Citation
Principled agents in an agency under siege : U.S.A.I.D. and its mission in Tanzania

Material Information

Title:
Principled agents in an agency under siege : U.S.A.I.D. and its mission in Tanzania
Creator:
Snook, Stephen L
Publication Date:
Language:
English
Physical Description:
viii, 284 leaves : ill. ; 29 cm.

Subjects

Subjects / Keywords:
Agriculture ( jstor )
AIDS ( jstor )
Altruism ( jstor )
Conservatism ( jstor )
Democracy ( jstor )
Foreign aid ( jstor )
Liberalism ( jstor )
Paradigms ( jstor )
Political theory ( jstor )
War ( jstor )
Dissertations, Academic -- Political Science -- UF
Political Science thesis, Ph. D
Genre:
bibliography ( marcgt )
non-fiction ( marcgt )

Notes

Thesis:
Thesis (Ph. D.)--University of Florida, 1996.
Bibliography:
Includes bibliographical references (leaves 271-283).
General Note:
Typescript.
General Note:
Vita.
Statement of Responsibility:
by Stephen L. Snook.

Record Information

Source Institution:
University of Florida
Holding Location:
University of Florida
Rights Management:
Copyright [name of dissertation author]. Permission granted to the University of Florida to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder.
Resource Identifier:
022852243 ( ALEPH )
35109051 ( OCLC )

Downloads

This item has the following downloads:


Full Text












PRINCIPLED AGENTS IN AN AGENCY UNDER SIEGE:
U.S.A.I.D. AND ITS MISSION IN TANZANIA





















By


STEPHEN L. SNOOK


A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL
OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY



UNIVERSITY OF FLORIDA


1996






















ACKNOWLEDGMENTS


I would like to acknowledge the kind assistance of Goran Hyden,

Walter Rosenbaum, David Hedge, M. Leann Brown, Chris Andrew, Robert

Uttaro, Nigel Austin, and Ken Mease for their help and advice. To them

goes much of the credit for success; with me lies the blame for any

error.

















TABLE OF CONTENTS



ACKNOWLEDGMENTS ........................................................ii

LIST OF TABLES ....................................................... vi

LIST OF FIGURES ....................................................... vii

ABSTRACT .............................................................viii

INTRODUCTION ............................................................ 1
Indicator of Change .................................................. 6
Sectors of Activity .......... ...................................... 7
Plan of Dissertation............................................... .8

THEORETICAL CONTEXT .................................................... 12
Theories, Tactics, and Ideologies................................. .12
Theories of Economic Development ............................... 13
Theories of Political Development .............................. 22
Theories of Development Administration ......................... 27
The Consequences of Developmentalism ........................... 32
Tactical Approaches to Development ............................. 33
Ideological Perspectives on Foreign Aid ........................ 42

INSTITUTIONAL CONTEXT .................................................. 47
Influence of American Federalism .................................. 47
AID's External Environments ....................................... .50
AID's Political Environment .................................... 51
AID's Task Environment......................................... .53
AID's Corporate Culture........................................... 54

THE CREATION OF AID .................................................... 58
The Ancestry of AID, 1941-1960 .................................... 62
The Role of the Private Foundations ............................ 63
The Birth of an Official Foreign Aid Program................... 63
Toward Independence in Tanganyika and Zanzibar................. 71
The Founding of AID ............................................ 80
The First Period: Institution Building, 1961-1973................. 82
Kennedy and AID's Formative Years .............................. 85
Johnson, Union, and the Arusha Declaration ..................... 90
Nixon, "Tar Baby" and the New Directions ...................... 103

REACHING THE POOR MAJORITY, 1974-1980............................... 109
Paradigm Shifts in the U.S. and Tanzania .........................109
Toward Equity in American Foreign Aid ......................... 109
The Radicalization of Ujamaa..................................112
Famine and the Ford Administration ...............................116
Crisis in Africa .............................................. 116
The Election of 1976 .......................................... 119
The Heyday of Integrated Rural Development ....................... 119
The Conflict Within the Mission Over the "Big Lie"............. 122
Carter and the Uganda War ........................................ 127


iii










The Carter Doctrine ............................................ 128
War with Uganda............................................... 132
Structural Adjustment and the 1980 U.S. Election.............. 137

THE THIRD PERIOD: FORCING POLITICAL REFORM, 1981-1995............... 140
New Paradigm, Old Paradigm: Reagan and Nyerere................... 140
The Reagan Doctrine........................................... 142
Nyerere and The End of Ujamaa ................................. 145
A Pyrrhic victory ................................................ 147
Rebuilding the AID Program....................................... .150
Learning from Indigenous Knowledge ............................ 153
Institution Building Redux .................................... 153
Mwinyi and the Consolidation of Reform ........................... 154
Bush, Democracy, Desert Storm, and Corruption in AID............. 155
American Aid and Democracy .................................... 157
Desert Shield and Desert Storm ................................ 157
AID's Loss of Bearing......................................... 158
Clinton and the Vivification of the Kennedy Ideal................ 160
A Paradigm Restored........................................... 161
Mwinyi and a New Type of Patronage Politics ...................... 163
The Move to Abolish AID.......................................... .165
U.S. Foreign Aid to Tanzania Under Eight American Presidents..... 167

THEORIES OF CHOICE AND THEORIES OF CULTURE .......................... 170
Choice Theories .................................................... 170
The Principal-Agent Model..................................... .171
A Modest Addition to Theory................................... .177
The First Hypothesis .......................................... 178
A Rival Hypothesis ............................................ 180
Culture Theories ................................................. 180
Types of Organizational Cultures .............................. 182
The Strong Culture Model of Principled Agents................. 183
The Rival Hypothesis Restated ................................. 186

THE CASE STUDY METHOD............................................... 187
The Problem of Conceptualizing the Problem ....................... 187
Challenges to Case Studies....................................... .189
Structuration and Nested Games ................................... 191
Anthony Giddens and Structuration Theory...................... 192
George Tsebelis and Nested Game Theory ........................ 194
Nested Games of Structuration................................ 196
The Case Study Method: Virtues and Limitations................... 197
Virtues of the Case Study Method............................... 197
Limitations of the Case Study Method .......................... 198
Replication Logic and Analytical Generalization............... 199
The Value of the Case Study................................... .200
Data Collection ....................................................200
The Special Problem of Interviewing Elites ....................202

AID: THE ORGANIZATION AND THE WORKER................................ 205
Part I: Policy Change as Paradigm Shifter or Paradigm Extensor ..205
Punctuated Partial Equilibrium in the Political Environment ..207
Entrepreneurship in the Policy Community .....................210
Incrementalism in the Task Environment ....................... 217
Pressure and Confidence: Explaining Paradigm Shifts ............. 219
The Net Effect: AID's Behavior in Tanzania .................... 220
Number of Projects ............................................ 223
Sectors of Activity........................................... 223
Constraints on AID Autonomy ................................... 230
AID and the Other Donors ...................................... 232
Feedback as Control in AID .................................... 233











AID and Its Conditions...
The Structure of AID.....
Part II: Inside AID .........
The First Hypothesis.....
A Rival Hypothesis .......
AID's Culture............
Staffing of AID ..........
Moving Money .............
AID and the Principal-Agent
Adverse Selection ........


..................................... 237
..................................... 238


.,..........
........o..


.......o...
Problem ....
...........


Moral Hazard.......... ...............
Strong Culture Organizations ...........
Characteristics Which AID Does Not P
Characteristics Which AID Does Posse

CONCLUSION ..................................
The Role of Conflict in AID Policy Char
Intellectual Influences ................
Political Influences...................
The Structuration of AID in Nested Game
Why AID Will Survive ...................


.......................... 239
.......................... 239
.......................... 240
.......................... 240
.......................... 241
.......................... 244
.......................... 247
.......................... 247
.......................... 248
.......................... 252
ossess .................... 252
,ss ........................ 253

.......................... 257
Lge ........................ 257
.......................... 259
.......................... 260
s ......................... 263
.......................... 264


APPENDIX A .......................................................... 267

APPENDIX B .......................................................... 268

APPENDIX C. .............................. ............................ 270

LIST OF REFERENCES .................................................. 271

BIOGRAPHICAL SKETCH .....................................................284















LIST OF TABLES


Table


New Obligations and Net Receipts, 1973-1977............... 120
New Obligations and Net Receipts, 1981-1984 ............... 149
Average New Annual Spending by Administration............. 167
Total and Average New Spending Obligations................ 224
Average and Total Spending by Sector...................... 225
Rank Order of Constraints on AID Autonomy................. 230
Opinions on AID Responsiveness to Influences.............. 231
Opinions on AID Responsiveness to Theories................ 232
Opinion on Importance of Feedback ......................... 236
Opinion on Whether AID Encourages Innovation.............. 240
Types of Personnel ........................................ 242
Opinion on Imperative to Move Money ....................... 245
Opinion on Job Competitiveness ............................ 247
Reasons for Seeking Employment with AID................... 248















LIST OF FIGURES


Figure


New Spending Obligations, 1961-1994..
Support for Infrastructure...........
Support for Social Services..........
Support for Public Administration....
Support for Agriculture..............
Support for Finance ..................


..................... 222
..................... 225
..................... 227
..................... 228
..................... 229
..................... 230


vii














Abstract of Dissertation Presented to the Graduate School
of the University of Florida in Partial Fulfillment of the
Requirement for the Degree of Doctor of Philosophy

PRINCIPLED AGENTS IN AN AGENCY UNDER SIEGE:
U.S.A.I.D. AND ITS MISSION IN TANZANIA

By

Stephen L. Snook

May, 1996

Chairman: Goran Hyden
Major Department: Political Science


This dissertation examines policy change in the U.S. Agency for

International Development (AID) using its mission in Tanzania as a case.

It has two sets of findings. First, it finds that ideological conflict

between conservative realists who view foreign aid as an instrument of

the national interest and liberal altruists who believe that foreign aid

should be given as philanthropy plays a crucial role in Ehapirng AID

policy changes. It finds that the conservative realists dominate the

decisions that quantify aid programs in terms of funding and personnel.

The influence of liberal altruists is limited to issues of program

design and implementation.

Second, the dissertation tests two rival hypotheses. First, it

tests whether the behavior of AID in Tanzania from 1961-1995 can be

explained by the choice-oriented principal-agent model. Second, it

investigates whether the behavior of the agency is better explained by

the strong-culture model of "principled agents." The dissertation finds

in favor of the second hypothesis.


viii

















CHAPTER 1
INTRODUCTION


Legislation was introduced in Congress in the summer of 1995 to

abolish the U.S. Agency for International Development (AID). This

action by Congress helped trigger the 1995-1996 budget impasse. The

termination of a federal agency is a rare event. This study will

explore the reasons why AID was singled out for this special treatment.

AID has long been an unpopular agency. The American public's

dislike of foreign aid giving has led to political conflict about AID at

various levels: between the agency and political officials, within the

agency between headquarters and the field, within individual divisions,

units, and missions, and even within individual employees, who reported

in interviews conducted for this study often being torn between the

necessity of following orders and their personal desire to do some good

in the world.

I will argue that there are essentially two ideological "camps"

within AID and the foreign policy community. Liberal altruists believe

that U.S. foreign aid should be given in a spirit of philanthropy for

humanitarian purposes. Conservative realists believe that foreign aid

is a tool in the diplomatic negotiations kit to be used to promote the

national interest. Some conservatives believe that now that the Cold

War is over AID has served its purpose and can safely be abolished.

Some liberals feel that AID's thirty five-year-old structure is outdated

and in need of a substantial overhaul.

I shall argue that foreign aid policy is made in two "rooms," a

front room where the ostensible intentions of foreign aid are on view

and a back room out of the public eye where a different agenda is










pursued. Conservative realists for whom defense of the national

interest is always the paramount concern dominate the back room where

the decisions regarding the establishment of an aid program and the

level of funding are made. It is they who draw the broad outlines of

foreign aid policy.

Liberal altruists, on the other hand, who historically have

opposed U.S. support for authoritarian oligarchies and have generally

favored "capitalism with a conscience" predominate in the front room.

After the conservatives have decided to establish a program and the

level of aid to be provided to a country, the liberals are given the

less important task of coloririq in the details of specific programs. 1

In the following chapters I will document the different

contradictions and conflicts that have shaped AID policy over the years

using the mission in Tanzania as a case. I shall describe AID as

existing in two distinct spheres, or environments, with the agency

itself comprising a third. AID functions in a political environment in

Washington and a task environment overseas. I will show how the great

distance between its input and output functions causes organizational

complications.

I shall argue that policy is a reflection of ideology.

Bureaucratic culture, or AID's internal environment, can be thought of

as institutionalized ideology. Some or all of the ideology is

internalized by employees through rules and procedures.

AID has since its inception undergone eight major changes in

policy, of which two amounted to shifts in the dominant paradigm. I

define a paradigm shift to mean a complete change in how the issues are

framed and the way problems are approached. I shall analyze the eight



1. I would like to thank Robert Uttaro for suggesting the "two room"
metaphor as well as for the insightful term "capitalism with a
conscience," or the idea that capitalism does not require unrestricted
profit-seeking to produce growth and can be regulated to meet broader
social concerns without undermining economic performance.










policy changes and argue that for a policy change to represent a

paradigm shift, two factors must be present: very high political

pressure from Washington and very low confidence in ongoing programs in

the field.

I shall demonstrate that AID's task environment is characterized

by an unusually high degree of uncertainty. Furthermore, AID's

political environment is likewise a highly uncertain place because AID

is an exceptionally unpopular agency. I shall argue that AID's

perceived dysfunctional or irrational behavior is largely a consequence

of conflict due to environmental uncertainty. I shall argue that today

AID is poised on a knife edge from which it inevitably must fall. It

will either survive and undergo a paradigm shift or it will cease to

exist. AID is the sixth in a series of foreign aid agencies. In the

following analysis I shall show why AID has endured where none of its

forerunners did, and offer a prediction that it will survive the latest

attempt on its life.

For years AID has been accused by the enemies of foreign aid of

being internally dysfunctional, an organization in which the animals

have escaped from their cages and taken over the laboratory. I will

argue that much of AID's evident dysfunctionality is due to political

meddling. I will offer evidence that AID, far from being a corrupt

agency, is a very rare example of a government bureaucracy with a strong

culture of principled agents.

Much of the epistemological debate in the social sciences is

occupied with trying, with notably poor success, to harmonize or

integrate the social antinomies of macro and micro, aggregate and

individual, and structure and agency. Social scientists who have

attempted to move back and forth between these antinomies, especially

graduate students just learning how to "drive," are accused of

committing the ecological fallacy of using data from one level of










analysis to refer to another. I shall argue there is a conceptual

construct, which I shall call "structuration through nested games," that

can close the great divide and capture the interaction between macro and

micro, aggregate and individual, and structure and agency.

Much of AID's behavior is a function of the conflict between the

competing propensities of realism and altruism. Realism refers to the

conservative point of view in foreign policy circles that states are

rational, sensate entities in a conflictual world who act cynically and

aggressively to protect their territorial and political integrity and to

conserve and expand their share of power in the international system

(Krasner 1985: 28). Altruism refers to the liberal viewpoint in foreign

policy circles that humanitarian and egalitarian principles are

important. Like conservative realists, liberal altruists are well aware

of the historic proclivity of states to resort to war to resolve

economic problems. They too wish to protect the U.S. and its allies.

They too subscribe to the basic tenets of Lockean representative

democracy and regulated capitalism. They are more open to ambiguity

than the realists, and prefer thinking of the development effort as one

of fostering a world community by spreading the good news of democracy,

not just reacting in reactionary self-defense. They support efforts to

establish a just international order in which all states have a chance

to do well (Lumsdaine 1993).

The analogue to realism at the individual level of analysis is the

rational choice model of human behavior. Choice theories assume that

the individual is a self-interested, rational actor. Individuals relate

means to ends as efficiently as possible. What ends should be sought

are not specified; choice theories speak to effort, not to outcome

(Rogowski 1978). It is therefore possible for rational actions to have

irrational results. Choice theories understand that the public good










requires a bit of irrationality from everyone.2 The analogue to

altruism at the individual level of analysis is the cultural models of

human behavior. Culture theories see the orientation of the individual

not as the product of utilitarian calculus, but as shaped by

socialization (Eckstein 1988).

I shall concentrate on the one choice theory which has begun to

grow quite popular with both economists and political scientists:

principal-agent theory. The theory originated in studies of the firm by

economists concerned mainly with issues of efficiency. Political

scientists later adapted it to their concerns with issues of power. The

key to the theory is the concept of information asymmetry. All paired

relationships are dominated by the party who controls the information.

Information asymmetry provides a parsimonious explanation of how self-

interested persons in the lower echelons of an organization--where the

most critical information is generated--are able to use their control of

that information to frustrate hierarchical authority for their own gain.

In reconstructing the history of the U.S. foreign aid program, I

will show that the Carnegie Corporation and the Ford and Rockefeller

foundations were significant contributors to the architecture of the

U.S. foreign aid program. The foundations were created at a point in

time when socialist ideology was gaining ground. They were created to

support research to find ways of achieving two objectives: (1) to secure

access to cheap raw materials and to protect investments overseas, and

(2) to mold docile labor forces at home and abroad. When some twenty

years later the U.S. government decided that it was in the American



2. Choice theories can interpret bad social outcomes as the
consequence of individual rational decision making. For example, "the
squalor of Calcutta is a reflection of the rationality of its
inhabitants." All residents prefer their city to be clean. One person
littering does not make the city dirty. Each individual prefers to
litter rather than go looking for a litter bin. It is rational to
litter. Thus, rational action causes squalor (Basu 1984: 7).










national interest to resist the spread of Communism and created a

foreign aid program to eliminate the conditions which made Communism

appealing, policy makers turned to the foundations to provide the new

foreign aid program with a rationale. I will consider three main bodies

of development theory, four major tactics that have been used to induce

development, and three broad ideological perspectives on foreign aid

that have influenced AID during its thirty-five years of existence.


Indicator of Change


How should the magnitude of change be measured? I will use money

as an indicator of change in AID behavior from 1961-1995.

AID oversees three broad types of assistance: (1) development and

relief aid disbursed as both grants and loans; (2) food aid under Public

Law 480 (P.L. 480), which distributes surplus agricultural produce

either in kind as humanitarian relief or by selling it to generate local

currency counterpart funds to use in projects; and (3) Economic Support

Funds (ESF), which are grants given at the discretion of the President.

ESF and military assistance account for nearly half of all American

foreign aid and go preponderantly to two countries: Israel and Egypt

(Zimmerman 1993). I consider only ESF and development grants and loans

to Tanzania that were obligated for specific projects. I do not

consider P.L. 480 programs or nonproject spending.

I have selected for my indicator of change the amount of new

spending obligations for aid to Tanzania in constant dollars over time.3

I have selected money obligated rather than money spent for two reasons.

First, quantifying streams of aid year by year is difficult (Wood 1986).

Total aid flows consist of myriad forms of inter-government transfers

involving everything from food to commodities to cash. The big



3. Funds have been converted to constant 1987 dollars using the index
in the 1994 Economic Report of the President (Washington DC: U.S.
Government Printing Office).










agriculture projects launched by AID in Tanzania in the late 1960s and

throughout the 1970s, for example, lasted up to ten years. Due to

contingencies, or problems encountered in implementation, the amount

actually disbursed for a given project in a given year often differed,

sometimes substantially, from the amount planned for that year.

Second, when an AID project is authorized, it literally takes on a

life of its own. The acronym LOP, which appears in every AID project

planning document, is significant; it stands for "life of project." The

life of each AID project is carefully mapped out. A date is set for its

end. What activities the project shall engage in during its lifetime

are specified, and schedules, critical paths, and budgets are set.

Because of the inflexibility of this form of planning, when an AID

project comes to life, it is very difficult to change what it is doing

and very nearly impossible to kill. That is why the date of each

project's death is carefully fixed at its inception.

It takes time to design and staff a project. Furthermore, once

they come on line, projects lock in streams of spending. The amounts of

money spent in Tanzania never changed drastically from year to year.

Net receipts disbursed is therefore less an indicator of changes in

strategy than an indicator of changes in the costs of implementation.

The effect of a decision to increase or reduce aid is always lagged.

Changes in AID's strategic behavior in Tanzania are better reflected in

the amount of new spending obligated per year.


Sectors of Activity


I consider the 90 largest projects launched from 1961-1995, and

attribute the full cost of each project to the year it was approved. I

have apportioned new spending obligations by sectoral activity to best

reflect what AID was concentrating on in Tanzania in a given year. I










break activities down into five sectors: (1) agriculture, including

research, food production, and marketing; (2) social services, including

public education, rural water projects, and public health; (3)

infrastructure, including support for light industry, the construction

of highways and buildings, and the renovation of urban water systems;

(4) public administration, including the provision of Western personnel

to fill the "manpower gap" and the training of government officials and

Tanzanian project personnel; and (5) finance, including rural credit

schemes, technical assistance to central banking, and direct cash

transfers for balance of payment support.

In projects that were active in several sectors at once, I have

apportioned the total amount obligated for a project to different

sectors according to an estimate based either on the thumbnail sketch of

each project contained in AID's in-house 1985 history of the Mission, or

in the individual project papers. For example, project 621-0066, Public

Administration Planning, which cost $53,000 in constant dollars and

lasted from 1965-67, is attributed to one year, 1965, and is apportioned

in its entirety to one sector, public administration, because its sole

purpose was to send five leaders of the United Women of Tanzania to

America to observe Republican and Democratic Ladies' auxiliary

activities. On the other hand, project 621-0085, Rural Credit Union

Development, costing $708,000 in constant dollars and lasting from 1968-

74, is attributed to 1968 and is apportioned in thirds to the finance,

agriculture, and public administration sectors because the project

supported activities in all three sectors more or less equally.
i


Plan of the Dissertation


Chapters 1 through 6 constitute the big picture, AID in its

context. Chapters 7 through 10 provide a look inside AID, a portrait of

the individual, or more precisely, an examination of the attitudes of










the development worker. The reader who is interested only in my

application of the principal-agent model to the case of AID and does not

wish to be burdened with the account of its history and its contextual

details may safely skip to Chapter 7.

In the first six chapters I describe the theoretical,

institutional and historical context of AID. In the final four chapters

I descend levels of analysis and pit the rational choice principal-agent

model against the cultural model of the strong organization to see which

better explains the attitudes I found in thirty interviews conducted in

Dar es Salaam, Nairobi, and Washington in 1994-1995. I next discuss the

advantages and constraints of the case study research method, then I

present my findings, conduct the analysis, and draw my conclusions.

In the following chapter, I discuss different intellectual

influences on AID. I review theories of economic and political

development and of development administration, and present evidence that

in the field of international development, most years, practice preceded

theory, in some instances by as much as forty years in time. I discuss

four different tactical approaches to development used over the course

of four decades, and show that the last three were simply reformulations

of elements of the first.

The overarching framework of this study is the conflict between

rival ideologies. I present three contending critical perspectives on

the entire foreign aid project, reject one as inapplicable, and combine

the other two to create a dialectic to interpret AID's behavior in

Tanzania as the product of two competing propensities: realism and

altruism. The conflict between these propensities occurs at both the

institutional and the individual level of analysis.

In Chapter 3, I discuss AID's institutional context. I examine

the political and task environments of the agency and assess the










influence of each. I analyze AID's internal culture to see if it is

better described as a conservative or an innovative agency.

In Chapters 4, 5 and 6, I present the evolution of the American

foreign aid program from 1944-1960 and the subsequent thirty-five year

history of the Mission in Tanzania in three time periods. The time

periods are separated by two significant political events in America,

the major reform of AID's authorizing legislation in 1973, and the

election of Ronald Reagan in 1980.

Beginning with Chapter 7 I descend levels of analysis to the

individual. I present the hypothesis that the principal-agent model can

explain the behavior of the people in the AID mission in Tanzania and

its headquarters in Washington. Principal-agent theory predicts

organizational dysfunction. As such, it is appropriate to a study of

AID because the agency has long been accused of suffering from a host of

bureaucratic pathologies.

I present a rival hypothesis that AID's behavior at the level of
i
the individual is better explained by a very different model. I

hypothesize that AID has created a strong culture of principled agents.4

In Chapter 7, I review the principal-agent literature and the

literature on cultural theories of behavior.

In Chapter 8, I discuss the case study method. I contrast the

logic and generalizability of case studies with those that use

statistical methods.

In Chapter 9, I present my findings. I analyze three linkages

relevant to AID using principal-agent and strong-culture theory. These

are (1) the link between the political environment and the agency; (2)

the link within the agency between headquarters and the field; and (3)

the link between the agency and its task environment. In addition, I

examine the influence of feedback from the task environment to the



4. The term "principled agents" is from Dilulio (1994).





11




political environment over time. In Chapter 10 I present my

conclusions.
















CHAPTER 2
THEORETICAL CONTEXT


In its thirty-five years of existence, AID has come under a number

of intellectual influences, some theoretical, some practical, some

ideological. In this chapter, I discuss three main bodies of

development theory, four major tactics that hate been used to induce

development, and three broad ideological perspectives on foreign aid

that have influenced AID over the years. In each of these discussions I

will indicate the influence conflict has had on AID's behavior in

Tanzania.


Theories, Tactics, and Ideologies


When the United States launched the world's first foreign aid

program in 1948, no country had ever transferred wealth to another in

time of peace without expecting something in return. This was no

exception. Although aid was distributed for ostensibly philanthropic

purposes such as increasing agricultural production and improving public

health, its deeper purpose was threefold: to resist the spread of

Communism, to secure U.S. access to raw materials, and to protect

private American overseas investments. From the outset there was a

conflict between ostensible purposes and hidden agendas. In making the

decision to establish a foreign aid program, the Truman administration

had to answer two questions to the American people. The first was why

foreign aid should be given at all. When this was answered by linking

the policy to issues of national security, a second question had to be

addressed: how and to what ends should aid be given?









Answering the first question involved the making of a policy.

Answering the second involved its implementation. Once the policy was

made, a theory of development to guide practice was wanted.

Unfortunately, there was not yet a precise theoretical statement of the

process of economic development. Theories of economic development took

form after the American foreign aid program had already gone into

operation. The officials of the first U.S. aid agencies, AID's

forerunners, went out into the world to do a job with no paradigm to

guide their conduct. This would be a regular occurrence. In the field

of international development, practice generally has preceded theory;

the cart has usually been out in front of the horse.


Theories of Economic Development


The whole foreign aid endeavor was begun, as I will detail in

Chapter 4, in the interest of preventing another world war. The U.S.

foreign aid program was predicated on a single, fundamental assumption,

justified by Walrasian theory of general equilibrium, that free trade

would be a boon to all. By asserting that excess demand in one area is

always matched by excess supply in some other, and thus sums to zero

(Turnovsky 1977), the Swiss economist Leon Walras showed at the turn of

the century how, if all the conditions of perfect competition (such as

free entry and exit, perfect and instantaneous information, and no

externalities) were simultaneously met everywhere in the world, trade

would move to a Pareto-optimal equilibrium where all countries would

benefit at equal proportion (Riddell 1987).

Officials of the U.S. foreign aid program knew at the outset that

all the conditions of perfect competition could not possibly be met

everywhere simultaneously for some time to come, if at all. In the

interest of preventing another world war, it was therefore necessary for

them to proceed under the assumption that partial free trade was better










than none, and to accept that the U.S. would have to bear the costs of

conducting the experiment to find out if this was true.

The field of development economics, though as old as economics

itself, had lost status during the 19th century, and was practiced at

the periphery until P. N. Rosenstein-Rodan (1943) considered the problem

of industrialization in Eastern Europe, and ten years later R. Nurkse

(1953) considered the problem of capital formation in underdeveloped

countries. From these two works emerged the terms "vicious circle of

poverty" and "the poverty trap" and the concept of a non Pareto-

optimal equilibrium state of underdevelopment.

Walt Rostow (1952) began to develop what would become his stage

theory of economic growth at this time. In his first formulation,

Rostow posited three stages of development, a long evolutionary period

during which crucial social preconditions were achieved, a brief "take-

off" period, and then a long period of sustained economic growth.

Arthur Lewis (1954, 1958) became the second in the series of

economists who would try to theorize a process of economic development.

Lewis more than any other contributor "put development economics on the

map" (Basu 1984). He found the key to explaining poverty in the concept

of the dual economy, or economies characterized by a large agricultural

sector and a small industrial sector. By assuming that there was an

excess of labor in the agricultural sector and that the industrial

sector invested its full profits, Lewis was able to show that ever

rising investment would cause the urban marginal product of labor to

rise, gradually drawing all excess labor from the agricultural sector to

industry, and causing the economy to grow. The reason this was not

happening, in Lewis' view, lay in the interface between economics and

politics. Plantation owners did not want to lose cheap, abundant labor,

"and if they are influential in government, they will not be found using

their facilities for agricultural extension" (Lewis 1954: 149).










The next step in the rebirth of development economics was the most

important: the dynamic growth model. It would become the backbone of

the early American foreign aid program. The theory was developed

independently by two British economists who were attempting to repair a

hole in Keynesian theory. Keynes' short-run aggregate demand model of

economic growth was two decades old by 1957. The major complaint with

Keynesianism was that it was static; it did not show how economic growth

occurred when there was no government intervention (Riddell 1987).

Working separately and using different mathematical methods, Evsey Domar

and R.F. Harrod showed how the insertion of "properly utilized" new

investment in an economy would increase output (Harrod 1959).

Walt Rostow and Max Millikan, formerly of the CIA, promptly

adapted the Domar-Harrod dynamic growth model to the foreign aid

paradigm by proclaiming that foreign aid was a form of investment

(Millikan and Rostow 1957). The next contribution came from Albert

Hirschman (1959). He accepted Lewis' assumption that industry was the

leading sector of development, and theorized that growth in industry

would create "ripple effects" that would spread through the economy and

boost demand for products from other sectors.

In 1960 Rostow published a "noncommunist manifesto" further

developing his theory of linear stages of growth. He increased the

number of stages from three to five and proposed an end state of mass

consumerism. There were three conditions for take-off. There had to be

an increase in the rate of net investment, a high rate of growth in at

least one manufacturing sector, and a favorable institutional

environment to spread the effects (Rostow 1971).

The concept of human capital began to gain currency at this time,

following Theodore Schultz's presidential address at the 1960 meeting of

the American Economic Association (Berman 1983: 109). The importance to

economic development of investment in human capital was quickly










perceived, and education and training would become major components of

nearly every U.S. foreign aid project.

Simon Kuznets (1966) examined the short term effects of economic

change at the initial stages of development. It was already known that

in the first years of growth in developing countries, profits tended to

accrue mainly to the upper classes. Kuznets postulated that over time,

wealth would "trickle down" and raise the income levels of the poor.

That same year two economists at the World Bank, Hollis Chenery

and Alan Stroudt, expanded the emerging paradigm even further by

theorizing that developing countries would suffer predictable "gaps" at

different stages in their development. Specifically, at first they

would face shortages of skills and savings that would limit their growth

in investment. When these gaps were filled, they would then face

shortages of foreign exchange that would limit their growth in trade

(Chenery and Stroudt 1966).

The recommendations that emerged from the body of economic
r
development theory all, either explicitly or implicitly, gave the state

an enormous role to play in the "big push." No matter the metaphor,

whether to break the poverty circle, escape from the poverty trap, get

to the take-off stage, equalize the dual economy, initiate the ripple

effect, invest in human capital, stave off unrest while waiting for

wealth to trickle down, or fill the resource gaps, a strong state was

needed. The problem was that the economists did not consider what the

strong state should be like politically. In ignoring the political

variables, they failed to account for what it is that makes a state

strong.

The leaders in the underdeveloped countries eagerly agreed to the

foreign experts' recommendations for a strong state. Selfless

patriotism was, alas, proving to be a rare commodity in the developing

areas, and many among the first generation of leaders in the emerging









nations quickly acquired a taste for power and its trappings. With

tragic frequency they converted their governments to single party states

and built cults of personality to sandbag themselves in power. Left-

and right-wing authoritarianism became the norm in the Third World.

This development had negative consequences for state strength.

However, while happy to accept the foreign experts' advice to

build strong states, these same leaders generally did not accept their

recommendation for export-led growth. Instead, they opted for the

import-substitution industrialization (ISI) strategies that came out of

the U.N. Economic Commission on Latin America at this time.

ISI was rooted in the very same ideology of economic nationalism

that, as will be seen in Chapter 4, the U.S. foreign aid program was

created to destroy. The World Bank and the International Monetary Fund

strongly supported free trade and opposed ISI based on David Ricardo's

early 19th century theory of comparative advantage. The radical

supporters of ISI justified their viewpoint using the Marxist-Leninist

analysis of imperialism, the conservatives by using Alexander Hamilton's

18th century argument for the protection of infant industries and

Friedrich List's 19th century argument that free trade favored the

economically advanced countries, and that protectionism was appropriate

for countries endeavoring to catch up. Thus began to emerge the

dependency school of political economy. Mancur Olson (1982) later

argued that a significant reason why ISI was embraced so eagerly in the

Third World was because of vigorous lobbying by the groups in each

country who stood to gain the most. The small elite class in the

developing countries had an enormous advantage over the poor majority in

terms of political access and information and a large personal stake in

protectionism (cited in Kudrle 1991: 243).

By the mid-1960s a development paradigm was in place. It was now

accepted in U.S. foreign policy circles as theoretically possible to









induce and accelerate development in the Third World through state-led

programs aimed at maximizing economic growth. Foreign aid programs were

devised to transfer skills through training programs, technology through

commodity import schemes, and capital through investment in

infrastructure. Ironically, these programs went forward alongside ISI

strategies that protected import-substituting infant industries. This

represented another contradiction, this time between the foreign aid

program's goals of an end state of free trade And the protectionist

means to economic growth being practiced by Third World countries.

The American foreign aid program thus went into action as a

dysfunctional bundle of contradictions. In the 1940s and '50s its

officials did not have a body of theory to follow. Their mission to

induce development, combined with ready money and an imperative to move

it, called one into existence. They picked up the different bits of the

emerging paradigm in the order they presented themselves, tried each one

out for a time, then dropped it when the next shiny object caught their

eye. In effect, development economics produced a body of theory that

AID used as a grab bag of development fads.

Cautions were raised along the way. The dynamic growth model

required proper investment. Whether an aid program would have a
l
positive effect would depend upon whether it was productively used

(Rosenstein-Rodan 1961). Corruption, wrong policies, or even

inefficiency within the aid recipient countries would have a negative

effect on development outcomes. Aid planners who prided themselves on

their apolitical "objective" perspective blinded themselves to the very

factors which would soon cause their programs to fail, particularly in

Africa (Sandbrook 1985).

More significantly, a mathematical proof was discovered that

contradicted the fundamental assumption about free trade. The

theoretical challenge to the general equilibrium was introduced as the










general theory of second best (Lipsey and Lancaster 1956-7). The fact

that the conditions for perfect competition were not being

simultaneously met begged the question whether it was valid to assume

that partial free trade was better than no free trade. What happened

when one of the Pareto conditions was violated? Lipsey and Lancaster

found that when one condition was violated, an optimum solution could be

achieved only by departing from all other conditions. There were two

implications. First, the whole project of installing a global free

trade regime was called into question. Second, in theory, there was no

reason why centrally-planned, autarkic economies could not produce

growth on a par with free market, open economies. Then, as if to

underscore the point, the Soviet Union launched Sputnik. Formerly

backward Russia suddenly had shown that state socialism was a viable

path to accelerated development.

These cautions aside, foreign aid program proceeded under the twin

assumptions that partial free trade was better than no free trade and

that if the three Rostowian conditions of increased investment, growth

in one manufacturing sector, and strengthened institutions to spread the

effects could be achieved, through such factors as Hirschman's demand-

stimulating ripple effects and Kuznets' trickling down of wealth,

emerging nations could move quickly to achieve the preconditions

necessary for the take-off into growth toward mass consumerism. Foreign

aid was to serve in lieu of private investment to help the strong

developmental state build the necessary institutions and infrastructure

and to fill the inevitable gaps in skills, technology and capital when

they arose. It looked pretty easy at first.

It did not look that way any longer by 1970. There were problems.

The U.S. and the other donor countries that later took up foreign aid

programs of their own had entered into the aid-giving endeavor with the

idea that foreign assistance was a short-term gap-filling remedy. They










saw their aid as a scarce resource. Unfortunately, the recipient

countries quickly began to see it as a plentiful and permanent

substitute for domestic savings (Tendler 1975). This was another

fundamental conflict.

Worse, gains in production through technological improvement drove

down world prices for primary commodities. Developing countries began

to suffer the effects of deteriorating terms of trade. A group of 77

nonaligned nations formed, and began pressing for multilateral

intervention in the global economy. On May 1, 1974 the U.N. General

Assembly passed a resolution calling for a "new international economic

order" that would improve terms of trade by increasing Third World

control over world economic cycles. The proposal gained the support of

the future Nobel laureate Arthur Lewis (Galtung 1991). Many Third World

governments, including Tanzania, began claiming they were owed foreign

aid as reparations for prior exploitation by the developed countries.

By the mid-1970s, over half of Tanzania's total development budget was

being provided by foreign donors, 85 percent in certain ministries.

There was a serious contradiction between the goal of self-reliance and

reliance on foreign aid.

The import-substitution industrialization strategies that worked

so well in Taiwan and Korea backfired in Tanzania, as they did most

everywhere in Africa. It was known starting out that the ISI strategy

of limiting imports would create shortages in the near term. The state

was expected to address this by rationing. ISI turned into a disaster
I
in Africa because of the unexpected twin decisions made by nearly all of

its governments to subsidize urban food supplies and to extract revenue

from agricultural producers through marketing boards and price controls.

The countryside was taxed to subsidize an urban standard of living.

Large numbers of African farmers began to exit from the formal

economy to sell their produce on the burgeoning black markets that









sprang up in the wake of ISI rationing policies. Others abandoned

commercial farming, either by reverting to subsistence production or by

leaving the land altogether. This was urban migration as Lewis had not

imagined it. Africa's cities grew out of control while agricultural

production declined and the grand industrialization schemes fizzled and

turned into white elephants. By the middle of the second United Nations

decade of development, Africa was further from the take-off stage and

more dependent on food imports and foreign aid than it had been at

independence.

Economists were perplexed why so many African leaders seemed so

complacent about this disastrous turn of events. The explanation proved

to be simple. By creating short-term shortages and giving the state the

task of rationing, ISI strategies produced enormous possibilities for

political patronage. The result was a collision between economic and

political logic. ISI produced economically tragic consequences in

Africa that were very useful to political leaders (Bates 1981).

By the 1980s economists were forced to recognize the impact of

corrupt authoritarianism on economic performance, and a paradigm shift

began. Attention was focused on policy reform. The initial

recommendations were fairly cautious, limited mostly to relaxing

farmgate price controls (Timmer 1986) and restrictions on imports and

foreign exchange. Over the course of the decade, as Cold War tensions

relaxed, the recommendations became more and more austere.

The most significant change was in the prescribed role of the

state. By 1980 the donors began to recognize that most African

governments were not the stabilizing engine of growth and modernization

they had planned on, but had become obstacles to sustainable

development. The role of the state in African development, indeed its

very size, would have to be reduced. The effort shifted to strategies









to circumvent the state, to reach around it and induce development

through private sector initiatives.

A new term came into the development lexicon: governance, "the

exercise of political power to manage a nation's affairs" (World Bank

1989: 60). By 1990 the focus of development economists was squarely on

political factors. When the Berlin Wall came down and the break up of

the Soviet empire began, it was but a short step from eclectic projects

to improve governance to a full blown program to install democracy on a

global scale.

There thus have been five significant contradictions in the

economic domain during the period of this study. (1) Economists called

for a strong state to orchestrate development without considering the

factors that make a state strong. (2) The foreign aid program was

established to promote the goal of global free trade, but it was

implemented alongside protectionist ISI strategies. (3) The donors saw

their aid as a scarce resource to be given voluntarily, while the

recipients saw it as a plentiful resource owed them as a retribution for

past exploitation. (4) Recipients, particularly Tanzania, declared

their goal was self-reliance, yet they became increasingly dependent on

foreign aid. (5) The shortages caused by ISI strategies brought about a

collision between economic and political logic. Shortages that

represented problems to businessmen and economists were assets to

politicians.


Theories of Political Development


While the field of development economics was becoming

reinvigorated in the late 1950s, political scientists examined issues of

political change and wondered if there was a political equivalent to the

stage theory of economic growth. In attempting to answer this question,

political science contributed the second half of modernization theory.









The key question facing U.S. foreign aid officials and developing

area scholars was whether or not democracy was the endpoint of political

development in the sense that mass consumerism was the endpoint of

economic growth. If this were answered in the affirmative, then the

question would become how to implant Western democratic institutions in

the societies emerging from colonialism. America could embark upon the

task of creating a liberal world order in its own image and do it, in

the view of a 1960 presidential commission, "without egotism because of

its deep conviction that such a world order will best fulfill the hopes

of mankind" (Berman 1983: 113).

The search for ways to induce democratic development led first to

investigations of the causes of democracy in North America and Western

Europe. Strong correlations were found between the presence of

democracy and factors such as literacy and urbanization. If the

political system was a dependent variable, it seemed probable that

democracy had socioeconomic requisites (Lipset 1959). Some of these

requisites were also, not surprisingly, preconditions for the take-off

to mass-consuming capitalism.

From the premise that the endpoint of political development was

democracy, the political development paradigm took form in three major

contributions under a conduct of inquiry dominated by Gabriel Almond.

The first contribution distinguished between traditional and modern

political systems and analyzed the different cultural characteristics of

each using a structural-functionalist whole-systems approach (Almond and

Coleman 1960). The second important contribution argued that political

development toward democracy would require structural differentiation,

the development of autonomous subsystems, and cultural secularization

(Almond and Powell 1966). The biggest contribution was the nine volume

Political Development Series, 1963-1978, authored by social scientists

and historians under the sponsorship of the Committee on Comparative










Politics of the Social Science Research Council, which received three-

quarters of its funding from the Carnegie, Ford and Rockefeller

Foundations (Berman 1983: 107). The committeelassumed that political

variables were as important as economic ones and that economic

development could not occur without political development (Almond 1990:

222). The series examined the role of communications, bureaucracy,

institutions, culture, political parties, interest groups, and mass

attitudes in political development, and reflecting upon the increasing

turmoil of the times, suggested political development was shaped by

inevitable crises of national identity, state legitimacy, popular

participation, state penetration of society, and the equitability of the

distribution of goods and services. The key to developing democracy

would be in the sequences in which these crises occurred and the skill

with which they were managed when they came. With that, political

science had its answer to linear stage theory.
I
It had nothing of the sort. Economic development theory had at

its core the Domar-Harrod growth model. Theories of political

development had no equivalent dynamic (Huntington 1971). Victims of

their own happy history, American social scientists had simply assumed

"that all good things go together" (Huntington 1968: 5) and found

correlations to show that they did, but could discern no causal order.

Political development theory was as teleological as "crude Marxism,"

presupposing an endpoint and analyzing real world conditions in terms of

distance from, or proximity to, the ideal (Kesselman 1974).1 Far from

being a dynamic model of change, it was "a host of propositions and

categorical schemes" (Menkhaus 1991). Furthermore, real world events

had shown that rapid economic growth could lead as often to political

"decay" into coups and military takeovers as Vo political development



Unlike Marxism however, the endpoint was not a utopian Communism
never seen before, but the Western experience of democracy and
capitalism (Williams 1993).









toward democracy, suggesting that order and stability might be more

important to a country's welfare than adherence to democratic forms

(Huntington 1968).

Some Third World governments (e.g. Taiwan after the Chinese

Revolution, South Korea after the Korean War, And Brazil under the

junta) maintained stability through authoritarian means and achieved

high rates of growth by practicing protectionism and some degree of

central planning. These government did not wish to be politically

developed. In fact, the governments of most emerging nations mistrusted

the whole idea of political development, and suspected political

researchers of being agents of the CIA (Menkhaus 1991).

The result was that political development projects were tried only

briefly, and then for four reasons disappeared after the 1960s. (1) The

theory was judged inadequate. (2) Political development projects were

besmirched by their implementation as part of the U.S. war effort in

Vietnam and the involvement of U.S. universities with the CIA. (3)

Political development projects proved for the most part to be

politically impossible; the proud governments of newly independent

countries resented such activities as violations of their national

sovereignty. (4) Evidence rapidly accumulated that strong economic

growth did not lead automatically to the requisite improved

socioeconomic conditions for the masses of people.

Political development did not get onto the agenda until the donors

were forced by the failure of their programs to confront the mounting

evidence that politics has an important (if unpredictable) effect on

economic development. As economists began at last to turn their

attention to policy issues, political scientists once more took up

political development as a research agenda. A second wave of political

development scholarship began in the mid 1980s. It quickly converged









with economic thinking on the issue of governance (Hyden and Bratton

1992).

It seemed possible under this new concept "governance" to weave

together the separate strands of political and economic development

theory. Political and economic development were now accepted as

mutually reinforcing (Pye 1990), with governance as something of an

intervening variable between the state and society, the surface along

which politics and economics rubbed. In the new paradigm, the role of

the state was vastly reduced, and the search for the key to success

returned to where it had started in the 1950s, to things internal to

societies (Barkan 1994).

By 1990 the underlying "deep" theories of economic and political

development had brought the contradiction between individual and

collective goods into clear focus (Williams 1993). By the time Bill

Clinton was elected president, the success of both political and

economic development was understood to be mutually bound, with the

solution seen to lie not in the economic but in the human resource base.

Sustainable economic development required a proper enabling environment.

Such an environment could be had only through political means, through

the empowerment of the mass of ordinary people. This meant "change

toward greater democracy" (Zimmerman 1993: 32). To get there would

demand nothing less than the construction of new self-identities among

the people (Williams 1993).

In the domain of politics there were two fundamental

contradictions. First, an unforeseen incongruity arose between

democratic form and political order; the former did not automatically

ensure the latter. Second, the project of political development toward

democracy was not welcomed by the governments of the developing

countries, and was disparaged, as will be shown in Chapter 4, by the

U.S. foreign policy establishment.









Theories of Development Administration


As political development lost status, the seemingly more value

neutral and productive field of economic development came to occupy all

of the U.S. foreign aid agenda save that of the small and comparatively

uncontroversial field of development administration (Kesselman 1974).

Development administration emerged as a subfield within the field

of public administration in the discipline of political science at the

same time that development economics was being rejuvenated. The

earliest formulations, produced with heavy Ford Foundation support, were

consistent with gap-filling theory and the centrality of the strong,

developmental state. To build state capacities, it was deemed

sufficient to train people from the emerging nations in Western

management techniques.

U.S. government and foundation officials alike were disappointed

by the failure of African bureaucracies to behave as expected in spite

of the Western training provided. The wave of coups d'etat that swept

the continent in the mid-1960s was particularly demoralizing.

Corruption and inefficiency spread like fungi. A debate began between

those who favored staying the course and sticking to what B.B. Schaffer

(1969) labelled "administrative development," and those who favored a

different, less structured approach that would take account of the

unique problems surrounding the administration of economic development

in the Third World, what Schaffer referred to as "development

administration."

The comparative study of this problem was dominated by Fred Riggs,
"a one man ideas factory [who came] near to constituting the whole

movement" (Heady 1979, footnote 1: 178). By the late 1960s the field of

comparative public administration was divided roughly into scholars who

studied bureaucratic structures and scholars who studied bureaucratic

contexts. Between these two extremes there gradually emerged a third,









less well-defined position which combined elements of both and would

come to dominate the agenda, an argument I shall call organicismm."

Structuralists looked for differences in such things as hierarchy,

specialization, rules, procedures, impersonality, and selection methods

among bureaucracies in different countries. They felt that if

bureaucracies were properly designed and included appropriate incentive

systems, they would function as intended and be impervious to corrupting

influences from the external environment.

Contextualists thought structures, that is bureaucratic forms,

were immaterial. They sought clues to bureaucratic behavior in the

internal culture of foreign bureaucracies and 4n the politico-socio-

economic environment in which they operated.

Organicists would later argue that neither contextualism nor

structuralism was in and of themselves satisfactory. The behavior of a

given organization was a function of interactions between its internal

culture and the larger environment. The design of structures should

reflect this fact.

The three camps within the field of development administration

produced three very different sets of policy recommendations.

Structuralists argued for a blueprint approach, the grafting of faithful

copies of Western bureaucracies onto the cultures of the emerging

nations. Contextualists had no policy recommendations per se. In

effect they argued that each country would end up with its own

particular form of bureaucratic structure no matter what the donors

tried to do. Organicists, for their part, believed that bureaucracies

should be learning organizations deeply rooted in the cultures they

served.

The central role of the state in the dominant paradigm ensured

that the structuralists won out initially. Their argument in favor of

strengthening Western-style administration in Third World countries was








I
adopted in the 1960s. The contextualists, however, continued to argue

the futility of creating overdeveloped bureaucracies in underdeveloped

countries (Heady 1979). The school which I refer to as the organicists

began to form at this time. They argued in favor of eclectic, adaptive

organizations that worked closely with the people they served and could

learn from their experience (Korten 1980). The organicists were major

contributors to the paradigm shift that occurred in the 1980s when the

two U.N.-led decades of development were succeeded by two decades of

structural adjustment under the leadership of the International Monetary

Fund.

Structuralism

The structuralist camp of the field of development administration

came to dominate the early U.S. foreign aid program because it accorded

so well with the commanding role reserved for the state in the early

theories. The view that a well-designed bureaucratic structure is like

a diving bell that can be lowered into any cultural sea predominated

during the two decades of development.

The definitive example of a structuralist who thought Western

bureaucracy was a universally-applicable structure that, if built right,

would be impervious to the external environment, was David Leonard. He

argued from strong evidence in Kenya that sound administrative

principles and techniques could work well in the developing areas.

Context was mere technical data to use to adjust and fine tune the

universal structure.

Contextualism

Fred Riggs believed that the external environment was the main

determinant of organizational behavior. To argue his point, he focused

on just one dimension of the total environment of the social system--the

government--and distinguished between three types of government:

composite, primordial, and mimetic. Composite governments were both









hierarchic (authoritative) and polyarchic (consensual) "in some kind of

effective, though not necessarily symmetrical, balance with each other"

(Riggs 1975: 163). Primordial political systems were either hierarchic

or polyarchic, but not both. Mimetic governments were an unequally-

balanced mixture of the two. The composite governments of the world

were the modern nation-states of Western Europe, North America, and

Japan. The primordial governments were the traditional political

systems (such as chieftaincies) in the less developed areas that were

passing from the face of the earth. Mimetic governments were those that

were replacing them. The new governments in Africa tended to be highly

unstable because they were badly unbalanced either toward hierarchy in

some form of bureaucratic-authoritarianism or toward polyarchy in some

form of patron-clientelism. In this model, the type of bureaucracy

found in a country was a function of what type of government it had

(Riggs 1975). In actuality the behavior of a given agency in a

government was shaped by many more independent variables than one.

Government agencies typically were part of weak states in strong

societies (Migdal 1988). Adhering to administrative principles was less

important than obeying cultural imperatives such as kinship ties or

"economies of affection" that outweighed other incentives (Hyden 1980).

Administration in the developing countries was negatively affected by

cultural attributes that resisted social engineering.

Organicism

Although the structuralists' policy recommendations were adopted

in the U.S. foreign aid program, the three-sided debate among the

structuralists, contextualists and organicists did not abate, and

intensified after the first early failures of the development program.
(
The result was a deadlock in development administration theory by the

end of the 1960s. As Schaffer expressed it, "The paradox is only too

clear: on the one hand a search for change via administrative means, on









the other a suspicion, a dissatisfaction, a distrust of administration,

and at times a specifically anti-administrative position" (Schaffer

1969: 185). This early mention of anti-government attitudes was a

foretaste of the feast to come.
f
While recognizing that social and cultural norms pervade

bureaucracy, Victor Thompson (1964) stressed the importance of the

internal environment of the organization, and argued in favor of a

"crisis management" form of structure. Agencies behaved in organic,

not mechanical fashions. Adaptation was known to be key to the success

of all organizations, thus bureaucracies should create an innovative

atmosphere in which uncertainty of subject matter did not translate into

fear for job security, free cross-channel communication was promoted,

and influence over decision making was based on skill, not hierarchy.

Schaffer held both structure and context to be important. He

underscored the importance of the conjuncture between an efficient civil

service and a social willingness to "queue." Western bureaucracy was

only one type of administrative structure, andfmight not be best for

societies that did not queue. The two main features of Western-style

bureaucracy were the compartmental nature of its decision making process

and its reliance on the administrator. In societies which did not

queue, compartmentalism produced social disorder as people either

"camped out" or searched for informal avenues of access. Reliance on

the administrator posed the problem of bureaucratic discretion, which in

societies that did not queue generally produced patron-clientelism.

Administrative structures ought to vary according to contextual

differences. Schaffer advocated "administration as 'directive

education,'" meaning education by the organization of the community it

serves (Schaffer 1969: 209).

Thus, while political development never really got onto the

agenda, development administration played a large role in the U.S.
agenda, development administration played a large role in the U.S.









foreign aid program. Training, or what was later called human resource

development, was a substantial feature of most AID missions' project

portfolios. It suffered from one essential contradiction. In many of

the emerging nations, Western bureaucratic principles did not mesh very

well with local cultural norms.


The Consequences of Developmentalism


At no point in the period from 1948 to 1995 was there irrefutable

proof that free markets and democracy yielded more social benefits than

economic nationalism and authoritarianism. It was simply assumed that

they did, and economic models were devised after the fact. The key

postulates of American foreign aid policy were never the product of

scientific knowledge; they were a creed, an article of faith.

Supporting free markets and democracy rationalized continued funding to

Congress by justifying aid in terms of U.S. national security interests

(Packenham 1973). The problem was, with a few notable exceptions such

as Israel and Egypt, in most countries there was seldom any clear

national interest for the U.S. foreign aid program to support. The

problem lay in "the subjective nature of the concept of national

interest, including the lack of intellectual rigor in its application"

(Zimmerman 1993: 34). Foreign aid extended the reach of the concept of

national interest beyond its grasp.

The poor performance of the American foreign aid program in the

1960s and '70s was due to incorrectly-learned lessons from the Marshall

Plan. Officials misconstrued the successful reconstruction and

democratization of the previously industrialized (and in most cases

previously democratic) nations of Europe and Japan for a blueprint of

how to develop Third World countries (Zimmerman 1993). Because foreign

aid officials confused modernization with development (Huntington 1968),

their attempt to apply the Marshall Plan to the Third World was doomed









to failure. The large scale capital-intensive projects and massive

training programs to strengthen institutions, transfer technology, and

build a modern infrastructure--projects of the sort Hirschman (1967)

observed--were naively assumed to be all it would take to spark

sustainable development everywhere.


Tactical Approaches to Development


In the fourteen years from 1948 to 1960 there were five successive

agencies that handled U.S. bilateral aid. When AID was created in 1961,

it was the sixth.

The first extension of bilateral aid was announced by Truman in a

joint session of Congress on March 12, 1947 in response to Britain's

admission it could not meet the crises of leftist insurgencies in Greece

and Turkey. Truman extended military, economic and technical assistance

to these countries. The following year, 1948, Truman established the

first bilateral aid agency, the Economic Cooperation Administration. It

was designed as an expendable agency of the type used by the Roosevelt

administration to combat the Great Depression. It existed for three

years until 1950, and was replaced by the even briefer-lived Technical

Cooperation Administration, which lasted two years from 1950 to 1951.

It was replaced by the Mutual Security Administration, created in

response to the outbreak of the Korean war. This agency lasted three

years, from 1951 to 1953. It went out of existence when the Eisenhower

administration created the Foreign Operations Administration in its

first year in office. This the fourth U.S. foreign aid agency lasted

for all of Eisenhower's first term from 1953 to 1956. The fifth and

last forerunner to AID was the International Operations Administration,

which existed for the four years of Eisenhower's second term.

Each of AID's forerunners, and AID itself, were active in India,

which received its independence on August 15, 1947. The case of India










is significant to this study because nearly every tactical approach to

development that AID was to try in Tanzania was first tried there in the

famous Etawah project. I shall examine four different tactical

approaches to development (by no means an exhaustive list of the

different angles that have been tried) to prove this point.

Integrated rural development

When the U.S. began an aid program in India in 1948, there was, as

we have seen, no theory to guide its practice. This does not mean that

the first American foreign aid workers felt helpless about what to do.

Quite the contrary, armed with a very American1can-do spirit and

confidence in their know-how born of victory in the war, they went right

to work in programs that anticipated the approaches that would follow by

as much as three decades in time.

The sudden appearance of a U.S. foreign aid program caught the

world by surprise; one day the Americans just showed up asking how to

help. The Indians were, naturally, somewhat suspicious. The U.S.

Ambassador Chester Bowles arrived in the country excited about the

Truman vision of linking American "ideals and resources with the efforts

of more than a billion people to secure a better life." He advocated

"an American aid program, on a large enough scale and soundly enough

conceived to fill the gap between the maximum possible savings of

countries like India and the minimum need for a program of economic

development" (Bowles 1955: 196, 331, emphasis Added). Ambassador

Bowles, drawing simply on what he had experienced of social programs as

a high-ranking official in the Roosevelt administration, anticipated

Chenery-Strou t gap theory by almost ten years.

The chief designer of Etawah was Albert Mayer, an architect and

town planner who had served in the country during the war as a

lieutenant-colonel in the U.S. Army Corps of Engineers building

airfields. Mayer had met Jawaharlal Nehru in 1945, and enjoyed a solid









reputation among India's political leaders. He drew on the practical

experience of American missionaries in India and on the findings of

rural sociologists and Department of Agriculture extension officers in

the United States.

In his study of the Etawah project, Gerald Sussman (1982)

identified five key features of the integrated rural development

approach Mayer developed. First, Mayer's basic assumption was that the

American land-grant model of research and extension could be transferred

to India. An expendable Indian government agency would serve as the

vehicle for this transfer of technology.

Second, to be effective, rural development--also called rural

uplift and self-help at the time--would have t9 be rooted in the social,

economic and production bases of society. Projects had to in some way

grow out of the people; they could not be simply transplanted. Mayer

combined the Ghandian program of community development with U.S.

Department of Agriculture rural extension techniques in an integrated

approach to the problem.

Third, Mayer drew from his experience in the U.S. Army using

peripatetic personnel, soldiers with a limited amount of training who

could perform certain tasks reasonable well. The training of Indians

would therefore be crucial. When the Ford Foundation came to India in

1951, it signed on to fund much of the training component of the Etawah

project.

Fourth, there could be no set blueprint, master plan, or

preconceived program. Instead, Mayer's rural development teams would

operate using a problem oriented framework. The initial step would be

simply to identify local problems and needs and whatever local resources

there might be in the community. Reliance on scarce imported resources

would be kept to a bare minimum. Everything the rural development teams









did would be based on the particular circumstances of the community in

which they were working.

Fifth, the project had to have firm high-level political support,

and there had to be good two-way communications within the project

organization between headquarters and the field, and between the

organization and the people of the rural communities. Sussman called

this "inner democratization." Provisions would have to be made to

ensure that the Indian workers would be socialized in this innovative

new participatory method, so that it became a permanent tradition of the

organization.

The Etawah project encountered problems both with the U.S. and the

Indian governments. There was a dispute between Mayer and Ambassador

Bowles. Mayer thought of Etawah as a pilot project. He wanted to do a

few high quality intensive projects in a limited number of villages, and

count on news of the success spreading by word of mouth. Development

would radiate out from the original small core through the extension

process, with early adoption expected to be made by progressive farmers

and entrepreneurs.2

Bowles disagreed, and thought that the paramount concern of the

program should be to help meet the urgent need of the Indian government




2. Theories of how technology is adopted and diffused in the transfer
process grew into a huge body of literature from the 1940s through the
1970s. Experience revealed that rural inhabitants could be ordered into
five generic types, based on their proclivity to adopt new technology.
The most likely to adopt were categorized in the rural sociology
literature as "innovators." Innovative (or progressive) farmers are
those who are well endowed in land, labor, and/or capital. Innovative
entrepreneurs are those with sufficient venture capital or lines of
credit who take risks in profit-making uses offnew technology.
Innovators tend to be the best educated and most cosmopolitan members of
rural communities. The implication of adoption theory was that
development projects should introduce new technology first to
innovators. It could be counted on to diffuse out into the larger
population when the innovators were seen to enjoy success. Another
reason that innovators came to occupy such a large part of development
planners' attention was that they had the capacity to absorb capital.
Focusing on rural elites made it easier to move money (Austin 1996).









to provide every village family with tangible evidence that the

government was concerned about their welfare. Bowles wanted a national

program that would cover the waterfront and be seen by as many people as

possible.

The dispute with the Indian government was twofold. First, there

was the normal turf war over which ministry should direct the program.

Secondly, the program's flexible, problem-solving, participatory

approach conflicted with the highly hierarchical Indian bureaucracy, a

product of centuries of British rule, which was more concerned with

strict protocol and lines of authority.

Perhaps most significantly, the Etawah project conflicted with the

need of both the Indian government and AID's forerunners to move money

quickly. Mayer's approach called for patience, while the interest of

the two governments was to build big programs quickly. The program thus

lost its focus very early, and later lost its political support, and
I
began to wane in the 1960s just as the integrated rural development

approach was being picked up by AID and tried out in many countries,

including Tanzania.

Institution building

The tactical approach to development called institution building

appeared on the scene as the growth-maximizing industrialization

approach of the 1940s and '50s began to run out of steam. Research into

the new tactical approach was heavily funded by AID, and was conducted

under the guidance of Milton Esman and his colleagues from the schools

of the Midwest Universities Consortium for International Activities

(Rondinelli 1987). Institution building projects accounted for half of

new AID spending in Tanzania in the early 1960s and preceded integrated

rural development by half a decade.









Institution building began with three premises learned from past

experience: (1) development was the process of introducing change, (2)

impediments to development were not economic but administrative; and (3)

bottlenecks were due mostly to low levels of administrative

capabilities. The key was to improve the capacity of public agencies,

to convert them from organizations to institutions, meaning to agencies

whose prescribed changes were accepted, valued and functional (Esman

1967, Smart 1970).

The chief problem that institution building ran into was that AID

contracted with universities to provide the technical assistance for

much of its institution building program. The university professors who

went to the Third World came with their pet models of change. For the

most part, they were not able to persuade their host country

counterparts to adopt their ideas (Blase 1973).

Institution building used two features of Etawah. First, it

recognized the importance of properly socializing government officials

so that the Western management techniques being transferred in by

foreign aid became institutionalized traditions. Second, there had to

be a dialogue between the organization and the people it served, so that

the changes the organization proposed to make would be accepted and

become valued by the people.

The learning process

In his brief discussion of "administration as 'directive

education,'" B.B. Schaffer (1969: 209) opened a window to the organicist

school that began to develop in public administration and its subfield

of development administration. Pressman and Wildavsky (1973) observed

the details of the many reasons why policy implementation could go

haywire in the U.S. system. Richard Elmore (1979), concerned with the

emerging backlash against big government on the eve of Reagan's
I









election, stated the obvious that "decisions are not self-executing" and

compared state versus market solutions. He argued that markets could

not meet every social need, and that some bureaucracy was necessary.

The new dislike of bureaucratic discretion would have the unintended and

undesirable effect of "increased reliance on hierarchical controls to

solve implementation problems." He felt that the key to successful

implementation lay in answering the question: where, in the complex

welter of relationships at the delivery level, are the individuals who

have the closest proximity to the problems and what resources do they

need to address it?" The solution he suggested was that policy should

be designed by beginning at the point of the problem and working

backward. He contrasted this "backward mapping" approach to the more

typical "forward mapping" approach, in which a universal solution was

devised beforehand and brought to bear wherever the problem occurred.

David Korten (1980) introduced the concept of the learning

organization. He acknowledged the high level of uncertainty facing

development workers, and listed three possible responses that

development organizations typically exhibited toward their failures: to

deny it; to externalize it; or to embrace it. IThe first response is

that of the self-deceiving organization which spends a lot of time and

effort hiding its errors. The second response is that of the defeated

organization whose members whine "how impossible their task is given the

perversity of the environment which does not respond according to their

wishes." The third is the learning organization which embraces error

"as a vital source of data for making adjustments to achieve a better

fit with beneficiary needs." Successful organizations are learning

organizations that plan with the people and link knowledge to action.

They go through three stages in developing programs in a process that

works from the bottom up: learning how to be effective by working with










the people, learning how to be efficient by developing management

systems, and learning how to expand to build on success. Korten

concluded there were two barriers to success. The first was the

bureaucratic imperative to move large amounts 6f money, the second the

rigid project planning methods that still predominated in 1980.

The similarity of the learning process approach to the Etawah

project is evident. First, it brings problem orientation to a situation

with its various recommendations for backward mapping and embracing

error. Second, by seeking the individuals in closest proximity to the

problem and by beginning with the assumption that agencies must work

with the people to be effective, the learning process approach placed

heavy emphasis on popular participation in planning in order to discover

knowledge and link it to action.

Using indigenous knowledge

Robert Chambers (1983, 1991, 1994) pioneered a cost-effective

technique of assessing development needs called rapid rural appraisal.

He distinguished this from two predominant approaches to project design:

long and dirty and quick and dirty. Long and dirty appraisals are the

favorites of academics. They are costly and time-consuming and speak

more to theory than to practice. They start with reviews of existing

secondary data, move on to surveys of rural attitudes, followed by the

coding and entry of data, and finally end with complex quantitative

analysis. They are frequently delivered after such great lengths of

time that the problem has changed and their recommendations are no

longer relevant when they arrive. Long and dirty appraisals are

generally useless to decision makers.

Quick and dirty appraisals are the favorites of professional

development workers, people Chambers disdained as "development
tourists." They drive or fly out from the capital city and briefly tour
tourists." They drive or fly out from the capital city and briefly tour









the project area by road. They are vulnerable to a host of biases.

They only see what is visible from the car. Oftentimes "old hands,"

they can be arrogantly confident in their preconceived notions and fail

to listen carefully to what is said to them. They often overlook

invisible factors such as patron-client relations, heavy debt, and

patrimonialism, all important to the success of development, but

impossible to see if the analyst is in a big hurry to get back.

Chambers' concept of rapid rural appraisal represented a cost-

effective solution to the "dirty" approaches. It involved a number of

techniques, ranging from the use of rough indicators like the number of

tin roofs in a village or the fatness of the pigs, to using key

informants and focus groups, and advocated mixes of qualitative and

quantitative data.

When the institution building approach went out of fashion in the

late 1970s, its leading theorist Milton Esman joined forces with Norman

Uphoff (1982, 1984) to focus on the role of local organizations in

development. They borrowed from a number of schools of thought and

conceptualized successful local organizations as mediating structures

between the state and the supposed beneficiaries of development aid.

They stressed that local organizations were effective only if they were

efficient, equitable, and if they empowered their members.

Michael Cernea (1991) and other contributors, including Robert

Chambers, expanded from Esman and Uphoff's recommendation that local

organizations be highlighted in development planning, and focused on the

role of cultural endowments. They saw information as particularly

crucial, and argued that the most crucial information of all is gotten

from the people nearest the problem. It was important that development

planners start taking social knowledge into account at the earliest

stages of program design.









These three versions of the tactic of using indigenous knowledge--

rapid rural appraisal, use of local organizations, using social

knowledge--all advocated projects that were long-lived, that varied

according to local circumstance, and thus were highly eclectic, and very

slow-paced and labor-intensive. These were all aspects of the

integrated rural development approach developed by Mayer in the Etawah

project in India.

With the arrival of the tactic of using indigenous knowledge, it

seemed everything was accounted for. Every aspect of the developing

country's social system was on the table save one: the political system

itself. Then U.S. foreign policy changed and the project of promoting

democratization began.

Contradictions occurred between the four tactical approaches

considered here, which all required patience and concentration of

effort, and the two administrative imperatives to spread effects and

move money. A second type of conflict was temporal in nature, a reverse

of the expected order in time between theory and practice. In the field

of international development, practice has nearly always been out in

front of theory.


Ideological Perspectives on Foreign Aid


The final, and arguably strongest intellectual influences on AID

come from ideology. Broadly, there are three contending critical

perspectives on the entire foreign aid project: altruism, realism, and

radical criticism.

Aid as philanthropy

The first of the three perspectives accepts foreign aid for what

it purports to be: simple altruism. The strong correlations between

public opinion in the donor countries about what their foreign aid ought









to be used for and the objectives for which it has ostensibly been

provided support this conclusion. Foreign aid has served "humanitarian

and egalitarian principles" in a good-faith effort to establish "a just

international order in which all states had a chance to do well."

Wealthy countries give aid to poor countries for selfless, not self-

interested reasons, under terms that are "favorable to the economic

development of the recipients and unfavorable to the use of aid for

leverage by the donors" (Lumsdaine 1993: 30, 102, 275).

However, a straightforward altruist perspective of aid does not

hold up in the case of American aid to Tanzania. Declassified portions

of the official record reveal that Washington's chief objective in

establishing an AID program in Dar es Salaam in 1961 was to head off

Communist influence.3 Beginning in 1981 the U.S. instituted a policy of

using American assistance as leverage to force Tanzania to abandon

socialism. These are instances when the United States did not provide

aid to Tanzania for purely benevolent reasons. American aid to Tanzania

cannot be interpreted as pure philanthropy.

Aid as bribes

In the realist perspective of the world as dog eat dog, there is

scant place for altruist sensitivities in the conduct of foreign policy

(Brown 1984: 115-121). Realists typically are pessimistic about the

prospects for development. A truly effective program to accelerate

world economic growth would require a massive transfer of wealth far

beyond what American taxpayers would ever accept. The amount of money

actually available for foreign aid is inadequate for the task; world

poverty is an intractable problem in the near term. This is not to say

that foreign aid has no utility. It is a useful slush fund to "bribe"

Third World governments to support U.S. foreign policy goals (Morgenthau


3. The first American aid to Tanzania was sent in 1955, $981,000 (in
nominal terms) for a single British-run agricultural project.









1962, Bandow 1988). For realists, aid to Africa has never been anything

other than a tool for geopolitical gain (Ungar 1993: 385).

However, an unmixed realist view of aid as pure bribery is also

not tenable in the case of American aid to Tanzania. In the early 1970s

the Nyerere government started becoming hostile toward the United

States. Counseled by the arch-realist Henry Kissinger, the Nixon and

Ford administrations reduced new development assistance to Tanzania

accordingly, tit for tat. New project spending in Tanzania dropped from

$53.1 million in 1973 to $8.4 million in 1974.

Then in 1975, a year when the Tanzanian economy was suffering from

the effects of the first oil shock, the country was stricken with severe

drought. The threat of famine loomed. In response, the Ford

administration reversed its policy and made a $24.4 million loan of food

and cash. This did not result in any change in Tanzanian attitudes; the

Nyerere government remained "a thorn in the side of the U.S." for two

more years of declining relations (USAID, Appraisal, 1978).4 The

increase of aid in 1975 was not a bribe to procure Tanzanian political

support; it was done for humanitarian reasons. American aid to Tanzania

cannot be seen as pure cynical bribery.

Aid as weapon of capitalism

The third perspective on foreign aid is radical criticism. Like

realists, radical critics interpret foreign aid in instrumental terms.

Like realists, they believe foreign aid has nothing to do with altruism.

They too cast scorn on the development enterprise, but for different

reasons. The problem lies not in the inadequacy of resources, but in

the misguided liberal belief that poor countries can prosper under

capitalism. The faith is wrong. The world system is permanently and

unfairly tilted against the developing countries (Wallerstein 1979).


4 Because of inconsistencies in page numbering in many its reports,
page numbers are not included in citations of AID documents.









Foreign aid is a weapon of capitalism used by the donors to pierce

developing countries, a burglar's tool to jimm' open their economies for

exploitation by the donors' transnational corporations (Hayter 1971,

Biersteker 1987). Aid is a Trojan Horse (Weissman 1975).

While perhaps true of U.S. aid programs elsewhere, American aid to

Tanzania was not a Trojan Horse. Tanzania was never very attractive to

foreign investors, American or otherwise. The country has few

resources, and its government from independence onward was hostile to

the interests of foreign capital (Bienen 1967). Aside from a NASA

satellite tracking station in Zanzibar which it removed in 1964, the

U.S. had "no major compelling political, security or economic interests

in Tanzania" (USAID, Appraisal, 1978, emphasis added). AID's mission in

Tanzania never served, as the mission in South Africa has done, to

facilitate the entry of American corporations 4nto the country.

Aid as pragmatic altruism

The radical view of aid as the weapon of capitalism cannot be

sustained in the case of U.S. foreign assistance to Tanzania, but the

altruist perspective of aid as philanthropy and the realist perspective

of aid-as-bribery both in part can. Liberal altruism and conservative

realism are antithetical propensities. As a dialectic, they function as

the primary force that drives AID. The two viewpoints coexist in U.S.

foreign policy councils, but do not have equal weight. Altruist

sympathies have significantly less influence than realist concerns.

AID's mission to promote international development is subordinate to its

obligation to support the national interest.

Liberal altruists have their greatest influence over AID

programming. They inhabit the cracks in the policy structure. When

AID's missions are left to their own devices, they are guided by their










wish to do good in the world. Both the design and implementation of AID

programs reflect altruist sensitivities.

Realist considerations prevail in the two most important decisions

AID must make: whether to provide aid to a country, and how much to

give. With the lone exception of 1975, the amount of new aid given to

Tanzania each year changed according to the attitude of its government

toward U.S. foreign policy. Twice, in 1970 and 1988, the U.S.

substantially increased aid to Tanzania to reward it for cooperation,

and four times--in 1972, 1976, 1983, and 1991--slashed it to punish

Tanzania for defiance.

We have seen how the practice of a U.S. foreign aid program

preceded theory, how the mission to extend economic development helped

call a development paradigm into existence. We have seen that until the

paradigm shift of the early 1980s the core of development theory was

economic; the political system was viewed either as a dependent variable

or as somehow extraneous to development. We have seen that the four

main tactical approaches to inducing development that have been tried

over the years were all attempted by Albert Mayer in the famous Etawah

project in India during the late 1940s and '50s. Finally we have seen

that American aid to Tanzania was not used as a burglar's tool to open

the country up for exploitation by U.S. corporations. However, it was

neither a purely philanthropic nor a purely realpolitik endeavor either.

Instead, as I will show in greater detail below, the strategies

undertaken by the U.S. foreign aid program to Tanzania reflected a

complex dialectic between these two competing propensities, what I have

called pragmatic altruism.
















CHAPTER 3
INSTITUTIONAL CONTEXT


Influence of American Federalism


AID simultaneously exists in two external environments and, like

all complex organizations, embodies an internal culture. Its inputs

(authorizations to act and appropriations of funds) come from its

political environment in Washington. Its outputs (projects and
!
programs) are carried out in its task environment in the developing

world. Much of AID's observable behavior is a consequence of this and

the unusual system of government under which it operates. A brief

discussion of the special problem of American federalism is in order.

The American system of government was designed in the 18th century

by men who were torn between a distrust of centralized power acquired

from the struggle for independence, and a rueful understanding of its

necessity gained from a failed experiment with confederacy.1 The men

who wrote the U.S. Constitution understood the need for effective

government, but they thought it more important to safeguard against

tyranny than to provide for rational administration. They created a

government that, while able to control the governed, first and foremost

is obliged to control itself (Rossiter 1961, W$lson 1989).

To limit government, the framers divided its power in several

ways. The primary division was between the states and the federal

government with all unspecified powers reserved for the states under the


The first central government was formed under a treaty of
friendship between the rebelling colonies called the Articles of
Confederation. The government was so weak it was a detriment to the war
effort and after independence proved to be so unsatisfactory that the
states agreed to a Constitutional Convention. Interestingly, the
southern states that seceded between 1860-1865 tried to reestablish a
confederate form of government.









doctrine of enumeration implied by the 10th Amendment. The second was

to divide the federal government into three branches: a judiciary to

shield the Constitution from the passions of the day, a legislature to

make the law, and an executive to carry it out. The judicial branch was

constructed as a hierarchy of federal courts, while the legislature was

separated into two chambers, the House of Representatives and the

Senate, which were given different structures and powers. The executive

branch alone was left undivided.
(
The framers provided for joint administration of the bureaucracy.

Congress was given control over funding and responsibility for oversight

while the President was given the authority to conduct policy. The

President accomplishes this by delegating power to his appointees who

administer the different parts of the permanent bureaucracy. The

President's appointees must be confirmed by the Senate. With the

exception of federal judges, the President may remove his appointees

without reference to Congress.

In this system AID personnel work under presidential appointees

and are overseen by parallel legislative committees. Among the most

important of these are the House and Senate appropriations subcommittees

which control AID's funding, and the two foreign affairs committees

which oversee its programs. I

The consequence for AID is a peculiar and not particularly

effective mix of centralized and decentralized functions.

Authorization, appropriation, budgeting and accounting are centralized

functions subject at a minimum to Congressional oversight committees,

the Government Accounting Office (GAO), and AID's Inspector General.

Program design and implementation, on the other hand, take place in the

field. Although conducted with significant discretion, these functions

are subject to an internal review process. With the series of reforms

begun in the 1960s, AID's internal review process became an increasing









burden. By 1973 its weight was so heavy that the Tanzania mission was

moved to complain, "as AID's project design techniques have grown in

sophistication and standards have increased, no [mission] can hope to

find the time or expertise to anticipate the questions raised by a

multitude of reviewers at several levels in AID/W" (USAID, FBS, 1973).

Arguably the most commanding control over AID is the power of the

purse, reserved for the Congress. The rules of the House and the Senate

separate the budget making process into two parts: authorization and

appropriation. An authorization is the power granted to an agency to

carry out a specific activity. An appropriation provides the agency
I
with funds (Schick 1980). Funding can also be provided through a

continuing resolution. A continuing resolution allows an agency to

spend at the previous year's rate rather than spend under a new

appropriation (Lee and Johnson 1989: 185).2 Since 1982 the use of

continuing resolutions has become increasingly routine in the U.S.

(Rubin 1985). It was thought remarkable that the 98th Congress passed

five of the thirteen appropriations for which the legislature is

annually responsible under one "giant continuing resolution" (Fisher

1992: 149). The events of 1995-96 rendered this incident less

impressive. In the final quarter of 1995, an unprecedented "budget war"

began between President Clinton and the 104th Congress during which by

year's end virtually the entire federal government was being operated

under a single mammoth continuing resolution. f

It is not hard to see why the American system of government

frustrates rational administration. When Congress and the President

begin pulling in different directions over a particular issue, an agency

(or the entire federal government) may become the rope in a tug of war.

If the President does not approve of the purpose of a particular agency,


2. The use of continuing resolutions originated during the 19th
century as a solution to the problem of distant western military
outposts periodically running out of money or becoming pinched for
supplies at times when Congress was not in session.







I

he can use his appointees to weaken it from within, as happened in the

case of Ronald Reagan and the Environmental Protection Agency. If

Congress objects to the activities of a particular bureau, as happened

to the Central Intelligence Agency during the Ford administration,

Congress may cut its budget (as it did to AID two years running in 1966

and '67) or pass laws to restrict its autonomy (as it has done

repeatedly to AID).

Agencies are not helpless. When the doctrine of enumeration was

overturned by the Supreme Court to permit the Roosevelt administration

to enact its plan to combat the Great Depression, a substantial degree

of de facto power was instantly devolved upon the federal bureaucracy.

The bureaucracy became an unintended fourth branch of government (Meier
I
1980), inefficient, dysfunctional, oligarchical and antidemocratic in

the view of its many latter day critics (Goodsell 1985: 6-11).

Structured as it is to make confrontation more likely than

collaboration, American federalism is a far cry from the Weberian ideal

of rational administration. It is a government of strangers (Heclo

1977).


AID's External Environments


A unique feature of AID is that its external environments are

separated from each other by great geographic distances. The agency's

political environment is in Washington but its task environment is

overseas. The extreme distance between AID's input and output functions

causes it complications. I

Furthermore, both of AID's external environments are characterized

by high uncertainty. International development is an uncertain

business; success requires regular tinkering with program

implementation. Political directives from Washington also result in









tinkering. Unfortunately, the tinkering has tended to have deleterious

effects.


AID's Political Environment


AID's political environment is a highly uncertain place because

AID is a highly vulnerable agency. Its vulnerability stems from two

factors: its impermanent mandate and its lack of a constituency.

AID was established in 1961 as the sixth in a series of agencies

dating back to 1948, all authorized as temporary bureaus under the

method used by Franklin Roosevelt of creating expendable agencies to

perform temporary tasks. AID's impermanent mandate would not be so

serious if AID had a powerful constituency. It does not. AID's

activities are all conducted overseas. Very few Americans see any

direct benefit from it or any other branch of the State Department

(Wildavsky 1988). AID's only support comes from special interest

groups. There is the circle of consulting firms that live off AID

contracts. AID is, in the view of consumer advocate Ralph Nader, a "pot

of gold" for these "beltway bandits" (Dallas Morning News, Aug. 8,

1993). But many nonprofit humanitarian organizations also receive

funding from AID, and they too support the agency. In its year end

newsletter in 1995, the Christian charity Bread for the World declared

its opposition to the Republican proposal for "merging USAID into State,

because that would subject development aid even more to U.S. political

and commercial interests, rather than focus it on the needs of poor

people" (Bread, November/December, 1995). This "do-gooder" lobby, as

one official described it to me, helps bolster AID's altruistic

propensities.
I
The coterie of private consulting firms, universities, charities,

and nongovernment humanitarian relief and development organizations that

implement most of AID's programs is sometimes referred to as the









"development industry." In any given year it captures between 60 and 80

percent of the funds that AID disburses (Tendler 1975, Zimmerman 1993,

Washington Post, Sept. 18, 1993, ABC Television, December 4, 1995).

A retired AID official whose service dated back to the fifth
f
agency, the IOA, expressed the belief that the statistic is misleading,

and lends itself to "facile conclusions." To illustrate, he gave the

example of a project he had seen in Thailand that did nothing more than

pay the salary and perquisites of a single private consultant who served

as an economic advisor to the Minister of Finance and sat in on Thai

cabinet meetings. According to the official, the American advisor had

"a tremendous impact on the macro elements of the economy that weren't

captured in the project report, which simply showed that one hundred

percent of the project budget went to pay the salary of one American."

No matter, the public perception of a cozy relationship between

AID and the development industry exists, and results in suspicions that

foreign aid officials do all they can to perpetuate underdevelopment in

order to maintain their lavish lifestyles at taxpayer expense in

tropical countries far from public view. AID workers are the "lords of

poverty" whooping it up with foreign aid money (Hancock 1989).

Foreign aid has long been America's least popular form of

government spending (Reilly 1988). The year the Clinton administration

entered office, 70 percent of Americans reported feeling that foreign

aid was wasteful of their tax dollars (Associated Press, Sept. 5, 1993).

Arguably, AID is America's "most hated program" (Reuters, Jan. 18,

1993).

U.S. political leaders in Washington have maintained a foreign aid

program against the will of the majority. As will be seen in greater

detail below, this was done in the name of fighting Communism. AID's

political raison d'etre thus dissolved with the Soviet Union. Its

continued existence was suddenly called into doubt. The National









Taxpayer's Union put AID at the top of its list of agencies whose

budgets should be cut. Members of Congress from both parties joined the

long-standing call of AID's enemies for its termination (Dallas Morning

News, Aug. 8, 1993).

