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THE MILLENNIUM CHALLENGE CORPORATION AND
DEMOCRACY PROMOTION: EVENT SUMMARY
Carnegie Endowment for International Peace
Thursday, December 6, 2007, 12:15-2:00pm
Opening Remarks:
Ambassador John J. Danilovich, Chief Executive Officer, MCC
Presentation:
Alicia Phillips Mandaville, Senior Policy Associate, MCC
Respondents:
Morton Halperin, Director of U.S. Advocacy Open Society Institute
Jennifer Windsor, Executive Director, Freedom House
Moderator:
Thomas Carothers, Vice President for Studies, Carnegie Endowment
I. Ambassador John J. Danilovich
The Millennium Challenge Corporation (MCC) serves as a catalyst for deepening
democracy by creating incentives for policy reform and engaging democratic actors
already in place. In actively fostering the link between democracy and economic reform,
the MCC seeks to increase transparency, put democratic processes to work in
development, and fight corruption. For example, at the local level, the MCC allows for a
real dialogue about the costs and benefits of its programs. Democracy is an important tool
for growth, peace and security, and poverty reduction.
II. Alicia Phillips Mandaville
Since the pursuit of economic development and deepening democracy are
complementary goals, the MCC—as an economic growth and poverty reduction
agency—is involving itself in long-term processes of democratic development in the
countries where it works. The MCC contributes to democracy promotion in two ways: by
providing an incentive for democratic reform in its selection process, and by putting
existing democratic institutions to work in aid-receiving countries through consultation
and participation in the process of agreeing upon and implementing MCC programs.
These efforts build on an emerging convergence between the practitioner community and
academia about the importance of including local democratic institutions in development.
First, the MCC incentivizes democratic reform by providing grants to highperforming countries, judged according to seventeen indicators. The level of democracy
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is captured in three indicators: “Political Rights,” “Civil Liberties” and “Voice and
Accountability.” The fact that MCC assistance is untied and can be used for projects of a
country’s choosing is an even greater carrot. Therefore, amongst countries lobbying for
MCC funding, there is a clear incentive to improve their scores. As evidence of this
“MCC effect” on democracy, Freedom House has reported meetings with candidate
countries, who are coming to Freedom House not just to try to refute their scores, but to
initiate a discussion on how to improve their scores. In addition, through its threshold
assistance program—for countries close to but not yet eligible for the MCC’s larger
compacts—the MCC creates incentives for countries to propose their own projects to
improve their scores related to democracy. For example, Jordan proposed and is now
implementing a program on electoral reform.
A second, often overlooked way by which the MCC encourages democratic
development is working with existing democratic institutions to encourage public
consultation and legislative oversight in the negotiation and implementation of MCC
compacts. In evaluating assistance proposals from eligible countries, the MCC assesses
the proposed methods of public accountability and processes of public consultation, such
as the role for civil society groups in aggregating public demands. Domestic legal and
political institutions also have a role to play. The MCC requires its funds to be reflected
in budgetary documents, and in the majority of cases, national legislatures have formally
ratified the compacts. Finally, the MCC upholds transparency during the implementation
process by putting mechanisms of accountability to work. A local implementation unit,
not MCC staff, manages MCC projects. They are responsible for making documents such
as quarterly reports and meeting minutes available online to further transparency.
The work of the MCC builds on lessons learned in democracy assistance and
research on the role of institutions in economic development. Respecting two key
conclusions from practitioners that democracy work transcends a focus around elections
and one-size-fits-all approaches to institutions, the MCC seeks to take existing
democratic institutions at face value and engages with them. This approach also confronts
the problem some scholars refer to as “displaced accountability”—international
assistance agencies supplanting the local population as the constituency to which a
national government is accountable.
