The failed state we're in

The international community has spent billions on reconstructing Afghanistan—yet the country has made dismayingly little progress. It's time for a radical new approach to state-building
June 28, 2008

We would like to tell you the story of $150m going up in smoke," said the young villager. "We heard on the radio that there was going to be a reconstruction programme in our region to help us rebuild our houses after coming back from exile, and we were very pleased."

This was the summer of 2002. The village was in a remote part of Bamiyan province, in Afghanistan's central highlands, and several hours' drive from the provincial capital—utterly cut off from the world. UN agencies and NGOs were rushing to provide "quick impact" projects to help Afghan citizens in the aftermath of war. $150m could have transformed the lives of the inhabitants of villages like this one.

But it was not to be, as the young man explained. "After many months, very little had happened. We may be illiterate, but we are not stupid. So we went to find out what was going on. And this is what we discovered: the money was received by an agency in Geneva, who took 20 per cent and subcontracted the job to another agency in Washington DC, who also took 20 per cent. Again it was subcontracted and another 20 per cent was taken; and this happened again when the money arrived in Kabul. By this time there was very little money left; but enough for someone to buy wood in western Iran and have it shipped by a shipping cartel owned by a provincial governor at five times the cost of regular transportation. Eventually some wooden beams reached our villages. But the beams were too large and heavy for the mud walls that we can build. So all we could do was chop them up and use them for firewood."

This is not a rare story. In the two and a half years after the December 2001 Bonn agreement, which set out a political framework to lead Afghanistan to stability, $2.7bn was parcelled out to UN agencies and NGOs. Having been at Bonn, and closely involved in the first efforts to provide assistance to post-Taliban Afghanistan, I was shocked at how much cash was frittered away on hastily conceived projects, with little thought on why one village should get hens and the next a well. When I asked the official of a country that had donated tens of millions why no account, let alone audit, had been given of this expenditure, he shook his head: "If we did an audit, our taxpayers would never give money for aid programmes again."

A great deal of cash was also allocated to private contractors, who have performed little better than NGOs and UN agencies. The contractor scandals that made the press—such as the infamous school-building programme where contracts were drawn up for 140 schools in Afghanistan but only six were built within the specified time—only scratched the surface. The US congress's accountability office is only just uncovering the full extent of the problem in Iraq, and has yet to turn its attention to Afghanistan.

If taxpayers in donor countries are not aware of what is going on, Afghans on the receiving end know only too well. In Mazar-i-Sharif in January 2002, a woman told me she had lost most of her children to the Soviets and the Taliban, and she wanted a better life for her remaining child. "So please take away these agencies, these NGOs that waste our money," she said, pointing to the white land cruisers and bags of wheat blocking the narrow lane. "I have heard that Afghanistan has been promised $4bn. The president should put it in a trust fund and spend it wisely to rebuild our civil service." On my most recent visit to Afghanistan, I heard villagers across the country complain bitterly: "You have betrayed us. You promised to rebuild our country." What makes the situation doubly tragic is that there is no lack of money, or of effort. Exact amounts are hard to determine, but somewhere between $6bn and $10bn has been spent on development and humanitarian efforts in Afghanistan since January 2002.

Some NGOs, agencies and contractors do good, if not great, work. Their employees make enormous sacrifices to work in demanding conditions, sometimes forgoing higher salaries elsewhere. But the system as a whole is far less than the sum of its parts. Most foreign contractors and NGOs are essentially doing construction work, displacing domestic companies. True, some NGOs or agencies are advocacy organisations, standard-setters or catalysts for innovation and civil society groups, and can perform useful functions, often as volunteer groups at low cost. But even these are no substitute for genuine domestic civil society organisations. The romance of the NGOs that has prevailed in recent years has obscured the fact that most of them are ineffective and inefficient.


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So where and how has the system failed? Why does this constellation of governments, agencies, contractors and NGOs—the "aid complex"—so comprehensively fail to deliver the goods?

First, it is wasteful. As the Bamiyan villagers described, the number of contractual layers means that money gets salami-sliced by overheads, whittling down an initially generous sum so that only a small proportion reaches the intended beneficiaries.

Second, aid recipients cannot hold NGOs or contractors to account. NGOs are usually only responsible to a donor country—and the donor to its taxpayers—thousands of miles away. If the new bridge falls down, or the teacher can't do arithmetic, the supposed beneficiaries have no recourse in their local town halls. Nor are many NGOs and UN agencies particularly transparent or accountable to their own donors. Managing hundreds of projects under difficult conditions means their accounts are often in poor shape. Indeed, UN agencies often do not disclose their audits, even to their own governing boards.