AID's political vulnerability has made it a tempting target for

Congress over the years, a whipping boy to punish for displeasure with
(
the policies of the President (Lyons 1994). When, for example, Congress

disapproved of President Johnson's conduct of the war in Vietnam, it

passed laws in 1966 and 1973 to restrict AID's autonomy, and drastically

cut its budget in 1966 and 1967. Angry about Nixon's secretive conduct

of foreign policy, in 1974 Congress reduced the autonomy of the entire

State Department (Schick 1980). Since 1961 Congress has increasingly

dictated which activities AID should engage in and what priority each

should have by passing mandates and earmarking funds.


AID's Task Environment


AID's task environment is characterized by the same high degree of

uncertainty as its political environment. AID addresses a huge range of

problems scattered all over the developing world. There are

uncertainties of supply. Which technology to provide? How to work

effectively under ineffectual host country governments, given regular

unexpected changes in the situation? There are uncertainties of demand.

Excess demand for the benefits that development projects can provide may

lead to violence. Inadequate demand, on the other hand, can turn

projects into white elephants (Hirschman 1967). Success in

international development demands experimentation and an institutional

ability to learn. Unfortunately., these traits are not nurtured in AID.









AID's Corporate Culture


There are conflicts in all large bureaucracies between the

individual and the organization (Downs 1967), but they are particularly

bad in AID. Its personnel are divided into a smaller number of more

powerful ideologically conservative realists, and a larger number of

less powerful liberal altruists. The extreme geographic distance

between AID's input and output functions, with its resources coming from

Washington and its operations overseas, necessitates a fence-straddling,

Janus-faced posture. To protect its resources from its many enemies,

AID must be ever alert to changing moods in Washington. To succeed in

its uncertain mission of developing the poorest countries on earth, it

is "forced to be particularly reliant on its lower ranks for adaptive

and innovative behavior" (Tendler 1975: 24).

However, the incentives AID provides its employees do not

encourage the spirit of innovativeness. AID is governed by the State

Department's management system, with its "tortuously slow

apprenticeship" and its "premium on conformity and on the patronage of

superiors writing efficiency reports, who were in turn awaiting their

own similar advancement through the ranks." AID reflects the State

Department "culture in which the simple declarative sentence was

regarded as risky" (Morris 1977: 34, 36). There is a pronounced fear of

the written word in AID. A review of its archives in the 1970s found

them to consist of sanitized, technical and lifeless reports (Tendler

1975).

A high-placed administrator in Africa confirmed to me that dissent

is not registered in the official record, but is relegated to "back-

channel communications." A one page anonymous memo found circulating in

AID's Washington offices in March 1995 reified AID's culture in listing

the reasons why it is so conservative. AID's culture, the memo

declared, places the highest value on activities that "hold out the









prospect for more money." AID's employees assume stability in recipient

countries. They are more comfortable dealing with economic issues than

the political and social aspects of development. They believe that

unpopular policies "will go away if ignored." Externally, AID resists

"being integrated with other donors," and internally "responds

vertically to bureau hierarchy, and has difficulty organizing

horizontally." The common perception that AID officials enjoy lavish

lifestyles is not wholly unfounded. They are, like embassy personnel,

given beautiful homes and staffs of servants in the countries where they

serve. Their children are educated in private schools. A bit of
I
doggerel circulating in 1996 entitled "The Development Rap" savagely

caricatured the development worker as little better than a smug pig

feeding at the public trough. (See the Appendices for the memorandum

and the poem).

It is not quite that simple. The perquisites of large houses and

staffs of servants not withstanding, all AID officials who go overseas

must live in impoverished countries that bear little resemblance to the

tropical paradises of travel brochures. The cities are, for the most

part, unpleasant places to live. In many, slums encircle the enclaves

where diplomats and development workers reside. Telephones often do not

work. Streets may be broken, traffic clogged. Sanitation systems are

often in poor repair, leading to many water- and insect-borne diseases.

The water is often not drinkable. There are frequent electrical

outages. Crime can be high, and in some countries may be violent. The

families of U.S. officials were evacuated from Zaire in 1992 after the

French ambassador was shot dead by a stray bullet during political

violence. The skeleton crew of U.S. officials who stayed behind went

about Kinshasa armed. In 1996, U.S. officials in Nigeria were only

allowed to leave their island enclave in Lagos by chauffeur-driven

armored car.







I

Living in these sorts of stressful and sometimes dangerous places

puts unique psychological pressures on AID's overseas personnel. An

economist in one of the Washington planning divisions recounted the

anxiety that all AID officials experience in exposing their families to

endemic diseases. Everyone knows a "med-evac" horror story. In many

countries, remnants of Cold War proxy armies and guerrilla insurgencies

roam the countryside and the slums in packs of armed thugs. The

economist recalled the stress of living in Uganda where she learned

"that a grenade launcher sounds different than a rifle." The oftentimes

bleak and sometimes dangerous conditions in the countries where they

serve tend to make AID officials huddle together like immigrant

communities, isolating themselves from the local population and

socializing with the same people they work with (Tendler 1975).

In describing the constant political pounding the agency absorbs,

an official in the Africa Bureau told me, "We suffer from battered

spouse syndrome." Another characterized the agency as "under attack

an agency under seige." Considering AID's political

vulnerability, the uncertainty of its task environment, and the peculiar

types of stress its officials must endure overseas, it was not

surprising to me to find that many of them feel that working in AID is

like being in London under the blitz.

Thus AID's behavior is very much a function of its institutional

context. The divided control of American federalism makes AID a

peculiar combination of centralized and decentralized functions. Its

impermanent mandate and its unpopularity make its political environment

a very uncertain place. Its task environment is highly uncertain,

requiring AID to be an adaptive organization, but its internal culture

places a premium on conformity and breeds caution and a fear of

forthright language. The great distance separating AID's input and

output functions requires it to adopt a Janus-faced posture to defend









itself against the constant political attacks to which it is subjected

in Washington while groping for solutions to a4l the variegated problems

of underdevelopment in the poorest countries on earth.

















CHAPTER 4
THE CREATION OF AID


AID at its inception in 1961 was a child of long parentage, the

sixth in a succession of U.S. bilateral foreign aid agencies. Its

progenitors in the period 1948-1960 were all brief-lived, existing for

only two to four years each. AID has proven to be very resilient. In

attempting to answer why AID has managed to survive in its hostile

political environment for far longer than any of its ancestors did, I

turn now to a discussion of the different challenges AID has

successfully faced over the years. A detailed understanding of AID's

thirteen-year heritage and its thirty-five year history is crucial to

understanding the subject I will take up in later chapters, the behavior

of its officials today.

In this and the next two chapters I recount both the early history

of the U.S. foreign aid program and the full history of AID, with

special attention to its operations in Tanzania, in the context of the

political histories of the United States and Tanzania. I will show that

from 1941 to 1995 there were three moments of profound change in U.S.

foreign aid policy. The first involved the institutionalization of aid-

giving in a formal program between 1941 and 1948. The second and third

were changes in the program itself. These were caused by two political

events in Washington: the New Directions--the iame of the Foreign

Assistance Act (FAA) reform bill passed by Congress in 1973--and the

1980 election of Ronald Reagan.

Michael Hayes (1992) has developed a theory to explain the

magnitude of policy change in the American political system, why some

policy changes are more substantial than others. Whether a policy









change is marginal or substantial is determined by two factors: whether

knowledge of the social problem is felt to be adequate, and whether

attacking the problem will establish a new role for the government. The

normal functioning of the democratic system described by David

Braybrooke and Charles Lindblom (1963) as incrementalismm," according to

Hayes, occurs whenever the role of the government in an issue area is

established but confidence about what to do is lacking.

I will show that confidence in knowledge of how to achieve

sustainable development was particularly high at three moments in time:

1948, 1973, and 1981. After hitting these highs, confidence slipped in

the intervening years as programs met failure in the uncertain task

environment. The three long intervals between the highs--from the

founding of the U.S. foreign aid program in 1948 to the 1973 New

Directions, from the new legislation to the 1980 presidential election,

and finally from the Reagan administration to date--were periods during

which confidence in the knowledge base gradually faded. These were the

times of incremental change in AID's history, or what Hayes calls

"incremental rationalizing policies."

There are three types of nonincremental policy change. In the

first, which Hayes calls "role breakthroughs," a social problem has been

identified that no one knows what to do about, and which will involve a

new responsibility for the government. This does not apply in the case

of the U.S. foreign aid program because, as I have already shown,

confidence in how to induce development was not lacking in the 1940s

when the new government program was launched.

The next two types of nonincremental change are germane to this

study. The second, which Hayes calls "nonincremental innovation," is

very uncommon. It occurs when confidence in knowledge of what to do is

high but a role for government is not yet been established. The result

is fortuitous; a strategy for dealing with the problem is formulated at










virtually the same moment the problem is determined to be a

responsibility of the government. This is what happened when the

foreign aid program was launched in 1948. In his study of different

World Bank projects, Hirschman (1967) discussed this issue, and

speculated there might be a force he called "the guiding hand" which

calls unexpected problem-solving skills into existence to meet

unexpected problems as they arise.

The third type of nonincremental change, which Hayes calls a

"rationalizing breakthrough," occurs when confidence in knowledge is

high and there is an established government role. The result is new

policies for old problems. Twice in the history of AID, once in 1973 by

order of the Congress, and once in 1981 by order of the President,

"rationalizing breakthroughs" were made in AID policy. Confidence about

what to do was restored.

Hayes' model does not explain why confidence in knowledge changes;

he only states that it does change. There is a theory adapted from

paleontology to American politics by Frank Baumgartner and Bryan Jones

(1993) called "punctuated partial equilibrium" that can handle the

problem.

According to Baumgartner and Jones, whether a policy change is

marginal (incremental) or substantial (nonincremental) is determined by

whether the relevant agency is being subjected to positive or negative

feedback. The meanings they give the terms "positive" and "negative"

are the reverse of their ordinary connotations. Positive feedback is

bad; it brings on stormy weather for agencies. Negative feedback is

good; it means smooth sailing.

Negative feedback means basically no feedback. It occurs when the

American public is basically happy with the status quo, when all is calm

and inputs are predictable. In this case, policy changes are marginal









and occur incrementally. Under conditions of negative feedback, large

inputs are required to produce small changes.

Positive feedback, on the other hand, is disruptive. It occurs

either when control of the agenda changes hands, or when there is a

crisis. When a different party captures the White House, or when new

majorities are created in Congress, new sets of policy alternatives go

into effect (Kingdon 1984). When crises occur, such as the oil shocks

of the 1970s (Jones 1979), public attention suddenly focuses on a

particular issue area (Kingdon 1984), and the government is forced to

respond with new policies.
f
The implication of the theory of punctuated partial equilibrium is

that whenever feedback changes from negative to positive, either new

agencies will be created, such as the Environmental Protection Agency

created to clean up pollution and the Department of Energy created to

meet the energy crisis, or existing agencies will be roused from the

torpor of business as usual and shaken out of their standard operating

procedures. In either case, small inputs cascade into major effects.

The historical changes that occurred in the U.S. foreign aid

program can be explained in terms of changes in the level of confidence

in the knowledge base. When new political actors have taken control of

the agenda, they have typically ordered fresh approaches to old problems

and regenerated confidence about what to do. Thus, when the foreign aid

program was founded in 1948 confidence in the knowledge base was high

but there was no existing role for government. The result was

nonincremental innovation: a strategy for inducing development was

devised the moment the problem of global poverty was identified as a

responsibility for the U.S. government.

AID's establishment in 1961 coincided with the most articulate

theoretical expressions of the development paradigm. Confidence in the

knowledge base was still quite high. The failures of the late 1960s







I

weakened this conviction. The first rationalizing breakthrough that

punctuated AID's policy equilibrium was the 1973 New Directions of the

Congress. This redirected AID in a fresh approach and confidence in the

knowledge base was regained. The two oil shocks and stagflation in the

Western countries combined to produce poor results in the development

task environment, and confidence in what to do flagged. The second

rationalizing breakthrough came after the election of Ronald Reagan.

AID was ordered to redirect its efforts toward private sector

initiatives, and once again AID recovered a measure of certainty. This

gradually wore away as the Cold War fizzled to an end and the political

will to maintain a bilateral aid program waned, leaving AID in the

position it finds itself in today.

The years 1973 and 1981 therefore punctuate, or divide the

agency's history into three time periods. I will show that each period

was characterized by a different dominant strategy and a different set

of development objectives. The dominant strategy of the first period,

1961-1973, was institution building. I treat both AID's prehistory and

the institution building period in this chapter. The second period was

the shortest, the seven years 1974-1980 when the dominant strategy was

reaching the poor majority. I present this second period in Chapter

Five. The dominant strategy of the third period, from 1981 to the

present, has been one of forcing political reform. I present this

period in Chapter Six.


The Ancestry of AID, 1941-1960
f
The birth of the world's first peacetime foreign aid program is

conventionally given as the conference at Bretton Woods, New Hampshire

in 1944. In actuality it had private sector antecedents in the three

largest U.S. philanthropic foundations. John D. Rockefeller, Andrew

Carnegie, and Henry Ford all endowed foundations during the Progressive









era for the dual purposes of thwarting the spread of socialism in the

American work force and securing access to resources abroad. The three

old robber barons were also seeking tax relief (Berman 1983), and may

have been worried about their immortal souls as they faced the prospect

of dying.


The Role of the Private Foundations


The Rockefeller Foundation was an early supporter of the

historically black universities. Its patronage was guided by the

Tuskegee Principle, whereby conservative black elites were to be trained

and sent out to socialize southern blacks into the American system, to

convert them from a disadvantaged and potentially explosively subculture

mired in hopeless poverty into a docile, semi-skilled labor force. The

Rockefeller Foundation helped establish the Social Science Research

Council in the 1920s, in hopes that academic minds could be found to

reconcile private wealth with public welfare. Overseas, the Rockefeller

Foundation supported medical training, notably in China after 1913. The

Carnegie Corporation supported the extension of the Jeanes teacher-

training institutes--established by Anna Jeanes in 1907 to spread the

Tuskegee philosophy--into British Africa in the 1920s. When the Ford

foundation established overseas agricultural and public administration

programs after World War Two, it quickly became, in the words of Dean

Rusk, "the fat boy in the philanthropic canoe" (Berman 1983: 2-3).


The Birth of an Official Foreign Aid Program


The conference at Bretton Woods was the culmination of nearly four

years of negotiations between the Roosevelt administration and the

Churchill government that began in 1941 when Britain was forced to ask

the United States for assistance in its war with Hitler's Germany. This

established a relationship that quickly developed into an inquiry into










ways of establishing a new international economic system that would

prevent a third world war from occurring. The two governments were far

from consensus about what the new economic order should be when they

entered into negotiations. Each had its own iAeas based on its

different experience of the Great Depression.

The British experience

When Britain announced a record budget deficit in 1931, there had

been a panicked flight from sterling, and the British pound fell 25

percent in a few days. Britain abandoned its traditional free trade

policy in response, and adopted protectionist measures for its

manufacturing and agriculture sectors. The lesson the British

government learned was that its colonial system, the Sterling Bloc, had

softened the effects of the depression in both the home country and the

colonies. The colonies had been sheltered from the worst effects of

falling commodity prices, while England had benefitted from near-

exclusive access to raw materials in the territories under its control.
t
England's position changed from backing free trade to supporting

protectionism.

The American experience

The United States moved in the opposite direction, from

protectionism to free trade, as a consequence of its very different

experience of the depression. Since Hamilton's time the U.S. government

had protected domestic industry through tariffs. When the stock market

crashed in 1929 and the depression began, the government responded by

raising already high American tariffs even further with the Smoot-Harley

Bill of 1930, a victory for American isolationists (Gill and Law 1988:

132-134). In the cycle of escalating protectionism that began among the

industrialized countries of the world, the U.S. quickly found itself

squeezed out of the areas of trade dominated by England and France. The

foundations, representing the interests of corporate America, joined









with the government in an effort. of finding ways to penetrate the closed

European colonial markets.

When the Roosevelt administration came to office and gained

control of the political agenda, it began the slow process of convincing

Congress to convert from isolationism and protectionism to

internationalism and free trade. Secretary of State Cordell Hull called

for bilateral reductions in trade barriers in 1934, but the colonial

powers resisted (Nissen 1975). Their ability to resist ended with the

German conquest of France and the beginning of the Battle of Britain.

The U.S. provided assistance to Britain on a cash-and-carry basis

during 1940. By early 1941 Britain was nearly broke. In the spring,

Lord Keynes, advisor to the British Treasury, went to Washington to

negotiate a desperately needed loan. The Lend-Lease Act was approved by

Congress only after strong lobbying by the administration, which

justified the measure to the legislature as a strategic means for future

penetration of the Sterling Bloc. President Roosevelt justified the

measure to the American public in terms that were readily understood,

stating that when one's neighbor's house is on fire, it is well within

one's interests to lend the neighbor a hose.

With collaboration from the foundations, the assistant to the U.S.

secretary of the treasury, Henry Dexter White, produced a proposal for a

postwar system to stabilize world currencies through an international

central bank and a fund to oversee the problems of international

finance. It was understood that the U.S. was the only country capable

of financing any such international lending system, thus, in accordance

with the new U.S. interest in piercing closed trade areas, the White

Plan assigned these new institutions the objective of removing trade

barriers and pressuring countries to adopt free enterprise methods

(Kindleberger 1987).









The White Plan was briefly resisted by a portion of the American

financial community. The banking industry was generally hostile to

Keynesian principles and New Deal policies, but when the proposal

entered into the political debate, a split occurred between the "Main

Street" and "Wall Street" factions of the banking industry, with the

former, made up of the many small midwestern banks, generally favoring

the proposal as potentially profitable for U.S. industry, and the

latter, made up of the few big New York banks with heavy international

interests opposing it ostensibly because concessional lending was a big

giveaway. In actuality the New York banks opposed the White Plan

because they feared government subsidized lending would cut them out of

the market. Wall Street was still seen by a large segment of the

American public as the chief cause of the depression, so the political

base of the international banking industry was shaky. The unified

Democratic government was not sympathetic to their interests. A few

statements by the administration that the White Plan would not compete

with private capital was all that was needed to end the opposition of

the New York banks (Nissen 1975). It was a political fight they could

not win.

The British fought the proposal, but like the New York banks they
(
did not have enough leverage. The war against the Germans had bled

their economy white. The Churchill government recognized the American

maneuvering to penetrate the Sterling Bloc for what it was, a threat to

its economic interests, and protested against the White Plan as a

violation of national sovereignty. London produced its own proposal,

authored that summer by Lord Keynes, for an international "clearing

union" instead of a central bank that would help countries weather any

balance of payment and exchange problems, but which would not be allowed

to interfere in the internal economies of any country (Nissen 1975). In









other words, the British favored unconditional borrowing, while the

Americans insisted on the right to place conditions on their lending.

The British were in no position to bargain. They were over a

barrel, and the Keynes Plan was not considered. The White Plan became

the basis of negotiations that preceded through 1942 and 1943, with the

British fighting a rearguard action and the French government-in-exile

and Canada observing as interested third parties. In April 1944 the

Americans succeeded in dragging the British to the altar.

A "Joint Statement by Experts on the Establishment of an

International Monetary Fund" was released. The proposed fund would have

the right to intervene in the economies of debtor countries. The

British had succeeded only in gaining the promise that the United States

would not exercise the right during the time when countries were making

the transition back to peacetime production. The Bretton Woods

convention sealed the agreement (Nissen 1975, Kindleberger 1987).

When the delegates convened in New Hampshire in July to iron out

the last details of the final document, victory over the Axis was in

sight, the European empires seemed secure, and the Soviet Union was

still an ally. Britain, however reluctantly, joined the United States

in publicly declaring that the first and second world wars had been

caused by jingoistic economic nationalism, and that if a third world war

were to be averted, the conditions which nurtured this ideology would
I
have to be eliminated (Gilpin 1987).

The task of reducing the major incentives for countries to wage

war would require nothing less than the transformation of the entire

world economy. Age old adversarial rivalries would have to give way to

something never seen before, complex interdependence, or "situations

characterized by reciprocal effects among countries" (Keohane and Nye

1991: 123). The delegates did not want to entrust the success of their

scheme to the whims of domestic politics and the vagaries of






I


international diplomacy. They intended to use technical means. The

agreement they signed, once approved by the political leadership, would

peg world currencies to a gold-backed U.S. dollar and create a set of

international institutions designed to lower trade barriers and provide

concessional loans to governments to use either to finance long term

development projects or to remedy short term balance of payment problems

(Gill and Law 1988). These institutions were, respectively, the

International Trade Organization (which was never established because

the U.S. Congress never approved it), the International Bank for

Reconstruction and Development (IBRD, or the World Bank), and the

International Monetary Fund (IMF).

The high hopes for a permanent peace that followed the surrender

of Japan a year after Bretton Woods were dashed in the dozen months it

took Stalin to establish Soviet dominance over Eastern Europe, for the

Communists to resume the civil war in China, and for war ravaged Europe

to begin to exhibit signs of renewed political extremism. It took the

U.S. government until 1947 to develop a policy framework to view these

events. That year President Truman declared that the earth was being

divided into a free world and a world enslaved by Communism, and

challenged the American people to decide which side they were on

(Freeland 1972). President Truman's address to a joint session of

Congress on March 12, 1947 to announce that he was extending military,

economic and technical assistance to Greece and Turkey in response to

Communist insurgencies in the two countries established the precedence
I
of giving grants of money. Dean Acheson's speech in Mississsippi in May

1947 and George Marshall's better known commencement address at Harvard

a month later institutionalized the giving of aid in what came to be

called the Marshall Plan.

Having identified Communism as a threat to American national

security, the Truman administration set about devising a strategy to









contain it by encircling the Soviet Union and Eastern Europe with a

girdle of military alliances and by aiding the embattled Chinese

nationalists (Acheson 1969). The nationalist movements that brought

renewed war to Vietnam and independence to India and Pakistan inspired

nationalist movements in every European colony in the world. Facing

this extraordinary development, the Truman administration deemed that

the desperate poverty of the people living in the colonized areas was

likely to make Communist utopianism appealing to them. A foreign aid

program to improve global standards of living seemed justified as part

of the effort to contain Communism (Packenham 1973).

As it took form, the Truman Doctrine proposed simultaneously (1)

to confront Communism with military force to contain it where it already

existed; and (2) to distribute economic aid to promote peace,

cooperation and prosperity among the nations ot the free world. The

program that resulted, the Marshall Plan [later reorganized as the

Organization of Economic Cooperation and Development (OECD)], did not

pass without opposition. The American people had twice shed blood and

dispensed treasure to win wars to save democracy. Many Congressmen were

reluctant to ask their constituents to pledge new sacrifices to

safeguard the peace. The enactment of the Marshall Plan was a slow and

piecemeal process of persuasion. Congress passed the National Security

Act in 1947 establishing the National Security Council, a unified

Department of Defense under a Secretary of Defense, and the Central

Intelligence Agency (Kemp 1993). It passed the Economic Cooperation Act

a year later in 1948, which authorized the Economic Cooperation

Administration (ECA) to administer the bilateral aspects of the Marshall
(
Plan (Kindleberger 1987).

The ECA was in place by the end of 1948 when Truman narrowly won

reelection and the Democrats lost control of the Congress. Facing a

Republican majority in the House and the Senate in January 1949, with a









fresh Communist crisis looming in Korea, in the fourth point of his

inaugural address, Truman boldly called for the expansion of the U.S.

foreign aid program into all countries emerging from European

colonialism (McCullough 1992). The "loss" of China to Mao's Communist

armies in 1949 helped spur the Congress to pass the 1950 Act for

International Development, which replaced the ECA with the Technical

Cooperation Administration (TCA) and created a Mutual Defense Assistance

program to help countries fight Communism. This arrangement was

superceded by the 1951 Mutual Security Act, passed in response to the

outbreak of the Korean War on June 25, 1950. Primarily a military

measure, it placed all of America's bilateral aid organizations except

the Export-Import Bank under one legislative authorization, and replaced

the TCA with the Mutual Security Administration (MSA).

The 1952 election of Dwight Eisenhower as President gave the

Republicans control of the White House for the first time in thirty

years, but restored a Democratic majority in Congress. In its first

year in office, 1953, the Eisenhower administration reorganized the MSA

into the Foreign Operations Administration (FOA), then reorganized it

again in 1956 as the International Operations Administration (IOA). The

last change to the American foreign aid program made under Eisenhower

was the establishment of the Development Loan Fund in 1957 to conduct

bilateral American lending (Rondinelli 1987).

Eisenhower enhanced the role of the National Security Adviser in

foreign policy making (Kemp 1993: 34). His first crisis in Africa

occurred in Egypt during the election year of 1956. Gamal Abdel Nasser

of Egypt retaliated for the denial of World Bank aid to build the Aswan

Dam by nationalizing the Suez Canal. Britain, France and Israel united

to reopen it by force of arms. Eisenhower intervened by cutting off

supplies of oil until the expedition withdrew.









This act to support Egypt in his first term was contradicted by

Eisenhower's attitude toward nationalism in his second. Based on the

loyalties he formed in the war as supreme commander of the European

theater of operations, as president, Eisenhower was disinclined to

support the nationalist movements rising in the colonies of America's

most crucial allies. He would describe nationalism in his memoirs as a

"destructive hurricane." This gave Senator John F. Kennedy an

opportunity to make a name for himself by declaring his support for the

right of national self-determination (Mahoney 1983).

The stance Kennedy took in the Senate in 1958 won him great favor

among the emerging nations when he was inaugurated President in 1961.

His administration got the Foreign Assistance Act (FAA) through Congress

in its first year in office, and then moved vigorously to win Africa to

the free world by extending liberal amounts of aid and by appointing

dynamic ambassadors. Kennedy cultivated a personal relationship with

the new African leaders, many of whom were as young as he, by receiving

them with great fanfare at the White House (Noer 1989). Among these was

Julius Nyerere of Tanzania, first received after a trip to the U.N. to

request membership for his not yet independent country in the summer of

1961. He came away from the meeting impressed that Kennedy had a much

better grasp of the problems facing his country than the British prime

minister Harold Macmillan (Listowel 1965: 394-395).


Toward Independence in Tanganyika and Zanzibar


The United Republic of Tanzania consists of two parts. The first

is the chain of islands offshore in the Indian Ocean named Zanzibar.

The second and bigger is mainland Tanganyika, a poetic Swahili name that

means Sail in the Wilderness, a reference to the dhows that ply the

great lake of the same name on its western border (Yaeger 1989: 13).

Tanganyika consists of the area north of Mozambique, east of Lake
I










Tanganyika and the Great Rift Valley, and south of Lake Victoria, Mount

Kilimanjaro and the Serengeti Plains.

Mainland Tanganyika

The archeological discoveries made by the Leakey family in the

Olduvai Gorge near Serengeti revealed Tanzania to be an early cradle of

humanity. There is no lineal connection "between the ancient hominids

of the savanna and the people who later populated eastern Africa"

(Yaeger 1989: 6). The earliest fully human inhabitants of Tanganyika

came from migrations of Cushitic people from Ethiopia 10,000 years ago,

followed by Bantu people from far away Nigeria and Cameroon. Later

influxes of Sudanic, Nilotic and Paranilotic peoples gave rise to

Tanzania's wide variety of ethnic groups. By the 9th century AD, Arabs

and Persians were trading regularly along the coast. They established

island city states which came to be called Zanzibar. Arab intermingling

with the coastal Bantus produced the Swahili culture and language. The

area was briefly taken by the Portuguese in the early 16th century, but

was then conquered by Arabs from Oman who united the islands under a

sultanate. The Omani rulers of Zanzibar pushed the northern limit of

Portugese control back south to what is now Mozambique and raided the

heart of Africa for slaves. They established A slave-based plantation

economy in Zanzibar which made it into the world's leading producer of

cloves.

Under the pretense of abolishing the Arab slave trade, the British

established a protectorate over Zanzibar in the early 1800s. The U.S.

opened a consulate in the islands in 1837. It became the point of

embarkment for the European explorers and missionaries, the most famous

of whom was David Livingstone.

During the 1880s a German named Karl Peters, leader of the Society

for German Colonization, signed a series of concessionary agreements

with various Tanganyikan chiefs. The Kaiser granted Peters a charter to









form the German East Africa Company. The British responded by entering

into secret negotiations with the Germans to establish a modus vivendi

in East Africa, without consulting the Sultan. German control was

formalized over the area south of British Uganda and Kenya, east of the

Belgian Congo, and north of Portgugese Mozambique and included Rwanda

and Burundi. Britain retained juridical control over Zanzibar, leaving

the internal affairs of the islands in the hands of the Sultan.

The Germans ran their colonies as military dictatorships. Like

all the colonial powers, they forced the Africans they took under their

control into the cash economy and surplus production by imposing hut and

head taxes. In the drive to catch up with Britain and France, the

Germans were more willing to make heavy sacrifices in their colonies to

build the infrastructures needed to export primary commodities.

This was the case in Tanganyika. The Germans built a new capital

city on the coast at Dar es Salaam, a road network, and two railroads, a

shorter one from the port of Tanga to Moshi, the main town of the

northern coffee producing region, and a second, much longer railroad

from Dar es Salaam to Lake Tanganyika that spanned the width of the

colony. During this period Indians who had been brought to Kenya to

build the British railroad there migrated southward into German

territory and gradually took over petty commerce.

German development of the colonial economy was accomplished by

draconian means of land appropriation and indentured servitude. Even by

the standards of the time, Peters ran a brutal charter company in

Tanganyika. He committed outrage after outrage against the Africans,

taking a harem of dozens of women, having men flogged to death with

sickening routine. In 1891 the Berlin government responded to

published accounts of these gross excesses by taking over control of

Tanganyika, but it left Peters in authority as civil governor.









The result was a number of uprisings, the strongest of which

forced the Germans to launch two campaigns of pacification. The first

was against the Hehe, lasting eight years from 1891 to 1898. The second

was against the Maji-Maji Rebellion, lasting three years from 1905 to

1907. The brutality of the German scorched earth campaigns led to a

public outcry, and Berlin removed Peters and appointed Albrecht

Rechenberg as governor. He expanded the rights of Tanganyikans and

launched programs to encourage African agricultural production and to

provide for missionary education. The German settlers, however,

protested against the loss of cheap labor, and much of Rechenberg's

reforms were in the process of being reversed by Berlin when World War

One began.

Tanganyika became the scene of fighting. The Belgians hauled the

parts of a small warship by steam tractor overland through the Congo to

Lake Tanganyika where they assembled and launched it to challenge German

control of the lake (the inspiration for the film "The African Queen").

The German military commander, Major General Paul von Lettow-Vorbeck,

conducted a brilliant guerrilla campaign with a few thousand askari

African soldiers against the British who invaded from Kenya. He was

still holding out when the Armistice was signed on November 11, 1918.

After the German defeat, Rwanda and Burundi were turned over to the

Belgians and Tanganyika to the British to rule under League of Nations

mandate, and later as United Nations Trust territories.

Under the U.N. requirements that went into effect in 1945, the

colonial powers were required to put the people of the trust territories

on a course toward self-government. The first step was to establish

internal rule. Britain was tardy in taking steps in this direction in

Tanganyika. It concentrated first on economic development in the

colony, which had seriously lagged since 1914. Britain introduced a

ten-year development plan in 1946 that encouraged both African education










and--in response to pressure from the British settlers in adjoining

Kenya--increased white settlement. This plan was followed by another in

1955 which promised more funding for African agriculture. The British

plan received support from Eisenhower's Foreign Operations

Administration, and the first U.S. foreign aid to Tanganyika was

obligated in 1955. A third development plan was devised in 1960 with

World Bank assistance. One constant in the three plans was the policy

to increase African food and export crop production through persuasive
(
rather than coercive means.

When Tanganyika was converted from a League of Nations Mandate

territory to a United Nations Trust territory in 1945, and Britain was

required to show progress toward internal rule, African political

associations sprang up intent on capturing control of the process. The

principal of these was the Tanganyikan African National Union (TANU),

led by one of the country's few college graduates, Julius Nyerere. Its

platform called for independence and the abolition of the racial

divisions between Arabs, Indians and Africans, which the British--with

their abhorance of racial mixing and their theories of indirect rule--

had institutionalized. TANU gradually drew all organized opposition

groups to it, and became the umbrella for the entire independence

movement.
(
The British organized a political party of Europeans and Indians

to oppose TANU, that it would not have a political monopoly, and held

limited elections for a new legislative council in 1958 and 1959. Ten

of the thirty seats were reserved for Europeans, ten for Indians, and

ten for the vast majority of Africans. Only wealthy and educated

Tanganyikans were allowed to vote. Despite these disadvantages, TANU or

TANU-supported candidates won all thirty seats.

The British pursued an incremental strategy for independence. The

plan called, in effect, for government by bureaucracy, a plan the









African leaders had little choice but to accept. The British plan

anticipated the gap-filling and trickle-down theories it implicitly

assumed by six years. It had six points. (1) Because of a shortage of

skilled administrators, the civil service would remain staffed by

expatriates indefinitely. (2) Because of the complexity of development,

policy would be made not by the executive nor the legislative, but by

the politically neutral (and largely expatriate) civil service. (3)

Because of limited resources, development projects would be conservative

and aimed at the progressive farmers and entrepreneurs most likely to

capitalize on them. (4) Because of the shortage of capital, the new

government would encourage foreign investment.1 (5) To head off capital

flight, the European and Indian communities would retain their

economically privileged positions. (6) TANU would be in charge of

mobilizing support for the plan. The only role given the Tanganyikan

political leadership was the unenviable task of rallying support for a

conservative, inegalitarian approach to development that would not

benefit the members (Yaeger 1989: 29-30).

Nevertheless, the British thought they had a strategy, and

expanded the franchise and the number of seats on the Legislative

Council to seventy-one, with fifty to be contested, eleven reserved for

the Indians, and ten for the Europeans. New elections were held in

August 1960. A prototype cabinet of ten unofficial ministers was chosen

from the elected majority. Nyerere, as leader of the majority party,
f
became chief minister, and "under his leadership swift progress was made

toward independence" (Yaeger 1989: 25). Internal self-rule was

proclaimed on May 15, 1961. New elections were held that year in which

TANU captured all seats except one, which was won by an independent,

pro-TANU candidate, and on December 9, Tanganyika became an independent

country.










The islands of Zanzibar

Zanzibar followed a very different path to independence as a

result of its much worse ethnic divisions. The British, who for over a

century had dominated the islands externally but allowed it internal

rule, established a legislative council in Zanzibar in 1926, thirty

years earlier than in Tanganyika. Despite this clear advantage in

greater experience with internal government, Zanzibar waded through

blood to independence, and then gave it up after only five months to

unify with Tanganyika.

The reason lay in the ethnic hatreds in Zanzibar that had been

accidentally produced by British policy. Because of the long history of

relations with the Zanzibari sultanate, Britain structured the Zanzibar

Legislative Council to be dominated by the Arab minority. The problem

was the traditional Arabs related to Africans as their unequals, as

former slaves. The independence movement that arose in Zanzibar was

less in opposition to the British than in hatred of the Arab ruling

class.

The formal opposition legitimate by the British was comprised of

two main groups. One, the Zanzibar Nationalist Party (ZNP), was

composed of the enlightened, pro-modernization Arab opponents of the

Sultan. Its most radical wing was led by a Marxist named Ahmad Abdul-

rahman Mohammed Babu. In 1963 Babu would break with the ZNP and form

his own party, called the Umma Party, patterned after Nasserist

principles (Lofchie 1965). The second opposition group was the Afro-

Shirazi Union (ASU), comprised of the oppressed peoples, both the dark-

skinned Africans and the lighter, mixed-race Shirazis. The ASU was led

by a waterfront organizer named Abeid Karume.

The British moved to hold the first elections in Zanzibar at the

same time they were holding them in Tanganyika. They expanded the

number of seats on the Zanzibar Legislative Council from twelve to









eighteen, with the six new seats to be elective, and held elections in

1957. ZNP secured none of these, and ASU only1three. The Sultan and

his followers, upon whom the British were bestowing the benefits of

independence, maintained Arab dominance in the islands.

The two parties failed to survive in opposition. When they fell

apart, in stark contrast to the solidarity of the independence movement

in Tanganyika, Zanzibari politics dissolved into a swirl of ever-

changing factions under alphabet soup acronyms, all driven by

heightening class hostility and racial animosity.

Britain preceded as if there were nothing amiss in Zanzibar. It

increased the number of seats on the Council again and scheduled

elections for January 1961. These produced no majority party, and no

change in the status quo. The British persisted, and scheduled another

election for June. When districting gave the Sultan's loyalists a slim

majority of these seats, rioting broke out in which sixty-five Arabs

were killed (Clayton 1981).

In addition to the Marxist-Leninist Ahmad Babu, leader of the

leftist Arabs, and Abeid Karume, leader of the Afro-Shirazi, a shadowy

figure was to play a key role as the trigger of the coming revolution:

John Okello. A Ugandan immigrant with a fierce hatred of Arabs who

believed God spoke to him directly, Okello was the most violent minded

of the three. In 1962, the year Nyerere became leader of independent

Tanganyika, Okello began to form a network of Africans dedicated to the

violent ouster of the Arabs. He made his closest supporters swear an

oath to kill all Arabs between the ages of eighteen and fifty-five by

jumping three times over a potion made of red, white and black colored

stones and the blood and brains of a black cat and a black dog (Clayton

1981: 55). The Sultan's police officers, who had only recently taken

over command of law enforcement from the British, were informed of

Okello's preparations, but did not attach any importance to the reports.









Babu meanwhile was arranging with the Cuban ambassador in Dar es

Salaam for a group of his supporters to go to Cuba to be trained in

revolutionary ideology and practice. After they left for Havana, Babu

helped instigate the burning of the British Information Office in 1962,

for which he served fifteen months in prison. He was released just as

his militants returned from Cuba sporting fatigues, Castro beards, and

snapping off Venceremos salutes. They made quite a splash in the

Tanganyikan capital, and were to be the cause of the persistent belief

in U.S. foreign policy circles that the Cubans were involved in the

coming revolution (Clayton 1981: 70).

The British set a date in June 1963 for internal self-rule for

Zanzibar, and held a final preindependence election in July. The Afro-

Shirazi won a majority of the vote, but the Sultan's loyalists won a

majority of seats. The Arab opposition and the Afro-Shirazis alike were

outraged by the gerrymandered result. Nevertheless, the British invited

the Sultan's supporters to form a government, and at midnight, December

9-10, 1963, gave Zanzibar its formal independence (Lofchie 1965).

It was uhuru ya waarabu tu, independence for the Arabs in the eyes

the Afro-Shirazi, a government that would last less than two months. As

his police continued to ignore reports of the activities of Okello,

Sultan Jamshid commanded the people to address him as "Majesty" and,

contemptuously referring to Karume as "the boatman," made it plain to

the Afro-Shirazis that they were to be the subjects of the loyal Arabs

(Clayton 1981: 49, 62-63).

In this seething climate John Okello launched his revolution on

January 11, 1964. A group of his men awoke Karume and took him by dhow

to Dar es Salaam to protect him in case of the revolution failing or

Arab reprisal. The revolt was a bloody success. The Sultan barely

escaped with his family. Somewhere between 5,000 and 10,000 Arabs were
slaughtered. When Karume and Babu were told of Okello's plans to
slaughtered. When Karume and Babu were told of Okello's plans to










include them in a revolutionary government, they sailed from Dar es

Salaam to Zanzibar and landed in the midst of chaos and carnage.

Horrified at the butchery occurring in the streets all over the islands,

Zanzibar's leadership rallied to Karume. Babu quickly asserted control

over the most radical faction, and an ill-defined revolutionary

government took shape on January 24 under Karuie's overall leadership,

with Okello ranked twelfth on a council of thirty and thus excluded from

the cabinet, which consisted of the first eleven names.

Nyerere rushed 130 policemen to help restore order and the British

landed a unit of infantry. Okello did not take his demotion lightly.

He had to be told to cease coming armed to council meetings, and began

to quarrel heatedly with Karume over the issue of the nationalization of

land, which Karume opposed. Their arguments continued through February

until, worried about having such an unstable man in the ruling council,

with Nyerere's cooperation, Karume and Babu invented a ruse that they

were called by Nyerere to urgent conference in Tanganyika, and managed

peacefully to remove Okello from the islands, ultimately to Nairobi,

where he would be imprisoned (Clayton 1981).
f
The Founding of AID


This was the climate in which AID opened a mission in Tanganyika,

the first independent country in East Africa. Kennedy's 1961 FAA

incorporated the existing agency, the IOA, and the Development Loan Fund

into a new bureau, the centerpiece of Kennedy's new foreign aid program,

the U.S. Agency for International Development. Kennedy also created the

Peace Corps and the Alliance for Progress. Peace Corps and AID were set

up as semi-autonomous branches of the State Department. In all

countries where they were to be active, both would maintain offices

physically separate from the embassy, but the Peace Corps and the AID

country directors would be under the authority of the ambassador.









The establishment of AID was less the founding of a new agency

than a substantial reorganization and reorientation of a previously

existing one. Three presidents would serve in office during the

thirteen years of AID's 1961-1973 institution building period.

AID's planning system

From its inception, AID's strategies for Tanzania were expressed

in formal plans, according to a method established on the recommendation

of a group of social scientists called the Charles River Group who met

shortly after the passage of the FAA and recommended that the project

approach of AID's forerunners be abandoned in favor of comprehensive

country programming (Packenham 1973). In the 1960s, AID's country plans

were named the Country Assistance Program (CAP). They were revised on

an annual basis. In 1972 under the Nixon administration the name was

changed to the Development Assistance Program (DAP). The document was

renamed the Country Development Strategy Statement (CDSS) in 1977 during

the Carter administration. In 1989 under the Bush administration it

became the Country Program Strategic Plan (CPSP), and a multiyear

planning framework was established. Under the Clinton administration in

1995 it was completely revamped as the Strategic Planning Framework

(SPF). In politically stable countries not experiencing some form of

crisis, the planning framework is five years it time.

Initially, most U.S. foreign assistance was delivered through

bilateral channels overseen by AID. In its early years, AID was the

leading institution of the American foreign aid program. However, over

the course of its first decade of existence, the bulk of U.S. assistance

was gradually shifted from bilateral to multilateral channels. This was

done to protect a larger proportion of foreign aid from the political

process (Nissen 1975, Tendler 1975, Weissman 1975). AID lost its

preeminence to the World Bank. From 1961 to 1970 American multilateral

aid grew seven times faster than bilateral aid. While the World Bank's










loan commitments quadrupled and its personnel doubled, AID's

appropriations were reduced by 20 percent and its personnel was halved

(Wood 1986).

AID's personnel system

AID has three basic categories of personnel. The first is U.S.

Direct Hires (USDH), permanent American employees of the federal

government with full diplomatic status and perquisites. The second is

Foreign National Direct Hires (FNDH), permanent foreign employees of the

federal government paid at local wage rates, which in the case of

Tanzania have generally been about one-tenth of American salaries. The

third is contractors and consultants. These can be Americans or host

country or even third country nationals. There are various types of

contracts that AID awards. These range from open-ended contracts for

administrative work in the offices either in Washington or in the

missions, to close-ended contracts for the implementation of specific

projects in the field.


The First Period: Institution Building, 1961-1973


Tanganyika began to experience racial discord after independence

in early 1962, but it never approached anything like the bloodbath that

would occur two years later in Zanzibar. Facing a bureaucracy dominated

by Europeans whose mandate placed them outside his political reach, and

an economy dominated by an Indian merchant class, at the first stirring

of ethnic hatred in the first month of the first year of independence in

January, Nyerere tried to douse the flames, but found TANU to be

unresponsive to his orders. The effective mobilizer of popular support

for independence proved to be an ineffective instrument of central

control. Many members of the TANU youth wing were rowdies who thought

their position entitled them to mete out curbside justice by roughing up

Indian shopkeepers and levying informal taxes on them. The left wing of







f

the party leadership began immediately to voice the desire of the lumpen

proletariat for a share of the civil service jobs held by the British,

and of the wealth of the Indian petty bourgeoisie. They managed to

criticize Nyerere's moderate, non-racialist policy (without criticizing

Nyerere himself) by implying that he was the unwitting stooge of the

foreigners.

Nyerere took two actions to calm the fever. He "made an example

of ill-mannered Europeans who continued to adopt an attitude of racial

arrogance." Four persons accused of discrimination were deported. The

"Star Chamber technique" opened a "political safety valve" that may have

prevented an explosion of frustration such as was looming in Zanzibar,

but it also scared off potential investors who wondered, if the rule of
!
law could be set aside so blithely, what this meant for property,

contracts and wage agreements (Listowel 1965: 408-409).

The second was the more serious. Facing the fierce attacks by the

left wing of the TANU National Executive upon his appeasing policies,

Nyerere offered to resign to dedicate himself to reorganizing TANU and

to develop a governing ideology. To the astonishment of many, perhaps

including himself, his resignation was accepted. Nyerere stepped down

after merely two months in office as leader of independent Tanganyika,

and turned his duties over to Rashidi Kawawa, a founding member of TANU.

Nyerere withdrew from public life into private reflection.1

Kawawa set about creating an oligarchical structure based on patronage.

He began by raising the minimum wage, followed that by declaring that

the civil service would be Africanized, then pushed through a Preventive

Detention Act which gave the state sweeping powers of imprisonment

without trial, and finally produced a republican constitution that went

into effect on the first anniversary of independence, December 9, 1962,



1. Interestingly in the same year that Richard Nixon did likewise
after suffering defeat in the California gubernatorial election.









following a national election. Nyerere came out of retirement to run

for the new office of president, and was swept1back into power by a huge

majority.

During his eleven month sabbatical Nyerere had devoted himself to

producing an official and enforceable ideology for TANU. He rejected

the competitive and contractual political philosophy of Locke, and

embraced the organic and consensual (and potentially authoritarian)

political philosophy of Rousseau. He looked to the African extended

family as the basic unit of society, and addressed a dialectic of three

issues: equality, democracy and socialism. His ideas on these issues

would become the core of the ideology he was to call Ujamaa. Usually

translated as "familyhood" Ujamaa was to become the philosophical basis

for the unique form of socialism that would be practiced in Tanzania for

the next twenty years.
r
Nyerere accepted as a given the belief common to African

subsistence farmers that the amount of resources is fixed, and proceeded

from this assumption under zero-sum logic. Before colonialism it had

been considered disgraceful for one member of a kinship group to have

too much if another had too little. African clans had affected

redistribution through moral sanction (Yaeger 1989). Nyerere thought

this system could be revived and adapted to modern conditions. The

whole nation was therefore to be organized along the lines of a

traditional African clan.

Second, Nyerere decided that while majority rule was a noble

principle, the Western version of democracy as the clash of competing

interests was to be rejected. Lockean representative democracy would be

eschewed in favor of Rousseauian direct democracy. Rousseau had written

glowingly of the city-republics of his native 18th century Switzerland

where "bands of peasants are seen regulating affairs of State under an

oak, and always acting wisely" (Ebenstein 1958: 416). Nyerere thought










this system could be replicated on a larger scale in 20th century

Africa, and wrote in a widely-circulated pamphlet his vision of a

Tanganyikan direct democracy in which "the elders sit under a big tree

and talk until they agree" (Yaeger 1989: 32).

Third, Nyerere combined the first two ideas into a vision of a

distinctively African form of socialism that would work toward the

ideals of economic equality and democratic political participation

through the mechanisms of an ideologically unifying party. The key to

achieving this future for the Tanzanian nation would be a strong single-

party state.

This decision was fully consistent with the development paradigm

of the day, but it raised an important question: would the superpowers

leave Tanzania alone to blaze a new trail between capitalism and

communism (Bienen 1967)? Nyerere was acutely aware of what he would

call the second scramble for Africa, the competition between the

Communists and the democracies for the loyalties of the emerging

nations. He became an early and strong advocate of non-alignment and,

cognizant that his vision would require enormous resources to achieve,

declared Tanzania's willingness to accept assistance from any quarter as

long as it was given unconditionally (Rogers 1992).


Kennedy and AID's Formative Years


John Kennedy created AID as part of an effort to distinguish more

clearly between American military aid and aid for economic development.

He did this in hopes that a more benevolent economic aid program would

serve to support democracy in the emerging nations. The activism of his

administration produced a scattershot approach to development in

Tanzania. From 1961, when AID opened a mission in Dar es Salaam, to

1963 when Kennedy was killed, a total of 22 projects were launched and a

total $54.1 million in new spending was obligated, an average of seven










new projects launched each year costing an average $2.5 million each,

$18 million in new spending obligated per year.

Nine projects were authorized in 1961 before Tanganyika was fully

independent, and $22.8 million in spending was obligated. The Mission's

first country plan was written from 1961-62 and submitted in January

1963 two months after Nyerere returned to powet, ten months before

Kennedy's death in Dallas. The plan had two main thrusts: to improve

Tanzania's physical infrastructure, its roads and urban water systems in

particular; and to strengthen and build national institutions,

particularly the civil service and institutions of higher learning

(USAID, History, 1985). The Ford Foundation, the fat boy in the canoe,

came on board in support of AID's plan to help build a new college

campus from scratch in Dar es Salaam, staff it with expatriate faculty

while Tanganyikans were trained, and join it to the previously

established Makerere University in Kampala, Uganda and Royal College in

Nairobi, Kenya in a proposed University of East Africa. The Ford

Foundation also supported a program to Africanize the civil service, and

made a heavy investment in institution building in Tanzania (Berman
(
1983).

Institution-building and gap-filling criteria were to shape the

selection of AID objectives in Tanzania in the first thirteen years. At

another, higher level, however, AID was guided by what one former

foreign officer was to describe as the State Department "ideology of

imperial benevolence" (Morris 1977: 27) and the parallel noblesse oblige

of the foundations (Berman 1983: 2). The Mission's first country plan

followed the orders laid down in a document entitled "Tanganyika,

Department of State Guidelines for Policy and Operations." The first

country plan was fully reflective of State Department ideology.

The State Department had three key objectives in Tangariyika: (1)

to establish "a strong and responsible government," (2) to prevent










Communist penetration of the government and the economy, and (3) to

ensure "the continued reliance of Tanganyika on Western sources for the

major portion of its economic and technical assistance." In recognition

of the fact that the State Department objectives had no development

component, the Mission added another: "economic development of a

responsibly governed Tanganyika at a satisfactory rate" (USAID, CAP,

1963a).

The second country plan of September 196? reaffirmed the Mission's

objectives of "continued growth of the present system of government

under moderate leadership." The priority meant "minimizing any move by

Tanganyika toward racism, the anti-West pro-Communist brand of

neutralism, authoritarian government and militarism." Of particular

concern was the "denial of sensitive areas of the government and economy

to the Bloc, and continued reliance on Western sources for the major

portion of economic and technical assistance" (USAID, CAP, 1963b).

AID's first two country plans referred to Tanzania's World Bank-devised

first and its own subsequent second national development plans, but only

to show how the Mission's objectives were in alignment with and

supportive of (but not derived from) Tanzania's national development

goals (USAID, CAP, 1963a, 1963b, 1965, 1966).

In the first country plan the Mission stated its belief, based on

the Charles River Group recommendations, that programmed planning and

implementation through "project assistance provides the best form of aid

at this time" (USAID, CAP, 1963a). AID's use of projects as the primary

vehicle for implementing its programs did not change until 1995 when,

under the Strategic Planning Framework implemented by the Clinton

administration, projects would be replaced by a poorly understood

concept called "results packages." Briefly, these are bundles of

desired results toward which all' planning is inclined.










The foreign policy establishment

The U.S. foreign policy establishment in 1960 was dominated by an

East Coast elite of Ivy League intellectuals, retired soldiers, and

millionaires. Critics of both the left and the right would later argue

that the attempt by Kennedy to align the interests of scholarship,

security, and capitalism in the name of spreading the good news of

democracy undermined the integrity of all three.

The ideology of the foreign policy establishment Kennedy found in

place at his inauguration was wholeheartedly conservative, realist,

Keynesian liberalism. The establishment's understanding of the world

was based on the principles of free trade and the Truman Doctrine, its

experience shaped by the lessons of the successes of the New Deal and

World War II, all tempered by the sober reminder of McCarthyism. They

equated Communism with Fascism and remembered how the foreign service

officers who were serving in China when it was "lost" were publicly

humiliated as soft on Communism and driven out of the service during the

witch hunts. Confident in their worldview, scornful of public opinion,

they treated foreign affairs as their private concern (Morris 1977).

The Kennedy administration transferred the leadership of

Eisenhower's IOA wholesale into AID. With the great number of embassies

and missions he opened in Africa, foreign service careers quickly became

invested in the continent far out of proportion to Africa's strategic

importance to the United States. A clientelist mentality took hold

among the State Department and AID personnel who went to Africa. They

developed their own "isolated and private view of foreign policy," and

whenever necessary joined forces to commit "little bureaucratic

deceptions to conceal the client's failures lest [they] lose what meager

call they had on Washington's programs and attention" (Morris 1977: 18).

AID personnel recognized the career opportunities in Kennedy's foreign

aid initiative, and along with the rest of the foreign policy










establishment greeted it enthusiastically, but along with the rest of

the foreign policy establishment they disdained Kennedy's desire to link

aid to democracy. The old hands considered that to be overly optimistic

and naive (Lyons 1994).

AID's planners in Tanzania were part of the disparaging chorus.

They stated outright in their first country plan that the

administration's "hopes for Tanganyika's tranquil political progress

under a classic Western system of parliamentary democracy and civil

rights are exaggerated." That already "political developments [had]

disappointed many observers" was understandable; Tanzania was a

"xenophobic. emerging, ill-prepared and very self-conscious nation"

(USAID, CAP, 1963a).

In the second country plan submitted two months before Kennedy was

shot, the Mission informed Washington anew that it would not link

American assistance to democracy, but rather would "attempt to persuade

Tanganyikan leaders to follow democratic processes." The Mission

strongly believed that hectoring a proud and newly independent

government would be unprofitable; "any attempt to relate the level of

U.S. assistance directly to political objectives would be violently

resented and unproductive" (USAID, CAP, 1963b). This was reaffirmed in

the third country plan of October 1964, submitted after Tanganyika and

Zanzibar had unified, a month before Lyndon Johnson was reelected. It

stated that "any overt attempt to tie the level of U.S. assistance to

political conditions would be both unproductive and resented by the

local leadership we seek to strengthen" (USAID, CAP, 1964).

Although it thus eschewed political conditionality, consistent

with the principle of the right of interference dating back to the White

Plan, the U.S. placed conditions on its assistance to Tanzania. It

simply made them easy at first. The initial condition was that the

Nyerere government not become procommunist.










This was seen as a real danger at the time. "Tanganyika's desire

to pursue a policy of neutrality vis a vis the world's major power

blocs. may make the U.S. objective of preventing Communist

penetration of sensitive areas difficult to attain, when confronted by a

Tanganyikan desire to balance Communist and Western influences. This

same attitude will tend to complicate U.S. efforts to secure Tanganyikan

support for major Free World foreign policy positions." A big American

foreign aid program was needed to counter the "large-scale incursion of

Communist assistance and influence" that the U.S. intelligence community

was reporting lest "the present leadership. be exchanged for another

far less congenial to U.S. objectives" (USAID, CAP, 1963a).


Johnson, Union, and the Arusha Declaration


John F. Kennedy was assassinated on November 22, 1963, just four

months after Nyerere's reception at the White House in July for his

second meeting with Kennedy, on the only state visit to the U.S. he

would ever make.

The man who succeeded Kennedy in office could not have been more

different. Lyndon Johnson was unschooled, untravelled and unread

(Tucker 1994: 313). He was uncomfortable dealing with international

affairs, and with people from different countries. He often complained

that "foreigners are not like the folks I am used to" (Goldman 1969:

447), "not like the folks you were reared with" (Lyons 1994: 247). His

humble background made him deeply sympathetic to the plight of the poor,

and more comfortable among foreigners of low station than suave foreign

diplomats. During a tour of rural India, Johnson described to a rapt

group of peasants "his boyhood experience drawing water from the well,

showing how the rope occasionally slipped and burned the palms of his

hands. They rubbed their palms too" (Heinrichs 1994: 27).









Johnson's background also made him crude, culture-bound and

susceptible to prejudices. When television coverage of the starvation

in Biafra in early 1968 began to galvanize public opinion to intervene,

Johnson's lack of action drew sharp criticism from presidential

candidate Richard Nixon, and unfavorable commentary in the media. After

one particularly compelling television report was aired, Johnson

telephoned the under secretary of state for Africa and angrily ordered

him to send relief to "get those nigger babies off my TV set" (Morris

1977: 42).

Johnson's attitude toward Africa contrasted sharply with

Kennedy's. To Johnson, Africa was "the farthest corner of the world

. the place to threaten to send indiscreet officials who drew his

ire." Unlike Kennedy who paid great attention to Africa and tried to

assist its economic development in hopes of helping democracy take root

there--an unpopular idea he tried and failed to force through a

recalcitrant foreign policy establishment--Johnson delegated as much

responsibility for African affairs to the State Department as possible

and urged the European powers to accept overall responsibility for the

continent. The administration wanted to avoid playing the role of "Mr.

Big" in Africa (Lyons 1994: 245, 248). Africa became "the last issue

considered, and the first aid budget cut" (Morris 1977: 17).

The Mann Doctrine and the "Big Lie"

Fully cognizant of his shortcomings in foreign affairs, Johnson

entrusted responsibility for foreign aid policy to a fellow Texan,

Thomas Mann. The Mann Doctrine, issued on March 18, 1964, pronounced

what was to be for the next seventeen years the "Big Lie" of the U.S.

foreign aid program.

The Mann Doctrine began mildly enough by stressing that foreign

aid should be for self help, not charity, a slogan Johnson liked and

used often. It committed AID to four strongly realist, conservative










objectives: economic growth, the protection of U.S. overseas

investments, opposition to Communism, and, most significantly,

nonintervention in the internal affairs of countries (Packenham 1973).

In one fell swoop this fourth point of the doctrine abandoned the

principle of a U.S. right to interference and sacrificed Kennedy's

support for democracy in favor of support for economic growth and

political stability (Tulchin 1994: 230). Politics was officially deemed

unimportant to development. The "Big Lie" was strongly supported by the

new national security advisor Walt Rostow when he took the position in

1965. The Mann Doctrine was fully consistent with Rostow's linear stage

theory of development, so central to the dominant paradigm.

Revolution, mutiny and union

Two months after Johnson succeeded Kennedy in office two events in

January 1964 focused attention squarely on Tanganyika and Zanzibar: the

revolution in Zanzibar and the mutiny a week later of the Tanganyikan

army. In the colonial era the military in Tanganyika was part of the

King's African Rifles. At independence it consisted of two battalions

and numbered about 2,000 men, British armed, British trained, and

British officered. Although Africanization of the civil service began

in 1962, it was not extended to the armed forces. By the end of 1963,

there was no Tanganyikan soldier above the rank of captain.

Dissatisfaction in the ranks grew.

When the Revolution broke out in Zanzibar, Nyerere ordered the

first batallion, stationed in Dar es Salaam, to leave their barracks and

move into the city in preparation for embarkment to support Karumbe.
f
Instead, inspired by the success of John Okello, on January 19 the first

batallion took control of the key points and communications in the city

and announced a coup d'etat. Nyerere fled into hiding. Looting and

violence against Indians broke out, and the mutiny spread to the second




Full Text
xml version 1.0 encoding UTF-8
REPORT xmlns http:www.fcla.edudlsmddaitss xmlns:xsi http:www.w3.org2001XMLSchema-instance xsi:schemaLocation http:www.fcla.edudlsmddaitssdaitssReport.xsd
INGEST IEID ERDS5QLQ4_G5VIU2 INGEST_TIME 2017-07-24T20:44:18Z PACKAGE AA00025726_00001
AGREEMENT_INFO ACCOUNT UF PROJECT UFDC
FILES



PAGE 1

35,1&,3/(' $*(176 ,1 $1 $*(1&< 81'(5 6,(*( 86$,' $1' ,76 0,66,21 ,1 7$1=$1,$ %\ 67(3+(1 / 6122. $ ',66(57$7,21 35(6(17(' 72 7+( *5$'8$7( 6&+22/ 2) 7+( 81,9(56,7< 2) )/25,'$ ,1 3$57,$/ )8/),//0(17 2) 7+( 5(48,5(0(176 )25 7+( '(*5(( 2) '2&725 2) 3+,/2623+< 81,9(56,7< 2) )/25,'$

PAGE 2

$&.12:/('*0(176 ZRXOG OLNH WR DFNQRZOHGJH WKH NLQG DVVLVWDQFH RI *RUDQ +\GHQ :DOWHU 5RVHQEDXP 'DYLG +HGJH 0 /HDQQ %URZQ &KULV $QGUHZ 5REHUW 8WWDUR 1LJHO $XVWLQ DQG .HQ 0HDVH IRU WKHLU KHOS DQG DGYLFH 7R WKHP JRHV PXFK RI WKH FUHGLW IRU VXFFHVV ZLWK PH OLHV WKH EODPH IRU DQ\ HUURU [L

PAGE 3

7$%/( 2) &217(176 $&.12:/('*0(176 /,67 2) 7$%/(6 YL /,67 2) ),*85(6 YLL $%675$&7 YLLL ,1752'8&7,21 ,QGLFDWRU RI &KDQJH 6HFWRUV RI $FWLYLW\ 3ODQ RI 'LVVHUWDWLRQ 7+(25(7,&$/ &217(;7 7KHRULHV 7DFWLFV DQG ,GHRORJLHV 7KHRULHV RI (FRQRPLF 'HYHORSPHQW 7KHRULHV RI 3ROLWLFDO 'HYHORSPHQW 7KHRULHV RI 'HYHORSPHQW $GPLQLVWUDWLRQ 7KH &RQVHTXHQFHV RI 'HYHORSPHQWDOLVP 7DFWLFDO $SSURDFKHV WR 'HYHORSPHQW ,GHRORJLFDO 3HUVSHFWLYHV RQ )RUHLJQ $LG ,167,787,21$/ &217(;7 ,QIOXHQFH RI $PHULFDQ )HGHUDOLVP $,'n6 ([WHUQDO (QYLURQPHQWV $,'n6 3ROLWLFDO (QYLURQPHQW $,'nV 7DVN (QYLURQPHQW $,'n6 &RUSRUDWH &XOWXUH 7+( &5($7,21 2) $,' 7KH $QFHVWU\ RI $,' 7KH 5ROH RI WKH 3ULYDWH )RXQGDWLRQV 7KH %LUWK RI DQ 2IILFLDO )RUHLJQ $LG 3URJUDP 7RZDUG ,QGHSHQGHQFH LQ 7DQJDQ\LND DQG =DQ]LEDU 7KH )RXQGLQJ RI $,' 7KH )LUVW 3HULRG ,QVWLWXWLRQ %XLOGLQJ .HQQHG\ DQG $,'nV )RUPDWLYH
PAGE 4

7KH &DUWHU 'RFWULQH :DU ZLWK 8JDQGD 6WUXFWXUDO $GMXVWPHQW DQG WKH 86 (OHFWLRQ 7+( 7+,5' 3(5,2' )25&,1* 32/,7,&$/ 5()250 1HZ 3DUDGLJP 2OG 3DUDGLJP 5HDJDQ DQG 1\HUHUH 7KH 5HDJDQ 'RFWULQH 1\HUHUH DQG 7KH (QG RI 8MDPDD $ 3\UUKLF YLFWRU\ 5HEXLOGLQJ WKH $,' 3URJUDP /HDUQLQJ IURP ,QGLJHQRXV .QRZOHGJH ,QVWLWXWLRQ %XLOGLQJ 5HGX[ 0ZLQ\L DQG WKH &RQVROLGDWLRQ RI 5HIRUP %XVK 'HPRFUDF\ 'HVHUW 6WRUP DQG &RUUXSWLRQ LQ $,' $PHULFDQ $LG DQG 'HPRFUDF\ 'HVHUW 6KLHOG DQG 'HVHUW 6WRUP $,'n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n6 %HKDYLRU LQ 7DQ]DQLD 1XPEHU RI 3URMHFWV 6HFWRUV RI $FWLYLW\ &RQVWUDLQWV RQ $,' $XWRQRP\ $,' DQG WKH 2WKHU 'RQRUV )HHGEDFN DV &RQWURO LQ $,' ,9

PAGE 5

$,' DQG ,WV &RQGLWLRQV 7KH 6WUXFWXUH RI $,' 3DUW ,, ,QVLGH $,' 7KH )LUVW +\SRWKHVLV $ 5LYDO +\SRWKHVLV $,'n6 &XOWXUH 6WDIILQJ RI $,' 0RYLQJ 0RQH\ $,' DQG WKH 3ULQFLSDO$JHQW 3UREOHP $GYHUVH 6HOHFWLRQ 0RUDO +D]DUG 6WURQJ &XOWXUH 2UJDQL]DWLRQV &KDUDFWHULVWLFV :KLFK $,' 'RHV 1RW 3RVVHVV &KDUDFWHULVWLFV :KLFK $,' 'RHV 3RVVHVV &21&/86,21 7KH 5ROH RI &RQIOLFW LQ $,' 3ROLF\ &KDQJH ,QWHOOHFWXDO ,QIOXHQFHV 3ROLWLFDO ,QIOXHQFHV 7KH 6WUXFWXUDWLRQ RI $,' LQ 1HVWHG *DPHV :K\ $,' :LOO 6XUYLYH $33(1',; $ $33(1',; % $33(1',; & /,67 2) 5()(5(1&(6 %,2*5$3+,&$/ 6.(7&+ Y

PAGE 6

/,67 2) 7$%/(6 7DEOH SDJH 1HZ 2EOLJDWLRQV DQG 1HW 5HFHLSWV 1HZ 2EOLJDWLRQV DQG 1HW 5HFHLSWV $YHUDJH 1HZ $QQXDO 6SHQGLQJ E\ $GPLQLVWUDWLRQ 7RWDO DQG $YHUDJH 1HZ 6SHQGLQJ 2EOLJDWLRQV $YHUDJH DQG 7RWDO 6SHQGLQJ E\ 6HFWRU 5DQN 2UGHU RI &RQVWUDLQWV RQ $,' $XWRQRP\ 2SLQLRQV RQ $,' 5HVSRQVLYHQHVV WR ,QIOXHQFHV 2SLQLRQV RQ $,' 5HVSRQVLYHQHVV WR 7KHRULHV 2SLQLRQ RQ ,PSRUWDQFH RI )HHGEDFN 2SLQLRQ RQ :KHWKHU $,' (QFRXUDJHV ,QQRY£WLRQ 7\SHV RI 3HUVRQQHO 2SLQLRQ RQ ,PSHUDWLYH WR 0RYH 0RQH\ 2SLQLRQ RQ -RE &RPSHWLWLYHQHVV 5HDVRQV IRU 6HHNLQJ (PSOR\PHQW ZLWK $,' YL

PAGE 7

, /,67 2) ),*85(6 )LJXUH SDJH 1HZ 6SHQGLQJ 2EOLJDWLRQV 6XSSRUW IRU ,QIUDVWUXFWXUH 6XSSRUW IRU 6RFLDO 6HUYLFHV 6XSSRUW IRU 3XEOLF $GPLQLVWUDWLRQ 6XSSRUW IRU $JULFXOWXUH 6XSSRUW IRU )LQDQFH L YLL

PAGE 8

, $EVWUDFW RI 'LVVHUWDWLRQ 3UHVHQWHG WR WKH *UDGXDWH 6FKRRO RI WKH 8QLYHUVLW\ RI )ORULGD LQ 3DUWLDO )XOILOOPHQW RI WKH 5HTXLUHPHQW IRU WKH 'HJUHH RI 'RFWRU RI 3KLORVRSK\ 35,1&,3/(' $*(176 ,1 $1 $*(1&< 81'(5 6,(*( 86$,' $1' ,76 0,66,21 ,1 7$1=$1,$ %\ 6WHSKHQ / 6QRRN 0D\ &KDLUPDQ *RUDQ +\GHQ 0DMRU 'HSDUWPHQW 3ROLWLFDO 6FLHQFH 7KLV GLVVHUWDWLRQ H[DPLQHV SROLF\ FKDQJH LQ WKH 86 $JHQF\ IRU ,QWHUQDWLRQDO 'HYHORSPHQW $,'f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

PAGE 9

&+$37(5 ,1752'8&7,21 /HJLVODWLRQ ZDV LQWURGXFHG LQ &RQJUHVV LQ WKH VXPPHU RI WR DEROLVK WKH 86 $JHQF\ IRU ,QWHUQDWLRQDO 'HYHORSPHQW $,'f 7KLV DFWLRQ E\ &RQJUHVV KHOSHG WULJJHU WKH EXGJHW LPSDVVH 7KH WHUPLQDWLRQ RI D IHGHUDO DJHQF\ LV D UDUH HYHQW 7KLV VWXG\ ZLOO H[SORUH WKH UHDVRQV ZK\ $,' ZDV VLQJOHG RXW IRU WKLV VSHFLDO WUHDWPHQW $,' KDV ORQJ EHHQ DQ XQSRSXODU DJHQF\ 7KH $PHULFDQ SXEOLFn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nV WKLUW\ ILYH\HDUROG VWUXFWXUH LV RXWGDWHG DQG LQ QHHG RI D VXEVWDQWLDO RYHUKDXO M VKDOO DUJXH WKDW IRUHLJQ DLG SROLF\ LV PDGH LQ WZR URRPV D IURQW URRP ZKHUH WKH RVWHQVLEOH LQWHQWLRQV RI IRUHLJQ DLG DUH RQ YLHZ DQG D EDFN URRP RXW RI WKH SXEOLF H\H ZKHUH D GLIIHUHQW DJHQGD LV

PAGE 10

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n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

PAGE 11

SROLF\ FKDQJHV DQG DUJXH WKDW IRU D SROLF\ FKDQJH WR UHSUHVHQW D SDUDGLJP VKLIW WZR IDFWRUV PXVW EH SUHVHQW YHU\ KLJK SROLWLFDO SUHVVXUH IURP :DVKLQJWRQ DQG YHU\ ORZ FRQILGHQFH LQ RQJRLQJ SURJUDPV LQ WKH ILHOG VKDOO GHPRQVWUDWH WKDW $,'nV WDVN HQYLURQPHQW LV FKDUDFWHUL]HG E\ DQ XQXVXDOO\ KLJK GHJUHH RI XQFHUWDLQW\ )XUWKHUPRUH $,'n6 SROLWLFDO HQYLURQPHQW LV OLNHZLVH D KLJKO\ XQFHUWDLQ SODFH EHFDXVH $,' LV DQ H[FHSWLRQDOO\ XQSRSXODU DJHQF\ VKDOO DUJXH WKDW $,'n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n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

PAGE 12

DQDO\VLV WR UHIHU WR DQRWKHU VKDOO DUJXH WKHUH LV D FRQFHSWXDO FRQVWUXFW ZKLFK VKDOO FDOO VWUXFWXUDWLRQ WKURXJK QHVWHG JDPHV WKDW FDQ FORVH WKH JUHDW GLYLGH DQG FDSWXUH WKH LQWHUDFWLRQ EHWZHHQ PDFUR DQG PLFUR DJJUHJDWH DQG LQGLYLGXDO DQG VWUXFWXUH DQG DJHQF\ 0XFK RI $,'nV EHKDYLRU LV D IXQFWLRQ RI WKH FRQIOLFW EHWZHHQ WKH FRPSHWLQJ SURSHQVLWLHV RI UHDOLVP DQG DOWUXLVP 5HDOLVP UHIHUV WR WKH FRQVHUYDWLYH SRLQW RI YLHZ LQ IRUHLJQ SROLF\ FLUFOHV WKDW VWDWHV DUH UDWLRQDO VHQVDWH HQWLWLHV LQ D FRQIOLFWXDO ZRUOG ZKR DFW F\QLFDOO\ DQG DJJUHVVLYHO\ WR SURWHFW WKHLU WHUULWRULDO DQG SROLWLFDO LQWHJULW\ DQG WR FRQVHUYH DQG H[SDQG WKHLU VKDUH RI SRZHU LQ WKH LQWHUQDWLRQDO V\VWHP .UDVQHU f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f 7KH DQDORJXH WR UHDOLVP DW WKH LQGLYLGXDO OHYHO RI DQDO\VLV LV WKH UDWLRQDO FKRLFH PRGHO RI KXPDQ EHKDYLRU &KRLFH WKHRULHV DVVXPH WKDW WKH LQGLYLGXDO LV D VHOILQWHUHVWHG UDWLRQDO DFWRU ,QGLYLGXDOV UHODWH PHDQV WR HQGV DV HIILFLHQWO\ DV SRVVLEOH :KDW HQGV VKRXOG EH VRXJKW DUH QRW VSHFLILHG FKRLFH WKHRULHV VSHDN WR HIIRUW QRW WR RXWFRPH 5RJRZVNL f ,W LV WKHUHIRUH SRVVLEOH IRU UDWLRQDO DFWLRQV WR KDYH LUUDWLRQDO UHVXOWV &KRLFH WKHRULHV XQGHUVWDQG WKDW WKH SXEOLF JRRG

PAGE 13

UHTXLUHV D ELW RI LUUDWLRQDOLW\ IURP HYHU\RQH 7KH DQDORJXH WR DOWUXLVP DW WKH LQGLYLGXDO OHYHO RI DQDO\VLV LV WKH FXOWXUDO PRGHOV RI KXPDQ EHKDYLRU &XOWXUH WKHRULHV VHH WKH RULHQWDWLRQ RI WKH LQGLYLGXDO QRW DV WKH SURGXFW RI XWLOLWDULDQ FDOFXOXV EXW DV VKDSHG E\ VRFLDOL]DWLRQ (FNVWHLQ f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f§DUH DEOH WR XVH WKHLU FRQWURO RI WKDW LQIRUPDWLRQ WR IUXVWUDWH KLHUDUFKLFDO DXWKRULW\ IRU WKHLU RZQ JDLQ ,Q UHFRQVWUXFWLQJ WKH KLVWRU\ RI WKH 86 IRUHLJQ DLG SURJUDP ZLOO VKRZ WKDW WKH &DUQHJLH &RUSRUDWLRQ DQG WKH )RUG DQG 5RFNHIHOOHU IRXQGDWLRQV ZHUH VLJQLILFDQW FRQWULEXWRUV WR WKH DUFKLWHFWXUH RI WKH 86 IRUHLJQ DLG SURJUDP 7KH IRXQGDWLRQV ZHUH FUHDWHG DW D SRLQW LQ WLPH ZKHQ VRFLDOLVW LGHRORJ\ ZDV JDLQLQJ JURXQG 7KH\ ZHUH FUHDWHG WR VXSSRUW UHVHDUFK WR ILQG ZD\V RI DFKLHYLQJ WZR REMHFWLYHV f WR VHFXUH DFFHVV WR FKHDS UDZ PDWHULDOV DQG WR SURWHFW LQYHVWPHQWV RYHUVHDV DQG f WR PROG GRFLOH ODERU IRUFHV DW KRPH DQG DEURDG :KHQ VRPH WZHQW\ \HDUV ODWHU WKH 86 JRYHUQPHQW GHFLGHG WKDW LW ZDV LQ WKH $PHULFDQ &KRLFH WKHRULHV FDQ LQWHUSUHW EDG VRFLDO RXWFRPHV DV WKH FRQVHTXHQFH RI LQGLYLGXDO UDWLRQDO GHFLVLRQ PDNLQJ )RU H[DPSOH WKH VTXDORU RI &DOFXWWD LV D UHIOHFWLRQ RI WKH UDWLRQDOLW\ RI LWV LQKDELWDQWV $OO UHVLGHQWV SUHIHU WKHLU FLW\ WR EH FOHDQ 2QH SHUVRQ OLWWHULQJ GRHV QRW PDNH WKH FLW\ GLUW\ (DFK LQGLYLGXDO SUHIHUV WR OLWWHU UDWKHU WKDQ JR ORRNLQJ IRU D OLWWHU ELQ ,W LV UDWLRQDO WR OLWWHU 7KXV UDWLRQDO DFWLRQ FDXVHV VTXDORU %DVX f

PAGE 14

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f GHYHORSPHQW DQG UHOLHI DLG GLVEXUVHG DV ERWK JUDQWV DQG ORDQV f IRRG DLG XQGHU 3XEOLF /DZ 3/ f ZKLFK GLVWULEXWHV VXUSOXV DJULFXOWXUDO SURGXFH HLWKHU LQ NLQG DV KXPDQLWDULDQ UHOLHI RU E\ VHOOLQJ LW WR JHQHUDWH ORFDO FXUUHQF\ FRXQWHUSDUW IXQGV WR XVH LQ SURMHFWV DQG f (FRQRPLF 6XSSRUW )XQGV (6)f ZKLFK DUH JUDQWV JLYHQ DW WKH GLVFUHWLRQ RI WKH 3UHVLGHQW (6) DQG PLOLWDU\ DVVLVWDQFH DFFRXQW IRU QHDUO\ KDOI RI DOO $PHULFDQ IRUHLJQ DLG DQG JR SUHSRQGHUDQWO\ WR WZR FRXQWULHV ,VUDHO DQG (J\SW =LPPHUPDQ f FRQVLGHU RQO\ (6) DQG GHYHORSPHQW JUDQWV DQG ORDQV WR 7DQ]DQLD WKDW ZHUH REOLJDWHG IRU VSHFLILF SURMHFWV GR QRW FRQVLGHU 3/ SURJUDPV RU QRQSURMHFW VSHQGLQJ KDYH VHOHFWHG IRU P\ LQGLFDWRU RI FKDQJH WKH DPRXQW RI QHZ VSHQGLQJ REOLJDWLRQV IRU DLG WR 7DQ]DQLD LQ FRQVWDQW GROODUV RYHU WLPH KDYH VHOHFWHG PRQH\ REOLJDWHG UDWKHU WKDQ PRQH\ VSHQW IRU WZR UHDVRQV )LUVW TXDQWLI\LQJ VWUHDPV RI DLG \HDU E\ \HDU LV GLIILFXOW :RRG f 7RWDO DLG IORZV FRQVLVW RI P\ULDG IRUPV RI LQWHUJRYHUQPHQW WUDQVIHUV LQYROYLQJ HYHU\WKLQJ IURP IRRG WR FRPPRGLWLHV WR FDVK 7KH ELJ )XQGV KDYH EHHQ FRQYHUWHG WR FRQVWDQW GROODUV XVLQJ WKH LQGH[ LQ WKH (FRQRPLF 5HSRUW RI WKH 3UHVLGHQW :DVKLQJWRQ '& 86 *RYHUQPHQW 3ULQWLQJ 2IILFHf

PAGE 15

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fV GHDWK LV FDUHIXOO\ IL[HG DW LWV LQFHSWLRQ ,W WDNHV WLPH WR GHVLJQ DQG VWDII D SURMHFW )XUWKHUPRUH RQFH WKH\ FRPH RQ OLQH SURMHFWV ORFN LQ VWUHDPV RI VSHQGLQJ 7KH DPRXQWV RI PRQH\ VSHQW LQ 7DQ]DQLD QHYHU FKDQJHG GUDVWLFDOO\ IURP \HDU WR \HDU 1HW UHFHLSWV GLVEXUVHG LV WKHUHIRUH OHVV DQ LQGLFDWRU RI FKDQJHV LQ VWUDWHJ\ WKDQ DQ LQGLFDWRU RI FKDQJHV LQ WKH FRVWV RI LPSOHPHQWDWLRQ 7KH HIIHFW RI D GHFLVLRQ WR LQFUHDVH RU UHGXFH DLG LV DOZD\V ODJJHG &KDQJHV LQ $,'n6 VWUDWHJLF EHKDYLRU LQ 7DQ]DQLD DUH EHWWHU UHIOHFWHG LQ WKH DPRXQW RI QHZ VSHQGLQJ REOLJDWHG SHU \HDU 6HFWRUV RI $FWLYLW\ FRQVLGHU WKH ODUJHVW SURMHFWV ODXQFKHG IURP DQG DWWULEXWH WKH IXOO FRVW RI HDFK SURMHFW WR WKH \HDU LW ZDV DSSURYHG KDYH DSSRUWLRQHG QHZ VSHQGLQJ REOLJDWLRQV E\ VHFWRUDO DFWLYLW\ WR EHVW UHIOHFW ZKDW $,' ZDV FRQFHQWUDWLQJ RQ LQ 7DQ]DQLD LQ D JLYHQ \HDU ,

PAGE 16

EUHDN DFWLYLWLHV GRZQ LQWR ILYH VHFWRUV f DJULFXOWXUH LQFOXGLQJ UHVHDUFK IRRG SURGXFWLRQ DQG PDUNHWLQJ f VRFLDO VHUYLFHV LQFOXGLQJ SXEOLF HGXFDWLRQ UXUDO ZDWHU SURMHFWV DQG SXEOLF KHDOWK f LQIUDVWUXFWXUH LQFOXGLQJ VXSSRUW IRU OLJKW LQGXVWU\ WKH FRQVWUXFWLRQ RI KLJKZD\V DQG EXLOGLQJV DQG WKH UHQRYDWLRQ RI XUEDQ ZDWHU V\VWHPV f SXEOLF DGPLQLVWUDWLRQ LQFOXGLQJ WKH SURYLVLRQ RI :HVWHUQ SHUVRQQHO WR ILOO WKH PDQSRZHU JDS DQG WKH WUDLQLQJ RI JRYHUQPHQW RIILFLDOV DQG 7DQ]DQLDQ SURMHFW SHUVRQQHO DQG f ILQDQFH LQFOXGLQJ UXUDO FUHGLW VFKHPHV WHFKQLFDO DVVLVWDQFH WR FHQWUDO EDQNLQJ DQG GLUHFW FDVK WUDQVIHUV IRU EDODQFH RI SD\PHQW VXSSRUW ,Q SURMHFWV WKDW ZHUH DFWLYH LQ VHYHUDO VHFWRUV DW RQFH KDYH DSSRUWLRQHG WKH WRWDO DPRXQW REOLJDWHG IRU D SURMHFW WR GLIIHUHQW L VHFWRUV DFFRUGLQJ WR DQ HVWLPDWH EDVHG HLWKHU RQ WKH WKXPEQDLO VNHWFK RI HDFK SURMHFW FRQWDLQHG LQ $,'n6 LQKRXVH KLVWRU\ RI WKH 0LVVLRQ RU LQ WKH LQGLYLGXDO SURMHFW SDSHUV )RU H[DPSOH SURMHFW 3XEOLF $GPLQLVWUDWLRQ 3ODQQLQJ ZKLFK FRVW LQ FRQVWDQW GROODUV DQG ODVWHG IURP LV DWWULEXWHG WR RQH \HDU DQG LV DSSRUWLRQHG LQ LWV HQWLUHW\ WR RQH VHFWRU SXEOLF DGPLQLVWUDWLRQ EHFDXVH LWV VROH SXUSRVH ZDV WR VHQG ILYH OHDGHUV RI WKH 8QLWHG :RPHQ RI 7DQ]DQLD WR $PHULFD WR REVHUYH 5HSXEOLFDQ DQG 'HPRFUDWLF /DGLHVn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

