the most competent organization I know. It invests
in its people more than any other institution I know, and as a culture saying “can do.” But I

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do not believe that doing aftermaths in the economic or political sense ought to be the role
of the military. I think the military ought to be there as security providers initially, directly
if necessary, but then as trainers. But the role of aftermaths [would go to] either locals or
international types, NGOs, or—if I had my way—we would create a civilian reserve to do this.
Model it on the military reserve, but we would have the civilian reserve of Americans who
would train up a weekend or month, bring whatever skill sets and language sets they have,
and they would be called upon to do these kinds of operations, working with locals and
working with other people. But I do not believe this ought to be what the American military
ought to do.
One last thought and then I’ll stop. Where do I come out on all this with aftermaths,
looking at Iraq—would also color my experiences with Afghanistan, is this concept of macro
and micro, if you will. Of macro security or security at large. But you then have, over time,
micro development. I don’t think it can begin from day one. As I said, the relief stage, I do
believe, has to be largely centralized. You’ve got to create some of the basic infrastructure.
In a funny sort of way, you’ve got to create enough at the beginning so then the process of
entrepreneurship and a decentralized ground-up approach can gradually, over time,
take root.
So, to put it another way, I think the two are actually complimentary: that if you
don’t have from the outset a macro security-type context, I do not believe a micro approach
to development can work. It just won’t be able to gain traction. On the other hand, if you
don’t foster micro development—you don’t allow it to happen over time—I don’t think
the macro security will ultimately last. I think order will break down. So it’s not an either/or
question, but like is so often the case, it’s a question of timing, sequencing, and priorities. So
I think there’s obviously, you know, an important central role for the ideas that you’re kicking
around this conference; but again, I do think they’ve got to be carefully meshed with the
process of trying to promote governance and with the process of trying to promote security.

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 Kauffman Foundation
Expeditionary Economics Conference

Closing Luncheon Keynote Speech

May 27, 2010

by Lieutenant General Robert G. Caslen, Jr.

Commanding General, U.S. Army Combined Arms Center,
Fort Leavenworth, Kansas

Lieutenant General Robert L. Caslen, Jr. is the Commanding General of the U.S. Army Combined
Arms Center at Fort Leavenworth, Kan. In this position he also serves as the Deputy Commanding
General of the U.S. Army Training and Doctrine Command and the Commandant of the U.S. Army
Command and General Staff College, also located at Fort Leavenworth. Lieutenant General Caslen
graduated from the United States Military Academy at West Point in 1975 and was commissioned
as a 2nd Lieutenant in the Infantry. His many subsequent assignments include Battalion Executive
Officer in the 101st Airborne Division (Air Assault) during Operations Desert Shield/Desert Storm in
Saudi Arabia; Executive Officer to the Deputy Commander of U.S. Forces during Operation Uphold
Democracy in Haiti; Chief of Staff, Combined Joint Task Force 180 during Operation Enduring
Freedom in Afghanistan; Deputy Director for War on Terrorism, J5, The Joint Staff; and Commandant
of Cadets at West Point. His most recent assignment prior to assuming his current duties was as
the Commanding General of the 25th Infantry Division at Schofield Barracks, Hawaii. During this
assignment, he deployed the division to Iraq and served for a year as Commander of the Multi-
National Division North responsible for all operations in the northern half of the country.

T
hank you very much. It really is an honor to be here. And, Carl, sir, thank
you very much for what you’ve done—and Bob Litan too, what you’ve
done to try to pull this thing together, to host with us, to work with the
Foundation—and the little time I’ve been here at Fort Leavenworth and seen the
work of the foundation and the work that they’ve done, and to partner with the
Kauffman Foundation really means an awful lot to all of us. This conference really,
in my opinion—just from the experiences I’ve had in Iraq here recently as MND-
North Commander—this is the conference that our Army and our military and our
interagencies must absolutely have to have this level of discussion. Not only at the
macro level, but also at the micro level.