Third, neither humanitarian or infrastructure projects in Afghanistan are thought through with the rigour that is second nature in the business world. Best business practice demands accountability, open bidding, market prices and efficient supply chain management. No such preparation takes place in Afghanistan, with each entity—NGO, UN agency or contractor—competing against another and placing its own micro-deals, while dealing with market fluctuations and regional cartels.

Fourth, and perhaps most critical, there is growing evidence that aid projects can undermine reconstruction. The funding imbalance between government programmes and aid projects, together with distorting wage policies, are damaging the functioning of the state and market in Afghanistan. In 2002 and 2003, thousands of "quick impact" projects were launched. Each employed a team of young, often unqualified westerners. Each would have had an Afghan driver, assistant and translator. Soon, the NGOs sucked away most of those who had been working as professors, engineers, doctors and teachers to highly paid positions supporting the donor circus.

While they threw money at the aid complex, most donors were reluctant to support Afghan government institutions. (Britain's department for international development, together with a handful of others, was a notable exception.) The state had 260,000 civil servants on the payroll, ranging from policemen and judges to doctors, nurses, finance managers and teachers—a reasonably sized bureaucracy for a population of around 30m. But the treasury's coffers were empty and there was no oil revenue, as in Iraq, to provide the cash to pay these workers. With a nascent army and ill-disciplined police force, and the Nato force confined at the time to Kabul, collecting customs or tax was a daunting prospect. The Afghan treasury needed a kickstart from foreign contributions so that customs police and finance officers could be paid. But donors initially put only $20m into a trust fund to meet the government's costs. This probably covered the fuel bill for a few months.

Najim, a young Afghan now finishing his dissertation at Harvard on the way development agencies distort economies, became interested in the subject after finding out that his father, a highly educated teacher, earned only $50 a month, while he, fresh out of school, was paid four times as much as a clerk for an NGO, his pay quickly rising. Perplexed, he asked one NGO why agencies paid so much more than the state. The answer came: "Because we can." The government, though, can't: the IMF and World Bank insist on salary caps; the UN agencies pay a multiple of this, and NGOs can pay what they like.

The chronic underfunding of essential government activities, coupled with an influx of wealthy foreign agencies, rapidly dissolved what remained of the Afghan civil service. When I travelled around the country in January 2002, I found finance, education and health officers in all the provinces I visited, dutifully running their offices. Three years later, most of the offices were empty, and it was common to see a district administrator sitting under a cast-off tent, responsible for keeping property records, administering justice and monitoring the police. A government buildings programme was proposed but found no takers. "We don't fund government buildings," the donors said. "They are not poverty-reducing."

Donors also discouraged the Afghan government from investing in higher education and vocational training. In 2002, the UN and World Bank told the Afghan government that it could not include any significant money in the national budget for secondary and tertiary education because of the UN millennium development goals, which prioritise universal primary education. Given the limited pool of educated professionals in the country, this was madness.

Having stripped Afghanistan of the capacity to help itself, the donors rushed to fill the gap with technical assistance contracts running into hundreds of millions. More foreigners came to fill these "open vacancies"—jobs that Afghans could easily be trained for. The so-called recovery process soon came to resemble an exercise in state destruction rather than state-building. One poignant example came in July 2002 when an old man, dressed in his finest clothes, turned up at the site where procurement contracts were being awarded, holding the manuscript on which he had written out his bid to build a network of roads. It turned out he was a trader with a wide network of construction companies. But he was turned away because he hadn't typed out his application.


At the heart of this problem lies the failure of the aid system to invest in the restoration—or establishment—of a functioning government, market and civil society. Moreover, there is a conflict of interest that sets agencies as both "advisers" and competitors to governments and domestic organisations.

While the aid complex has made a mess of things, not everything done in Afghanistan was misguided. The Bonn agreement, and then the 2006 UN compact, where donor countries pledged $10.5bn, set out a very sensible framework. They sought to establish a national authority that enjoyed legitimacy and could serve the citizens. This was complemented by an economic plan launched at Afghanistan's first donor meeting in Kabul in 2002. Donors pooled their money into the newly created reconstruction trust fund. This was intended to support not only salaries but also the government's "national priority programmes." The snag was that having created all this, the international community failed to put up the money to make it work.

Even so, some national priority programmes were undertaken, and did some good—much more than most NGO projects. These included a transportation scheme to make Afghanistan the land bridge for central and south Asia and the Gulf, with a ring road around the country and spokes out to its neighbours. This is almost complete. A second programme recognised the value of NGOs in providing healthcare, and forced donors to pool their funding and contract out health services across the country, according to an agreed-upon level of provision, rather than letting each NGO set up shop separately. A third saw the competitive licensing of a mobile phone network that has so far provided over 4m handsets to Afghans.