PAGE 17

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n6 EHKDYLRU LQ 7DQ]DQLD DV WKH SURGXFW RI WZR FRPSHWLQJ SURSHQVLWLHV UHDOLVP DQG DOWUXLVP 7KH FRQIOLFW EHWZHHQ WKHVH SURSHQVLWLHV RFFXUV DW ERWK WKH LQVWLWXWLRQDO DQG WKH LQGLYLGXDO OHYHO RI DQDO\VLV ,Q &KDSWHU GLVFXVV $,'n6 LQVWLWXWLRQDO FRQWH[W H[DPLQH WKH SROLWLFDO DQG WDVN HQYLURQPHQWV RI WKH DJHQF\ DQG DVVHVV WKH

PAGE 18

LQIOXHQFH RI HDFK DQDO\]H $,'n6 LQWHUQDO FXOWXUH WR VHH LI LW LV EHWWHU GHVFULEHG DV D FRQVHUYDWLYH RU DQ LQQRYDWLYH DJHQF\ ,Q &KDSWHUV DQG SUHVHQW WKH HYROXWLRQ RI WKH $PHULFDQ IRUHLJQ DLG SURJUDP IURP DQG WKH VXEVHTXHQW WKLUW\ILYH \HDU KLVWRU\ RI WKH 0LVVLRQ LQ 7DQ]DQLD LQ WKUHH WLPH SHULRGV 7KH WLPH SHULRGV DUH VHSDUDWHG E\ WZR VLJQLILFDQW SROLWLFDO HYHQWV LQ $PHULFD WKH PDMRU UHIRUP RI $,'n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n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f WKH OLQN EHWZHHQ WKH SROLWLFDO HQYLURQPHQW DQG WKH DJHQF\ f WKH OLQN ZLWKLQ WKH DJHQF\ EHWZHHQ KHDGTXDUWHUV DQG WKH ILHOG DQG f WKH OLQN EHWZHHQ WKH DJHQF\ DQG LWV WDVN HQYLURQPHQW ,Q DGGLWLRQ H[DPLQH WKH LQIOXHQFH RI IHHGEDFN IURP WKH WDVN HQYLURQPHQW WR WKH 7KH WHUP SULQFLSOHG DJHQWV LV IURP 'LOXOLR f

PAGE 19

7r SROLWLFDO HQYLURQPHQW RYHU WLPH ,Q &KDSWHU SUHVHQW P\ FRQFOXVLRQV

PAGE 20

&+$37(5 7+(25(7,&$/ &217(;7 ,Q LWV WKLUW\ILYH \HDUV RI H[LVWHQFH $,' KDV FRPH XQGHU D QXPEHU RI LQWHOOHFWXDO LQIOXHQFHV VRPH WKHRUHWLFDO VRPH SUDFWLFDO VRPH LGHRORJLFDO ,Q WKLV FKDSWHU GLVFXVV WKUHH PDLQ ERGLHV RI GHYHORSPHQW WKHRU\ IRXU PDMRU WDFWLFV WKDW KDWH EHHQ XVHG WR LQGXFH GHYHORSPHQW DQG WKUHH EURDG LGHRORJLFDO SHUVSHFWLYHV RQ IRUHLJQ DLG WKDW KDYH LQIOXHQFHG $,' RYHU WKH \HDUV ,Q HDFK RI WKHVH GLVFXVVLRQV ZLOO LQGLFDWH WKH LQIOXHQFH FRQIOLFW KDV KDG RQ $,'nV EHKDYLRU LQ 7DQ]DQLD 7KHRULHV 7DFWLFV DQG ,GHRORJLHV :KHQ WKH 8QLWHG 6WDWHV ODXQFKHG WKH ZRUOGn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

PAGE 21

$QVZHULQJ WKH ILUVW TXHVWLRQ LQYROYHG WKH PDNLQJ RI D SROLF\ $QVZHULQJ WKH VHFRQG LQYROYHG LWV LPSOHPHQWDWLRQ 2QFH WKH SROLF\ ZDV PDGH D WKHRU\ RI GHYHORSPHQW WR JXLGH SUDFWLFH ZDV ZDQWHG 8QIRUWXQDWHO\ WKHUH ZDV QRW \HW D SUHFLVH WKHRUHWLFDO VWDWHPHQW RI WKH SURFHVV RI HFRQRPLF GHYHORSPHQW 7KHRULHV RI HFRQRPLF GHYHORSPHQW WRRN IRUP DIWHU WKH $PHULFDQ IRUHLJQ DLG SURJUDP KDG DOUHDG\ JRQH LQWR RSHUDWLRQ 7KH RIILFLDOV RI WKH ILUVW 86 DLG DJHQFLHV $,'n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f WKH 6ZLVV HFRQRPLVW /HRQ :DOUDV VKRZHG DW WKH WXUQ RI WKH FHQWXU\ KRZ LI DOO WKH FRQGLWLRQV RI SHUIHFW FRPSHWLWLRQ VXFK DV IUHH HQWU\ DQG H[LW SHUIHFW DQG LQVWDQWDQHRXV LQIRUPDWLRQ DQG QR H[WHUQDOLWLHVf ZHUH VLPXOWDQHRXVO\ PHW HYHU\ZKHUH LQ WKH ZRUOG WUDGH ZRXOG PRYH WR D 3DUHWRRSWLPDO HTXLOLEULXP ZKHUH DOO FRXQWULHV ZRXOG EHQHILW DW HTXDO SURSRUWLRQ 5LGGHOO f 2IILFLDOV RI WKH 86 IRUHLJQ DLG SURJUDP NQHZ DW WKH RXWVHW WKDW DOO WKH FRQGLWLRQV RI SHUIHFW FRPSHWLWLRQ FRXOG QRW SRVVLEO\ EH PHW HYHU\ZKHUH VLPXOWDQHRXVO\ IRU VRPH WLPH WR FRPH LI DW DOO ,Q WKH LQWHUHVW RI SUHYHQWLQJ DQRWKHU ZRUOG ZDU LW ZDV WKHUHIRUH QHFHVVDU\ IRU WKHP WR SURFHHG XQGHU WKH DVVXPSWLRQ WKDW SDUWLDO IUHH WUDGH ZDV EHWWHU

PAGE 22

I WKDQ QRQH DQG WR DFFHSW WKDW WKH 86 ZRXOG KDYH WR EHDU WKH FRVWV RI FRQGXFWLQJ WKH H[SHULPHQW WR ILQG RXW LI WKLV ZDV WUXH 7KH ILHOG RI GHYHORSPHQW HFRQRPLFV WKRXJK DV ROG DV HFRQRPLFV LWVHOI KDG ORVW VWDWXV GXULQJ WKH WK FHQWXU\ DQG ZDV SUDFWLFHG DW WKH SHULSKHU\ XQWLO 3 1 5RVHQVWHLQ5RGDQ f FRQVLGHUHG WKH SUREOHP RI LQGXVWULDOL]DWLRQ LQ (DVWHUQ (XURSH DQG WHQ \HDUV ODWHU 5 1XUNVH f FRQVLGHUHG WKH SUREOHP RI FDSLWDO IRUPDWLRQ LQ XQGHUGHYHORSHG FRXQWULHV )URP WKHVH WZR ZRUNV HPHUJHG WKH WHUPV YLFLRXV FLUFOH RI SRYHUW\ DQG WKH SRYHUW\ WUDS DQG WKH FRQFHSW RI D QRQ 3DUHWR RSWLPDO HTXLOLEULXP VWDWH RI XQGHUGHYHORSPHQW :DOW 5RVWRZ f EHJDQ WR GHYHORS ZKDW ZRXOG EHFRPH KLV VWDJH WKHRU\ RI HFRQRPLF JURZWK DW WKLV WLPH ,Q KLA ILUVW IRUPXODWLRQ 5RVWRZ SRVLWHG WKUHH VWDJHV RI GHYHORSPHQW D ORQJ HYROXWLRQDU\ SHULRG GXULQJ ZKLFK FUXFLDO VRFLDO SUHFRQGLWLRQV ZHUH DFKLHYHG D EULHI WDNHn RII SHULRG DQG WKHQ D ORQJ SHULRG RI VXVWDLQHG HFRQRPLF JURZWK $UWKXU /HZLV f EHFDPH WKH VHFRQG LQ WKH VHULHV RI HFRQRPLVWV ZKR ZRXOG WU\ WR WKHRUL]H D SURFHVV RI HFRQRPLF GHYHORSPHQW /HZLV PRUH WKDQ DQ\ RWKHU FRQWULEXWRU SXW GHYHORSPHQW HFRQRPLFV RQ WKH PDS %DVX f +H IRXQG WKH NH\ WR H[SODLQLQJ SRYHUW\ LQ WKH FRQFHSW RI WKH GXDO HFRQRP\ RU HFRQRPLHV FKDUDFWHUL]HG E\ D ODUJH DJULFXOWXUDO VHFWRU DQG D VPDOO LQGXVWULDO VHFWRU %\ DVVXPLQJ WKDW WKHUH ZDV DQ H[FHVV RI ODERU LQ WKH DJULFXOWXUDO VHFWRU DQG WKDW WKH LQGXVWULDO VHFWRU LQYHVWHG LWV IXOO SURILWV /HZLV ZDV DEOH WR VKRZ WKDW HYHU ULVLQJ LQYHVWPHQW ZRXOG FDXVH WKH XUEDQ PDUJLQDO SURGXFW RI ODERU WR ULVH JUDGXDOO\ GUDZLQJ DOO H[FHVV ODERU IURP nWKH DJULFXOWXUDO VHFWRU WR LQGXVWU\ DQG FDXVLQJ WKH HFRQRP\ WR JURZ 7KH UHDVRQ WKLV ZDV QRW KDSSHQLQJ LQ /HZLVn YLHZ OD\ LQ WKH LQWHUIDFH EHWZHHQ HFRQRPLFV DQG SROLWLFV 3ODQWDWLRQ RZQHUV GLG QRW ZDQW WR ORVH FKHDS DEXQGDQW ODERU DQG LI WKH\ DUH LQIOXHQWLDO LQ JRYHUQPHQW WKH\ ZLOO QRW EH IRXQG XVLQJ WKHLU IDFLOLWLHV IRU DJULFXOWXUDO H[WHQVLRQ /HZLV f

PAGE 23

7KH QH[W VWHS LQ WKH UHELUWK RI GHYHORSPHQW HFRQRPLFV ZDV WKH PRVW LPSRUWDQW WKH G\QDPLF JURZWK PRGHO ,W ZRXOGEHFRPH WKH EDFNERQH RI WKH HDUO\ $PHULFDQ IRUHLJQ DLG SURJUDP 7KH WKHRU\ ZDV GHYHORSHG LQGHSHQGHQWO\ E\ WZR %ULWLVK HFRQRPLVWV ZKR ZHUH DWWHPSWLQJ WR UHSDLU D KROH LQ .H\QHVLDQ WKHRU\ .H\QHVn VKRUWUXQ DJJUHJDWH GHPDQG PRGHO RI HFRQRPLF JURZWK ZDV WZR GHFDGHV ROG E\ 7KH PDMRU FRPSODLQW ZLWK .H\QHVLDQLVP ZDV WKDW LW ZDV VWDWLF LW GLG QRW VKRZ KRZ HFRQRPLF JURZWK RFFXUUHG ZKHQ WKHUH ZDV QR JRYHUQPHQW LQWHUYHQWLRQ 5LGGHOO f :RUNLQJ VHSDUDWHO\ DQG XVLQJ GLIIHUHQW PDWKHPDWLFDO PHWKRGV (YVH\ 'RPDU DQG 5) +DUURG VKRZHG KRZ WKH LQVHUWLRQ RI SURSHUO\ XWLOL]HG QHZ LQYHVWPHQW LQ DQ HFRQRP\ ZRXOG LQFUHDVH RXWSXW +DUURG f :DOW 5RVWRZ DQG 0D[ 0LOOLNDQ IRUPHUO\ RI WKH &,$ SURPSWO\ DGDSWHG WKH 'RPDU+DUURG G\QDPLF JURZWK PRGHO WR WKH IRUHLJQ DLG SDUDGLJP E\ SURFODLPLQJ WKDW IRUHLJQ DLG ZDV D IRUP RI LQYHVWPHQW 0LOOLNDQ DQG 5RVWRZ f 7KH QH[W FRQWULEXWLRQ FDPH IURP $OEHUW +LUVFKPDQ f +H DFFHSWHG /HZLVn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f 7KH FRQFHSW RI KXPDQ FDSLWDO EHJDQ WR JDLQ FXUUHQF\ DW WKLV WLPH IROORZLQJ 7KHRGRUH 6FKXOW]nV SUHVLGHQWLDO DGGUHVV DW WKH PHHWLQJ RI WKH $PHULFDQ (FRQRPLF $VVRFLDWLRQ %HUPDQ f 7KH LPSRUWDQFH WR HFRQRPLF GHYHORSPHQW RI LQYHVWPHQW LQ KXPDQ FDSLWDO ZDV TXLFNO\

PAGE 24

SHUFHLYHG DQG HGXFDWLRQ DQG WUDLQLQJ ZRXOG EHFRPH PDMRU FRPSRQHQWV RI QHDUO\ HYHU\ 86 IRUHLJQ DLG SURMHFW 6LPRQ .X]QHWV f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f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n UHFRPPHQGDWLRQV IRU D VWURQJ VWDWH 6HOIOHVV SDWULRWLVP ZDV DODV SURYLQJ WR EH D UDUH FRPPRGLW\ LQ WKH GHYHORSLQJ DUHDV DQG PDQ\ DPRQJ WKH ILUVW JHQHUDWLRQ RI OHDGHUV LQ WKH HPHUJLQJ

PAGE 25

QDWLRQV TXLFNO\ DFTXLUHG D WDVWH IRU SRZHU DQG LWV WUDSSLQJV :LWK WUDJLF IUHTXHQF\ WKH\ FRQYHUWHG WKHLU JRYHUQPHQWV WR VLQJOH SDUW\ VWDWHV DQG EXLOW FXOWV RI SHUVRQDOLW\ WR VDQGEDJ WKHPVHOYHV LQ SRZHU /HIW DQG ULJKWZLQJ DXWKRULWDULDQLVP EHFDPH WKH QRUP LQ WKH 7KLUG :RUOG 7KLV GHYHORSPHQW KDG QHJDWLYH FRQVHTXHQFHV IRU VWDWH VWUHQJWK +RZHYHU ZKLOH KDSS\ WR DFFHSW WKH IRUHLJQ H[SHUWVn DGYLFH WR EXLOG VWURQJ VWDWHV WKHVH VDPH OHDGHUV JHQHUDOO\ GLG QRW DFFHSW WKHLU UHFRPPHQGDWLRQ IRU H[SRUWOHG JURZWK ,QVWHDG WKH\ RSWHG IRU WKH LPSRUWVXEVWLWXWLRQ LQGXVWULDOL]DWLRQ ,6,f VWUDWHJLHV WKDW FDPH RXW RI WKH 81 (FRQRPLF &RPPLVVLRQ RQ /DWLQ $PHULFD DW WKLV WLPH ,6, ZDV URRWHG LQ WKH YHU\ VDPH LGHRORJ\ RI HFRQRPLF QDWLRQDOLVP WKDW DV ZLOO EH VHHQ LQ &KDSWHU WKH 86 IRUHLJQ DLG SURJUDP ZDV FUHDWHG WR GHVWUR\ 7KH :RUOG %DQN DQG WKH ,QWHUQDWLRQDO 0RQHWDU\ )XQG VWURQJO\ VXSSRUWHG IUHH WUDGH DQG RSSRVHG ,6, EDVHG RQ 'DYLG 5LFDUGRnV HDUO\ WK FHQWXU\ WKHRU\ RI FRPSDUDWLYH DGYDQWDJH 7KH UDGLFDO VXSSRUWHUV RI ,6, MXVWLILHG WKHLU YLHZSRLQW XVLQJ WKH 0DU[LVW/HQLQLVW DQDO\VLV RI LPSHULDOLVP WKH FRQVHUYDWLYHV E\ XVLQJ $OH[DQGHU +DPLOWRQnV WK FHQWXU\ DUJXPHQW IRU WKH SURWHFWLRQ RI LQIDQW LQGXVWULHV DQG )ULHGULFK /LVWnV WK FHQWXU\ DUJXPHQW WKDW IUHH WUDGH IDYRUHG WKH HFRQRPLFDOO\ DGYDQFHG FRXQWULHV DQG WKDW SURWHFWLRQLVP ZDV DSSURSULDWH IRU FRXQWULHV HQGHDYRULQJ WR FDWFK XS 7KXV EHJDQ WR HPHUJH WKH GHSHQGHQF\ VFKRRO RI SROLWLFDO HFRQRP\ 0DQFXU 2OVRQ f ODWHU DUJXHG WKDW D VLJQLILFDQW UHDVRQ ZK\ ,6, ZDV HPEUDFHG VR HDJHUO\ LQ WKH 7KLUG :RUOG ZDV EHFDXVH RI YLJRURXV OREE\LQJ E\ WKH JURXSV LQ HDFK FRXQWU\ ZKR VWRRG WR JDLQ WKH PRVW 7KH VPDOO HOLWH FODVV LQ WKH GHYHORSLQJ FRXQWULHV KDG DQ HQRUPRXV DGYDQWDJH RYHU WKH SRRU PDMRULW\ LQ WHUPV RI SROLWLFDO DFFHVV DQG LQIRUPDWLRQ DQG D ODUJH SHUVRQDO VWDNH LQ SURWHFWLRQLVP FLWHG LQ .XGUOH f %\ WKH PLGV D GHYHORSPHQW SDUDGLJP ZDV LQ SODFH ,W ZDV QRZ DFFHSWHG LQ 86 IRUHLJQ SROLF\ FLUFOHV DV WKHRUHWLFDOO\ SRVVLEOH WR ,

PAGE 26

LQGXFH DQG DFFHOHUDWH GHYHORSPHQW LQ WKH 7KLUG :RUOG WKURXJK VWDWHOHG SURJUDPV DLPHG DW PD[LPL]LQJ HFRQRPLF JURZWK )RUHLJQ DLG SURJUDPV ZHUH GHYLVHG WR WUDQVIHU VNLOOV WKURXJK WUDLQLQJ SURJUDPV WHFKQRORJ\ WKURXJK FRPPRGLW\ LPSRUW VFKHPHV DQG FDSLWDO WKURXJK LQYHVWPHQW LQ LQIUDVWUXFWXUH ,URQLFDOO\ WKHVH SURJUDPV ZHQW IRUZDUG DORQJVLGH ,6, VWUDWHJLHV WKDW SURWHFWHG LPSRUWVXEVWLWXWLQJ LQIDQW LQGXVWULHV 7KLV UHSUHVHQWHG DQRWKHU FRQWUDGLFWLRQ WKLV WLPH EHWZHHQ WKH IRUHLJQ DLG SURJUDPnV JRDOV RI DQ HQG VWDWH RI IUHH WUDGH $QG WKH SURWHFWLRQLVW PHDQV WR HFRQRPLF JURZWK EHLQJ SUDFWLFHG E\ 7KLUG :RUOG FRXQWULHV 7KH $PHULFDQ IRUHLJQ DLG SURJUDP WKXV ZHQW LQWR DFWLRQ DV D G\VIXQFWLRQDO EXQGOH RI FRQWUDGLFWLRQV ,Q WKH V DQG n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f &RUUXSWLRQ ZURQJ SROLFLHV RU HYHQ LQHIILFLHQF\ ZLWKLQ WKH DLG UHFLSLHQW FRXQWULHV ZRXOG KDYH D QHJDWLYH HIIHFW RQ GHYHORSPHQW RXWFRPHV $LG SODQQHUV ZKR SULGHG WKHPVHOYHV RQ WKHLU DSROLWLFDO REMHFWLYH SHUVSHFWLYH EOLQGHG WKHPVHOYHV WR WKH YHU\ IDFWRUV ZKLFK ZRXOG VRRQ FDXVH WKHLU SURJUDPV WR IDLO SDUWLFXODUO\ LQ $IULFD 6DQGEURRN f 0RUH VLJQLILFDQWO\ D PDWKHPDWLFDO SURRI ZDV GLVFRYHUHG WKDW FRQWUDGLFWHG WKH IXQGDPHQWDO DVVXPSWLRQ DERXW IUHH WUDGH 7KH WKHRUHWLFDO FKDOOHQJH WR WKH JHQHUDO HTXLOLEULXP ZDV LQWURGXFHG DV WKH ,

PAGE 27

JHQHUDO WKHRU\ RI VHFRQG EHVW /LSVH\ DQG /DQFDVWHU f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nV GHPDQG VWLPXODWLQJ ULSSOH HIIHFWV DQG .X]QHWVn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

PAGE 28

, VDZ WKHLU DLG DV D VFDUFH UHVRXUFH 8QIRUWXQDWHO\ WKH UHFLSLHQW FRXQWULHV TXLFNO\ EHJDQ WR VHH LW DV D SOHQWLIXO DQG SHUPDQHQW VXEVWLWXWH IRU GRPHVWLF VDYLQJV 7HQGOHU f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f 0DQ\ 7KLUG :RUOG JRYHUQPHQWV LQFOXGLQJ 7DQ]DQLD EHJDQ FODLPLQJ WKH\ ZHUH RZHG IRUHLJQ DLG DV UHSDUDWLRQV IRU SULRU H[SORLWDWLRQ E\ WKH GHYHORSHG FRXQWULHV %\ WKH PLGV RYHU KDOI RI 7DQ]DQLDn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

PAGE 29

VSUDQJ XS LQ WKH ZDNH RI ,6, UDWLRQLQJ SROLFLHV 2WKHUV DEDQGRQHG FRPPHUFLDO IDUPLQJ HLWKHU E\ UHYHUWLQJ WR VXEVLVWHQFH SURGXFWLRQ RU E\ OHDYLQJ WKH ODQG DOWRJHWKHU 7KLV ZDV XUEDQ PLJUDWLRQ DV /HZLV KDG QRW LPDJLQHG LW $IULFDn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f %\ WKH V HFRQRPLVWV ZHUH IRUFHG WR UHFRJQL]H WKH LPSDFW RI FRUUXSW DXWKRULWDULDQLVP RQ HFRQRPLF SHUIRUPDQFH DQG D SDUDGLJP VKLIW EHJDQ $WWHQWLRQ ZDV IRFXVVHG RQ SROLF\ UHIRUP 7KH LQLWLDO UHFRPPHQGDWLRQV ZHUH IDLUO\ FDXWLRXV OLPLWHG PRVWO\ WR UHOD[LQJ IDUPJDWH SULFH FRQWUROV 7LPPHU f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

PAGE 30

, WR FLUFXPYHQW WKH VWDWH WR UHDFK DURXQG LW DQG LQGXFH GHYHORSPHQW WKURXJK SULYDWH VHFWRU LQLWLDWLYHV $ QHZ WHUP FDPH LQWR WKH GHYHORSPHQW OH[LFRQ JRYHUQDQFH WKH H[HUFLVH RI SROLWLFDO SRZHU WR PDQDJH D QDWLRQnV DIIDLUV :RUOG %DQN f %\ WKH IRFXV RI GHYHORSPHQW HFRQRPLVWV ZDV VTXDUHO\ RQ SROLWLFDO IDFWRUV :KHQ WKH %HUOLQ :DOO FDPH GRZQ DQG WKH EUHDN XS RI WKH 6RYLHW HPSLUH EHJDQ LW ZDV EXW D VKRUW VWHS IURP HFOHFWLF SURMHFWV WR LPSURYH JRYHUQDQFH WR D IXOO EORZQ SURJUDP WR LQVWDOO GHPRFUDF\ RQ D JOREDO VFDOH 7KHUH WKXV KDYH EHHQ ILYH VLJQLILFDQW FRQWUDGLFWLRQV LQ WKH HFRQRPLF GRPDLQ GXULQJ WKH SHULRG RI WKLV VWXG\ f (FRQRPLVWV FDOOHG IRU D VWURQJ VWDWH WR RUFKHVWUDWH GHYHORSPHQW ZLWKRXW FRQVLGHULQJ WKH IDFWRUV WKDW PDNH D VWDWH VWURQJ f 7KH IRUHLJQ DLG SURJUDP ZDV HVWDEOLVKHG WR SURPRWH WKH JRDO RI JOREDO IUHH WUDGH EXW LW ZDV LPSOHPHQWHG DORQJVLGH SURWHFWLRQLVW ,6, VWUDWHJLHV f 7KH GRQRUV VDZ WKHLU DLG DV D VFDUFH UHVRXUFH WR EH JLYHQ YROXQWDULO\ ZKLOH WKH UHFLSLHQWV VDZ LW DV D SOHQWLIXO UHVRXUFH RZHG WKHP DV D UHWULEXWLRQ IRU SDVW H[SORLWDWLRQ f 5HFLSLHQWV SDUWLFXODUO\ 7DQ]DQLD GHFODUHG WKHLU JRDO ZDV VHOIUHOLDQFH \HW WKH\ EHFDPH LQFUHDVLQJO\ GHSHQGHQW RQ IRUHLJQ DLG f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

PAGE 31

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f 7KH VHDUFK IRU ZD\V WR LQGXFH GHPRFUDWLF GHYHORSPHQW OHG ILUVW WR LQYHVWLJDWLRQV RI WKH FDXVHV RI GHPRFUDF\ LQ 1RUWK $PHULFD DQG :HVWHUQ (XURSH 6WURQJ FRUUHODWLRQV ZHUH IRXQG EHWZHHQ WKH SUHVHQFH RI GHPRFUDF\ DQG IDFWRUV VXFK DV OLWHUDF\ DQG XUEDQL]DWLRQ ,I WKH SROLWLFDO V\VWHP ZDV D GHSHQGHQW YDULDEOH LW VHHPHG SUREDEOH WKDW GHPRFUDF\ KDG VRFLRHFRQRPLF UHTXLVLWHV /LSVHW f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f 7KH VHFRQG LPSRUWDQW FRQWULEXWLRQ DUJXHG WKDW SROLWLFDO GHYHORSPHQW WRZDUG GHPRFUDF\ ZRXOG UHTXLUH VWUXFWXUDO GLIIHUHQWLDWLRQ WKH GHYHORSPHQW RI DXWRQRPRXV VXEV\VWHPV DQG FXOWXUDO VHFXODUL]DWLRQ $OPRQG DQG 3RZHOO f 7KH ELJJHVW FRQWULEXWLRQ ZDV WKH QLQH YROXPH 3ROLWLFDO 'HYHORSPHQW 6HULHV DXWKRUHG E\ VRFLDO VFLHQWLVWV DQG KLVWRULDQV XQGHU WKH VSRQVRUVKLS RI WKH &RPPLWWHH RQ &RPSDUDWLYH

PAGE 32

3ROLWLFV RI WKH 6RFLDO 6FLHQFH 5HVHDUFK &RXQFLO ZKLFK UHFHLYHG WKUHH TXDUWHUV RI LWV IXQGLQJ IURP WKH &DUQHJLH )RUG DQG 5RFNHIHOOHU )RXQGDWLRQV %HUPDQ f 7KH FRPPLWWHH DVVXPHG WKDW SROLWLFDO YDULDEOHV ZHUH DV LPSRUWDQW DV HFRQRPLF RQHV DQG WKDW HFRQRPLF GHYHORSPHQW FRXOG QRW RFFXU ZLWKRXW SROLWLFDO GHYHORSPHQW $OPRQG f 7KH VHULHV H[DPLQHG WKH UROH RI FRPPXQLFDWLRQV EXUHDXFUDF\ LQVWLWXWLRQV FXOWXUH SROLWLFDO SDUWLHV LQWHUHVW JURXSV DQG PDVV DWWLWXGHV LQ SROLWLFDO GHYHORSPHQW DQG UHIOHFWLQJ XSRQ WKH LQFUHDVLQJ WXUPRLO RI WKH WLPHV VXJJHVWHG SROLWLFDO GHYHORSPHQW ZDV VKDSHG E\ LQHYLWDEOH FULVHV RI QDWLRQDO LGHQWLW\ VWDWH OHJLWLPDF\ SRSXODU SDUWLFLSDWLRQ VWDWH SHQHWUDWLRQ RI VRFLHW\ DQG WKH HTXLWDELOLW\ RI WKH GLVWULEXWLRQ RI JRRGV DQG VHUYLFHV 7KH NH\ WR GHYHORSLQJ GHPRFUDF\ ZRXOG EH LQ WKH VHTXHQFHV LQ ZKLFK WKHVH FULVHV RFFXUUHG DQG WKH VNLOO ZLWK ZKLFK WKH\ ZHUH PDQDJHG ZKHQ WKH\ FDPH :LWK WKDW SROLWLFDO VFLHQFH KDG LWV DQVZHU WR OLQHDU VWDJH WKHRU\ ,W KDG QRWKLQJ RI WKH VRUW (FRQRPLF GHYHORSPHQW WKHRU\ KDG DW LWV FRUH WKH 'RPDU+DUURG JURZWK PRGHO 7KHRULHV RI SROLWLFDO GHYHORSPHQW KDG QR HTXLYDOHQW G\QDPLF +XQWLQJWRQ f 9LFWLPV RI WKHLU RZQ KDSS\ KLVWRU\ $PHULFDQ VRFLDO VFLHQWLVWV KDG VLPSO\ DVVXPHG WKDW DOO JRRG WKLQJV JR WRJHWKHU +XQWLQJWRQ f DQG IRXQG FRUUHODWLRQV WR VKRZ WKDW WKH\ GLG EXW FRXOG GLVFHUQ QR FDXVDO RUGHU 3ROLWLFDO GHYHORSPHQW WKHRU\ ZDV DV WHOHRORJLFDO DV FUXGH 0DU[LVP SUHVXSSRVLQJ DQ HQGSRLQW DQG DQDO\]LQJ UHDO ZRUOG FRQGLWLRQV LQ WHUPV RI GLVWDQFH IURP RU SUR[LPLW\ WR WKH LGHDO .HVVHOPDQ )DU IURP EHLQJ D G\QDPLF PRGHO RI FKDQJH LW ZDV D KRVW RI SURSRVLWLRQV DQG FDWHJRULFDO VFKHPHV 0HQNKDXV f )XUWKHUPRUH UHDO ZRUOG HYHQWV KDG VKRZQ WKDW UDSLG HFRQRPLF JURZWK FRXOG OHDG DV RIWHQ WR SROLWLFDO GHFD\ LQWR FRXSV DQG PLOLWDU\ WDNHRYHUV DV AR SROLWLFDO GHYHORSPHQW 8QOLNH 0DU[LVP KRZHYHU WKH HQGSRLQW ZDV QRW D XWRSLDQ &RPPXQLVP QHYHU VHHQ EHIRUH EXW WKH :HVWHUQ H[SHULHQFH RI GHPRFUDF\ DQG FDSLWDOLVP :LOOLDPV f

PAGE 33

WRZDUG GHPRFUDF\ VXJJHVWLQJ WKDW RUGHU DQG VWDELOLW\ PLJKW EH PRUH LPSRUWDQW WR D FRXQWU\nV ZHOIDUH WKDQ DGKHUHQFH WR GHPRFUDWLF IRUPV +XQWLQJWRQ f 6RPH 7KLUG :RUOG JRYHUQPHQWV HJ 7DLZDQ DIWHU WKH &KLQHVH 5HYROXWLRQ 6RXWK .RUHD DIWHU WKH .RUHDQ :DU £QG %UD]LO XQGHU WKH MXQWDf PDLQWDLQHG VWDELOLW\ WKURXJK DXWKRULWDULDQ PHDQV DQG DFKLHYHG KLJK UDWHV RI JURZWK E\ SUDFWLFLQJ SURWHFWLRQLVP DQG VRPH GHJUHH RI FHQWUDO SODQQLQJ 7KHVH JRYHUQPHQW GLG QRW ZLVK WR EH SROLWLFDOO\ GHYHORSHG ,Q IDFW WKH JRYHUQPHQWV RI PRVW HPHUJLQJ QDWLRQV PLVWUXVWHG WKH ZKROH LGHD RI SROLWLFDO GHYHORSPHQW DQG VXVSHFWHG SROLWLFDO UHVHDUFKHUV RI EHLQJ DJHQWV RI WKH &,$ 0HQNKDXV f 7KH UHVXOW ZDV WKDW SROLWLFDO GHYHORSPHQW SURMHFWV ZHUH WULHG RQO\ EULHIO\ DQG WKHQ IRU IRXU UHDVRQV GLVDSSHDUHG DIWHU WKH V f 7KH WKHRU\ ZDV MXGJHG LQDGHTXDWH f 3ROLWLFDO GHYHORSPHQW SURMHFWV ZHUH EHVPLUFKHG E\ WKHLU LPSOHPHQWDWLRQ DV SDUW RI WKH 86 ZDU HIIRUW LQ 9LHWQDP DQG WKH LQYROYHPHQW RI 86 XQLYHUVLWLHV ZLWK WKH &,$ f 3ROLWLFDO GHYHORSPHQW SURMHFWV SURYHG IRU WKH PRVW SDUW WR EH SROLWLFDOO\ LPSRVVLEOH WKH SURXG JRYHUQPHQWV RI QHZO\ LQGHSHQGHQW FRXQWULHV UHVHQWHG VXFK DFWLYLWLHV DV YLRODWLRQV RI WKHLU QDWLRQDO VRYHUHLJQW\ f (YLGHQFH UDSLGO\ DFFXPXODWHG WKDW VWURQJ HFRQRPLF JURZWK GLG QRW OHDG DXWRPDWLFDOO\ WR WKH UHTXLVLWH LPSURYHG VRFLRHFRQRPLF FRQGLWLRQV IRU WKH PDVVHV RI SHRSOH 3ROLWLFDO GHYHORSPHQW GLG QRW JHW RQWR WKH DJHQGD XQWLO WKH GRQRUV ZHUH IRUFHG E\ WKH IDLOXUH RI WKHLU SURJUDPV WR FRQIURQW WKH PRXQWLQJ HYLGHQFH WKDW SROLWLFV KDV DQ LPSRUWDQW LI XQSUHGLFWDEOHf HIIHFW RQ HFRQRPLF GHYHORSPHQW $V HFRQRPLVWV EHJDQ DW ODVW WR WXUQ WKHLU DWWHQWLRQ WR SROLF\ LVVXHV SROLWLFDO VFLHQWLVWV RQFH PRUH WRRN XS SROLWLFDO GHYHORSPHQW DV D UHVHDUFK DJHQGD $ VHFRQG ZDYH RI SROLWLFDO GHYHORSPHQW VFKRODUVKLS EHJDQ LQ WKH PLG V ,W TXLFNO\ FRQYHUJHG ,

PAGE 34

ZLWK HFRQRPLF WKLQNLQJ RQ WKH LVVXH RI JRYHUQDQFH +\GHQ DQG %UDWWRQ f ,W VHHPHG SRVVLEOH XQGHU WKLV QHZ FRQFHSW JRYHUQDQFH WR ZHDYH WRJHWKHU WKH VHSDUDWH VWUDQGV RI SROLWLFDO DQG HFRQRPLF GHYHORSPHQW WKHRU\ 3ROLWLFDO DQG HFRQRPLF GHYHORSPHQW ZHUH QRZ DFFHSWHG DV PXWXDOO\ UHLQIRUFLQJ 3\H f ZLWK JRYHUQDQFH DV VRPHWKLQJ RI DQ LQWHUYHQLQJ YDULDEOH EHWZHHQ WKH VWDWH DQG VRFLHW\ WKH VXUIDFH DORQJ ZKLFK SROLWLFV DQG HFRQRPLFV UXEEHG ,Q WKH QHZ SDUDGLJP WKH UROH RI WKH VWDWH ZDV YDVWO\ UHGXFHG DQG WKH VHDUFK IRU WKH NH\ WR VXFFHVV UHWXUQHG WR ZKHUH LW KDG VWDUWHG LQ WKH V WR WKLQJV LQWHUQDO WR VRFLHWLHV %DUNDQ f %\ WKH XQGHUO\LQJ GHHS WKHRULHV RI HFRQRPLF DQG SROLWLFDO GHYHORSPHQW KDG EURXJKW WKH FRQWUDGLFWLRQ EHWZHHQ LQGLYLGXDO DQG FROOHFWLYH JRRGV LQWR FOHDU IRFXV :LOOLDPV f %\ WKH WLPH %LOO &OLQWRQ ZDV HOHFWHG SUHVLGHQW WKH VXFFHVV RI ERWK SROLWLFDO DQG HFRQRPLF GHYHORSPHQW ZDV XQGHUVWRRG WR EH PXWXDOO\ ERXQG ZLWK WKH VROXWLRQ VHHQ WR OLH QRW LQ WKH HFRQRPLF EXW LQ WKH KXPDQ UHVRXUFH EDVH 6XVWDLQDEOH HFRQRPLF GHYHORSPHQW UHTXLUHG D SURSHU HQDEOLQJ HQYLURQPHQW 6XFK DQ HQYLURQPHQW FRXOG EH KDG RQO\ WKURXJK SROLWLFDO PHDQV WKURXJK WKH HPSRZHUPHQW RI WKH PDVV RI RUGLQDU\ SHRSOH 7KLV PHDQW FKDQJH WRZDUG JUHDWHU GHPRFUDF\ =LPPHUPDQ f 7R JHW WKHUH ZRXOG GHPDQG QRWKLQJ OHVV WKDQ WKH FRQVWUXFWLRQ RI QHZ VHOILGHQWLWLHV DPRQJ WKH SHRSOH :LOOLDPV f ,Q WKH GRPDLQ RI SROLWLFV WKHUH ZHUH WZR IXQGDPHQWDO FRQWUDGLFWLRQV )LUVW DQ XQIRUHVHHQ LQFRQJUXLW\ DURVH EHWZHHQ GHPRFUDWLF IRUP DQG SROLWLFDO RUGHU WKH IRUPHU GLG QRW DXWRPDWLFDOO\ HQVXUH WKH ODWWHU 6HFRQG WKH SURMHFW RI SROLWLFDO GHYHORSPHQW WRZDUG GHPRFUDF\ ZDV QRW ZHOFRPHG E\ WKH JRYHUQPHQWV RI WKH GHYHORSLQJ FRXQWULHV DQG ZDV GLVSDUDJHG DV ZLOO EH VKRZQ LQ &KDSWHU E\ WKH 86 IRUHLJQ SROLF\ HVWDEOLVKPHQW ,

PAGE 35

7KHRULHV RI 'HYHORSPHQW $GPLQLVWUDWLRQ $V SROLWLFDO GHYHORSPHQW ORVW VWDWXV WKH VHHPLQJO\ PRUH YDOXH QHXWUDO DQG SURGXFWLYH ILHOG RI HFRQRPLF GHYHORSPHQW FDPH WR RFFXS\ DOO RI WKH 86 IRUHLJQ DLG DJHQGD VDYH WKDW RI WKH VPDOO DQG FRPSDUDWLYHO\ XQFRQWURYHUVLDO ILHOG RI GHYHORSPHQW DGPLQLVWUDWLRQ .HVVHOPDQ f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nHWDW WKDW VZHSW WKH FRQWLQHQW LQ WKH PLGV ZDV SDUWLFXODUO\ GHPRUDOL]LQJ &RUUXSWLRQ DQG LQHIILFLHQF\ VSUHDG OLNH IXQJL $ GHEDWH EHJDQ EHWZHHQ WKRVH ZKR IDYRUHG VWD\LQJ WKH FRXUVH DQG VWLFNLQJ WR ZKDW %% 6FKDIIHU f ODEHOOHG DGPLQLVWUDWLYH GHYHORSPHQW DQG WKRVH ZKR IDYRUHG D GLIIHUHQW OHVV VWUXFWXUHG DSSURDFK WKDW ZRXOGAWDNH DFFRXQW RI WKH XQLTXH SUREOHPV VXUURXQGLQJ WKH DGPLQLVWUDWLRQ RI HFRQRPLF GHYHORSPHQW LQ WKH 7KLUG :RUOG ZKDW 6FKDIIHU UHIHUUHG WR DV GHYHORSPHQW DGPLQLVWUDWLRQ 7KH FRPSDUDWLYH VWXG\ RI WKLV SUREOHP ZDV GRPLQDWHG E\ )UHG 5LJJV D RQH PDQ LGHDV IDFWRU\ >ZKR FDPH@ QHDU WR FRQVWLWXWLQJ WKH ZKROH PRYHPHQW +HDG\ IRRWQRWH f %\ WKH ODWH V WKH ILHOG RI FRPSDUDWLYH SXEOLF DGPLQLVWUDWLRQ ZDV GLYLGHG URXJKO\ LQWR VFKRODUV ZKR VWXGLHG EXUHDXFUDWLF VWUXFWXUHV DQG VFKRODUV ZKR VWXGLHG EXUHDXFUDWLF FRQWH[WV %HWZHHQ WKHVH WZR H[WUHPHV WKHUH JUDGXDOO\ HPHUJHG D WKLUG

PAGE 36

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n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

PAGE 37

^ DGRSWHG LQ WKH V 7KH FRQWH[WXDOLVWV KRZHYHU FRQWLQXHG WR DUJXH WKH IXWLOLW\ RI FUHDWLQJ RYHUGHYHORSHG EXUHDXFUDFLHV LQ XQGHUGHYHORSHG FRXQWULHV +HDG\ f 7KH VFKRRO ZKLFK UHIHU WR DV WKH RUJDQLFLVWV EHJDQ WR IRUP DW WKLV WLPH 7KH\ DUJXHG LQ IDYRU RI HFOHFWLF DGDSWLYH RUJDQL]DWLRQV WKDW ZRUNHG FORVHO\ ZLWK WKH SHRSOH WKH\ VHUYHG DQG FRXOG OHDUQ IURP WKHLU H[SHULHQFH .RUWHQ f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f§WKH JRYHUQPHQWf§DQG GLVWLQJXLVKHG EHWZHHQ WKUHH W\SHV RI JRYHUQPHQW FRPSRVLWH SULPRUGLDO DQG PLPHWLF &RPSRVLWH JRYHUQPHQWV ZHUH ERWK

PAGE 38

KLHUDUFKLF DXWKRULWDWLYHf DQG SRO\DUFKLF FRQVHQVXDOf LQ VRPH NLQG RI HIIHFWLYH WKRXJK QRW QHFHVVDULO\ V\PPHWULFDOEDODQFH ZLWK HDFK RWKHU 5LJJV f 3ULPRUGLDO SROLWLFDO V\VWHPV ZHUH HLWKHU KLHUDUFKLF RU SRO\DUFKLF EXW QRW ERWK 0LPHWLF JRYHUQPHQWV ZHUH DQ XQHTXDOO\ EDODQFHG PL[WXUH RI WKH WZR 7KH FRPSRVLWH JRYHUQPHQWV RI WKH ZRUOG ZHUH WKH PRGHUQ QDWLRQVWDWHV RI :HVWHUQ (XURSH 1RUWK $PHULFD DQG -DSDQ 7KH SULPRUGLDO JRYHUQPHQWV ZHUH WKH WUDGLWLRQDO SROLWLFDO V\VWHPV VXFK DV FKLHIWDLQFLHVf LQ WKH OHVV GHYHORSHG DUHDV WKDW ZHUH SDVVLQJ IURP WKH IDFH RI WKH HDUWK 0LPHWLF JRYHUQPHQWV ZHUH WKRVH WKDW ZHUH UHSODFLQJ WKHP 7KH QHZ JRYHUQPHQWV LQ $IULFD WHQGHG WR EH KLJKO\ XQVWDEOH EHFDXVH WKH\ ZHUH EDGO\ XQEDODQFHG HLWKHU WRZDUG KLHUDUFK\ LQ VRPH IRUP RI EXUHDXFUDWLFDXWKRULWDULDQLVP RU WRZDUG SRO\DUFK\ LQ VRPH IRUP RI SDWURQFOLHQWHOLVP ,Q WKLV PRGHO WKH W\SH RI EXUHDXFUDF\ IRXQG LQ D FRXQWU\ ZDV D IXQFWLRQ RI ZKDW W\SH RI JRYHUQPHQW LW KDG 5LJJV f ,Q DFWXDOLW\ WKH EHKDYLRU RI D GMLYHQ DJHQF\ LQ D JRYHUQPHQW ZDV VKDSHG E\ PDQ\ PRUH LQGHSHQGHQW YDULDEOHV WKDQ RQH *RYHUQPHQW DJHQFLHV W\SLFDOO\ ZHUH SDUW RI ZHDN VWDWHV LQ VWURQJ VRFLHWLHV 0LJGDO f $GKHULQJ WR DGPLQLVWUDWLYH SULQFLSOHV ZDV OHVV LPSRUWDQW WKDQ REH\LQJ FXOWXUDO LPSHUDWLYHV VXFK DV NLQVKLS WLHV RU HFRQRPLHV RI DIIHFWLRQ WKDW RXWZHLJKHG RWKHU LQFHQWLYHV +\GHQ f $GPLQLVWUDWLRQ LQ WKH GHYHORSLQJ FRXQWULHV ZDV QHJDWLYHO\ DIIHFWHG E\ FXOWXUDO DWWULEXWHV WKDW UHVLVWHG VRFLDO HQJLQHHULQJ 2UTDQLFLVP $OWKRXJK WKH VWUXFWXUDOLVWVn SROLF\ UHFRPPHQGDWLRQV ZHUH DGRSWHG LQ WKH 86 IRUHLJQ DLG SURJUDP WKH WKUHHVLGHG GHEDWH DPRQJ WKH VWUXFWXUDOLVWV FRQWH[WXDOLVWV DQG RUJDQLFLVWV GLG QRW DEDWH DQG LQWHQVLILHG DIWHU WKH ILUVW HDUO\ IDLOXUHV RI WKH GHYHORSPHQW SURJUDP 7KH UHVXOW ZDV D GHDGORFN LQ GHYHORSPHQW DGPLQLVWUDWLRQ WKHRU\ E\ WKH HQG RI WKH V $V 6FKDIIHU H[SUHVVHG LW 7KH SDUDGR[ LV RQO\ WRR FOHDU RQ WKH RQH KDQG D VHDUFK IRU FKDQJH YLD DGPLQLVWUDWLYH PHDQV RQ

PAGE 39

WKH RWKHU D VXVSLFLRQ D GLVVDWLVIDFWLRQ D GLVWUXVW RI DGPLQLVWUDWLRQ DQG DW WLPHV D VSHFLILFDOO\ DQWLDGPLQLVWUDWLYH SRVLWLRQ 6FKDIIHU f 7KLV HDUO\ PHQWLRQ RI DQWLJRYHUQPHQW DWWLWXGHV ZDV D IRUHWDVWH RI WKH IHDVW WR FRPH :KLOH UHFRJQL]LQJ WKDW VRFLDO DQG FXOWXUDO QRUPV SHUYDGH EXUHDXFUDF\ 9LFWRU 7KRPSVRQ f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n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nGLUHFWLYH HGXFDWLRQn PHDQLQJ HGXFDWLRQ E\ WKH RUJDQL]DWLRQ RI WKH FRPPXQLW\ LW VHUYHV 6FKDIIHU f 7KXV ZKLOH SROLWLFDO GHYHORSPHQW QHYHU UHDOO\ JRW RQWR WKH DJHQGD GHYHORSPHQW DGPLQLVWUDWLRQ SOD\HG D ODUJH UROH LQ WKH 86

PAGE 40

IRUHLJQ DLG SURJUDP 7UDLQLQJ RU ZKDW ZDV ODWHU FDOOHG KXPDQ UHVRXUFH GHYHORSPHQW ZDV D VXEVWDQWLDO IHDWXUH RI PRVW $,' PLVVLRQVn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f 7KH SUREOHP ZDV ZLWK D IHZ QRWDEOH H[FHSWLRQV VXFK DV ,VUDHO DQG (J\SW LQ PRVW FRXQWULHV WKHUH ZDV VHOGRP DQ\ FOHDU QDWLRQDO LQWHUHVW IRU WKH 86 IRUHLJQ DLG SURJUDP WR VXSSRUW 7KH SUREOHP OD\ LQ WKH VXEMHFWLYH QDWXUH RI WKH FQFHSW RI QDWLRQDO LQWHUHVW LQFOXGLQJ WKH ODFN RI LQWHOOHFWXDO ULJRU LQ LWV DSSOLFDWLRQ =LPPHUPDQ f )RUHLJQ DLG H[WHQGHG WKH UHDFK RI WKH FRQFHSW RI QDWLRQDO LQWHUHVW EH\RQG LWV JUDVS 7KH SRRU SHUIRUPDQFH RI WKH $PHULFDQ IRUHLJQ DLG SURJUDP LQ WKH V DQG nV ZDV GXH WR LQFRUUHFWO\OHDUQHG OHVVRQV IURP WKH 0DUVKDOO 3ODQ 2IILFLDOV PLVFRQVWUXHG WKH VXFFHVVIXO UHFRQVWUXFWLRQ DQG GHPRFUDWL]DWLRQ RI WKH SUHYLRXVO\ LQGXVWULDOL]HG DQG LQ PRVW FDVHV SUHYLRXVO\ GHPRFUDWLFf QDWLRQV RI (XURSH DQG -DSDQ IRU D EOXHSULQW RI KRZ WR GHYHORS 7KLUG :RUOG FRXQWULHV =LPPHUPDQ f %HFDXVH IRUHLJQ DLG RIILFLDOV FRQIXVHG PRGHUQL]DWLRQ ZLWK GHYHORSPHQW +XQWLQJWRQ f WKHLU DWWHPSW WR DSSO\ WKH 0DUVKDOO 3ODQ WR WKH 7KLUG :RUOG ZDV GRRPHG ,

PAGE 41

WR IDLOXUH 7KH ODUJH VFDOH FDSLWDOLQWHQVLYH SURMHFWV DQG PDVVLYH WUDLQLQJ SURJUDPV WR VWUHQJWKHQ LQVWLWXWLRQV WUDQVIHU WHFKQRORJ\ DQG EXLOG D PRGHUQ LQIUDVWUXFWXUHf§SURMHFWV RI WKH VRUW +LUVFKPDQ f REVHUYHGf§ZHUH QDLYHO\ DVVXPHG WR EH DOO LW ZRXOG WDNH WR VSDUN VXVWDLQDEOH GHYHORSPHQW HYHU\ZKHUH 7DFWLFDO $SSURDFKHV WR 'HYHORSPHQW ,Q WKH IRXUWHHQ \HDUV IURP WR ,QKHUH ZHUH ILYH VXFFHVVLYH DJHQFLHV WKDW KDQGOHG 86 ELODWHUDO DLG :KHQ $,' ZDV FUHDWHG LQ LW ZDV WKH VL[WK 7KH ILUVW H[WHQVLRQ RI ELODWHUDO DLG ZDV DQQRXQFHG E\ 7UXPDQ LQ D MRLQW VHVVLRQ RI &RQJUHVV RQ 0DUFK LQ UHVSRQVH WR %ULWDLQn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nV ILUVW WHUP IURP WR 7KH ILIWK DQG &RR SH UHA9 \ ODVW IRUHUXQQHU WR $,' ZDV WKH ,QWHUQDWLRQDO 2SHUDWLRQV $GPLQLVWUDWLRQ ZKLFK H[LVWHG IRU WKH IRXU \HDUV RI (LVHQKRZHUnV VHFRQG WHUP (DFK RI $,'n6 IRUHUXQQHUV DQG $,' LWVHOI ZHUH DFWLYH LQ ,QGLD ZKLFK UHFHLYHG LWV LQGHSHQGHQFH RQ $XJXVW 7KH FDVH RI ,QGLD ,

PAGE 42

LV VLJQLILFDQW WR WKLV VWXG\ EHFDXVH QHDUO\ HYHU\ WDFWLFDO DSSURDFK WR GHYHORSPHQW WKDW $,' ZDV WR WU\ LQ 7DQ]DQLD ZDV ILUVW WULHG WKHUH LQ WKH IDPRXV (WDZDK SURMHFW VKDOO H[DPLQH IRXU GLIIHUHQW WDFWLFDO DSSURDFKHV WR GHYHORSPHQW E\ QR PHDQV DQ H[KDXVWLYH OLVW RI WKH GLIIHUHQW DQJOHV WKDW KDYH EHHQ WULHGf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GGHGf $PEDVVDGRU %RZOHV GUDZLQJ VLPSO\ RQ ZKDW KH KDG H[SHULHQFHG RI VRFLDO SURJUDPV DV D KLJKUDQNLQJ RIILFLDO LQ WKH 5RRVHYHOW DGPLQLVWUDWLRQ DQWLFLSDWHG &KHQHU\6WURXA£W JDS WKHRU\ E\ DOPRVW WHQ \HDUV 7KH FKLHI GHVLJQHU RI (WDZDK ZDV $OEHUW 0D\HU DQ DUFKLWHFW DQG WRZQ SODQQHU ZKR KDG VHUYHG LQ WKH FRXQWU\ GXULQJ WKH ZDU DV D OLHXWHQDQWFRORQHO LQ WKH 86 $UP\ &RUSV RI (QJLQHHUV EXLOGLQJ DLUILHOGV 0D\HU KDG PHW -DZDKDUODO 1HKUX LQ DQG HQMR\HG D VROLG

PAGE 43

, UHSXWDWLRQ DPRQJ ,QGLDnV SROLWLFDO OHDGHUV +H GUHZ RQ WKH SUDFWLFDO H[SHULHQFH RI $PHULFDQ PLVVLRQDULHV LQ ,QGLD DQG RQ WKH ILQGLQJV RI UXUDO VRFLRORJLVWV DQG 'HSDUWPHQW RI $JULFXOWXUH H[WHQVLRQ RIILFHUV LQ WKH 8QLWHG 6WDWHV ,Q KLV VWXG\ RI WKH (WDZDK SURMHFW *HUDOG 6XVVPDQ f LGHQWLILHG ILYH NH\ IHDWXUHV RI WKH LQWHJUDWHG UXUDO GHYHORSPHQW DSSURDFK 0D\HU GHYHORSHG )LUVW 0D\HUnV EDVLF DVVXPSWLRQ ZDV WKDW WKH $PHULFDQ ODQGJUDQW PRGHO RI UHVHDUFK DQG H[WHQVLRQ FRXOG EH WUDQVIHUUHG WR ,QGLD $Q H[SHQGDEOH ,QGLDQ JRYHUQPHQW DJHQF\ ZRXOG VHUYH DV WKH YHKLFOH IRU WKLV WUDQVIHU RI WHFKQRORJ\ 6HFRQG WR EH HIIHFWLYH UXUDO GHYHORSPHQWf§DOVR FDOOHG UXUDO XSOLIW DQG VHOIKHOS DW WKH WLPHf§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nV UXUDO £HYHORSPHQW WHDPV ZRXOG RSHUDWH XVLQJ D SUREOHP RULHQWHG IUDPHZRUN 7KH LQLWLDO VWHS ZRXOG EH VLPSO\ WR LGHQWLI\ ORFDO SUREOHPV DQG QHHGV DQG ZKDWHYHU ORFDO UHVRXUFHV WKHUH PLJKW EH LQ WKH FRPPXQLW\ 5HOLDQFH RQ VFDUFH LPSRUWHG UHVRXUFHV ZRXOG EH NHSW WR D EDUH PLQLPXP (YHU\WKLQJ WKH UXUDO GHYHORSPHQW WHDPV

PAGE 44

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f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n DWWHQWLRQ ZDV WKDW WKH\ KDG WKH FDSDFLW\ WR DEVRUE FDSLWDO )RFXVLQJ RQ UXUDO HOLWHV PDGH LW HDVLHU WR PRYH PRQH\ $XVWLQ f

PAGE 45

WR SURYLGH HYHU\ YLOODJH IDPLO\ ZLWK WDQJLEOH HYLGHQFH WKDW WKH JRYHUQPHQW ZDV FRQFHUQHG DERXW WKHLU ZHOIDUH %RZOHV ZDQWHG D QDWLRQDO SURJUDP WKDW ZRXOG FRYHU WKH ZDWHUIURQW DQG EHVHHQ E\ DV PDQ\ SHRSOH DV SRVVLEOH 7KH GLVSXWH ZLWK WKH ,QGLDQ JRYHUQPHQW ZDV WZRIROG )LUVW WKHUH ZDV WKH QRUPDO WXUI ZDU RYHU ZKLFK PLQLVWU\ VKRXOG GLUHFW WKH SURJUDP 6HFRQGO\ WKH SURJUDPnV IOH[LEOH SUREOHPVROYLQJ SDUWLFLSDWRU\ DSSURDFK FRQIOLFWHG ZLWK WKH KLJKO\ KLHUDUFKLFDO ,QGLDQ EXUHDXFUDF\ D SURGXFW RI FHQWXULHV RI %ULWLVK UXOH ZKLFK ZDV PRUH FRQFHUQHG ZLWK VWULFW SURWRFRO DQG OLQHV RI DXWKRULW\ 3HUKDSV PRVW VLJQLILFDQWO\ WKH (WDZDK SURMHFW FRQIOLFWHG ZLWK WKH QHHG RI ERWK WKH ,QGLDQ JRYHUQPHQW DQG $,'n6 IRUHUXQQHUV WR PRYH PRQH\ TXLFNO\ 0D\HUn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nV EHJDQ WR UXQ RXW RI VWHDP 5HVHDUFK LQWR WKH QHZ WDFWLFDO DSSURDFK ZDV KHDYLO\ IXQGHG E\ $,' DQG ZDV FRQGXFWHG XQGHU WKH JXLGDQFH RI 0LOWRQ (VPDQ DQG KLV FROOHDJXHV IURP WKH VFKRROV RI WKH 0LGZHVW 8QLYHUVLWLHV &RQVRUWLXP IRU ,QWHUQDWLRQDO $FWLYLWLHV 5RQGLQHOOL f ,QVWLWXWLRQ EXLOGLQJ SURMHFWV DFFRXQWHG IRU KDOI RI QHZ $,' VSHQGLQJ LQ 7DQ]DQLD LQ WKH HDUO\ V DQG SUHFHGHG LQWHJUDWHG UXUDO GHYHORSPHQW E\ KDOI D GHFDGH

PAGE 46

,QVWLWXWLRQ EXLOGLQJ EHJDQ ZLWK WKUHH SUHPLVHV OHDUQHG IURP SDVW H[SHULHQFH f GHYHORSPHQW ZDV WKH SURFHVV RI LQWURGXFLQJ FKDQJH f LPSHGLPHQWV WR GHYHORSPHQW ZHUH QRW HFRQRPLF EXW DGPLQLVWUDWLYH DQG f ERWWOHQHFNV ZHUH GXH PRVWO\ WR ORZ OHYHOV RI DGPLQLVWUDWLYH FDSDELOLWLHV 7KH NH\ ZDV WR LPSURYH WKH FDSDFLW\ RI SXEOLF DJHQFLHV WR FRQYHUW WKHP IURP RUJDQL]DWLRQV WR LQVWLWXWLRQV PHDQLQJ WR DJHQFLHV ZKRVH SUHVFULEHG FKDQJHV ZHUH DFFHSWHG YDOXHG DQG IXQFWLRQDO (VPDQ 6PDUW f 7KH FKLHI SUREOHP WKDW LQVWLWXWLRQ EXLOGLQJ UDQ LQWR ZDV WKDW $,' FRQWUDFWHG ZLWK XQLYHUVLWLHV WR SURYLGH WKH WHFKQLFDO DVVLVWDQFH IRU PXFK RI LWV LQVWLWXWLRQ EXLOGLQJ SURJUDP 7KH XQLYHUVLW\ SURIHVVRUV ZKR ZHQW WR WKH 7KLUG :RUOG FDPH ZLWK WKHLU SHW PRGHOV RI FKDQJH )RU WKH PRVW SDUW WKH\ ZHUH QRW DEOH WR SHUVXDGH WKHLU KRVW FRXQWU\ FRXQWHUSDUWV WR DGRSW WKHLU LGHDV %ODVH f ,QVWLWXWLRQ EXLOGLQJ XVHG WZR IHDWXUHV RI (WDZDK )LUVW LW UHFRJQL]HG WKH LPSRUWDQFH RI SURSHUO\ VRFLDOL]LQJ JRYHUQPHQW RIILFLDOV VR WKDW WKH :HVWHUQ PDQDJHPHQW WHFKQLTXHV EHLQA WUDQVIHUUHG LQ E\ IRUHLJQ DLG EHFDPH LQVWLWXWLRQDOL]HG WUDGLWLRQV 6HFRQG WKHUH KDG WR EH D GLDORJXH EHWZHHQ WKH RUJDQL]DWLRQ DQG WKH SHRSOH LW VHUYHG VR WKDW WKH FKDQJHV WKH RUJDQL]DWLRQ SURSRVHG WR PDNH ZRXOG EH DFFHSWHG DQG EHFRPH YDOXHG E\ WKH SHRSOH 7KH OHDUQLQJ SURFHVV ,Q KLV EULHI GLVFXVVLRQ RI DGPLQLVWUDWLRQ DV nGLUHFWLYH HGXFDWLRQn %% 6FKDIIHU f RSHQHG D ZLQGRZ WR WKH RUJDQLFLVW VFKRRO WKDW EHJDQ WR GHYHORS LQ SXEOLF DGPLQLVWUDWLRQ DQG LWV VXEILHOG RI GHYHORSPHQW DGPLQLVWUDWLRQ 3UHVVPDQ DQG :LOGDYVN\ f REVHUYHG WKH GHWDLOV RI WKH PDQ\ UHDVRQV ZK\ SROLF\ LPSOHPHQWDWLRQ FRXOG JR KD\ZLUH LQ WKH 86 V\VWHP 5LFKDUG (OPRUH f FRQFHUQHG ZLWK WKH HPHUJLQJ EDFNODVK DJDLQVW ELJ JRYHUQPHQW RQ WKH HYH RI 5HDJDQnV ,

PAGE 47

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f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

PAGE 48

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f SLRQHHUHG D FRVWHIIHFWLYH WHFKQLTXH RI DVVHVVLQJ GHYHORSPHQW QHHGV FDOOHG UDSLG UXUDO DSSUDLVDO +H GLVWLQJXLVKHG WKLV IURP WZR SUHGRPLQDQW DSSURDFKHV WR SURMHFW GHVLJQ ORQJ DQG GLUW\ DQG TXLFN DQG GLUW\ /RQJ DQG GLUW\ DSSUDLVDOV DUH WKH IDYRULWHV RI DFDGHPLFV 7KH\ DUH FRVWO\ DQG WLPHFRQVXPLQJ DQG VSHDN PRUH WR WKHRU\ WKDQ WR SUDFWLFH 7KH\ VWDUW ZLWK UHYLHZV RI H[LVWLQJ VHFRQGDU\ GDWD PRYH RQ WR VXUYH\V RI UXUDO DWWLWXGHV IROORZHG E\ WKH FRGLQJ DQG HQWU\ RI GDWD DQG ILQDOO\ HQG ZLWK FRPSOH[ TXDQWLWDWLYH DQDO\VLV 7KH\ DUH IUHTXHQWO\ GHOLYHUHG DIWHU VXFK JUHDW OHQJWKV RI WLPH WKDW WKH SUREOHP KDV FKDQJHG DQG WKHLU UHFRPPHQGDWLRQV DUH QR ORQJHU UHOHYDQW ZKHQ WKH\ DUULYH /RQJ DQG GLUW\ DSSUDLVDOV DUH JHQHUDOO\ XVHOHVV WR GHFLVLRQ PDNHUV 4XLFN DQG GLUW\ DSSUDLVDOV DUH WKH IDYRULWHV RI SURIHVVLRQDO GHYHORSPHQW ZRUNHUV SHRSOH &KDPEHUV GLVGDLQHG DV GHYHORSPHQW WRXULVWV 7KH\ GULYH RU IO\ RXW IURP WKH FDSLWDO FLW\ DQG EULHIO\ WRXU

PAGE 49

WKH SURMHFW DUHD E\ URDG 7KH\ DUH YXOQHUDEOH WR D KRVW RI ELDVHV 7KH\ RQO\ VHH ZKDW LV YLVLEOH IURP WKH FDU 2IWHQWLPHV ROG KDQGV WKH\ FDQ EH DUURJDQWO\ FRQILGHQW LQ WKHLU SUHFRQFHLYHG QRWLRQV DQG IDLO WR OLVWHQ FDUHIXOO\ WR ZKDW LV VDLG WR WKHP 7KH\ RIWHQ RYHUORRN LQYLVLEOH IDFWRUV VXFK DV SDWURQFOLHQW UHODWLRQV KHDY\ GHEW DQG SDWULPRQLDOLVP DOO LPSRUWDQW WR WKH VXFFHVV RI GHYHORSPHQW EXW LPSRVVLEOH WR VHH LI WKH DQDO\VW LV LQ D ELJ KXUU\ WR JHW EDFN &KDPEHUVn FRQFHSW RI UDSLG UXUDO DSSUDLVDO UHSUHVHQWHG D FRVW HIIHFWLYH VROXWLRQ WR WKH GLUW\ DSSURDFKHV ,W LQYROYHG D QXPEHU RI WHFKQLTXHV UDQJLQJ IURP WKH XVH RI URXJK LQGLFDWRUV OLNH WKH QXPEHU RI WLQ URRIV LQ D YLOODJH RU WKH IDWQHVV RI WKH SLJV WR XVLQJ NH\ LQIRUPDQWV DQG IRFXV JURXSV DQG DGYRFDWHG PL[HV RI TXDOLWDWLYH DQG TXDQWLWDWLYH GDWD :KHQ WKH LQVWLWXWLRQ EXLOGLQJ DSSURDFK ZHQW RXW RI IDVKLRQ LQ WKH ODWH V LWV OHDGLQJ WKHRULVW 0LOWRQ (VPDQ MRLQHG IRUFHV ZLWK 1RUPDQ 8SKRII f WR IRFXV RQ WKH UROH RI ORFDO RUJDQL]DWLRQV LQ GHYHORSPHQW 7KH\ ERUURZHG IURP D QXPEHU RI VFKRROV RI WKRXJKW DQG FRQFHSWXDOL]HG VXFFHVVIXO ORFDO RUJDQL]DWLRQV ALV PHGLDWLQJ VWUXFWXUHV EHWZHHQ WKH VWDWH DQG WKH VXSSRVHG EHQHILFLDULHV RI GHYHORSPHQW DLG 7KH\ VWUHVVHG WKDW ORFDO RUJDQL]DWLRQV ZHUH HIIHFWLYH RQO\ LI WKH\ ZHUH HIILFLHQW HTXLWDEOH DQG LI WKH\ HPSRZHUHG WKHLU PHPEHUV 0LFKDHO &HUQHD f DQG RWKHU FRQWULEXWRUV LQFOXGLQJ 5REHUW &KDPEHUV H[SDQGHG IURP (VPDQ DQG 8SKRIInV UHFRPPHQGDWLRQ WKDW ORFDO RUJDQL]DWLRQV EH KLJKOLJKWHG LQ GHYHORSPHQW SODQQLQJ DQG IRFXVHG RQ WKH UROH RI FXOWXUDO HQGRZPHQWV 7KH\ VDZ LQIRUPDWLRQ DV SDUWLFXODUO\ FUXFLDO DQG DUJXHG WKDW WKH PRVW FUXFLDO LQIRUPDWLRQ RI DOO LV JRWWHQ IURP WKH SHRSOH QHDUHVW WKH SUREOHP ,W ZDV LPSRUWDQW WKDW GHYHORSPHQW SODQQHUV VWDUW WDNLQJ VRFLDO NQRZOHGJH LQWR DFFRXQW DW WKH HDUOLHVW VWDJHV RI SURJUDP GHVLJQ ,

PAGE 50

7KHVH WKUHH YHUVLRQV RI WKH WDFWLF RI XVLQJ LQGLJHQRXV NQRZOHGJHf§ UDSLG UXUDO DSSUDLVDO XVH RI ORFDO RUJDQL]DWLRQV XVLQJ VRFLDO NQRZOHGJHf§DOO DGYRFDWHG SURMHFWV WKDW ZHUH ORQJOLYHG WKDW YDULHG DFFRUGLQJ WR ORFDO FLUFXPVWDQFH DQG WKXV ZHUH KLJKO\ HFOHFWLF DQG YHU\ VORZSDFHG DQG ODERULQWHQVLYH 7KHVH ZHUH DOO DVSHFWV RI WKH LQWHJUDWHG UXUDO GHYHORSPHQW DSSURDFK GHYHORSHG E\ 0D\HU LQ WKH (WDZDK SURMHFW LQ ,QGLD :LWK WKH DUULYDO RI WKH WDFWLF RI XVLQJ LQGLJHQRXV NQRZOHGJH LW VHHPHG HYHU\WKLQJ ZDV DFFRXQWHG IRU (YHU\ DVSHFW RI WKH GHYHORSLQJ FRXQWU\n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

PAGE 51

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f +RZHYHU D VWUDLJKWIRUZDUG DOWUXLVW SHUVSHFWLYH RI DLG GRHV QRW KROG XS LQ WKH FDVH RI $PHULFDQ DLG WR 7DQ]DQLD 'HFODVVLILHG SRUWLRQV RI WKH RIILFLDO UHFRUG UHYHDO WKDW :DVKLQJWRQn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f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f IRU D VLQJOH %ULWLVKUXQ DJULFXOWXUDO SURMHFW

PAGE 52

, %DQGRZ f )RU UHDOLVWV DLG WR $IULFD KDV QHYHU EHHQ DQ\WKLQJ RWKHU WKDQ D WRRO IRU JHRSROLWLFDO JDLQ 8QJDU f +RZHYHU DQ XQPL[HG UHDOLVW YLHZ RI DLG DV SXUH EULEHU\ LV DOVR QRW WHQDEOH LQ WKH FDVH RI $PHULFDQ DLG WR 7DQ]DQLD ,Q WKH HDUO\ V WKH 1\HUHUH JRYHUQPHQW VWDUWHG EHFRPLQJ KRVWLOH WRZDUG WKH 8QLWHG 6WDWHV &RXQVHOHG E\ WKH DUFKUHDOLVW +HQU\ .LVVLQJHU WKH 1L[RQ DQG )RUG DGPLQLVWUDWLRQV UHGXFHG QHZ GHYHORSPHQW DVVLVWDQFH WR 7DQ]DQLD DFFRUGLQJO\ WLW IRU WDW 1HZ SURMHFW VSHQGLQJ LQ 7DQ]DQLD GURSSHG IURP PLOOLRQ LQ WR PLOOLRQ LQ 7KHQ LQ D \HDU ZKHQ WKH 7DQ]DQLDQ HFRQRP\ ZDV VXIIHULQJ IURP WKH HIIHFWV RI WKH ILUVW RLO VKRFN WKH FRXQWU\ ZDV VWULFNHQ ZLWK VHYHUH GURXJKW 7KH WKUHDW RI IDPLQH ORRPHG ,Q UHVSRQVH WKH )RUG DGPLQLVWUDWLRQ UHYHUVHG LWV SROLF\ DQG PDGH D PLOOLRQ ORDQ RI IRRG DQG FDVK 7KLV GLG QRW UHVXOW LQ DQ\ FKDQJH LQ 7DQ]DQLDQ DWWLWXGHV WKH 1\HUHUH JRYHUQPHQW UHPDLQHG D WKRUQ LQ WKH VLGH RI WKH 86 IRU WZR PRUH \HDUV RI GHFOLQLQJ UHODWLRQV 86$,' $SSUDLVDO f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f %HFDXVH RI LQFRQVLVWHQFLHV LQ SDJH QXPEHULQJ LQ PDQ\ LWV UHSRUWV SDJH QXPEHUV DUH QRW LQFOXGHG LQ FLWDWLRQV RI $,' GRFXPHQWV


PRINCIPLED AGENTS IN AN AGENCY UNDER SIEGE:
U.S.A.I.D. AND ITS MISSION IN TANZANIA
By
STEPHEN L. SNOOK
A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL
OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY
UNIVERSITY OF FLORIDA
1996

ACKNOWLEDGMENTS
I would like to acknowledge the kind assistance of Goran Hyden,
Walter Rosenbaum, David Hedge, M. Leann Brown, Chris Andrew, Robert
Uttaro, Nigel Austin, and Ken Mease for their help and advice. To them
goes much of the credit for success; with me lies the blame for any
error.
11

TABLE OF CONTENTS
ACKNOWLEDGMENTS ü
LIST OF TABLES vi
LIST OF FIGURES vii
ABSTRACT viii
INTRODUCTION 1
Indicator of Change 6
Sectors of Activity 7
Plan of Dissertation 8
THEORETICAL CONTEXT 12
Theories, Tactics, and Ideologies 12
Theories of Economic Development 13
Theories of Political Development 22
Theories of Development Administration 27
The Consequences of Developmentalism 32
Tactical Approaches to Development 33
Ideological Perspectives on Foreign Aid 42
INSTITUTIONAL CONTEXT 47
Influence of American Federalism 47
AID'S External Environments 50
AID'S Political Environment 51
AID's Task Environment 53
AID'S Corporate Culture 54
THE CREATION OF AID 58
The Ancestry of AID, 1941-1960 62
The Role of the Private Foundations 63
The Birth of an Official Foreign Aid Program 63
Toward Independence in Tanganyika and Zanzibar 71
The Founding of AID 80
The First Period: Institution Building, 1961-1973 82
Kennedy and AID's Formative Years 85
Johnson, Union, and the Arusha Declaration 90
Nixon, "Tar Baby" and the New Directions 103
REACHING THE POOR MAJORITY, 1974-1980 109
Paradigm Shifts in the U.S. and Tanzania 109
Toward Equity in American Foreign Aid 109
The Radicalization of Ujamaa 112
Famine and the Ford Administration 116
Crisis in Africa 116
The Election of 1976 119
The Heyday of Integrated Rural Development 119
The Conflict Within the Mission Over the "Big Lie" 122
Carter and the Uganda War 127
iii

The Carter Doctrine 128
War with Uganda 132
Structural Adjustment and the 1980 U.S. Election 137
THE THIRD PERIOD: FORCING POLITICAL REFORM, 1981-1995 140
New Paradigm, Old Paradigm: Reagan and Nyerere 140
The Reagan Doctrine 142
Nyerere and The End of Ujamaa 145
A Pyrrhic victory 147
Rebuilding the AID Program 150
Learning from Indigenous Knowledge 153
Institution Building Redux 153
Mwinyi and the Consolidation of Reform 154
Bush, Democracy, Desert Storm, and Corruption in AID 155
American Aid and Democracy 157
Desert Shield and Desert Storm 157
AID'S Loss of Bearing 158
Clinton and the Vivification of the Kennedy Ideal 160
A Paradigm Restored 161
Mwinyi and a New Type of Patronage Politics 163
The Move to Abolish AID 165
U.S. Foreign Aid to Tanzania Under Eight American Presidents 167
THEORIES OF CHOICE AND THEORIES OF CULTURE 170
Choice Theories 170
The Principal-Agent Model 171
A Modest Addition to Theory 177
The First Hypothesis 178
A Rival Hypothesis 180
Culture Theories 180
Types of Organizational Cultures 182
The Strong Culture Model of Principled Agents 183
The Rival Hypothesis Restated 186
THE CASE STUDY METHOD 187
The Problem of Conceptualizing the Problem 187
Challenges to Case Studies 189
Structuration and Nested Games 191
Anthony Giddens and Structuration Theory 192
George Tsebelis and Nested Game Theory 194
Nested Games of Structuration 196
The Case Study Method: Virtues and Limitations 197
Virtues of the Case Study Method 197
Limitations of the Case Study Method 198
Replication Logic and Analytical Generalization 199
The Value of the Case Study 200
Data Collection 200
The Special Problem of Interviewing Elites 202
AID: THE ORGANIZATION AND THE WORKER 205
Part I: Policy Change as Paradigm Shifter or Paradigm Extensor ..205
Punctuated Partial Equilibrium in the Political Environment ..207
Entrepreneurship in the Policy Community 210
Incrementalism in the Task Environment 217
Pressure and Confidence: Explaining Paradigm Shifts 219
The Net Effect: AID'S Behavior in Tanzania 220
Number of Projects 223
Sectors of Activity 223
Constraints on AID Autonomy 230
AID and the Other Donors 232
Feedback as Control in AID 233
IV

AID and Its Conditions 237
The Structure of AID 238
Part II: Inside AID 239
The First Hypothesis 239
A Rival Hypothesis 240
AID'S Culture 240
Staffing of AID 241
Moving Money 244
AID and the Principal-Agent Problem 247
Adverse Selection 247
Moral Hazard 248
Strong Culture Organizations 252
Characteristics Which AID Does Not Possess 252
Characteristics Which AID Does Possess 253
CONCLUSION 257
The Role of Conflict in AID Policy Change 257
Intellectual Influences 259
Political Influences 260
The Structuration of AID in Nested Games 263
Why AID Will Survive 264
APPENDIX A 267
APPENDIX B 268
APPENDIX C 270
LIST OF REFERENCES 271
BIOGRAPHICAL SKETCH 284
I
v

LIST OF TABLES
Table Page
1. New Obligations and Net Receipts, 1973-1977 120
2. New Obligations and Net Receipts, 1981-1984 149
3. Average New Annual Spending by Administration 167
4. Total and Average New Spending Obligations 224
5. Average and Total Spending by Sector 225
6. Rank Order of Constraints on AID Autonomy 230
7. Opinions on AID Responsiveness to Influences 231
8. Opinions on AID Responsiveness to Theories 232
9. Opinion on Importance of Feedback 236
10. Opinion on Whether AID Encourages Innovátion 240
11. Types of Personnel 242
12. Opinion on Imperative to Move Money 245
13. Opinion on Job Competitiveness 247
14. Reasons for Seeking Employment with AID 248
I
vi

I
LIST OF FIGURES
Figure page
1. New Spending Obligations, 1961-1994 222
2. Support for Infrastructure 225
3. Support for Social Services 227
4. Support for Public Administration 228
5. Support for Agriculture. 229
6. Support for Finance 230
i
vii

I
Abstract of Dissertation Presented to the Graduate School
of the University of Florida in Partial Fulfillment of the
Requirement for the Degree of Doctor of Philosophy
PRINCIPLED AGENTS IN AN AGENCY UNDER SIEGE:
U.S.A.I.D. AND ITS MISSION IN TANZANIA
By
Stephen L. Snook
May, 1996
Chairman: Goran Hyden
Major Department: Political Science
This dissertation examines policy change in the U.S. Agency for
International Development (AID) using its mission in Tanzania as a case.
It has two sets of findings. First, it finds tzhat ideological conflict
between conservative realists who view foreign aid as an instrument of
the national interest and liberal altruists who believe that foreign aid
should be given as philanthropy plays a crucial role in shaping AID
policy changes. It finds that the conservative realists dominate the
decisions that quantify aid programs in terms of funding and personnel.
The influence of liberal altruists is limited to issues of program
design and implementation.
Second, the dissertation tests two rival hypotheses. First, it
tests whether the behavior of AID in Tanzania from 1961-1995 can be
explained by the choice-oriented principal-agent model. Second, it
investigates whether the behavior of the agency is better explained by
the strong-culture model of "principled agents." The dissertation finds
I
in favor of the second hypothesis.
A
viii

CHAPTER 1
INTRODUCTION
Legislation was introduced in Congress in the summer of 1995 to
abolish the U.S. Agency for International Development (AID). This
action by Congress helped trigger the 1995-1996 budget impasse. The
termination of a federal agency is a rare event. This study will
explore the reasons why AID was singled out for this special treatment.
AID has long been an unpopular agency. The American public's
dislike of foreign aid giving has led to political conflict about AID at
various levels: between the agency and political officials, within the
agency between headquarters and the field, within individual divisions,
units, and missions, and even within individual employees, who reported
in interviews conducted for this study often being torn between the
necessity of following orders and their personal desire to do some good
in the world.
I will argue that there are essentially two ideological "camps"
within AID and the foreign policy community. Liberal altruists believe
that U.S. foreign aid should be given in a spirit of philanthropy for
humanitarian purposes. Conservative realists believe that foreign aid
is a tool in the diplomatic negotiations kit to be used to promote the
national interest. Some conservatives believe that now that the Cold
War is over AID has served its purpose and can safely be abolished.
Some liberals feel that AID's thirty five-year-old structure is outdated
and in need of a substantial overhaul.
j
I shall argue that foreign aid policy is made in two "rooms," a
front room where the ostensible intentions of foreign aid are on view
and a back room out of the public eye where a different agenda is
1

2
pursued. Conservative realists for whom defense of the national
interest is always the paramount concern dominate the back room where
the decisions regarding the establishment of an aid program and the
level of funding are made. It is they who draw the broad outlines of
foreign aid policy.
Liberal altruists, on the other hand, who historically have
opposed U.S. support for authoritarian oligarchies and have generally
favored "capitalism with a conscience" predominate in the front room.
After the conservatives have decided to establish a program and the
level of aid to be provided to a country, the liberals are given the
less important task of coloring in the details of specific programs. 1
In the following chapters I will document the different
contradictions and conflicts that have shaped AID policy over the years
using the mission in Tanzania as a case. I shall describe AID as
existing in two distinct spheres, or environments, with the agency
itself comprising a third. AID functions in a political environment in
Washington and a task environment overseas. I will show how the great
distance between its input and output functions causes organizational
complications.
I shall argue that policy is a reflection of ideology.
Bureaucratic culture, or AID'S internal environment, can be thought of
as institutionalized ideology. Some or all of the ideology is
internalized by employees through rules and procedures.
AID has since its inception undergone eight major changes in
policy, of which two amounted to shifts in the dominant paradigm. I
define a paradigm shift to mean a complete change in how the issues are
framed and the way problems are approached. I shall analyze the eight
I would like to thank Robert Uttaro for suggesting the "two room"
metaphor as well as for the insightful term "capitalism with a
conscience," or the idea that capitalism does not require unrestricted
profit-seeking to produce growth and can be regulated to meet broader
social concerns without undermining economic performance.