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I’m truly honored to be here with all the great people that, you know, I haven’t seen
for many years. [Inaudible], great to see you, and Mr. Kagan, thank you sir for being here,
and some of the work you’ve done—some of the intellect. Everybody from yesterday that
I had a chance to meet, the level of intellect is almost daunting. I’m kind of humbled to be
here with a 400 on my SATs and be in their presence. So I’ll do the best I can.
You know, when I hear the discussion about what Bob was saying, whether it’s the
State Department or the military that’s going to have to do this, we don’t have any choice.
We all are doing it. We all have to do it. And I’ll explain what I mean by that. But we were
all in the middle of this and we had no choice. If we are going to do counterinsurgency
operations, we have to build governments, and governments that are effective, that are
legitimate. In order to be legitimate, they’ve got to provide security, rule of law, and they’ve
got to provide for the essential services. And then, if you don’t have the essential services,
you don’t have the security, [and] then you don’t have the means to transport goods and
services across it so the economy can’t grow. So, because it’s so intricately involved in how we
do our counterinsurgency doctrine, what we were doing as a military is an absolute essential
part of all of this. And to point to the—as the 25th Division was getting ready to deploy
to Multi-National Division North and we were doing our mission analysis to get ready to
develop our campaign plan, we were going to be in charge of the seven northern provinces,
which was going to be the size of the state of Pennsylvania, Ohio, plus—a huge area—and it
included some of the most controversial and conflicted areas of all of Iraq, all the way from
the Diyala Province, which was very sectarianly divided and ethnically divided on the eastern
part of Baghdad along the Iranian border to Salah ad Din Province, which was the home
of the former Baathists—very Sunni—and it’s got Samara, as you know. And then you also
have Kirkuk Province. Kirkuk Province, which has got Kirkuk City, which is the heart of the
ethnic issues between Kurdistan and the Arab provinces. And then all of that played out, the
absolute—to the most in Ninawa Province, which not only had the foreign fighters coming
through from the west in Syria, but it [also] had Mosul. When we had the effectiveness of
the decreasing in—because of the surge, increasing violence in Baghdad, everybody seemed
to go out of Baghdad; they went north to Mosul. So we were still smack in the middle of
the insurgency up there. And then, of course, we have the huge conflicted ethnic issues that
occurred between the northern Kurdistan provinces and the southern Arab ones.
As we developed our campaign plan, we developed four lines of effort, and one of
those lines of effort was to improve the Iraqi economy, as simple as that. So, as we looked
at how do you improve the Iraqi economy and what kind of strategy would be necessary
for that line of effort, we said, “What are going to be our ends? What’s going to be our
goal?” And we really didn’t even think that; we had no idea what our goal ought to be. How
do you really measure that you’re going to improve the Iraqi economy? So we just pulled
something out of the hat and this ended being our goal: It was 10,000 jobs per province
per month. So that was the end state. No one else had anything else they could offer us,