Then there was the "national solidarity programme," which gave a block grant of $20,000 to $60,000 to every village in the country. Villagers could access the money if they followed three simple rules: select a village council (usually by secret ballot); convene a quorum of the villagers—men and women—to decide on how the money should be spent; and put the accounts of expenditure up in a public place. The programme is now active in more than 32,000 villages, and more than 19,000 projects have been implemented. These projects sometimes cost as little as a fifth of the amount an NGO would spend. In a village I visited in 2003 near the Iranian border, a woman said, "You know, this programme makes me feel like a citizen. It is not the money, although that is useful—please don't take it away—it is the fact that I am trusted to make decisions."

Because these programmes were national in scope, they were spread across the countryside, rather than clustered in mainly urban areas—as aid complex projects often were—and they did not inflame suspicions and political rivalries. Because they put Afghans in charge, they were not seen as alien and unaccountable. Because they were designed to nurture and support a system of governance, they did not undermine government. And because they set a framework for co-operation, they did not exclude a role for private sector, NGO or community; rather, each was assigned to a specific role with clear accountabilities. In this model, aid is simply designed to spark trade and investment with the aim of growing the economy to the point at which aid is no longer required—or at least not in such large amounts. Where these programmes were implemented, they contributed to progress. But they were largely crowded out by the aid complex.

By the end of 2004, it was clear to a group of us that donor policies were making it impossible to build a state from within Afghanistan. The government was strapped for cash and haemorrhaging personnel. It had not secured control over its own borders, and customs and tax revenues were being collected by illegal militias. When my colleagues and I set out to investigate the extent of the problem, we found the syndrome in Afghanistan was part of a wider pattern.

In 2005, we convened a group of 12 transition leaders from post-conflict countries and regions to share stories. We talked to leaders and citizens across Kenya, Lebanon, Sudan, Nepal, Kosovo and Aceh (Indonesia), and heard people's deep anger at billions wasted. They expressed their frustration at how the aid system stymied their efforts to build good governance. We found evidence of a double failure—the failure of governments to serve their people, and of the international system to assist recovery.

Yet this is not irreparable. We also visited regions that have transformed successfully in the last decades, from Spain and Singapore to the American south. These success stories have common features that are surprisingly pertinent to the Haitis, Liberias and Afghanistans of today. To rebuild, states need to establish government institutions that do broadly what they are supposed to, and that invest heavily in higher education and skills to create a competitive workforce. And they need engineers to support a domestic construction industry, which in turn generates houses, mortgage-holders, jobs and taxpayers—all of whom have a stake in the stability of the system.

External assistance should encourage good governance. That means agreeing on "national accountability systems"—rules designed to ensure that when public money is spent, it is done so openly. These should cover all assistance programmes and be set out in an overall "double compact" agreement to which all parties sign up—government, their international backers, and most importantly their citizens. To boost accountability and provide a reference point for progress, we are preparing a Sovereignty Index that will measure the extent to which a country's citizens believe the state is serving them.

In failing states, the three pillars of state, market and civil society must be balanced. Recent financial and agricultural crises have shown that not everything can be left to the market. But state-building pursued without due attention to the market and civil society will remain off-kilter. At a meeting of the United States Institute of Peace in 2005, experienced negotiators admitted that whenever a peace agreement had neglected the economy, a criminal one had emerged, ultimately destabilising the political process.

Of course, all this requires a commodity that post-conflict states often lack: political leadership. Too often, politicians in these countries are weak and corrupt. But the answer is not to turn our backs: this is not a perfect world. We need to foster the conditions that allow leaders to emerge in the future. This can be done partly through investing in the younger generation, and partly through creating the conditions for businesses and civil associations to develop—allowing more citizens a role in decision-making and thus expanding the pool of potential leaders. It is also important for the donors to speak with a single voice, and to be very clear about what is acceptable behaviour. Some states, such as Somalia (no government at all) and Zimbabwe (an intolerable one) are beyond the pale. But if we want leaders to emerge in fragile states, we also need to give them the tools to act—and the means to be held accountable. If a government distributes assistance through its own budget, there is more chance it will be held to account by its citizens.

We need a new approach to state-building, not just in Afghanistan but in many failing countries. This will require major reforms of our aid bureaucracies, the UN and other institutions. Addressing the root causes of instability in the world's 40 to 60 so-called "fragile states" does seem daunting. We will need to make sustained commitments to countries—for ten to 15 years or more. We will need to reinvent and re-energise our global and national institutions. It will require imagination and courage. But it is not impossible.

What does this mean for Afghanistan? The issue is not only more money. Donors will be asked for $50bn at a conference in Paris in June, but it is not clear that pumping more cash through the existing system will do any good. Besides, much of the money pledged at previous conferences remains unspent. The real challenge is to implement existing promises more effectively, not to make new ones.