3
policy changes and argue that for a policy change to represent a
paradigm shift, two factors must be present: very high political
pressure from Washington and very low confidence in ongoing programs in
the field.
I shall demonstrate that AID'S task environment is characterized
by an unusually high degree of uncertainty. Furthermore, AID'S
political environment is likewise a highly uncertain place because AID
is an exceptionally unpopular agency. I shall argue that AID'S
perceived dysfunctional or irrational behavior is largely a consequence
of conflict due to environmental uncertainty. I shall argue that today
AID is poised on a knife edge from which it inevitably must fall. It
will either survive and undergo a paradigm shift or it will cease to
exist. AID is the sixth in a series of foreign aid agencies. In the
following analysis I shall show why AID has endured where none of its
forerunners did, and offer a prediction that it will survive the latest
attempt on its life.
For years AID has been accused by the enemies of foreign aid of
being internally dysfunctional, an organization in which the animals
have escaped from their cages and taken over the laboratory. I will
argue that much of AID'S evident dysfunctionality is due to political
meddling. I will offer evidence that AID, far from being a corrupt
agency, is a very rare example of a government bureaucracy with a strong
culture of principled agents.
Much of the epistemological debate in the social sciences is
occupied with trying, with notably poor success, to harmonize or
integrate the social antinomies of macro and micro, aggregate and
individual, and structure and agency. Social scientists who have
attempted to move back and forth between these antinomies, especially
graduate students just learning how to "drive," are accused of
committing the ecological fallacy of using data from one level of

4
analysis to refer to another. I shall argue there is a conceptual
construct, which I shall call "structuration through nested games," that
can close the great divide and capture the interaction between macro and
micro, aggregate and individual, and structure and agency.
Much of AID's behavior is a function of the conflict between the
competing propensities of realism and altruism. Realism refers to the
conservative point of view in foreign policy circles that states are
rational, sensate entities in a conflictual world who act cynically and
aggressively to protect their territorial and political integrity and to
conserve and expand their share of power in the international system
(Krasner 1985: 28). Altruism refers to the liberal viewpoint in foreign
policy circles that humanitarian and egalitarian principles are
important. Like conservative realists, liberal altruists are well aware
of the historic proclivity of states to resort to war to resolve
economic problems. They too wish to protect the U.S. and its allies.
They too subscribe to the basic tenets of Lockean representative
democracy and regulated capitalism. They are more open to ambiguity
than the realists, and prefer thinking of the development effort as one
of fostering a world community by spreading the good news of democracy,
not just reacting in reactionary self-defense. They support efforts to
establish a just international order in which all states have a chance
to do well (Lumsdaine 1993).
The analogue to realism at the individual level of analysis is the
rational choice model of human behavior. Choice theories assume that
the individual is a self-interested, rational actor. Individuals relate
means to ends as efficiently as possible. What ends should be sought
are not specified; choice theories speak to effort, not to outcome
(Rogowski 1978). It is therefore possible for rational actions to have
irrational results. Choice theories understand that the public good

5
requires a bit of irrationality from everyone.2 The analogue to
altruism at the individual level of analysis is the cultural models of
human behavior. Culture theories see the orientation of the individual
not as the product of utilitarian calculus, but as shaped by
socialization (Eckstein 1988).
I shall concentrate on the one choice theory which has begun to
grow quite popular with both economists and political scientists:
principal-agent theory. The theory originated in studies of the firm by
economists concerned mainly with issues of efficiency. Political
scientists later adapted it to their concerns with issues of power. The
key to the theory is the concept of information asymmetry. All paired
relationships are dominated by the party who controls the information.
Information asymmetry provides a parsimonious explanation of how self-
interested persons in the lower echelons of an organization--where the
most critical information is generated—are able to use their control of
that information to frustrate hierarchical authority for their own gain.
In reconstructing the history of the U.S. foreign aid program, I
will show that the Carnegie Corporation and the Ford and Rockefeller
foundations were significant contributors to the architecture of the
U.S. foreign aid program. The foundations were created at a point in
time when socialist ideology was gaining ground. They were created to
support research to find ways of achieving two objectives: (1) to secure
access to cheap raw materials and to protect investments overseas, and
(2) to mold docile labor forces at home and abroad. When some twenty
years later the U.S. government decided that it was in the American
Choice theories can interpret bad social outcomes as the
consequence of individual rational decision making. For example, "the
squalor of . . . Calcutta is a reflection of the rationality of its
inhabitants." All residents prefer their city to be clean. One person
littering does not make the city dirty. Each individual prefers to
litter rather than go looking for a litter bin. It is rational to
litter. Thus, rational action causes squalor (Basu 1984: 7).

6
national interest to resist the spread of Communism and created a
foreign aid program to eliminate the conditions which made Communism
appealing, policy makers turned to the foundations to provide the new
foreign aid program with a rationale. I will consider three main bodies
of development theory, four major tactics that have been used to induce
development, and three broad ideological perspectives on foreign aid
that have influenced AID during its thirty-five years of existence.
Indicator of Change
How should the magnitude of change be measured? I will use money
as an indicator of change in AID behavior from 1961-1995.
AID oversees three broad types of assistance: (1) development and
relief aid disbursed as both grants and loans; (2) food aid under Public
Law 480 (P.L. 480), which distributes surplus agricultural produce
either in kind as humanitarian relief or by selling it to generate local
currency counterpart funds to use in projects; and (3) Economic Support
Funds (ESF), which are grants given at the discretion of the President.
ESF and military assistance account for nearly half of all American
foreign aid and go preponderantly to two countries: Israel and Egypt
(Zimmerman 1993). I consider only ESF and development grants and loans
to Tanzania that were obligated for specific projects. I do not
consider P.L. 480 programs or nonproject spending.
I have selected for my indicator of change the amount of new
spending obligations for aid to Tanzania in constant dollars over time.3
I have selected money obligated rather than money spent for two reasons.
First, quantifying streams of aid year by year is difficult (Wood 1986).
Total aid flows consist of myriad forms of inter-government transfers
involving everything from food to commodities to cash. The big
Funds have been converted to constant 1987 dollars using the index
in the 1994 Economic Report of the President (Washington DC: U.S.
Government Printing Office).
/

7
agriculture projects launched by AID in Tanzania in the late 1960s and
throughout the 1970s, for example, lasted up to ten years. Due to
contingencies, or problems encountered in implementation, the amount
actually disbursed for a given project in a given year often differed,
sometimes substantially, from the amount planned for that year.
Second, when an AID project is authorized, it literally takes on a
life of its own. The acronym LOP, which appears in every AID project
planning document, is significant; it stands for "life of project." The
life of each AID project is carefully mapped out. A date is set for its
end. What activities the project shall engage in during its lifetime
are specified, and schedules, critical paths, and budgets are set.
Because of the inflexibility of this form of planning, when an AID
project comes to life, it is very difficult to change what it is doing
and very nearly impossible to kill. That is why the date of each
project’s death is carefully fixed at its inception.
It takes time to design and staff a project. Furthermore, once
they come on line, projects lock in streams of spending. The amounts of
money spent in Tanzania never changed drastically from year to year.
Net receipts disbursed is therefore less an indicator of changes in
strategy than an indicator of changes in the costs of implementation.
The effect of a decision to increase or reduce aid is always lagged.
Changes in AID'S strategic behavior in Tanzania are better reflected in
the amount of new spending obligated per year.
Sectors of Activity
I consider the 90 largest projects launched from 1961-1995, and
attribute the full cost of each project to the year it was approved. I
have apportioned new spending obligations by sectoral activity to best
reflect what AID was concentrating on in Tanzania in a given year. I

8
í
break activities down into five sectors: (1) agriculture, including
research, food production, and marketing; (2) social services, including
public education, rural water projects, and public health; (3)
infrastructure, including support for light industry, the construction
of highways and buildings, and the renovation of urban water systems;
(4) public administration, including the provision of Western personnel
to fill the "manpower gap" and the training of government officials and
Tanzanian project personnel; and (5) finance, including rural credit
schemes, technical assistance to central banking, and direct cash
transfers for balance of payment support.
In projects that were active in several sectors at once, I have
apportioned the total amount obligated for a project to different
i
sectors according to an estimate based either on the thumbnail sketch of
each project contained in AID'S in-house 1985 history of the Mission, or
in the individual project papers. For example, project 621-0066, Public
Administration Planning, which cost $53, 000 in constant dollars and
lasted from 1965-67, is attributed to one year, 1965, and is apportioned
in its entirety to one sector, public administration, because its sole
purpose was to send five leaders of the United Women of Tanzania to
America to observe Republican and Democratic Ladies' auxiliary
activities. On the other hand, project 621-0085, Rural Credit Union
Development, costing $708,000 in constant dollars and lasting from 1968-
74, is attributed to 1968 and is apportioned in thirds to the finance,
agriculture, and public administration sectors because the project
supported activities in all three sectors more or less equally.
Plan of the Dissertation
Chapters 1 through 6 constitute the big picture, AID in its
context. Chapters 7 through 10 provide a look inside AID, a portrait of
the individual, or more precisely, an examination of the attitudes of

9
the development worker. The reader who is interested only in my
application of the principal-agent model to thé case of AID and does not
wish to be burdened with the account of its history and its contextual
details may safely skip to Chapter 7.
In the first six chapters I describe the theoretical,
institutional and historical context of AID. In the final four chapters
I descend levels of analysis and pit the rational choice principal-agent
model against the cultural model of the strong organization to see which
better explains the attitudes I found in thirty interviews conducted in
Dar es Salaam, Nairobi, and Washington in 1994-1995. I next discuss the
advantages and constraints of the case study research method, then I
present my findings, conduct the analysis, and draw my conclusions.
In the following chapter, I discuss different intellectual
influences on AID. I review theories of economic and political
(
development and of development administration, and present evidence that
in the field of international development, most years, practice preceded
theory, in some instances by as much as forty years in time. I discuss
four different tactical approaches to development used over the course
of four decades, and show that the last three were simply reformulations
of elements of the first.
The overarching framework of this study is the conflict between
rival ideologies. I present three contending critical perspectives on
the entire foreign aid project, reject one as inapplicable, and combine
the other two to create a dialectic to interpret AID'S behavior in
Tanzania as the product of two competing propensities: realism and
altruism. The conflict between these propensities occurs at both the
institutional and the individual level of analysis.
In Chapter 3, I discuss AID'S institutional context. I examine
the political and task environments of the agency and assess the

10
influence of each. I analyze AID'S internal culture to see if it is
better described as a conservative or an innovative agency.
In Chapters 4, 5 and 6, I present the evolution of the American
foreign aid program from 1944-1960 and the subsequent thirty-five year
history of the Mission in Tanzania in three time periods. The time
periods are separated by two significant political events in America,
the major reform of AID'S authorizing legislation in 1973, and the
election of Ronald Reagan in 1980.
Beginning with Chapter 7 I descend levels of analysis to the
individual. I present the hypothesis that the principal-agent model can
explain the behavior of the people in the AID mission in Tanzania and
its headquarters in Washington. Principal-agent theory predicts
organizational dysfunction. As such, it is appropriate to a study of
AID because the agency has long been accused of suffering from a host of
bureaucratic pathologies.
I present a rival hypothesis that AID'S behavior at the level of
I
the individual is better explained by a very different model. I
hypothesize that AID has created a strong culture of principled agents.4
In Chapter 7, I review the principal-agent literature and the
literature on cultural theories of behavior.
In Chapter 8, I discuss the case study method. I contrast the
logic and generalizability of case studies with those that use
statistical methods.
In Chapter 9, I present my findings. I analyze three linkages
relevant to AID using principal-agent and strong-culture theory. These
are (1) the link between the political environment and the agency; (2)
the link within the agency between headquarters and the field; and (3)
the link between the agency and its task environment. In addition, I
examine the influence of feedback from the task environment to the
4.
The term "principled agents" is from Dilulio (1994).

11
political environment over time. In Chapter 10 I present my
conclusions.

CHAPTER 2
THEORETICAL CONTEXT
In its thirty-five years of existence, AID has come under a number
of intellectual influences, some theoretical, some practical, some
ideological. In this chapter, I discuss three main bodies of
development theory, four major tactics that ha-te been used to induce
development, and three broad ideological perspectives on foreign aid
that have influenced AID over the years. In each of these discussions I
will indicate the influence conflict has had on AID's behavior in
Tanzania.
Theories, Tactics, and Ideologies
When the United States launched the world's first foreign aid
program in 1948, no country had ever transferred wealth to another in
time of peace without expecting something in return. This was no
exception. Although aid was distributed for ostensibly philanthropic
purposes such as increasing agricultural production and improving public
health, its deeper purpose was threefold: to resist the spread of
I
Communism, to secure U.S. access to raw materials, and to protect
private American overseas investments. From the outset there was a
conflict between ostensible purposes and hidden agendas. In making the
decision to establish a foreign aid program, the Truman administration
had to answer two questions to the American people. The first was why
foreign aid should be given at all. When this was answered by linking
the policy to issues of national security, a second question had to be
addressed: how and to what ends should aid be given?
12
I

13
Answering the first question involved the making of a policy.
Answering the second involved its implementation. Once the policy was
made, a theory of development to guide practice was wanted.
Unfortunately, there was not yet a precise theoretical statement of the
process of economic development. Theories of economic development took
form after the American foreign aid program had already gone into
operation. The officials of the first U.S. aid agencies, AID'S
forerunners, went out into the world to do a job with no paradigm to
guide their conduct. This would be a regular occurrence. In the field
of international development, practice generally has preceded theory;
the cart has usually been out in front of the horse.
Theories of Economic Development
The whole foreign aid endeavor was begun, as I will detail in
Chapter 4, in the interest of preventing another world war. The U.S.
foreign aid program was predicated on a single, fundamental assumption,
justified by Walrasian theory of general equilibrium, that free trade
would be a boon to all. By asserting that excess demand in one area is
always matched by excess supply in some other, and thus sums to zero
(Turnovsky 1977), the Swiss economist Leon Walras showed at the turn of
the century how, if all the conditions of perfect competition (such as
free entry and exit, perfect and instantaneous information, and no
externalities) were simultaneously met everywhere in the world, trade
would move to a Pareto-optimal equilibrium where all countries would
benefit at equal proportion (Riddell 1987).
Officials of the U.S. foreign aid program knew at the outset that
all the conditions of perfect competition could not possibly be met
everywhere simultaneously for some time to come, if at all. In the
interest of preventing another world war, it was therefore necessary for
them to proceed under the assumption that partial free trade was better

14
f
than none, and to accept that the U.S. would have to bear the costs of
conducting the experiment to find out if this was true.
The field of development economics, though as old as economics
itself, had lost status during the 19th century, and was practiced at
the periphery until P. N. Rosenstein-Rodan (1943) considered the problem
of industrialization in Eastern Europe, and ten years later R. Nurkse
(1953) considered the problem of capital formation in underdeveloped
countries. From these two works emerged the terms "vicious circle of
poverty" and "the poverty trap" and the concept of a non Pareto-
optimal equilibrium state of underdevelopment.
Walt Rostow (1952) began to develop what would become his stage
theory of economic growth at this time. In hi^ first formulation,
Rostow posited three stages of development, a long evolutionary period
during which crucial social preconditions were achieved, a brief "take¬
off" period, and then a long period of sustained economic growth.
Arthur Lewis (1954, 1958) became the second in the series of
economists who would try to theorize a process of economic development.
Lewis more than any other contributor "put development economics on the
map" (Basu 1984). He found the key to explaining poverty in the concept
of the dual economy, or economies characterized by a large agricultural
sector and a small industrial sector. By assuming that there was an
excess of labor in the agricultural sector and that the industrial
sector invested its full profits, Lewis was able to show that ever
rising investment would cause the urban marginal product of labor to
rise, gradually drawing all excess labor from 'the agricultural sector to
industry, and causing the economy to grow. The reason this was not
happening, in Lewis' view, lay in the interface between economics and
politics. Plantation owners did not want to lose cheap, abundant labor,
"and if they are influential in government, they will not be found using
their facilities for agricultural extension" (Lewis 1954: 149).

15
The next step in the rebirth of development economics was the most
important: the dynamic growth model. It would1become the backbone of
the early American foreign aid program. The theory was developed
independently by two British economists who were attempting to repair a
hole in Keynesian theory. Keynes' short-run aggregate demand model of
economic growth was two decades old by 1957. The major complaint with
Keynesianism was that it was static; it did not show how economic growth
occurred when there was no government intervention (Riddell 1987).
Working separately and using different mathematical methods, Evsey Domar
and R.F. Harrod showed how the insertion of "properly utilized" new
investment in an economy would increase output (Harrod 1959).
Walt Rostow and Max Millikan, formerly of the CIA, promptly
adapted the Domar-Harrod dynamic growth model to the foreign aid
paradigm by proclaiming that foreign aid was a form of investment
I
(Millikan and Rostow 1957). The next contribution came from Albert
Hirschman (1959). He accepted Lewis' assumption that industry was the
leading sector of development, and theorized that growth in industry
would create "ripple effects" that would spread through the economy and
boost demand for products from other sectors.
In 1960 Rostow published a "noncommunist manifesto" further
developing his theory of linear stages of growth. He increased the
number of stages from three to five and proposed an end state of mass
consumerism. There were three conditions for take-off. There had to be
an increase in the rate of net investment, a high rate of growth in at
least one manufacturing sector, and a favorable institutional
environment to spread the effects (Rostow 1971).
The concept of human capital began to gain currency at this time,
following Theodore Schultz's presidential address at the 1960 meeting of
the American Economic Association (Berman 1983: 109). The importance to
economic development of investment in human capital was quickly

16
perceived, and education and training would become major components of
nearly every U.S. foreign aid project.
Simon Kuznets (1966) examined the short term effects of economic
change at the initial stages of development. It was already known that
in the first years of growth in developing countries, profits tended to
accrue mainly to the upper classes. Kuznets postulated that over time,
wealth would "trickle down" and raise the income levels of the poor.
That same year two economists at the World Bank, Hollis Chenery
and Alan Stroudt, expanded the emerging paradigm even further by
theorizing that developing countries would suffer predictable "gaps" at
different stages in their development. Specifically, at first they
would face shortages of skills and savings that would limit their growth
in investment. When these gaps were filled, they would then face
shortages of foreign exchange that would limit their growth in trade
(Chenery and Stroudt 1966).
The recommendations that emerged from the body of economic
(
development theory all, either explicitly or implicitly, gave the state
an enormous role to play in the "big push." No matter the metaphor,
whether to break the poverty circle, escape from the poverty trap, get
to the take-off stage, equalize the dual economy, initiate the ripple
effect, invest in human capital, stave off unrest while waiting for
wealth to trickle down, or fill the resource gaps, a strong state was
needed. The problem was that the economists did not consider what the
strong state should be like politically. In ignoring the political
variables, they failed to account for what it is that makes a state
strong.
The leaders in the underdeveloped countries eagerly agreed to the
foreign experts' recommendations for a strong state. Selfless
patriotism was, alas, proving to be a rare commodity in the developing
areas, and many among the first generation of leaders in the emerging

17
nations quickly acquired a taste for power and its trappings. With
tragic frequency they converted their governments to single party states
and built cults of personality to sandbag themselves in power. Left-
and right-wing authoritarianism became the norm in the Third World.
This development had negative consequences for state strength.
However, while happy to accept the foreign experts' advice to
build strong states, these same leaders generally did not accept their
recommendation for export-led growth. Instead, they opted for the
import-substitution industrialization (ISI) strategies that came out of
the U.N. Economic Commission on Latin America at this time.
ISI was rooted in the very same ideology of economic nationalism
that, as will be seen in Chapter 4, the U.S. foreign aid program was
created to destroy. The World Bank and the International Monetary Fund
strongly supported free trade and opposed ISI based on David Ricardo's
early 19th century theory of comparative advantage. The radical
supporters of ISI justified their viewpoint using the Marxist-Leninist
analysis of imperialism, the conservatives by using Alexander Hamilton's
18th century argument for the protection of infant industries and
I
Friedrich List's 19th century argument that free trade favored the
economically advanced countries, and that protectionism was appropriate
for countries endeavoring to catch up. Thus began to emerge the
dependency school of political economy. Mancur Olson (1982) later
argued that a significant reason why ISI was embraced so eagerly in the
Third World was because of vigorous lobbying by the groups in each
country who stood to gain the most. The small elite class in the
developing countries had an enormous advantage over the poor majority in
terms of political access and information and a large personal stake in
protectionism (cited in Kudrle 1991: 243).
By the mid-1960s a development paradigm was in place. It was now
accepted in U.S. foreign policy circles as theoretically possible to
I

18
induce and accelerate development in the Third World through state-led
programs aimed at maximizing economic growth. Foreign aid programs were
devised to transfer skills through training programs, technology through
commodity import schemes, and capital through investment in
infrastructure. Ironically, these programs went forward alongside ISI
strategies that protected import-substituting infant industries. This
represented another contradiction, this time between the foreign aid
program's goals of an end state of free trade And the protectionist
means to economic growth being practiced by Third World countries.
The American foreign aid program thus went into action as a
dysfunctional bundle of contradictions. In the 1940s and '50s its
officials did not have a body of theory to follow. Their mission to
induce development, combined with ready money and an imperative to move
it, called one into existence. They picked up the different bits of the
emerging paradigm in the order they presented themselves, tried each one
out for a time, then dropped it when the next shiny object caught their
eye. In effect, development economics produced a body of theory that
AID used as a grab bag of development fads.
Cautions were raised along the way. The dynamic growth model
required proper investment. Whether an aid program would have a
I
positive effect would depend upon whether it was productively used
(Rosenstein-Rodan 1961). Corruption, wrong policies, or even
inefficiency within the aid recipient countries would have a negative
effect on development outcomes. Aid planners who prided themselves on
their apolitical "objective" perspective blinded themselves to the very
factors which would soon cause their programs to fail, particularly in
Africa (Sandbrook 1985).
More significantly, a mathematical proof was discovered that
contradicted the fundamental assumption about free trade. The
theoretical challenge to the general equilibrium was introduced as the
I

19
general theory of second best (Lipsey and Lancaster 1956-7). The fact
that the conditions for perfect competition were not being
simultaneously met begged the question whether it was valid to assume
that partial free trade was better than no free trade. What happened
when one of the Pareto conditions was violated? Lipsey and Lancaster
found that when one condition was violated, an optimum solution could be
achieved only by departing from all other conditions. There were two
implications. First, the whole project of installing a global free
trade regime was called into question. Second, in theory, there was no
reason why centrally-planned, autarkic economiés could not produce
growth on a par with free market, open economies. Then, as if to
underscore the point, the Soviet Union launched Sputnik. Formerly
backward Russia suddenly had shown that state socialism was a viable
path to accelerated development.
These cautions aside, foreign aid program proceeded under the twin
assumptions that partial free trade was better than no free trade and
that if the three Rostowian conditions of increased investment, growth
in one manufacturing sector, and strengthened institutions to spread the
effects could be achieved, through such factors as Hirschman's demand-
stimulating ripple effects and Kuznets' trickling down of wealth,
emerging nations could move quickly to achieve the preconditions
necessary for the take-off into growth toward mass consumerism. Foreign
I
aid was to serve in lieu of private investment to help the strong
developmental state build the necessary institutions and infrastructure
and to fill the inevitable gaps in skills, technology and capital when
they arose. It looked pretty easy at first.
It did not look that way any longer by 1970. There were problems.
The U.S. and the other donor countries that later took up foreign aid
programs of their own had entered into the aid-giving endeavor with the
idea that foreign assistance was a short-term gap-filling remedy. They

20
I
saw their aid as a scarce resource. Unfortunately, the recipient
countries quickly began to see it as a plentiful and permanent
substitute for domestic savings (Tendler 1975). This was another
fundamental conflict.
Worse, gains in production through technological improvement drove
down world prices for primary commodities. Developing countries began
to suffer the effects of deteriorating terms of trade. A group of 77
nonaligned nations formed, and began pressing for multilateral
intervention in the global economy. On May 1, 1974 the U.N. General
Assembly passed a resolution calling for a "new international economic
order" that would improve terms of trade by increasing Third World
control over world economic cycles. The propoial gained the support of
the future Nobel laureate Arthur Lewis (Galtung 1991). Many Third World
governments, including Tanzania, began claiming they were owed foreign
aid as reparations for prior exploitation by the developed countries.
By the mid-1970s, over half of Tanzania's total development budget was
being provided by foreign donors, 85 percent in certain ministries.
There was a serious contradiction between the goal of self-reliance and
reliance on foreign aid.
The import-substitution industrialization strategies that worked
so well in Taiwan and Korea backfired in Tanzania, as they did most
everywhere in Africa. It was known starting out that the ISI strategy
of limiting imports would create shortages in the near term. The state
was expected to address this by rationing. ISI turned into a disaster
I
in Africa because of the unexpected twin decisions made by nearly all of
its governments to subsidize urban food supplies and to extract revenue
from agricultural producers through marketing boards and price controls.
The countryside was taxed to subsidize an urban standard of living.
Large numbers of African farmers began to exit from the formal
economy to sell their produce on the burgeoning black markets that

21
sprang up in the wake of ISI rationing policies. Others abandoned
commercial farming, either by reverting to subsistence production or by
leaving the land altogether. This was urban migration as Lewis had not
imagined it. Africa's cities grew out of control while agricultural
production declined and the grand industrialization schemes fizzled and
turned into white elephants. By the middle of the second United Nations
decade of development, Africa was further from the take-off stage and
more dependent on food imports and foreign aid than it had been at
independence.
Economists were perplexed why so many African leaders seemed so
complacent about this disastrous turn of events. The explanation proved
to be simple. By creating short-term shortages and giving the state the
task of rationing, ISI strategies produced enormous possibilities for
political patronage. The result was a collision between economic and
political logic. ISI produced economically tragic consequences in
Africa that were very useful to political leaders (Bates 1981).
By the 1980s economists were forced to recognize the impact of
corrupt authoritarianism on economic performance, and a paradigm shift
began. Attention was focussed on policy reform. The initial
recommendations were fairly cautious, limited mostly to relaxing
farmgate price controls (Timmer 1986) and restrictions on imports and
foreign exchange. Over the course of the decade, as Cold War tensions
relaxed, the recommendations became more and more austere.
The most significant change was in the prescribed role of the
state. By 1980 the donors began to recognize that most African
governments were not the stabilizing engine of growth and modernization
they had planned on, but had become obstacles to sustainable
development. The role of the state in African development, indeed its
very size, would have to be reduced. The effort shifted to strategies

to circumvent the state, to reach around it and induce development
through private sector initiatives.
A new term came into the development lexicon: governance, "the
exercise of political power to manage a nation's affairs" (World Bank
1989: 60). By 1990 the focus of development economists was squarely on
political factors. When the Berlin Wall came down and the break up of
the Soviet empire began, it was but a short step from eclectic projects
to improve governance to a full blown program to install democracy on a
global scale.
There thus have been five significant contradictions in the
economic domain during the period of this study. (1) Economists called
for a strong state to orchestrate development without considering the
factors that make a state strong. (2) The foreign aid program was
established to promote the goal of global free trade, but it was
implemented alongside protectionist ISI strategies. (3) The donors saw
their aid as a scarce resource to be given voluntarily, while the
recipients saw it as a plentiful resource owed them as a retribution for
past exploitation. (4) Recipients, particularly Tanzania, declared
their goal was self-reliance, yet they became increasingly dependent on
foreign aid. (5) The shortages caused by ISI strategies brought about a
collision between economic and political logic. Shortages that
represented problems to businessmen and economists were assets to
politicians.
I
Theories of Political Development
While the field of development economics was becoming
reinvigorated in the late 1950s, political scientists examined issues of
political change and wondered if there was a political equivalent to the
stage theory of economic growth. In attempting to answer this question,
political science contributed the second half of modernization theory.

23
The key question facing U.S. foreign aid officials and developing
area scholars was whether or not democracy was the endpoint of political
development in the sense that mass consumerism was the endpoint of
economic growth. If this were answered in the affirmative, then the
question would become how to implant Western democratic institutions in
the societies emerging from colonialism. America could embark upon the
task of creating a liberal world order in its own image and do it, in
the view of a 1960 presidential commission, "without egotism because of
its deep conviction that such a world order will best fulfill the hopes
of mankind" (Berman 1983: 113).
The search for ways to induce democratic development led first to
investigations of the causes of democracy in North America and Western
Europe. Strong correlations were found between the presence of
I
democracy and factors such as literacy and urbanization. If the
political system was a dependent variable, it seemed probable that
democracy had socioeconomic requisites (Lipset 1959). Some of these
requisites were also, not surprisingly, preconditions for the take-off
to mass-consuming capitalism.
From the premise that the endpoint of political development was
democracy, the political development paradigm took form in three major
contributions under a conduct of inquiry dominated by Gabriel Almond.
The first contribution distinguished between traditional and modern
political systems and analyzed the different cultural characteristics of
each using a structural-functionalist whole-systems approach (Almond and
Coleman 1960). The second important contribution argued that political
development toward democracy would require structural differentiation,
the development of autonomous subsystems, and cultural secularization
(Almond and Powell 1966). The biggest contribution was the nine volume
Political Development Series, 1963-1978, authored by social scientists
and historians under the sponsorship of the Committee on Comparative

24
Politics of the Social Science Research Council, which received three-
quarters of its funding from the Carnegie, Ford and Rockefeller
Foundations (Berman 1983: 107). The committee variables were as important as economic ones and that economic
development could not occur without political development (Almond 1990:
222). The series examined the role of communications, bureaucracy,
institutions, culture, political parties, interest groups, and mass
attitudes in political development, and reflecting upon the increasing
turmoil of the times, suggested political development was shaped by
inevitable crises of national identity, state legitimacy, popular
participation, state penetration of society, and the equitability of the
distribution of goods and services. The key to developing democracy
would be in the sequences in which these crises occurred and the skill
with which they were managed when they came. With that, political
science had its answer to linear stage theory.
I
It had nothing of the sort. Economic development theory had at
its core the Domar-Harrod growth model. Theories of political
development had no equivalent dynamic (Huntington 1971). Victims of
their own happy history, American social scientists had simply assumed
"that all good things go together" (Huntington 1968: 5) and found
correlations to show that they did, but could discern no causal order.
Political development theory was as teleological as "crude Marxism,"
presupposing an endpoint and analyzing real world conditions in terms of
distance from, or proximity to, the ideal (Kesselman 1974J.1 Far from
being a dynamic model of change, it was "a host of propositions and
categorical schemes" (Menkhaus 1991). Furthermore, real world events
had shown that rapid economic growth could lead as often to political
"decay" into coups and military takeovers as 1^o political development
Unlike Marxism however, the endpoint was not a utopian Communism
never seen before, but the Western experience of democracy and
capitalism (Williams 1993).

25
toward democracy, suggesting that order and stability might be more
important to a country's welfare than adherence to democratic forms
(Huntington 1968).
Some Third World governments (e.g. Taiwan after the Chinese
Revolution, South Korea after the Korean War, ánd Brazil under the
junta) maintained stability through authoritarian means and achieved
high rates of growth by practicing protectionism and some degree of
central planning. These government did not wish to be politically
developed. In fact, the governments of most emerging nations mistrusted
the whole idea of political development, and suspected political
researchers of being agents of the CIA (Menkhaus 1991).
The result was that political development projects were tried only
briefly, and then for four reasons disappeared after the 1960s. (1) The
theory was judged inadequate. (2) Political development projects were
besmirched by their implementation as part of the U.S. war effort in
Vietnam and the involvement of U.S. universities with the CIA. (3)
Political development projects proved for the most part to be
I
politically impossible; the proud governments of newly independent
countries resented such activities as violations of their national
sovereignty. (4) Evidence rapidly accumulated that strong economic
growth did not lead automatically to the requisite improved
socioeconomic conditions for the masses of people.
Political development did not get onto the agenda until the donors
were forced by the failure of their programs to confront the mounting
evidence that politics has an important (if unpredictable) effect on
economic development. As economists began at last to turn their
attention to policy issues, political scientists once more took up
political development as a research agenda. A second wave of political
development scholarship began in the mid 1980s. It quickly converged
I

26
with economic thinking on the issue of governance (Hyden and Bratton
1992).
It seemed possible under this new concept "governance" to weave
together the separate strands of political and economic development
theory. Political and economic development were now accepted as
mutually reinforcing (Pye 1990), with governance as something of an
intervening variable between the state and society, the surface along
which politics and economics rubbed. In the new paradigm, the role of
the state was vastly reduced, and the search for the key to success
returned to where it had started in the 1950s, to things internal to
societies (Barkan 1994).
By 1990 the underlying "deep" theories of economic and political
development had brought the contradiction between individual and
collective goods into clear focus (Williams 1993). By the time Bill
Clinton was elected president, the success of both political and
economic development was understood to be mutually bound, with the
solution seen to lie not in the economic but in the human resource base
Sustainable economic development required a proper enabling environment
Such an environment could be had only through political means, through
the empowerment of the mass of ordinary people! This meant "change
toward greater democracy" (Zimmerman 1993: 32). To get there would
demand nothing less than the construction of new self-identities among
the people (Williams 1993).
In the domain of politics there were two fundamental
contradictions. First, an unforeseen incongruity arose between
democratic form and political order; the former did not automatically
ensure the latter. Second, the project of political development toward
democracy was not welcomed by the governments of the developing
countries, and was disparaged, as will be shown in Chapter 4, by the
U.S. foreign policy establishment.
I

27
Theories of Development Administration
As political development lost status, the seemingly more value
neutral and productive field of economic development came to occupy all
of the U.S. foreign aid agenda save that of the small and comparatively
uncontroversial field of development administration (Kesselman 1974).
Development administration emerged as a subfield within the field
of public administration in the discipline of political science at the
same time that development economics was being rejuvenated. The
earliest formulations, produced with heavy Ford Foundation support, were
consistent with gap-filling theory and the centrality of the strong,
developmental state. To build state capacities, it was deemed
sufficient to train people from the emerging nations in Western
management techniques.
U.S. government and foundation officials alike were disappointed
by the failure of African bureaucracies to behave as expected in spite
of the Western training provided. The wave of coups d'etat that swept
the continent in the mid-1960s was particularly demoralizing.
Corruption and inefficiency spread like fungi. A debate began between
those who favored staying the course and sticking to what B.B. Schaffer
(1969) labelled "administrative development," and those who favored a
different, less structured approach that would^take account of the
unique problems surrounding the administration of economic development
in the Third World, what Schaffer referred to as "development
administration."
The comparative study of this problem was dominated by Fred Riggs,
"a one man ideas factory [who came] near to constituting the whole
movement" (Heady 1979, footnote 1: 178). By the late 1960s the field of
comparative public administration was divided roughly into scholars who
studied bureaucratic structures and scholars who studied bureaucratic
contexts. Between these two extremes there gradually emerged a third,

28
I
less well-defined position which combined elements of both and would
come to dominate the agenda, an argument I shall call "organicism."
Structuralists looked for differences in such things as hierarchy,
specialization, rules, procedures, impersonality, and selection methods
among bureaucracies in different countries. They felt that if
bureaucracies were properly designed and included appropriate incentive
systems, they would function as intended and be impervious to corrupting
influences from the external environment.
Contextualists thought structures, that is bureaucratic forms,
were immaterial. They sought clues to bureaucratic behavior in the
internal culture of foreign bureaucracies and in the politico-socio¬
economic environment in which they operated.
Organicists would later argue that neither contextualism nor
structuralism was in and of themselves satisfactory. The behavior of a
given organization was a function of interactions between its internal
culture and the larger environment. The design of structures should
reflect this fact.
The three camps within the field of development administration
produced three very different sets of policy recommendations.
Structuralists argued for a blueprint approach, the grafting of faithful
copies of Western bureaucracies onto the cultures of the emerging
nations. Contextualists had no policy recommendations per se. In
effect they argued that each country would end up with its own
particular form of bureaucratic structure no matter what the donors
tried to do. Organicists, for their part, believed that bureaucracies
should be learning organizations deeply rooted in the cultures they
served.
The central role of the state in the dominant paradigm ensured
that the structuralists won out initially. Their argument in favor of
strengthening Western-style administration in Third World countries was

29
{
adopted in the 1960s. The contextualists, however, continued to argue
the futility of creating overdeveloped bureaucracies in underdeveloped
countries (Heady 1979). The school which I refer to as the organicists
began to form at this time. They argued in favor of eclectic, adaptive
organizations that worked closely with the people they served and could
learn from their experience (Korten 1980). The organicists were major
contributors to the paradigm shift that occurred in the 1980s when the
two U.N.-led decades of development were succeeded by two decades of
structural adjustment under the leadership of the International Monetary
Fund.
Structuralism
The structuralist camp of the field of development administration
came to dominate the early U.S. foreign aid program because it accorded
so well with the commanding role reserved for the state in the early
theories. The view that a well-designed bureaucratic structure is like
a diving bell that can be lowered into any cultural sea predominated
during the two decades of development.
The definitive example of a structuralist who thought Western
bureaucracy was a universally-applicable structure that, if built right,
would be impervious to the external environment, was David Leonard. He
argued from strong evidence in Kenya that sound administrative
principles and techniques could work well in the developing areas.
Context was mere technical data to use to adjust and fine tune the
universal structure.
Contextualism
Fred Riggs believed that the external environment was the main
determinant of organizational behavior. To argue his point, he focused
on just one dimension of the total environment of the social system—the
government—and distinguished between three types of government:
composite, primordial, and mimetic. Composite governments were both

30
hierarchic (authoritative) and polyarchic (consensual) "in some kind of
effective, though not necessarily symmetrical,(balance with each other"
(Riggs 1975: 163). Primordial political systems were either hierarchic
or polyarchic, but not both. Mimetic governments were an unequally-
balanced mixture of the two. The composite governments of the world
were the modern nation-states of Western Europe, North America, and
Japan. The primordial governments were the traditional political
systems (such as chieftaincies) in the less developed areas that were
passing from the face of the earth. Mimetic governments were those that
were replacing them. The new governments in Africa tended to be highly
unstable because they were badly unbalanced either toward hierarchy in
some form of bureaucratic-authoritarianism or toward polyarchy in some
form of patron-clientelism. In this model, the type of bureaucracy
found in a country was a function of what type of government it had
(Riggs 1975) . In actuality the behavior of a djiven agency in a
government was shaped by many more independent variables than one.
Government agencies typically were part of weak states in strong
societies (Migdal 1988). Adhering to administrative principles was less
important than obeying cultural imperatives such as kinship ties or
"economies of affection" that outweighed other incentives (Hyden 1980).
Administration in the developing countries was negatively affected by
cultural attributes that resisted social engineering.
Orqanicism
Although the structuralists' policy recommendations were adopted
in the U.S. foreign aid program, the three-sided debate among the
structuralists, contextualists and organicists did not abate, and
intensified after the first early failures of the development program.
The result was a deadlock in development administration theory by the
end of the 1960s. As Schaffer expressed it, "The paradox is only too
clear: on the one hand a search for change via administrative means, on

31
the other a suspicion, a dissatisfaction, a distrust of administration,
and at times a specifically anti-administrative position" (Schaffer
1969: 185). This early mention of anti-government attitudes was a
foretaste of the feast to come.
I
While recognizing that social and cultural norms pervade
bureaucracy, Victor Thompson (1964) stressed the importance of the
internal environment of the organization, and argued in favor of a
"crisis management" form of structure. Agencies behaved in organic,
not mechanical fashions. Adaptation was known to be key to the success
of all organizations, thus bureaucracies should create an innovative
atmosphere in which uncertainty of subject matter did not translate into
fear for job security, free cross-channel communication was promoted,
and influence over decision making was based on skill, not hierarchy.
Schaffer held both structure and context to be important. He
underscored the importance of the conjuncture between an efficient civil
service and a social willingness to "queue." Western bureaucracy was
only one type of administrative structure, and'might not be best for
societies that did not queue. The two main features of Western-style
bureaucracy were the compartmental nature of its decision making process
and its reliance on the administrator. In societies which did not
queue, compartmentalism produced social disorder as people either
"camped out" or searched for informal avenues of access. Reliance on
the administrator posed the problem of bureaucratic discretion, which in
societies that did not queue generally produced patron-clientelism.
Administrative structures ought to vary according to contextual
differences. Schaffer advocated "administration as 'directive
education,'" meaning education by the organization of the community it
serves (Schaffer 1969: 209) .
Thus, while political development never really got onto the
I
agenda, development administration played a large role in the U.S.
1

32
foreign aid program. Training, or what was later called human resource
development, was a substantial feature of most AID missions' project
portfolios. It suffered from one essential contradiction. In many of
the emerging nations, Western bureaucratic principles did not mesh very
well with local cultural norms.
The Consequences of Developmentalism
At no point in the period from 1948 to 1995 was there irrefutable
proof that free markets and democracy yielded more social benefits than
economic nationalism and authoritarianism. It was simply assumed that
they did, and economic models were devised after the fact. The key
postulates of American foreign aid policy were never the product of
scientific knowledge; they were a creed, an article of faith.
Supporting free markets and democracy rationalized continued funding to
Congress by justifying aid in terms of U.S. national security interests
(Packenham 1973). The problem was, with a few notable exceptions such
as Israel and Egypt, in most countries there was seldom any clear
national interest for the U.S. foreign aid program to support. The
problem lay in "the subjective nature of the cincept of national
interest, including the lack of intellectual rigor in its application"
(Zimmerman 1993: 34). Foreign aid extended the reach of the concept of
national interest beyond its grasp.
The poor performance of the American foreign aid program in the
1960s and '70s was due to incorrectly-learned lessons from the Marshall
Plan. Officials misconstrued the successful reconstruction and
democratization of the previously industrialized (and in most cases
previously democratic) nations of Europe and Japan for a blueprint of
how to develop Third World countries (Zimmerman 1993). Because foreign
aid officials confused modernization with development (Huntington 1968),
their attempt to apply the Marshall Plan to the Third World was doomed
I

33
to failure. The large scale capital-intensive projects and massive
training programs to strengthen institutions, transfer technology, and
build a modern infrastructure—projects of the sort Hirschman (1967)
observed—were naively assumed to be all it would take to spark
sustainable development everywhere.
Tactical Approaches to Development
In the fourteen years from 1948 to 1960 Inhere were five successive
agencies that handled U.S. bilateral aid. When AID was created in 1961,
it was the sixth.
The first extension of bilateral aid was announced by Truman in a
joint session of Congress on March 12, 1947 in response to Britain's
admission it could not meet the crises of leftist insurgencies in Greece
and Turkey. Truman extended military, economic and technical assistance
to these countries. The following year, 1948, Truman established the
first bilateral aid agency, the Economic Cooperation Administration. It
was designed as an expendable agency of the type used by the Roosevelt
administration to combat the Great Depression. It existed for three
years until 1950, and was replaced by the even briefer-lived Technical
Cooperation Administration, which lasted two years from 1950 to 1951.
It was replaced by the Mutual Security Administration, created in
response to the outbreak of the Korean war. This agency lasted three
years, from 1951 to 1953. It went out of existence when the Eisenhower
administration created the Foreign Operations Administration in its
first year in office. This the fourth U.S. foreign aid agency lasted
for all of Eisenhower's first term from 1953 to 1956. The fifth and
Co o pe re^v y
last forerunner to AID was the International Operations Administration,
which existed for the four years of Eisenhower's second term.
Each of AID'S forerunners, and AID itself, were active in India,
which received its independence on August 15, 1947. The case of India
/

34
is significant to this study because nearly every tactical approach to
development that AID was to try in Tanzania was first tried there in the
famous Etawah project. I shall examine four different tactical
approaches to development (by no means an exhaustive list of the
different angles that have been tried) to prove this point.
Integrated rural development
When the U.S. began an aid program in India in 1948, there was, as
we have seen, no theory to guide its practice. This does not mean that
the first American foreign aid workers felt helpless about what to do.
Quite the contrary, armed with a very American(can-do spirit and
confidence in their know-how born of victory in the war, they went right
to work in programs that anticipated the approaches that would follow by
as much as three decades in time.
The sudden appearance of a U.S. foreign aid program caught the
world by surprise; one day the Americans just showed up asking how to
help. The Indians were, naturally, somewhat suspicious. The U.S.
Ambassador Chester Bowles arrived in the country excited about the
Truman vision of linking American "ideals and resources with the efforts
of more than a billion people to secure a better life." He advocated
"an American aid program, on a large enough scale and soundly enough
conceived to fill the gap between the maximum possible savings of
countries like India and the minimum need for a program of economic
development" (Bowles 1955: 196, 331, emphasis Added). Ambassador
Bowles, drawing simply on what he had experienced of social programs as
a high-ranking official in the Roosevelt administration, anticipated
Chenery-Strou^át gap theory by almost ten years.
The chief designer of Etawah was Albert Mayer, an architect and
town planner who had served in the country during the war as a
lieutenant-colonel in the U.S. Army Corps of Engineers building
airfields. Mayer had met Jawaharlal Nehru in 1945, and enjoyed a solid

35
I
reputation among India's political leaders. He drew on the practical
experience of American missionaries in India and on the findings of
rural sociologists and Department of Agriculture extension officers in
the United States.
In his study of the Etawah project, Gerald Sussman (1982)
identified five key features of the integrated rural development
approach Mayer developed. First, Mayer's basic assumption was that the
American land-grant model of research and extension could be transferred
to India. An expendable Indian government agency would serve as the
vehicle for this transfer of technology.
Second, to be effective, rural development—also called rural
uplift and self-help at the time—would have t

economic and production bases of society. Projects had to in some way
grow out of the people; they could not be simply transplanted. Mayer
combined the Ghandian program of community development with U.S.
Department of Agriculture rural extension techniques in an integrated
approach to the problem.
Third, Mayer drew from his experience in the U.S. Army using
peripatetic personnel, soldiers with a limited amount of training who
could perform certain tasks reasonable well. The training of Indians
would therefore be crucial. When the Ford Foundation came to India in
1951, it signed on to fund much of the training component of the Etawah
project.
Fourth, there could be no set blueprint, master plan, or
preconceived program. Instead, Mayer's rural áevelopment teams would
operate using a problem oriented framework. The initial step would be
simply to identify local problems and needs and whatever local resources
there might be in the community. Reliance on scarce imported resources
would be kept to a bare minimum. Everything the rural development teams

36
did would be based on the particular circumstances of the community in
which they were working.
Fifth, the project had to have firm high-level political support,
and there had to be good two-way communications within the project
organization between headquarters and the field, and between the
organization and the people of the rural communities. Sussman called
this "inner democratization." Provisions would have to be made to
ensure that the Indian workers would be socialized in this innovative
new participatory method, so that it became a permanent tradition of the
organization.
The Etawah project encountered problems both with the U.S. and the
Indian governments. There was a dispute between Mayer and Ambassador
Bowles. Mayer thought of Etawah as a pilot project. He wanted to do a
few high quality intensive projects in a limited number of villages, and
count on news of the success spreading by word of mouth. Development
would radiate out from the original small core through the extension
process, with early adoption expected to be made by progressive farmers
and entrepreneurs.2
Bowles disagreed, and thought that the paramount concern of the
program should be to help meet the urgent need of the Indian government
Theories of how technology is adopted and diffused in the transfer
process grew into a huge body of literature from the 1940s through the
1970s. Experience revealed that rural inhabitants could be ordered into
five generic types, based on their proclivity to adopt new technology.
The most likely to adopt were categorized in the rural sociology
literature as "innovators." Innovative (or progressive) farmers are
those who are well endowed in land, labor, and/or capital. Innovative
entrepreneurs are those with sufficient venture capital or lines of
credit who take risks in profit-making uses of I new technology.
Innovators tend to be the best educated and most cosmopolitan members of
rural communities. The implication of adoption theory was that
development projects should introduce new technology first to
innovators. It could be counted on to diffuse out into the larger
population when the innovators were seen to enjoy success. Another
reason that innovators came to occupy such a large part of development
planners' attention was that they had the capacity to absorb capital.
Focusing on rural elites made it easier to move money (Austin 1996).

37
to provide every village family with tangible evidence that the
government was concerned about their welfare. Bowles wanted a national
program that would cover the waterfront and be(seen by as many people as
possible.
The dispute with the Indian government was twofold. First, there
was the normal turf war over which ministry should direct the program.
Secondly, the program's flexible, problem-solving, participatory
approach conflicted with the highly hierarchical Indian bureaucracy, a
product of centuries of British rule, which was more concerned with
strict protocol and lines of authority.
Perhaps most significantly, the Etawah project conflicted with the
need of both the Indian government and AID'S forerunners to move money
quickly. Mayer's approach called for patience, while the interest of
the two governments was to build big programs quickly. The program thus
lost its focus very early, and later lost its political support, and
I
began to wane in the 1960s just as the integrated rural development
approach was being picked up by AID and tried out in many countries,
including Tanzania.
Institution building
The tactical approach to development called institution building
appeared on the scene as the growth-maximizing industrialization
approach of the 1940s and '50s began to run out of steam. Research into
the new tactical approach was heavily funded by AID, and was conducted
under the guidance of Milton Esman and his colleagues from the schools
of the Midwest Universities Consortium for International Activities
(Rondinelli 1987). Institution building projects accounted for half of
new AID spending in Tanzania in the early 1960s and preceded integrated
I
rural development by half a decade.

38
Institution building began with three premises learned from past
experience: (1) development was the process of introducing change, (2)
impediments to development were not economic but administrative; and (3)
bottlenecks were due mostly to low levels of administrative
capabilities. The key was to improve the capacity of public agencies,
to convert them from organizations to institutions, meaning to agencies
whose prescribed changes were accepted, valued and functional (Esman
1967, Smart 1970).
The chief problem that institution building ran into was that AID
contracted with universities to provide the technical assistance for
much of its institution building program. The university professors who
went to the Third World came with their pet models of change. For the
most part, they were not able to persuade their host country
counterparts to adopt their ideas (Blase 1973).
Institution building used two features of Etawah. First, it
recognized the importance of properly socializing government officials
so that the Western management techniques bein^ transferred in by
foreign aid became institutionalized traditions. Second, there had to
be a dialogue between the organization and the people it served, so that
the changes the organization proposed to make would be accepted and
become valued by the people.
The learning process
In his brief discussion of "administration as 'directive
education,'" B.B. Schaffer (1969: 209) opened a window to the organicist
school that began to develop in public administration and its subfield
of development administration. Pressman and Wildavsky (1973) observed
the details of the many reasons why policy implementation could go
haywire in the U.S. system. Richard Elmore (1979), concerned with the
emerging backlash against big government on the eve of Reagan's
I

39
election, stated the obvious that "decisions are not self-executing" and
compared state versus market solutions. He argued that markets could
not meet every social need, and that some bureaucracy was necessary.
The new dislike of bureaucratic discretion would have the unintended and
undesirable effect of "increased reliance on hierarchical controls to
solve implementation problems." He felt that the key to successful
implementation lay in answering the question: ^where, in the complex
welter of relationships at the delivery level, are the individuals who
have the closest proximity to the problems and what resources do they
need to address it?" The solution he suggested was that policy should
be designed by beginning at the point of the problem and working
backward. He contrasted this "backward mapping" approach to the more
typical "forward mapping" approach, in which a universal solution was
devised beforehand and brought to bear wherever the problem occurred.
David Korten (1980) introduced the concept of the learning
organization. He acknowledged the high level of uncertainty facing
development workers, and listed three possible responses that
development organizations typically exhibited toward their failures: to
deny it; to externalize it; or to embrace it. I The first response is
that of the self-deceiving organization which spends a lot of time and
effort hiding its errors. The second response is that of the defeated
organization whose members whine "how impossible their task is given the
perversity of the environment which does not respond according to their
wishes." The third is the learning organization which embraces error
"as a vital source of data for making adjustments to achieve a better
fit with beneficiary needs." Successful organizations are learning
organizations that plan with the people and link knowledge to action.
They go through three stages in developing programs in a process that
works from the bottom up: learning how to be effective by working with
I

40
the people, learning how to be efficient by developing management
systems, and learning how to expand to build on success. Korten
concluded there were two barriers to success. The first was the
bureaucratic imperative to move large amounts óf money, the second the
rigid project planning methods that still predominated in 1980.
The similarity of the learning process approach to the Etawah
project is evident. First, it brings problem orientation to a situation
with its various recommendations for backward mapping and embracing
error. Second, by seeking the individuals in closest proximity to the
problem and by beginning with the assumption that agencies must work
with the people to be effective, the learning process approach placed
heavy emphasis on popular participation in planning in order to discover
knowledge and link it to action.
Using indigenous knowledge
Robert Chambers (1983, 1991, 1994) pioneered a cost-effective
technique of assessing development needs called rapid rural appraisal.
He distinguished this from two predominant approaches to project design:
long and dirty and quick and dirty. Long and dirty appraisals are the
favorites of academics. They are costly and time-consuming and speak
more to theory than to practice. They start with reviews of existing
secondary data, move on to surveys of rural attitudes, followed by the
coding and entry of data, and finally end with complex quantitative
analysis. They are frequently delivered after such great lengths of
time that the problem has changed and their recommendations are no
longer relevant when they arrive. Long and dirty appraisals are
generally useless to decision makers.
Quick and dirty appraisals are the favorites of professional
development workers, people Chambers disdained as "development
I
tourists." They drive or fly out from the capital city and briefly tour

41
the project area by road. They are vulnerable to a host of biases.
They only see what is visible from the car. Oftentimes "old hands,"
they can be arrogantly confident in their preconceived notions and fail
to listen carefully to what is said to them. They often overlook
invisible factors such as patron-client relations, heavy debt, and
patrimonialism, all important to the success of development, but
impossible to see if the analyst is in a big hurry to get back.
Chambers' concept of rapid rural appraisal represented a cost-
effective solution to the "dirty" approaches. It involved a number of
techniques, ranging from the use of rough indicators like the number of
tin roofs in a village or the fatness of the pigs, to using key
informants and focus groups, and advocated mixes of qualitative and
quantitative data.
When the institution building approach went out of fashion in the
late 1970s, its leading theorist Milton Esman joined forces with Norman
Uphoff (1982, 1984) to focus on the role of local organizations in
development. They borrowed from a number of schools of thought and
conceptualized successful local organizations ^is mediating structures
between the state and the supposed beneficiaries of development aid.
They stressed that local organizations were effective only if they were
efficient, equitable, and if they empowered their members.
Michael Cernea (1991) and other contributors, including Robert
Chambers, expanded from Esman and Uphoff's recommendation that local
organizations be highlighted in development planning, and focused on the
role of cultural endowments. They saw information as particularly
crucial, and argued that the most crucial information of all is gotten
from the people nearest the problem. It was important that development
planners start taking social knowledge into account at the earliest
stages of program design.
I

42
These three versions of the tactic of using indigenous knowledge—
rapid rural appraisal, use of local organizations, using social
knowledge—all advocated projects that were long-lived, that varied
according to local circumstance, and thus were highly eclectic, and very
slow-paced and labor-intensive. These were all aspects of the
integrated rural development approach developed by Mayer in the Etawah
project in India.
With the arrival of the tactic of using indigenous knowledge, it
seemed everything was accounted for. Every aspect of the developing
country's social system was on the table save one: the political system
itself. Then U.S. foreign policy changed and the project of promoting
democratization began.
Contradictions occurred between the four tactical approaches
considered here, which all required patience and concentration of
effort, and the two administrative imperatives to spread effects and
move money. A second type of conflict was temporal in nature, a reverse
of the expected order in time between theory and practice. In the field
of international development, practice has nearly always been out in
front of theory.
I
Ideological Perspectives on Foreign Aid
The final, and arguably strongest intellectual influences on AID
come from ideology. Broadly, there are three contending critical
perspectives on the entire foreign aid project: altruism, realism, and
radical criticism.
Aid as philanthropy
The first of the three perspectives accepts foreign aid for what
it purports to be: simple altruism. The strong correlations between
public opinion in the donor countries about what their foreign aid ought
I

43
to be used for and the objectives for which it has ostensibly been
provided support this conclusion. Foreign aid has served "humanitarian
and egalitarian principles" in a good-faith effort to establish "a just
international order in which all states had a chance to do well."
Wealthy countries give aid to poor countries for selfless, not self-
interested reasons, under terms that are "favorable to the economic
development of the recipients and unfavorable to the use of aid for
leverage by the donors" (Lumsdaine 1993: 30, 102, 275).
However, a straightforward altruist perspective of aid does not
hold up in the case of American aid to Tanzania. Declassified portions
of the official record reveal that Washington's chief objective in
establishing an AID program in Dar es Salaam in 1961 was to head off
Communist influence.3 Beginning in 1981 the U.S. instituted a policy of
using American assistance as leverage to force Tanzania to abandon
socialism. These are instances when the United States did not provide
aid to Tanzania for purely benevolent reasons. American aid to Tanzania
cannot be interpreted as pure philanthropy.
Aid as bribes
In the realist perspective of the world as dog eat dog, there is
scant place for altruist sensitivities in the conduct of foreign policy
(Brown 1984: 115-121). Realists typically are pessimistic about the
prospects for development. A truly effective ¡program to accelerate
world economic growth would require a massive transfer of wealth far
beyond what American taxpayers would ever accept. The amount of money
actually available for foreign aid is inadequate for the task; world
poverty is an intractable problem in the near term. This is not to say
that foreign aid has no utility. It is a useful slush fund to "bribe"
Third World governments to support U.S. foreign policy goals (Morgenthau
The first American aid to Tanzania was sent in 1955, $981,000 (in
nominal terms) for a single British-run agricultural project.

44
I
1962, Bandow 1988). For realists, aid to Africa has never been anything
other than a tool for geopolitical gain (Ungar 1993: 385) .
However, an unmixed realist view of aid as pure bribery is also
not tenable in the case of American aid to Tanzania. In the early 1970s
the Nyerere government started becoming hostile toward the United
States. Counseled by the arch-realist Henry Kissinger, the Nixon and
Ford administrations reduced new development assistance to Tanzania
accordingly, tit for tat. New project spending in Tanzania dropped from
$53.1 million in 1973 to $8.4 million in 1974.
Then in 1975, a year when the Tanzanian economy was suffering from
the effects of the first oil shock, the country was stricken with severe
drought. The threat of famine loomed. In response, the Ford
administration reversed its policy and made a $24.4 million loan of food
and cash. This did not result in any change in Tanzanian attitudes; the
Nyerere government remained "a thorn in the side of the U.S." for two
more years of declining relations (USAID, Appraisal, 1978) .4 The
increase of aid in 1975 was not a bribe to procure Tanzanian political
support; it was done for humanitarian reasons. American aid to Tanzania
cannot be seen as pure cynical bribery.
Aid as weapon of capitalism
The third perspective on foreign aid is radical criticism. Like
realists, radical critics interpret foreign aid in instrumental terms.
Like realists, they believe foreign aid has nothing to do with altruism.
They too cast scorn on the development enterprise, but for different
reasons. The problem lies not in the inadequacy of resources, but in
the misguided liberal belief that poor countries can prosper under
capitalism. The faith is wrong. The world system is permanently and
unfairly tilted against the developing countries (Wallerstein 1979).
Because of inconsistencies in page numbering in many its reports,
page numbers are not included in citations of AID documents.

45
Foreign aid is a weapon of capitalism used by the donors to pierce
developing countries, a burglar's tool to jimm^ open their economies for
exploitation by the donors' transnational corporations (Hayter 1971,
Biersteker 1987). Aid is a Trojan Horse (Weissman 1975).
While perhaps true of U.S. aid programs elsewhere, American aid to
Tanzania was not a Trojan Horse. Tanzania was never very attractive to
foreign investors, American or otherwise. The country has few
resources, and its government from independence onward was hostile to
the interests of foreign capital (Bienen 1967). Aside from a NASA
satellite tracking station in Zanzibar which it removed in 1964, the
U.S. had "no major compelling political, security or economic interests
in Tanzania" (USAID, Appraisal, 1978, emphasis added). AID'S mission in
Tanzania never served, as the mission in South Africa has done, to
facilitate the entry of American corporations into the country.
Aid as pragmatic altruism
The radical view of aid as the weapon of capitalism cannot be
sustained in the case of U.S. foreign assistance to Tanzania, but the
altruist perspective of aid as philanthropy and the realist perspective
of aid-as-bribery both in part can. Liberal altruism and conservative
realism are antithetical propensities. As a dialectic, they funtion as
the primary force that drives AID. The two viewpoints coexist in U.S.
foreign policy councils, but do not have equal weight. Altruist
sympathies have significantly less influence than realist concerns.
AID'S mission to promote international development is subordinate to its
obligation to support the national interest.
Liberal altruists have their greatest influence over AID
programming. They inhabit the cracks in the policy structure. When
AID's missions are left to their own devices, they are guided by their

46
wish to do good in the world. Both the design and implementation of AID
programs reflect altruist sensitivities.
Realist considerations prevail in the two most important decisions
AID must make: whether to provide aid to a couAtry, and how much to
give. With the lone exception of 1975, the amount of new aid given to
Tanzania each year changed according to the attitude of its government
toward U.S. foreign policy. Twice, in 1970 and 1988, the U.S.
substantially increased aid to Tanzania to reward it for cooperation,
and four times—in 1972, 1976, 1983, and 1991—slashed it to punish
Tanzania for defiance.
We have seen how the practice of a U.S. foreign aid program
preceded theory, how the mission to extend economic development helped
call a development paradigm into existence. We have seen that until the
paradigm shift of the early 1980s the core of development theory was
economic; the political system was viewed either as a dependent variable
or as somehow extraneous to development. We h^ve seen that the four
main tactical approaches to inducing development that have been tried
over the years were all attempted by Albert Mayer in the famous Etawah
project in India during the late 1940s and '50s. Finally we have seen
that American aid to Tanzania was not used as a burglar's tool to open
the country up for exploitation by U.S. corporations. However, it was
neither a purely philanthropic nor a purely realpolitik endeavor either.
Instead, as I will show in greater detail below, the strategies
undertaken by the U.S. foreign aid program to Tanzania reflected a
complex dialectic between these two competing propensities, what I have
called pragmatic altruism.
I

CHAPTER 3
INSTITUTIONAL CONTEXT
Influence of American Federalism
AID simultaneously exists in two external environments and, like
all complex organizations, embodies an internal culture. Its inputs
(authorizations to act and appropriations of funds) come from its
political environment in Washington. Its outputs (projects and
(
programs) are carried out in its task environment in the developing
world. Much of AID'S observable behavior is a consequence of this and
the unusual system of government under which it operates. A brief
discussion of the special problem of American federalism is in order.
The American system of government was designed in the 18th century
by men who were torn between a distrust of centralized power acquired
from the struggle for independence, and a rueful understanding of its
necessity gained from a failed experiment with confederacy.1 The men
who wrote the U.S. Constitution understood the need for effective
government, but they thought it more important to safeguard against
tyranny than to provide for rational administration. They created a
government that, while able to control the governed, first and foremost
is obliged to control itself (Rossiter 1961, Wilson 1989).
To limit government, the framers divided its power in several
ways. The primary division was between the states and the federal
government with all unspecified powers reserved for the states under the
The first central government was formed under a treaty of
friendship between the rebelling colonies called the Articles of
Confederation. The government was so weak it was a detriment to the war
effort and after independence proved to be so unsatisfactory that the
states agreed to a Constitutional Convention. Interestingly, the
southern states that seceded between 1860-1865 tried to reestablish a
confederate form of government.
47

48
doctrine of enumeration implied by the 10th Amendment. The second was
to divide the federal government into three branches: a judiciary to
shield the Constitution from the passions of the day, a legislature to
make the law, and an executive to carry it out. The judicial branch was
constructed as a hierarchy of federal courts, while the legislature was
separated into two chambers, the House of Representatives and the
Senate, which were given different structures and powers. The executive
branch alone was left undivided.
I
The framers provided for joint administration of the bureaucracy.
Congress was given control over funding and responsibility for oversight
while the President was given the authority to conduct policy. The
President accomplishes this by delegating power to his appointees who
administer the different parts of the permanent bureaucracy. The
President's appointees must be confirmed by the Senate. With the
exception of federal judges, the President may remove his appointees
without reference to Congress.
In this system AID personnel work under presidential appointees
and are overseen by parallel legislative committees. Among the most
important of these are the House and Senate appropriations subcommittees
which control AID's funding, and the two foreign affairs committees
which oversee its programs. I
The consequence for AID is a peculiar and not particularly
effective mix of centralized and decentralized functions.
Authorization, appropriation, budgeting and accounting are centralized
functions subject at a minimum to Congressional oversight committees,
the Government Accounting Office (GAO), and AID's Inspector General.
Program design and implementation, on the other hand, take place in the
field. Although conducted with significant discretion, these functions
are subject to an internal review process. With the series of reforms
begun in the 1960s, AID's internal review process became an increasing
I

49
burden. By 1973 its weight was so heavy that the Tanzania mission was
moved to complain, "as AID'S project design techniques have grown in
sophistication and standards have increased, no [mission] can hope to
find the time or expertise to anticipate the questions raised by a
multitude of reviewers at several levels in AID/W" (USAID, FBS, 1973).
Arguably the most commanding control over AID is the power of the
purse, reserved for the Congress. The rules of the House and the Senate
separate the budget making process into two parts: authorization and
appropriation. An authorization is the power granted to an agency to
carry out a specific activity. An appropriation provides the agency
I
with funds (Schick 1980). Funding can also be provided through a
continuing resolution. A continuing resolution allows an agency to
spend at the previous year's rate rather than spend under a new
appropriation (Lee and Johnson 1989: 185).2 Since 1982 the use of
continuing resolutions has become increasingly routine in the U.S.
(Rubin 1985) . It was thought remarkable that the 98th Congress passed
five of the thirteen appropriations for which the legislature is
annually responsible under one "giant continuing resolution" (Fisher
1992: 149). The events of 1995-96 rendered this incident less
impressive. In the final quarter of 1995, an unprecedented "budget war"
began between President Clinton and the 104th Congress during which by
year's end virtually the entire federal government was being operated
under a single mammoth continuing resolution. |
It is not hard to see why the American system of government
frustrates rational administration. When Congress and the President
begin pulling in different directions over a particular issue, an agency
(or the entire federal government) may become the rope in a tug of war.
If the President does not approve of the purpose of a particular agency,
The use of continuing resolutions originated during the 19th
century as a solution to the problem of distant western military
outposts periodically running out of money or becoming pinched for
supplies at times when Congress was not in session.

50
I
he can use his appointees to weaken it from within, as happened in the
case of Ronald Reagan and the Environmental Protection Agency. If
Congress objects to the activities of a particular bureau, as happened
to the Central Intelligence Agency during the Ford administration,
Congress may cut its budget (as it did to AID two years running in 1966
and '67) or pass laws to restrict its autonomy (as it has done
repeatedly to AID).
Agencies are not helpless. When the doctrine of enumeration was
overturned by the Supreme Court to permit the Roosevelt administration
to enact its plan to combat the Great Depression, a substantial degree
of de facto power was instantly devolved upon the federal bureaucracy.
The bureaucracy became an unintended fourth branch of government (Meier
I
1980), inefficient, dysfunctional, oligarchical and antidemocratic in
the view of its many latter day critics (Goodsell 1985: 6-11).
Structured as it is to make confrontation more likely than
collaboration, American federalism is a far cry from the Weberian ideal
of rational administration. It is a government of strangers (Heclo
1977) .
AID's External Environments
A unique feature of AID is that its external environments are
separated from each other by great geographic distances. The agency's
political environment is in Washington but its task environment is
overseas. The extreme distance between AID's input and output functions
causes it complications. I
Furthermore, both of AID's external environments are characterized
by high uncertainty. International development is an uncertain
business; success requires regular tinkering with program
implementation. Political directives from Washington also result in

51
tinkering. Unfortunately, the tinkering has tended to have deleterious
effects. I
AID's Political Environment
AID's political environment is a highly uncertain place because
AID is a highly vulnerable agency. Its vulnerability stems from two
factors: its impermanent mandate and its lack of a constituency.
AID was established in 1961 as the sixth in a series of agencies
dating back to 1948, all authorized as temporary bureaus under the
method used by Franklin Roosevelt of creating expendable agencies to
perform temporary tasks. AID's impermanent mandate would not be so
serious if AID had a powerful constituency. It does not. AID's
activities are all conducted overseas. Very few Americans see any
direct benefit from it or any other branch of the State Department
(Wildavsky 1988). AID's only support comes fr¿m special interest
groups. There is the circle of consulting firms that live off AID
contracts. AID is, in the view of consumer advocate Ralph Nader, a "pot
of gold" for these "beltway bandits" (Dallas Morning News, Aug. 8,
1993). But many nonprofit humanitarian organizations also receive
funding from AID, and they too support the agency. In its year end
newsletter in 1995, the Christian charity Bread for the World declared
its opposition to the Republican proposal for "merging USAID into State,
because that would subject development aid even more to U.S. political
and commercial interests, rather than focus it on the needs of poor
people" (Bread, November/December, 1995). This "do-gooder" lobby, as
one official described it to me, helps bolster AID'S altruistic
propensities.
I
The coterie of private consulting firms, universities, charities,
and nongovernment humanitarian relief and development organizations that
implement most of AID's programs is sometimes referred to as the

52
"development industry." In any given year it captures between 60 and 80
percent of the funds that AID disburses (Tendler 1975, Zimmerman 1993,
Washington Post, Sept. 18, 1993, ABC Television, December 4, 1995).
A retired AID official whose service dated back to the fifth
I
agency, the IOA, expressed the belief that the statistic is misleading,
and lends itself to "facile conclusions." To illustrate, he gave the
example of a project he had seen in Thailand that did nothing more than
pay the salary and perquisites of a single private consultant who served
as an economic advisor to the Minister of Finance and sat in on Thai
cabinet meetings. According to the official, the American advisor had
"a tremendous impact on the macro elements of the economy that weren't
captured in the project report, which simply showed that one hundred
percent of the project budget went to pay the salary of one American."
No matter, the public perception of a cozy relationship between
AID and the development industry exists, and results in suspicions that
foreign aid officials do all they can to perpetuate underdevelopment in
order to maintain their lavish lifestyles at taxpayer expense in
tropical countries far from public view. AID workers are the "lords of
poverty" whooping it up with foreign aid money (Hancock 1989).
Foreign aid has long been America's least popular form of
government spending (Reilly 1988). The year the Clinton administration
entered office, 70 percent of Americans reported feeling that foreign
aid was wasteful of their tax dollars (Associated Press, Sept. 5, 1993).
Arguably, AID is America's "most hated program" (Reuters, Jan. 18,
1993).
U.S. political leaders in Washington have maintained a foreign aid
program against the will of the majority. As will be seen in greater
detail below, this was done in the name of fighting Communism. AID'S
political raison d'etre thus dissolved with the Soviet Union. Its
continued existence was suddenly called into doubt. The National

53
Taxpayer’s Union put AID at the top of its list of agencies whose
budgets should be cut. Members of Congress from both parties joined the
long-standing call of AID'S enemies for its termination (Dallas Morning
News, Aug. 8, 1993) .
AID's political vulnerability has made it a tempting target for
Congress over the years, a whipping boy to punish for displeasure with
I
the policies of the President (Lyons 1994). When, for example, Congress
disapproved of President Johnson's conduct of the war in Vietnam, it
passed laws in 1966 and 1973 to restrict AID's autonomy, and drastically
cut its budget in 1966 and 1967. Angry about Nixon's secretive conduct
of foreign policy, in 1974 Congress reduced the autonomy of the entire
State Department (Schick 1980). Since 1961 Congress has increasingly
dictated which activities AID should engage in and what priority each
should have by passing mandates and earmarking funds.
AID's Task Environment
AID's task environment is characterized by the same high degree of
uncertainty as its political environment. AID addresses a huge range of
problems scattered all over the developing wor|d. There are
uncertainties of supply. Which technology to provide? How to work
effectively under ineffectual host country governments, given regular
unexpected changes in the situation? There are uncertainties of demand.
Excess demand for the benefits that development projects can provide may
lead to violence. Inadequate demand, on the other hand, can turn
projects into white elephants (Hirschman 1967). Success in
international development demands experimentation and an institutional
ability to learn. Unfortunately., these traits are not nurtured in AID.
I

54
AID'S Corporate Culture
There are conflicts in all large bureaucracies between the
individual and the organization (Downs 1967), but they are particularly
bad in AID. Its personnel are divided into a smaller number of more
powerful ideologically conservative realists, and a larger number of
less powerful liberal altruists. The extreme geographic distance
between AID'S input and output functions, with its resources coming from
Washington and its operations overseas, necessitates a fence-straddling,
Janus-faced posture. To protect its resources from its many enemies,
AID must be ever alert to changing moods in Washington. To succeed in
its uncertain mission of developing the poorest countries on earth, it
is "forced to be particularly reliant on its lower ranks for adaptive
and innovative behavior" (Tendler 1975: 24).
However, the incentives AID provides its employees do not
encourage the spirit of innovativeness. AID is governed by the State
Department's management system, with its "tortuously slow
apprenticeship" and its "premium on conformity and on the patronage of
superiors writing efficiency reports, who were in turn awaiting their
own similar advancement through the ranks." AID reflects the State
Department "culture in which the simple declarative sentence was
regarded as risky" (Morris 1977: 34, 36). There is a pronounced fear of
the written word in AID. A review of its archives in the 1970s found
them to consist of sanitized, technical and lifeless reports (Tendler
1975) .
A high-placed administrator in Africa confirmed to me that dissent
is not registered in the official record, but is relegated to "back-
channel communications." A one page anonymous memo found circulating in
AID'S Washington offices in March 1995 reified AID'S culture in listing
the reasons why it is so conservative. AID'S culture, the memo
declared, places the highest value on activities that "hold out the
I

55
prospect for more money." AID'S employees assume stability in recipient
countries. They are more comfortable dealing with economic issues than
the political and social aspects of development. They believe that
unpopular policies "will go away if ignored." Externally, AID resists
"being integrated with other donors," and internally "responds
vertically to bureau hierarchy, and has difficulty organizing
horizontally." The common perception that AID officials enjoy lavish
lifestyles is not wholly unfounded. They are, like embassy personnel,
given beautiful homes and staffs of servants in the countries where they
serve. Their children are educated in private schools. A bit of
I
doggerel circulating in 1996 entitled "The Development Rap" savagely
caricatured the development worker as little better than a smug pig
feeding at the public trough. (See the Appendices for the memorandum
and the poem).
It is not quite that simple. The perquisites of large houses and
staffs of servants not withstanding, all AID officials who go overseas
must live in impoverished countries that bear little resemblance to the
tropical paradises of travel brochures. The cities are, for the most
part, unpleasant places to live. In many, slums encircle the enclaves
where diplomats and development workers reside. Telephones often do not
work. Streets may be broken, traffic clogged. Sanitation systems are
often in poor repair, leading to many water- and insect-borne diseases.
The water is often not drinkable. There are frequent electrical
outages. Crime can be high, and in some countries may be violent. The
families of U.S. officials were evacuated from Zaire in 1992 after the
French ambassador was shot dead by a stray bullet during political
violence. The skeleton crew of U.S. officials who stayed behind went
about Kinshasa armed. In 1996, U.S. officials in Nigeria were only
allowed to leave their island enclave in Lagos by chauffeur-driven
armored car.