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and what were our means to accomplish this? It was going to be us working with the PRT
[Provincial Reconstruction Team] and then working with the governments once they were up
and running because, when we got there, we were still under the first provincial election.
They had ineffective provincial governments. So then the key thing in the strategy [of] “ends,
ways, means” [is] the ways. So we turned and said, “Well, how do we go about doing this?”
We had no idea. We had nowhere to turn. So we started thinking about what to do and
where to go and all that. So, matter of fact, I asked two of our people who led our line of
effort to actually come here to participate in this conference: Nancy Blacker and Charlie Kim.
They’re sitting back there. Please stand up, really. Because these two are right there. After my
talk, I’m not sure you’re going to, you’ll want to—you’ll probably want to take that applause
back. But—no, they’re—these are the economic warriors of the United States Army right
there. When you look at who is rebuilding the economy in Iraq in partnership with the PRT,
it’s Nancy Blacker and Charlie Kim and people like that. And that’s what they did. So what we
did, before we deployed, is we went to Washington and had visits with the Department of
Energy, the Department of Agriculture, USAID, [the] Department of State, [the] Department
of Treasury and the World Bank. And then we went down to Hawaii, we went to the
University of Hawaii. We found out that there were some Iraqi dissidents that lived in—that
came from the north, and they knew a lot about how their economy worked, and we sat
and talked with them quite a bit. And this is how we tried to educate ourselves on how to
build an Iraqi economy. There were no ways that would help a division commander [who]
had a key responsibility to build the Iraqi economy. It just didn’t exist in the United States
Army or the military. And I’m not sure it does today. That’s why I think—that’s why I think this
conference is so important.
So the bottom line is [that] we didn’t have the people, didn’t have the experience,
we didn’t know where to turn; but we were going to have to make it up as we proceeded.
And the best manual that helped me personally as a division commander was not necessarily
a manual; it was Linda Robinson’s book about—when she wrote the book about General
Petraeus, telling me how this ends. Because the chapters in there that General Petraeus—
when he was in the north and what he did to work on the economy, was the best advice I
got on what to do in the Iraqi economy. It was Linda Robinson’s book. So the first thing we
realized, especially in hindsight, is that we—it was critically important, even before you start
to rebuild the economy, to understand the environment. Because, when you do something
in the Iraqi system and network, it has second- and third—not only second- and third-, but
fourth- and fifth- and sixth-order effects. And it’s critical to understand the history and the
history of the tribes, and not so much the history of the area or of the sectarian piece or
even of the country, [but] the history of the tribe and the history of the relationships between
the tribes. Because you have to understand that tribal dynamic that existed in there: their
religions, their sects, their ethnicities, the tribes themselves, who were the leaders, who were
the historical leaders, and who were the Saddam tribal leaders—the Saddam-placed tribal

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leaders, because if you know what Saddam did and how effective he was, he manipulated
them in order to preserve the power. So we had to understand who was there, who was not,
who was in power, [and] who was not in power and should have been. We looked at it from
the political perspective, from the provincial to the Qadaa to the Nahiya, and then within
the cities from the mayors to the districts, and then the neighborhoods, because you had to
understand the artificial power, and then you had to understand the natural order of power
with the tribes and how all of that intersected. And then we had to understand the security
forces, the army, the police, the border security, the national police, and the Iraqi police. And
critical was rule of law in all of that, and I’m going to talk about that in a second some more.
But key to all of this in your understanding was we had to understand who was
marginalized and who was not; who was empowered and, then, who was not. Who was
marginalized that should have been—should not have been marginalized, and who was in
power that should not have. And the guiding standard was the natural order of law or the
natural-order hierarchy—the natural hierarchy within Iraqi governance. If we understood
that the way it was, from a natural historical standpoint, then we were able to understand
all these folks and elements that were marginalized and shouldn’t have been. And that’s
just basic counterinsurgency principles because the fundamental principle, as you know, of
counterinsurgency is legitimacy. Where does legitimacy reside and where should it reside. And
that’s what we had to understand.
The second- and third-order effects of everything we did—sometimes it was
intended and sometimes it was unintended, and we always strove for an Iraqi solution. But
I would argue that striving for an Iraqi solution and building an economy is not where you
really need to go. You need to go to the next level, because an Iraqi solution will normally
marginalize somebody else, and then you’ve got to determine whether or not that’s okay or
not within the natural hierarchy of things. And that’s the—what I’m trying to describe to you
is the level of understanding that’s so critical in all of this. Then we had to understand the
networks, because there were networks out there that had to be disabled, and then there
were networks that had to be enabled. And obviously the ones that had to be disabled were
the insurgent networks and the VBIED [Vehicle Borne Improvised Explosive Device] networks,
the suicide VBIEDs and the IEDs and all that—those sorts of things. And that’s for another
discussion. But the ones that really needed to be enabled were primarily your security forces
and then your—the tribal ones that were legitimate, and then the security apparatus, so, we
looked at that.
Part of the networks that had to also be enabled [was] the infrastructure, because
understanding the infrastructure turned out to be a very key component in building the
economy, because—the principle was [that] if the infrastructure was in place, then you had
something that the flow of goods and services could go across and [that] would enable the
economy to begin to take off. So we said, How do you define the infrastructure? Someone
yesterday had mentioned SWEAT. Well, we really—it’s really SWEAT-MTA and I’ll tell you—no

