In Monterrey, Getting Real About Foreign Aid

George W. Bush last week promised a boost in U.S. aid to poor countries, conditional on their progress toward good government. The promise of more money seemed to satisfy delegates from 171 nations who had journeyed to Mexico to sign the latest United Nations foreign aid drive, called the "Monterrey Consensus." The stated goal is to halve world poverty by 2015.

As with most U.N. gatherings, Monterrey was long on breast-beating and short on practicalities. Secretary General Kofi Annan declaimed that "No one in this world can feel comfortable or safe while so many are suffering and deprived." Or to put it briefly, let's fight terrorism with handouts.

That's a dubious concept given the fact that al Qaeda was run by Arabs who were neither suffering nor deprived, and it attracted to its cause fighters from places like Marin County, California, where poverty means not being able to afford a second Mercedes. But then the U.N. has for years been searching for innovative arguments to help the hapless majority of its members shake money out of the minority that are well-governed and rich.

Even Mr. Bush's requirement that supplicants shape up is a bit suspect. The money Congress appropriates will go to one of the foreign-aid bureaucracies that have a vested interest in qualifying aid clients, since if there were no clients there would be no bureaucracies. Such people are very skilled at finding merit in the requests of even the most delinquent and corrupt governments, even when the chances are high that the money of U.S. taxpayers will finance the lifestyles of rich and infamous local elites.

Keep in mind that the International Monetary Fund set conditions on its loans to Argentina, but the country went broke anyway. World Bank President James D. Wolfensohn was photographed giving Mr. Annan a warm embrace at the Monterrey gathering, but the World Bank has yet to offer an accounting that would suggest it has provided much help for the poor with all the billions it has disbursed around the world.

The only visible nugget of good sense at the Monterrey meeting came from U.S. Treasury Secretary Paul O'Neill. Mr. O'Neill, one of the few present who has ever run a business, had these words to say:

"If we are going to have economic development in the world, most of that will come from capital coming into those countries to create jobs. We are not going to do it with welfare."

Horrors! What a thing to say to an audience overflowing with compassion for the poor! And probably a good number in the assemblage look upon private investment as the instrument of globalization, the devil's tool.

But maybe the former Alcoa chieftain knows more about development than, say, your average Third World dictator. Foreign direct investment slumped last year because of the global economic slowdown, falling to $725 billion from $1.3 trillion the year before, according to U.N. statistics. But the amount going to developing countries held up reasonably well, at $225 billion compared with $240 billion in 2000. Even $225 billion poured into factories and infrastructure will create a lot of jobs. When the factories are built by Western multinationals, they tend to provide better jobs than most of those available locally in such places.

My good friend Al Driver runs a monthly journal for company lawyers called the Metropolitan Corporate Counsel, out of Mountainside, N.J. Lately he has featured articles by corporate officers describing how their companies practice good citizenship worldwide. Kenneth C. Frazier of Merck & Co., told in the December issue of how Merck has donated a medicine called Mectizan to 25 million victims of river blindness in Africa and Latin America. DuPont executive Stacey J. Mobley wrote in March about how a company plant in India supplied a local school with computers and helped set up local medical services as part of DuPont's corporate responsibility program. Thomas A. Gottschalk of General Motors will outline GM's global educational programs, among other activities, in the April issue.

These managers, of course, are answerable to their CEOs and shareholders. They must make a convincing case that the money they spend (GM alone contributes about $80 million annually to charitable causes) helps the company's business. But that's not so hard to do. The most successful American companies learned a long time ago that loyalty to the company purchased with good works improves work force productivity.

They know that in some developing countries they have to supply training and medical care, because it is not available otherwise. They know that exceeding the local norms in working conditions overseas helps keep them out of trouble with political agitators and xenophobes. They know that paying off local politicians for favors can get them prosecuted under the U.S. Foreign Corrupt Practice Act. In short, they know that it's good practice to behave well when taking advantage of the lower cost labor and new markets to be found in developing countries.

Roger L. Martin, dean of the Rotman School of Management at the University of Toronto, has gone so far as to create a "Virtue Matrix" for calculating the return on corporate responsibility. Writing in the March Harvard Business Review, he treats virtue as a market factor. He describes forms of social responsibility, such as compliance with worker safety regulation and sexual harassment statutes that "explicitly serve the purpose of enhancing shareholder value" by keeping the company out of legal trouble.

All this is by way of saying that the major benefits to unfortunates in the underdeveloped world have nothing to do with the agencies that dream up fund-raising efforts such as the Monterrey Consensus. They come from self-interested businesses seeking ways to improve the bottom line. Anti-globalists often charge that private businesses take advantage of the weak bargaining power of Third Worlders, and it is quite true that companies look for investment sites where, among other things, labor is plentiful. But those who get hired are, by definition, better off than they were before, or they wouldn't stick around.

Mr. Bush and Mr. O'Neill are laying down a simple proposition to the people who govern developing countries. If you want to cure poverty, make your country hospitable to foreign direct investment. If the investors get a fair shake and legal protections, they will stay and maybe expand, creating even more jobs. Jobs cure poverty. The secret is not the generosity of the rich countries but the honesty and good faith of those who rule the poor ones. It's as simple as that.