56
I
Living in these sorts of stressful and sometimes dangerous places
puts unique psychological pressures on AID'S overseas personnel. An
economist in one of the Washington planning divisions recounted the
anxiety that all AID officials experience in exposing their families to
endemic diseases. Everyone knows a "med-evac" horror story. In many
countries, remnants of Cold War proxy armies and guerrilla insurgencies
roam the countryside and the slums in packs of armed thugs. The
economist recalled the stress of living in Uganda where she learned
"that a grenade launcher sounds different than a rifle." The oftentimes
bleak and sometimes dangerous conditions in the countries where they
serve tend to make AID officials huddle together like immigrant
communities, isolating themselves from the local population and
I
socializing with the same people they work with (Tendler 1975).
In describing the constant political pounding the agency absorbs,
an official in the Africa Bureau told me, "We suffer from battered
spouse syndrome." Another characterized the agency as "under attack
. . . an agency under seige." Considering AID'S political
vulnerability, the uncertainty of its task environment, and the peculiar
types of stress its officials must endure overseas, it was not
surprising to me to find that many of them feel that working in AID is
like being in London under the blitz.
Thus AID'S behavior is very much a function of its institutional
context. The divided control of American federalism makes AID a
peculiar combination of centralized and decentralized functions. Its
impermanent mandate and its unpopularity make its political environment
a very uncertain place. Its task environment is highly uncertain,
requiring AID to be an adaptive organization, but its internal culture
places a premium on conformity and breeds caution and a fear of
forthright language. The great distance separating AID'S input and
output functions requires it to adopt a Janus-faced posture to defend

57
itself against the constant political attacks to which it is subjected
in Washington while groping for solutions to a|l the variegated problems
of underdevelopment in the poorest countries on earth.
I
I

I
CHAPTER 4
THE CREATION OF AID
AID at its inception in 1961 was a child of long parentage, the
sixth in a succession of U.S. bilateral foreign aid agencies. Its
progenitors in the period 1948-1960 were all brief-lived, existing for
only two to four years each. AID has proven to be very resilient. In
attempting to answer why AID has managed to survive in its hostile
political environment for far longer than any of its ancesters did, I
turn now to a discussion of the different challenges AID has
I
successfully faced over the years. A detailed understanding of AID'S
thirteen-year heritage and its thirty-five year history is crucial to
understanding the subject I will take up in later chapters, the behavior
of its officials today.
In this and the next two chapters I recount both the early history
of the U.S. foreign aid program and the full history of AID, with
special attention to its operations in Tanzania, in the context of the
political histories of the United States and Tanzania. I will show that
from 1941 to 1995 there were three moments of profound change in U.S.
foreign aid policy. The first involved the institutionalization of aid¬
giving in a formal program between 1941 and 1948. The second and third
were changes in the program itself. These were caused by two political
events in Washington: the New Directions—the ijiame of the Foreign
Assistance Act (FAA) reform bill passed by Congress in 1973—and the
1980 election of Ronald Reagan.
Michael Hayes (1992) has developed a theory to explain the
magnitude of policy change in the American political system, why some
policy changes are more substantial than others. Whether a policy
58

59
change is marginal or substantial is determined by two factors: whether
knowledge of the social problem is felt to be adequate, and whether
attacking the problem will establish a new role for the government. The
normal functioning of the democratic system described by David
Braybrooke and Charles Lindblom (1963) as "incrementalism," according to
Hayes, occurs whenever the role of the government in an issue area is
established but confidence about what to do is lacking.
I will show that confidence in knowledge of how to achieve
sustainable development was particularly high at three moments in time:
1948, 1973, and 1981. After hitting these highs, confidence slipped in
the intervening years as programs met failure in the uncertain task
environment. The three long intervals between the highs—from the
founding of the U.S. foreign aid program in 1948 to the 1973 New
Directions, from the new legislation to the 1980 presidential election,
and finally from the Reagan administration to date—were periods during
which confidence in the knowledge base gradually faded. These were the
times of incremental change in AID'S history, or what Hayes calls
"incremental rationalizing policies."
There are three types of nonincremental policy change. In the
first, which Hayes calls "role breakthroughs," a social problem has been
identified that no one knows what to do about, and which will involve a
new responsibility for the government. This does not apply in the case
of the U.S. foreign aid program because, as I have already shown,
confidence in how to induce development was not lacking in the 1940s
when the new government program was launched.
The next two types of nonincremental change are germane to this
study. The second, which Hayes calls "nonincremental innovation," is
very uncommon. It occurs when confidence in knowledge of what to do is
high but a role for government is not yet been established. The result
is fortuitous; a strategy for dealing with the problem is formulated at
I

60
virtually the same moment the problem is determined to be a
responsibility of the government. This is what happened when the
foreign aid program was launched in 1948. In his study of different
World Bank projects, Hirschman (1967) discussed this issue, and
speculated there might be a force he called "the guiding hand" which
calls unexpected problem-solving skills into existence to meet
unexpected problems as they arise.
The third type of nonincremental change,(which Hayes calls a
"rationalizing breakthrough," occurs when confidence in knowledge is
high and there is an established government role. The result is new
policies for old problems. Twice in the history of AID, once in 1973 by
order of the Congress, and once in 1981 by order of the President,
"rationalizing breakthroughs" were made in AID policy. Confidence about
what to do was restored.
Hayes' model does not explain why confidence in knowledge changes;
he only states that it does change. There is a theory adapted from
paleontology to American politics by Frank Baumgartner and Bryan Jones
(1993) called "punctuated partial equilibrium" that can handle the
problem.
According to Baumgartner and Jones, whether a policy change is
marginal (incremental) or substantial (nonincrémental) is determined by
whether the relevant agency is being subjected to positive or negative
feedback. The meanings they give the terms "positive" and "negative"
are the reverse of their ordinary connotations. Positive feedback is
bad; it brings on stormy weather for agencies. Negative feedback is
good; it means smooth sailing.
Negative feedback means basically no feedback. It occurs when the
American public is basically happy with the status quo, when all is calm
and inputs are predictable. In this case, policy changes are marginal
(

61
and occur incrementally. Under conditions of negative feedback, large
inputs are required to produce small changes.
Positive feedback, on the other hand, is disruptive. It occurs
either when control of the agenda changes hands, or when there is a
crisis. When a different party captures the White House, or when new
majorities are created in Congress, new sets of policy alternatives go
into effect (Kingdon 1984). When crises occur, such as the oil shocks
of the 1970s (Jones 1979), public attention suddenly focusses on a
particular issue area (Kingdon 1984), and the government is forced to
respond with new policies.
I
The implication of the theory of punctuated partial equilibrium is
that whenever feedback changes from negative to positive, either new
agencies will be created, such as the Environmental Protection Agency
created to clean up pollution and the Department of Energy created to
meet the energy crisis, or existing agencies will be roused from the
torpor of business as usual and shaken out of their standard operating
procedures. In either case, small inputs cascade into major effects.
The historical changes that occurred in the U.S. foreign aid
program can be explained in terms of changes in the level of confidence
in the knowledge base. When new political actors have taken control of
the agenda, they have typically ordered fresh approaches to old problems
and regenerated confidence about what to do. Thus, when the foreign aid
program was founded in 1948 confidence in the knowledge base was high
but there was no existing role for government. The result was
nonincremental innovation: a strategy for inducing development was
devised the moment the problem of global poverty was identified as a
responsibility for the U.S. government.
AID'S establishment in 1961 coincided with the most articulate
theoretical expressions of the development paradigm. Confidence in the
knowledge base was still quite high. The failures of the late 1960s

62
I
weakened this conviction. The first rationalizing breakthrough that
punctuated AID'S policy equilibrium was the 1973 New Directions of the
Congress. This redirected AID in a fresh approach and confidence in the
knowledge base was regained. The two oil shocks and stagflation in the
Western countries combined to produce poor results in the development
task environment, and confidence in what to do flagged. The second
rationalizing breakthrough came after the election of Ronald Reagan.
AID was ordered to redirect its efforts toward private sector
initiatives, and once again AID recovered a measure of certainty. This
gradually wore away as the Cold War fizzled to an end and the political
will to maintain a bilateral aid program waned, leaving AID in the
position it finds itself in today.
I
The years 1973 and 1981 therefore punctuate, or divide the
agency's history into three time periods. I will show that each period
was characterized by a different dominant strategy and a different set
of development objectives. The dominant strategy of the first period,
1961-1973, was institution building. I treat both AID'S prehistory and
the institution building period in this chapter. The second period was
the shortest, the seven years 1974-1980 when the dominant strategy was
reaching the poor majority. I present this second period in Chapter
Five. The dominant strategy of the third period, from 1981 to the
present, has been one of forcing political reform. I present this
period in Chapter Six.
The Ancestry of AID, 1941-1960
I
The birth of the world's first peacetime foreign aid program is
conventionally given as the conference at Bretton Woods, New Hampshire
in 1944. In actuality it had private sector antecedents in the three
largest U.S. philanthropic foundations. John D. Rockefeller, Andrew
Carnegie, and Henry Ford all endowed foundations during the Progressive

63
era for the dual purposes of thwarting the spread of socialism in the
American work force and securing access to resources abroad. The three
old robber barons were also seeking tax relief (Berman 1983), and may
have been worried about their immortal souls as they faced the prospect
of dying.
The Role of the Private Foundations
The Rockefeller Foundation was an early supporter of the
historically black universities. Its patronage was guided by the
Tuskegee Principle, whereby conservative black elites were to be trained
and sent out to socialize southern blacks into the American system, to
convert them from a disadvantaged and potentially explosively subculture
mired in hopeless poverty into a docile, semi-skilled labor force. The
Rockefeller Foundation helped establish the Social Science Research
Council in the 1920s, in hopes that academic minds could be found to
reconcile private wealth with public welfare. Overseas, the Rockefeller
Foundation supported medical training, notably in China after 1913. The
Carnegie Corporation supported the extension of the Jeanes teacher¬
training institutes—established by Anna Jeanes in 1907 to spread the
Tuskegee philosophy—into British Africa in the 1920s. When the Ford
foundation established overseas agricultural and public administration
programs after World War Two, it quickly became, in the words of Dean
Rusk, "the fat boy in the philanthropic canoe" (Berman 1983: 2-3).
The Birth of an Official Foreign Aid Program
The conference at Bretton Woods was the culmination of nearly four
years of negotiations between the Roosevelt administration and the
Churchill government that began in 1941 when Britain was forced to ask
the United States for assistance in its war with Hitler’s Germany. This
established a relationship that quickly developed into an inquiry into

64
ways of establishing a new international economic system that would
prevent a third world war from occurring. The two governments were far
from consensus about what the new economic order should be when they
entered into negotiations. Each had its own ideas based on its
different experience of the Great Depression.
The British experience
When Britain announced a record budget deficit in 1931, there had
been a panicked flight from sterling, and the British pound fell 25
percent in a few days. Britain abandoned its traditional free trade
policy in response, and adopted protectionist measures for its
manufacturing and agriculture sectors. The lesson the British
government learned was that its colonial system, the Sterling Bloc, had
softened the effects of the depression in both the home country and the
colonies. The colonies had been sheltered from the worst effects of
falling commodity prices, while England had benefitted from near¬
exclusive access to raw materials in the territories under its control.
I
England's position changed from backing free trade to supporting
protectionism.
The American experience
The United States moved in the opposite direction, from
protectionism to free trade, as a consequence of its very different
experience of the depression. Since Hamilton's time the U.S. government
had protected domestic industry through tariffs. When the stock market
crashed in 1929 and the depression began, the government responded by
raising already high American tariffs even further with the Smoot-Harley
Bill of 1930, a victory for American isolationists (Gill and Law 1988:
132-134). In the cycle of escalating protectionism that began among the
industrialized countries of the world, the U.S. quickly found itself
squeezed out of the areas of trade dominated by England and France. The
foundations, representing the interests of corporate America, joined

65
with the government in an effort, of finding ways to penetrate the closed
European colonial markets.
When the Roosevelt administration came to office and gained
control of the political agenda, it began the slow process of convincing
Congress to convert from isolationism and protectionism to
internationalism and free trade. Secretary of*State Cordell Hull called
for bilateral reductions in trade barriers in 1934, but the colonial
powers resisted {Nissen 1975). Their ability to resist ended with the
German conquest of France and the beginning of the Battle of Britain.
The U.S. provided assistance to Britain on a cash-and-carry basis
during 1940. By early 1941 Britain was nearly broke. In the spring,
Lord Keynes, advisor to the British Treasury, went to Washington to
negotiate a desperately needed loan. The Lend-Lease Act was approved by
Congress only after strong lobbying by the administration, which
justified the measure to the legislature as a strategic means for future
penetration of the Sterling Bloc. President Roosevelt justified the
measure to the American public in terms that were readily understood,
stating that when one's neighbor's house is on^fire, it is well within
one's interests to lend the neighbor a hose.
With collaboration from the foundations, the assistant to the U.S.
secretary of the treasury, Henry Dexter White, produced a proposal for a
postwar system to stabilize world currencies through an international
central bank and a fund to oversee the problems of international
finance. It was understood that the U.S. was the only country capable
of financing any such international lending system, thus, in accordance
with the new U.S. interest in piercing closed trade areas, the White
Plan assigned these new institutions the objective of removing trade
barriers and pressuring countries to adopt free enterprise methods
(Kindleberger 1987).
I

66
The White Plan was briefly resisted by a portion of the American
financial community. The banking industry was generally hostile to
Keynesian principles and New Deal policies, but when the proposal
entered into the political debate, a split occurred between the "Main
Street" and "Wall Street" factions of the banking industry, with the
former, made up of the many small midwestern banks, generally favoring
the proposal as potentially profitable for U.S. industry, and the
latter, made up of the few big New York banks rf/ith heavy international
interests opposing it ostensibly because concessional lending was a big
giveaway. In actuality the New York banks opposed the White Plan
because they feared government subsidized lending would cut them out of
the market. Wall Street was still seen by a large segment of the
American public as the chief cause of the depression, so the political
base of the international banking industry was shaky. The unified
Democratic government was not sympathetic to their interests. A few
statements by the administration that the White Plan would not compete
with private capital was all that was needed to end the opposition of
the New York banks (Nissen 1975). It was a political fight they could
not win.
The British fought the proposal, but like the New York banks they
I
did not have enough leverage. The war against the Germans had bled
their economy white. The Churchill government recognized the American
maneuvering to penetrate the Sterling Bloc for what it was, a threat to
its economic interests, and protested against the White Plan as a
violation of national sovereignty. London produced its own proposal,
authored that summer by Lord Keynes, for an international "clearing
union" instead of a central bank that would help countries weather any
balance of payment and exchange problems, but which would not be allowed
to interfere in the internal economies of any country (Nissen 1975). In
I

67
other words, the British favored unconditional borrowing, while the
Americans insisted on the right to place conditions on their lending.
The British were in no position to bargain. They were over a
barrel, and the Keynes Plan was not considered. The White Plan became
the basis of negotiations that proceded through 1942 and 1943, with the
British fighting a rearguard action and the French government-in-exile
and Canada observing as interested third parties. In April 1944 the
Americans succeeded in dragging the British to the altar.
A "Joint Statement by Experts on the Establishment of an
International Monetary Fund" was released. Th4 proposed fund would have
the right to intervene in the economies of debtor countries. The
British had succeeded only in gaining the promise that the United States
would not exercise the right during the time when countries were making
the transition back to peacetime production. The Bretton Woods
convention sealed the agreement (Nissen 1975, Kindleberger 1987).
When the delegates convened in New Hampshire in July to iron out
the last details of the final document, victory over the Axis was in
sight, the European empires seemed secure, and the Soviet Union was
still an ally. Britain, however reluctantly, joined the United States
in publicly declaring that the first and second world wars had been
caused by jingoistic economic nationalism, and that if a third world war
were to be averted, the conditions which nurtured this ideology would
I
have to be eliminated (Gilpin 1987).
The task of reducing the major incentives for countries to wage
war would require nothing less than the transformation of the entire
world economy. Age old adversarial rivalries would have to give way to
something never seen before, complex interdependence, or "situations
characterized by reciprocal effects among countries" (Keohane and Nye
1991: 123). The delegates did not want to entrust the success of their
scheme to the whims of domestic politics and the vagaries of

68
I
international diplomacy. They intended to use technical means. The
agreement they signed, once approved by the political leadership, would
peg world currencies to a gold-backed U.S. dollar and create a set of
international institutions designed to lower trade barriers and provide
concessional loans to governments to use either to finance long term
development projects or to remedy short term balance of payment problems
(Gill and Law 1988). These insitutions were, respectively, the
International Trade Organization (which was never established because
the U.S. Congress never approved it), the International Bank for
Reconstruction and Development (IBRD, or the World Bank), and the
International Monetary Fund (IMF).
The high hopes for a permanent peace thai followed the surrender
of Japan a year after Bretton Woods were dashed in the dozen months it
took Stalin to establish Soviet dominance over Eastern Europe, for the
Communists to resume the civil war in China, and for war ravaged Europe
to begin to exhibit signs of renewed political extremism. It took the
U.S. government until 1947 to develop a policy framework to view these
events. That year President Truman declared that the earth was being
divided into a free world and a world enslaved by Communism, and
challenged the American people to decide which side they were on
(Freeland 1972). President Truman's address to a joint session of
Congress on March 12, 1947 to announce that he was extending military,
economic and technical assistance to Greece and Turkey in response to
Communist insurgencies in the two countries established the precedence
I
of giving grants of money. Dean Acheson's speech in Mississsippi in May
1947 and George Marshall's better known commencement address at Harvard
a month later institutionalized the giving of aid in what came to be
called the Marshall Plan.
Having identified Communism as a threat to American national
security, the Truman administration set about devising a strategy to

69
contain it by encircling the Soviet Union and pastern Europe with a
girdle of military alliances and by aiding the embattled Chinese
nationalists (Acheson 1969). The nationalist movements that brought
renewed war to Vietnam and independence to India and Pakistan inspired
nationalist movements in every European colony in the world. Facing
this extraordinary development, the Truman administration deemed that
the desperate poverty of the people living in the colonized areas was
likely to make Communist utopianism appealing to them. A foreign aid
program to improve global standards of living seemed justified as part
of the effort to contain Communism (Packenham 1973).
As it took form, the Truman Doctrine proposed simultaneously (1)
to confront Communism with military force to contain it where it already
existed; and (2) to distribute economic aid to promote peace,
cooperation and prosperity among the nations o£ the free world. The
program that resulted, the Marshall Plan [later reorganized as the
Organization of Economic Cooperation and Development (OECD)], did not
pass without opposition. The American people had twice shed blood and
dispensed treasure to win wars to save democracy. Many Congressmen were
reluctant to ask their constituents to pledge new sacrifices to
safeguard the peace. The enactment of the Marshall Plan was a slow and
piecemeal process of persuasion. Congress passed the National Security
Act in 1947 establishing the National Security Council, a unified
Department of Defense under a Secretary of Defense, and the Central
Intelligence Agency (Kemp 1993). It passed the Economic Cooperation Act
a year later in 1948, which authorized the Economic Cooperation
Administration (ECA) to administer the bilateral aspects of the Marshall
I
Plan (Kindleberger 1987).
The ECA was in place by the end of 1948 when Truman narrowly won
reelection and the Democrats lost control of the Congress. Facing a
Republican majority in the House and the Senate in January 1949, with a

70
fresh Communist crisis looming in Korea, in the fourth point of his
inaugural address, Truman boldly called for the expansion of the U.S.
foreign aid program into all countries emerging from European
colonialism (McCullough 1992). The "loss" of China to Mao's Communist
armies in 1949 helped spur the Congress to pass the 1950 Act for
International Development, which replaced the ECA with the Technical
Cooperation Administration (TCA) and created a Mutual Defense Assistance
program to help countries fight Communism. This arrangement was
superceded by the 1951 Mutual Security Act, passed in response to the
outbreak of the Korean War on June 25, 1950. Primarily a military
measure, it placed all of America's bilateral aid organizations except
the Export-Import Bank under one legislative authorization, and replaced
the TCA with the Mutual Security Administration (MSA).
The 1952 election of Dwight Eisenhower as President gave the
Republicans control of the White House for the first time in thirty
years, but restored a Democratic majority in Congress. In its first
year in office, 1953, the Eisenhower administration reorganized the MSA
into the Foreign Operations Administration (FOA), then reorganized it
again in 1956 as the International Operations Administration (IOA). The
last change to the American foreign aid program made under Eisenhower
was the establishment of the Development Loan Fund in 1957 to conduct
bilateral American lending (Rondinelli 1987).
Eisenhower enhanced the role of the National Security Adviser in
foreign policy making (Kemp 1993: 34). His first crisis in Africa
occurred in Egypt during the election year of 1956. Gamal Abdel Nasser
of Egypt retaliated for the denial of World Bank aid to build the Aswan
Dam by nationalizing the Suez Canal. Britain, France and Israel united
to reopen it by force of arms. Eisenhower intervened by cutting off
I
supplies of oil until the expedition withdrew.

71
This act to support Egypt in his first term was contradicted by
Eisenhower's attitude toward nationalism in his second. Based on the
loyalties he formed in the war as supreme commander of the European
theater of operations, as president, Eisenhower was disinclined to
support the nationalist movements rising in th^ colonies of America's
most crucial allies. He would describe nationalism in his memoirs as a
"destructive hurricane." This gave Senator John F. Kennedy an
opportunity to make a name for himself by declaring his support for the
right of national self-determination (Mahoney 1983).
The stance Kennedy took in the Senate in 1958 won him great favor
among the emerging nations when he was inaugurated President in 1961.
His administration got the Foreign Assistance Act (FAA) through Congress
in its first year in office, and then moved vigorously to win Africa to
the free world by extending liberal amounts of aid and by appointing
dynamic ambassadors. Kennedy cultivated a personal relationship with
the new African leaders, many of whom were as young as he, by receiving
them with great fanfare at the White House (Noer 1989). Among these was
Julius Nyerere of Tanzania, first received aft4r a trip to the U.N. to
request membership for his not yet independent country in the summer of
1961. He came away from the meeting impressed that Kennedy had a much
better grasp of the problems facing his country than the British prime
minister Harold Macmillan (Listowel 1965: 394-395).
Toward Independence in Tanganyika and Zanzibar
The United Republic of Tanzania consists of two parts. The first
is the chain of islands offshore in the Indian Ocean named Zanzibar.
The second and bigger is mainland Tanganyika, a poetic Swahili name that
means Sail in the Wilderness, a reference to the dhows that ply the
great lake of the same name on its western border (Yaeger 1989: 13) .
Tanganyika consists of the area north of Mozambique, east of Lake
I

72
Tanganyika and the Great Rift Valley, and south of Lake Victoria, Mount
Kilimanjaro and the Serengeti Plains.
Mainland Tanganyika
The archeological discoveries made by the Leakey family in the
Olduvai Gorge near Serengeti revealed Tanzania to be an early cradle of
humanity. There is no lineal connection "between the ancient hominids
of the savanna and the people who later populated eastern Africa"
(Yaeger 1989: 6). The earliest fully human inhabitants of Tanganyika
came from migrations of Cushitic people from Ethiopia 10,000 years ago,
followed by Bantu people from far away Nigeria and Cameroon. Later
influxes of Sudanic, Nilotic and Paranilotic peoples gave rise to
Tanzania's wide variety of ethnic groups. By the 9th century AD, Arabs
and Persians were trading regularly along the coast. They established
island city states which came to be called Zanzibar. Arab intermingling
with the coastal Bantus produced the Swahili culture and language. The
area was briefly taken by the Portuguese in the early 16th century, but
was then conquered by Arabs from Oman who united the islands under a
sultanate. The Omani rulers of Zanzibar pushed the northern limit of
Portugese control back south to what is now Mozambique and raided the
heart of Africa for slaves. They established Á slave-based plantation
economy in Zanzibar which made it into the world's leading producer of
cloves.
Under the pretense of abolishing the Arab slave trade, the British
established a protectorate over Zanzibar in the early 1800s. The U.S.
opened a consulate in the islands in 1837. It became the point of
embarkment for the European explorers and missionaries, the most famous
of whom was David Livingstone.
During the 1880s a German named Karl Peters, leader of the Society
for German Colonization, signed a series of concessionary agreements
with various Tanganyikan chiefs. The Kaiser granted Peters a charter to
I

73
form the German East Africa Company. The British responded by entering
into secret negotiations with the Germans to establish a modus vivendi
in East Africa, without consulting the Sultan. German control was
formalized over the area south of British Uganda and Kenya, east of the
Belgian Congo, and north of Portgugese Mozambique and included Rwanda
and Burundi. Britain retained juridical control over Zanzibar, leaving
the internal affairs of the islands in the hands of the Sultan.
The Germans ran their colonies as military dictatorships. Like
all the colonial powers, they forced the Africans they took under their
control into the cash economy and surplus production by imposing hut and
head taxes. In the drive to catch up with Britain and France, the
Germans were more willing to make heavy sacrifices in their colonies to
build the infrastructures needed to export primary commodities.
This was the case in Tanganyika. The Germans built a new capital
city on the coast at Dar es Salaam, a road network, and two railroads, a
shorter one from the port of Tanga to Moshi, the main town of the
northern coffee producing region., and a second, much longer railroad
from Dar es Salaam to Lake Tanganyika that spanned the width of the
colony. During this period Indians who had been brought to Kenya to
build the British railroad there migrated southward into German
territory and gradually took over petty commerce.
German development of the colonial economy was accomplished by
draconian means of land appropriation and indentured servitude. Even by
the standards of the time, Peters ran a brutal charter company in
Tanganyika. He committed outrage after outrage against the Africans,
taking a harem of dozens of women, having men flogged to death with
sickening routine. ... In 1891 the Berlin government responded to
published accounts of these gross excesses by taking over control of
Tanganyika, but it left Peters in authority as civil governor.
I

74
The result was a number of uprisings, the strongest of which
forced the Germans to launch two' campaigns of pacification. The first
was against the Hehe, lasting eight years from 1891 to 1898. The second
was against the Maji-Maji Rebellion, lasting three years from 1905 to
1907. The brutality of the German scorched earth campaigns led to a
public outcry, and Berlin removed Peters and appointed Albrecht
I
Rechenberg as governor. He expanded the rights of Tanganyikans and
launched programs to encourage African agricultural production and to
provide for missionary education. The German settlers, however,
protested against the loss of cheap labor, and much of Rechenberg's
reforms were in the process of being reversed by Berlin when World War
One began.
Tanganyika became the scene of fighting. The Belgians hauled the
parts of a small warship by steam tractor overland through the Congo to
Lake Tanganyika where they assembled and launched it to challenge German
control of the lake (the inspiration for the film "The African Queen").
The German military commander, Major General Paul von Lettow-Vorbeck,
conducted a brilliant guerrilla campaign with a few thousand askari
African soldiers against the British who invaded from Kenya. He was
still holding out when the Armistice was signed on November 11, 1918.
After the German defeat, Rwanda and Burundi were turned over to the
Belgians and Tanganyika to the British to rule under League of Nations
mandate, and later as United Nations Trust territories.
Under the U.N. requirements that went into effect in 1945, the
colonial powers were required to put the people of the trust territories
on a course toward self-government. The first step was to establish
internal rule. Britain was tardy in taking steps in this direction in
Tanganyika. It concentrated first on economic development in the
colony, which had seriously lagged since 1914. Britain introduced a
ten-year development plan in 1946 that encouraged both African education
I

75
and--in response to pressure from the British settlers in adjoining
Kenya—increased white settlement. This plan was followed by another in
1955 which promised more funding for African agriculture. The British
plan received support from Eisenhower's Foreign Operations
Administration, and the first Ü.S. foreign aid to Tanganyika was
obligated in 1955. A third development plan was devised in 1960 with
World Bank assistance. One constant in the three plans was the policy
to increase African food and export crop production through persuasive
I
rather than coercive means.
When Tanganyika was converted from a League of Nations Mandate
territory to a United Nations Trust territory in 1945, and Britain was
required to show progress toward internal rule, African political
associations sprang up intent on capturing control of the process. The
principal of these was the Tanganyikan African National Union (TANU),
led by one of the country's few college graduates, Julius Nyerere. Its
platform called for independence and the abolition of the racial
divisions between Arabs, Indians and Africans, which the British—with
their abhorance of racial mixing and their theories of indirect rule—
had institutionalized. TANU gradually drew all organized opposition
groups to it, and became the umbrella for the entire independence
movement.
I
The British organized a political party of Europeans and Indians
to oppose TANU, that it would not have a political monopoly, and held
limited elections for a new legislative council in 1958 and 1959. Ten
of the thirty seats were reserved for Europeans, ten for Indians, and
ten for the vast majority of Africans. Only wealthy and educated
Tanganyikans were allowed to vote. Despite these disadvantages, TANU or
TANU-supported candidates won all thirty seats.
The British pursued an incremental strategy for independence. The
plan called, in effect, for government by bureaucracy, a plan the

76
I
African leaders had little choice but to accept. The British plan
anticipated the gap-filling and trickle-down theories it implicitly
assumed by six years. It had six points. (1) Because of a shortage of
skilled administrators, the civil service would remain staffed by
expatriates indefinitely. (2) Because of the complexity of development,
policy would be made not by the executive nor the legislative, but by
the politically neutral (and largely expatriate) civil service. (3)
Because of limited resources, development projects would be conservative
and aimed at the progressive farmers and entrepreneurs most likely to
capitalize on them. (4) Because of the shortage of capital, the new
government would encourage foreign investment.1 (5) To head off capital
flight, the European and Indian communities would retain their
economically privileged positions. (6) TANU would be in charge of
mobilizing support for the plan. The only role given the Tanganyikan
political leadership was the unenviable task of rallying support for a
conservative, inegalitarian approach to development that would not
benefit the members (Yaeger 1989: 29-30).
Nevertheless, the British thought they had a strategy, and
expanded the franchise and the number of seats on the Legislative
Council to seventy-one, with fifty to be contested, eleven reserved for
the Indians, and ten for the Europeans. New elections were held in
August 1960. A protoype cabinet of ten unoffical ministers was chosen
from the elected majority. Nyerere, as leader of the majority party,
I
became chief minister, and "under his leadership swift progress was made
toward independence" (Yaeger 1989: 25). Internal self-rule was
proclaimed on May 15, 1961. New elections were held that year in which
TANU captured all seats except one, which was won by an independent,
pro-TANU candidate, and on December 9, Tanganyika became an independent
country.

77
The islands of Zanzibar
Zanzibar followed a very different path to independence as a
result of its much worse ethnic divisions. The British, who for over a
century had dominated the islands externally but allowed it internal
rule, established a legislative council in Zanzibar in 1926, thirty
years earlier than in Tanganyika. Despite this clear advantage in
greater experience with internal government, Zanzibar waded through
blood to independence, and then gave it up after only five months to
unify with Tanganyika.
The reason lay in the ethnic hatreds in Zanzibar that had been
accidentally produced by British policy. Because of the long history of
relations with the Zanzibari sultanate, Britain structured the Zanzibar
Legislative Council to be dominated by the Arab minority. The problem
was the traditional Arabs related to Africans as their unequals, as
former slaves. The independence movement that arose in Zanzibar was
less in opposition to the British than in hatred of the Arab ruling
class.
The formal opposition legitimated by the British was comprised of
two main groups. One, the Zanzibar Nationalist Party (ZNP), was
composed of the enlightened, pro-modernization Arab opponents of the
Sultan. Its most radical wing was led by a Marxist named Ahmad Abdul-
rahman Mohammed Babu. In 1963 Babu would break with the ZNP and form
his own party, called the Umma Party, patterned after Nasserist
principles (Lofchie 1965). The second opposition group was the Afro-
Shirazi Union (ASU), comprised of the oppressed peoples, both the dark-
skinned Africans and the lighter, mixed-race Shirazis. The ASU was led
j
by a waterfront organizer named Abeid Karume.
The British moved to hold the first elections in Zanzibar at the
same time they were holding them in Tanganyika. They expanded the
number of seats on the Zanzibar Legislative Council from twelve to

78
eighteen, with the six new seats to be elective, and held elections in
1957. ZNP secured none of these, and ASU only(three. The Sultan and
his followers, upon whom the British were bestowing the benefits of
independence, maintained Arab dominance in the islands.
The two parties failed to survive in opposition. When they fell
apart, in stark contrast to the solidarity of the independence movement
in Tanganyika, Zanzibari politics dissolved into a swirl of ever-
changing factions under alphabet soup acronyms, all driven by
heightening class hostility and racial animosity.
Britain proceded as if there were nothing amiss in Zanzibar. It
increased the number of seats on the Council again and scheduled
elections for January 1961. These produced no majority party, and no
change in the status quo. The British persisted, and scheduled another
election for June. When districting gave the Sultan's loyalists a slim
majority of these seats, rioting broke out in vlihich sixty-five Arabs
were killed (Clayton 1981).
In addition to the Marxist-Leninist Ahmad Babu, leader of the
leftist Arabs, and Abeid Karume, leader of the Afro-Shirazi, a shadowy
figure was to play a key role as the trigger of the coming revolution:
John Okello. A Ugandan immigrant with a fierce hatred of Arabs who
believed God spoke to him directly, Okello was the most violent minded
of the three. In 1962, the year Nyerere became leader of independent
Tanganyika, Okello began to form a network of Africans dedicated to the
violent ouster of the Arabs. He made his closest supporters swear an
oath to kill all Arabs between the ages of eighteen and fifty-five by
jumping three times over a potion made of red, white and black colored
stones and the blood and brains of a black cat and a black dog (Clayton
I
1981: 55). The Sultan's police officers, who had only recently taken
over command of law enforcement from the British, were informed of
Okello's preparations, but did not attach any importance to the reports.

79
Babu meanwhile was arranging with the Cuban ambassador in Dar es
Salaam for a group of his supporters to go to Cuba to be trained in
revolutionary ideology and practice. After they left for Havana, Babu
helped instigate the burning of the British Information Office in 1962,
for which he served fifteen months in prison. He was released just as
his militants returned from Cuba sporting fatigues, Castro beards, and
snapping off Venceremos salutes. They made quite a splash in the
Tanganyikan capital, and were to be the cause of the persistent belief
in U.S. foreign policy circles that the Cubans were involved in the
coming revolution (Clayton 1981: 70).
The British set a date in June 1963 for internal self-rule for
Zanzibar, and held a final preindependence election in July. The Afro-
Shirazi won a majority of the vote, but the Sultan's loyalists won a
majority of seats. The Arab opposition and the Afro-Shirazis alike were
outraged by the gerrymandered result. Nevertheless, the British invited
the Sultan's supporters to form a government, and at midnight, December
9-10, 1963, gave Zanzibar its formal independeAce (Lofchie 1965).
It was uhuru ya waarabu tu, independence for the Arabs in the eyes
the Afro-Shirazi, a government that would last less than two months. As
his police continued to ignore reports of the activities of Okello,
Sultan Jamshid commanded the people to address him as "Majesty" and,
contemptuously referring to Karume as "the boatman," made it plain to
the Afro-Shirazis that they were to be the subjects of the loyal Arabs
(Clayton 1981: 49, 62-63).
In this seething climate John Okello launched his revolution on
January 11, 1964. A group of his men awoke Karume and took him by dhow
to Dar es Salaam to protect him in case of the revolution failing or
Arab reprisal. The revolt was a bloody success. The Sultan barely
escaped with his family. Somewhere between 5,000 and 10,000 Arabs were
I
slaughtered. When Karume and Babu were told of Okello's plans to

80
include them in a revolutionary government, they sailed from Dar es
Salaam to Zanzibar and landed in the midst of chaos and carnage.
Horrified at the butchery occurring in the streets all over the islands,
Zanzibar's leadership rallied to Karume. Babu quickly asserted control
over the most radical faction, and an ill-defined revolutionary
government took shape on January 24 under Karuipe's overall leadership,
with Okello ranked twelfth on a council of thirty and thus excluded from
the cabinet, which consisted of the first eleven names.
Nyerere rushed 130 policemen to help restore order and the British
landed a unit of infantry. Okello did not take his demotion lightly.
He had to be told to cease coming armed to council meetings, and began
to quarrel heatedly with Karume over the issue of the nationalization of
land, which Karume opposed. Their arguments continued through February
until, worried about having such an unstable man in the ruling council,
with Nyerere's cooperation, Karume and Babu invented a ruse that they
were called by Nyerere to urgent conference in Tanganyika, and managed
peacefully to remove Okello from the islands, ultimately to Nairobi,
where he would be imprisoned (Clayton 1981).
I
The Founding of AID
This was the climate in which AID opened a mission in Tanganyika,
the first independent country in East Africa. Kennedy's 1961 FAA
incorporated the existing agency, the IOA, and the Development Loan Fund
into a new bureau, the centerpiece of Kennedy's new foreign aid program,
the U.S. Agency for International Development. Kennedy also created the
Peace Corps and the Alliance for Progress. Peace Corps and AID were set
up as semi-autonomous branches of the State Department. In all
countries where they were to be active, both would maintain offices
physically separate from the embassy, but the Peace Corps and the AID
country directors would be under the authority of the ambassador.
I

81
The establishment of AID was less the founding of a new agency
than a substantial reorganization and reorientation of a previously
existing one. Three presidents would serve in office during the
thirteen years of AID'S 1961-1973 institution building period.
AID'S planning system
From its inception, AID'S strategies for Tanzania were expressed
in formal plans, according to a method established on the recommendation
of a group of social scientists called the Charles River Group who met
shortly after the passage of the FAA and recommended that the project
approach of AID’S forerunners be abandoned in favor of comprehensive
country programming (Packenham 1973). In the 1960s, AID'S country plans
were named the Country Assistance Program (CAP). They were revised on
an annual basis. In 1972 under the Nixon administration the name was
changed to the Development Assistance Program (DAP). The document was
renamed the Country Development Strategy Statement (CDSS) in 1977 during
the Carter administration. In 1989 under the Bush administration it
became the Country Program Strategic Plan (CPSP), and a multiyear
planning framework was established. Under the Clinton administration in
1995 it was completely revamped as the Strategic Planning Framework
(SPF). In politically stable countries not experiencing some form of
crisis, the planning framework is five years iA time.
Initially, most U.S. foreign assistance was delivered through
bilateral channels overseen by AID. In its early years, AID was the
leading institution of the American foreign aid program. However, over
the course of its first decade of existence, the bulk of U.S. assistance
was gradually shifted from bilateral to multilateral channels. This was
done to protect a larger proportion of foreign aid from the political
process (Nissen 1975, Tendler 1975, Weissman 1975). AID lost its
preeminence to the World Bank. From 1961 to 1970 American multilateral
aid grew seven times faster than bilateral aid. While the World Bank's
I

82
loan commitments quadrupled and its personnel doubled, AID'S
appropriations were reduced by 20 percent and its personnel was halved
(Wood 1986).
AID'S personnel system
AID has three basic categories of personnel. The first is U.S.
Direct Hires (USDH), permanent American employees of the federal
government with full diplomatic status and perquisites. The second is
Foreign National Direct Hires (FNDH), permanent foreign employees of the
federal government paid at local wage rates, which in the case of
Tanzania have generally been about one-tenth of American salaries. The
third is contractors and consultants. These can be Americans or host
country or even third country nationals. There are various types of
contracts that AID awards. These range from open-ended contracts for
administrative work in the offices either in Washington or in the
missions, to close-ended contracts for the implementation of specific
projects in the field.
The First Period: Institution Building, 1961-1973
Tanganyika began to experience racial discord after independence
in early 1962, but it never approached anything like the bloodbath that
would occur two years later in Zanzibar. Facing a bureaucracy dominated
by Europeans whose mandate placed them outside his political reach, and
an economy dominated by an Indian merchant claás, at the first stirrings
of ethnic hatred in the first month of the first year of independence in
January, Nyerere tried to douse the flames, but found TANU to be
unresponsive to his orders. The effective mobilizer of popular support
for independence proved to be an ineffective instrument of central
control. Many members of the TANU youth wing were rowdies who thought
their position entitled them to mete out curbside justice by roughing up
Indian shopkeepers and levying informal taxes on them. The left wing of

83
I
the party leadership began immediately to voice the desire of the lumpen
proletariat for a share of the civil service jobs held by the British,
and of the wealth of the Indian petty bourgeoisie. They managed to
criticize Nyerere's moderate, non-racialist policy (without criticizing
Nyerere himself) by implying that he was the unwitting stooge of the
foreigners.
Nyerere took two actions to calm the fever. He "made an example
of ill-mannered Europeans who continued to adopt an attitude of racial
arrogance." Four persons accused of discrimination were deported. The
"Star Chamber technique" opened a "political safety valve" that may have
prevented an explosion of frustration such as was looming in Zanzibar,
but it also scared off potential investors who wondered, if the rule of
I
law could be set aside so blithely, what this meant for property,
contracts and wage agreements (Listowel 1965: 408-409).
The second was the more serious. Facing the fierce attacks by the
left wing of the TANU National Executive upon his appeasing policies,
Nyerere offered to resign to dedicate himself to reorganizing TANU and
to develop a governing ideology. To the astonishment of many, perhaps
including himself, his resignation was accepted. Nyerere stepped down
after merely two months in office as leader of independent Tanganyika,
and turned his duties over to Rashidi Kawawa, a founding member of TANU.
Nyerere withdrew from public life into private reflection.1
Kawawa set about creating an oligarchical structure based on patronage.
He began by raising the minimum wage, followed that by declaring that
the civil service would be Africanized, then pushed through a Preventive
Detention Act which gave the state sweeping powers of imprisonment
without trial, and finally produced a republican constitution that went
into effect on the first anniversary of independence, December 9, 1962,
Interestingly in the same year that Richard Nixon did likewise
after suffering defeat in the California gubernatorial election.

84
following a national election. Nyerere came out of retirement to run
for the new office of president, and was swept*back into power by a huge
majority.
During his eleven month sabbatical Nyerere had devoted himself to
producing an official and enforceable ideology for TANU. He rejected
the competitive and contractual political philosophy of Locke, and
embraced the organic and consensual (and potentially authoritarian)
political philosophy of Rousseau. He looked to the African extended
family as the basic unit of society, and addressed a dialectic of three
issues: equality, democracy and socialism. His ideas on these issues
would become the core of the ideology he was to call Ujamaa. Usually
translated as "familyhood" Ujamaa was to become the philosophical basis
for the unique form of socialism that would be practiced in Tanzania for
the next twenty years.
I
Nyerere accepted as a given the belief common to African
subsistence farmers that the amount of resources is fixed, and proceeded
from this assumption under zero-sum logic. Before colonialism it had
been considered disgraceful for one member of a kinship group to have
too much if another had too little. African clans had affected
redistribution through moral sanction (Yaeger 1989). Nyerere thought
this system could be revived and adapted to modern conditions. The
whole nation was therefore to be organized along the lines of a
traditional African clan.
Second, Nyerere decided that while majority rule was a noble
principle, the Western version of democracy as the clash of competing
interests was to be rejected. Lockean representative democracy would be
eschewed in favor of Rousseauian direct democracy. Rousseau had written
glowingly of the city-republics of his native 18th century Switzerland
where "bands of peasants are seen regulating affairs of State under an
oak, and always acting wisely" (Ebenstein 1958: 416). Nyerere thought

85
this system could be replicated on a larger scale in 20th century
Africa, and wrote in a widely-circulated pamphlet his vision of a
Tanganyikan direct democracy in which "the elders sit under a big tree
and talk until they agree" (Yaeger 1989: 32). 1
Third, Nyerere combined the first two ideas into a vision of a
distinctively African form of socialism that would work toward the
ideals of economic equality and democratic political participation
through the mechanisms of an ideologically unifying party. The key to
achieving this future for the Tanzanian nation would be a strong single¬
party state.
This decision was fully consistent with the development paradigm
of the day, but it raised an important question: would the superpowers
leave Tanzania alone to blaze a new trail between capitalism and
communism (Bienen 1967)? Nyerere was acutely aware of what he would
call the second scramble for Africa, the competition between the
Communists and the democracies for the loyalties of the emerging
I
nations. He became an early and strong advocate of non-alignment and,
cognizant that his vision would require enormous resources to achieve,
declared Tanzania's willingness to accept assistance from any quarter as
long as it was given unconditionally (Rogers 1992).
Kennedy and AID'S Formative Years
John Kennedy created AID as part of an effort to distinguish more
clearly between American military aid and aid for economic development.
He did this in hopes that a more benevolant economic aid program would
serve to support democracy in the emerging nations. The activism of his
administration produced a scattershot approach to development in
Tanzania. From 1961, when AID opened a mission in Dar es Salaam, to
1963 when Kennedy was killed, a total of 22 projects were launched and a
total $54.1 million in new spending was obligated, an average of seven

86
new projects launched each year costing an average $2.5 million each,
$18 million in new spending obligated per year.
Nine projects were authorized in 1961 before Tanganyika was fully
independent, and $22.8 million in spending was obligated. The Mission's
first country plan was written from 1961-62 and submitted in January
1963 two months after Nyerere returned to powef, ten months before
Kennedy's death in Dallas. The plan had two main thrusts: to improve
Tanzania's physical infrastructure, its roads and urban water systems in
particular; and to strengthen and build national institutions,
particularly the civil service and institutions of higher learning
(USAID, History, 1985). The Ford Foundation, the fat boy in the canoe,
came on board in support of AID'S plan to help build a new college
campus from scratch in Dar es Salaam, staff it with expatriate faculty
while Tanganyikans were trained, and join it to the previously
established Makerere University in Kampala, Uganda and Royal College in
Nairobi, Kenya in a proposed University of East Africa. The Ford
Foundation also supported a program to Africanize the civil service, and
made a heavy investment in institution building in Tanzania (Berman
I
1983).
Institution-building and gap-filling criteria were to shape the
selection of AID objectives in Tanzania in the first thirteen years. At
another, higher level, however, AID was guided by what one former
foreign officer was to describe as the State Department "ideology of
imperial benevolence" (Morris 1977: 27) and the parallel noblesse oblige
of the foundations (Berman 1983: 2). The Mission's first country plan
followed the orders laid down in a document entitled "Tanganyika,
Department of State Guidelines for Policy and Operations." The first
country plan was fully reflective of State Department ideology.
The State Department had three key objectives in Tanganyika: (1)
strong and responsible government," (2) to prevent
f
to establish "a

87
Communist penetration of the government and the economy, and (3) to
ensure "the continued reliance of Tanganyika on Western sources for the
major portion of its economic and technical assistance." In recognition
of the fact that the State Department objectives had no development
component, the Mission added another: "economic development of a
responsibly governed Tanganyika at a satisfactory rate" (USAID, CAP,
1963a).
The second country plan of September 196^ reaffirmed the Mission's
objectives of "continued growth of the present system of government
under moderate leadership." The priority meant "minimizing any move by
Tanganyika toward racism, the anti-West pro-Communist brand of
neutralism, authoritarian government and militarism." Of particular
concern was the "denial of sensitive areas of the government and economy
to the Bloc, and continued reliance on Western sources for the major
portion of economic and technical assistance" (USAID, CAP, 1963b).
AID's first two country plans referred to Tanzania's World Bank-devised
first and its own subsequent second national development plans, but only
to show how the Mission's objectives were in alignment with and
supportive of (but not derived from) Tanzania's national development
goals (USAID, CAP, 1963a, 1963b, 1965, 1966).
In the first country plan the Mission státed its belief, based on
the Charles River Group recommendations, that programmed planning and
implementation through "project assistance provides the best form of aid
at this time" (USAID, CAP, 1963a). AID's use of projects as the primary
vehicle for implementing its programs did not change until 1995 when,
under the Strategic Planning Framework implemented by the Clinton
administration, projects would be replaced by a poorly understood
concept called "results packages." Briefly, these are bundles of
desired results toward which all planning is inclined.
I

88
The foreign policy establishment
The U.S. foreign policy establishment in 1960 was dominated by an
East Coast elite of Ivy League intellectuals, retired soldiers, and
millionaires. Critics of both the left and the right would later argue
that the attempt by Kennedy to align the interests of scholarship,
security, and capitalism in the name of spreading the good news of
democracy undermined the integrity of all three.
The ideology of the foreign policy establishment Kennedy found in
place at his inauguration was wholeheartedly conservative, realist,
Keynesian liberalism. The establishment's understanding of the world
was based on the principles of free trade and the Truman Doctrine, its
experience shaped by the lessons of the successes of the New Deal and
World War II, all tempered by the sober reminder of McCarthyism. They
equated Communism with Fascism and remembered how the foreign service
officers who were serving in China when it was "lost" were publicly
humiliated as soft on Communism and driven out of the service during the
witch hunts. Confident in their worldview, scornful of public opinion,
they treated foreign affairs as their private concern (Morris 1977).
The Kennedy administration transferred the leadership of
Eisenhower's IOA wholesale into AID. With the great number of embassies
and missions he opened in Africa, foreign service careers quickly became
invested in the continent far out of proportion to Africa's strategic
importance to the United States. A clientelist mentality took hold
among the State Department and AID personnel who went to Africa. They
developed their own "isolated and private view of foreign policy," and
whenever necessary joined forces to commit "little bureaucratic
deceptions to conceal the client's failures lest [they] lose what meager
call they had on Washington's programs and attention" (Morris 1977: 18).
AID personnel recognized the career opportunities in Kennedy's foreign
aid initiative, and along with the rest of the foreign policy

89
establishment greeted it enthusiastically, but along with the rest of
the foreign policy establishment they disdained Kennedy's desire to link
aid to democracy. The old hands considered that to be overly optimistic
and naive (Lyons 1994).
AID'S planners in Tanzania were part of the disparaging chorus.
They stated outright in their first country plan that the
f
administration's "hopes for Tanganyika's tranquil political progress
under a classic Western system of parliamentary democracy and civil
rights are exaggerated." That already "political developments [had]
disappointed many observers" was understandable; Tanzania was a
"xenophobic. . . emerging, ill-prepared and very self-conscious nation"
(USAID, CAP, 1963a).
In the second country plan submitted two months before Kennedy was
shot, the Mission informed Washington anew that it would not link
American assistance to democracy, but rather would "attempt to persuade
Tanganyikan leaders to follow democratic processes." The Mission
strongly believed that hectoring a proud and newly independent
government would be unprofitable; "any attempt to relate the level of
U.S. assistance directly to political objectives would be violently
resented and unproductive" (USAID, CAP, 1963b). This was reaffirmed in
the third country plan of October 1964, submitted after Tanganyika and
Zanzibar had unified, a month before Lyndon Johnson was reelected. It
stated that "any overt attempt to tie the level of U.S. assistance to
political conditions would be both unproductive and resented by the
local leadership we seek to strengthen" (USAID, CAP, 1964).
Although it thus eschewed political conditionality, consistent
with the principle of the right of interference dating back to the White
Plan, the U.S. placed conditions on its assistance to Tanzania. It
simply made them easy at first. The initial condition was that the
Nyerere government not become procommunist.
(

90
This was seen as a real danger at the time. "Tanganyika's desire
to pursue a policy of neutrality vis a vis the world's major power
blocs. . . may make the Ü.S. objective of preventing Communist
penetration of sensitive areas difficult to attain, when confronted by a
Tanganyikan desire to balance Communist and Western influences. This
same attitude will tend to complicate U.S. efforts to secure Tanganyikan
support for major Free World foreign policy positions." A big American
foreign aid program was needed to counter the "large-scale incursion of
Communist assistance and influence" that the UlS. intelligence community
was reporting lest "the present leadership. . . be exchanged for another
far less congenial to U.S. objectives" (USAID, CAP, 1963a).
Johnson, Union, and the Arusha Declaration
John F. Kennedy was assassinated on November 22, 1963, just four
months after Nyerere's reception at the White House in July for his
second meeting with Kennedy, on the only state visit to the U.S. he
would ever make.
The man who succeeded Kennedy in office could not have been more
different. Lyndon Johnson was unschooled, untravelled and unread
(Tucker 1994: 313). He was uncomfortable dealing with international
affairs, and with people from different countries. He often complained
i
that "foreigners are not like the folks I am used to" (Goldman 1969:
447), "not like the folks you were reared with" (Lyons 1994: 247). His
humble background made him deeply sympathetic to the plight of the poor,
and more comfortable among foreigners of low station than suave foreign
diplomats. During a tour of rural India, Johnson described to a rapt
group of peasants "his boyhood experience drawing water from the well,
showing how the rope occasionally slipped and burned the palms of his
hands. They rubbed their palms too" (Heinrichs 1994: 27).
i

91
I
Johnson's background also made him crude, culture-bound and
susceptible to prejudices. When television coverage of the starvation
in Biafra in early 1968 began to galvanize public opinion to intervene,
Johnson's lack of action drew sharp criticism from presidential
candidate Richard Nixon, and unfavorable commentary in the media. After
one particularly compelling television report was aired, Johnson
telephoned the under secretary of state for Africa and angrily ordered
him to send relief to "get those nigger babies off my TV set" (Morris
1977: 42).
Johnson's attitude toward Africa contrasted sharply with
Kennedy's. To Johnson, Africa was "the farthest corner of the world
. . . the place to threaten to send indiscreet officials who drew his
ire." Unlike Kennedy who paid great attention to Africa and tried to
assist its economic develoment in hopes of helping democracy take root
there—an unpopular idea he tried and failed to force through a
recalcitrant foreign policy establishment—Johnson delegated as much
responsibility for African affairs to the State Department as possible
and urged the European powers to accept overall responsibility for the
continent. The administration wanted to avoid playing the role of "Mr.
Big" in Africa (Lyons 1994: 245, 248). Africa became "the last issue
considered, and the first aid budget cut" (Morris 1977: 17).
The Mann Doctrine and the "Big Lie"
Fully cognizant of his shortcomings in foreign affairs, Johnson
I
entrusted responsibility for foreign aid policy to a fellow Texan,
Thomas Mann. The Mann Doctrine, issued on March 18, 1964, pronounced
what was to be for the next seventeen years the "Big Lie" of the U.S.
foreign aid program.
The Mann Doctrine began mildly enough by stressing that foreign
aid should be for self help, not charity, a slogan Johnson liked and
used often. It committed AID to four strongly realist, conservative

92
I
objectives: economic growth, the protection of U.S. overseas
investments, opposition to Communism, and, most significantly,
nonintervention in the internal affairs of countries (Packenham 1973) .
In one fell swoop this fourth point of the doctrine abandoned the
principle of a U.S. right to interference and sacrificed Kennedy's
support for democracy in favor of support for economic growth and
political stability (Tulchin 1994: 230). Politics was officially deemed
unimportant to development. The "Big Lie" was strongly supported by the
new national security advisor Walt Rostow when he took the position in
1965. The Mann Doctrine was fully consistent with Rostow's linear stage
theory of development, so central to the dominant paradigm.
Revolution, mutiny and union
Two months after Johnson succeeded Kennedy in office two events in
January 1964 focused attention squarely on Tanganyika and Zanzibar: the
revolution in Zanzibar and the mutiny a week later of the Tanganyikan
army. In the colonial era the military in Tanganyika was part of the
King's African Rifles. At independence it consisted of two battalions
and numbered about 2,000 men, British armed, British trained, and
British officered. Although Africanization of the civil service began
in 1962, it was not extended to the armed forces. By the end of 1963,
there was no Tanganyikan soldier above the rank of captain.
Dissatisfaction in the ranks grew.
When the Revolution broke out in Zanzibar, Nyerere ordered the
first batallion, stationed in Dar es Salaam, to leave their barracks and
move into the city in preparation for embarkment to support Karumbe.
I
Instead, inspired by the success of John Okello, on January 19 the first
batallion took control of the key points and communications in the city
and announced a coup d'etat. Nyerere fled into hiding. Looting and
violence against Indians broke out, and the mutiny spread to the second

93
batallion stationed in the interior, and from there beyond Tanganyikan
borders to the equally dissatisfied Ugandan an<¡i Kenyan armies.
Nyerere called for help. On January 25, Britain landed commandos
in Dar es Salaam from a warship lying off the coast. With little loss
of life, they chased the first batallion out of the city and into the
bush, and then moved out to bring the second batallion in the interior
to heel. The same day the British landed, Nyerere emerged from hiding
and grimly announced that the army would be disbanded and completely
restructured (Bienen 1967: 366-381).
The Zanzibar Revolution had by now brought Karume and Babu to
power. Babu, according to the U.S. ambassador to Kenya, was doing all
he could to persuade Karume that the Americans were plotting against
him, to make him believe the Communists were his only friends. He fed
Karume "hairy tales" that the NASA satellite tracking station was
actually a "rocket base" aimed at his overthrow, and that Zanzibar was
aswarm with "CIA agents disguised as newsmen" (Attwood 1967: 156, 164).
East Germany was the first country to recognize the revolutionary
government of Zanzibar and offer it aid. The People's Republic of China
was the first country to move to exploit the situation in both Zanzibar
and Tanganyika. Mao Zedong made a nominal $14 million loan to Zanzibar
and established a $31 million military training mission in Tanganyika to
carry out Nyerere's reformation of the army.
In office only two months, Johnson was hesitant to take action
against the Communist inroads. He felt the best option was "to remain
engaged in a low-key manner and try to demonstrate the value of good
relations with the West" (Lyons 1994: 253). To this end his
administration reestablished relations with Zanzibar in February (the
I
U.S. charge d'affaires had been expelled during the revolution) and sent
Frank Carlucci as the new charge d'affaires "with the difficult mission
of disabusing Karume of what he'd been told by Babu" (Attwood 1967:

94
157).2 When the Russians unloaded a cargo of rifles, machine guns,
anti-aircraft guns and armored scout cars on March 17, Carlucci quickly
concluded his task was hopeless, and on March 26 cabled this opinion to
Washington (Lyons 1994: 253). (
A week later the U.S. ambassador to Kenya made a statement in the
press warning East African governments that the Chinese were setting up
a "non-African type of regime" in Zanzibar, and urged them to be on
their guard. President Karume reacted angrily, and demanded that the
U.S. close the NASA tracking station. The station was moved to South
Africa. Some of the equipment was abandoned and fell into Chinese hands
(Clayton 1989: 107). As it was being dismantled, Carlucci attempted to
disarm Karume by presenting the generator to his government as a gift
(Attwood 1967: 164). It did no good. On April 16 the Zanzibar
delegation to the U.N. alleged that an Anglo-American invasion was being
prepared, and Karume expelled all British and American citizens (Clayton
1989).
As the U.S. press played up speculations1 that Zanzibar was
becoming "another Cuba, " Julius Nyerere moved quietly and effectively to
defuse the situation. He succeeded in persuading Karume to merge
Zanzibar with Tanganyika by promising substantial autonomy for Zanzibar,
including a separate military, cabinet and budget, and a strong voice in
the central government. On April 26 the United Republic of Tanganyika
and Zanzibar was formed. The Johnson administration expressed
tremendous relief and hailed Nyerere as a man who knew how to find ways
for Africans to solve their own problems (Lyons 1994: 263).
A low point in U.S.-Tanzanian relations
A rift had now formed in the State Department between the Kennedy
appointees whom Lyndon Johnson inherited and the foreign policy
I
Carlucci would later serve as National Security Advisor and then
Secretary of Defense to Reagan.

95
establishment. A struggle for control of the agenda had begun (Lyons
1994). In November 1964 Johnson was reelected in a landslide victory
over Barry Goldwater and given a substantial majority in both houses of
Congress. Then, a mere month after his triumph, a storm of vituperation
was poured down on the United States by the African bloc in the U.N.
General Assembly from outrage over U.S. involvement in a military
operation in the Congo. It made Johnson more determined than ever to
keep Africa off the agenda.
The operation which sparked the uproar was called Dragon Rouge,
planned and led by the Belgians. It involved dropping Belgian
paratroopers over Stanleyville to rescue about a thousand white people
who had been taken hostage by a Chinese-backed rebel force. The U.S.
interest lay in the fact that among the hostages were four U.S.
diplomats. The Johnson administration provided the long-range aircraft
for the mission, which struck on November 24, 1964 (Lyons 1994).
African leaders reacted with outrage. Nyerere condemned the foray as
"another Pearl Harbor." All through December the countries of the
African bloc took turns criticizing the United States in the U.N. with
such venom that American donations to at least1 one private humanitarian
organization in Africa dropped substantially that year (Attwood 1967).
The tension between the U.S. and Tanzania reached its height in
the winter of 1964-65. In November, the month of Dragon Rouge, the
Tanzanian foreign minister Oscar Kambona released "a series of forged
documents alleging a plot by the United States to overthrow the
Tanzanian government" (Yaeger 1989: 70). Then in January, Tanzanian
security officers recorded the telephone conversation of two American
embassy officials speculating about whether they had enough "ammunition"
to get a message sent from the State Department congratulating Karume on
the first anniversary of the revolution. Nyerere had dismissed
Kambona's earlier charges, but he accepted the tape recording as
I

96
evidence that the American plot was real, and demanded the expulsion of
two officers, one of whom was Frank Carlucci.
The U.S. ambassador went quickly to explain to Nyerere that the
term "ammunition" did not refer to plans to smuggle arms into Zanzibar;
it was simply a slangy reference to "influence," but Nyerere was unable
to withdraw the accusation lest he reveal that he had been misinformed
by his own intelligence service. The Johnson administration complied,
and in retaliation summoned its ambassador for consultation and asked
I
for the recall of the Tanzanian ambassador. At that point President
Kenyatta of Kenya stepped in. On February 2, 1964 he advised the
Americans to try to understand that Nyerere had "too many foreigners and
other people around, all spreading stories and causing trouble."
Kenyatta wanted to assure the Americans that "Julius himself is all
right" (Attwood 1967: 229-231).
Prelude to the reform of AID
The development-minded academics who joined the Kennedy
administration made the foreign aid program too "New Deal" to suit
American conservatives when they started out, and then by allowing it to
become mixed up with counterinsurgency programs under Johnson, made it
too "Green Beret" for the taste of American liberals (Weissman 1975:
22). The result by the mid 1960s was that AID I was under fire from both
ends of the political spectrum. The Johnson administration responded by
commissioning the first in a series of reports on the U.S. foreign aid
program that would culminate in the New Directions.
The first commission was chaired by Arthur Watson, head of IBM's
world trade division. It recommended that public aid should be a
catalyst for private effort, and criticized regulatory structures (such
as Ujamaa) as unnecessarily discouraging to local and foreign business
interests (Weissman 1975).
I

97
The next commission was formed as an indirect result of the wave
of unrest that began to sweep through Africa beginning with Zaire
(1960), Togo (1963), Congo (1963), and Gabon (1964). The Kennedy
appointees in the Africa Bureau at State Department urged Johnson to
formulate a new policy for the continent in response to the mounting
turmoil. They took it upon themselves to develop a proposal they named
the Strengthen Africa Program. The assistant secretary of state G.
Mennen "Soapy" Williams backed it. On May 6, 1965, perhaps in an effort
to force Johnson's hand, Williams cabled all the embassies and missions
in Africa to announce that a new policy for Africa was being shaped with
the same energy as the Great Society Program, and would soon be
forthcoming. Rostow opposed the initiative, and sat on Strengthen
Africa for five months, during which time Williams resigned to run
unsuccessfully for the Senate, and Strengthen Africa ran out of steam
(Lyons 1994). Africa was off the agenda.
The Unilateral Declaration of Independence in Rhodesia on November
11, 1965 put Africa squarely back on. U.N. Ambassador Arthur J.
Goldberg took note of the ultimatum the OAU promptly delivered to
Britain that it force the white regime to back down by December 15, and
correctly concluded that the African bloc would now judge the U.S. on
what it was going to do about white rule in Africa. Goldberg threw his
support behind Strengthen Africa. That was enough to persuade Johnson
to make a policy speech on the occasion of the I third anniversary of the
OAU.
In a brief address to an assembly of African dignitaries in the
White House in April 1966, Johnson announced U.S. support for the
principle of self-determination and an orderly transition to majority
rule. He appointed a blue ribbon commission to study the issue, and
named the ambassador to Ethiopia, Edward Korry, as chair (Lyons 1994).

98
I
The Korry Report was released in July 1966. It made four
recommendations: (1) The U.S. should continue to keep its aid free of
political conditions; (2) economic aid should be coordinated by the
World Bank; (3) AID should reduce the number of countries it was active
in to those with favorable prospects for development or a special
relationship with the U.S.; and (4) the foreign aid budget should be
increased. Johnson approved the plan, and then for the rest of his
administration concerned himself no further with Africa (Lyons 1994).
One of the four Korry Report recommendations was not acted on.
Rather than give AID an increase in funding, Congress slashed foreign
aid in 1966 and 1967 to express its disapproval of the escalating war in
Vietnam. With its domestic programs and the Vietnam war effort now in
priority, the Johnson administration had submitted AID budgets
calculated so close to the bone that the deep cuts meant hard
consequences (Lyons 1994).
Senator J. William Fulbright took up the Korry Report
recommendation that all American economic aid be turned over to the
World Bank (Nissen 1975). AID successfully resisted this, and acted on
only two of the four recommendations. First, it continued to maintain
the "Big Lie" policy of noninterference. Second, in the 1967
Congressional Presentation, AID informed Congress that it was reducing
the number of "regular assistance programs from the more than 30
countries now assisted to the 10 countries where development prospects
are best or where there is a special U.S. interest or relationship." On
the eve of the Arusha Declaration, based on itá prospects for
development, Tanzania made the cut as one of Africa's ten "Development
Emphasis Countries" (USAID, CP, 1967).
In 1966 President Johnson announced a "New Look" in foreign aid
which advocated increased U.S. contributions to the multilateral donor
organizations (Weissman 1975: 24). There was by now great concern in

99
Congress about AID'S lack of accountability and its apparent disinterest
in empowering people to take control of their Awn development. The
agency's heavy focus on big capital projects (such as the construction
of urban water systems and college campuses in Tanzania) was not
benefitting the bulk of the people. This led Congress to try to
legislate altruistic sensitivities into AID. It revised the FAA in 1966
in a bill that required AID to concentrate on public health and
agriculture. Title IX—Utilization of Democratic Institutions in
Development—instructed the agency to encourage popular participation in
its development programs wherever "national differences" permitted
(Packenham 1973).
The AID mission in Tanzania responded to the requirement for more
emphasis on social services and agriculture. New spending obligated in
these two sectors quadrupled from a combined $27.3 million in 1961-66 to
(
$110.1 million in 1967-73. The Mission did not respond to Title IX,
however. AID'S Washington offices were themselves uncertain what to do
about it. A proposal was put forth by Samuel Huntington to create an
Office of Political Development to juxtapose against the CIA, but this
was not adopted. AID did form a brief-lived Political Development
Division (Packenham 1973).
The uncertainty about Title IX was partly a consequence of its
ambiguity. The title called for increased support for political
development projects, but recognized that in certain countries such
projects might be politically impossible. A conference was held at MIT
in 1968 to advise AID on how to interpret Title IX. The conference was
co-chaired by Max Millikan and Lucien Pye, two leading contributors to
the dominant paradigm. The recommendation mad^ was that "participation"
should be defined as popular participation in economic development and
its fruits, not in political decision making. The recommendation was

100
adopted. As a consequence, globally, AID launched few projects in
political development.
Political development was most vigorously pursued in Vietnam. The
AID mission in Saigon ran a Village Self-Devel administered jointly with the U.S. military advisory command
(Rondinelli, 1987: 32). One of the rare global political development
programs AID undertook in response to Title IX was the Legislative
Services Project which affiliated legislative staffs with their
counterparts in America (Packenham 1973). In Tanzania, the Mission
undertook no political development projects. The "Big Lie" stayed in
place. Much of the reason was due to the general confusion in AID about
Title IX, but the 1967 Arusha Declaration certainly had an effect.
The Arusha Declaration
The Arusha Declaration was pronounced by Nyerere in the northern
town of Arusha in February 1967. It committed Tanzania to ujamaa na
kujiteqemea, usually translated as "socialism and self-reliance." The
declaration was an attempt to deal simultaneously with the foreign
policy crises of 1964-1966, and the fact that inequality in Tanzania was
growing, not diminishing.
Tanzania had experienced four foreign policy crises from 1964-1965
that harmed its relations with the West. Two of the crises affected its
relations with America. They were the accusations made by Tanzania in
January of U.S. plotting against Zanzibar, and Nyerere's response to
Dragon Rouge in November 1964.
Union with Zanzibar in 1964 damaged relations with West Germany by
default. East Germany had been the first country to recognize the
revolutionary government of Zanzibar, and had moved swiftly to provide
aid. West Germany's Hallstein Doctrine forbade diplomatic links with
any country recognizing East Germany. When Tanganyika and Zanzibar

101
merged, the doctrine automatically became applicable to Dar es Salaam,
and relations between the two countries cooled.
The fourth crisis was precipitated by Nyerere in reponse to the
Unilateral Declaration of Independence in Rhodesia in November 1965.
The Organization of African Unity demanded that Britain put down the
rebellion of the white settlers by December 15. When the Labour
government vacillated past the deadline, Nyerere severed diplomatic ties
with Britain.
These actions all cost Tanzania substantial amounts of foreign
aid, a loss that was largely made up by the Swedish government, which
was drawn for ideological reasons to supporting Ujamaa (Elgstrom,
forthcoming). A key principle upheld in the Arusha Declaration was
national sovereignty. This helped convince AID to forego any political
development projects in Tanzania and keep the "Big Lie" in place.
The Arusha Declaration attacked incipient class formation and
declared official opposition to feudalism and capitalism, while
rejecting Marxist-Leninist strategies of constructing state socialism
through a vanguard party. By declaring all party officials to be
peasants and workers, Nyerere continued to uphold the ideal of
participatory development (Yaeger 1989).
Meanwhile the Chinese military training mission had rapidly
reorganized the Tanzanian army along Chinese lines. By 1967 AID
informed Congress that the "concept of a professional army elite
divorced from politics" had been abandoned in Tanzania, and "in its
place has been substituted a citizen army that can engage in nation¬
building projects and whose members belong to TANU and participate
I
actively in the national life of the country and in politics." AID
estimated that "Bloc and ChiCom aid programs totalling nominally over
$100 million have been secured, and there is an increasing participation

102
by Communist technicians in developmental activities in the United
Republic" (USAID, CP, 1967).
The Mission believed that Tanzania was accepting Communist
assistance simply because of its "preoccupation with the political
liberation of the remaining territories of Southern Africa." The
possibility that Nyerere needed all the money ljie could lay his hands on
for his project of restructuring Tanzanian society did not seem to have
been considered. Tanzania was now the "headquarters of the African
Liberation Committee and of numerous refugee political organizations
dedicated to bringing about political and social change in their
homelands" (USAID, CP, 1967). The "crucial question" in the Mission's
view was "whether progress can be achieved quickly enough. . . to avoid
the dangers of despair and a grasping at alternative extremist
approaches" (USAID, CP, 1967).
AID budget cuts
By the mid 1960s the Vietnam War was coming under heavy public
criticism in the United States. Opposition to the war grew accordingly
in Congress. To register disapproval of presidential foreign policy, in
1967 Congress cut the AID budget, and in 1967 ¿ut more deeply still,
slashing $1 billion (in nominal terms) from Johnson's proposed $2.5
billion foreign aid budget for 1968 (Rondinelli 1987), still
proportionately the biggest budget cut in AID history.
The effects were felt in Tanzania. Average new spending fell 89%
from $18.6 million in 1963-65 to $2.1 million in 1966-68, and then
another 39% to $1.3 million in 1968-69. The lean years made AID more
attuned to the mood of the legislature. In the 1970 Congressional
Presentation, AID'S Africa Bureau declared its focus was now on
"improving the quality of life for the African people" three years
before the New Directions (USAID, CP, 1970).
I

103
The Tet Offensive in Vietnam in January 1968 resulted in President
Johnson's closest advisors abandoning him on the war.3 It was a
crushing blow, and led to Johnson's decision in March not to seek
another term. His last act in regards to the foreign aid program was to
commission another study. Johnson appointed James Perkins, former vice
president of the Carnegie Corporation and president of Cornell
University, to chair the General Advisory Committee of Foreign
Assistance Policy, and ordered him to address :j.ts recommendations to the
next administration. The Perkins Report renewed the Kennedy appeal for
clear separation of military from economic aid, called for increased
reliance on multilateral agencies and a "streamlined successor" to the
increasingly discredited AID, and a pledge of at least one percent of
the U.S. GNP to foreign aid (Weissman 1975: 24-25).
Nixon, "Tar Baby" and the New Directions
Richard Nixon narrowly won election over Vice President Hubert
Humphrey in the fall of 1968. Upon entering office in January 1969,
Nixon was presented with the Perkins Report. Disliking its Democratic
pedigree, he appointed his own commission under the chairman of the Bank
of America, Rudolph Peterson. Included on the new panel was Samuel
Huntington. The Peterson Report essentially "repackaged" the Perkins
Report; its key change was to "dodge" the goal of a pledge of one
percent of the GNP (Weissman 1975: 25).
Like Johnson, Nixon came from a humble background. Like Johnson,
he had a mediocre education, but like Kennedy he was well travelled. As
Vice President to Eisenhower, Nixon had come to believe that the State
Department could not be trusted, that the foreign policy establishment
Those who resigned included Secretary of Defense Robert McNamara,
who then became President of the World Bank. In 1995 he published a mea
culpa in which he confessed to having known, even as he helped author
its policies, that the U.S. effort in Vietnam would fail.
I

104
had not served Eisenhower well. Unlike Johnson who had plainly
confessed his bafflement about foreign affairs, Nixon "considered
himself an initiate in the mysteries" (Morris 1977: 66).
The Nixon Doctrine
By 1969 the foreign policy establishment had known for nine years
that a split had taken place between the Soviet Union and China, but it
was the old red-baiter Nixon who seized the opportunity this presented
to free the U.S. of some of the burdens of keeping the peace. To
relieve the U.S. of some of the costs of hegemony, on August 15, 1971,
Nixon unilaterally abrogated Bretton Woods by ending the fixed-exchange
rate, gold-dollar currency system which had allowed countries to
exchange their dollars for gold on demand (Strange 1991: 114-115).
Nixon named as his National Security Advisor the Harvard professor
Henry Kissinger, a man who shared the opinion that foreign policy should
be conducted outside the State Department bureaucracy and shielded from
domestic politics whenever necessary, even if that required lying to the
public. Maneuver and the deception of friends would be essential
elements of the grand design (Schurmann 1987: 37).
Nixon and Kissinger shared a near complete lack of interest in
Africa. They both wanted Africa kept off the agenda in order to pursue
the larger goals of extricating the U.S. from Vietnam, detente with the
Soviet Union, and making an opening to China. Nixon retained Johnson's
policy of encouraging Europe to take the leadetship role in Africa, and
paid little attention to the continent. One exception was Nigeria,
where the civil war continued to exact a horrible toll. Having been an
effective campaign issue for him, Biafra held an interest for Nixon
during its brief and tragic existence. The other was South Africa,
which the Nixon administration wished to make as close an ally as Iran,
but did not dare. By 1969 U.S. civil rights organizations were adding
their fire to that of the African bloc. By the end of the first decade

105
of development it was clear the administration would have to make a new
southern Africa policy (Morris 1977: 120, Schurman 1987: 330).
The new policy emerged from an amazingly wrong-headed National
Security Study Memorandum that Kissinger circulated in November 1969
that declared, "There is no hope for the blacks to gain the political
rights they seek through violence" (Ungar 1993: 388-389). After a
review "that was alternately childish, venomous, dull, colossally
wasteful of official time, and very much the stuff of government in
foreign affairs," Nixon settled on a policy of softened pressure on
Portugal, "limited association" with Rhodesia and South Africa, and
continued lip service in support of the principle of majority rule.
Foreseeing how the initiative would be received by the African bloc,
Kissinger recommended that foreign aid be increased to the front line
states. The policy was adopted with little discussion. It was promptly
dubbed the "tar baby option" by its critics at State who recognized
"that its only real result would be to mire the United States deeper on
the side of the oppressors" (Lake 1976, Morris 1977: 111-119).
A policy of detachment toward subsaharan Africa ensued as "Tar
Baby" went into effect. AID declared to Congress in 1970 that it was in
full conformance with the policy "indicated by President Nixon. . . our
primary concerns are that the continent not be the scene of great power
rivalry or conflict" (USAID, CP, 1970) .
American new spending committments in Tanzania ballooned from $6.8
million in 1969 to $94.3 million in 1970 the year "Tar Baby" went into
effect. The huge increase was also a response I to the Chinese decision
that year, after the World Bank turned the project down, to build the
$1.3 billion, 1,100 mile-long TAZARA railroad linking Dar es Salaam with
Kapiri Mposhi in central Zambia. The United States decided to support a
project to upgrade the primitive highway to Zambia that was known to
truck drivers as Hell Run. Forty percent of the $94.3 million in new

106
American spending in 1970 went to the $37.2 million Tanzania-Zambia
I
Highway project 621-0091, undertaken in conjunction with the World Bank
and the Swedish aid organization SIDA, a highway that ran virtually
parallel with the Chinese-built railroad. This incident perfectly
illustrates how realist concerns about Cold War geopolitics could
dominate AID strategy-making decisions.
A second incident is one that occurred two years later, when new
aid obligations in Tanzania plummeted to zero. The cause was an
incident in the United Nations over the decision to expel Taiwan.
Seeing that the movement to replace Taiwan with the People's Republic
was gaining momentum, the Nixon administration put forward a two-China
policy. The vote was taken on October 25, 1971. U.N. Ambassador George
Bush delivered a last minute appeal for support for the American plan in
the General Assembly, and then waited on the d^is while the momentous
vote was cast. When the U.S. defeat was registered, Tanzania's
Permanent Representative Salim Ahmed Salim danced a gleeful jig under
the eyes of Bush in front of the television cameras of the international
media.
The White House released a statement two days later saying that
Nixon had been shocked by the spectacle (Kissinger 1979: 784-785). On
October 29 the Senate voted to kill the entire foreign appropriations
bill. Senator Edward Kennedy called the vote "a completely unexpected
and unforeseen coalition of five elements" including antiwar doves,
isolationists, budget-cutters, conservatives angry over the U.N. vote,
and "a tired reaction in the Senate to the unwise pressure to pass the
bill late on a Friday evening at the end of a difficult and increasingly
bitter debate" (Weissman 1975: 27) . The Senaté reversed itself within a
week, and restored the foreign aid program for another year. (Later, as
Vice President, George Bush would be instrumental in blocking Salim's
appointment as U.N. Secretary General). The following year, 1972, for

107
the first time, AID obligated no new spending in Tanzania, to punish it
for its defiance.
There were significant political events in both Tanzania and the
I
United States that year of 1972. Abeid Karume was assassinated, and
then Richard Nixon was reelected. Karume had been a problematic partner
for Nyerere since the unification of Zanzibar and Tanganyika. Something
of a "populist autocrat," Karume had managed to resist full integration
of the two countries. He and Babu, although neither formally embraced
Communism, kept Zanzibar well to the left of Tanganyika. In this
context, the Arusha Declaration was less a sudden shift to the left than
a move by Nyerere to adjust to Zanzibari politics. When on April 7,
1972 Karume was gunned down by a Zanzibari army lieutenant seeking
vengeance for the death of his father while in detention under the
Karume regime (Clayton 1981: 151-154), Nyerere was presented with an
opportunity. Karume's successor, Aboud Jumbe, was college educated and
much more sympathetic to the ideals of Ujamaa, ^and thus and more
inclined to coordinate Zanzibari policy with Tanganyika's.
Six months later Nixon won reelection by a landslide over George
McGovern. He made Henry Kissinger secretary of state while retaining
him as national security advisor, thus vesting unprecedented power over
the conduct of foreign policy in a single unelected official. This set
the stage for movements by the two countries in opposite directions:
Tanzania leftward toward increased radicalization and the United States
toward the increasingly right wing realpolitik of Henry Kissinger.
Then in 1973 came the New Directions. The bill was reported out
of the Senate Foreign Relations Committee over the opposition of
Chairman J. William Fulbright, who decried it as a "face-lifting job"
(Rondinelli 1987: 73). When the bill passed, it mandated six changes in
AID strategy. (1) AID was to focus on technology and commodity
transfers; (2) capital-intensive projects were to be replaced by labor-

108
intensive programs; (3) AID was to concentrate on food production, rural
development and nutrition, population planning and health, education,
public administration, and human resource development; (4) AID'S highest
priority would no longer be macroeconomic growth, but programs which
improved the lives of the poor majority and increased their capacity to
(
participate in their own development; (5) the agency was to begin
supporting host country development plans; and (6) AID was to shift
focus from public to private sector initiatives (Rondinelli 1987).
The AID mission had begun restructuring its project portfolio
after passage of the 1966 FAA. Its projects to build the agricultural
college at Morogoro and the university campus at Dar es Salaam and to
upgrade the capital city's water system were all ended during the late
1960s. Fortuitously, their termination placed the Mission in
conformance with five of the six New Directions mandates. The sixth,
the mandate to place greater emphasis on private sector initiatives,
could not be met. In 1973 Tanzania's private sector was coming under
increased government control.
The various conflicting forces in the different political
histories of the two countries in the 1961-1973 period of institution
building reduce essentially to three categories. The first group was
the various conflicts between and among the legislative and executive
branches of the U.S. government and AID. The second was those conflicts
within U.S. foreign policy circles between the "front room" liberal
altruists who favored aid for humanitarian purposes and in support of
democracy and the more influential "back room" conservative realists who
favored aid in support of U.S. national interests and who believed
political order was more important than democratic forms of government.
The third category was the different conflicts between the two
governments that began following the assassination of John F. Kennedy.
I

I
CHAPTER 5
REACHING THE POOR MAJORITY, 1974-1980
Paradigm Shifts in the U.S. and Tanzania
Toward Equity in American Foreign Aid
AID entered into a new era after the passage of the New Directions
in 1973. For the next seven years from 1974 to 1980 the agency
concentrated its efforts on reaching the poor majority. In Tanzania,
where 90 percent of the population were farm families, AID began
implementing programs "directly at the village level" (USAID, FBS,
1974). The change did not meet with unanimous approval in the Mission.
I
Some staff members were extremely reluctant to abandon the institution
building approach. Others questioned the wisdom of continuing to ignore
the negative effects that Ujamaa was having on economic performance.
Still others, part of a new generation of AID direct hires who had
served in Peace Corps or had finished graduate school in the divisive
era of the Vietnam war, were sympathetic to the goals of Ujamaa. While
all felt liberated by the New Directions from slavish servitude to
narrowly defined U.S. geopolitical interests, high consensus about what
was being done was very short-lived during the second and briefest
period of this study.
AID had in fact been anticipating something like the New
Directions since 1970, and was already changing its heading when the law
was passed. This is evidenced by the new policy from Washington that
was implemented by the Mission in 1972. It stated that U.S. foreign aid
loans should go "increasingly toward those countries financially capable
of carrying them" and U.S. foreign aid grants "increasingly toward the
109

110
least developed" (USAID, FBS, 1972). From that moment on all, with rare
exception, all American bilateral aid to Tanzania would be given as a
gift. The New Directions did not cause an abrupt change in course for
AID; it merely provided support for the agency's new bearing.
The new concern for equity was also penetrating the flagship of
the development industry, the World Bank. The AID mandate to reach the
poor majority had its parallel in the strategy to meet "basic human
needs" initiated in an address by Robert McNamara to the World Bank
Board of Governors in Nairobi the year Congress passed the New
Directions (Wood 1986). A paradigm shift in u!s. development policy
circles was clearly underway. Although of divided opinion, the AID
mission in Tanzania was quick to show it understood the New Directions.
"The current Foreign Assistance Act (FAA) clearly emphasizes rural
development [and] the importance of self-reliance by aid receiving
countries. The target group and prime recipients of aid benefits are to
be the rural poor and equity and employment considerations are
priorities" (USAID, FBS, 1974).
In 1972 the Mission started writing its first country plan under
the new Development Assistance Program (DAP) format (USAID, FBS, 1972),
but the New Directions passed the following year interrupted the
process. It would take the Mission three years in all to complete its
first DAP. AID planners in Dar es Salaam estimated the conversion from
institution building to reaching the poor majority would take about five
years. "[0]ur general strategy for the immediate future can be
described as 'transitional', i.e., moving from the building of
development infrastructure and a solid manpower base to more
participation in actual production and the attack on poverty. We hope
in about five years time to have shifted more nearly to a 'production'
strategy for low income farmers" (USAID, FBS, 1974).

Ill
I
In his cover letter accompanying the first DAP, the ambassador
pronounced the Mission to be satisfactorily "concentrated on the
priorities set out in the Foreign Assistance Act, which by and large are
also Tanzania's priorities. . . . The stated strategy in the DAP of
using resources and institutions which we have helped to create as a
means of getting more involved with small farmers and village production
is, in my opinion, a sound one" (USAID, DAP, 1975).
Congress freed AID with one hand by passing the New Directions.
Unfortunately, ever a contrarious body, it reined AID in with the other.
One year after the New Directions, Congress passed the 1974 Budget and
Impoundment Control Act. Included in the legislation was a provision to
end Nixon's by then notorious use of foreign operations funds as "hidden
military subsidies" (Talbot 1975: 165). The provision made the State
Department the "first cabinet department subject to annual authorization
for its entire appropriation" (Schick 1980: 172). Nixon signed the bill
into law in a last, vain, conciliatory gesture to the Congress. When it
failed to stave off the move toward impeachment, he resigned from office
one month later. Thenceforth all AID activities would have to be
reauthorized by Congress each year before the agency could receive its
annual funds.
During the period of reaching the poor majority Congress passed
over a hundred and fifty restrictions and prohibitions to reduce
executive control over foreign policy (Tower 1987: 152). The combined
effect of these measures on AID'S capacity to plan and implement
I
effectively was deleterious. By 1977 the Mission in Tanzania felt moved
to include a section entitled "Limitations on Development Imposed by
Congress and AID" in the 1977 revised country plan. In it the Mission
protested "the limitations on our ability to respond to Tanzania
priorities and critical development needs on a timely basis. The
Mandate, while focusing AID upon the small farmer, limits our ability to

112
reach him" (USAID, DAP Revision, 1977). In effect, the 1973 FAA had
toughened the 1966 FAA injunction against capital-intensive projects.
This meant the Mission could not engage in roads reconstruction projects
at a moment when its big agricultural projects were coming into full
swing at sites down some of the worst roads in Tanzania. In its 1978
budget submission the Mission complained that "the present deteriorated
road network prevents projects from adequately serving their target
population" (USAID, ABS, 1978).
The use of the term "target population" to refer to the poor
majority whom AID was trying to reach in Tanzania is curious. It better
evokes images of the intended victims of a strategic bombing campaign
than the intended beneficiaries of development programs. AID'S
military-style terminology is probably an artifact of its Second World
War and Vietnam War heritage, its gung-ho Green Beret element and its
official position that development is a technical problem. The use of
military terminology continued into the 1990s. In the 1992 Tanzania
CPSP, for example, each of the Mission's goals was classified in order
of priority as either a strategic objective, an objective, a target, a
subtarget, or a target of opportunity, calling to mind less images of
projects of philanthropy than of waves of warplanes bombing and strafing
the Tanzanian countryside.
The Radicalization of Ujamaa
Tanganyika gained independence under a development plan authored
by the World Bank. During the period leading up to the union with
Zanzibar, the Nyerere government devised a new five-year development
strategy that met its own political objectives. Designed for the period
July 1964 to June 1969, it was based on a "transformation" approach
adapted from the Israeli experience of agricultural development and
industrialization. The Israeli schemes proved to be prohibitively

113
i
expensive, however, and did not elicit the desired self-help efforts on
the part of the people. By 1966 the idea was largely abandoned.
Nyerere decided that no combination of foreign investment or foreign aid
would be sufficient to achieve his vision. The appeal would now be to
exhortation in support of an ideology of modernization through
traditionalization (Hyden 1980). In a mix and match approach toward a
uniquely African type of state socialism, Nyerere continued to accept
central planning methods but continued to reject rule by a Leninist
vanguard party in favor of Rousseauian direct democracy.
Tanzania's first national plan, written by the World Bank, was
nullified by the Arusha Declaration. The Declaration's practical
implications were first spelled out in the Second Five Year Plan issued
in May 1969 for the period July 1969 to June 1974, later extended to
June 1975. The second plan stressed progress toward meeting basic
social needs (USAID, DAP, 1975).
Tanzania adopted Import-Substitution Industrialization strategies
under its third development plan. Called the Basic Industries Strategy
(BIS) in the version it took in Tanzania, it had three negative effects.
First, quotas were placed on all imports. As a consequence, there were
shortages of spare parts. Rural transportation systems deteriorated as
road repair equipment and truck fleets slowly broke down. As the
quality of the roads and the number of trucks in circulation declined,
the flow of food from the farms to the cities gradually slowed, and
Tanzanian reliance on food imports increased. 'Second, the parastatal
industries proved highly inefficient. As the list of zero-quota imports
was gradually expanded under the BIS, domestic production by the
parastatal infant industries did not keep pace, and the availability of
consumer goods decreased. Third, a black market emerged, and Tanzania
began for the first time in its history to experience corruption.