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kidding—I mean, to our level, this was probably the best level of understanding of where we
needed to go to rebuild the economy, because SWEAT-MTA is: sewage, water (both drinking
and irrigation), the electric, the agriculture, trash, [and] then the medical, the transportation
(to include the roads, getting products to market), and then the schools. And the theory was
that, if you can rebuild this infrastructure—if you understood it first and then rebuild it—then
you had something that would start the flow of goods and services.
So, what does an essential service network look like? So, for example, the canal
system would have water in the Tigris River and if you wanted to get water into the field
using, you know, the old-fashioned historical technique of irrigation—flood irrigation—you
know, they’re proceeding with drip economies and stuff like that, but everybody was still
familiar with flood irrigation. But the water would come from the Tigris River. There had to
be some sort of pump to get it into a canal; and then it had to flow down the canal; and the
canal had to be sufficient enough that it didn’t have breaks and there [was] not intentional
seepage that came out of it illegitimately; and you had to understand where they occurred;
and then you had obstructions in the canal like weeds and things like that, and dirt and soil.
And then you had to get it out of the canal knowingly, into either a secondary canal—and
then ultimately had to get it out of the final canal into the field. And each one of these
required some sort of pumping system that was either run by a generator that needed some
sort of operating maintenance and gasoline, or was run off of the electrical grid. And [you
had to know] whether or not you had electricity that was going to be standardized. But
when you understand the flow of water and where it really needed to go at the end, then
you understand that this canal system and this distribution system [were] based on fifties
technology and it had really fallen apart because it was run by the former Baathists. They
were really in charge of that when, all of a sudden, the regime fell back in 2003.
So what would it take to have to rebuild all that sort of thing? People were
complaining in Iraq that they had insufficient water, and they really looked at and measured
water from the precipitation that came out of the sky. And, I would argue, Iraq didn’t have
necessarily a drought problem. Iraq had a water distribution problem and what was critical
in all this was, What was it going to take to rebuilt the canal systems? And that’s what we
started to do.
So in order to understand the economy, we had to make assessment[s] of all these
networks, identify the key nodes, and then to fix them and get them operational. Let me
switch a little bit to the insurgent piece up in Mosul, for example, because this goes back to
basic counterinsurgency strategy of clear, hold, and build. And then, as you know, you clear,
and then you hold your security gains, and then you start rebuilding, and this is something
that was very important because Mosul was a mess when we got up there. There was still a
very active insurgency that was up in that area, and we started going through neighborhood
by neighborhood and using old-fashioned clearing and then working very closely to hold
security gains and then [undertaking] the whole effort to build and rebuild. What did you

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have to rebuild that was necessary? And I could [tell] you a lot of stories about that, but
it was critically important. It was probably best illustrated to me when the governor in
Najaf, who was the governor from the provincial elections who ran—he was a very Sunni-
focused person; he ran on an anti-Coalition platform—was elected with a great majority
[and] became the governor and didn’t like the Coalition at all. We really had to work on a
relationship and we finally had to prove our relationship through clear, hold, and build, and
what we were doing through the reconstruction. And I’ll never forget the time, you know, a
couple months after he was elected, that we were at a press conference with myself and him
there, [that] he put his arm around me and in the press conference said, “This is my friend,
General Caslen. He used to be—we used to see him as the occupier. Now we see him as the
one who is going to rebuild our province.” So not only were we trying to work the economy,
we were also trying to work the strategic engagement piece and we did that not by just
getting a message out there, but by really developing a partnership with some of the key
leadership. And I thought that was important.
Part of all of this successful building of clear, hold, and build, though, has to be the
security. Because it was mentioned here numerous times that, in order to get the economy
going, you’ve got to have the security so the institutions can stand in place. So there’s a
lot—there’s a lot to the security piece of this. Policing, someone had mentioned yesterday,
is critically important because, especially in the cities and the neighborhoods, it’s not going
to be the army, because the army is going to go out and work outside the cities and the
borders. It’s going to be the police. And in order for us to get the police up and running—it
was difficult because they come from a culture where police are in the back of Toyota pickup
trucks running up and down the MSRs, the main roads, shooting weapons in the air through
intimidation and control. The whole concept of community policing is just not in their culture,
and it just took—it just took a lot to get there.
I told you I was going to come back to rule of law, and this is where I’d like to talk
about it. But rule of law ended up becoming so important that I really believe that we are
not going to ever have security unless we really have rule of law. So if the economy’s going
to work, security’s got to be in place. If security’s got to be in place, rule of law still has to
be in place. A good example is a gasoline truck that would come out of the Bayji oil refinery
and then would be shipped all the way back up to Mosul. And we would watch this thing,
you know, on the UAVs and all that sort of thing, and it had up to six stops before it got to
another refinery where a whole bunch more stuff was downloaded—the good gas—and they
pumped in there all the bad gas from this other oil refinery, and then it got stopped a couple
more times and then finally made it up to the oil distribution site up near Mosul. And it was
stopped—you just name it. And it was stopped by the people that worked at the refinery, it
was stopped by al-Qaeda, it was stopped by the army, it was stopped by the police, and so
you could just see where the corruption in all this is. And you’ve got to say, you know: rule of
law. The truck driver himself, you know, would put some—take some out and fill a couple of