III. Morton Halperin
We live in an era in which a large number of poor countries have become
democracies by the choice of their citizens, and it should be a key priority of U.S. foreign
policy to help these countries stay on the path of democracy. It is becoming clearer that
democratic countries experience higher growth in the long-run and fare better during
drastic economic upheavals. Therefore, the MCC should be transformed into a
democratic development organization, rather than remaining in its current scope as a
development organization that also works on democracy promotion. Its new mission
should be to “support economic growth in poor countries so as to reduce poverty and
deepen democracy.”
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In its current form, the MCC has limited leverage over democratic reform. Since
candidate countries need only pass half of the indicators in each given category, they can
become eligible for compact assistance while failing all three of the democratic criteria.
Although democracy is listed as one of the goals of the MCC in the congressional
legislation creating it, it is secondary since the MCC is staffed by people with
development backgrounds and functions as a development organization.
There are several changes the MCC can make in order to become such a
democracy development organization:
• Make democracy a mandatory criteria or “hard hurdle” for countries to meet in
order to be eligible for assistance, similar to the existing anti-corruption
requirement.
• Allow for additional compacts contingent upon further democratic progress,
which would provide the MCC with continuing leverage.
• Give grants to NGOs in possible candidate countries to educate civil society about
the MCC, creating domestic pressure to meet the democratic criteria. This would
create a “constituency” for reforms.
Making these changes would also be a way of ensuring the next administration would
feel some ownership of the MCC—such changes could be a Democratic administration’s
distinctive stamp on the organization.
III. Jennifer Windsor
The MCC should fulfill a dual role of supporting economic and democratic
development. It does play an important role in changing the political calculus of those
blocking democracy while encouraging democratic activists. In certain cases, it can tip
the balance in favor of democracy.
In order to exercise effective leverage on democracy, however, the incentive
structures must be appropriate:
• The incentives must be large enough, requiring sufficient funding.
• The assistance criteria must directly correspond with democracy, not just good
governance—the MCC’s rule of law criteria, for example, corresponds primarily
with the commercial legal framework. The MCC has awarded compacts to some
clear non-democracies, notably Morocco, Armenia, and Jordan. Therefore, there
should be a minimum threshold of democracy for compacts, and also greater
scrutiny of countries implementing threshold programs, including the punishment
of backsliders, such as Georgia right now.
• MCC funding must not displace USAID funding.
• The selection process must involve civil society. One way is to invest in local
think tanks and NGOs to conduct their own rankings and scores in order to further
domestic dialogue on and assessments of democratic development.
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IV. Questions and Answers
Thomas Carothers, the event’s moderator, began by challenging each of Ms.
Mandaville’s two claims about the MCC’s influence on democracy. First, given that the
experiences with negative economic incentives (sanctions) have repeatedly demonstrated
that non-democratic power holders rarely decide to make significant political concessions
for the sake of economic benefits, why should we expect the situation to be different with
positive incentives? This is all the more doubtful given that MCC compact countries are
high-performing countries and thus ones that are usually already attracting plentiful flows
of donor assistance. Second, how are the MCC’s methods of consultation any more
significant than the many other participatory methods that other aid organizations have
established in recent years, methods that are often limited in genuine democratic effect by
power imbalances, weak institutions for deliberation and consultation, and the frequent
pattern of merely formalized participations exercise?
Ms. Mandaville responded by arguing that the MCC can only alter the decisionmaking calculus of a ruler on the margins, but this is often where it counts. While the
MCC tends to reward good performers, compact assistance serves to keep them on the
right track. Regarding consultation, while the MCC process may not appear significantly
different than the World Bank’s Poverty Reduction Strategy Paper participation process
on paper, the MCC goes further in asking this process to continue throughout
implementation and making use of existing local institutions.
Discussion during the question period also covered the democratic aspects of
economic institutions, strengthening independent media and civil society, and how to
make democracy a “hard hurdle” in country selection. One participant from USAID
raised the concern that MCC often has a negative effect on more direct democracy aid:
when MCC signs a compact with a country, USAID usually reduces its budget for that
country, undercutting funding for direct democracy aid in that country.