114
The result was hoarding, both willful aná inadvertent.
Parastatals hoarded supplies to guard against unexpected shortages. The
few remaining private firms hoarded cash to take advantage of
unpredictable opportunities. All across Tanzania "involuntary
inventories" accumulated due to the fact that the bureaucrats in charge
of allocating imports "did not account for all the complementarities
among inputs" (Collier 1991: 155, 161). The performance of the economy
after Arusha failed to meet expectations. Production declined. People
began to cease taking the initiative and got into the habit of waiting
for the government to come solve their problems. Bitterly disappointed,
Nyerere became convinced the people had let him down. Urged on by the
militant left in his party, he launched two programs to radicalize the
Ujamaa experiment in the early 1970s, flogging, as it were, the horses.
I
Decentralization
In July 1972, based on the recommendations of an American
management consulting firm, McKinsey and Company, the government passed
the Decentralisation of Government Administration Act to make government
more responsive and efficient. It made five key changes. (1) Large
numbers of government personnel were transferred forthwith from Dar es
Salaam to the localities. (2) The numbers of regions and districts were
increased to provide more manageable administrative units. (3) Greater
autonomy was given to regional commissioners, who were also TANU
leaders. (4) Local councils were formed to promote mass participation.
These councils were also to devise annual development plans and submit
them upward through the TANU executive committees which would
consolidate them into regional plans. (5) Alllpreexisting local
government organizations were abolished, including all the original and
most viable Ujamaa structures. The result was the opposite of what was
intended. Tanzanian economic performance began to falter under Ujamaa
as the redundant government and party bureaucracies grew and extended

115
deeper into national life. The number of civil service jobs grew an
average of 11 percent per annum. The number of parastatals increased
from 64 in 1967, to 139 by 1974, and finally to well over 400 by the
early 1980s. The result was not decentralization, but "an increasing
reliance on bureaucratic command techniques to impose policies from
above" (Yaeger 1989: 76) .
Three agencies were established to run the economy. A National
Price Commission "attempted to determine around two thousand prices on a
cost-plus basis without reference to the balance between supply and
demand." A Board of Internal Trade was given responsibility for
allocating rationed supplies, "and hence for determining who was to
suffer from unsatisfied demand." Finally, a Marketing Development
Bureau was set up to equalize the returns to farmers from different
crops. This was to be done by paying higher prices for crops in regions
deemed most ecologically suitable in "a curious twisting of comparative
advantage theory." The result was untransportable surpluses in some
regions and shortages in others. Within individual localities, in
accordance with the instructions of the TANU leadership, the Village
Councils diverted household labor into communal activities. This labor
came disproportionately from poor households, thus constituting a
regressive tax (Collier 1991: 158-159). These negative economic effects
were the consequence of programs that were politically very useful to
local leaders. The power to ration provided them with valuable
patronage.
Villaqization
In seeking to account for the decline in the economy, Nyerere put
the blame squarely where it didn't belong, on the peasants. On November
7, 1973 the president, who liked to be referred to as mwalimu, or
teacher, abruptly changed from kindly school master to strict
disciplinarian and declared that "to live in villages is an order"

116
(Yaeger 1989: 76). The result, called ujamaa vijijini, was the
compulsory relocation of five million rural Tanzanians into 8,500 Ujamaa
villages, the largest state-directed resettlement of people in the
history of Africa (Hyden 1980: 130).
In addition, Nyerere reorganized the pariy. Aboud Jumbe of
Zanzibar, college educated and nearly Nyerere's age, was much more
sympathetic to the ideals of Ujamaa than Karume had been. He consented
when Nyerere recommended merging the Zanzibari and Tanganyikan parties.
In 1977 the Tanganyikan African National Union and the Afro-Shirazi
Party united to form Chama Cha Mapinduzi (CCM).
Famine and the Ford Administration
When Nixon resigned in August 1974, Gerald Ford succeeded him in
office with a popular image as "a regular guy. . . 'superbly average
. . . like Ike.'" After Johnson's crude folksiness and Nixon's paranoid
secretiveness, Ford was greeted with a "national sigh of relief" (Green
1995: 32, 34). Like Johnson, Ford was inexperienced in foreign affairs.
I
Like Kennedy, he would make no doctrine. One of his first decisions as
President was to retain Henry Kissinger in his dual roles as secretary
of state and national security advisor.
Crisis in Africa
The years 1973 and 1974 were hard ones for much of Africa. A
drought in the Sahel and in Tanzania, combined with the effects of the
oil price increases by OPEC following the 1973 Yom Kippur War, produced
near famine conditions in six countries. Tanzania appealed to the U.S.
for emergency food aid in 1974, but the request was not acted on for a
full year. The animosity of much of the world toward U.S. foreign
policy was souring the mood of the new administration. In office just
over one month, Ford warned in a speech to the(General Assembly on

117
September 24, 1974, "It would be tempting for the United States—beset
by inflation and soaring energy prices—to turn a deaf ear to external
appeals for food assistance." A U.N. sponsored conference on world
hunger was held in Rome in November of that year. The bellicose
Secretary of Agriculture, Earl Butz, left for the conference promising
that the U.S. delegation was not going with any intention of delivering
a "bag of goodies." At the conference he admonished the pleading
delegates from the nations facing famine, "Let's not get hysterical."
He informed them the solution to their problems lay in "the proper
incentive—profit" to motivate producers. "Farmers produce food, not
governments. Farmers produce food, not world conferences." In case
anyone did not get the point, Butz stated to the press, "Food is a
weapon. It is now one of the principal tools in our negotiating kit"
(Talbot 1975).
Here was a clear indication of the predominance of the "back room"
realists during this period of time. This was an America no one had
ever seen before, America the unbeautiful. The Nyerere government was
able to rally internal support and increased external aid by pointing to
these belligerent, ugly statements by the leader of the Free World.
Events in Angola added fuel to the fire.
War in Angola
Following the Portuguese coup in April 1974 and the announcement
by the new regime of a timetable for the independence of Portugal's
colonies, Kissinger began secretly funding an anti-Marxist faction in
Angola. This set in motion a series of events—the invasion of Angola
by Zaire and South Africa and the arrival of a 15,000 man Cuban
expeditionary force backed by Russian logistics—that engulfed Angola in
civil war.
A total of $73.2 million in covert U.S. assistance was provided to
the anti-Marxists from July until November 1975, when the operation,
I

118
code named FEATURE, came to light. Congress thought it was seeing
another Vietnam taking shape before its eyes and moved to assert
control. To allay the ensuing storm of criticism, Ford replaced
Kissinger with Brent Scowcroft as national security advisor, but
retained him as secretary of state. To prevent ill effects from
simultaneous revelations about CIA subterfuge and assassinations being
made by a commission chaired by Senator Frank Church, Ford made George
Bush director of the CIA.
I
In December 1975 the Senate passed an amendment to the defense
appropriations bill, introduced by Senator Dick Clark, that would
terminate FEATURE. The House passed it in January 1976, and Ford, able
to count more than enough votes in Congress to override his veto,
reluctantly signed it into law in February. It was "the first time a
covert action had been stopped by order of Congress" (Greene 1995: 113-
115) .
The Nyerere government denounced the U.S. actions in Angola and
announced plans to provide Soviet-run training bases for the Angolan
Marxists in response (Stockwell 1978: 202). Kissinger reacted with
alarm to the prospect of a superpower confrontation in East Africa, and
immediately opened negotiations with Nyerere to halt the escalation
(Crouch 1987: 162). As U.S.-Tanzanian relations reached bottom, the
Ford administration cut new project spending obligations in Tanzania
from $26.7 million in 1975 to $547,000 in 1976.
Most of the new spending in 1975 was in the form of a humanitarian
$24.4 million loan of food and cash for balance of payment support to
avert famine. Only $2.3 million went to new development activity that
year. The loan was a rare and dramatic instance of front room altruism
overruling back room realism in a funding decision; it reversed the
realist policy of reducing aid to the Nyerere government. But it also,
I

119
ironically, contradicted the altruist policy of providing only grants to
Tanzania.
The Election of 1976
Ford was challenged for the Republican nomination in 1976 by
Ronald Reagan, and narrowly won. In the campaign against Jimmy Carter,
he was unsuccessful in shaking off the image Reagan had hung on him as
weak and indecisive in foreign affairs. A gaffe in a debate with Carter
in which Ford implied that Poland was not under Soviet domination
contributed to the impression, and helped send Ford to defeat at the
I
polls (Green 1995).
In the combined final seven months of the Nixon administration and
Ford's two-and-a-half years in office, AID obligated a total of $35.7
million in new spending in Tanzania. The three-year average of $12
million was one-third the $33 million average under Nixon, two-thirds
the $18 million under Kennedy, and one-third more than the $8 million
under Johnson. If the 1975 loan is removed from the calculation, the
figure falls to $6.1 million in annual new spending, making Ford and not
Johnson the stingiest provider of aid to Tanzania.
The Heyday of Integrated Rural Development
The conditions that the U.S. placed on its aid to Tanzania changed
after the New Directions from requiring that tljie government remain non¬
procommunist to requiring that Tanzania demonstrate it was sufficiently
poor. This was easily done. The ambassador, in his forward to the 1975
country plan stated that "Tanzania has the dubious distinction of
qualifying as a Relatively Least Developed Country (RLDC), and a Most
Seriously Affected Country (MSA). Its need for assistance therefore
leaves no doubt" (USAID, DAP, 1975). Three years later a team of

120
I
consultants affirmed "Tanzania is well within the 'benchmark'
definitions of the poor majority" (USAID, Appraisal, 1978).
Aside from the negative condition of its poverty, the growth in
Nyerere's international stature as a consequence of his continuing
support for the liberation struggles in southern Africa provided a
positive justification for continuing American aid to Tanzania. In 1974
the Mission reported that "Tanzania is the refuge and headquarters of
'Freedom Fighters' (especially Frelimo) and President Nyerere probably
influences the leaders of these groups. Moreover, Dar es Salaam is
looked upon as a sort of intellectual capital of 'progressive' Africans
and others of African descent. . . . President Nyerere assumes the role
of intellectual godfather in this regard" (USAID, FBS, 1974).
)
Furthermore, the big long term integrated rural development
agricultural projects had locked the Mission into substantial streams of
annual spending. Although new spending obligations were steadily being
cut as U.S.-Tanzanian relations declined, actual spending increased, as
Table 1, below reveals.
Table 1. New Obligations and Net Receipts to Tanzania, 1973-1977.
Year
New
Net
1973
53.1
27.1
1974
8.4
24.7
1975
2.1
73.3
1976
0.6
72.3
1977
0.9
59.8
Figures for "total receipts net" from the U.S. to Tanzania are from Cancian (1986)
used in Collier (1991).
By 1974 it was known within the development community that integrated
I
rural development (IRD) projects generally did not work in Africa (Lele
1974), largely because of their bias toward blueprint planning. The
lessons of Etawah in India, which had shown how crucial an open-minded,
problem-solving, eclectic planning framework was to successful integrated
rural development, were not applied. The failure of the IRD projects

121
that AID undertook in Tanzania was due to a top-down bias not included in
I
the original.
Two projects serve to illustrate: the Masai Livestock and Range
Management Project, number 621-0093, lasting from 1971-1980, and the
Livestock Marketing Development Project, number 621-0122, lasting from
1973-1982. A consultant who had been in Tanzania at the time recounted
to me the clash between the U.S. agricultural specialists and the Masai
of northern Tanzania that occurred when the two projects came on stream.
A lot of the project people, they came in and treated
everything as a technical problem. The Masai Livestock and Range
Management Project was the most progressive, forward-thinking
project of the day. It had everything, audio-visual training
programs, cattle dips, watering holes, veterinarians, roads
construction, marketing and extension services. That's what they
thought IRD was: anything and everything, but with all their
careful planning, they forgot one thing. The Masai have one
crucial issue so fundamental to them everything else pales: access
to land. They have struggled and failed to maintain access to
land. Their land has shrunk. The government just thought of them
as these people with big ears who smear s/nelly stuff on their
bodies. They were an inconvenience, in the way of modernization.
The Masai viewed this project as their way of getting title, of
gaining land rights. But the project couldn't do that because by
then all the land in Tanzania belonged to the state. There were no
land rights. The Masai had a set of expectations, but the project
personnel saw it as a technical problem. It wasn't. It was a
radical departure of cultures. It failed [because] nobody had
talked to the Masai. . . .
The Livestock Marketing and Development Project implementing
team came from Texas A&M. They said to the Masai, "You've got all
these cows just walking around. You should market them." They
didn't understand that for these people, cows are wealth. Telling
them to sell their cows is like going to an American homeowner and
saying, "Look at this big house you're living in. You don't need
all this space. Let's dismantle your house and sell the material
and you can go live in a rented apartment." Their approach
collided with cultural values. They just didn't get it.
The encounter between cattlemen from Texas and Masai pasturalists
is humorous to imagine, and would have been downright funny if not for
the cost of the failures; the constant dollar price tags of the two
projects were $13.6 and $10.8 million respectivély. The result of the
failure of IRD, in Tanzania as elsewhere, was that the economists finally
began to look at politics (Lele 1991).

122
The Conflict Within the Mission Over the "Big Lie"
The influence of the Tanzanian government on AID planning had been
extremely limited up until 1975. AID had alway^ accepted the broad
sectoral objectives called for in each of Tanzania's national development
plans, but had never invited Tanzanian participation in AID planning. In
1975, following the recommendations of the decentralization plan designed
by private American consultants, the Tanzanian government took a more
active role. It asked each of the major donors to finance a regional
development study "with the implication that donors would subsequently
finance a comprehensive regional development program for that region."
In the case of AID, the government suggested Arusha Region, given AID'S
ongoing involvement in the area (USAID, Appraisal, 1978). Tanzania
allowed the donors nine months to submit the study. The Mission replied
that it could not possibly obtain the necessary approval, recruit staff
and prepare the plan in such short notice, and the government withdrew
its request (USAID, DAP, 1975). 1
From the day it opened its doors in 1961 the Mission in Tanzania
was among the top ten AID programs in Africa, but by the 1970s it had
become small compared to the other donors in the country. Tanzania was
benefiting from an unprecedented aid boom (Collier 1991) from countries
such as Sweden that shared Tanzania's disgust with U.S. foreign policy.
The $24.7 million in net U.S. receipts to Tanzania in 1974 amounted to
less than five percent of the total $609.8 million in foreign aid that
Tanzania received that year, forty-one dollars for every Tanzanian man,
woman and child (USAID, Conceptual Framework, 1976), a substantial sum of
money in a country where the per capita income was a little over three
hundred dollars (USAID, CP, 1976). Self-proclaimed self-reliant,
Tanzania was on its way toward the highest level of aid dependence in the
I
world (Mukandala, forthcoming).

123
Even had it wanted to undo the "Big Lie," the comparatively small
size of its program did not give the Mission much leverage to use on so
grand a figure as Julius Nyerere. "[E]ven large donors would get nowhere
with roughshod approaches to influencing actions contrary to TanGov's
program. . . . Success in this regard of any medium-size donor like
ourselves would be even more remote" (USAID, Da£, 1975). This assessment
was reaffirmed a year later. Because AID was "well down the scale" in
the amount of aid it was providing, the "basic political, economic, and
social policies of Tanzania are not likely to be significantly influenced
by U.S. assistance. This means that the U.S. role must be a relatively
limited one and that assistance cannot be used for purposes of 'leverage'
on basic policy" (USAID, Conceptual Framework, 1976) .
The policy of noninterference begun under Johnson and sustained by
Nixon remained in effect during the Ford administration. The "Big Lie"
stayed in place. The effect of flawed policies, corruption and
malgovernance in developing countries was to be ignored. The Mission's
1975 country plan reported that its "strategy has involved no major
confrontation with Tanzanian policies because, nearly without exception,
I
the projects supported have been policy neutral" (USAID, DAP, 1975).
By the time of the American bicentennial in 1976, in the eyes of
Tanzania and many other countries of the world, the United States had
fallen in status from champion and defender of democracy to chief
apologist for right wing dictatorship. The rancorous criticism its
foreign policy was drawing from abroad and from within the Congress
provided even more reason for AID to cling to the pretense that
development was apolitical. A 1976 consultant's report advised the
Mission that in light of the importance of the agency being "credibly
defended" against political attacks from the right and the left, to the
greatest extent possible "programs selected should be technical and
professional in nature" (USAID, Conceptual Framework, 1976).
I

124
Having to maintain the "Big Lie" in the context of Ujamaa, combined
with the poor performance of the big IRD projects, slowly destroyed the
Mission's confidence in what it was doing. Coordination with the Africa
Bureau began to slip.
Within AID there were islands of doubters about the new strategy of
reaching the poor majority, people still loyal to institution building.
Some were posted in Dar es Salaam. This is apparent in a statement
included in the 1975 country plan. "The question is whether this posture
is the one to continue. In many respects the preparatory or
institutional development strategy remains valid" (USAID, DAP, 1975). In
the 1977 budget submission the Mission Director wrote, "this wading into
village development must, under the new directives [sic] be taken as
experimental" (USAID, ABS, 1977). As late as 1978 the Mission was still
"reluctant to abandon its original 'transition production strategy' until
it completes its agriculture infrastructure and institutional development
objectives" (USAID, Appraisal, 1978).
The division in opinion in the Mission deepened as Tanzania's
economic situation worsened. Realists thought they saw a causal
relationship between the crisis and Ujamaa. They wished to use American
aid for leverage as a brake on Tanzania's radicalization. As early as
I
1975 some were advocating that AID "try to influence policies and
decisions in view of contributions being made," but the majority opinion
in the Mission was that it would have been futile to try. "While
Tanzanians are open to suggestions and are decidedly pragmatic on many
issues, they have their own model of development" (USAID, DAP, 1975).
Tanzania continued to deny "donor involvement in policy issues" (USAID,
Appraisal, 1978).
The question of what attitude to take toward Ujamaa split the
Mission in two. There was a new generation of high-minded AID officials
coming in, ex-Peace Corps volunteers and newly-minted Ph.D.s who believed
I

125
in the strategy of reaching the poor majority, hated Kissinger's conduct
of policy, and were drawn to the Nyerere vision. They could see
Tanzanian socialism as an appropriate response to an unfair world system,
and wanted if for no other reason than intellectual curiosity, for the
sake of experiment, to give it a chance. They found congruence between
the broad goals of Ujamaa and the New Directions. In his forward to the
1975 country plan the ambassador himself wrote, "The dedication to equity
among its citizens and current emphasis on food production bring Tanzania
in close alignment with our own Foreign Assistance Act. Moreover, the
direction and style used by Tanzania in pursuit*of its development goals
(including its concept of Ujamaa villages), while undoubtedly
controversial, are nonetheless clearly stated and widely understood"
(USAID, DAP, 1975). The New Directions justified Tanzanian skepticism
about reliance on free market forces. "AID'S new directions indicate
that many LDC economies have not functioned automatically to the
advantage of the poor" (USAID, DAP Revision, 1977). Tanzania's belief
that it "does not receive a fair return for sales of its products abroad"
justified its view "that the developed world, with the U.S. in the lead,
should take the initiative to right the wrongs and inequalities in the
present international economic structure" (USAID, CDSS, 1979).
Some seemed positively smitten by Ujamaa. A team of consultants
came away from Tanzania "convinced that Nyerere is one of the most
I
creative thinkers on the subject of development in the world. We believe
the effort. . . is one of the most important experiments in the world
. . .more impressive than the Chinese model. . . a successful and
'authentically African' model of development" (USAID, Conceptual
Framework, 1977).
In supporting Ujamaa, however, AID'S liberal altruists relegated
themselves to staying in the trap the conservative realists were now
trying to get out of. To support Tanzania's social experiment required

126
I
the altruists to support, because Nyerere asked them to, the principle of
national self-determination. This barred them from considering the
relationship between the policies of Ujamaa and the performance of the
Tanzanian economy. In supporting Ujamaa, the liberal altruists in the
Mission took over the job of maintaining the "Big Lie."
To the conservative realists, the policy of noninterference was no
longer tenable in Tanzania. "Questions are sometimes raised as to
whether, given the divergences between U.S. and Tanzanian political and
economic policies and differences on specific political questions,
assistance should be provided at all" (USAID, Conceptual Framework,
1976). The realists thought Ujamaa contradicted the New Directions.
Tanzania's "attitudes toward private enterprise^ individual freedoms and
expropriation of private property are contrary to Congressional and AID
criteria and are factors that mitigate against closer U.S.-Tanzania ties"
(USAID, Appraisal, 1978). The realists believed Ujamaa was the cause of
Tanzania's worsening economic situation. "Market forces, which it was
assumed would regulate equity in LDCs, even if indirectly, in Tanzania
are partly controlled or far too weak as a regulating device" (USAID, DAP
Revision, 1977). It was impossible to ignore the effect of politics in
Tanzania any longer. The realists doubted the wisdom of providing aid to
"a country where donor coordination is discouraged and where AID does not
have access to bilateral dialogue on macroeconomic considerations and
major development policy issues" (USAID, Appraisal, 1978).
The result was "confusion. . . as to what sort of AID programs are
I
appropriate within the Congressional mandate" in a country where the
majority of the population was poor and "the government appears dedicated
to doing something about it [yet] has been one of the most severe critics
of U.S. foreign policy" and envisioned "the eventual disengagement of its
economy from that of the industrialized West" (USAID, Appraisal, 1978).

127
The fact that AID writes its major report^ by committee ensures
that different viewpoints are worked into every major document. Thus the
confusion that reigned during the mid-1970s is reflected in the tangled
language of a key passage in the 1977 revised country plan.
To meet AID's new directions, it is clear that development
programs. . . must be shaped by public management and given the
support needed to reach the poor majority. This raises very
interesting implications for programming inasmuch as emphasis on
equity paradoxically diverts at least some attention from questions
about national production, and per capita output to questions about
the extent of poverty, inequality and whether the poorest people
are being served. These latter questions, in turn, raise queries
about how well institutions (government bodies) and delivery
systems work on behalf of the poor (USAID, DAP Revision, 1977).
The embassy, the chief conduit for realist policies eminating from
the back room where the prime directive is to defend American interests
was involved. It "insisted on a modest U.S. presence in Tanzania based
primarily on the 'show of interest' rationale aijid sufficient to provide
an entree to diplomatic dialogue." This meant the embassy "quantified
the AID role in terms of aid levels and USAID staffing" (USAID,
Appraisal, 1978).
The effect of division of opinion about Ujamaa was to produce a
deadlock in Mission planning. The final country plan submitted under the
Carter administration acknowledged as much. "The history of AID's
attempts to develop its economic assistance strategy for Tanzania amply
demonstrates the difficulty of achieving, within U.S. foreign assistance
circles, a consensus on why we should be providing assistance, what form
U.S. assistance ought to take, and what the levels ought to be. There
are those who favor Tanzania's self-reliance with equity philosophy and
there are those who fault its lack of pragmatism" (USAID, CDSS, 1981).
This was the fundamental divide. *
Carter and the Uganda War
The 1976 election ended eight years of Republican control of the
White House and returned a heavy Democratic majority to Congress. The

128
Mission realized that the newly unified government was likely going to
make significant changes in U.S. foreign policy, and proposed that a
major strategy review session be held in TanzaAia in early 1977 to be
attended by high level officials from Washington. The Africa Bureau
agreed to a review session, but did not agree to holding it in Tanzania,
and recommended instead that the new strategy be "hammered out" in
Washington. The Mission "declined the invitation, believing with
considerable justification that such a strategy session should take
place in Tanzania" (USAID, Appraisal, 1978). Incredibly, the dispute
about where to meet could not be resolved, and no strategy review
session was held at all. The Mission instead was told to revise the
existing country plan, a task it would complete by the end of the year.
The Mann Doctrine policy of noninterference ended in 1977 when the newly
elected Carter administration announced U.S. support for human rights
and put teeth in the long-standing but ineffective U.S. advocacy of
I
majority rule in Africa.
The Carter Doctrine
Jimmy Carter's politics had elements of three traditional southern
political traits—Bourbon, Whig, and Populist—which he combined with a
deeply held religious creed (Hargrove 1988). In his presidential
campaign he emphasized the breech of faith with the American people that
had occurred under Republican rule, and portrayed himself as someone who
could be trusted to restore open government. "I will never lie to you"
was a theme of his campaign. He believed U.S. foreign policy was
"stalemated on the level of power and excessively cynical on the level
of principle" (Brzezinski 1983: 81). He was especially critical of the
secretive conduct of foreign policy by Kissinger, and pledged to restore
basic moral principles to U.S. foreign policy. His administration made
improved human rights a condition for receiving U.S. aid.

129
The Carter Doctrine not only restored the principle laid down by
the White Plan by reversing the Mann Doctrine policy of noninterference,
it ended "Tar Baby" by making the peaceful transformation to biracial
democracy in Rhodesia and South Africa a U.S. policy goal. The new
administration gave Africa its most prominent place on the agenda since
Kennedy. Carter made the first presidential visit to Africa since
Kennedy to support the new democracy in Nigeria in 1978. His
appointment of Andrew Young as the first black U.S. Ambassador to the
U.N. was intended as a symbol of concern with Africa (Moens 1990: 95).
The violation of human rights or inordinate levels of defense
spending by a government were both causes for suspension or reduction of
American aid (Brzezinski 1983). In reducing support for right wing
authoritarianism, in cutting aid to governments such as the Shah of
Iran, the Somoza regime in Nicaragua, and Ian Smith in Rhodesia, the
Carter administration restored a portion of the Kennedy vision of a
foreign aid program in support of democracy, but inconsistently so.
The sanctions contained in the Carter Doctrine were not applied in
some states in Africa such as Zaire. In the cáse of Tanzania, the
population was resettled in Ujamaa villages by the time Carter took the
oath of office; there was only the aftermath of human rights violations.
The Mission thus was able to report that "neither political human rights
problems nor the level of defense expenditures require [sic] special
treatment or restrictions in AID programs" (USAID, ABS, 1978).
The Carter Doctrine, while more principled than the Nixon
Doctrine, nevertheless was not otherworldly. Carter was not blind to
realist concerns, nor averse to strategic thinking. This explains the
inconsistency in the administration's application of the doctrine.
Carter turned a blind eye on Tanzanian human rights violations because
he needed Tanzanian support for his new policies toward Rhodesia and
South Africa. The AID mission was thus
d to continue to treat

130
Tanzanian development as if Tanzanian politics did not matter. The "Big
Lie" stayed in place. In 1979 the ambassador enthused, "We are to a
rare and happy extent free to make our development decisions for
development reasons" (USAID, CDSS, 1979).
The changes the Carter administration made to foreign policy were
all cast at a very high level; they did not touch AID'S standard
operating procedures, although the planning document was renamed, and
AID'S place in the hierarchy was reorganized under a plan developed by
Senator Hubert Humphrey in the last days of his long career. The CDSS
was not significantly different from the DAP, and the Humphrey
reorganization plan was never fully implemented. Even though control of
the agenda changed hands with Carter, at the ground level in Tanzania,
there were no major changes made.
The Mission sent in a progress report. Noting its previous
emphasis on capital projects such as "constructing the highly visible
Tan-Zam highway," it reported the plan was now "to focus more on small
farmers and livestock growers. . . to reach out to villages. . . from
the cities and campuses" (USAID, DAP Revision, 1977). Reaching the poor
majority was the dominant strategy, equity the new paradigm, and all the
Mission's objectives now inclined in that direction.
Yet confidence was low. There was doubt and indecision within the
Mission about how exactly to reach the poor majority in Tanzania, and
whether in fact it was wise even trying to do so under Ujamaa. Worse, a
team of consultants found an "absence of a constructive and imaginative
dialogue" between headquarters and the field, "particularly in terms of
what constitutes conformance with the AID Congressional Mandate." In
the view of the Mission, the Africa Bureau interpreted the New
Directions quite narrowly and reduced the Mission's discretion, yet it
played no positive role in formulating an appropriate and focused
strategy for Tanzania. For its part, the Bureau was "uneasy" about the
I

131
internal consistency of the Mission's strategy. It feared that the
Mission was spreading itself too thin (USAID, Appraisal, 1978).
New commitments to aid for Tanzania increased under Carter. As
they did, relations between the countries thawed. Realists in the
Mission opposed the increase. In their view
Tanzania has been a thorn in the side of the U.S. at the UN and in
other international fora and constantly vilifies the U.S. in its
press and public statements. ... It attacked the U.S. as the
chief exploiter of the Third World, on the one hand, but accepted
U.S. assistance on the other, in the belief that aid is an
international tax, the price of prior exploitation, which the
industrialized countries owe to the Third World" (USAID,
Appraisal, 1978).
Nevertheless the U.S. increased new spending in Tanzania from $940,000
in 1977 to $29 million in 1978. The realists' opposition to Ujamaa was
overruled by a higher realist purpose of securing Tanzanian support for
the administration's new southern Africa policy.
The increase in aid had the desired effect. In his introductory
statement accompanying the 1978 country plan (the first written under
the new CDSS format of the Carter administration), the ambassador was
pleased to note "the sharply improved atmosphere of US-Tanzanian
relations" and supported the increase in aid. "It is appropriate that
this improved atmosphere be reflected in an expanding assistance
program." The ambassador was less enthusiastic about Ujamaa, however he
acknowledged that reaching the poor majority iip Tanzania would have to
"take place within their own social and political framework and, whether
we like it or not, that framework is socialist (USAID, CDSS, 1978) .
The conservative realists in the Mission did not like it at all.
They believed it was a mistake to support Ujamaa. The liberal altruists
were egually firm in their belief that Ujamaa was a justifiable response
by a developing country to an unfair world system. The result of the
division in opinion was a deadlock. By 1978 the Mission was having
trouble articulating "a coherent and focused program in which goals are
guantified and a relationship is drawn between strategy, activities and

132
I
accomplishments." Mission planning had become "patchwork." The result
was "a drift in strategy, and an attempt to fashion a 'program for all
seasons'" (USAID, Appraisal, 1978).
In this new climate the Nyerere government renewed its request for
U.S. support for a comprehensive regional development plan for Arusha
Region. This time the request went through. The Arusha Regional
Planning and Village Development Project was approved in 1978. Its
$24.2 million price tag made it the biggest integrated rural development
project attempted in Tanzania, and accounted for fully four-fifths of
the $29.0 million in new project spending obligated that year.
During Carter's four years in office AID(obligated a total of
$83.0 million in new spending in Tanzania. The $21 million average was
less than the $33 million under Nixon, but more than the $18 million
under Kennedy, the $12 million under Ford, and the $8 million under
Johnson.
War with Uganda
Idi Amin Dada came to power in Uganda in a coup on January 25,
1971 that toppled the increasingly brutal and leftward-leaning Milton
Obote. Amin was initially greeted as a liberator by the Ugandans. His
popularity soared after his decision in 1972 to expel all Indians from
the country and appropriate their property. But Amin gradually revealed
himself to be even more brutal than Obote. He tortured and killed with
impunity, ran the economy into the ground, and*built the Ugandan
military into the largest army in East Africa.
All of Uganda's neighbors found it prudent to maintain tolerant
attitudes toward his regime, save Tanzania to the south. Julius Nyerere
was the only leader willing to stand up to Idi Amin. The result was a
series of incidents along the narrow territorial boundary between the
countries beginning in 1972. After the first one, which amounted to

133
I
nothing, they occurred with such frequency that Nyerere came to believe
they were all bluff and bluster.1
The war began on October 9, 1978 when a small motorized detachment
of Ugandan soldiers crossed the border into the Kagera Salient, the thin
wedge of Tanzanian territory north of the Kagera River and west of Lake
Victoria, entered the village of Kakunyu and burned two houses.
Tanzanian forward observers spotted them and called in artillery fire
that destroyed one armored personnel carrier, one truck, and killed two
Ugandans.
The war was on. The Chinese-structured Tanzania People's Defense
Forces (TPDF), which AID had approvingly deemed adequately underfunded a
year earlier, was about to fail miserably the first time it was called
upon to defend the nation's boundaries. f
On October 25 the Ugandan commander, Lieutenant Colonel Maranji,
launched his full invasion force. It was a timorous attack on a single
point, and was driven back by artillery. Tanzanian losses were one
soldier slightly wounded. On October 27 the Ugandan air force bombed
the town of Bukoba, sparking a mass evacuation by the civilians that
clogged the roads southward with refugees carrying all their possessions
and driving their cattle before them. The Tanzanians shot down one
Ugandan Mig. On October 30 Maranji renewed the attack at four points
and routed the Tanzanian defenders. The Ugandan soldiers entered the
Kagera Salient and began an orgy of rape, pillage and murder.
Approximately 1,500 Tanzanian civilians were killed.
Only now with the reports of the destruction of the 202nd Brigade
and the loss of the Kagera Salient did Nyerere* react. He summoned his
high command under Lieutenant General Abdallah Twalipo. On October 31
Radio Tanzania announced that Tanzania had been attacked by Uganda.
i.
The following account is from Avirgan and Honey (1982).

134
The TDPF consisted of four brigades when the war broke out. Of
these, one was now destroyed and only one of the remaining three was
I
combat ready. It was the Southern Brigade, consisting of 4,000 men,
light tanks and artillery, stationed unfortunately in the distant
southwest corner of the country. The brigade was ordered to the front
on a march over an unpaved road through mountains to the Chinese-built
TAZARA Railroad. From there it was boarded onto cars and shipped
northeast to Dar es Salaam, then transferred onto the central rail line
and moved to the town of Mwanza on the southern shore of Lake Victoria.
The brigade had to march around the lake. It was the rainy season, and
the long-neglected roads in this remote region were a morass. It was a
nightmare march completing the last stretch of the 2,200 kilometer
movement. Upon its arrival, the weary brigade was broken down into
cadres around which new brigades would be formed.
On November 5, the six foot four, two hundred forty pound Idi Amin
publicized a challenge to the slight, elderly Julius Nyerere to a boxing
match to settle the war. Amin promised to fight with one hand tied
behind his back to give Nyerere "a sporting chance." By now artillery
from both armies were exchanging fire day and night from opposite banks
of the Kagera. On November 14 a Tanzanian scouting party crossed in
small boats. They met no resistance, and crossed back. Amin promptly
announced that he had turned back a Tanzanian counterattack, and that
its routed soldiers had been eaten by crocodiles. Amin's buffoonery
about presidential boxing matches and crocodiles devouring the war dead
gave the Western press a field day in speculation covering the limited
reports of the war that got through Nyerere's close censorship.
Nyerere's government purchased a Bailey bridge kit in London and
had it rushed to the front. While it was en riute, the Tanzanian
commanders brought forward a Chinese pontoon bridge capable of
supporting small trucks and artillery, but not the tanks. The bridge

135
was thrown in the early hours of November 19. At dawn a Tanzanian unit
crossed to clear the minefield. On November 20 Tanzanian scout forces
crossed into the Kagera Salient. They were surprised to find it
abandoned. Terrorized civilians flocked to them in relief from their
hiding places in the woods and told them that Amin's men had gone back
into Uganda. On November 22 the scouts reached the border, and on
November 23, when it was certain the Ugandans had in fact withdrawn, the
main body of infantry and artillery crossed into Kagera and moved up to
the border.
Nyerere visited the front. His commanders convinced him that the
salient would never be secure as long as the Ugandans occupied a heavily
defended airfield just across the border. Nyerere made the decision to
invade Uganda on the spot. The TPDF would spend the next two months
preparing the campaign, which was launched on January 21, 1979. The
tactic the TPDF used was to pin, encircle and attack from the rear. The
Tanzanians were discovering that the Ugandans had no stomach for
fighting. When the TPDF had captured its firsy Ugandan town, the
infantry came slogging up and shot all the civilians the found. The
engineers brought in bulldozers and razed most of the buildings.
Nyerere was horrified at these reports, and issued an order commanding
the Tanzanian soldiers not to kill any more Ugandan civilians.
Nyerere began to search for international assistance. China,
which had trained his army, declined to get involved, and would not even
rush military orders that had already been placed. The Soviet Union and
the Warsaw Pact countries offered help on a cash-and-carry basis only.
Tanzania had never solicited arms from the United States; its equipment
was incompatible, and so Nyerere did not ask assistance from the Carter
administration which, for its part, offered none. Nyerere lobbied the
former colonial powers Britain and West Germany for help. They
I

136
ultimately furnished aid for the Kagera refugees, which freed money for
war expenditures.
Tanzania received what little help it would get in overthrowing
Amin from other African states. Most of it was symbolic aid: rhetoric
and a few weapons. Somora Machel of Mozambique sent men. Algeria was
the biggest provider; it sent three shiploads of small arms. The
frontline states all expressed support. 1
It was different in the OAU. Several African states, including
Kenya which had been involved in recent border disputes with Tanzania,
and Nigeria which found an opportunity to get back at Tanzania for its
recognition of Biafra ten years earlier, opposed Nyerere's decision to
carry the war into Uganda.
Uganda's principal aid came from Libya. Moammar Ghadafy declared
this to be a war between Christians and Muslims and sent weapons,
planes, and ultimately about 1,000 soldiers. Yasser Arafat's PLO sent a
few fighters. Sudan expressed support for Amin, but sent no aid.
Although the war was to be fought with modern weapons, including
long range artillery, heavy tanks, and jet war planes, it more closely
resembled the ancient Chinese warfare of frightening the enemy away with
I
great noises and massing of troops than the grimly efficient slaughter
of Western battles. Although the TPDF used bombs and shells instead of
gongs and firecrackers, the engagements it fought were fairly bloodless.
The Tanzanian high command would eventually mobilize 45,000 men to
attack Amin's enormous army, only to find that the Ugandan forces were
demoralized. Tanzania would lose fewer than one hundred men killed in
action in conquering all of Uganda.
The cost of the war and the second oil shock
It would take the Tanzanian army until June 3 to secure all of
Uganda. The eight month war cost the lives of 96 Tanzanian soldiers
killed in action and 500 million dollars. Unfortunately, the political
I

137
situation in liberated Uganda proved unstable. No strong leadership
emerged. While the atomized social elements formed into different
factions and acquired their share of the weapons adrift in Uganda,
Nyerere felt obliged to occupy the country for two more years.
The second oil shock of 1979 came hard on the heels of this very
costly victory. When the cost of imported fuel skyrocketed, the Nyerere
government was forced to petition the IMF for balance of payment relief
in 1979. The IMF indicated its conditions, a package of policy reforms
I
that was becoming somewhat standardized and would soon be called
structural adjustment. Nyerere rejected the conditions, and a struggle
began with the IMF that would continue for the next eight years.
Structural Adjustment and the 1980 U.S. Election
At the beginning of the war over 60 percent of the government's
total development budget was being provided by foreign donors, up to 85
percent of the development budgets of certain ministries (USAID,
Appraisal, 1978). Gains had been made with the aid boom. At the end of
the decade almost eight million rural Tanzanians had access to piped
water. Half of the 8,000 Ujamaa villages had dispensaries. One million
children, twice the number in 1967, were enrolled in school (Yaeger
1989: 77).
In the first years of the dispute with the IMF, the Nyerere
government showed its resolve to remain, as an AID report had previously
described, "willing to pay the price of social and economic disruption,
in order to lay the framework for a different type of society" (USAID,
Conceptual Framework, 1976). When negotiations with the IMF broke down,
the Mission reported that the "Tanzanian leadership feels these
measures. . . would require it to compromise its basic socialist
philosophy and would not have the effect anticipated by the IMF in any
case." Undeniably the Tanzanian economy was "in great jeopardy. . . .
I

138
At stake is the progress made in recent years in extending social and
economic services and facilities to the mass of the population" (USAID,
CDSS, 1980).
In 1980 the Tanzanian economy reached such desperate straits that
the Nyerere government was forced to make sufficient concessions to the
IMF to conclude a standby agreement for a nominal $235 million over
fifteen months beginning August 31. An AID team of consultants in
country at the time noted that the amount was less than the $290 million
it cost Tanzania to occupy Uganda the previous year (USAID, Tanzanian
Development, 1980). Tanzania's foreign debt payments now exceeded its
foreign exchange revenues by $500-600 million annually. Some of the
shortfall was being made up by foreign donors, notably Sweden, but
without significant policy changes by the government, the Mission judged
the long term prospects for Tanzania were not good (USAID, CDSS, 1981).
That same year 1980, for the first time, the Mission's country
plan was not approved. The official reason given was "because of
concern that it did not appropriately address Tanzania's more urgent
near term economic problems, and because it had not adequately presented
alternative development approaches" (USAID, AB¿, 1980). The veiled
language suggests a more plausible explanation. Ronald Reagan had
defeated George Bush for the Republican nomination. With the challenge
from the hard right being launched by Reagan, the Carter administration
could not afford to side with Tanzania in its opposition to the IMF.
Tolerance of Tanzanian socialism would have to be suspended until after
the election.
The conflicts at work during the second period of this study all
may be separated into the same three categories of the first period:
conflicts between and among the branches of the U.S. government and AID,
conflicts within U.S. foreign policy circles between "front room"
liberal altruists and "back room" conservative realists, and conflicts
I

139
between Tanzania and the United States. There were three differences
between the conflicts of the first and second periods.
First, in the 1974-1980 period of reaching the poor majority,
conflict between altruists and realists descended into the Mission. AID
personnel divided into supporters and opponents of Ujamaa. Second, a
clear contradiction emerged between the principles and programs of
Ujamaa and the performance of the Tanzanian economy. Third, as AID
began its programs directly at the village lev^l, conflicts developed
between the foreign agricultural experts who came to Tanzania on AID
projects and the people of certain cultures, notably the Masai.
I

CHAPTER 6
THE THIRD PERIOD: FORCING POLITICAL (REFORM, 1981-95
New Paradigm, Old Paradigm: Reagan and Nyerere
At the start of the 1980 presidential campaign the Carter
administration dismissed Ronald Reagan too lightly as an ideologue who
reduced complex issues to simple terms that he was, admittedly, able to
communicate very effectively (Jordan 1982: 302-303). Reagan's winning
personal qualities, "the aw-shucks, all-American charm, the unintense,
nonanalytical intellectual style, the breezy moralism" (Forbes 1988:
415) endeared him to ordinary people and enabled him to counter with a
"powerful assertion of national pride" the moral self-doubt that had
been plaguing America since Vietnam (Yankelovich and Kaagan 1987: 15).
Carter was in the difficult position of having to defend a record
I
of a stagflated economy at home. Reagan's question to the American
people, "Are you better off now than you were four years ago?" struck a
responsive chord. Overseas Carter's administration had been faced with
Soviet aggression in Africa and Afghanistan and a hostage crisis in
Iran. Reagan's tactic in the debates of patronizing Carter's efforts to
explain his positions by saying, "There you go again," proved
devastatingly effective.
Reagan elevated a new set of alternatives to the level of policy
the moment he entered the White House. The ideology of his
administration was anti-Communist, anti-Keynesian, anti-New Deal
government, with Arthur Laffer's supply-side economics and Simon
Kuznets' trickle down effects as its theoretical bases. The new
administration called for a new policy for AIDj forcing political
reform. A paradigm shift had begun.
140

141
I
Some of Reagan's strongest supporters, especially Senator Jesse
Helms, viewed AID as an agency chock full of liberals whose views were
antithetical to conservative realism and which was far too autonomous of
executive and legislative control, and hence of U.S. foreign policy.
Certainly Reagan was not averse to taking harsh steps to restrict an
agency whose mission ran counter to his political views. A case in
point was the Environmental Protection Agency. Yet Reagan did not
attack AID the way he did the EPA and as his most conservative
supporters urged him to do.
One reason was perhaps because he saw the value of having a
foreign policy carrot to complement the stick he was to wield in
countries such as Nicaragua. A significant reason why the radical right
wing of the Republican party did not succeed in abolishing AID was due
to the skill of the new administrator, M. Peter McPherson. Reagan's
appointee to head the agency held a Ph.D. in agricultural economics. He
had sufficient intellectual deftness and the political acumen to ward
off the attacks by the hard right. The existence of Title XII of the
FAA, which required AID to utilize American land-grant universities in
foreign aid projects provided him with a shield. The National
Association of Land-Grant Universities was a ready-made lobbying group
with sufficient authority and legitimacy to shelter AID and silence the
most hostile critics. Thus by awarding North Carolina State University
with numerous multi-million dollar contracts, AID was able to call on
the university to help persuade Senator Helms to restrain himself,
convincing him that hurting AID would hurt his*home state. AID
continues to use this tactic in its ongoing battle with Helms. In the
spring of 1996 North Carolina State University was awarded a substantial
contract as lead institution for a continent-wide, multi-university
African agricultural program (Chris Andrew, Robert Uttaro, personal
communications). Helms' willingness to compromise on this issue

142
demonstrates that hard core "back room" ideological principles sometimes
I
yield to the pressure of practical politics.
The Reagan administration instructed AID to abandon its historical
approaches through the public sector and to adopt approaches that
stimulated private sector initiatives. In Tanzania, where the
government had practiced a unique form of state socialism since 1967,
the Mission was ordered to support the IMF policy reforms aimed "to
erode government mentality of excessive reliance on the public sector
for economic development" (USAID, ABS, 1989). AID'S decades-old
clientelist habit of excusing recipient government failures in order to
shelter programs and protect careers had rendered it "often unable and
usually not willing to withhold funding if policy reforms are not made"
(Bandow 1988: 148). This was not going to be the case in Tanzania. A
new set of actors had captured the agenda and converted a new set of
alternatives into policy. This had the effect of increasing confidence
in AID about what to do. In the case of Tanzania, "what to do" was
going to mean closing the mission down.
The Reagan Doctrine
Like Johnson and Nixon, Reagan did not have a first-class
education, and came from modest origins. Like Ford, he had a sunny
personality. Like Carter, he was a former governor. Like Kennedy, he
hoped to use foreign aid to pursue a larger agenda. Like Johnson,
Nixon, and Carter, his administration would pronounce a doctrine.
Reagan's agenda as a whole called for so many significant changes
that even conservatives referred to it as a "crusade" and a "revolution"
(Boaz 1988: 1-2). The core change to foreign ¿olicy was "rolling back
Soviet power, particularly in the Third World" (Ravenal 1988: 138). The
Reagan Doctrine pledged assistance to any movement fighting to overthrow
a Communist regime. By reasserting the U.S. right to place political

143
conditions on its aid, the new administration overturned the Mann
Doctrine once and for all and laid the "Big Lie" finally to rest.
Reagan was helped by the fact that he entered office with an
I
advantage neither of his Republican predecessors Nixon or Ford had
enjoyed: a Republican majority in one house of Congress, the Senate.
The Reagan administration brought with it a new foreign policy agenda
and a new approach to foreign aid that was first articulated in a speech
by Reagan to the World Affairs Council in Philadelphia on October 15,
1981. The new administration's emphasis, the President said, would be
on "guiding assistance toward the development of self-sustaining
productive capacities" (Department of State 1981). At the Cancún summit
of developing countries a week later, Reagan described the perspective
that would guide foreign aid under his administration. "We are mutually
interdependent," he told the small number of Third World leaders who
came to the summit on October 22, "but above all, we are individually
responsible" (Bandow 1988: 146). Reagan would Reportedly come away from
the summit very impressed with the intellect of Julius Nyerere, but
unconvinced by his ideas (Goran Hyden, personal communication).
The Reagan administration retained the Carter policy of making
American aid conditional on political reform, but changed the conditions
from insisting that recipient governments respect human rights to
insisting that they free their markets. The divided Congress greatly
helped the administration by passing the Brooke Amendment to the FAA,
which required AID to close its mission in any country that was
simultaneously in arrears on its debt repayments to the Ü.S. and not
under an agreement with the IMF. Tanzania was one such country.
All tolerance of socialism in the upper reaches of government
evaporated under Reagan, and it became very difficult for left wing
governments to receive U.S. assistance. The aÍd program in Tanzania was
now in serious jeopardy. The Reagan administration halved new spending

144
in Tanzania from $32.0 million in Carter's last year 1980 to $17.4
million in 1981, and then cut it again to $3.6 million in 1982.
The Mission, suddenly finding itself reduced to seventeenth of the
eighteen largest bilateral donors in the country and falling (GAO, Donor
Approaches, 1983), shifted to damage control mode and reported it
(
understood quite clearly that any "increase in funding levels is
conditional upon a change in present TanGov policies" (USAID, ABS,
1982). No changes were forthcoming from Dar es Salaam. The Brooke
amendment provided the president with the authority to grant waivers,
but Reagan cut Nyerere no slack. In 1983, new aid obligations to
Tanzania fell to zero for only the second time since Nixon had cut them
in 1972, to punish Tanzania for the dance of Salim. The difference
between Nixon and Reagan was that, like a man holding a cat's head under
water till it drowned, Reagan kept new spending in Tanzania at zero
until Ujamaa was dead.
Revolution or restoration?
In balance, the changes Reagan made in U.S. foreign policy were
less a revolution than a restoration, a returnjto first principles. His
defense build up in order to "negotiate from strength" with the Soviet
Union was actually a return to the policies of Truman and Eisenhower
(Bell 1987: 61). His South Africa policy of "constructive engagement"
(Schultz 1987) was little more than a rearticulation of the "limited
association" of Nixon's "Tar Baby" option. Like "Tar Baby" the Reagan
Doctrine paid lip service to the principle of majority rule but sent
broad signals of support that encouraged the apartheid regime to believe
it could hold out against change. Congress eventually overturned
Reagan's policy by passing the Anti-Apartheid Act of 1986, and then
overrode Reagan's veto to make it stand. For the first time, the U.S.
government placed economic sanctions on South Africa, but enforcement by
the Reagan administration was pointedly lax (Magyar 1994).
I

145
Reagan's foreign aid policy was also something less than
revolutionary. In 1983 he appointed a policy review commission chaired
by Frank Carlucci.1 The commission submitted its report in November
1983. Conservatives attacked its recommendations as inconsequential,
nothing that would not have been supported by any of Reagan's
predecessors (Bandow 1988: 144-145).
In a December 4, 1984 cable to all missions, McPherson laid out
I
the four "policy themes" that would thenceforth guide AID strategy:
policy reform, private sector support, technology transfer, and
institution building. These came to be called the Four Pillars. None
of them was new. Policy reform had been instituted by Carter in support
of human rights. Reliance on the private sector had been one of the six
mandates in the 1973 New Directions. The transfer of technology and
institution building were as old as AID itself.
The Mission certainly did not see the changes as revolutionary.
It reported in 1982 that "the Administration's emphasis on policy
change, private sector growth, technology transfer and institution
building has not affected our strategy objectives as much as it has our
methodology for achieving those objectives. The most striking
difference in approach is the emphasis. . . on(policy consideration"
(USAID, ABS, 1982).
Nyerere and the End of Ujamaa
By 1980 private initiative had been all but eliminated in
Tanzania. The formal economy was now managed from top to bottom by
party-dominated state corporatism. There had been a disastrous
combination of events. On top of the war and occupation of Uganda and
the doubling of oil prices in two years came continued regional disputes
Carlucci, it will be remembered, was President Johnson's former
Charge d'Affaires in Zanzibar. He would later serve as Reagan's National
Security Advisor and Secretary of Defense.
I

146
with Kenya, severe flooding in 1979, and another drought in 1980. As
standards of living declined, public dissatisfaction grew. Small
farmers and entrepreneurs began exiting the formal economy into a
burgeoning black market in droves. Corruption and hoarding were
becoming serious problems. A long-silent conservative wing began to
speak up from within the power structure, and unity among the three
centers of state power: the party, the government, and the office of the
president, disintegrated as Tanzania's aid dependence increased. In
1981 foreign aid exceeded a nominal $700 million, the highest per capita
I
level in tropical Africa, amounting to over 70 percent of Tanzania's new
capital expenditures (Yaeger 1989).
The IMF continued to insist on structural adjustments as a sine
qua non for balance of payment support. These included "devaluation of
the shilling, an increase in bank loan rates, a reduction in government
spending, a freeze on the minimum wage, an increase in the price of
cornmeal and the elimination of price controls" (USAID, ABS, 1982).
Nyerere rejected these conditions. The AID mission believed the Nyerere
government was unlikely to yield to the IMF. Sustained as he was by
Sweden, Nyerere would stand firm. A 1983 report felt it "very unlikely
that in the foreseeable future the Tanzanian leadership will shift
sharply from its socialistic views" (USAID, Policy Issues, 1983).
As an attempted compromise, Nyerere instituted a much less drastic
set of reforms (USAID, Concept Paper, 1987). The National Economic
Survival Program (NESP) called for increased foreign exchange earnings
and more judicious expenditures, frugality in government and parastatal
recurrent costs, and finally self-sufficiency in food. These changes
were not sufficiently hard enough for the IMF, and the standoff
continued. The NESP was significant only in that it indicated the
Nyerere government now realized "that many of the policies which were
established, with good intentions, have not resulted in the growth and

147
I
equity which was anticipated." The government had a list of excuses for
the economic deterioration, "the negative turn in the terms of trade,
the past two years of drought, and the lingering financial effects of
the war with Uganda." Ujamaa was sacrosanct. The fact remained,
"TanGov has been unable to agree with the IMF’s recommended 'path'"
(USAID, ABS, 1982) .
The Reagan administration, broke the stalemate when it cut new aid
to zero. Seeing this, other donors began to get nervous, wondering if
they were being played for suckers. One by one the other donors began
to pressure Nyerere to give in to the IMF. Nyerere refused to abandon
his principles, until Sweden, which had staunchly defended Tanzania's
I
proud defiance, reversed policy in 1984 and joined the IMF (Elgstrom,
forthcoming). It was the beginning of the end for Ujamaa.
A Pyrrhic Victory
Reagan's cuts broke the deadlock in the Mission over whether, how,
and at what level to support Ujamaa. The liberal altruists who had
favored Tanzania's philosophy of self-reliance with equity had lost.
Although their viewpoint disappeared from official channels after 1981,
they left traces of their continued existence. Writing in the margins
of a February 11, 1987 cable from the AID regional office (REDSO) in
Nairobi insisting that Tanzania would have to abandon Ujamaa before
American aid could be restored, an anonymous reader expressed doubts
about the wisdom of forcing such drastic political reform so rapidly.
"Reforms are only easy in hindsight if successful, not when you have to
grapple with competing forces beforehand."
The conservative realists who had faulted Tanzania's "lack of
pragmatism" had won the debate, but it was a Pyrrhic victory. Now they
would have to share in the task of terminating their own program. This
was not an activity that garnered many career rewards in AID. The

148
conservatives closed ranks with the liberals iA opposition to the cuts,
and declared to Washington, "To have approved our Country Development
Strategy Submission [sic] on the one hand and at the same time deny us
the financial and human resources necessary to effectuate that strategy
strikes us as being capricious and wasteful" (USAID, ABS, 1981).
The cuts were not negotiable. In the budget submission of the
following year, the Mission tried a different tack, patiently explaining
to Washington that the "Tanzanian Government views attempts to tie aid
levels to improved performance of 'policy changes' as conditionality
which to date they have rejected as infringement on their national
sovereignty. They are willing to discuss the issues but not under the
real or implied threat of sanctions if they do not." The Mission had
dutifully "expressed our concerns regarding specific agricultural policy
(
measures to the Government and anticipate a full and frank dialogue on
these issues. . . . While these measures will not be formally
incorporated into the minutes of the negotiations, raising them. . . has
helped raise these concerns to the highest levels within the Tanzanian
Government (USAID, ABS, 1982).
The Mission never got the promised "full and frank dialogue."
Even if it had, it wouldn't have mattered because the Brooke Amendment
went into effect. New spending was cut to zero. The Mission declared
itself in "a very somber period" (USAID, ABS, 1983) and reluctantly
initiated the "winddown scenario" it had been ordered to devise for the
termination of the program. Still, it planned hopefully for a
"turnaround scenario" in case Tanzania came to an agreement with the IMF
(USAID, ABS, 1984). The "turnaround” did not Brooke, the Mission cabled its phaseout plan to Washington on October
27, 1984. When it was approved on December 13 of that year, the Mission
was set on a schedule to close by March 31, 1987 (USAID, ABS, 1985). In
1984, as Reagan campaigned against Walter Mondale, the Mission reported

149
it was closing down "as rapidly as is consistent with good management"
(USAID, ABS, 1984).
AID'S project-based operating procedures1 had the perverse effect
of making it impossible to cut off all aid to Tanzania over night. The
big IRD projects had put large fleets of vehicles, substantial
equipment, and large staffs of people in the field. The Reagan
administration discovered just how tightly locked in the streams of
funding each project represented were. Projects would have to be
allowed to run their course. As seen in Table 2, while new spending was
rapidly slashed to zero, aid flows held steady.
Table 2. New obligations and net receipts to Tanzania during Reagan's
first term, 1981-1984
Year
New
Net
1981
17.4
41.7
1982
3.6
36.5
1983
0
28.9
1984
2 L
32.4
Projects were as hard to kill as Ujamaa. By mid-1986, the third year of
zero funding, halfway through Reagan's second term of office, there were
still "two active and one residual" projects underway in Tanzania
(USAID, ABS, 1986). Operations were on schedule to end in March 1987
when the last project expired unless either the Tanzanian or the U.S.
government relaxed its position. Reagan didn't blink.
The new paradigm enforced a new consensus in AID. U.S. assistance
was to be used to force political reform. In a cable on April 13, 1985
Africa Bureau reminded the Mission that "all AID resources. . . are to
be linked to our efforts to support policy reform." A cable on October
24, 1986 reminded the Mission that Africa Bureau retained the authority
to decide "whether and how to resume a development assistance program in
Tanzania." Washington wanted the Mission to know there would be no
resumption of aid until Ujamaa was dead.

150
The Mission never reached the point of actually closing its doors,
although it came very close indeed. In late 1986, the last remaining
American contractor served for one day as acting mission director, under
orders to refer everything to the ambassador.
I
Rebuilding the AID Program
The hoped for "turnaround" began in 1984 when Sweden changed sides
and set in motion a series of events that ended three years later with a
rapid reconstruction of the AID program in Tanzania. Suddenly bereft of
the support of his strongest ally, rather than give in to the IMF,
Nyerere decided not to seek another term, and in December 1985, Ali
Hassan Mwinyi became Tanzania's second president.
Mwinyi, like Nyerere, had been educated as a teacher. He entered
politics in Zanzibar in 1964 as the Sultan's permanent secretary of the
Ministry of Education. He managed to survive the Revolution several
weeks later, and stayed in politics. In 1970 he reached national
prominence when Nyerere appointed him Minister^of State in the
President's Office. This was followed by various administrative and
ambassadorial posts. When in 1984 Aboud Jumbe became the target of
nationalist protests in Zanzibar, the CCM, chaired by Nyerere, replaced
him with Mwinyi, who automatically became president of Zanzibar and
first vice president of Tanzania, and thus in effect Nyerere's hand¬
picked successor (Yaeger 1989).
Six months after taking power Mwinyi initiated the IMF's Economic
Recovery Program in June. In short order a Standby Agreement was
reached with the IMF in August, a Paris Club debt rescheduling agreement
was signed in September, and a World Bank Multisector Rehabilitation
Credit agreement was signed in November (USAID, Concept Paper, 1987).
With that the Brooke Amendment strictures were lifted and in March 1987,
I

151
the very month the Mission was to have closed its doors, Dar es Salaam
signed a debt rescheduling agreement with Washington (USAID, ABS, 1987).
As soon as Tanzania came to terms with the IMF, the Mission
foresaw that the Brooke restrictions might be lifted. To prepare for
this contingency it engaged to have a background paper prepared. The
paper was submitted in January 1987 as a first step in the resumption of
activities (USAID, Donor Assistance, 1987). The Mission's director
wrote to the Tanzanian deputy principal secretary of the Ministry of
Finance on January 23 to indicate that AID was "far enough along in our
work" that the "quiet session" they had agreed to on his arrival was now
practical. He proposed a meeting somewhere "away from the hustle and
bustle of all our offices."
While these sensitive negotiations proceeded, the Mission
commissioned a concept paper that would outline a plan to guide
activities for the time it would take to produce a proper country plan.
I
REDSO cabled the Mission on February 11, 1987 to say that "there should
be no illusions that the fundamental socialist policy orientations that
Tanzania has followed over the past 2 decades will be disavowed," and
ordered "that the Concept Paper. . . recommend linking renewed AID
assistance to ERP performance."2
On April 31, 1987 the African Bureau cabled to inform the Mission
that the concept paper had been approved. The Mission was hereby
launched on a plan that concentrated on commodity imports and rural
roads rehabilitation as a first step in reopening a full scale program
(USAID, Concept Paper, 1987). The Mission assured the Bureau as the
build up got underway that all projects would "concentrate on
conditionality designed to focus GOT [Government of Tanzania] efforts on
carrying through" (USAID, ABS, 1989). Washington cabled on October 12,
The term "performance" in AID parlance refers to a country's
conformance to AID conditions.

152
1989 to stress "the importance of the GOT continuing to see higher
levels as supportive of policy reform measures, and thus performance-
driven . "
The country plan was submitted in 1989, and to everyone's surprise
was rejected on July 5, only the second time since 1980 that this had
happened. In a July 11 memo and a subsequent October 12 cable to the
Mission, the Africa Bureau explained its judgment that "the document did
I
not present a strategy for which an approval/disapproval decision could
be sought" due particularly to a failure to provide adequate analysis
and a satisfactory "five-year layout." The document was allowed to
stand as an updated concept paper to guide activities while the newly
assembled Tanzanian mission wrote a new country plan.
Congress meanwhile, acting in belated response to lessons learned
from trying to respond to the 1985 famine in Ethiopia, wishing to avert
the need for any future such massive relief interventions by
streamlining the existing development program, had passed the 1987
Development Fund for Africa (DFA). This act exempted missions in Africa
from many of the restrictions on AID overall, and fixed the annual level
of aid to Africa at a nominal $800 million. It removed certain
regulations that locked AID into project assistance, and others that
tied it to American products, and finally encouraged AID to learn how to
program for strategic results (USAID, Growth Renewed, 1992). Combined
with all the other previous acts of Congress, it added to an AID
"handbook" that was now thirty-seven volumes long and could "fill a
shopping cart" (Dallas Morning News, Aug. 8, 1993). The agency had
become "barnacled over" as one official in Washington characterized it
to me, by mandates and earmarks. The Mission director in Tanzania
lamented the impossibility of having to try to achieve no fewer than 33
separate objectives and address 77 disparate priorities.
I

153
Learning From Indigenous Knowledge
The learning process approach entered its heyday when AID began to
shut down its program in Tanzania. The policy of learning how to
embrace error was operationalized elsewhere in AID by increasing the use
of nongovernment organizations (NGOs) as project implementors. When AID
began rebuilding its program in Tanzania in 1987, it turned to private
Tanzanian contractors to carry out its projects.
The development tactic of making use of indigenous knowledge was a
logical add-on to the learning process approach. It was manifested in
one of the Mission's two biggest post-Brooke health projects, which
devised a complex scheme to establish "anchor" locations (schools,
worksites, or business organizations) to focus NGO activities in the
health sector by forming them into "clusters" that would conduct local
self-help campaigns (USAID, TAP Project Paper, 1992).
These initiatives did not repeat the mistake made by the big
integrated rural development projects in Tanzania of top down planning.
The IRD projects had ignored the importance, known since the Etawah
project, of using an eclectic, problem-solving planning framework that
built upward from local knowledge, and had used rigid, blueprint-like
master plans that nearly all performed miserably.
Institution Building Redux *
The paradigm shift of the early 1980s saw a return to the
institution building approach, which had been largely abandoned after
the New Directions. AID launched big construction projects in Tanzania
of a type not seen since the 1960s. The only difference was that
private contractors, and not state agencies, were used to carry them
out.
When the turnaround began in 1987, Reagan authorized a $12 million
ESF grant to Tanzania for a project called Transport Sector Policy

154
f
Reform and Rehabilitation intended to rebuild rural roads in AID'S old
stomping grounds in Arusha Region. Another $46.2 million was added to
an ongoing regional project, Regional Transport Development, which was
helping refurbish the railroads in Zambia and Zimbabwe, to include the
by now terribly dilapidated TAZARA railroad into the portion of the rail
network to be renovated. In 1988, Reagan's last year in office, the
$64.2 million Agricultural Transportation Assistance Program was
launched to rebuild an even greater portion of Tanzania's rural roads
(USAID, ABS, 1988, Tanzania Overview, 1995). The choice of objectives
represented a significant change. Infrastructure projects were back.
Of Reagan's eight years in office, no new spending was obligated
in Tanzania in four. From 1983 to 1986 the Mission was under Brooke.
In the two years before and after Brooke, a total of $143.4 million was
obligated, an average $18 million per year, the same as the Kennedy
administration. If only the four years in which new spending was
obligated are considered, Reagan averaged $36 million per year, more
than Nixon, making his the largest provider of aid to Tanzania of any
administration.
Mwinyi and the Consolidation of Reform
When Ujamaa was abandoned in 1986, Tanzania was suddenly shorn of
a governing ideology. The lodestar of self-reliance with equity was
extinguished. With the old, familiar bearings gone, political
navigation was taken over by the multilateral qlonors who set about
shrinking the developmental state while putting it on a course of
economic liberalization. In a sense, Mwinyi was a passenger on this
journey to a new type of political economy. His job was not to steer,
but to keep the peace among the passengers, many of whom feared or
disliked the sudden change in direction and the sudden shrinking of the
ship of state. Mwinyi's task was complicated by the fact that Nyerere

155
remained chairman of the CCM, one of the three*nodes of power in the
Tanzanian state. Since the CCM nominated all candidates for public
office, Nyerere, as leader of the party, was able to manipulate who sat
in what seat, and thereby continued to exert considerable influence over
policy. It was not until an influential speech in February 1990 in
which he announced that the single-party state was a thing of the past
and called for movement toward multiparty democracy (Bratton and van de
Walle 1992) that Nyerere let go of Ujamaa, and it wasn't until he
resigned as head of the CCM in 1991 that Mwinyi gained full control over
all of the political machinery.
Mwinyi, like all Tanzanians, was so thoroughly steeped in
socialist ideology that it took some time for him to accept the
viability of undirected private enterprise as an engine of development.
In a bit of self-serving propaganda, AID made the claim that Mwinyi was
won over on a single day, July 18, 1990, when he visited "both a
traditional government road construction project and an AID-financed
project in the Shinyanga District [that] had started work on the same
day" and found "the government road-builders were 60 percent behind
schedule and the private company was 60 percent ahead" (USAID, DFA
Report, 1991) .
Bush, Democracy, Desert Storm, and Corruption in AID
At the end of Reagan's second term in 1988, Vice President George
Bush sought and received the Republican nomination, and in an "issueless
but vile campaign" of symbolism and innuendo won a landslide election
over the Democratic Governor of Massachusetts,I Michael Dukakis. George
Bush was anything but the ideologue his predecessor had been. He was
highly experienced in foreign affairs, having served as ambassador to
the U.N. and special envoy to China under Nixon, and under Ford as
director of the CIA. He had challenged Reagan for the 1980 nomination,

156
and then served him loyally for eight years as vice president. He was a
"foreign policy bureaucrat" who hated politics, the ugly act of getting
elected. In this regard, Bush bore a curious resemblance to Mwinyi.
They both were men who had risen patiently through the ranks. Bush's
chief aim, now that he had reached the summit, was to "avoid doing dumb
things" (Rockman 1991: 9, 12). Unlike Reagan's "blunt and forthright
manner" and his clear statement of policy goals, Bush used softer
language and "resisted setting forth a substantive plan for dealing with
the world" (Franklin and Shepard 1992: 166).
George Bush entered the White House in 1989 promising a kinder and
gentler America. Like Kennedy, he came from a privileged background,
and was educated in an Ivy League school. Like Kennedy, Bush was a
World War II combat veteran. Like Kennedy and Ford, his administration
made no doctrine. Like Johnson and Ford he was not guided by any grand
design. Like Johnson, Nixon and Ford, Bush had served as vice
I
president, and like Nixon he preferred foreign to domestic affairs.
Bush shared Nixon's "proclivity for secrecy and surprise." Where he
differed from Nixon was in his personalized approach to foreign
relations, his Rolodex diplomacy (Barilleaux 1992: 16).3 Where he
differed from Reagan was in making prudence his chief concern.
Bush made no large changes in African policy other than softening
some of its rougher edges. His administration negotiated peaceful
settlements in Namibia and Angola and enforced the existing sanctions on
South Africa, which the Reagan administration had never done, in
exchange for which Congress dropped proposals for adding more.
I
A Rolodex is a device for filing addresses and phone numbers.
Barilleaux's term refers to Bush's propensity for making personal phone
calls and sending handwritten notes to other leaders in conducting
affairs of state.

157
American Aid and Democracy
In December 1990, one year after the fall of the Berlin Wall, AID
announced a "Democracy Initiative." The move was touted as a "historic
reorientation of its mission" (Diamond 1995: 13)• The idea of using aid
to support democracy, a goal of John F. Kennedy whose administration had
not been able to force it onto the foreign policy agenda, had been
moribund for nearly 30 years. Its vivification was a slow process.
Programs to support democracy received a nominal $5.3 million that first
year 1990. With its policy councils still dominated, as they had always
been, by economists accustomed to thinking of themselves as apolitical
technical experts, AID was reluctant to move into a substantive issue
area about which it knew very little. These old habits are dying hard.
Even with the increased support that the democracy initiative would
receive under Clinton, mission requests for democratization funds for
eastern and southern Africa in 1995 did not exceed 10 percent of the
total requests, compared to 40 percent for economic assistance and 25
percent for the health sector (Harbeson 1995: £).
Desert Shield and Desert Storm
Bush's biggest foreign policy triumph was the Gulf War victory in
1991. Desert Storm also occasioned a serious bump in U.S.-Tanzanian
relations. President Mwinyi, a Zanzibari, was sensitive to the
interests of Tanzania's Muslim minority. Iran had recently increased
its diplomatic presence in the country (Magyar 1993). When Iraq invaded
Kuwait in August 1990, the Mwinyi government condemned the aggression.
However, it was not sympathetic to Desert Shield. During the build up
of coalition forces in Saudi Arabia, Mwinyi permitted Saddam Hussein to
recruit soldiers from among Tanzania's urban unemployed (Rwekaza
Mukandala, personal communication). The Bush administration was
outraged, and in response pulled Peace Corps out of the country,

158
professing concern for the safety of the volunteers. In 1991, for only
the third time, America obligated no new aid to Tanzania.
In 1991 Congress tried (but failed) to rewrite the FAA (Reuters,
Jan. 18, 1993) . As always, whatever Congress gave, Congress could take
away. An e-mail message from the Africa Bureau to the missions on
July 6, 1992 reported that the "Senate passed and sent on to the House a
bill that included a provision withdrawing the DFA flexibility on buy
America. It looks like we're going to be into buy America." Congress
had untied AID'S Africa Bureau from having to buy American made products
with the DFA in 1987. Now it retied it five y^ars later in 1992. Then
three years after that, in 1995, Congress did away with the DFA
entirely, and reduced aid to Africa from a nominal $800 to $670 million.
As one official in Washington summed it up with a sigh, "We propose;
Congress decides."
AID'S Loss of Bearing
Bush appointed Ronald Roskens as administrator of AID. It was,
according to people interviewed in both Washington and Dar es Salaam,
almost unanimously seen as an unfortunate choice. One official in the
Mission called Roskens "AID'S worst administrator by far." Bush's
concern for prudence, his problem articulating a vision, his basic
satisfaction with the status quo, struck a tone that reverberated down
through the administration. Roskens' initiatives in AID were as limited
as those of the president in the government as a whole. Roskens
involved himself with such trivial matters as replacing AID'S symbol,
changing it from the traditional handshake superimposed over a military
shield of red and white stripes with a blue field and four white stars
symbolizing Truman's Point Four Declaration, to an extremely unpopular

159
I
emblem of wavy red and white lines and a globe.4 This was not warmly
greeted.
The worst consequence of the Roskens administration was that
corruption in the agency reached its height. In June, Republican
Representative John Kasich provided the House with specific instances of
AID fraud: contractors in Rwanda who sold food aid for profit and then
used the money to construct tennis courts; a malaria researcher who
stole a nominal $144,000, an NGO in Egypt that lent money to fictitious
borrowers and pocketed a cut, and a deputy director who took a nominal
$70,000 in kickback. Compared with corruption in the defense industry,
for example, the level of malfeasance in AID was small potatos, but
given the agency's political vulnerability, the revelations had serious
I
consequences. An assistant inspector general admitted AID'S "crime
rate" was "higher than virtually any other agency in government." It
wasn't entirely AID'S fault. A former AID official indicated in the
press that much of the corruption was due to the United States' own form
of political patronage. He recounted "being dragged into congressmen's
offices when I wouldn't approve grants. . . They'd say 'I don't want
the best [contractor]. I want my friend taken care of'" (Dallas Morning
News, Aug. 8, 1993). The Democratic Chairman of the Senate
Appropriations Subcommittee Patrick Leahy suggested the government
should "just get rid of [AID] and start over again" (Reuters, Jan. 18,
1993), later stating that the agency had become "exhausted
intellectually, conceptually and politically" (Associated Press, Sept.
24, 1993).
The growing bipartisan support to abolish AID did not translate
into action. A new president had just been elected, and the Democratic
Congress did not want to deprive the head of a newly unified Democratic
As I will discuss in greater detail in Chapter Nine, symbols are
an important asset for strong cultures of principled agents.

160
government of an admittedly useful instrument of foreign policy
(Associated Press, Aug. 4, 1994). *
Under the Bush administration, the Mission added a $12.9 million
training program in 1989. Four projects totaling $32.6 million were
begun in 1990. It was at this point that the director declared "the
conclusion of the Mission's rebuilding phase following the Brooke-
induced phase-out" (USAID, Action Plan, 1990). A $49.6 million finance
project was added in 1992.
Of the four years Bush was in office, new spending in Tanzania was
obligated in three, a total of $95.1 million. The average $24 million
was less than the $33 million under Nixon, but more than the $21 million
under Carter. If 1991, the year of zero new spending is removed from
the calculation, Bush's average becomes $31.7 million, nearly the $33
million of Nixon.
I
Clinton and the Vivification of the Kennedy Ideal
Bill Clinton won election by a plurality in a three-way race,
overcoming severe criticisms about his character to do so. His campaign
focused intensely on domestic affairs, particularly the economy and a
program to reinvent government.
Like Johnson, Nixon, and Reagan, Clinton was born into meager
circumstances. Like Carter and Reagan, he came to Washington as a
former governor promising change. Like Kennedy and Bush, Clinton had a
good education. Like Kennedy, Ford and Bush, he pronounced no doctrine.
Like Bush, whom he succeeded as the second president in the post Cold
War era, Clinton valued prudence. He moved extremely slowly in putting
together a foreign policy team. (
Clinton selected Warren Christopher as Secretary of State and
Anthony Lake as National Security Advisor.5 The administration took a
Christopher had served as a deputy director in the State
Department under Carter, and since had been working as an attorney in

161
cautious approach to foreign affairs. Lake declared its intention was
"to be more activist in promoting democracy and human rights. . . more
interventionist" (Boston Globe, Nov. 22, 1993). Unfortunately, he
thought, the climate resembled the isolationist 1920s, which was going
to make it very hard to conduct foreign policy (Christian Science
Monitor, Aug. 1, 1994).
Christopher's earliest announcements revealed a cautious search
for policies that would "serve humanitarian purposes and enlightened
self-interest" (Reuters, Jan 18, 1993, State Dept, May 31, July 26,
1993). Pragmatic altruism would take the place of an ideological
perspective in the Clinton administration. To some this seemed like
equivocation. A month after the passage of the 1993 foreign
appropriations bill, Christopher defended the administration's eschewal
of doctrine by declaring that in the new multipolar world, "abstract
theories and overarching frameworks are of little help in resolving
specific problems" (Los Angeles Times, Oct. 24, 1993).
I
A Paradigm Restored
Clinton picked for his AID administrator a long time Democratic
operative named J. Brian Atwood and gave him the mission of saving AID.
Congress confirmed Atwood in mid-May 1993. Proclaiming the agency was
"encumbered by excessive red tape and beaten down by poor morale"
(Christian Science Monitor, May 13, 1993) and announcing that he had
"inherited a mess" (Associated Press, Sept 24, 1993), Atwood set about
cleaning it up. He declared that AID would be a "reinvention
laboratory" for Vice President A1 Gore. There would be no sacred cows;
the "entire agency is on the chopping block" (Dallas Morning News,
Los Angeles. He headed the commission that investigated the Rodney King
beatings. He could "lawyer any issue to deathr (Woodward 1993). Lake
had been among the advisors to Henry Kissinger who resigned in 1970 to
protest the invasion of Cambodia. He later was director of policy
planning at State under Carter.

162
Aug. 8, 1993).
Upon his confirmation in May 1993, Atwood announced the
administration's new objectives for AID: to support sustainable
development that protected the environment, to slow the world population
explosion, to develop a rapid disaster response capability, and to
promote democracy. The political conditions oé U.S. assistance were now
total. To receive American aid, countries were going to have to show
that they were moving toward multiparty democracy. With this
announcement the Clinton administration began to breathe life into the
Kennedy ideal of using American foreign aid to support democracy.
The new expression of the Kennedy ideal met with the same scorn
the original had from the same quarters. The anonymous memorandum I was
given which was circulating in the Washington offices in early 1995
stated that AID officials are only comfortable with economic issues, and
dislike dealing with issues that are fundamentally sociological or
political in nature. A retired AID official mocked the democracy
initiative, deriding it as a policy of making countries become
"politically correct."
I
Anthony Lake's National Security Council issued a report on the
foreign aid program in September 1993. It recommended a radical
overhaul of AID and a change to planning by objective, not by country
(Reuters, Sept. 18, 1993). The report stated that with "the
disappearance of Communism in the Soviet Union and Eastern Europe the
bedrock of support for foreign assistance has eroded significantly." As
politically vulnerable as it was, AID now faced "death by a thousand
cuts, leaving a continually shrinking foreign assistance program with no
clear direction or impact and a decline in U.S. international
leadership" (Washington Post, Sept. 18, 1993).
That same month the presidential commission chaired by Vice
President A1 Gore issued its much ballyhooed National Performance
I

163
Review. The Review made seven recommendations in regards to AID: (1)
the agency should redefine its priorities; (2) Congressional
micromanagement should be reduced; (3) AID should overhaul its personnel
system; (4) it should unite its direct hires and contractors into a more
solid work force; (5) it should establish an "innovation capital fund;"
(6) program management should be reengineered; and (7) AID should
consolidate or close its marginal missions (National Performance Review,
(
September, 1993).
As AID became the laboratory for reinventing government that
Atwood had promised it would be, the administration began working on a
bill to replace the 1961 FAA in its entirety. On February 3, 1994 the
Clinton administration introduced the Peace, Prosperity and Democracy
Act to replace the superannuated law (Washington Times, Feb. 4, 1994).
The administration let it be known that the goals laid out in the bill
were "not necessarily what African leaders want. They imply political
development" (Washington Post, Sept. 4, 1994).
On the eve of the 1994 election, Secretary of State Warren
Christopher submitted a plan to fold AID into the State Department as a
cost minimizing measure. The proposal was quickly disavowed by the
administration, and Christopher was sent to go^on record withdrawing it
(Congressional Record, July 31, 1995). The proposal may have been a
power grab by a segment of the State Department establishment that
wished to capture AID'S authority and budget.
Mwinyi and a New Type of Patronage Politics
Under IMF-led structural adjustment, the governing ideology of
self reliance and equity gave way to self interest and enterprise. The
key changed back to gap-filling, to providing the necessary inputs to
stimulate key economic sectors to move the economy to the take off
stage. Import substitution industrialization strategies were replaced
I

164
by plans for export-led growth. Unfortunately the reforms also provided
for import liberalization. Tanzanian industries were soon swamped by a
flood of cheaper, better quality foreign imports (Mukandala,
forthcoming). As these changes occurred, the nature of patronage
changed. Tanzania's political leadership lost the power to award
rationed import licenses and foreign exchange, and gained the power to
grant import tax exemptions. Import taxes were a key form of revenue on
which the whole structural adjustment program hinged.
The minister of the treasury, Kigoma Malima, was given the
authority to grant tax exemptions. A large nuihber of these began going
to Mwinyi's relatives and supporters. It was soon no secret that tax
exemptions were being granted for political reasons. As knowledge of
the scam filtered out, Mwinyi acquired a nickname on the streets, Ruksa,
meaning "approval" in Swahili. The implication of the sobriquet was
that all tax-evading exemptions bore the president's seal of approval.
As the Tanzanian weekly Business Times reported in its November 25-
December 1, 1994 issue, no government official "could have signed a tax
exemption certificate that would be honoured by customs officials
without the prior approval of the Minister."
The donors were bitterly disappointed, and for some months were
uncertain what to do. To everyone's surprise the Nordic countries,
including Sweden, took the lead. They had been the last to convert to
I
the new paradigm. Their crucial (and continuing) balance of payment
support had made them the longest and strongest supporters of Ujamaa,
and now since its demise, it was they who had taken the key role in
offsetting the worst social effects of the transition to a free market
economy. But now it was Norway who took the lead in declaring it could
not see why its taxpayers should be asked to fill the void left by
Tanzania's politically-connected tax cheats, and suspended balance of
payment support. The other Nordic countries fell in line. The World

165
I
Bank joined in by canceling the Consultative Group meeting to consider
Tanzania's portfolio scheduled for early December.
Mwinyi was forced to hand. He convened an unprecedented audience
with the ten biggest aid organizations and, as reported in a Tanzanian
newspaper under the headline "Mwinyi pleads to donors," requested them
"to continue disbursing approved funds" while his government launched an
investigation (Daily News, Nov. 19, 1994). AID, which had been the
first bilateral agency to move against Ujamaa, was noticeably tardy in
moving to stop corruption under the new order it had helped to install.
The Move to Abolish AID
The 1994 elections brought the first Republican majority to both
houses of Congress since 1948 and gave the chair of the Senate Foreign
Relations Committee to Jesse Helms, the long time opponent of foreign
aid. Senator Helms took up the call to abolish AID with a vengeance.
His office began to issue press releases referring to AID as the "enemy"
and to AID material as "captured enemy documents," denigrating the
agency in such hostile language it felt compelled officially to protest
(Washington Post, Aug. 1, 1995). Helms seized upon Christopher's
rescinded proposal, revised it, and introduced it as S. 908 under the
disingenuous name of The Foreign Relations Revitalization Act. The bill
would abolish AID and turn its functions and budget over to the State
Department (Congressional Record, July 31, 1995). The House passed a
counterpart to the Helms bill, H.R. 1561, in the summer of 1995.
President Clinton promised to veto it. This rallied Democratic Senators
and key moderate Republicans (such as foreign affairs specialist Richard
Lugar, who saw it as too radical), and the Helms bill was kept from
coming to a vote.
Undaunted, in late summer Helms attached a rider to the foreign
aid appropriation bill. The amendment would allow the President to keep

166
one of the three agencies that Helms was intent on abolishing, but would
I
oblige him to void the other two. The other two agencies threatened by
Helms were the United States Information Service, and the Arms Control
and Disarmament Committee. The bill passed Congress in the spring of
1996 and was vetoed by President Clinton. Meanwhile Congress eliminated
the DFA and cut aid to Africa by 20 percent.
In the view of one official, the Clinton reforms had the
consequence of shifting "the center of power" not downward toward the
missions, but upward into the office of the assistant administrator for
management. The termination of the policy in place since the Charles
River Group recommendations were adopted of using projects as the
primary vehicle for implementing AID programs led, in the view of a
contractor, to a great deal of confusion at the mission level about what
a "results package" was, and how the goal of sustainability was to be
reconciled with the demand for immediate impact.
Under the Clinton administration, a $16.2 million health project
was launched in 1993, and a year later a $16.0 million rural
telecommunications project and a $400,000 project to privatize real
estate development in 1994. These were the last big projects approved
for Tanzania before the 1995 budget war began.
The administration began sending signals that although its defense
of AID was firm, it recognized the possibility that AID'S enemies in
Congress might succeed. After an address delivered at Harvard
(appropriately at the Kennedy School of Government), Secretary
Christopher responded to a question about AID. He lamented the attitude
of AID'S enemies in Congress. "We get so much value for relatively
modest programs," he said, and cited as an example the value of one
year's trade with South Korea which amounted to more than all the aid
ever given to the country. He declared, "We can't lead on the cheap"
(C-Span, Jan. 18, 1996). A former AID official offered the same

167
opinion. He found "the withering process is very well advanced" and
predicted that AID would in fact be abolished, but that its abolition
would be only temporary. "We'll have to go through the process of
ending foreign aid to discover that we can't afford to."
U.S. Foreign Aid to Tanzania under Eight American Presidents
Total new spending in Tanzania under the Clinton administration in
1993 and 1994 was $32.6 million, an average $16 million per year, less
than all administrations except Ford and Johnson, as shown in Table 3,
below. Under Clinton's reinvention of AID, State Department influence
over foreign aid policy was severely reduced. Embassies were not given
a role in determining missions' levels of aid. By February 1995 AID had
closed 21 of a target 25 missions. An official involved in the decision
of which missions to close reported to me, "State was not brought in
till very late, otherwise they never would have let us close any,
because they see a mission closing as reducing^their leverage in a
country." Nine of the closures were in Africa. In light of how things
had seemed as late as 1986, it was somewhat surprising that Tanzania was
not among them.
Table 3. Average annual new spending by administration
Administration
$millions
Nixon
32.7
Bush
23.8
Carter
20.7
Kennedy
18.0
Reagan
17.9
Clinton
16.3
Ford
11.9
Johnson
7.7
During the final period of this study, conflict within foreign policy
circles dissipated. Reagan structured his administration quite
differently from Carter, who had favored multiple advocacy decision
making and peopled his cabinet with persons of different ideological

168
perspectives and let decisions evolve through open and free debate
(Moens 1990). In contrast, the Reagan administration had something of
an ideological litmus test; there was little or no dissenting viewpoint
heard in high council. Policy had to be ideologically correct. With
dissenting views officially discouraged after 1980, front room liberal
policy makers were obliged to close ranks with*back room conservatives
behind the IMF-led structural adjustment program.
Conflict also diminished within AID. Several informants reported
to me that the Reagan administration's decision to reach around
developing states and reformulate aid programs to stimulate the private
sector was greeted with positive relief, even by liberals, because there
was by now a general weariness with the endemic corruption and patronage
of African authoritarian regimes. Discouraged by two decades of failed
programs, even liberal AID officials, the last defenders of the "Big
Lie" in Tanzania, were no longer moved by African appeals to national
sovereignty, and they embraced the new paradigm with something bordering
on glee.
Conflict between the U.S. and Tanzania, which had been reduced
I
under Carter, sharpened in the first years of Reagan's first term, then
ended when Sweden switched sides in the struggle with the IMF and
Nyerere decided not to seek a sixth term. When the Mwinyi government
turned away from state socialism, the Reagan administration moved
quickly to reward it with substantial amounts of aid.
Conflict between AID and Congress was fairly low during the 1980s.
Compelled by the public outcry over the Ethiopian famine to do something
to prevent disasters of that magnitude from happening again, Congress
passed the DFA in 1987. The fall of the Berlin Wall two years later was
a grim portent for AID. The slow collapse of the Soviet bloc removed
its key raison d'etre. The issue of abolishing AID came onto the agenda
during the 1992 presidential elections. It became a hot topic after the
I

169
1994 elections, which brought a Republican majority to both houses of
Congress.
During the previous half decade or so, AID had slowly been
shifting its emphasis away from agricultural production strategies. As
a consequence, it lost the key support of the land grant universities.
However, as it moved into the new issue areas of governance and
democracy, it picked up the support of a new set of previously critical
NGOs such as Bread for the World, who had long(been concerned with
issues of justice for ordinary people. The key question AID faces as it
approaches the 1996 elections is whether this coterie of NGOs will prove
to be as politically powerful in defending the agency from its enemies
as the American land grant universities.
I

CHAPTER 7
THEORIES OF CHOICE AND THEORIES OF CULTURE
In this chapter I will present two rival1 theories of individual
behavior, one based on choice and the other on culture. From these
theories I will derive two rival hypotheses about how AID workers behave
that I will test in Chapter Nine.
Choice Theories
The predominant view of politics in the 1950s and early 1960s was
the Parsonian sociological model and its derivatives, political culture
and political systems. These theories shared a view of human society
which assumed individuals were governed by encultured norms and values.
Choice theories were introduced in political science in the 1970s as
part of a general movement away from the sociological perspective and
the inductive and intuitive methods that inferred much from few
I
observations (Rogowski 1978) . Central to choice models is the concept
of constrained choice (Caporaso and Levine 1992) which relaxes the
assumptions of perfect information and costless exchange in the
classical models.
In a seminal work, Herbert Simon (1947) proceeded from the
empirical observation that people are limited in knowledge and time.
They cannot know every fact, and they are under pressure to produce
results in a timely fashion. Their rationality is thus "bounded" by
limits of knowledge and time.1 Simon combined the verbs "satisfy" with
"suffice" to produce the evocative term "satisficing" to describe the
A chief executive officer for a bank valued at four billion
dollars described for me what decision making under pressures of time
and uncertain information in decisions involving the movement of
I
170

171
I
constrained decision making that goes on under these circumstances.
Charles Lindblom (1959) used the equally artful phrase "muddling
through" to describe normal decision making. Other early contributors
include Gordon Tullock (1965), Anthony Downs (1967) and William Niskanen
(1971). Within the discipline of political science, the Africanist
Robert Bates was among the first to join this movement. He discussed
his conversion in a retrospective book chapter in which he revealed that
having received through his graduate education in the early 1960s the
prevailing view that the behavior of Africans is largely due to their
culture, he found the data did not support the conventional wisdom, and
concluded, "Behavior that has been interpreted to be the result of
tradition, passed on by socialization and learning, can instead be
I
interpreted to be the result of choice, albeit choice made under
constraints" (Bates 1992: 34).
The Principal-Agent Model
In choice theories, the individual is understood to be in a
constant process of deciding among alternative courses of action with
the goal of achieving the highest possible level of subjective
satisfaction. Rational choice means maximizing utility (Caporaso and
Levine 1992: 79-80). It speaks to effort, not to outcome. That a
distraught mother driving to the hospital to be at the side of her
injured child might make a wrong turn and take a route other than the
shortest one possible does not mean she is being irrational (Rogowski
1978).
One of the most influential of the choice models of organizational
behavior is the principal-agent model. One of the first scholars to
millions of dollars in matters of hours in the high stakes world of
international finance often boils down to. "First I have my finance
department run the numbers under different scenarios. Then I go with my
gut feeling."