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the plastic things and then bring them downtown and sell them on the street. So rule of law
in culture is significant.
So, what’s the application of all this sort of thing for a battalion and a brigade and a
division commander, and how do we learn from this? And what were our best tools that we
had in order to make all this work? And I would just say that—and it was mentioned here—
the CERP program and the micro grant program, at our level, at the micro level, were the
ones that were really most effective to us.
A couple [of] points in this. First of all, we were very fortunate, I would say, because
the price of gas on the public market dropped significantly when we were over there. Iraq’s
income dropped as well. And since Iraq’s income dropped, the central government was
unable to push the money down to the provincial governors that they needed to. And,
because the provincial governments did not have the money that they needed to run their
provinces, they really trusted and really relied on us providing the CERP. And the CERP was
not necessarily the provincial budget—you know, the budget for the province itself. But
the CERP itself ended up being valued by the Iraqis in a big way as a result of that kind of
dynamic.
[When] we use[d] the CERP primarily though, is when we did our infrastructure
analysis; we identified the key nodes of what needed to be repaired—what was broken
and what needed to be repaired. A key node, for example, would be the pumping station
that would take [water] out of the Tigris River and put it into the major canal, or even to
an individual farmer’s field that was going to take it out of the tertiary canal and from there
into the field, or the generator that ran it. So as we analyzed where the key nodes were,
those became the focus of our CERP projects in order to rebuild that, because that’s what we
wanted to do was rebuild—really rebuild the infrastructure first. And that was our focus.
When we first got to Iraq, it was before the security agreement, and we were still
doing a lot of unilateral operations and we were under the old provincial governments. At
least in the north, for the most part, they were—I would just say they were pretty much
ineffective. They just didn’t know how to manage things. They didn’t know how to manage
projects and that sort of thing. So as a result, our CERP projects—we just went in there and
started working CERP projects, and we wanted to do that quick to get some sort—[we had]
two purposes. One [was] to get the infrastructure fixed as quickly as possible; and second
[was] to try to get some money into the economy.
What happened after the elections: The elections took place in January, and [in]
about March, when they finally seated the provincial governments, in each one of the
provinces we began to see effective governance. And this was very helpful because, when
the government became effective, then we were able to take the CERP projects and work
them through the government. So the government identified where the projects needed to
be based; we provided a lot of assistance and a lot of engineering expertise; and they came