172
apply it to politics, Terry Moe (1984), traces the origins of the core
theory to Ronald Coase (1937), who recognized ^hat the real world is not
characterized by costless information, perfect competition, or
frictionless exchange. Coase introduced the concept of transaction
costs, generally defined as the costs of seeking partners with whom to
exchange, negotiating agreements with them, and then enforcing the
resulting contracts. The initial applications of the theory were in the
insurance and credit markets (Stiglitz 1988).
Michael Spence and Richard Zeckhauser (1971) used the emerging
model in their investigation of the effects of incomplete information
and risk sharing under conditions of high uncertainty in the insurance
industry. Ross (1973) is credited with first use of the term
"principal-agent problem" (Stiglitz 1988). Oliver Williamson (1975)
argued that environmental uncertainty and bounded rationality combine to
limit the worth of long term contracting because of the impossibility of
accounting for all future contingencies. Michael Jensen (1983) applied
the model to accounting.
In their use of the model in studying Congressional politics, D.
Roderick Kiewet and Mathew McCubbins state, "an agency relationship is
established when an agent is delegated, implicitly or explicitly, the
authority to take action on behalf of another, that is, the principal"
(1994: endnote pp. 239-240). The relationship between the principal and
agent must be characterized by a lack of trust (Garimella 1993) or the
model does not work. At the base of the problem of trust is the issue
of incentives. In the model, "the agent seeks to maximize his or her
return subject to the constraints and incentives offered by the
principal. The principal, conversely, seeks to structure the
relationship with the agent so that the outcomes produced through the
agent's efforts are the best the principal can achieve, given the choice

173
to delegate in the first place. There is then a natural conflict of
interest between the two" (Kiewet and McCubbins 1991: 24).
In discussing American federalism, Moe (1984: 765-766) has said,
"The whole of politics is. . . structured by a^chain of principal-agent
relationships, from citizen to politician to bureaucratic superior to
bureaucratic subordinate and on down the hierarchy of government to the
lowest-level bureaucrats who actually deliver services directly to
citizens." Each link in the chain, that is, each individual, is a
principal when addressing a subordinate and an agent when addressing a
superior. Jean Tiróle (1986: 181) has described large organizations as
"networks of overlapping or nested principal/agent relationships."
However described, whether as chains or as overlapping networks, the key
to the theory is the concept of information asymmetry (Eggertsson 1990)
and the assumption that individuals have incompletely internalized the
values of the organization, meaning, as self-interested rational actors,
they behave strategically or opportunistically to the detriment of the
greater good. I
The principal-agent model has three aspects: adverse selection,
moral hazard, and control.
Adverse selection
Oliver Williamson (1975) showed that the ability of principals to
recruit highly productive agents is significantly mitigated by the
problem of adverse selection, wherein the principal cannot truly know
the agent's qualifications when the agent is being hired. Also referred
to as the hidden characteristics problem (Garimella 1993), adverse
selection occurs in hiring situations. The job seeker knows his true
qualifications; the employer can only guess them. Employers rely on
proxy indicators such as resumes, letters of reference, and application
forms to assess the qualifications of applicants. Knowing this, job
I
seekers purposefully overvalue their qualifications in these documents.

174
The employer, on the other hand, knows the true value of the job.
Job seekers can only guess. They rely on the compensation package
offered as a proxy indicator of the value of the job to the
organization. Employers purposefully undervalue the proxy indicator,
that is, they set a low salary offer.
However, information asymmetry disadvantages the employer. Job
seekers and persons soliciting a promotion within an organization will
accept only compensation offers that are commensurate with their
inflated qualifications. This is a restatement of the Peter Principle
(Hull and Peter 1969) that people rise in an organization to the level
of their incompetence. The implication of the theory is that everyone
who accepts any new job will, at least initially, be underqualified and
overpaid.
Moral hazard
The problem of moral hazard takes over where the problem of
adverse selection leaves off. Moral hazard occurs after the moment of
hiring, when the new employee is on the job. Also called the
unobservability of effort problem (Garimella 1993), it describes the
fact that the employee knows whether or not he(is working at full
productivity, but the employer does not. She must rely on imperfect
indicators such as efficiency reports and measures of output to make an
estimate of the employee's productivity. Information asymmetry works to
the advantage of the employee.
According to theory, moral hazard may be as benign as simple goal
displacement, wherein an employee decides "to neglect various aspects of
his or her assignments and concentrate on performing well in the
measured dimensions—for example by coming to work on time, writing good
reports, or filling a weight or volume quota with little regard for
product quality" (Eggertsson 1990: 45). Employees might "substitute
I

175
leisure for productive effort" (Moe 1984: 775) and spend a lot of time
shirking their duties and goofing off.
Other types of moral hazard are more serious. Employees can cheat
and steal. Examples range in gravity from carpenters going home from
the job site with their tool pouches full of company nails, to sales
personnel who entertain themselves and their friends on company expense
accounts, to accountants who cook the books and embezzle funds.
In the principal-agent chains (or networks) which characterize
political organizations, there are multiple principal-agent
relationships. There is the possibility in this circumstance of double
moral hazard problems (Stiglitz 1988), wherein people throughout the
organization are engaged in morally hazardous behavior.
The relevance of the principal-agent model of bureaucratic
behavior to AID, given the charges of its critics and the historical
evidence that AID is a dysfunctional organization effectively out of
control, is quite clear.
Control
The third aspect of the principal-agent problem is its flip side.
Cyert and March (1963) introduced the idea that superiors try to control
and influence their inferiors by distributing the resources from
"organizational slack" as incentives. Organizational slack in a
business firm is simply residual profits. In a bureaucracy, it is the
difference between the budget and the true costs of production.
Organizational slack represents "a cushion of 'inefficiency' that
actually performs crucial positive functions in maintaining policy
coalitions and facilitating smooth organizational adaptation to
environmental change." Slack represents "resources available for the
leader's personal consumption or for 'payoffs' (perquisites, leisure,
new equipment) to allies for their policy support or subordinates for
their compliance" (Moe 1984: 748).

I
176
Principals can expend resources to counteract their informational
disadvantage and reduce the evil effects of moral hazard. There are
essentially two approaches they can use. They can distribute slack
resources to employees who spy for them, or they can expend resources on
monitoring systems. As always, information asymmetry works against the
principal. The problem is essentially one in which "the agent possesses
or acquires information that is either unavailable to the principal or
prohibitively costly to acquire. The agent has incentives to use this
information strategically or simply to keep it hidden—a situation
referred to variously as the problem of truthful revelation or incentive
incompatibility" (Kiewet and McCubbins 1991: 2^).
Faced by this motivation among her agents, neither method of
monitoring is satisfactory to the principal. Her spies are inevitably
found out, or prove to be untrustworthy, and in either case provide her
with unreliable information. Agents figure out how to defeat her
monitoring systems, for example by bombarding her with reports laden
with inconsequential information, or by promptness and displays of
enthusiasm for the job, or by dressing well and being neatly groomed, or
by being obsequious and deferential toward her. These types of behavior
are well known in work forces: looking busy, apple-polishing, brown¬
nosing, sand-bagging, feathering one's nest, and sucking up to the boss.
The implication of the theory is that the power of the principal to
control her work force is inferior to the ability of her agents to goof
off and steal.
The principal-agent model makes two corollary assumptions in
regards to adverse selection that are not well brought out in the
literature. The closest I have found is by Kiewet and McCubbins (1991:
endnote p. 240). They state the problem "is called adverse selection
because the principal, in making a wage offer, receives applications
only from agents whose opportunity costs are less than or equal to the

177
I
wage rate offered. The principal would prefer to select from agents
with opportunity costs greater than the wage offered or, failing that,
to at least choose randomly from the distribution of potential agents."
The following is an explicit statement of the two implicit
assumptions in the literature on the adverse selection problem.
A Modest Addition to Theory
Kiewet and McCubbins' rare, mention of the fact that principals
have preferences about which type of job market to face implies but does
not flesh out two conditions under which selection is adversely made:
when there are few job applicants, or when there are many competing
recruiters in the job market. The inverse is also true; there is no
adverse selection when there is oligopsony or iiihen there are few jobs
and many job seekers.
When selection is adverse
In order to be at a disadvantage in hiring, an employer must
either face an oligopoly, or exist in a competitive job market.
Employers face an oligopoly when there are few sellers of labor, for
example when labor markets are dominated by unions or a political party
with the power to limit the number of candidates employers may choose
from. In this case, adverse selection is high.
If employers do not face an oligopoly, then they must be in a
competitive job market; job seekers—theorized to accept only salary
offers that are commensurate with their self-inflated indicators of
qualifications—must have the power to turn down a job that is not
I
commensurate with or greater than their opportunity costs, or there is
no adverse selection problem. When the market is competitive, the
problem of adverse selection is lower than in an oligopoly.

178
When selection is advantageous (
Employers have an advantageous position when they are in an
oligopsony, or when the job market is depressed. In an oligopsony there
are few buyers of labor. The few employers in the market collude to
hold down wages; job seekers have to accept the going rate. In the
second case, there may be many buyers of labor, but if the number of
jobs they are offering is greatly outnumbered by the number of job
seekers, then job seekers end up lowering their sights in competition
with one another; in a depressed job market job seekers are obliged to
tell the truth about their qualifications, and must take what they can
get.
When employers are able to collude, or when they can pick and
choose among large numbers of equally qualified applicants, there is no
adverse selection problem. The centrality of the type of job market to
adverse selection is clear.
When there is no moral hazard
Second, the interests of the individual employee, once he is
hired, are assumed to conflict with the goals of the organization.
Employees are assumed to be prone to engage in various forms of
corruption whenever they believe they can get away with it. If they do
not, if for some reason the employees of an organization are self-
disciplining and never steal, lie, shirk or cheat, there is no moral
hazard problem.
The First Hypothesis
The principal-agent model captures through the top-down principal
I
chain the effect on the lowest-level employee of high-level political
influences. Politics penetrates the agency at the top and works its way
down through the chain of command. The model captures through the

179
bottom-up agent chain the influences on the highest-level authorities of
the task environment, as reports of outcomes work their way up through
the chain of command (Hedge, Menzel, and Williams, 1987). The
principal-agent model can explain why, through a variety of means and
(
for a variety of reasons, agents often do other than what they are
supposed to be doing.
The main hypothesis reduces to three questions. (1) Is the job
market in international development either an oligopoly or relatively
competitive? If not, there is no adverse selection problem. (2) Does
the neoclassical homo economicus model of the atomistic, self-seeking,
boundedly rational individual accurately explain the motivation of a
relief and development worker? If not, there is no problem with moral
hazard. (3) Do AID'S monitoring systems successfully control its work
force? If not, why not? If so, are the monitoring systems necessary?
As an economic model of organizational behavior, principal-agent
theory is predicated on the main assumption of microeconomics: all
individuals are held to be self-interested, rational actors who seek to
maximize their material well-being. Economic methods are notoriously
clumsy tools for dealing with any behavior other than material self-
interest. To evaluate the willingness of a soldier to risk his life in
combat, for example, the best tool economics has is indifference curve
analysis. This requires the soldier to compare one source of utility to
another. He must be able to specify whether a given combination of A
and B yields more, less, or the same amount of utility as some other
combination. About to go into battle, facing the prospect of dying for
his country, can the soldier meaningfully compare making the supreme
sacrifice with some other form of self-denial? I think not. Economic
methods are inadequate to analyze pure selflessness; their use in this
instance verges on sophistry.
I

180
A Rival Hypothesis
If the spirit of altruism is high in AID, the principal-agent
model will prove inadequate for explaining its behavior in Tanzania.
Perhaps the job market in international development is characterized by
colluding employers or by fewness of jobs, and there is no adverse
selection. Perhaps the chief motivation of people for joining the
agency is something other than base self-interest; perhaps AID workers
hold themselves to strict standards, and there is no moral hazard
problem.
Culture, not calculus
Rational choice was introduced in political science in the 1970s
as a simultaneous change from the sociological view of human behavior as
governed by encultured norms, and movement away from the inductive and
intuitive methods that inferred much from few observations (Rogowski
1978).
By the mid-1980s, choice theories were being challenged by culture
I
theories. Culture theories agree with choice theories that the actions
of the individual are oriented, and that these orientations vary over
time. But where choice theories say individual orientations are
calculated outcomes, culture theories say they are the product of
socialization (Eckstein 1988). To describe social behavior as simply
the aggregate of all the choices of all the atomistic, self-interested
individuals in that society is woefully incomplete. Society is
organized by virtue of its institutions (Wildavsky 1987). These must be
based on established moral principles and cultural values and follow
rules that are widely accepted, or they are not institutions (Ostrom
1990). People do not adopt all of their preferences by cognitive
I

181
calculation of personal costs and benefits. Social organizations are
systems of judgment making, and as such lower the decision making costs
of each individual member. Many if not most of a person's preferences
are absorbed from the various groups she belongs to. Organizations are
not arenas in which the only thing people do is compete with each other
over scarce resources in zero-sum games. This is not to say that
individuals are slaves to prevailing opinion. It simply takes stock of
the fact that many if not most of people's orientations are derived from
their culture, not calculus. The implication is that the individual in
an organization will not engage in the morally hazardous behavior
expected by the principal-agent model if the organization has a strong
culture that socializes the individual into being a principled agent.
Culture Theories
By the mid-1980s, choice theories were being challenged by
something of a culture theory counterattack. In their newer expression,
culture theories agree with choice theories that the actions of the
individual are oriented, and that these orientations vary over time.
But where choice theories say individual orientations are calculated
outcomes, culture theories say they are the product of socialization and
of collective reaction to large structural changes in the prevailing
I
order (Eckstein 1988). To describe social behavior as simply the
aggregate of all the choices of all the atomistic, self-interested
individuals in that society is reductionist (March and Olsen 1983).
Society is organized by virtue of its institutions, and these shape the
behavior of the individual (Wildavsky 1987). Institutions must be based
on established moral principles and cultural values and follow rules
that are widely accepted, or people will exit from them (Hirschman
1970), and they will slowly cease to be (or fail to become) institutions
(Ostrom 1991).
(

182
I
People in any organized system, from a small manufacturing firm to
an entire nation, do not adopt all of their preferences by cognitive
calculation of personal costs and benefits. Social organizations are
systems of judgment making, and as such lower the decision making costs
of each individual member. Many if not most of a person's preferences
are absorbed from the various groups to which he belongs. Organizations
are not merely arenas in which the only thing people do is compete with
each other over scarce resources in zero-sum games. This is not to say
that individuals are slaves to prevailing opinion. It simply takes
stock of the fact that many if not most of people's orientations are
derived from their culture, not calculus. Thelimplication is that the
individual in an organization will not engage in the morally hazardous
behavior expected by the principal-agent model if the organization has a
strong culture that socializes the individual into being a self
disciplined, principled agent.
Types of Organizational Cultures
Corporate cultures can be of one of two types. The first are
organizations with cultures that simply evolve. There is little or no
attempt by upper management to create policies that shape each employee
into what used to be called "the company man." The organization takes
on its cultural attributes through evolutionary, not directed processes.
When cultures are allowed to develop as they will, in complex
I
organizations they may vary considerably across individual offices. We
can imagine a bright and lively accounting department on the second
floor, with gaily colored seasonal decorations on the walls, donuts in
the coffee room, and regular celebrations of birthdays, while down on
the first floor there may be a dour and glum shipping department, where
the walls are bare, the coffee bitter, and people keep their heads down
and rarely speak to one another. If there is no central guidance, the

183
I
type of culture that develops in an organization will depend on its cast
of characters. Peter Blau (1955) discovered that the behavior of the
people in two federal bureaucracies he studied was influenced by
informal norms and everyday social relationships. The cultures he
observed evolved without direction.
The second type of organizational culture is purposefully shaped
by top management through consciously drawn policies. David M. Kreps
(1992) has shown the economic value to business firms of devising and
adhering to principles. Principles establish decision rules that lower
operating costs. If a firm has consistent and well understood rules,
the behavior of its employees will be much more predictable, and the
costs of operating the business much lower. Adherence to these
principles will over time give a firm a good reputation, which will
lower transaction costs. As a business develops a solid reputation, it
spends less seeking out customers. Its good reputation starts to bring
business in. A principled corporate culture thus "gives hierarchical
inferiors an idea ex ante how the organization will react to
circumstances as they arise; in a strong sense, it gives identity to the
organization [and] is especially useful in coordinating the
organization's hierarchical authority [under] the general decision rule
it applies."
The Strong Culture Model of Principled Agents
The following are four cases of federal agencies which have found
success in controlling far-flung bureaucrats. Each has overcome the
adverse selection and moral hazard problems. ¿ach has used one or both
of two basic techniques. (1) They recruited people who personally
identified with the work the agency does, and/or (2) they had systems of
socialization and standard operating procedures which weeded out misfits
and socialized new hires so that they internalized organizational

184
values. I will briefly review each of the four studies here, and return
to them in greater detail when I discuss my findings in Chapter 9.
Herbert Kaufmann's (1960) study of the u!s. Forest Service shows
that a hierarchically complex organization that spans great geographic
distances can "conquer" what he calls "centrifugal tendencies." Kaufman
found this was done by careful recruiting and by thoughtful monitoring
systems. The Forest Service in the 1950s projected an unvarnished,
straightforward image of itself in order to, in the language of the era,
select men who fit. This approach was effective among young men of a
generation that had served in the military. The work of a forest ranger
was described to prospective recruits as rewarding, but hard. Weak men
need not apply. The Forest Service was not for seekers after the easy
life. The Service wanted rugged men who enjoyed the outdoors and could
handle the physical requirements and the psychological pressures of
living in the most remote (and beautiful) areas of the land.
The result was recruits who came to the Service eager to conform
and ready to follow orders. Once they were in, the Forest Service was
careful to preserve that inclination to obey. This was done through
socialization and through standard operating procedures. The routine
the Rangers performed—the reports they filled out, the preformed
decisions they made, and the fact that they were frequently relocated—
all worked to encourage the habit of obeying policy. Career incentives
were structured to create a low level of anxiety and hopefulness that
made Rangers, with their eyes on promotion, police themselves. The
Service manipulated shame and guilt by equating deviance to "letting
one's friends down" so that the values of the Service were internalized
by the Rangers. The strong culture overrode the personnel preferences
of any individual. (
James Q. Wilson (1989: 97-98, 107, 109-110) has written about the
culture of the FBI. Its predecessor, the Bureau of Investigation at the

185
Justice Department, acquired a sorry reputation after its involvement in
the Red Scare of the 1920s, its participation in organizing mass
deportations, and the fact that it was caught spying on the political
enemies of President Harding. In reorganizing the agency, J. Edgar
Hoover consciously created a "legend of the spit-and-polish FBI agent,
defined by detailed orders about dress, grooming, and conduct. The
slightest hint of corruption or misuse of authority was grounds for
instant punishment." The sense of mission inside the FBI became very
strong; for decades it was strong enough to lead the bureau to "resist
tasks that seemed to threaten the core culture." No matter where they
were stationed, "FBI agents behaved as if J. Edgar Hoover was looking
over their shoulders in part because the agents believed that was the
right way to behave."
Wallace Earl Walker (1989), in his study of the General Accounting
Office (GAO), discovered that it has created a strong cultural ethos
very similar in form (if not in substance) to the Forest Service and the
FBI. Like them, the GAO's top administrators inculcated a particular
culture through careful recruitment of the right type of personnel—
neat, alert, college graduates in accounting—by stressing
professionalism and the rituals and ideology of oversight to produce in
each auditor specific values and attitudes reflective of five agency
principles: "responsiveness to Congress, cognizance of agency operations
through site auditing, professionalization of the audit ranks, precision
in reporting, and evaluation of agency performance" (p. 54).
Finally, John Dilulio (1994: 314-315) has studied the federal
Bureau of Prisons (BOP). Unlike the other three scholars he used the
principal-agent model and found it does not fit the BOP, which he
describes as a strong-culture agency staffed by principled agents. He
found that the BOP socializes its new recruits through "organizational
processes that transcend principle-agent probléms by nurturing a culture

186
of principled agents. ..." This is done by "establishing social and
moral reward systems that make it possible for government agencies to
tap the creativity, sense of duty, and public-spiritedness of their
workers. . . [an experience that] is trite but true."
The Rival Hypothesis Restated
I
An area neglected in the principal-agent literature prior to
Dilulio is whether or not collegiality and a sense of mission or team
spirit or a strong corporate culture can overcome the principal-agent
problem. In the case of AID, the problem of the enormous geographic
distances which the agency spans is added to the known problem of
hierarchical distance in complex organizations. Nevertheless the
principal-agent model may prove inadequate for explaining the behavior
of its individual employees. This will be the case if the job market in
international development is characterized by colluding employers or by
fewness of jobs, and there is no adverse selection. Perhaps the chief
motivation of development workers is something other than base self-
interest; perhaps the agency succeeds in creating a strong culture in
which
moral
AID workers hold themselves to strict standards, and there is no
hazard problem. It is to these issues that I now turn.
(

CHAPTER 8
THE CASE STUDY METHOD
The Problem of Conceptualizing the Problem
As my review of its history shows, AID is an extremely complex
organization. Its headquarters in Washington áre located in three
separate sites, the New State and Old State Department buildings in
Foggy Bottom, and offices across the river in Roslyn, Virginia. The
majority of its offices are located on seven floors in Old State, a
rabbit warren of cramped, partitioned offices and winding halls with
different colored stripes on the walls to help the confused visitor.
The advantages the Washington personnel enjoy are not in the form of a
pleasant work environment; they come after hours in a cosmopolitan city
with lots to do.
It is the reverse in Dar es Salaam. The offices are more pleasant
places to work than the cramped spaces in Washington, with dark wood
paneling and central air conditioning, and for the senior staff, views
of the city, but the city is considerably less pleasant than Washington.
I
Dar es Salaam is a hot and humid place much of the year, built around a
harbor on the Indian Ocean. When I was there in late 1994 the
inhabitants were enduring regular electrical outages. Power was being
rationed by rolling blackouts that, mercifully, followed a regular
schedule. Merchants who operated businesses that required electricity
(such as photocopy shops), were obliged to purchase generators if they
wanted to stay open when their section of the city was blacked out. A
stroll through the heart of Dar es Salaam on a day when the power was
out required a tourist to step around loud, stinking portable generators
every twenty paces or so on the sidewalks. The roar and fumes of the
187
I

188
two cycle engines added considerably to the characteristic din and
pollution of the African urban ambiance: swarms of people choking the
sidewalks, blind, leprous, mad, or crippled beggars sitting patiently on
street corners with their hands out, vehicles bought secondhand in Japan
and brought in by the shipload—cars, trucks, and jam-packed minibuses,
I
many with worn engines spewing noxious smoke—clogging the streets at
rush hour. After twenty years of state socialism followed by eight
years of structural adjustment, Dar es Salaam was not a pretty sight.
The AID mission is located in Tanzania's national airline
building. Although the airline was barely functioning in 1994, its
headquarters was well maintained by local standards because it was
occupied by a number of reliable tenants, including the Dutch embassy.
AID rents an entire floor. As a visitor comes off the elevator, he is
met by Tanzanian security guards who ask him to sign a register naming
the person he is here to see, while they search his briefcase and then
frisk him with a handheld metal detector. If the guards suspect the
visitor has no business being there, they may phone inside to ask the
person named on the register whether the visitor has come for legitimate
reasons. Once cleared, the visitor then passes through an airport-style
metal detector and, if no alarm goes off, a secretary ensconced behind
thick bulletproof glass buzzes a heavy bombproof security door and the
visitor is admitted.
Before AID'S reengineering began in mid-1995, its geographic
dispersion was compounded by a crazy quilt structure that divided the
agency partly into functional units and partly into geographic units.
In March of 1995, AID'S computerized organizational chart could not be
displayed on a single screen. It is difficult to conceptualize, much
less describe, all the parts of AID as a unitary whole. It is a multi¬
legged creature spraddling the globe, drawing in resources in Washington
and carrying out functions in poor countries scattered around the world.
I

189
Even just considering a single mission, the agency's Janus-faced posture
with its input functions widely separated from its output functions make
it a difficult agency to analyze. A researcher soon finds that any unit
of analysis he considers is either embedded in at least one other unit
of analysis, or has at least one other unit of analysis embedded in it.
The distances between units, both geographic and functional, can be
enormous. A question that is relevant to a program officer in a mission
in Africa might make no sense to a Congressional liaison officer in
Washington.
I was surprised to discover that those officials of long service
who possessed a rare detailed knowledge of the organization could not
answer what I thought was a fairly straightforward question, "Do you
think AID is centralized or decentralized?" They wanted to give answers
that varied according to level within AID.
The program officer and the legislative liaison officer are
employed by the same organization, but they literally live in different
worlds, and do jobs about which the other is largely ignorant. It is a
daunting task to devise a single conceptual framework that will account
for the behavior of both. AID is not an agency where the left hand does
not know what the right hand is doing. It has^many more hands than two.
Challenges to Case Studies
All social science research projects which attempt to analyze
whole systems face serious challenges. The first is the problem of data
and theory. Charles Ragin (1987) has suggested that data categories are
distinct from theoretical categories, yet, nevertheless researchers
routinely use data from one level of analysis to talk about another.
Ragin cites the well-established work of Barrington Moore and Immanuel
Wallerstein as examples. Moore in his work on revolutions used data
categories of countries to discuss his theoretical category of class.

190
Wallerstein likewise used data categories of nation-states to discuss
his theoretical category of the world system. These two eminent
scholars mixed apples and oranges and got away with it. Why? Because
they were dealing with urgent questions.
These, however, are the exemptions. Unfortunately, the difficulty
of relating data to theory has not led to advances in the comparative
method, but rather to a schism, an unfortunate division of labor between
theorists and methodologists (Sjoberg et al. 1991). At the extreme,
theorists pay scant attention to the collection or analysis of data;
I
facts just get in their way. Methodologists, on the other hand, busy
themselves with methods of describing and analyzing data that produce
magical fumes of numbers through which it is very difficult to see any
theory at all.
In this context, the development worker, with his practical
concern for knowing what to do, is not helped overmuch by theory, and
only marginally so by method. Theorists generally enter the discussion
of an issue long after a program has gone into effect, and generally are
of little help in making timely recommendations or devising strategies.
Their role is generally one of affirmation after the fact, or to provide
the coup de grace for outgoing ideas.
The chief contribution of the methodologists to international
development is the techniques for operationalising performance
indicators. Their contributions to theory and to the design of new
strategies are minimal. The reason for this, as Robert Chambers has
shown, is that they are wedded to the slow and dirty methods which
produce reliable findings that are, by the time they are delivered,
irrelevant as policy recommendations.
The second challenge to social science is the problem of macro and
micro, well known in economics. Should the individual or the business
firm be the unit of analysis, as in microeconomics? Or should it be the

191
I
whole system as in macroeconomics? There are tradeoffs in selecting
one. The micro-level approach must accept macro variables as a given.
The rate of inflation, for example, or the world price for a commodity,
are simply received; the consumer or the firm has no control over
either. The macro-level approach suffers from the opposite problem; now
the individual consumer and the firm are lost from view. Factors such
as changing consumer tastes and housing starts are received. When they
change they effect the entire economy.
Finally there is the problem of structure and agency. Should a
researcher assume, at the extreme, that structure dominates agency, and
focus on the huge economic forces and the political power structures
within them, and view the individual from a remote vantage point as an
indistinguishable part of the masses being manipulated by the elites?
Or should she, at the other extreme, operate from the assumption that it
is only life's losers whose actions are wholly shaped by the structures
they inhabit, the weak members of the herd who in all other species are
taken out by predators, that, if left to their own devices, all clever
individuals overcome constraints, that Brer Rabbit always outwits Brer
Fox?
Structuration and Nested Games
The perspective I will take here is quite similar to what I have
earlier called the organicist camp of development administration, the
perspective in which agencies are seen as interacting with their
environment. I shall argue that data and theory can be made to speak to
each other, that it is most meaningful to view macro and micro as
engaged in complex interactions, and that structure and agency influence
each other. I shall argue that each of these are false dichotomies; all
three are two sides of the same coin. I shall do this by referring to
two very challenging works of social theory.

192
Anthony Giddens and Structuration Theory (
In Anthony Giddens' (1979) first articulation of his compelling
theory of structuration, he drew heavily on French scholarship,
primarily linguists and anthropologists. He adopted the linguists'
distinction between language, which is socially constructed, and speech,
which is individual. He referred to the relationship between language
(codes) and speech (messages) as that of the difference between
signifier and signified, with the latter referring either to the
received mental image or to the referent.
The anthropological version of structuralism which Giddens drew
upon sees structures as models imposed or posited by the observer.
Structures consist of interconnected elements, involve transformations,
and make prediction possible. They are createcjJ in the human
unconscious. Giddens combines the two forms of structuralism to form an
analytical framework in which subjectivity is constituted in and through
language and reality is socially constructed. Thus the Cartesian cogito
is rejected. There is temporality in human agency, and power in social
practice.
To this mix of ingredients Giddens added Marx's view of the
relationship between structure and agency. Structures, or "social
items," are ephemeral, "'vanishing moments,' and individuals, or actors,
subjects of the process, involved in mutual relationships which they are
constantly reproducing and producing anew" (p. 53). The idea of
structure and action therefore "presuppose one another," that is, are
meaningless without the other. They are intended to resolve the conflict
between voluntarism (agency) and determinism (¿tructure) while
clarifying the distinction between structure and system and structure
and function. Giddens thus gives an account of agency, rooted in a
theory of the acting subject and placed in time and space, as a
continuation of action. His idea is that "an understanding of social

193
systems as situated in time-space can be effected by regarding structure
as non-temporal and non-spatial, as a virtual order of differences
produced and reproduced in social interaction ^s its medium and outcome"
(p. 3, emphasis in original).
Simply put, Giddens joins a philosophy of action to a theory of
institutions to create his structuration theory. Social activity in
time-space involves paradigms which invoke structure, "which is present
only in its instantiation" (p. 54). Structure is "virtual time-space."
Action, on the other hand, is agency, "a continuous flow of conduct" (p.
55). Because much of activity, such as walking, springs from the
unconscious mind, much activity escapes from the purposes of rational
action. This idea stands in stark contrast to hard core choice theory,
which holds that individuals are at all times constantly and consciously
relating ends to means.
Giddens rejects theories that depend on snapshots of reality and
argues that structure is not analogous to anatimy or to the girders of a
building. Furthermore, social structures do not exist outside of time.
They are "the structuring properties" which bind space and time in
social systems. "These properties can be understood as rules and
resources recurringly implicated in the reproduction of social systems"
(p. 64). Agency and structure are meaningless in isolation. Like the
African termite and the termite mound, the one cannot exist without the
other.
Giddens calls the end product structuration, a term borrowed from
the French which he later (1984: xvi) admitted was "inelegant" in the
English language. Structuration is informed by power relations, which
Giddens defined as regularized relations of autonomy and dependence. A
social system, as distinct from structure, is a structured totality.
(
Structures do not exist in time-space except in the moment of the

194
constitution of a social system, that is, at the birth of an
institution.
Institutions are practices deeply sedimented in time-space and
wide-spread among members of a community. There are three dimensions of
social practices, or institutions, each with three elements. The first
is interaction, consisting of communication, power and sanction. The
second is modality, consisting of interpretation, facility and norms.
The third is structure, consisting of significance, domination and
legitimization.
Giddens denies the distinction between data and theory, between
micro and macro, and between structure and agency. The rules and
resources which comprise structure are not aggregates of isolated
capabilities. Under structuration "rules and practice only exist in
conjunction with one another" (p. 65, emphasis in original).
Giddens distinguishes between structure (rules which have both
constitutive and regulative aspects), and resources (structures which
exist only as structuring properties) and system (relations between
actors or collectivities that are both enabling and constraining and
organized as regular social practices). Structuration then is the
conditions which govern the continuity, or the ongoing transformation of
structures and the continual reproduction of the system.
George Tsebelis and Nested Game Theory
George Tsebelis (1990), unlike Giddens, based his argument in
choice theory. He rejected alternative structural-functional, or
cultural, or psychosocial theories because they focus on structures and
functions or on cultural variables and because, in the rare cases when
they account for individuals, they consider them to be motivated by
cultural norms. Tsebelis argued that individual actors are never
involved in just one situation, or game, but rather deal with multiple
I

195
situations simultaneously. He believed it possible to explain
apparently irrational behavior in one setting by shifting analysis to a
different setting, level, or game. The observed irrationality of an
actor in one game can oftentimes be explained by her behavior in a
larger, subjectively more important game.
Tsebelis posited that there are two types of institutions, and in
his choice of labels displayed an ideological bias. There are
(
"efficient" institutions in which the rules result in positive sum games
of improving social welfare, and there are "redistributive" institutions
in which the rules result in zero sum games of taking from one group to
give to another. In Tsebelis' view, "Institutions are not considered
simply inherited constraints, but possible objects of human activity"
(p. 9). There are therefore two types of games: those in which the
rules remained fixed, and games of institutional design, games to change
the rules of the game.
In life, every individual plays simultaneously in multiple, nested
games, some more important than others. A partial list for a single
hypothetical individual might include the obvious game of career
advancement, as well as a game played within the PTA out of concern for
the education of her children, and a game played in church because of
religious conviction. Outcomes in the most important games take
priority, and individuals will make sacrifices (tactical retreats) in
the least important games if doing so improves their position in the
most important games. Thus, if our individual's religion is the most
important game in her life, she will turn down any career promotions if
they involve her in an activity which her religious convictions
proscribe, or use the PTA as a forum to attack or support changes in the
school curriculum based on her religious beliefs.
To use another example, consider the circumstances of an oil
shortage and an investor for whom environmental conservation is the
I

196
single most important value. The investor does not wish to invest his
money in any companies engaged in environmentally harmful activities.
When his broker calls with an extremely profitable offer to invest in an
offshore drilling company, the investor turns the offer down. The act
seems irrational unless the level of analysis is shifted to the
investor's most important game, living his life in an environmentally
conscious way.
People are constantly engaged in strategic behavior, and in the
games which are most important to them, locked in iterative, reciprocal
I
relationships with whomever else is playing. In those games which a
player believes are crucial to her welfare, for example, her career, she
will behave like someone in a poker game that never ends and play with
whomever else is sitting at the table. In her most important games
there will be no possibility of separation from other players, she must
continue to play. Because she has no desire to withdraw from the game,
she will play with infinite time horizons. When rational actors know
they cannot separate, and must engage with each other regularly for the
foreseeable future, cooperative behavior eventually evolves; a modus
vivendi is discovered and the prisoners' dilemma is converted into an
assurance game.
Nested Games of Structuration
(
I will proceed in examining AID and its mission in Tanzania by
conceptualizing the problem as one of nested, structuring games, or
relationships among embedded units of analysis. These relationships may
be antagonistic, in which case principal-agent problems will abound.
They may be cooperative; there may be a strong culture of principled
agents. In either case, the ongoing, multifarious iterative
relationships within AID and characteristic of all large organizations
serve to structure and restructure the organization on a continuous

197
/
basis. Considered together as a whole, AID'S corporate culture and its
political and task environments comprise three arenas incorporating many
games where AID'S allies and enemies vie with each other. This
conceptualization explains the fact that AID has throughout its
existence been constantly rebuilt, torn down, and rebuilt again. The
observable fact of AID'S continual restructuration over the last thirty-
five years can be explained as the consequence of the gamesmanship of
many different actors with many different propensities playing in many
different nested games.
The Case Study Method: Virtues and Limitations
Virtues of the Case Study Method
I
The case study lies in the no-man's-land between the natural
science model which in its extreme form is positivism, and the
historicist model which in its extreme form denies that social science
can establish any cross-cultural generalizations at all, that each
sociocultural order contains its own pattern of development (Sjoberg et
al. 1991: 28). Case studies have four virtues. (1) People are seen in
their settings, in my case, the AID workplace. The in depth
interviewing of case studies is superior to the brief telephone surveys
characteristic of quantitative studies. The latter strip away "the
flesh and bones of the everyday lifeworld" (Orum et al. 1991: 7) and
cannot account very well (if at all) for contextual factors. (2) Case
studies provide holistic analyses of complexes of action and meaning.
Thus, "studies of the occupants of individual roles enable the
investigator to discover how the definition of a role emerges out of
interactions between role-occupants and others; and studies of
organizations permit the researcher to discover social interaction
patterns that occur among employees" (p. 9). (3) Case studies have a
strong sense of time and history. They "uncover the historical

198
dimension of a societal phenomenon or setting"1(p. 12) which are very
important to understanding the attitudes of a given person, who is not
oblivious to what has happened before him, and in fact is likely to be
strongly guided by historical experience, that is, by institutional
memory. Finally, (4) case studies generate theory. The "hyopothetic-
deductive verification rhetoric" of positivism with its rigid concern
for "tentativeness" and "proof" does not encourage theory building (p.
14). It results in cautious, incremental contributions to existing
paradigms. It encourages the mentality of the bricklayer. It does not
allow for bold thinking, and certainly discourages- people with the
visionary sweep of the architect.
All social science research must face two problems: reliability
and validity. Single case studies do not fare well with reliability,
I
defined as "the ability to replicate the original study using the same
instrument and get the same results" (Orum et al. 1991: p. 17). The
case study depends on a few informants, not a large random sample, and
thus, if the same instrument were to be applied to a different small set
of informants, it would likely yield different results. The case study
researcher must admit this, and move on.
The case study is better than the experimental method or the
survey method at overcoming the problem of validity. "On the matter of
the validity of observations, however, the case study provides a clear
advantage over other methods of investigation." This is because good
case studies use "triangulation of sources" (p. 19). They are able to
prove the same point from a variety of sources.
(
Limitations of the Case Study Method
Robert Yin (1989: 21) has suggested the case study has three
problems: its lack of rigor, its meager basis for scientific
generalization, and the fact that it tends to produce massive and

199
unreadable documents. The case study researcher can handle the first by
being conscious of the danger of bias. He can handle the second by
understanding that case studies, like experimeAts, are generalizable
back to theoretical propositions, not to populations. Finally, he can
handle the third by trying to cut rather than add details, by being
brief rather than "thickly descriptive." Yin suggests that the case
study is most appropriate when a "'how' or 'why' question is being asked
about a contemporary set of events, over which the investigator has
little or no control" (p. 20).
Orum et al. (1991: 23, 29) argue that a case study is appropriate
when the researcher wishes to investigate a phenomenon within its
context, when the boundaries between the phenomenon and the context are
not clear, and when multiple sources of evidence are available. The
case of AID meets all of these conditions.
A good case study is not like an experiment. It cannot control
I
for context, thus it must account for context. It is therefore like a
history, except that the phenomenon is contemporary. A good case study
must have a question, a proposition, a unit of analysis, a logic for
linking the data to the proposition, and the criteria to interpret the
findings.
Replication Logic and Analytical Generalization
A case study is closer to the experimental research design than to
survey research in that the case study and experimental design refer
findings back to theory while survey research refers its findings back
to a population. Furthermore, the statistical generalization which
survey research uses is inappropriate in a case study because the
incidence of a phenomenon cannot be assessed wlpen N=l. The case study
is different from an experiment because the researcher cannot control
for context. The large number of extraneous variables, or externalities

200
that context brings into a research question, requires the case study
researcher either to increase the number of cases or to account for
context.
Yin (1989) has shown how the requirements of Orum et al. can be
met through reliance on replication logic and Analytical generalization.
The sampling logic of large quantitative studies such as pre-election
surveys of potential voters is inappropriate in a case study. A case
study must employ replication logic. This requires the case study
researcher to use multiple sources of evidence that "allow an external
observer. . . to follow the derivation of any evidence from initial
research questions to ultimate case study conclusions" (p. 102).
Likewise the case sudy researcher cannot use statistical methods of
analysis to generalize from her data. Rather she must use analytical
generalization, or forensic methods of argumentation in which data is
presented and interpreted in a manner akin to trial lawyers arguing from
evidence.
The Value of the Case Study (
Charles Lindblom (1991: 14) has written that there is a good
reason for social scientists to address questions "about which they can
offer no proof but can themselves only probe, and on which they accept,
in their search for illumination, a lower level of conclusiveness than
social scientists usually intend." Lindblom argues that statistical
generalizability should not be the sole criterion for judging the worth
or importance of a study. Inconclusiveness is acceptable when the
inquiry sheds new light on a phenomenon.
Data Collection
In collecting my data, I followed Yin's principle of replication
logic, not sampling logic. In the next chapte^ I will follow Yin's

201
principle of using analytical generalization, not statistical
generalization, to refer my data back to my theoretical propositions.
I gathered data from unclassified cable traffic, faxes and letters
in the record, official strategy statements, annual Congressional
Presentations, and various project and program design papers and impact
evaluations in Dar es Salaam and Washington from 1961-1994. I conducted
thirty interviews, fifteen in Africa and fifteen in the United States.
In Dar es Salaam and in Washington I was given free access to
unclassified records. In the interviews, all the respondents were
polite with me and some were very friendly. An indication of how nicely
I was received is the fact that the least cordial person (a woman)
afterward apologized "for beating up" on me while answering my
questions, a statement I found somewhat surprising since, though I had
felt harassed by her aggressive interjections and was nervous at her
display of impatience (halfway through the interview she rolled her
(
chair over to the other side of the room and began putting away files) I
had not felt beaten up on at all. Several respondents, especially in
the early stages of my investigation, were completely open. Their
answers were often quite free-wheeling, colorful, and even entertaining.
The longest interview was a marathon at a restaurant over breakfast and
lunch that lasted six hours. Several of the people I interviewed were
concerned that not everyone would give me complete information, anxious,
in the words of one, that I "get this information."
I took notes on preprinted forms containing the questions I hoped
to ask. I was sensitive to the potential concern of respondents that
they would get into trouble for talking to me, and was careful to tell
them they would not be identified by name, and did not record their
voices. The gain in (potentially) greater candor was offset by my lack
of shorthand skills. The concentration necessary to write down as best
I could word for word statements was extremely taxing. I limited myself

202
to two interviews per day, and at the end of each entered my notes on
the computer, embellishing each account with any remembered details not
noted during the interview. I later mailed a transcript to each
informant for review and correction of details. Of thirty interviewed,
four replied.
The Special Problem of Interviewing Elites
A problem I encountered was interviewing I people with advanced
degrees. The problem of interviewing highly educated people has been
known since the early 1970s. Harriet Zuckerman (1972) studied Nobel
laureates, and found the task particularly challenging. They resented
"being encased in the straightjacket of standardized questions" (p.
167). One laureate began the interview on a chair with rollers four
feet from her and ended it an additional ten feet away, much like my
most hostile informant. Zuckerman found an effective technique for
eliciting further details was to rephrase the laureates' comments in
extreme form (no doubt at some cost to her ego) thus making them
irritated that she did not understand what they said, but getting them
to elaborate (p. 174).
Trained in the social science methods I was turning on them, the
I
people I interviewed, like Zuckerman's Nobel laureates, tended to
dislike the formulaic questions which asked them to rate phenomena on
Likert scales. Few answered questions uncritically. Many pointed out
what they thought were bad questions, or suggested alternative wording.
All of them tried to perceive patterns in the questions, asking at times
"where are you going with this?" or "what are you getting at?"
Janet Johnson and Richard Joslyn (1991: 193-197) have discussed
ways to handle the challenges of interviewing highly educated or highly
knowledgeable people. They stress the importance of advance
preparation. Following their advice, in both Dar es Salaam and
I

203
Washington I read through the most recent documents in the archives in
order to eliminate basic questions of an informational variety in order
(1) to help me finalize my protocol of questions, (2) to familiarize
myself with AID'S specialized jargon and acronyms, (3) to enable me to
understand the significance of what was being said to me, and finally
(4) to impress upon the people I was interviewing that my interest in
the topic was genuine.
I made clear to each person I interviewed that his or her answers
would be held in strict confidence. Thus in quoting from the interviews
I have taken pains to conceal the person's identity so that, as one
official insisted, it is impossible for a knowledgeable reader to guess
the source's identity.
I was prepared for the problem of gatekeepers, and had to be
persistent to get access to certain people. One official had his
secretary break three separate appointments with me, and when by chance
I bumped into him and cornered him in a hall and asked him when it would
be convenient for him to see me, replied, "I don't want to do this at
all." He consented to an interview only after I agreed that it would
take no more than twenty minutes of his time.
Time was a critical factor. My graduate training had made me so
concerned about reliability that I went into the early interviews trying
to proceed through a too-long protocol of questions in plodding, robotic
style, being careful to ask questions in the same order and using the
same phraseology. Limitations on the time people could give me, and the
fact that they began twitching in their seats and looking at their
watches in the early interviews, made me decide to bag reliability and
concentrate on validity.
Even when a respondent granted me fairly large blocks of time, say
one hour, there would be frequent interruptions as the phone rang, or
secretaries came in with papers to sign. This tended to break up the

204
I
flow of the interviews. It also provided me with strategic moments to
reflect on what questions next to ask, in what order, and which
questions I could safely skip.
The instrument which I had carefully prepared before setting out
was abandoned in favor of a field-engineered outline that contained the
core questions I hoped to get from everyone. Constraints of time
prevented me from achieving even this more limited goal. I was unable
to ask every one of the more than sixty questions I had originally
prepared of every one of the thirty people I interviewed. I didn't get
a full "complete" in each interview, but from each I got something I
needed to know.
(
I

CHAPTER 9
AID: THE ORGANIZATION AND THE WORKER
In this chapter I turn to analysis of my field data. The chapter
has two parts. In the first, I will draw on the historical and social
science literatures and the archival data from 1961-1994 that I
collected in Dar es Salaam and Washington to offer a theoretical
explanation for AID policy changes in light of(the political histories
of the United States and Tanzania, with particular reference to new
spending obligations per sector by the Mission in Dar es Salaam. In the
second part, I will descend levels of analysis to the behavior of the
individual development worker and test the rival choice and culture
theory-based hypotheses I laid out in Chapter 1, using data I collected
in interviews conducted in 1994 and 1995. I am justified in shifting
levels of analysis in this manner by structuration theory, as I will
explain below.
Part I: Policy Change as Paradigm Shifter or Paradigm Extensor
Policies reflect the dominant paradigm of whatever organization
they are made by, whether a civic group, a business firm, or a
government agency. A paradigm can be cogently'defined by its synonyms,
which include: example, ideal, model, pattern, prototype, and standard.
In the sense I use the term here, a paradigm can be thought of as a
model which patterns policy in pursuit of an ideal. Policies are made
under conditions of bounded rationality, and introduced with strong
elements of experimentation and tentativeness. As policies meet with
failure, or as conditions change and render them obsolete, they are
205

206
changed. The change may be incremental and lie well within the old
paradigm, or it may be radical and be part of a paradigm shift.
Most policy changes are incremental; they represent tinkering with
I
existing ways of doing business and in effect extend the paradigm
further in time, much the way that an extensor muscle extends the limb
of a body. On occasion, however, policy changes can be substantial, and
may be part of a paradigm shift. What can explain this?
There is a complex array of forces that impinge upon AID, ranging
from political actors in Congress and the White House to the development
industry in Washington, and to different circumstances in the developing
countries such as, in the case of Tanzania, drought and the Ugandan war.
The forces which act upon AID can be sorted into those which stem from
the political environment, those which stem from the development
industry, and those which stem from the development task environment, in
this case, from Tanzania.
Three categories of diverse factors act i^pon AID as a unitary
whole and not only drive policy change, but determine whether the change
extends or shifts the dominant paradigm. To describe the process, I
shall combine three separate models of policy change and argue that
there are three conditions which determine whether a policy change is
minor or major, that is, whether it represents minor incremental
alterations to standard operating procedure and the extension of the
paradigm, or a paradigm shift that changes the dominant strategy. The
three conditions for a paradigm shift are: (1) political pressure must
be sufficiently high to make the set of actors in control of the agenda
execute changes, (2) a new set of policy alternatives must be available,
and (3) confidence in current programs must be low; people in the
organization must be receptive to change. The three models of policy
change from which I shall borrow are: the punctuated partial equilibrium
model of Frank Baumgartner and Bryan Jones, which I shall use to explain

207
conditions in the political environment; the entrepreneurial model of
John Kingdon, which I shall use to explain where new policy proposals
come from in the development industry; and the modified incrementalist
model of Michael Hayes, which I shall use to explain conditions in the
task environment.
I
Punctuated Partial Equilibrium in the Political Environment
Baumgartner and Jones (1993) adapted the punctuated partial
equilibrium model of change from paleontology to public policy, and
showed why some policy changes are major and others are not. The key is
feedback from the political environment. Whenever feedback switches
from negative to positive, from public satisfaction with the status quo
to dissatisfaction, the political actors in control of the agenda will
be prompted to make changes, and agencies' policy equilibria will be
punctuated. Whether these changes amount to a full scale shift in the
dominant paradigm and a completely new way of doing business, or only
marginal alterations of existing strategy and the extension of the
paradigm, depends in part on the strength of tlpe political feedback.
Why does political feedback switch to positive? I wish to suggest
there are two basic reasons. The first is because of crises, for
example the energy shortages of the 1970s. Crises are, obviously,
largely unpredictable. The second basic reason why political feedback
switches to positive are elections. Political campaigns tend to excite
positive feedback, especially the quadrennial U.S. presidential
election. The common use of the term "landslide" to describe a major
political victory very well describes the amount of force I suggest is
required to shift a paradigm. From this premise I will use the theory
of punctuated partial equilibrium to explain the historical changes in
AID'S political environment. The key events are displayed in the
timeline in Appendix C.
I

208
Two major punctuating events
I have already argued that there have been two substantial policy
"punctuations" in AID'S history, the first made by Congress and the
second by the President. In both instances, relatively small changes in
inputs cascaded into large policy effects. A paradigm shift occurred
and the dominant strategy changed.
The New Directions: The first development paradigm, as we have
seen, was the state-led drive for economic growth that contradictorily
went forward under principles of domestic protectionism. By 1970 most
of the development programs launched in the first decade of development
were proving to be failures.
In this climate the 1972 elections, as always, caused political
feedback to switch to positive. The pressure was particularly strong
that year because of polarization over Nixon's policies in Southeast
Asia. Nixon won reelection in a landslide victory, but was returned to
office facing a solidly Democratic Congress. The strong positive
feedback stemming from opposition to the war burbled through the
Congress and onto the agenda. The eventual result was a series of laws
passed by the legislature to restrict the President's power to make
foreign policy. Among these was the 1973 law rf/hich changed foreign aid
policy called the New Directions.
This amounted to a shift in the development paradigm. Concern for
growth did not disappear, but it was leavened by a new concern for
equity. The dominant strategy of institution building gave way to
reaching the poor majority.
The period of reaching the poor majority was the highpoint of
liberal altruism, the time of greatest influence for the "front room"
policy makers. The new approach met with resistance, at least in the
case of the AID mission in Tanzania, where its introduction coincided
with the radicalization of Ujamaa and the Nyerere government's public
I

209
expressions of contempt for Kissinger's conduct of U.S. foreign policy.
The resistance came from the ideological confreres of the "back room"
conservative realists in Washington. The new strategy did not enjoy the
same degree of wide acceptance that institution building had. The
result of the resistance from the pro-Nixon and Ford conservative
realists undercut the support of the pro-Carter liberal altruists. The
consequence was a weak and unstable policy equilibrium that lasted only
seven years.
The 1980 election: The second major punctuating event began in
1981 when the Reagan Doctrine went into effect. Political feedback had
switched to positive as usual during the 1980 election, but the feedback
was unusually strong, as in 1972. This time the issue was poor economic
conditions at home and humiliating reversals abroad, especially the
hostage crisis in Iran. The result again was major change in foreign
aid policy, a shift in the development paradigm, and the replacement of
the dominant strategy of reaching the poor majority with one of forcing
political reform.
Six minor punctuating events
There have been six lesser punctuations in the AID equilibrium,
two made by Congress and four by the President. I shall treat these in
detail below. The 1966 FAA and the 1987 DFA were minor changes made by
Congress. The 1964 Mann Doctrine of noninterference, Nixon's 1970 "Tar
Baby" option, the 1977 Carter Doctrine, and the Clinton administration's
1995 reengineering of AID were the lesser changes made by the White
House. None of these six resulted in paradigm shifts because the
positive political feedback was inadequately strong. Instead they
extended the existing paradigm.
The punctuated partial equilibrium model succeeds in explaining
why some changes result in paradigm shifts and a new dominant strategy
while others are limited to incremental reforms of existing strategy and

210
the preservation of the existing paradigm. Simply stated, the impetus
for change comes from positive feedback that political actors react to
and channel into new policies. Where do the ideas for new policies come
from?
Entrepreneurship in the Policy Community
John Kingdon (1984) has argued that in every area in which
government is active there exists a "policy community." There are
within all policy communities "policy entrepreneurs," people with policy
proposals they want to get onto the agenda. Policy entrepreneurs may be
professional lobbyists representing business interests, legislators,
bureaucrats, academics, or members of concerned citizens groups. Policy
entrepreneurs behave very much like snipers, lying in wait for an
opportunity to take a shot, that is, to push their cause. Targets are
presented when "windows of opportunity" open, typically either when
there is a crisis or when new actors capture control of the agenda.
Kingdon argued that whenever there is a crisis or a change in control of
the agenda, political actors open windows of opportunity through which
rival policy entrepreneurs begin to vie with each other to push their
proposals onto the agenda. The important point is that within each
policy community there are at any moment in time a multiplicity of
policy alternatives, something akin to a "primal soup" of ideas. Which
ideas make it onto the agenda, which ideas get acted upon and receive
resources, depends first upon the opening of a(window of opportunity and
second upon the outcome of the competition among rival policy
entrepreneurs trying to push their ideas through.
Punctuated equilibrium and policy entrepreneurship
By fitting these two models together it is possible to show why
policy change occurs, or more precisely, to explain the magnitude of

211
policy change, and also to account for where the ideas for new policies
come from, and how they move onto the agenda.
The magnitude of change--whether policy changes amount only to
extending the paradigm through marginal alterations of existing strategy
or are part of a full scale shift in the dominant paradigm and result in
a completely new way of doing business—is determined by the strength
and direction of political feedback, or more precisely, the amplitude of
its positivity. The ideas for new policies come from a virtually
unlimited supply in the policy community, in AID'S case the development
industry. When feedback switches to positive, the political actors in
control of the agenda are stimulated to open a window of opportunity.
Which direction the window faces is determined by the actors in control
of the agenda. Whenever a window of opportunity opens, policy
I
entrepreneurs begin to struggle with each other to push their ideas
through and onto the agenda. Positive political feedback acts as the
bolt of lightning that sparks new life from within the primal soup of
ideas.
AID'S six minor punctuating events resulted in changes in existing
policy, but no shift in the development paradigm, and thus no change in
the dominant strategy. The two major punctuating events, as I have
suggested, both produced paradigm shifts and new dominant strategies. I
shall now review all eight events in historical order and interpret them
theoretically.
The 1964 Mann Doctrine: Political feedback switched to positive
during the 1964 presidential campaign. After Johnson's reelection, a
struggle for control of the foreign policy agenda began between the
generally liberal "New Deal" Kennedy appointees Johnson inherited and
the generally conservative, more "Green Beret" element of the foreign
policy establishment. Johnson desired to put his imprimatur on foreign
policy, and appointed Thomas Mann to develop a doctrine. The result was

212
a policy of noninterference that overturned the core principle
established since Bretton Woods and replaced it with what evolved into
what I have termed the "Big Lie" of international development: that
politics didn't matter. It was now official U.S. policy that the inner
workings of recipient country political systems were sacrosanct.
Progress was declared to be apolitical.
The Mann Doctrine did not cause a change in the dominant strategy
of institution building. With its focus on fighting communism and
defending access to cheap raw materials, with political order seen as
more important than democratic form, the doctrine served to extend the
paradigm of state-led growth. It was a victory for the conservative
realists over the liberal altruists. The U.S. began its ill-fated move
from champion of democracy and civil liberties to chief apologist for
reactionary authoritarianism.
The 1966 FAA: The first significant reform of the Foreign
Assistance Act was passed by Congress a year alrter the Mann Doctrine was
pronounced. It was something of a liberal counterattack. A different
set of actors formed a coalition in Congress and took control of the
agenda and opened a window through which a new set of policy
alternatives passed onto the agenda. The era of big capital-intensive
infrastructure projects was ended, and a new emphasis on agriculture and
social services begun. Policy entrepreneurs pushed the tactic of
integrated rural development onto the agenda at this time. AID began
changing its project portfolio in Tanzania from building college
campuses and urban water systems to undertaking big integrated
agricultural and public health projects.
The most far-reaching section of the 1966 FAA, Title IX, which
required AID to encourage popular participation in development, was not
widely applied. The conservative rearguard checked this aspect of the
liberal initiative. There was insufficient positive feedback behind the

213
1966 FAA to shift the strong-state paradigm. Institution building
remained the dominant strategy, and the "Big Lie" continued to spread.
The "Tar Baby" option: In 1968 political feedback changed to
positive again in response to the presidential election. A new set of
actors captured control of the agenda, and a n®w doctrine resulted in
1969. The Nixon Doctrine upheld the "Big Lie." The so-called "Tar Baby
option" appended to the doctrine was a victory for conservative realism
in Africa policy. "Tar Baby" paid lip service to the principle of
majority rule, but supported the white minority regimes of the
Portuguese colonies, Rhodesia, and South Africa. It was a third minor
punctuating event, an extension of the strong-state paradigm, and a
continuation of institution building.
The New Directions: The first instance of sufficient positive
political feedback to cause a paradigm shift began with the presidential
elections of 1972. Nixon was returned to the White House, but a heavily
Democratic majority was brought to Congress in 1973. The New Directions
would be passed that same year. It would directly and substantially
alter AID'S operations. The Budget Reform Act, which would drastically
change AID'S authorization and appropriation procedures, would be passed
in 1974.
The New Directions was the first of the two major punctuating
events in AID history. It caused a shift in the development paradigm,
and a new dominant strategy for AID; institution building gave way to
reaching the poor majority. The New Directions was a victory for the
liberals opposed to Nixon's imperial presidency, especially the conduct
of foreign policy by Henry Kissinger.
The Carter Doctrine: Political feedback changed to positive again
during the 1976 presidential elections. A new set of actors took
control of the agenda. Carter entered office with a solid Democratic
majority in both house of Congress. His administration opened windows

214
to new sets of policy entrepreneurs. Liberal altruism reached its
height of influence, and the tactical approach of integrated rural
development entered its heyday. The new administration's concern for
human rights and its new Africa policy, which ended U.S. support for
white minority rule, was backed up by the decision to make political
reform a condition for receiving American aid. The Carter Doctrine
punched holes in the "Big Lie" and restored th

Plan, but only partially.
The problem was the new policy was not evenly applied. The
realists in the administration, especially the national security
advisor, Zbigniew Brzezinski, maintained the conservative concern with
geopolitics. American aid flows to Zaire, for example, remained intact
despite the brutality of the Mobutu regime because of the presence of
Soviet and Cuban forces in neighboring Angola. In Tanzania, American
aid was increased despite the human rights violations of the
Villagization Program in order to curry favor with the Nyerere
government and to gain its critical support for the new U.S. policy on
Rhodesia.
The New Directions did not dislodge the "Big Lie." In the case of
Tanzania, the task of defending it was taken up by the liberals. The
Carter Doctrine left the "Big Lie" in effect in certain areas. It
therefore amounted only to a fourth minor punctuation of AID policy, an
extension of the paradigm of state-led equitable growth and the strategy
of reaching the poor majority.
The Reagan Doctrine: The second instance of positive political
feedback sufficiently strong to cause a paradigm shift began with the
elections of 1980 which brought Reagan to the White House and reduced
the Democratic majority in Congress. The 1981 Reagan Doctrine was the
second major punctuating event in AID's history. The determination of
the new actors who were now in control of the agenda to end state-led
I

215
social programs resulted in a gaping window of opportunity for a new set
of development policy entrepreneurs. They successfully pushed new
alternatives onto the agenda that stressed private sector initiatives
and public sector reform. A shift in the development paradigm occurred,
and the dominant strategy of reaching the poor majority gave way to
forcing political reform.
Political development began to enjoy a renaissance. A second wave
of political development programs was launched, initially limited to
public sector reform under the rubric of "govetnance." Most
significantly for the Mission in Tanzania, the Reagan administration
tore down the last remaining fragments of the "Big Lie." Political
variables got onto the table. This was, ironically, a victory for the
right. The liberals ended their period of greatest influence as the
last-ditch defenders of a policy originally crafted by conservatives.
But then to the surprise of all, the Mission was ordered to begin
shutting down. The conservatives closed ranks with the liberals to
oppose the close out, but to no avail.
The 1987 DFA: The passage of the 1987 Development Fund for Africa
was the fifth minor punctuating event, and the most feeble. There was
very little positive feedback behind the measure. Congress had spent
two years trying to learn from the lessons of the 1985 Ethiopian famine,
(
and passed the DFA as an attempt to find a way of nipping disaster in
the bud. The idea was to eliminate the need for future massive relief
efforts (AID'S most expensive, least effective, most politically popular
programs) by enhancing AID's capability to carry out successful
development (AID's least expensive, most effective, and least popular
programs) by freeing the Africa Bureau of some of the many restrictions
which Congress had placed on AID over the years. The problem was the
act was passed under conditions of very weak political feedback. There
was almost no popular interest in the measure. As a consequence, within
(

216
I
a few years Congress began to dismantle the DFA, and in 1995 voted to
repeal it altogether.
The 1995 reegineerinq of AID: The normal change to positive
political feedback that accompanied the 1992 elections produced another
unified Democratic government. Political pressure was not, however,
sufficiently positive to cause major change. The reason was that the
election came hard on the heels of the dissolution of the Soviet Union.
Many Democrats who in the tradition of Senator Fulbright disliked the
bilateral aid program took this opportunity to cross over to the side of
AID'S enemies. Thus the end of the Cold War provided an opportunity for
liberal altruists to vivify the Kennedy ideal if using foreign aid to
support democracy, but it also eliminated the main rationale for AID'S
existence. This and earlier revelations of corruption in AID brought
the agency under renewed political attack from both wings of the
spectrum, from both parties. Thus, instead of undergoing a paradigm
shift, AID was offered up as a "laboratory" for reinvention. The
experiment in redesigning AID took precedence, and no change occurred in
the dominant strategy of forcing political reform. The result was a
sixth and final minor punctuating event.
Combining the concept of punctuated partial equilibrium with the
concept of policy entrepreneurship permits us to see under what
conditions new policies get onto the agenda, and where the new ideas
come from, but it is inadequate for determining how the new ideas will
I
fare once they go into effect. That actors in control of the agenda are
stimulated by positive political feedback to open a window of
opportunity through which new alternatives are pushed forward by policy
entrepreneurs is not sufficient to ensure a paradigm shift. Orders are
not self-executing. Field level personnel must be amenable to the new
ideas if the change is to amount to a paradigm shift and result in a new
dominant strategy.

217
Incrementalism in the Task Environment
Incrementalism as developed by Braybrooke and Lindblom (1963) is a
theory which describes policy change in terms of the clash of competing
ideas under conditions of limited knowledge and constraints of time.
Michael Hayes (1992) has explained instances of nonincremental policy
change in terms of confidence in knowledge about what to do. Confidence
in the knowledge base determines receptiveness to new ideas. If
confidence in current programs is high, new idéas will not be well
received. This is a crucial factor. Whether a punctuating event is
minor or major, whether it represents a paradigm shift or normal
incrementalism, depends on the level of confidence in the field, on
policy implementors. If the confidence of implementors in current
programs is high, the effect of a punctuating event will be blunted by
stubborn loyalties to the old way of doing things. Opinion will divide;
the policy will meet with resistance and be compromised. Change will
occur under conditions of normal incrementalism.
In the case of Tanzania, confidence in the institution building
strategy initiated at the inception of the agency declined over the
course of the 1960s as the big capital-intensive projects largely failed
to benefit the mass of the population, but did not disappear entirely.
I
There were still a large number of institution building loyalists
scattered throughout the agency when the strategy of reaching the poor
majority was initiated by Congress. Confidence in the new approach was
never very high in Tanzania. Its reception was complicated by its
coincidence with the radicalization of Ujamaa.
The new strategy of reaching the poor majority went into effect in
Tanzania under the conditions of the "Big Lie" authored by conservative
realists. When the Nyerere government began to radicalize the Ujamaa
experiment, it became impossible for the conservatives in the Mission,
the intellectual heirs of the Mann Doctrine, to continue to pretend that
I

218
Tanzanian politics were having no effect on the Tanzanian economy.
Ironically, the role of maintaining the "Big Lie" in Tanzania was taken
up by the new generation of liberal AID direct hires, many of them ex-
Peace Corps volunteers, who came onboard under the New Directions
sharing an extreme antipathy toward Kissinger's conduct of U.S. foreign
policy. The Mission split into liberal and conservative camps over the
issue of continuing the big integrated rural development projects in
Tanzania. The two camps were characterized in the 1978 Appraisal Report
as those who supported the growth-with-equity philosophy of Ujamaa (the
liberal altruists) and those who faulted its lack of pragmatism (the
I
conservative realists). The result was deadlock in the Mission, and a
patchwork development program.
Confidence in the strategy of reaching the poor majority declined
in AID as a whole as the big integrated rural development projects begun
in the late 1960s failed to perform as expected. The lowpoint in
confidence coincided with the presidential election of 1980. The
extremely positive political feedback brought out by the election
campaign coincided with low confidence in the field, creating the
conditions for a paradigm shift, and the strategy of reaching the poor
majority gave way to forcing political reform.
Confidence in the new approach was quite high throughout AID, but
the new strategy was met with something less than high enthusiasm in
Tanzania because it required the Mission to begin shutting down. There
was substantial unanimity of opinion about the new strategy when the
Mission began gearing back up in 1987 after the Mwinyi government
renounced Ujamaa, but it began to flag in the early 1990s when the hoped
for economic turnaround did not materialize and the Mwinyi government
proved itself to be substantially more corrupt than the Nyerere
government had been.

219
I
Confidence had not reached a critical lowpoint by the 1992
American presidential election, however, and the political feedback
resulting from the campaign was not sufficiently positive to cause a
paradigm shift. Thus the new approaches of improving governance and
forcing democratization were pushed onto the agenda at a point in time
when AID was passing through a period of poor administration and high
internal corruption and, especially after the 1994 elections, came under
serious threat of being abolished, the condition AID finds itself in
today as it undergoes its reengineering. Confidence is the old way of
doing business is low. AID is ripe for a third paradigm shift, if it
survives.
Pressure and Confidence: Explaining paradigm Shifts
I have argued that the two most significant punctuations of AID'S
partial equilibrium were in 1973 and 1981. These were paradigm shifts,
caused by two conditions: strongly positive political feedback in
America and low confidence in the old way of doing things in the field.
The most substantial of all policy changes made in the agency went into
effect beginning in these two years. The dominant strategy changed.
These two major punctuating events divide AID'S history into three
time periods. Each time period was characterized by a different
dominant strategy and different development tactics. In the first
period the dominant strategy was institution building and the tactics
were filling gaps in skills, infrastructure and capital. By 1973
confidence in gap-filling tactics had sagged at the implementation
level. Evidence had accumulated that institution building was not
improving the lot of ordinary people. A new set of actors in Congress
took control of the agenda and passed the New Directions. This did not
so much elevate new alternatives to the level of policy as ratify what
was already going on. The second period of AID'S history began in 1974.

220
The new dominant strategy was reaching the poor majority, and a top-down
version of integrated rural development became(the main tactic. By
1980, confidence in integrated rural development had faded among AID
implementors as the big agricultural projects first begun in the late
1960s and throughout the 1970s failed to achieve their goals.
Development economists began to turn their gaze on political variables.
The Reagan administration thus took control of the agenda at a
moment of extremely positive political feedback in America and extremely
low confidence in the field, particularly so in Tanzania. The third
period of AID'S history began with a new dominant strategy of forcing
political reform and new tactical methods based on private sector
initiative encompassing the learning process approach and using
indigenous knowledge.
The Net Effect: AID'S Behavior in Tanzania
(
I suggested in Chapter 1 that AID has never served, as
conservative realists maintain, simply to funnel bribes to Tanzania to
elicit its cooperation. Nor has it been, as liberal altruists maintain
(or at least urge), dedicated purely to philanthropy. Rather AID'S
behavior has been a complex combination of the two propensities.
The pragmatic altruism of AID
The strategy and behavior of AID in Tanzania was guided in part by
altruistic principles. Some of the altruism came from within the
Mission, from the common desire of AID personnel to do good in the
world. The language of the Mission's planning documents are replete
with expressions of concern about helping Tanzanians improve their lot,
and based on evidence from the interviews given below, there is no
I
reason to believe these expressions were insincerely made.
Some of AID's altruism was legislated by Congress, the increased
support for agriculture after 1966, for example. The Mission would

221
later claim that the changes in its project portfolio it made after 1966
were in response to the 1967 Arusha Declaration, but this is probably
not true.
Some came from higher levels in the agency. An example is the
I
1972 policy that all future AID loans were to be directed toward those
countries financially capable of carrying them and grants toward the
least developed. This policy seems to have been in anticipation of the
New Directions.
Where it counted, conservative realism always prevailed in AID.
The biggest changes in new spending obligations in Tanzania were the
result of calculations of the national interest. Aid was provided to
Tanzania in the first few years for the express purpose of preventing it
from going Communist. The cuts Congress made in 1966 and 1967 were an
expression of discontent for the war in Vietnam, and did not affect
AID'S policies in Tanzania. Beginning with Nixon, different
administrations changed the amount of new aid to Tanzania in targeted
budget cuts and increases according to Tanzanian attitudes toward U.S.
foreign policy.
Putting its money where its mouth is: AID spending obligations
Figure 1 below shows new spending obligations per year from 1961-
1994. The variance became markedly sharper after 1970. New aid
obligations fell as a result of the 1966 and 1967 budget cuts, then rose
to a height of $94.3 million in 1970, new aid given partly to make "Tar
Baby" more palatable to the Tanzanians and partly to match the Chinese
railroad project. Two years later in 1972 new obligations were slashed
to zero, to punish Tanzania for the dance of Salim. New aid commitments
rose again in 1973 as a second wave of big integrated development
projects came on line, then began to tail off. The jump in 1975 was due
to the emergency humanitarian loan to avert famine, a rare instance of
altruism overruling realism in a funding decision. In 1976 and 1977 the

222
Years
Figure 1: New spending obligations in Tanzania, 1961-
1994
amount was reduced to less than $1 million in response to Tanzania's
denunciation of the U.S. role in Angola. It wasn't until 1978, the
second year of the Carter administration, that American aid was
increased. It was done, at least in part, to garner Tanzanian support
for a new U.S. policy toward Rhodesia. Relations warmed, and aid
amounts remained fairly constant during the last three years of the
Carter administration.
Then in 1981 American aid was reduced again, this time by the
Reagan administration, this time to apply pressure on Tanzania to
renounce socialism. From 1983 to 1986 the U.S. obligated no new
spending in Tanzania. In 1987, a year after Tanzania officially
abandoned Ujamaa, new obligations shot back up as a reward. Spending
was cut back to zero one more time, in 1991 under Bush to punish
Tanzania for its defiance during the Gulf War.
I

223
Number of Projects
The AID mission in Tanzania launched the same average four new
projects per year during Johnson's five years in office from 1964-68 as
during Kennedy's three years from 1961-63. However, the heavy budget
cuts made by Congress in 1966 and 1967 resulted in lower average new
spending commitments under Johnson: $8 million per year, less than half
the $18 million under Kennedy. Given Nyerere's denunciation of Dragon
Rouge as "another Pearl Harbor, " Johnson was undoubtedly not averse to
the cuts made to the mission in Dar es Salaam. While the total amount
of new spending obligated in Tanzania doubled from the first half to the
second of the institution building period, the total number of projects
launched was halved, from 38 in 1961-1966 to 18 in 1967-73. The net
effect was a quadrupling in the average cost of a project, from $2.2
million in the first six years to $9.4 million in the next seven.
The average number of projects launched per year continued to
decline during the period of reaching the poor majority. An average
four projects were launched per year from 1961-73. From 1974-80 the
average number was two. The average cost per project therefore
continued its increase, from $4.6 million overall in the institution
building period to $7.4 million in the period of reaching the poor
majority. I
The number of projects launched per year continued to decline
through 1981-94, falling from an average two projects per year to one.
The cost per project thus continued its climb, nearly doubling from $7.4
million in the period of reaching the poor majority to $13.9 million in
the period of forcing political reform.
Sectors of Activity
I consider the 90 largest projects launched from 1961-1994. As
stated in Chapter 1, I have attributed the full cost of each project to
I

224
I
the year it was approved, and have apportioned new spending obligations
by sectoral activity to best reflect what the project was attempting to
do. I break activities down into five sectors. Nearly all AID projects
are multipurpose. For those that were active in several sectors at
once, I have apportioned the total amount obligated for a project to
different sectors according to an estimate based either on the thumbnail
sketch of each project contained in AID'S in-house 1985 history of the
Mission, or in the individual project papers.
AID obligated a total of $644.7 million in new project spending
from 1961-1994. Of that, $254.9 million was obligated during the
thirteen years of the institution building period, $19.7 million per
year. A total of $118.6 million was obligated in the seven years of
reaching the poor majority, an average $16.9 million. The remaining
$271.2 million was obligated during the fourteen years 1981-1994 of
forcing political reform, an average $19.4 million.
Table 4. Total and average new spending obligations, 1961-1994.
Years
Total
Average
1961-1973
254.9
19.7
1974-1980
118.6
16.9
1981-1994
271.2
19.4
1
Interestingly, new spending obligations during AID'S presumably most
altruistic period of reaching the poor majority averaged about 15
percent lower than in the other two.

225
I
Table 5. Average and total spending by sector, 1961-1994.
Infrastr
Soc Serv
Pub Admin
Agri
Finance
1961-73
6.8
3.6
2.6
7.0
o
o
1974-80
0.9
4.7
2.5
4.6
4.3
1981-94
00
00
3.5
5.4
CM
O
LO
00
TOTAL
165.0
132.5
132.0
127.2
87.6
Support for infrastructure
Figure 2 shows spending over time in the sector which received the
most support, infrastructure, including support for light industry, the
construction of highways and buildings, and the renovation of urban
water systems, against the total. New spending on infrastructure was
curtailed by the 1966 FAA. The Mission closed|Out all its construction
projects as required, but built large infrastructural components into
many of the new agricultural projects.
Figure 2: Support for infrastructure against total
new spending

226
For example, the $14 million Masai Livestock and Range Management
Project launched in 1970 provided for the construction of water points,
I
dips, veterinary facilities, training centers, and 145 miles of feeder
roads, thus violating the spirit if not the letter of the law. The net
effect in Tanzania was that new spending on construction projects
increased from an average $5.2 million in 1961-1966 to an average $8.1
million in 1967-1973.
The "Tar Baby" option and the U.S. response to the Chinese
railroad initiative resulted in a fourteen-fold budget increase for the
Mission as a whole from 1969 to 1970, almost $35 million of which went
to the Tan-Zam Highway project, an example of a presidential decision
overriding a congressional rule. There was no new spending in the
infrastructure sector under Ford, and only an average $1.5 million under
Carter.
One hundred sixty-five million in constant dollars was spent on
construction activities between 1961 and 1994. Most was spent during
three periods of intense activity. The first was the construction of
college campuses and urban water systems in the 1960s. The second was
the Tan-Zam Highway. The third was the rehabilitation of rural roads
and the TAZARA railway after Brooke. There were three smaller
increases. The first and second in 1973 and 1978 represented
construction components included in the big agriculture projects
launched after 1966. The third increase was for a 1994 rural
telecommunications project.
Support for social services
Figure 3 below, shows spending on the second most supported
sector, social services, including public education, rural water
projects, and public health. This sector received a total of $132.5
million from 1961-1994.