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up with a priority and they established all of that. And then they went ahead and found
the contracts, and then we were, you know, kind of the bank that was able to provide the
money to the contract. And it worked a lot, because not only did it help build the economy,
but it provided the Iraqi face on it. And then it also empowered the Iraqi government, which
was our other line of influence—I mean, our other campaign plan that we had as well: the
economy and [to] build up the Iraqi governments. So initially we were doing it by ourselves,
and then afterwards, what we did [was] we really worked and integrated through the
provincial governments and the provincial councils in order to build up legitimacy. That also,
by the way—since a lot of you understand the PRT concept—since the PRTs were working
with the provincial councils, it also really empowered the PRTs because they got very much
involved in the micro grants and the CERP projects, working with the provincial councils in
prioritizing the projects throughout the province. I mean, that really became a very powerful
and very effective sort of government and partnership that we had.
The micro loans were interesting, and I would say that they were somewhat
effective. We thought it was—some people said it was a great success. I think it had
some marginal success. Our focus was on mom-and-pop shops which primarily had the
opportunity, because the micro grant was going to double their employment anywhere from,
you know, two people to four, or four people to ten, or something like that. But it was really
designed to build free enterprise from the bottom up in a free market environment. And
it also was designed to influx capital into some of these neighborhoods where they really
needed it in a bad way. What we also wanted to do, though, is the micro grants were not—
because we knew a micro grant that was decided by us, you know, was going to have some
very negative effects in the second-, third-order effects of the natural hierarchy of things in
an Iraqi society. So we started to get the micro grants integrated with the Iraqi government
as well. And, even still, we had to understand each one of the officials in the government,
you know—they had loyalties to tribes and other folks, and we had to understand when
they started to apportion out the micro grants—we had to understand where they were
influenced as well, because [when] you empower somebody, you’re going to marginalize
somebody else at the same time. We had to understand where that was going to occur.
The other thing that was very helpful with the micro grants, and we worked
this very hard to varying degrees of success, was to transition the Sons of Iraq into private
business. Because the Sons of Iraq was a program that finally became—that the Iraqi
government took ownership of, [and] managed very poorly by the way. And because it was
poorly managed, it became a huge driver of instability and it still is. So we knew that what
we had to do was to get each one of those Sons of Iraq employed as quickly as possible, and
the way we were going to do that [was] through [the] micro grant program into the private
enterprise as much as we could, and that’s what we tried to do. I’ll never forget the time I
went to see a tribal leader of the Sons of Iraq and he was complaining [that] the government
wasn’t paying him—wasn’t paying him on time—and he had received a couple of micro

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grants and he set up a chicken farm, and he was standing—I was standing there with him
in the middle of this chicken farm. Hundreds and thousands of chickens as far as you can
see. He’s got about twelve or fifteen of the Sons of Iraq that he’s hired to work with him.
He’s paying them as a result of the chicken farm that the micro grant got going, and he’s
complaining that he’s unemployed; he can’t get any money from the government because
the Sons of Iraq program is falling apart. But still he was able to put food on his table and,
you know, instead of being someone who just was making a decision, debating whether to
go back into the insurgency, he was helping out.
I want to talk a little bit about our relationship with the PRTs, and also I want to first
talk about how the Iraqis viewed the PRTs. There was one time, at another press conference,
where one of my brigade commanders was in Salah ad Din, standing next to the governor
of Salah ad Din Province, and standing also with him was the PRT chief, the three of them.
And then on TV, he said, “I really value Colonel Piatt and what he’s done for Salah ad Din. He
has brought security to our province.” And then he took his arm and put it around the PRT
guy, and he says, “But this is the future of Iraq. Our relationship with the PRT as a diplomat
of the United States of America is where we want to go in Salah ad Din Province.” So when
you stop and think about that, I would argue there’s a lot of symbolism in that. Although
they value what the United States military did, they see—they recognize the importance of
the transition; that the future relationship is not going to be measured by a relationship with
the military. What they value—what Iraqis value is a relationship that is based on diplomacy
through the United States State Department. And the Salah ad Din Province, the Salah ad
Din governor was fighting a lot. He was trying to make the case that there ought to be a
consulate, a United States consulate in Salah ad Din Province. But that’s what they value, and
that’s where they see the future relationship with the United States of America. Not with the
military: definitely with the State Department—a relationship, a diplomatic relationship, with
the State Department.
The PRT were seen as valuable. They advise and assist. They understood the
relationships, but they were limited primarily on—you know, just like any of us—the varying
degrees of effectiveness of relationships that they would establish, not only their part, but
[also] how Iraqis received them, and they were also limited on mobility. But I’ll tell you, right
before we left, General Odierno did something that I think was strategically important. He
published the next version of the Op Order and said that all of you, all United States forces,
are now in support of Iraqi Security Forces and in support of PRTs. So our relationship with
the PRTs was not a partnership. Now, we were [committed] to a supporting relationship.
Huge. In one of our brigades, as a brigade [inaudible] in, and they came in in Diyala Province,
the brigade commander took his artillery battalion and he kind of ripped it apart. He took the
battalion commander and the battalion staff and assigned them to the PRT, so that PRT now
had a battalion staff working for him. He took each one of the batteries and assigned them
to the maneuver battalion commanders, and their whole mission in life was to work projects

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for the PRT who was working projects for the provincial government, and they were the ones
that were going to push projects through. And that’s the relationship.
So what you see now is a military that kind of had the PRT advising them, [from] a
partnership with the PRT, to the PRT now up front. And again, you know Op Order but for
the mobility and the security, they’re going to require the military to get them around. But I’ll
tell you, that’s where we’re transitioning, and that’s how that model really should transition.
But it really makes the case that the future of Iraq is going to require—is going to rely more
and more on what these PRTs are doing, their knowledge, [and] the intellect base that they
bring, and interesting with the point I made before is how the Iraqis view the PRTs primarily
from a diplomatic relationship, and that’s the one they value.
I want to tell you one success story and then I’ll wrap it up, and this is around Balad.
We had a battalion commander, Dave [inaudible], great guy, [who] had a tremendously
complex AO. It was the Salah ad Din Province: tough area, multiple tribes, multiple religious
sects, still an insurgency going on—it was the bread basket not only of Salah ad Din, but for
the entire region. What he did [was], in order to get the economy going, he found a couple
of Iraqis that were well off. [He] had a couple of meetings with them and said, “Would you
mind pooling your money so that by pooling your money we can get a couple of businesses
started?” So they did. So they were—for example, because there was no Iraqi capital in Iraq,
what he did was he created a bank, for lack of anything else, and they went ahead and
started lending money out based on Islamic usury and interest and things like that. But they
actually started—and the biggest success story is the Balad Canning Factory, if you’ve seen
anything about that. The Balad Canning Factory would take tomatoes and other products in
the agricultural sector of that whole area and they would make tomato paste and things like
that, and potato chips and all that. The other thing that was good about the Balad Canning
Factory is that it had a lot of spin-out businesses because you had to get the wrappers and
you had to get—somebody had to make the wrappers and someone had to do all the other
things. But to get that business up and running, it just was not that easy because they had
this huge boiler that was sitting in Syria that someone had to clear the tariffs or something. I
forget the whole story, but we had to get that thing from Syria. It took tremendous effort to
get that boiler, but that’s what we had to do to get the economy up and running in that area.
I mean, those are some of the things that you had to do. Tremendous success.
And then the other spin-out business that, because it was on [inaudible], they
started setting up truck stops and then, because there were truck stops, they started setting
up restaurants, and then that’s our success story of the Balad Canning Factory—all because
this battalion commander had this vision of increasing capital by creating an Iraqi bank, and
he created the Iraqi bank by finding a couple of rich Iraqis and pooling their money together.
The next thing he did is [that] he rebuilt the canal system so they get water to the farmers, so
they can start growing the tomatoes to get them back into the tomato factory.

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We did have a lot of challenges as we went on in the year. Probably our biggest
challenge, this is from my perspective, is that a lot of the macro programs in the national—
the programs at the national level— they, being coordinated out of the embassy were—I
think in some ways they were, for example, a task force BSO (business stability in ops), which
comes out of OSD. Their major focus was to go to the state-run programs, the state-run
industries from the Saddam regime, and get those up and running first; get a whole bunch
of people employed and then start to transition them to the private sector. And I think that
was—some of that was good. We tried to work very closely to try to get them into our
area as much as we could, but I think the coordination could have been done better. We’re
trying to build the economy from the bottom up, and then the Embassy is trying to build
the economy from the top down, through a lot of the different macro programs that we
talked about here yesterday and before. But the coordination and the integration of those is
something we really needed to work on and do, and I don’t know how to do that. But that is
something we needed to wrestle on.
One other quick story [to show] that also, we need a whole bunch of engineering
expertise, primarily in building the infrastructure. I was with the governor of As-Sulaymaniyah
up in the Kurdish area and I said, “What can we do for you?” He said, “Sir, we need some
water. Can you—we’ve got to pump; we’ve got to bring a lot of water in here.” I said,
“Well, you’re right on the edge of the mountains. There’s got to be water in the mountains
someplace. Every mountain range I know in the world has water in it.” He goes, “Well, no
one, I don’t know where to drill. I don’t know where to pull it from.” So what we try to do is,
we’ve got to try to find somebody who had the expertise that can say, here’s where you need
to drill, and then to bring the necessary infrastructure in place to begin the drilling so you can
get water to As-Sulaymaniyah Province. So things like that are things that we try to do.
Let me wrap it up with this. When we came back to Schofield Barracks, Hawaii a
few weeks later, we had our welcome home ceremony. We invited all of our parents—our
Gold Star parents of soldiers that we had lost while we were over there. We invited them
back and the father of one of our soldiers that we lost went to the Battalion Commander
and said, “Colonel, I want to know whether my son’s sacrifice was worth it. I want to
know whether his sacrifice was worth it.” And when you stop to think about it, you’ve
got to say, What does it mean in this? What we have done here, that the sacrifice of those
four-thousand-plus men and women is worth it? How do you define that? It’s a theoretical
question. I’m not going to attempt to define that. Other than, let me go back to my governor
friend from Ninawa Province, who has some former Baathist ties. He went to go see some
of his former Baathist friends in Syria. He came back and was telling me about his visit with
these former Baathists, and he said, “You know, General Caslen, these former Baathists said
that you’ve got to get the Baathists back running the military.” And I said, “What did you say,
Mr. Governor?” He said, “Well, I told them they are, because these are the ones that have

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been vetted and they’re cleared and they are doing it, and they’re running the military and
doing a good job.” And he says, “You’ve got to get the Americans out of Iraq when they say
they’re going to go.” And the governor said, “They will, because when they said they were
going to leave the cities, we didn’t think they were, and they did. And we know that when
they say they’re going to leave Iraq, they’re going to leave Iraq.” And then he asked a very,
I guess, a thoughtful question. He said, “Well, what do you think our relationship ought to
be with the United States when they finally leave at the end of 2011? January 1, 2012: What
should our relationship be with the United States? Should that relationship be like the United
States relationship is with Syria? In other words, [that] we don’t have a relationship. Or should
that relationship be like the United States relationship with Jordan or the Emirates?” Kind
of a thought-provoking question. And certainly, with the sacrifice—and if you look at where
Iraq is strategically on the western flank of a potentially nuclear-armed Iran, at the crossroads
of so many different economic, and the fact that it sits on significant reserves of our energy
resources for the world—you probably can make the case that we probably ought to be
an important strategic relationship, given the sacrifice of so many, when the last American
soldier leaves on December 31, 2011.
So that relationship is important. But I would argue that that relationship, which
probably might answer the question, “Was my son’s sacrifice worth it?” is also going to be
defined by not so much where [we] were from security [or] where we were diplomatically,
but it’s also going to be defined [by] what we have done to build the Iraqi economy. Because
if we can’t build the Iraqi economy, or if the Iraqi economy is not built, or if we still have the
same endemic symptoms of unemployment and lack of infrastructure on January 1, 2012,
it puts a lot of the work that was done at risk. Critical with all of that work has got to be, in
parallel, the rebuilding of that economy.
So I go back to where I started, and then I’ll be happy to take your questions. Who’s
the next division commander going to Iraq, or who’s the next division commander going to
Afghanistan? And, as he looks at his campaign plan and develops his lines of effort—and [if]
that line of effort is to rebuild the Afghan economy—where does that division commander
turn to understand what he’s got to do in order to develop the ways to accomplish whatever
those strategic ends are going to be in defining or rebuilding the Afghanistan economy?
At the division commander level, where is he going to turn to do that? And that’s what I’m
hoping this conference will generate, and that’s what I’m hoping this conference will be able
to answer.

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