227
T—
CO
in
o>
y—
CO
in
h-
CD
T—
CO
in
CD
t—
CO
CD
CD
CD
CD
co
Is-
Is-
h-
Is-
00
CO
00
00
00
CD
CD
CD
CD
CD
CD
o>
CD
CD
CD
CD
CD
CD
CD
CD
CD
CD
CD
CD
t—
T—
T“
T—
T—
T“
^—
^—
^—
T—
^—
T—
t—
v
T—
t—
Years
Figure 3: Support for social services against total new
spending
American assistance to Tanzania's social service was a fairly constant
factor. Increases and decreases mirrored overall changes in new
obligations. An interesting exception was the increase following "Tar
Baby," when very little of the largest bump of I all went into social
services.
Support for public administration
Figure 4 below shows spending on public administration, including
the provision of Western personnel to fill the "manpower gap" and the
training of government officials and Tanzanian project personnel.
Support for public administration received $132.0 million, almost the
same amount for social services. Support in this sector was also fairly
steady. It decreased from an average $23.0 in the first seven years to
$9.7 million in next six during the period 1961-1973, then reversed the
decline in the 1974-1980 period of reaching the poor majority, rising
from an average $700,000 in 1974-76 to $3.8 million in 1977-80, an
average $2.5 for the period of reaching the poor majority, and rising
(

228
e
o
â– H
•rl
a
to¬
co in
o) •»- to m
O)
n w n oí i- n
a>
0)0)0)010)0)0)0)0)0)0)0)0)0)0)0)0)
Years
Figure 4: Support for public administration
against total new spending
further to $5.8 million in 1981-94 in the era of forcing political
reform.
Support for agriculture
Figure 5 below shows spending on agriculture, including research,
I
food production, and marketing. The first U.S. aid to Tanzania was for
an agricultural project in 1955. For some reason, interest in
agriculture was very low in Tanzania during the early years of AID. The
first big increase came in the late 1960s, a clear response to the 1966
FAA mandate. Total new obligations jumped from $2.4 in 1961-66 to $88.6
million in 1967-73, a combined average of $7.0 million for the
institution building period. Annual new spending for agriculture
continued to rise, from an average $1.6 million in the years 1974-76
when the Republicans controlled the White House to $6.9 million in 1977-
80 under Carter, a combined average of $4.9 million for the period of
I

229
reaching the poor majority. After Brooke was lifted in 1987, however,
100.0
90.0
80.0
70.0
| 60.0
h 50.0
â– d 40.0
** 30.0
20.0
10.0
0.0
T—
CO
CO
05
X—
CO
m
t-
05
X—
co
e'¬
o>
r—
CO
CO
%
CO
$
CO
e-
r^
00
co
00
en
GO
CT>
o>
05
05
05
o>
o>
05
05
05
o>
05
o>
O)
O)
o>
Years
Figure 5: Support for agriculture against total
spending
support for agriculture was not resumed. The heavy support the U.S.
provided for rural roads reconstruction was considered to be in indirect
support of agricultural production.
Support for the financial sector
Figure 6 below shows support for the finance sector, including
rural credit schemes, technical assistance to central banking, and
direct cash transfers for balance of payment support. AID obligated a
paltry $240,000 for Tanzania's finance sector in 1961-1973. Significant
support did not begin until the 1970s, first with a 1974 project to
strengthen the Tanzanian Rural Development Bank, followed by balance of
payment support provided in the 1975 humanitarian loan. There were four
other periods of activity in Tanzania's finance sector: a second project
to support Tanzania's banking system in 1980; a commodity import
component to the rural roads and railway rehabilitation projects that
followed Brooke in 1988; the Finance and Enterprise Development project
I

230
Years
Figure 6: Support for financial sector against total new
spending
launched in 1992; and the seed capital component in the 1994 project to
establish a rural telecommunications industry.
Constraints on AID Autonomy
Respondents were asked to rate on a scale of one to five the
strength of the constraints on AID of different influences from inside
Table 6. Rank order of different constraints strong, 3=neutral, l=not strong.
5
4
3
2
1
N
Avg
Congress
13
7
3
0
0
23
4.3
President
14
4
2
2
0
22
4.0
For.Policy
10
7
1
3
1
22
3.8
Evaluators
1
5
12
3
0
21
3.1
State Dept
2
7
7
2
2
20
2.7
GAO
1
6
7
3
1
18
2.4
Judiciary
1
1
3
1
11
18
1.3

231
I
the government. Table 6 above shows the results. Average scores reveal
the three strongest were the Congress, the President and foreign policy.
Respondents were also asked to rate on the same scale how
responsive AID has been to five different influences from outside the
government. The average scores in Table 7 indicate that AID is not
extremely responsive to any of the five outside influences. There
seemed to be agreement that the media, although a minor influence, is a
mainly negative one, except in the case of mass suffering. A Tanzanian
thought the media "can be positive, especially when there's starvation.
That's when the media can help you." An official in Washington said,
"Their impact on development programs is largely negative; they're
looking for fraud, graft, failed projects, corruption in the country
. . . . But their impact on humanitarian programs is largely positive.
When they start showing pictures of starving babies, the aid comes
pouring in." A retired official offered a similar opinion. "The
American public dislikes the kind of aid that works, but loves disaster
assistance. We love to spring to someone's rescue." One official in
Tanzania qualified his low estimation of the influence of academic
research by saying that it influences the agency indirectly, filtering
into the planning process unbeknownst to AID officials through outside
consultants who read the academic literature and attend conferences.
Table 7. Rank order of opinions on how responsive AID is to different
influences, 5=very responsive, 3=neutral, l=not responsive.
5
4
3
2
1
N
Avg
Special
Interests
2
9
6
1
i
1
19
2.9
Other
Donors
2
5
7
6
0
20
2.7
Tanzanian
Govt.
2
4
6
4
3
19
2.5
Popular
Media
2
3
9
4
2
20
2.2
Academic
Research
0
2
5
8
5
20
2.0

232
This was borne out in the results of the next question on how responsive
AID has been to the four tactics (later formalized by academics into
four theories of development) considered in this study. Table 8 shows
the results. AID was judged to have been responsive to the institution
building approach, less responsive to the other three.
Table 8. Opinions on how responsive AID has been to different theories
of development. 5=very responsive, 3=neutral, l=not responsive.
5
4
3
2
1
N
Avg
Institut.
Building
3
8
2
0
0
13
4.1
Learning
Process
2
6
3
2
0
13
3.6
Int.Rural
Develop
4
1
5
2
1
13
3.4
Indig.
Knowledge
4
4
0
1
3
12
3.4
I
AID and the Other Donors
AID maintained a high degree of autonomy from the other donors in
Tanzania, including the World Bank, throughout the period under study,
1961-1995. The first AID country plan stated quite plainly that "we do
not consider it desirable for the external aid donors to do more than
continue to keep in close touch, exchange information on their aid
activities and avoid specific duplication" (USAID, CAP, 1963a). The
Mission did not respond to the recommendation of the 1966 Korry Report
that American aid be coordinated by the World Bank. From the 1961 FAA
until the New Directions, in relation to the other donors AID charted
its own course in Tanzania.
A 1976 report summed up the Mission's attitude during the second
period. AID's programs "should be consistent, or not in conflict, with,
and in some cases might be supportive of, programs of other donors. In
general, however, they should not be dependent upon other donor programs

233
for their management, operation, or success (USAID, Conceptual
Framework, 1976) . The 1978 Appraisal Report resurrected the
controversial recommendation of the 1966 Korry Report and advised the
Mission to "depend increasingly on the World Bank to develop and
(
negotiate an overall agricultural strategy with the Government of
Tanzania" (USAID, Appraisal, 1978) . This reiteration of the proposal
met the same fate as the Korry Report; AID remained aloof from the other
donors in Tanzania. In AID'S view, coordination among donors was
desirable only to the extent that other donors conformed to AID.
The Mission reported in 1990 that it was having success in this
regard. "Another significant turn of events is the much more critical
approach of the Nordic countries. . . . They appear to be aligning
their assistance to that of USAID's program systems approach. This
represents the most important result of our donor coordination effort
thus far" (USAID, API, 1990).
Feedback as Control in AID
I
In the institution building period AID relied on project output
information to gauge project success. Examples of the sorts of
statistics AID compiled and reported were kilometers of roads or numbers
of buildings completed and numbers of Tanzanians educated. The
Mission's goals for aid to education, for example, were to achieve a 200
percent increase in the annual number of secondary school certificate
candidates and a 300 percent increase in "higher school" certificate
candidates by 1968 (USAID, CAP, 1963a). The indicators established for
the Masai Livestock and Range Management Project were "the per-man and
per-acre productivity of Masai herdsmen" (USAID, PBS, 1970) to be
measured in terms of increased "livestock offtake in the Masai District"
(USAID, FBS, 1974).
I

234
The success indicators of the first period were essentially output
quotas. They were not concerned with cost minimization. The idea of
determining the effect of AID projects on people's lives was also not
considered. During the institution building period the Mission did not
look at the numbers of graduates who were finding jobs or the types of
jobs they were finding. No one seems to have asked the Masai whether
they wanted to increase their "livestock offtake."
By 1975 AID was beginning to develop indicators of program success
that differed from the project output statistics used in the previous
decade. The new indicators did not represent a change from a quota
production to a cost minimization approach. Instead, the attempt was to
measure effects more directly. The development of these indicators was
pioneered by the new and as yet quite junior division of Health and
Human Population. The concern was on preventative—not curative—health
care. Project results would not be measured in output statistics such
as the numbers of health centers constructed or personnel trained, but
in terms such as, in the case of Tanzania, "the ratio of population to
doctors and health facilities to population. . . distribution and
placement of health services in centers of population [and] the way in
I
which health services are used by the people in the various parts of the
country" (USAID, DAP, 1975).
As the new way of thinking gained currency in the agency, the type
of feedback the Mission sought in Tanzania slowly began to change from
measures of output to measures of effect. The process was, however,
still incomplete by 1980. After the paradigm shift and the new strategy
of forcing political reform went into effect, the desire in Washington
for missions to quantify "people-level impact indicators" (or
"benchmarks" as they were also called) became serious. On April 13,
1985 the Africa Bureau cabled its missions that "benchmarks need to be
specific and quantified as much as possible and directly related to
I

235
changes the program is trying to effect." On December 6, 1986 it cabled
about the "need for more precise program-level indicators that can help
to identify progress more objectively. . . quantified to the extent
possible."
It took time for the missions to catch on to what was wanted. On
May 8, 1991 the Bureau cabled several missions to say there were "major
gaps in understanding what the Bureau means when it requests reporting
on people level impact," and singled out the Tanzania mission as an
example of the problem. Its indicators still '(’reflected a strong output
bias rather than people level impact." Nine months later the Tanzania
mission still wasn't getting it. On February 14, 1992 the Bureau
complained that the problems with its indicators was making it
impossible "for reviewers to see the progress being made from year to
year." The Bureau made a recommendation. "If an indicator cannot be
quantified, it would be helpful to the reviewer if the means of
measurement could be described in a narrative form."
Finally the Mission got it. The change in its indicators is
apparent in two projects launched three years apart in 1988 and 1990.
The first, the $64.2 million Agricultural Transport Assistance Program
(ATAP) started in 1988 had no indicators, for which reason the Mission
came under fire from the Bureau. ATAP's objectives were of the old
output variety: to inventory and reclassify ruiral roads; to develop a
national road maintenance strategy; to hire and train personnel; to get
the government to increase its road maintenance budget; and finally to
rely on private Tanzanian contractors to rehabilitate and maintain 500
kilometers of rural roads (USAID, ATAP Project Paper, 1988). In
contrast, the $17.7 million Tanzania Family Planning Services Support
Project launched in 1990 included the sorts of indicators Washington
wanted to see, for example, an increase in the contraceptive prevalence
rate and numbers of acceptors who return for resupply; an increase in

236
I
the number of Tanzanians aware of family planning and knowledgeable
about at least one modern method of contraception; and a decrease in the
average desired family size reported in regularly conducted surveys
(USAID, TFPSS Project Paper, 1990). As usual, it was the health
division in the lead.
In an August 27, 1991 cable the Africa Bureau perhaps
inadvertently revealed what may have been a more significant reason why
impact indicators were considered so important. "Where strategic
program objectives and performance indicators are unclear, it is
impossible to assess program progress and hold managers responsible for
making progress toward objectives" (emphasis added). Evidently, people-
level impact indicators weren't just there to serve as benchmarks of
success; they also provided Washington with a mechanism of control.
Table 9 shows the distribution of opinion on the importance of
feedback to AID.
Table 9. Opinion on importance of feedback to AID. 5=extremely
important, 3=neutral, l=not important.
5
4
3
2
1
N
9
5
5
1
0
22
Fourteen of twenty-two respondents thought feedback was important.
Several added qualifying remarks. A contractor thought it helped
"improve program design, so we don't keep making the same stupid
mistakes over and over again like we used to." A direct hire in
I
Tanzania thought it was crucial. "When you've got all these little
offices spread out all over the world, communication is critical." An
official in Washington spoke of the "need to look at lessons learned
from other programs." Another mentioned its usefulness "in reporting to
Congress and the special interest groups. We use it in defending
ourselves to the press and to the Hill." Not all shared such rosy

237
opinions. A contractor growled that the only thing feedback was used
for in AID was "C.Y.A., Cover Your Ass."
AID and Its Conditions
As AID resumed full scale operations in Tanzania in 1987, the
source of its objectives remained Washington, not Dar es Salaam. This
statement is supported by the interviews. Nineteen respondents were
asked whether they thought AID'S objectives were set by the agency or by
Tanzania. Eighteen expressed an opinion. Of these, fifteen said they
are set by AID and only three by Tanzania. The latter were all
Tanzanians.
The people I interviewed were in consensus that U.S. aid is
conditional. Of 19 respondents asked whether or not they thought it
was, the same 15 who thought AID set its own o¿jectives said they
thought U.S. assistance was conditional.
By the spring of 1995, AID had developed a method for relating
American aid to "performance."1 A senior Washington official described
the process.
First we categorize countries. Tanzania is what used to be called
a Category I country; now it's called a Sustainable Development
country. There are eighteen of these in Africa. The
determination of aid is based on size, commitment to economic
policy reform and political liberalization. Each year we have a
pot of money to allocate. Second, we apply a formula we have for
allocating the pot based on performance, need, and population.6
Third, we make changes based on mission capacity, Congressional
earmarks, and trends in the country. We call the second level of
the process "black boxes" and the third level "using the gray
matter."
Some respondents described the procedure as collaborative. "It's an
iterative process," said one. "We sit down with the government and
negotiate item by item." Said another, "We work with countries as
The formula related 50% of the amount of aid to the country's
level of need, and 50% to its "performance," broken down as economic
policy reform (25%), social and natural resource management policy
reform (12.5%), and movement toward multiparty democracy and improved
governance (12.5%).

238
partners." Others portrayed the process more like blackmail. "We try
to wrest reforms from reluctant governments," said an official in
Washington. "It's not rent-a-reform as before."
An official at the Mission described how the process worked in
Tanzania in terms that clearly revealed that the era of proud defiance
was over. "The Tanzanians," he said, "are brought in at the end to
stand there and nod yes."
The Structure of AID
There was divided opinion in the interviews about whether AID
really is decentralized or not. Of 20 respondents asked, six thought it
was centralized, nine thought it was decentralized, and five didn't
know. One official in Washington declared that "over time, there's been
a much greater empowerment of the missions. They have power to make
decisions without reference to Washington. Not in all instances, but
often. There's been a delegation of authority." A very senior official
in Washington expressed a different opinion and emphasized the negative
role of Congress in limiting AID'S ability to decentralize.
"Conceptually, on paper, our priorities are fully reflective of the
dialogue to determine our sector priorities. In practice, Congressional
earmarks and targets overlay the whole process." An official in
Tanzania said, "We make decisions here in the Mission, but only those
appropriate for this level." A contractor in Washington felt that it
"depends on the day's political considerations, in which case Washington
rules. Otherwise it's the local mission."
Success in international development is known to require field
level adaptiveness. The extent to which AID encourages innovation would
indicate its degree of decentralization. Of 14 respondents asked
whether AID encourages innovation or not, five thought it does, six
thought it doesn't, and three had no opinion. An official in Tanzania

239
thought Washington was very capricious in this regard. "If it's in the
mood to give the field discretion, it does, but if it isn't, it doesn't.
It seems to depend on what day it is."
Part II: Inside AID
Under the larger theory of structuration which obviates the
distinction between theory and data, macro and micro levels of analysis,
and structure and agency, which I have applied to my case study using
three elements of different theories of policy change, I now descend
levels of analysis to the individual. I have suggested that the
analogues to realism and altruism at the individual level of analysis
are choice and culture theories of human behavior. I shall offer from
within the rational choice school of the social sciences the principal-
agent model as one possible explanation for the behavior of the people
in the AID mission in Tanzania and its headquarters in Washington.
Principal-agent theory predicts organizational dysfunction. As such, it
is appropriate to a study of AID because the agency has long been
accused of suffering from a host of bureaucratic pathologies.
I shall offer a second possible explanation, or rival hypothesis,
that AID'S behavior at the level of the individual is better explained
by a very different model. I hypothesize that AID has created a strong
culture of principled agents.
The First Hypothesis
The main hypothesis reduces to three questions. (1) Is the job
market in international development either an oligopoly or relatively
competitive? If not, there is no adverse selection problem. (2) Does
the homo economicus model of the self-interested individual accurately
explain the motivation of a relief and development worker? If not,
there is no problem with moral hazard. (3) Do AID'S monitoring systems

240
successfully control its work force, and if so, are they necessary?
This question will be answered by the first two.
A Rival Hypothesis
If AID has a strong culture, the principal-agent model will prove
inadequate for explaining its behavior in Tanzania. Perhaps the job
market in international development is characterized by colluding
employers or by fewness of jobs, and there is no adverse selection.
I
Perhaps the chief motivation of people for joining the agency is
something other than base self-interest; perhaps AID workers do not bend
rules for personal gain, and there is no moral hazard problem.
AID's Culture
As I have already indicated, the nature of AID's task environment
requires it to rely on its lower ranks for innovative behavior. I asked
respondents for their view. Table 10 displays the results.
Table 10. Opinion on whether AID encourages innovation. N=14.
Encourages
Discourages
Don't Know
5
6
3
I
A direct hire in Dar es Salaam said, "It encourages innovation
rhetorically. In reality, there's a lot of fear of making mistakes,
especially by yourself. There's too much work to innovate, so everybody
falls back on what's always been done. There's no time to think of new
ways of doing things." A Tanzanian direct hire told me, "The last
director went around saying 'Innovate, innovate, innovate' all the
time," but then said she didn't know how to answer the question.
An official in the Africa Bureau complained, "We're hidebound by
bureaucratic procedures. That's the negative side. Working in
i

I
241
development is an art, not a science. I can see after 25 years how
things have changed. We used to think we had all the answers. Now I
see we can't do anything for the people; they have to do it for
themselves. We can only facilitate. This is ingrained in us now.
Projects won't work until they become the Tanzanians' projects."
Another said, "There can't be innovation because of the handbooks.
You have to follow these. If you try something on your own, you can't
get it through the system. We're trying to reduce the handbooks from
thirty to three. They're asking people to be more innovative. We've
heard this so often, though, every time there's a new administration."
A political appointee said, "I can't answer that. Somewhat.
Traditionally there's been a lot of red tape and ponderous management
procedures. It's the nature of bureaucracy to suppress innovation.
We're trying to change this, but we're not all the way there. To the
extent that we do, we're open to new ideas of doing business, but we're
not an organization that encourages people to break rules to get the job
done. We ask people for their honest answers. We don't penalize them
for being honest."
A contractor on his first AID job as the reengineering began to go
into effect said, "Today, we had a mini retreat to discuss the realities
of reorganization. They sought input from everybody. They have an
agenda. There will be a follow up next week. But some of this is
because my boss happens to be very good, so these things depend on who's
in charge. Personalities matter."
Staffing of AID
In the thirty-five years of aid to Tanzania, AID steadily
increased its reliance on NGOs. A cable from the Africa Bureau to all
missions on April 13, 1985 referred to "a growing interest in expanding
the role" of NGOs in official development. In the 1960-1973 institution

242
I
building period in Tanzania 46% of all projects were implemented by
NGOs. In the 1974-1980 period of reaching the poor majority, the
proportion reached 81%, its height, before declining slightly to 71% in
the 1981-1994 period of forcing political reform.
The trend toward increased reliance on NGOs was matched by an
increased use of contractors and consultants. A comparison of two
different years spanning the election of Jimmy Carter shows the extent
to which AID was increasing its reliance on contractors in Table 11.
The Mission consisted of 37 direct hires and 53 contractors in 1975, and
44 direct hires and 99 contractors in 1978. The decline in the
proportion of direct hires in the Mission from 41% to 31% in four years
was a trend that would continue.
I
Table 11. Frequencies of types of personnel from Ford to Carter.
1975
1977
1978
USDH
18
20
22
FNDH
19
19
22
Contractors
53
47
99
TOTAL
90
86
143
The change toward increased exogenous staffing had a down side. It
produced a caste of project managers who, according to the 1978
Appraisal Report, were unequipped to carry out program analysis. "Few
staff members appeared to be qualified for the broader aspects of
project management, especially with respect toiguiding, analyzing and
negotiating the overall direction of projects." Worse, they "sometimes
form a screen between top USAID management and project implementors"
(USAID, Appraisal, 1978). Here is a direct mention in the record of the
effects of the problem of information asymmetry, the strategic use of

243
their control of crucial knowledge by subordinates to frustrate the will
of the hierarchy. (
Throughout the two years of heavy budget cuts followed by the four
years under Brooke, the Mission steadily reduced its staff. In 1980
there were 22 U.S. direct hires (USAID, ABS, 1980). Six years later,
just prior to the signing of the IMF Standby Agreement in 1986, the
Mission was down to five (USAID, ABS, 1986). When the turnaround began
the following year, the number of U.S. direct hires began to grow. The
1992 budget submission "anticipated" ten by fiscal year 1994 (USAID,
ABS, 1992). In November 1994 there were eight. The budget that year
was roughly $40 million. The Mission was handling 25% more money than
at the start of the 1980s with one-third as many American direct hires.
The change toward increasingly endogenous staffing was partly a
consequence of the overall shrinking of AID'S size. By late 1995, J.
Brian Atwood stated in an interview in Florida1 that AID staff had been
reduced 20 percent in the three years that the Clinton administration
had been in office, from 11,500 to 9,200 (Orlando Sentinel, Nov. 27,
1995). A retired direct hire told me that Atwood had adopted the
strategy of reporting the same 25 missions AID intended to close as
being closed each year, thus exaggerating in the popular perception the
magnitude of AID'S overall reduction in force. A high ranking official
in Washington offered his opinion that the down-sizing and reductions in
force were having the positive effect of winnowing out the least
competent and improving the quality of personnel. Direct hires were, in
his view, the best available people, able to "live among the people and
breathe in the cultures, who can give us accurate information and tell
us what's going on."
I
A contractor with fourteen years experience disagreed. He thought
AID had changed "from a hands-on, implementation-focused organization
doing in-the-dirt development, and became a bank. It attracts different

244
personalities now. The hands-on people wanted to do development work;
the 'bankers' are bean counters; they're cold, heartless and cynical."
Another contractor thought downsizing reinforced AID'S culture of
caution and encouraged "the bureaucratic mentality. These people are
(
not risk-takers, not courageous, not imaginative." He questioned the
direct hires supposed knowledge of Tanzanian conditions. "They're
moving around so much they don't care what's going on. They only care
about their place in the hierarchy. They study the rules, not the local
language. Direct hires want to be just sitting in their air conditioned
offices and seeing Tanzania through their windshields."
One consequence of downsizing has been increased competitiveness
for direct hire jobs. A senior official interviewed in Tanzania related
how easy it had been for him to get a direct hire position in the 1960s.
"I answered a newspaper ad that said 'Hard work, good pay, great
responsibility.' The next thing I knew I was on my way to Washington for
training."
By the mid-1990s this was no longer true; competition for direct
hire jobs had become quite fierce. Of 18 respondents asked whether they
thought the AID hiring process was competitive, 14 said it was. By 1995
AID was carrying out substantial reforms in the field with reduced
numbers of direct hires. A consultant described the consequences.
"Responsibility is being thrown on the captive audience of contractors
and consultants."
Moving Money
Judith Tendler (1975) found that there was a strong imperative to
move money in AID, a problem in the development industry that was noted
as far back as the Etawah project. Respondents were asked to rate the
extent of the problem today. The results are displayed in Table 12,
below.

245
Table 12. Opinion on strength of imperative to move money in AID.
5
4
3
2
1
N
7
3
3
0
0
13
A long term official in Tanzania said, "Oh yes. It still dominates." A
contractor recounted to me, "There was a guy when I was first starting
I
out, he told me I was no good because I didn't know how to shake the
money tree. That's what he called it. 'You've got to shake the money
tree.' For AID, the first rule is CYA, cover your ass. The second is
shake the money tree. There are no brownie points for doing good. Play
it safe and spend as much money as possible all the time."
A direct hire told me, "I can't see where you're going with this.
You need to look at career incentives, at how mission directors get
their signals. You know, we don't get bonuses. You need to see what
signals they're getting in terms of onward assignments. Then you need
to find out if they pass these same signals on to their subordinates."
Another said, "There's very strong pressure to obligate early in
the fiscal year. There're jobs on the line on this. Last year 80
percent of our budget was obligated in the final quarter. They don't
like that. But the pressure to move money isn't as bad as it was in
past years."
A contractor bristled. "I resent that phraseology. We move the
money if there's an investment to be made. I see it as being done well,
being used to good effect. It stimulates project officers. We're not
just loading money into airplanes. If you see population increases are
a need, is putting money there to lower them 'moving money?' If it is,
then it's not pejorative. We work hard to achieve development."
A direct hire thought the blame for the problem lay with the
system. "It's because of the Congressional earmarks. I'm 100 percent
against spending money just to spend money, but there's little we can
I

246
do. When you're dealing with the federal beast, the system pressures
you to do it."
A senior official in the Africa Bureau shook his head ruefully.
"Big problem. I hate to say this, but it's a big institutional problem.
Moving money is how you justify your program. If you don't spend it,
Congress will say, look, you didn't spend this money, so you don't need
it, and they'll take it away from you next year."
A political appointee thought the problem lay with the old guard.
"Certain people in this agency believe, some o£ the ones who've been
here a long time, that there's a corporate culture here that believes
the worth of something is measured by the amount of money that goes into
it. The best use of funding is to get the money out as quickly as you
can. But this is changing. And we're not as bad as the World Bank. We
don't just write checks and hand them over; we engage in activities. On
the one hand we're trying to make the best use of the limited amount of
money we have. On the other hand, if the money's not obligated,
Congress looks at the pipeline and says, if you're not spending this
money, how are you making a difference?"
A contractor saw no change. "AID'S focus for years has been on
moving the money. I've never seen it any different. A lot of this was
because programs were judged by bean counters who were not interested in
I
results. If money has been moved, ergo, there has been an effect. When
money has not been moved, that means you aren't having an effect, and
people got upset. It's use it or lose it. Not using money means there
are major screw ups in the mission."

247
I
AID and the Principal-Agent Problem
Adverse Selection
The problem of adverse selection, as I have shown, occurs in
hiring situations. In the first key question I used in probing for the
presence of adverse selection in AID, I asked respondents whether or not
they thought AID'S job market was oligopsonistic. (I did not use the
term "oligopsony" in the question, but asked people whether or not they
thought the job market for AID was competitive, meaning that AID got a
large number of applicants for each job). The’results are displayed in
Table 13. The near unanimity of opinion is striking. One senior
official recalled that in 1979 there had been 5,000 applications for 200
openings. By contrast, in 1993 there had been about 15,000 applications
for 50 direct hire positions.
Table 13. Opinion on job competitiveness in AID. N=22
Competitive
Not competitive
Don't Know
18
1
4
No one, including consultants who work for the agency, appears to be
driven by narrow self interest. Respondents were asked to rate on a
scale of one to five the importance to them of three possible reasons
for seeking employment with AID. Table 14 below shows the results.
The attraction of salary and benefits was neutral, and job
security was unimportant. Nearly four out of five rated working in
international development as personally important to them. This
indicates that the quest for material reward is not a significant
motivation for AID personnel, whether direct hire or consultants. They
are drawn to international development, and thus are self-selecting.

248
I
Table 14. Reasons for seeking employment with AID.
Very
Important
Important
Neut.
Not Very
Important
Not
important
N
Avg
Dev
Import
9
8
3
1
1
22
4.1
Sell &
Benefit
2
4
10
4
2
22
3.0
Job
Secur.
1
3
3
3
10
20
1.9
Moral Hazard
I probed the extent of moral hazard in the agency by asking people
whether they ever knowingly disobeyed directives. A contractor who
admitted he had said, "I think everybody has done it at least once. For
some it's their crowning glory. But they won't tell an outsider like
you." Fortunately, he was wrong. Everyone asked, answered. Of sixteen
persons asked, "Have you ever for whatever reaion done something you
knew your superiors would disapprove of?" seventeen said yes. By a two-
to-one majority, AID personnel knowingly disobey directives. If taken
at face value, this result would indicate evidence of moral hazard.
However, the comments and details the people who answered in the
affirmative provided me indicate it is something else. A direct hire
anthropologist said it most succinctly. "There are lots of times when
to do a good job you have to do something your superiors wouldn't
approve of." Rule-breaking seems to be done in order to further the
goals of AID.
A Contractor said
It's usually project personnel who are doing this, usually to
further project goals with the knowledge and tacit approval of
people in the mission. Every project is different, has a
different level of authority. It changed by project, by how
people interpret project authorization. Strictly speaking, yes,
missions do unauthorized things, and then salt the files after the
fact with the proper documents and memos that they never wrote.
One time on a project, the chief of party told me he needed a
tractor. I told a key person in the region and one in the
capital, and they said to go ahead and buy it, so I did, and then
I salted the files later. When one person in the capital heard
about this, she said, "Oh my God, we could all go to jail!" Long
after the fact people came out from the capital and saw what the
chief of party was doing with the tractor—he'd increased the
acreage that had been planted tremendously—and they all

249
congratulated themselves on their foresight. Some people knew
what I was doing, and they were salting the files just like I was
to cover for it. Others didn't. I can't think of anytime I've
done something I didn't previously discuis with people either in
the region or the capital. As long as project goals are ever in
mind and you've got one or two key people who know what you're
doing, you're okay. If you do it and you don't have that support,
or if you have enemies, and they find out, that would be all it
would take. That would be evidence to fire you. Worse than
losing your job, you could be black-balled out of the industry.
But I've always had good luck with my superiors. On every job I've
had there has always been at least one or two reasonable people
sincerely interested in achieving project goals.
A senior economist in Washington said, "I bend rules all the time. But
there are differences among the different levels of supervisors—the
closest to me are very sympatico. I've been in disagreement with the
leadership. Sometimes I ignore things that are clearly not worth
carrying out."
A contractor who worked for an NGO on an AID-funded project said,
"I do it all the time. Again, this is within the NGO I work for. If I
didn't, I wouldn't be half as effective. In omr project, we have three
bases. The other two bases have project accountants. I put in a
request to promote the African who was handling my books and the daily
correspondence to accountant so he could get the same pay as the guys
who were doing the same job at the other bases. The project director
told me that I couldn't have an accountant; I had to have an office
manager, who was supposed to do the same work as the other two, but for
about 20 percent less pay. I just went ahead and paid my man the same
amount and fiddled with the books to hide it."
One direct hire of nearly twenty-five years experience said,
"People bend rules all the time, but not necessarily to be effective.
But it's not for reasons of graft or corruption either, at least not the
direct hires."
An economist agreed that rule-bending was not done for personal
gain in AID. "In terms of people stealing pencils from office supplies,
that's not a problem. If you join AID to get post differential, okay,

250
you're going to get an extra 25 percent, but where are you going to be?
You're going to be in Somalia, Sudan, Mauritania, Zaire. Places where
you're going to learn, like I did, that a grenade launcher sounds
different than a rifle. I didn't want to learn that. You're going to
I
put your family in a dangerous place to get that money. There are costs
you pay to get that 25 percent. And you can't get it any other way. You
can't get an extra day's per diem because you've got to present your
plane ticket stubs which show where you were and for how long, and
you've got to show receipts."
Rule-bending is not limited to Americans. A Tanzanian told the
following story. "There was once a problem with outstanding cash for
collection in the import support program. It was mostly Indians. They
didn't want me to do any arm-twisting, but I did it anyway. It was a
gamble. If I'd done the arm-twisting and didn't get the money, I would
have been fired. Because I got the money, I received a commendation!"
A high ranking direct hire who had served in numerous African
countries said, "It happened every day in Somalia. But it depends on the
mission and how politically sensitive the country is. If the NSC and
the military and the CIA are all involved, you just forget about
development." In other words, when a Mission is under a lot of high
level scrutiny, people go by the book. In the view of this respondent,
rule-breaking, far from being a detriment, was necessary for
development.
My least cooperative respondent said, "Where doesn't it happen?
Employees and supervisors never see completely eye to eye. I don't like
what you're implying with this question, that this is a problem. It’s
impossible for all people to agree on all things. Conflicting opinions
enrich an organization. They're a source of growth, of synergy, of
innovation." In other words, as a general rule, principled disobedience
is good for organizations. 1

251
The highest ranking official I interviewed, a political appointee,
speaking in regards to whether AID ever does things it knows Congress
would not approve of, said, "We're not completely candid with them. If
they ask the right question, they get the right answer. We don't rush
out with every little detail. They don't want to know every little
thing. It's the nature of bureaucracy to put the best spin on what
I
you're doing." Dissembling behavior is useful for protecting AID from
political pressure, a positive goal.
Of those who answered in the negative, several offered interesting
views. A senior official in REDSO told me rule-bending was impossible
under AID monitoring systems. "Any time you do something under a system
with checks and balances, it will be seen. We have auditors and
inspectors in the regional office of the Inspector General who do this
as a full time job. Occasionally people go beyond the system, but it's
always found out by the auditors and inspectors. Within AID, we're
criticized for the levels of clearance we have to go through. The
clearance procedures often cause delays. It's difficult to move on
something, to be effective. The common sense element often gets lost
because of the paperwork. Mr. Atwood came in ^nd said he wanted to have
more risk-taking."
A high ranking official in the Africa Bureau agreed with this
assessment. "This is because we are a bureaucracy; all decisions are
based on criteria. I was just on the phone long distance with someone
from one of our missions. He knows a young man from the country whose
sister was assassinated by the government. The young man's life may be
in danger. The man I was speaking with can recommend him for a visa for
studying in the U.S., but that would be a violation of the selection
procedure, and so if he did it, he would get in trouble. The young man
might be the best qualified person, but the selection procedure wouldn't
have been followed. People who do these things get into trouble."
(

252
Perhaps not. The picture that emerges is that AID personnel do,
as principal-agent theory predicts, use information asymmetry to bend
rules. What the theory does not predict in this instance is why they
bend the rules. It is not done to put money in their pockets. It is
done to further the interest of the agency. My findings are in support
of the second hypothesis and against the first. AID is not the out-of-
control agency characterized by principal-agent problems that its many
critics suggest.
I
Strong Culture Organizations
The studies of the Bureau of Prisons (BOP), the Forest Service,
the FBI and the Government Accounting Organization (GAO) by,
respectively, John Diluilio, Herbert Kaufman, James Wilson and Wallace
Walker have indicated that each of these is a strong culture of
principled agents. All four scholars have identified some (or all) of
the following characteristics in each of the agencies they have
examined. I shall begin the following discussion with those
characteristics which AID does not share, and end with those
characteristics which it does.
Characteristics of Strong Cultures Which AID Does Not Possess
I
The four scholars all reflect upon the importance of an agency's
public reputation. This is especially true of the FBI and the GAO,
which both strive to be above any hint of corruption in their respective
roles of fighting crime and rooting out corruption. Fairly or unfairly,
AID clearly does not enjoy a reputation above suspicion. Good
communications is another factor the scholars point to for a strong
culture organization. Here too AID is lacking. Stifled by the State
Department career incentives systems which encourages caution and
conformity, AID'S officials fear simple, straightforward language. "We
I

253
can't just sit down and write a memo," complained one. "We have to
agonize over it and regurgitate it and massage it."
A third factor is consistency in rule application. Here AID
suffers from its gigantic and unwieldy "handbook." Said one contractor,
"Direct hires spend a lot of time studying the hand book. There's so
much in there you can find chapter and verse to justify anything." A
fourth element of strong cultures of principled agents is widespread
belief in policy. Here again AID is lacking. Many of the informants
were confused by my lines of questioning regarding where in the
organization policy originates. Many weren't sure what was meant by the
I
term. Others said there were different policies for different levels of
the organization. The fifth factor is what Kaufman called the
manipulation of preferences by the organization, something like (but not
as drastic as) brainwashing or molding people into "company men." Here
AID does not measure up. Probably it could not if it tried. The people
drawn to international development work, more and more of whom are ex-
Peace Corps volunteers, are self-reliant individualists who are not
predisposed to conformity. Finally, strong culture organizations are
able to exploit fortuitous factors. Swift action is something AID is
not good at. "Barnacled over" as one informant described the agency
with a thirty five-year accretion of mandates, AID is anything but
nimble-footed. It is unable to move quickly to exploit anything, as its
slow-paced adoption of democratization program^ reveals.
Characteristics of Strong Cultures Which AID Does Possess
The most important characteristic of a strong culture agency is a
sense of mission. This is an asset AID enjoys. Said one informant, "I
think it's significant that we call our country offices 'missions.' We
have a clear sense of what we're trying to do." A second factor is the
ability of an organization to convey distinctive competence. Here AID

254
I
succeeds. The number and size of its missions around the world give AID
a very strong sense of what is happening on the ground compared to the
World Bank, for example. AID considers itself to be uniquely competent
in international development; in my view rightfully so.
Diluilio and Walker point out the importance of history and
symbols to an organization. Walker argues that the GAO's knowledge of
its own past guides its trajectory into the future. Diluilio mentions
the importance of its symbol to BOP morale, and the dissatisfaction its
personnel expressed when it was changed. While AID may have a less
strong sense of its history than the GAO, its personnel certainly seem
attached to its symbol. The decision by the administrator Ronald
Roskens to replace the militaristic emblem with an insignia more
(
resembling Peace Corps' met with widespread dissatisfaction according to
a very senior direct hire. The only people who seemed to support the
change were junior contractors, who disliked the military overtones of
the original. The symbol was changed back to a handshake on a red,
white and blue military shield in 1995. The only difference was the
original four stars in the blue field representing Truman's Point Four
declaration were replaced with the five letters "USAID."
A collegial atmosphere is important to successful organizations.
Here AID seems to do well. People within missions overseas, and within
divisions in Washington, seem to agree that collegiality is high. The
sense of amicability seems not to cross organizational boundaries,
however. Camaraderie between divisions, headquarters and the field is
more problematic. ^
Pride in belonging is another factor the scholars agree is
important for a strong culture. Having expected from the press it
receives and my own experience that I would find AID workers to be
cynical and burned out, I was surprised to discover that they had pride
in belonging to the agency. People used the first person plural when

255
discussing AID, talking in terms of "we" and "us." The only exception
was the longer term contractors. They used thé third person plural,
"they" and "them," objectifying AID direct hires. Perhaps this was
their way of handling the frustration they get from their encounters
with AID'S often irrational ways of doing things.
Strong leadership is another attribute the scholars point to as
crucial for an agency's success. Two of AID'S three most recent
administrators were singled out as strong leaders. Reagan's appointee,
M. Peter McPherson was credited with successfully reorienting the agency
in a trying time. Clinton's appointee J. Brian Atwood was credited with
"saving the agency," although some resented the impression he conveyed
that the cost of the salvage operation was early retirement for many of
the old guard. Others believed he was more effective in defending the
agency from external enemies than in his ambitious internal reforms.
I
There was general agreement, in the words of a very junior contractor,
that "personalities matter." A difference in mission directors often
spells the difference between an energized group of motivated people and
a sullen mass of disheartened time-servers.
One characteristic Diluilio pointed to which is especially
important to AID is the ability to achieve goals not in the book but
within operational norms. This need is familiar to anyone who has
worked in a large organization, and is more commonly expressed as the
ability of personnel to "use your head" and "think on your feet." My
point that rule-bending to achieve mission goals should not be
considered morally hazardous behavior is consistent with this
characteristic, which I believe AID enjoys.
All four scholars agree that socialization of new members into the
cultural ethos is important to a strong organization. AID succeeds in
doing this, although the results are perhaps at times ambiguous. "We'll
take a person with a Ph.D. in anthropology," said one informant, "and

256
turn him into a paper pusher." The most senior direct hires all seemed
to share a high degree of caution and aversion to risk. On the positive
side, AID employees are socialized to have a strong sense of duty and
public spiritedness, and to be people motivate^ by moral (not material)
reward.
Kaufman discusses the importance of systems for overcoming what he
terms "centrifugal effects," or the passage of far-flung bureaucrats in
the Forest Service out of central control. Three of these which AID
possesses are: hierarchical specialization, or the division of labor
within the organization by function and/or geographic region; the
multiplication of controls, such as reporting requirements, random
inspections and audits, and standard operating procedures; and the
neutralization of localism, known in the British colonial service as
"going native," or switching primary identification from the interests
of the organization to the interests of the local people. This is
overcome, in AID as in the Forest Service, by frequent rotation of
personnel. All of these methods for achieving1 unified control are
employed by AID. It thus belongs in the class of organizations studied
by Kaufman, Wilson, Walker and Diluilio. AID is that comparatively rare
beast, a strong culture of principled agents.
I

I
CHAPTER 10
CONCLUSION
The Role of Conflict in AID Policy Change
I have argued that AID's policies are made in what can be
conceived of as two separate rooms, with the weightier policies
involving the decision to give aid and the amounts to be given made in a
"back room" where conservative realism predominates, where protecting
U.S. national interests is the paramount concern, and the agenda is more
or less hidden from view; and a "front room" open to the public where
liberal altruists manage affairs, concerns for humanitarian philanthropy
dominate, and the agenda is propagated for public consumption. I have
further argued that changes over time have been the product of conflict
at a number of levels, both internal and external to the agency. There
have been numerous conflicts about the agency between the Congress and
the President since the mid 1960s. The current conflict between the
branches of government over the future of AID is perhaps the most
significant. There have been conflicts between the agency and the
legislature over reform of AID's enabling legislation and its level of
funding. There have been conflicts between the agency and the
executive, for example between the foreign policy establishment and the
Kennedy administration over the issue of using*foreign aid to support
democracy.
There have been conflicts within the agency between headquarters
and the field. A drawn battle over a trivial issue that had significant
consequences in the case of the mission in Tanzania was the dispute over
where to hold a strategy review session following the 1976 elections.
257

258
Another protracted controversy between headquarters and the field
occurred over the problem the Tanzania mission had in developing the new
style impact indicators during the late 1980s.
There were conflicts within the Mission. The most serious of
these occurred in the latter half of the 1970s over the issue of
whether, how, and at what level to support Ujamaa. Here the dividing
line was clearly ideological, with growth-oriented conservative realists
opposing Ujamaa and liberal altruists who favoyed equity issues
supporting it, and thus ironically transforming themselves into the last
ditch defenders of the "Big Lie" in Tanzania.
There were numerous diplomatic conflicts between Tanzania and the
United States. The first of these occurred in 1964 following the
unification of Zanzibar and Tanganyika. Perhaps the most dramatic was
the diplomatic flap over the dance of Salim following the vote in the
U.N. to expel Taiwan. Other conflicts occurred over Tanzania's fight
with the IMF and its ambivalent position during Desert Storm. All of
these negatively influenced the level of American aid to Tanzania.
Finally it may be said that there are conflicts within individual
AID workers. From the interviews it appears to me that AID personnel
experience a certain degree of cognitive dissonance between the
necessity of (and the career rewards that folléw from) going by the
book, and their personal desire to be effective in helping do some good
in the world. The laborious and voluminous paperwork requirements of
AID procedures often conflict with the imperatives of getting the job
done right. AID personnel seem to be divided into two camps, those who
adhere to the cautious strategy of following regulations and regret the
cost in effectiveness this incurs, and those who cut corners to achieve
the objectives at the risk of suffering punishment if found out. The
compromise seemingly struck at the top levels is to pronounce official
discouragement and disavowal of rule-bending behavior in the field,
I

259
while communicating subtextual approval. This provides the leadership
with deniability. Meanwhile AID'S top officials engage in dissembling
behavior toward Congress, telling the legislature what they want it to
hear and putting the best spin on things.
Intellectual Influences
In addition to the role that conflict has played in hammering out
AID policy, there have been different and changing intellectual
influences on the agency from two academic disciplines over time.
Economics gave AID strategies of state-led groyth, which were followed
by strategies for equitable growth, which in turn were succeeded by
strategies for private sector-led growth. Political science gave AID
both theories of political development and theories of development
administration. The first political development theories were in effect
a "mass of propositions." Their inadequacy, and the sullying of
political development programs in the debacle of Vietnam, caused
political science to be removed from the agenda until the economists
turned their attention to political issues in the early 1980s.
Political development came back, first with theories of governance, and
then practice got out around in front of theory once again in the new
demand for democratization. Development administration was less
controversial than political development. It gave AID hard
structuralist recommendations at first, then fallowed these with concern
for contextualism, and at last produced a synthesis which I have called
organicism.
Donors have tried many different tactical approaches to inducing
accelerated development. I have considered four: institution building,
integrated rural development, the learning process approach, and using
indigenous knowledge. Each was tried in Tanzania. Each was first done
in the Etawah project in India in the late 1940s and early 1950s.

260
I
An unusual aspect of international development is the fact that
practice has usually preceded theory. It is remarkable that, much like
the people who sweep up after the parade, academics have generally
followed behind the practitioners in producing scholarly expressions for
what was already being done.
Political Influences
A third area of influence on AID policy is the American federal
government. This system of divided governance gives both the Congress
and the President a strong influence over AID. Different congresses and
different presidents have had different attitudes toward foreign aid,
ranging from the realist view of aid as bribery to the altruist view of
aid as philanthropy. AID must respond to both.
The foreign policy agenda is largely under the control of
conservative realists for whom defense of the national interest is
always the paramount issue. Conservative concerns dominate the key
decisions regarding funding. Thus of the five biggest budget cuts made
in foreign aid to Tanzania, 1966-67, 1972, 1976-77, 1982-86, and 1991,
all but the first were made in retaliation for Tanzanian opposition to
U.S. foreign policy. Of the six biggest budget increases, 1970, 1973,
1975, 1978, 1986, and 1992, all but the 1975 humanitarian loan were made
to reward Tanzania for supporting U.S. interests.
This is not to say that the liberals had no leverage at all.
Their zenith came under the Carter administration in the period of
reaching the poor majority when integrated rurál development was in its
heyday. In the case of Tanzania, the acme of liberal altruism was
undermined by a strong conservative backlash against the radicalization
of Ujamaa. For the most part, the sphere of influence of liberals is
confined to implementation, the design and execution of discrete
projects and programs. In foreign policy circles, liberals are very

261
much second class citizens. Thus the behavior of AID in Tanzania, as
I
measured by new spending obligations per year, has been a complex
interaction between competing propensities of realism and altruism. I
have described the net effect as a synthesis of two antithetical but
unequal propensities, which I have called pragmatic altruism.
I have described AID as existing in two distinct spheres, or
environments, with the agency itself comprising a third. AID functions
in a political environment in Washington and a task environment
overseas. I have shown how the great distance between its input and
output functions causes it complications. The agency is required to
adopt a Janus-faced posture, remaining ever alert to changing moods in
Washington while attempting to induce accelerated development in the
Third World. This has resulted in a substantial degree of bureaucratic
dysfunction.
AID since its inception has undergone eight major changes in
policy. Of these, two were paradigm shifts. These separate the history
of AID into three distinct periods, 1961-1973, 1974-1980, and 1981-1995.
I have argued that for a policy change to represent a paradigm shift,
two factors must be present: there must be very high political pressure
from Washington and very low confidence in ongoing programs in the
field. These two factors were present in 1973 with the New Directions
and again in 1981 when the Reagan Doctrine was pronounced. The other
eight policy changes were not of the same magnitude because one or both
of these factors was absent. Stated somewhat differently, change is
simply failed reproduction of the status quo (Thompson et al. 1990: 22).
When reproduction of a policy fails to occur but one or both of the
conditions necessary for a paradigm shift are Aot present, policies
change but the dominant paradigm is extended further into time.
I have shown that AID'S task environment is characterized by an
unusually high degree of uncertainty. Furthermore, AID'S political

262
environment is likewise a highly uncertain place because AID is an
exceptionally unpopular agency.
For years AID has been accused by its enemies on both the left and
I ...
the right of being an internally dysfunctional rogue organization in
which corruption runs rampant. I take issue with that view. My field
data suggest that it is not a corrupt and out-of-control agency; it is
that very rare thing: a government bureaucracy with a strong culture of
principled agents. I accept that AID is a far cry from a paragon of
rational action. The data show this is due to excessive meddling.
Anyone who worries about state abuses of domestic civil rights and
recalls how U.S. power was used in ways that injured millions of
innocent people in the proxy battlefields of the Cold War will recognize
the danger in my position. Given the excrescent abuses of power carried
out by the FBI under Hoover, which I have argued is another strong
culture organization of principled agents, to contend that the ends
always justify the means puts me out on a very^shaky limb. Thus I must
attach a caveat to my conclusion. Rule-bending can be acceptable only
if done selflessly to accomplish agreed upon goals; no one who bends
rules may personally profit, and no third parties may be injured as a
consequence.
If this premise can be conceded, then my conclusion that AID does
not suffer from the principal-agent problem can stand. The agency seems
to have acquired the best trade off possible between the equally
desirable but often mutually exclusive goals of effectiveness and
accountability. Creative rule-bending to achieve legitimate program
goals and to enrich organizational synergy is officially disallowed. It
is not encouraged by the agency, but people at the highest levels know
it is happening and in fact engage in the same sort of dissembling
behavior toward Congress for the same reason.
263
bending is permitted to occur with the understanding that anyone who
gets caught will personally suffer all the consequences alone.
I have found three reasons why AID does not suffer from excessive
principal-agent problems. First, AID is part of an oligopsony. This
puts it in the enviable position of enjoying advantageous selection
rather than suffering from adverse selection. * Second, people who work
in international development are self-selecting. Making a lot of money
is not important to them, but doing some good in the world is. Thus,
they self-select. They are predisposed to be the sort of people who,
when they bend rules, do not engage in the sort of morally hazardous
behavior the principal-agent model predicts. They do not break rules
for personal gain, but rather do it to get the job done. Thirdly, AID
is strongly controlled. The monitoring systems Congress has put in
place over the years work effectively in preventing gross corruption and
in holding officials accountable.
Yet because AID is a strong culture of principled agents, such
heavy monitoring is a waste of resources. So why is AID micromanaged?
The answer is its political unpopularity. Politicians win points with
their constituents back home by putting pressure on unpopular agencies,
even if no pressure is needed to make the agencies obey. The case of
AID instructs us that the American system of government will serve to
defeat common sense and waste resources by micromanaging and
overmonitoring strong cultures of principled agents that do not need it
if they are politically unpopular and convert what could otherwise be
model agencies into models of organizational dysfunction.
The Structuration of AID in Nested Games
Little of the epistemological debate in the social sciences is
occupied with trying to harmonize or integrate the antinomies of macro
and micro, aggregate and individual, and structure and agency. Most
I

264
social scientists pick one and turn their back on the other. Those who
attempt to move back and forth between these poles are accused of
committing the ecological fallacy of using data from one level of
analysis to refer to another.
I have argued against the conventional wisdom and committed the
ecological fallacy on the grounds that agencies are best conceived of as
being structurated through nested games. Structuration describes the
ongoing transformation of structures through action and the constraint
on action by structures. Nested games describes a landscape in which
each individual is engaged in a number of activities at once, and may be
willing to engage in seemingly irrational actions in one game if that
means scoring points in another more important game. I have described
AID's behavior as the result of a dialectic between competing ideologies
and interactions among a variety of actors contesting with each other in
different arenas in the political environment, within AID itself, and
within the international development task environment. When
relationships among players are antagonistic, principal-agent problems
will abound. However it might occur, whether through gradual,
evolutionary processes or because of planning by resolute leadership,
whenever these relationships become cooperative and players begin to
engage in assurance games, the result will be a strong culture of self-
disciplined principled agents.
Why AID Will Survive
Today AID is poised on a knife edge from which it inevitably must
fall. If it falls one way, it will cease to exist. If it falls the
other way it will survive and undergo a paradigm shift.
I believe AID will survive for four reasons. First, instances of
federal agencies being abolished are quite rare. Second, the strength
of AID's opponents has passed its high-water mark; the movement to
I

265
abolish AID has run out of momentum. Third, AID'S new coterie of
supporters, the "do-gooder" lobby of faith-based relief and development
organizations and the secular NGOs which are proponents of assisting
democratization have sufficient numbers of supporters that they will
prove as effective as the consortium of land-grant universities that
previously was AID'S strongest shield. Fourth, political leadership
will emerge with the determination and the capacity to show the American
people that it is in the interest of the nation to help democracy
survive where it is now putting down its first fragile roots, that
helping it thrive where it has recently taken Aold will require a
continuation of a foreign aid program. For these four reasons I believe
AID will survive the latest and most serious threat to its existence.
Political pressure is currently strong and growing as the 1996
election campaign heats up. Confidence in the field is at the same time
extremely low. Most AID personnel are simultaneously struggling to
understand unfamiliar political variables while trying to implement the
changes stemming from AID'S reengineering. Thus if AID does survive, as
I expect it will, a third paradigm shift is imminent.
I expect the next paradigm shift will bring in a new dominant
strategy of extending democratic governance into the areas of the world
where the United States once played a large role in confronting
Communism. While I do not believe as some (Pye 1990) that this
I
represents the vindication of modernization theory, I do think this
places the United States in the position of being able to help
previously marginalized people empower themselves to take greater
control over their lives. In stark contrast to the many instances and
places in the past when the United States was shackled to its own Cold
War dogma and acted against the interests of ordinary people, today it
has the opportunity finally to live up to its own ideals. In the past
short-sighted U.S. policies undercut America's own founding principles.

266
(
It would be truly tragic today if short-sighted politicians did not see
the clear gain to be had by taking AID off the knife's edge of the issue
of its survival and transforming it from an instrument of U.S. ideology
into the cutting edge of American idealism. If AID were finally allowed
to realize its original purpose of helping extend America's core values
to people in the developing areas, this would reenergize the American
people who currently seem quite uncertain about their role in the world,
and take good advantage of a solid cadre of personnel, a strong culture
of principled agents.
f
I

APPENDIX A
ANONYMOUS MEMORANDUM1
1. AID culture places highest value on money and GHAI does not hold out
the prospect for more money.
2. AID culture values long term development, and GHAI requires
integration with short and medium term actions.
3. AID culture assumes stability in which long-term development can take
place, and the Greater Horn requires working in an unstable
environment.
4. AID culture dictates the form and format of its development
assistance and is uncomfortable being integrated with other donors
processes and documentation as envisioned by GHAI.
5. AID culture places high value on economic development, as is
uncomfortable integrating with political, social and intelligence
activities foreseen by GHAI.
6. AID culture contract-out most implementation and GHAI calls for
extensive direct hire management and policy time.
7. AID culture values long term development scientists and has created a
distance from short term relief workers - a gap in mutual team
acceptance which hinders the transition from relief to development.
8. AID culture responds vertically to bureau, hierarchy, and has
difficulty organizing permanently horizontally across bureaus as the
complex context of GHAI requires.
9. There have been so many Initiatives, so fast that the corporate
culture is skeptical that GHAI is any more than the fact-of-the -
month, and will go away if ignored.
10.AID systems are based on large field Missions and GHAI recognizes
this is not the presence in 5 of 10 GHA countries.
This anonymous memorandum was circulating in the AID Washington
offices in March 1995. A copy was given to me by a person interviewed
for this study. The acronym GHAI stands for Greater Horn of Africa
Initiative, a regional program being set up by AID at that time.
267

APPENDIX B
ANONYMOUS DOGGEREL: "THE DEVELOPMENT RAP"
Excuse me friends, I must catch my jet.
I'm off to join the Development Set.
My bags are packed, I have my shots,
Travellers' checks and pills for the
trots.
With passport, visas and advanced
degrees,
I'll get those people off their knees.
I know the models, acronyms, the
average yield:
Now all it will take is time in the
field.
"Banana Republic"'s where I bought my
clothes;
Got to make sure the image shows.
These days we do without the aides and
lackeys,
As long as we're decked in the right
cut of khakis.
Development people are bright and
noble;
Our thoughts are deep, are vision
noble.
We circulate only with the better
classes,
Even though our thoughts are always
with the masses.
In Sheraton Inns in scattered nations
We damn those multinational-
corporations .
Injustice seems easy to protest
In such seething hotbeds of social
rest.
Political systems are out of bounds;
My professor said: "Keep your eyes on
the ground.
'Oppression,' 'exploitation' are words
not uttered.
You've got to remember where your bread
is buttered!"
We talk malnutrition over steak
And plan hunger studies on coffee
break.
Whether Asian flood or African drought,
We face any challenge with an open
mouth.
We bring in consultants whose
circumlocution
Creates a problem for every solution;
Thus making sure we keep on eating
By showing the need for another lunch
meeting.
The language of the Development Set
Stretches the English alphabet;
There are obfuscations like
"epigenetic,"
"Micro," "macro" and "logarithmetric."
It pleases us to be so esoteric;
Intellectually it's atmospheric.
The peasants can't understand our
babble,
But we're "state-of-the-art" when it
comes to Scrabble.
In the rural zone there was basic
subsistence,
Adoption strategies, and technical
assistance.
Then with "integrated" and
"participation,"
We thought there'd be enough to feed
the whole nation.
When all those catchwords didn't work
out
Our proposals began to lose their
clout.
Grantsmanship is war, yes siree!
Our wordsmiths came up with "FSR-Eese".
When the talk gets deep and you're
feeling dumb
You can keep your shame to a minimum.
To show that you, too, are intelligent
Smugly ask, "Is this development?"
268

Or say, "That's fine in practice, but
don't you see;
It doesn't fit with the thee-o-ree."
To the man on the street
incomprehensible,
In development-speak that's sensible.
Development homes are very chic,
Full of carvings, curios, and draped
Batik.
Eye-level photographs subtly assure
Your host is at home with the great and
the poor.
There's a Volvo in the driveway and art
on the wall
But don't ever ask who pays for it all.
If Congress gets wise to the
development racket
We'll need to declare in a lower tax
bracket.
Liberals wring their hands at
Communists.
The red necks think bullets work best.
We keep telling them development's the
answer,
To best confront the Marxist cancer.
If you get depressed thinking all is
lost,
Thank your stars for "overhead costs."
It builds our buildings and pays our
wages,
And helps us publish those reams of
pages.
The starving masses are kept at bay.
You and I will die and rot some day.
For now keep in mind as you sip your
beer
Most of that foreign aid ends up here.
Enough of these verses—on with the
mission!
Our task is as broad as the human
condition.
Just pray that the biblical verse is
true:
"The poor ye shall always have with
269

270
APPENDIX C
TIMELINE
1961 FAA
De
Arusha
Declaration
Tanganyikan
Independence
•Zanzibar
Independence
•Revolution
•Tang. Army
Mutiny
•Mann Doct.
•Union
•Dragpn Rouge
:entralizat'n
Dance of
Salim
TAZARA
•Villagization
•New Directions
Reagan
Doctrine
Nyerere
steps down
IMF
dispute
War with
Uganda
Famine
Brooke
Amendment
Gulf War
1961
1965
•1966 FAA
•Korry
Report
1970
1975
1980
1985
Tar Baby
Carter
Doctrine
1990
DFA
Multiparty
Elections
1995

LIST OF REFERENCES
I
Acheson, Dean G. (1969), Present at the Creation: My Years in the State
Department (New York: Norton).
Ai Ping, (forthcoming), "From International Proletarianism to Mutual
Development," in Hyden et al. What Drives Donor Strategy?
Almond, Gabriel(1990), A Discipline Divided: Schools and Sects in
Political Science (Newbury Park: Sage Publications).
and James Coleman (eds.) (1960), The Politics of the
Developing Areas (Princeton: Princeton University Press).
and G. Bingham Powell, Jr. (1966), Comparative Politics
a Developmental Approach (Boston: Little, Brown).
Alt, James E. and Kenneth A. Shepsle (eds.) (1992), Perspectives on
Positive Political Economy (Cambridge, Cambridge University
Press).
Apter, David and Carl Rosberg (eds.) (1994), Political Development and
the New Realism in Sub-Saharan Africa (Charlottesville VA:
University Press of Virginia).
Art, Robert J. and Seyom Brown (eds.) (1993), U.S. Foreign Policy: The
Search for a New Role (New York: MacMillán).
Attwood, William (1967), The Reds and the Blacks: A Personal Adventure
(New York: Harper and Row).
Austin, Nigel (1996), "Factors Influencing the Use of Improved
Technology by Small Jamaican Farmers," Ph.D. unpublished
dissertation, University of Florida.
Avirgan, Tony and Martha Honey (1982), War in Uganda: The Legacy of Idi
Amin (Westport CT: Lawrence Hill).
Bandow, Doug (1988), "Making Friends in the Third World," in Boaz
(ed.), Assessing the Reagan Years.
Barilleaux, Ryan J. and Mary E. Stuckey (eds.) (1992), Leadership and
the Bush Presidency: Prudence or Drift in an Era of Change
(Westport, CT: Praeger).
Barkan, Joel, (1994), "Resurrecting Modernization Theory and the
Emergence of Civil Society in Kenya and Nigeria" in Apter and
Rosberg (eds.), Political Development.
Basu, Kaushik, (1984), The Less Developed Economy: A Critigue of
Contemporary Theory (Oxford: Basil Blackwell).
I
271

272
Bates, Robert (1981), Markets and States in Tropical Africa (Berkeley,
University of California Press).
(1992) "Macropolitical Economy in the Field of
Development, in Alt and Shepsle (eds.) Perspectives.
Berman, Edward H. (1983), The Influence of the Carnegie, Ford, and
Rockefeller Foundations on American Foreign Policy: The Ideology
of Philanthropy (Albany NY: State Unversity of New York Press).
Blase, Melvin G. (ed.) (1973), Institution Building: A Source Book
(Washington: U.S. Agency for International Development).
Baumgartner, Frank R. and Bryan D. Jones (1993), Agendas and Instability
in American Politics (Chicago: University of Chicago Press).
Bell, Coral (1987), "From Carter to Reagan," in Hyland (ed.) The Reagan
Foreign Policy.
Bienen, Henry (1967), Tanzania: Party Transformation and Economic
Development (Princeton NJ: Princeton University Press).
Biersteker, Thomas J. (1987), Multinationals, the State, and Control of
the Nigerian Economy (Princeton NJ: Princeton University Press).
Blau, Peter M. (1955), The Dynamics of Bureaucracy (Chicago: University
of Chicago Press).
Boaz, David (ed.) (1988), Assessing the Reagan Years (Washington DC: The
Cato Institute).
Bowles, Chester (1955), Ambassador's Report (London: V. Gollancz).
Bratton, Michael and Nicholas Van Der Walle (1992), "Toward Governance
in Africa: Popular Demands and State Responses," in Hyden and
Bratton (eds.) Governance and Politics in Africa.
Braybrooke, David and Charles E. Lindblom (1963) A Strategy of Decision
(New York: Free Press of Glencoe).
Brown, Seyom (1984), On the Front Burner: Issues in U.S. Foreign Policy
(Boston: Little, Brown).
Brzezinski, Zbigniew (1983), Power and Principle: Memoirs of the
National Security Adviser 1977-1981 (New York: Farrar Strauss
Giroux).
Campbell, Colin and Bert A. Rockman (eds.) (1991), The Bush Presidency:
First Appraisals (Chatham, NJ: Chatham House).
Cernea, Michael (ed.) (1991), Putting People First: Sociological
Variables in Rural Development (Washington: World Bank).
Chambers, Robert (1983), Rural Development (Essex: Longman).
(1991), "Shortcut and Participatory Methods for Gaining
Social Information for Projects," in Cernea (ed.) Putting People
First.
(1994), "The Origins and Practice of Participatory
Rural Appraisal," World Development, vol. 22, no 7, pp. 953-969.

273
Chenery, Hollis and Alan M. Stroudt (1966), "Foreign Assistance and
Economic Development," American Economic Review, vol. 56 pp. 679-
733.
Clayton, Anthony (1981), The Zanzibar Revolution and it Aftermath
(Hamden CT: Archon Books).
Cohen, Warren I. and Nancy Bernkopf Tucker (eds.) (1994), Lyndon Johnson
Confronts the World: American Foreign Policy, 1963-1968, (New
York: Cambridge University Press).
Collier, Paul (1991), "Aid and Economic Performance in Tanzania," in
Lele and Nabi (eds.), Transitions.
Crane, George T. and Abla Amawi (eds.) (1991), The Theoretical Evolution
of International Political Economy (New York: Oxford University
Press).
Crouch, Susan (1987), Western Responses to Tanzanian Socialism (1967-
1983) (Brookfield, VT: Aldershot, Hanks, England).
DeLancey, Mark W. (ed.) (1993), Handbook of Political Science Research
on Sub-Saharan Africa: Trends From the 1960s to the 1990s
(Westport CT: Greenwood Press).
Diamond, Larry (1995), "Promoting Democracy in the 1990s: Actors and
Instruments, Issues and Imperatives," A Report to the Carnegie
Commission on Preventing Deadly Conflict (New York: Carnegie
Corporation).
Diluilio, John D. Jr. (1994), "Principled Agents: The Cultural Bases of
Behavior in a Federal Agency," Journal of Public Administration
Research and Theory, vol. 3, no. 3, pp 277-319.
Domar, Evsey D. (1957), Essays in the Theory of Economic Growth (New
York: Oxford University Press).
Downs, Anthony (1967), Inside Bureaucracy (Boston: Little, Brown).
Ebenstein, William (1958), Great Political Thinkers (New York:
Rinehart).
Eckstein, Harry (1988) "A Culturalist Theory of Political Change"
American Political Science Review, vol. 82, no. 3, pp. 789-795.
Eggertsson, Thrain (1990), Economic Behavior and Institutions
(Cambridge: Cambridge University Press).
Elgstrom, Ole (forthcoming), "Ideology Versus Practice: Swedish Aid to
Tanzania," in Hyden et al. (eds.) What Drives Donor Strategy?.
Elmore, Richard (1979), "Backward Mapping: Implementation Research and
Policy Decisions," Political Science Quarterly, vol 94, no. 4, pp.
601-616.
Feagin, Joe R., Anthony M. Orum, and Gideon Sjoberg (eds.) (1991), A
Case for the Case Study (Chapel Hill NC: University of North
Carolina Press).
Fisher, Louis (1992) "Ten Years of the Budget Act: Still Searching for
Controls," in Hyde (ed.), Government Budgeting.

274
Forbes, Malcolm S. Jr. (1988) "A Record of Success," in Boaz (ed.) ,
Assessing the Reagan Years.
Franklin, Daniel P. and Robert Shepard (1992), "Is Prudence a Policy?"
in Barilleaux and Stuckey (eds.), Leadership and the Bush
Presidency.
Freeland, Richard (1972), The Truman Doctrine and the Origins of
McCarthyism (New York: Knopf).
Galtung, Johan (1991), "The New International Economic Order," in Stiles
and Akaha (eds.), International Political Economy.
Garimella, Kiran (1993), "A Knowledge-Intensive Machine-Learning
Approach to the Principal-Agent Problem," Ph.D. dissertation,
University of Florida.
Giddens, Anthony (1979), Central Problems in Social Theory: Action,
Structure, and Contradiction in Social Analysis (Berkeley:
University of California Press).
(1984), The Constitution of Society: Outline of the
Theory of Structuration (Berkeley: University of California
Press).
Gill, Stephen and David Law (1988), The Global Political Economy:
Perspectives, Problems and Policies (Baltimore: Johns Hopkins
University Press).
Gilpin, Robert (1987), The Political Economy of International Relations
(Princeton, NJ: Princeton University Press) .
Goldman, Eric F. (1969), The Tragedy of Lyndon Johnson (New York:
Dell) .
Goldwin, Robert H. (ed.), Why Foreign Aid? (Chicago: Rand McNally).
Goodsell, Charles T. (1985), The Case for Bureaucracy: A Public
Administration Polemic (Chatham NJ: Chatham House).
Greene, John Robert (1995), The Presidency of Gerald R. Ford (Lawrence,
KS: University of Kansas Press).
Hancock, Graham (1989), Lords of Poverty: The Power, Prestige, and
Corruption of the International Aid Business (New York: Atlantic
Monthly Press).
Harbeson, John W. (1995), "Reflections on Democratization in Africa,"
African Voices, vol. 4, no. 3, pp. 2-5.
Hargrove, Erwin C.(1978), "Issue Networks and the Executive
Establishment" in King (ed.), The New American Political System.
(1988), Jimmy Carter as President: Leadership and the
Politics of the Public Good (Baton Rouge LA: Louisiana State
University Press).
Harrod, Roy F. (1959), "Domar and Dynamic Economics," The Economic
Journal, vol. 69, pp. 451-464.

275
Hayes, Michael T. (1992) Incrementalism and Public Policy (White Plains
NY: Longman).
Hayter, Theresa (1971), Aid as Imperialism (Middlesex: Penguin Books).
(1985), Aid: Rhetoric and Reality (London: Pluto Press).
Heady, Ferrel (1979), Public Administration: A Comparative Perspective
(New York: Dekker).
Heclo, Hugh (1977), A Government of Strangers: Executive Politics in
Washington (Washington DC: Brookings Institution).
Hedge, David, and Michael Scicchitano (1991), "The Principal-Agent Model
and Regulatory Federalism," Western Political Quarterly, vol. 44,
no. 4, pp. 1055-1086.
Heinrichs, Waldo (1994), "Lyndon B. Johnson: Change and Continuity" in
Cohen and Tucker (eds.), Lyndon Johnson Confronts the World.
Hirschman, Albert (1958), The Strategy of Economic Development (New
Haven CT: Yale University Press).
(1967), Development Projects Observed, (Washington DC:
Brookings Institution).
(1970) Exit, Voice and Loyalty: Responses to Decline
in Firms, Organizations, and States (Cambridge MA: Harvard
University Press).
Hook, Steven W. (1995), National Interest and Foreign Aid (Boulder CO:
Lynne Reiner).
Hull S. and L. Peter (1969), The Peter Principal, (New York: Bantam
Books).
Huntington, Samuel P.(1968), Political Order in Changing Societies (New
Haven CT: Yale University Press).
(1971), "The Change to Change: Modernization,
Development, and Politics," Comparative Politics, vol. 3, no. 3,
pp. 283-322.
Hyde, Albert C. (ed.) (1992), Government Budgeting: Theory, Process,
Politics (Pacific Grove CA: Brooks/Cole).
Hyden, Goran (1980), Beyond Ujamaa: Underdevelopment and an Uncaptured
Peasantry (Berkeley: University of California Press).
and Michael Bratton (eds.) (1992), Governance and Politics
in Africa (Boulder CO: Lynne Rienner).
, Ole Elgstrom, Rwekaza Mukandala, and Ai Ping (eds.), What
Drives Donor Strategy? (forthcoming).
Hyland, William G. (ed.) (1987), The Reagan Foreign Policy (New York:
New American Library).
Ink, Dwight (1993), "Administration and Technical Assistance" in
Thompson (ed.) Foreign Policy in the Reagan Presidency.

276
Johnson, Janet Buttolph and Richard A. Joslyn (1991), Political Science
Research Methods (Washington: Congressional Quarterly Press).
Jones, Charles 0. (1984), An Introduction to the Study of Public Policy
(Belmont CA: Brooks/Cole).
Jordan, Hamilton (1983), Crisis: The Last Year of the Carter Presidency
(New York: Putnam).
Kaufman, Herbert (1960), The Forest Ranger (Baltimore: Johns Hopkins
University Press).
Kegley, Charles W., Jr. and Eugene R. Wittkopf (eds.) (1988), The
Domestic Sources of American Foreign Policy (New York: St.
Martin's Press).
Kemp, Geoffrey (1993), "Presidential Management of the Federal
Bureaucracy," in Art and Brown (eds.) U.S. Foreign Policy.
Keohane, Robert 0. and Joseph S. Nye (1991), "Interdependence in World
Politics," in Crane and Amawi (eds.), The Theoretical Evolution of
International Political Economy.
Kesselman, Mark (1974), "Order or Movement? The Literature of Political
Development as Ideology," World Politics, vol 26, pp. 139-154.
Kindleberger, Charles P. (1987), Marshall Plan Days (Winchester MA:
Allen and Unwin).
King, Antony (ed.), The New American Political System (Washington DC:
American Enterprise Institute).
Kingdon, John W. (1984), Agendas, Alternatives, and Public Policies
(New York: HarperCollins).
Kiewiet, D. Roderick and Mathew D. McCubbins (1991), The Logic of
Delegation (Chicago: University of Chicago Press).
Kissinger, Henry (1979), White House Years (Boston: Little, Brown).
Kortcn, David (1980), "Community Organization and Rural Development: A
Learning Process Approach," Public Administration Review, vol. 30,
pp. 480-511.
Krasner, Stephen (1985), Structural Conflict: The Third World Against
Global Liberalism (Berkeley: University of California Press).
Kudrle, Robert T. (1991), "The Several Faces of the Multinational
Corporation: Political Reaction and Policy Response," in Stiles
and Akaha (eds.) International Political Economy.
Kuznets, Simon (1966), Modern Economic Growth (New Haven CT: Yale
University Press).
Lake, Anthony (1976), The "Tar Baby" Option: American Policy Toward
Southern Rhodesia (New York: Columbia University Press).
Lee, Robert D. and Ronald W. Johnson (1989), Public Budgeting Systems
(Gaithersburg MD: Aspen).

277
Lele, Urna (1974), The Design of Rural Development (Baltimore: Johns
Hopkins University Press).
and Ijaz Nabi (eds.) (1991), Transitions in Development (San
Francisco: ICS Press).
Leonard, David K. (1977), Reaching the Peasant Farmer: Organization
Theory and Practice in Kenya (Chicago: University of Chicago
Press) .
Lewis, W. Arthur (1954), "Economic Development With Unlimited Supplies
of Labour, The Manchester School of Economic and Social Studies,
vol. 28, no. 2, pp. 139-191.
(1958), "Unlimited Labour: Further Notes," The
Manchester School of Economic and Social Studies, vol. 26, no. 1,
pp. 1-32.
Leys, Colin (ed.) (1969), Politics and Change in Developing Countries
(Cambridge: Cambridge University Press).
Lindblom, Charles E. (1959), "The Science of Muddling Through," Public
Administration Review, vol. 19, pp. 79-88.
(1991), Inquiry and Change: The Troubled Attempt to
Understand and Shape Society (New Haven CT: Yale University
Press).
Lipset, Seymour M. (1959), "Some Social Requisites of Democracy."
American Political Science Review, vol. 53, pp. 69-105.
Lipsey, R.G. and Kelvin Lancaster (1956-7), "The General Theory of
Second Best," Review of Economic Studies, vol. 24, no. 1, pp. 11-
32.
Listowel, Judith (1965), The Making of Tanganyika (London: Chatto and
Linders).
Lumsdaine, David H. (1993), Moral Vision in International Politics: The
Foreign Aid Regime 1949-1989 (Princeton NJ: Princeton University
Press) .
Lyons, Terrence (1994), "Keeping Africa off the Agenda" in Cohen and
Tucker (eds.), Lyndon Johnson Confronts the World.
McCullough, David G. (1992), Truman (New York: Simon and Schuster).
Magyar, Karl P. (1993), "Sub-Saharan Africa: Political Marginalization
and Strategic Realignment," in Winkates et al. (eds.), U.S.
Foreign Policy.
Mahoney, Richard D. (1983), JFK: Ordeal in Africa, (New York: Oxford
University Press).
Meier, Kenneth (1979), Politics and the Bureaucracy: Policymaking in the
Fourth Branch of Government, (North Scituate MA: Duxbury Press).
Menkhaus, Kenneth J. (1991), "Political and Social Change," in DeLancey
(ed.) Handbook of Political Science Research.

278
Migdal, Joel (1989), Strong Societies and Weak States: State-Society
Relations and State Capabilities in the Third World (Princeton
NJ: Princeton University Press).
Millikan, M. F. and W. W. Rostow (1957), A Proposal: Key to an Effective
Foreign Policy (New York: Harper and Brothers).
Moe, Terry (1984), "The New Economics of Organization," American Journal
of Political Science, vol. 28, no. 15, pp. 739-777.
Moens, Alexander (1990), Foreign Policy Under Carter: Testing Multiple
Advocacy Decision Making (Boulder CO: Westview Press).
Morgenthau, Hans J. (1962), "Preface to a Political Theory of Foreign
Aid," in Goldwin (ed.), Why Foreign Aid?
Morris, Roger (1977), Uncertain Greatness: Henry Kissinger and American
Foreign Policy (New York: Harper and Row).
Mukandala, Rwekaza (forthcoming), "From Proud Defiance to Beggary: The
Recipient's Tale," in Hyden et al. (eds.) What Drives Donor
Strategy?
Nelson, Joan (1968), Aid, Influence, and Foreign Policy (New York:
Macmillan).
Newspapers and Wire Services
- Jan. 18, 1993 Reuters.
- May 13, 1993 Christian Science Monitor.
- Aug. 8,1993 Palls Morning News.
- Sept. 5, 1993 Associated Press.
- Sept. 18, 1993 Washington Post.
- Sept. 18, 1993 Reuters.
- Sept. 24, 1993 Associated Press.
- Oct. 7, 1993 Christian Science Monitor.
- Oct. 24, 1993 Los Angeles Times.
- Nov. 22, 1993 Boston Globe.
- Feb. 4, 1994 Washington Times.
- Aug. 1, 1994 Christian Science Monitor.
- Sept. 4, 1994 Washington Post.
- Nov. 19, 1994 Daily News (Tanzania).
- Nov. 25 - Dec. 1, 1994 Business Times (Tanzania).
- Jul. 31, 1995 Congressional Record.
- Aug. 1, 1995 Washington Post.

279
- Sept. 21, 1995 Washington Post.
Niskanen, William A. (1971), Bureaucracy and Representative Government
(New York: Aldine-Atherton).
Nissen, Bruce (1975), "Building the World Bank," in Weissman (ed.), The
Trojan Horse.
Noer, Thomas J. (1989), "New Frontiers and Old Priorities in Africa," in
Patterson (ed.) Kennedy's Quest for Victory.
Nurkse, R. (1953), Problems of Capital Formation in Underdeveloped
Countries (Oxford: Basil Blackwell).
Orum, Anthony R., Joe R. Feagin, and Gideon Sjoberg (1991), "The Nature
of the Case Study," in Feagin et al. (ed.) , The Case for the Case
Study.
Ostrom, Elinor (1991), Governing the Commons: The Evolution of
Institutions for Collective Action (Cambridge: Cambridge
University Press).
Packenham, Robert (1973), Liberal America and the Third World: Political
Development Ideas in Foreign Aid and Social Science (Princeton NJ:
Princeton University Press.
Patterson, Thomas J. (ed.) (1989), Kennedy's Quest for Victory: American
Foreign Policy, 1961-1963 (New York: Oxford University Press).
Pressman, Jeffrey L. and Aaron Wildavsky (1973), Implementation
(Berkeley: University of California Press).
Pye, Lucian (1990), "Political Science and the Crisis of
Authoritarianism," American Political Science Review, vol. 84, no.
1, pp. 3-20.
Ragin, Charles (1987) The Comparative Method (Berkeley: University of
California Press) .
Ravenal, Earl C. (1987), "Reagan's Failed Restoration: Superpower
Relations in the 1980s" in Boaz (ed.) Assessing the Reagan Years.
Reilly, John E. (1988), "America's State of Mind: Trends in Public
Attitudes Toward Foreign Policy," in Kegley and Wittkopf (eds.),
The Domestic Sources of American Foreign Policy.
Riddell, Roger C. (1987), Foreign Aid Reconsidered (Baltimore: Johns
Hopkins University Press).
Riggs, Fred W. (1975), "Organizational Structures and Contexts,"
Administration & Society, vol. 7, no. 2, pp. 150-190.
Rockman, Bert A. (1991), "The Leadership Style of George Bush" in
Campbell and Rockman (eds.), The Bush Presidency.
Rogers, Peter (1992), "Aid, Dependency, and the Tanzanian State in the
Ujamaa Period," unpublished Masters Thesis, University of Florida.
Rogowski, Ronald (1978): "Rationalist Theories of Politics: A Midterm
Report" World Politics, vol. 30, pp. 296-323.
i

280
Rondinelli, Dennis A. (1987), Development Administration and U.S.
Foreign Aid Policy (Boulder CO: Lynne Reinner).
Rosenstein-Rodan, P. N. (1943) "Problems of Industrialization in Eastern
and South-Eastern Europe," Economic Journal, vol. 53, pp. 202-211.
(1961), "International Aid for Underdeveloped
Countries," Review of Economics and Statistics, vol. 43, no. 2,
pp. 107-138.
Rossiter, Clinton (1961), The Federalist Papers, (New York: New American
Library).
Rostow, W.W. (1952), The Process of Economic Growth, (New York: Norton).
(1960), The Stages of Economic Growth: A Non-Communist
Manifesto (Cambridge: Cambridge University Press).
Rubin, Irene S. (1985), Shrinking the Federal Government: The Effect of
Cutbacks on Five Federal Agencies, (New York: Longman).
Sandbrook, Richard, The Politics of Africa's Economic Stagnation
(Cambridge: Cambridge University Press).
Schick, Allen (1980), Congress and Money: Budgeting, Spending and
Taxing (Washington, DC: The Urban Institute).
Schultz, George P. (1987), "New Ways of Thinking," in Hyland (ed.) , The
Reagan Foreign Policy.
Schumann, Franz (1987), The Foreign Politics of Richard Nixon: The
Grand Design (Berkeley: University of California Press).
Shaffer, B.B. (1969), "The Deadlock in Development Administration," in
Leys (ed.), Politics and Change.
Sjoberg, Gideon, Norma Williams, Ted R. Vaughan, and Andree F. Sjoberg
(1991), "The Case Study Approach in Social Research," in Orum et
al. (eds.), The Case for the Case Study.
Stiglitz, Joseph E. (1992), "Asymmetric Information in Credit Markets
and its Implications for Macro-Economics,1 " Oxford Economic Papers,
vol. 44, no.4, pp. 106-166.
Stiles, Kendall W. and Tsuneo Akaha (1991), International Political
Economy: A Reader (New York: Harper Collins).
Stockwell, John (1978), In Search of Enemies: A CIA Story, (New York:
W.W. Norton).
Strange, Susan (1991), "Casino Capitalism" in Stiles and Akaha (eds.),
International Political Economy.
Sussman, Gerald E. (1982), The Challenge of Integrated Rural
Development: A Policy and Management Perspective (Boulder CO:
Westview Press).
Talbot, Steve (1975), "Food as a Political Weapon," in Weissman (ed.),
The Trojan Horse.
i

281
Tendler, Judith (1975), Inside Foreign Aid (Baltimore: Johns Hopkins
University Press).
Thompson, Kenneth W. (ed.) (1993), Foreign Policy in the Reagan
Administration: Nine Intimate Perspectives (New York: University
Press of America).
Thompson, Michael, Richard Ellis, and Aaron Wildavsky (1990), Cultural
Theory (Boulder CO: Westview Press).
Thompson, Victor A. (1964), "Objectives for Development Administration,"
Administrative Science Quarterly, vol. 9, no. 1, pp. 91-108.
Timmer, C. Peter (1986), Getting Prices Right: The Scope and Limits of
Agricultural Price Policy (Ithaca NY: Cornell University Press).
Tower, John (1988), "Congress Versus the President: the Formulation and
Implementation of America Foreign Policy" in Hyland (ed.), The
Reagan Foreign Policy.
Tsebelis, George (1990), Nested Games: Rational Choice in Comparative
Politics (Berkeley: University of California Press).
Tucker, Nancy Bernkopf (1994), "Lyndon Johnson: A Final Reckoning" in
Cohen and Tucker (eds) , Lyndon Johnson Confronts the World.
Tulchin, Joseph S. (1994), "U.S. Relations with Latin America" in Cohen
and Tucker (eds.), Lyndon Johnson Confronts the World.
Tulloch, Gordon (1965) The Politics of Bureaucracy (Washington DC:
Public Affairs Press).
Turnovsky, Stephen J. (1977), Macroeconomic Analysis and Stablilization
Policies (Cambridge: Cambridge University Press).
Ungar, Sanford J. (1993), "U.S. Policy Toward Africa" in Art and Brown
(eds.), U.S. Foreign Policy.
U.S. Agency for International Development (selected bibliography)
- Action Plans (1987-1994).
- Annual Budget Submissions (1977-1994).
- "Appraisal Report of the AID Program in Tanzania" (1978).
- Assessments of Program Impact (1990-1994).
- Background Paper, "Donor Assistance to Tanzania: Past Trends and
Recent Developments," Dirk Dijkerman (1987).
- "Concept Paper for A.I.D. Development Assistance to Tanzania"
(1987) .
- Concept Paper (1989).
- "Conceptual Framework for USAID Agricultural Assistance in
Tanzania" Richard Blue, Edmond Hutchinson, Fred Mann, James Weaver
(1976).
- Congressional Presentations (1967-1994).

282
I
- Country Assistance Programs (1963-1966).
- Country Development Strategy Statements (1979-81).
- Country Program Strategy Paper (1992).
- "Critical Assessment of the Tanzanian Model of Development"
Richard Blue and James Weaver, (1977).
- Development Assistance Programs (1975, 1977).
- Field Budget Submissions (1972-1974).
- "History of the U.S.A.I.D. Program in Tanzania" (1985).
- Tanzania Overview (1995).
- "Tanzanian Development Performance and Implications for
Development Assistance," James Mudge, Michael Crosswell, Kwan Kim
(1980).
U.S. Department of State (1981, December), "Bulletin," vol. 81.
(1993, May 31) "Dispatch."
(1993, July 26) "Dispatch."
U.S. Government Accounting Office (1983), "Donor Approaches to
Development Assistance: Implications for the United States."
Wallerstein, Immanuel (1979), The Capitalist World-Economy (New York:
Cambridge University Press).
Walker, Wallace Earl (1986), Changing Organizational Culture: Strategy,
Structure, and Professionalism in the U.S. General Accounting
Office (Knoxville TN, University of Tennessee Press).
Weisuman, Steve (ed.) (1975), The Trojan Horse: A Radical Look at
Foreign Aid (Palo Alto CA: Ramparts Press).
Wildavsky, Aaron (1987) "Choosing Preferences by Constructing
Institutions: A Cultural Theory of Preference Formation" American
Political Science Review, vol. 81, pp. 3-21.
(1988), The New Politics of the Budgetary Process,
(Glenview: Scott, Foresman).
Williams, David (1993), "Liberalism and 'Development Discourse,'"
Africa, vol.63, no. 3, pp. 419-429.
Williamson, Oliver E. (1975), Markets and Hierarchies (New York: The
Free Press).
Wilson, James Q. (1989a), American Government (Lexington MA: Heath and
Company).
(1989b), Bureaucracy: What Government Agencies Do and
Why They Do It (New York: Basic Books).
Winkates, James E., J. Richard Walsh, and Joseph M. Scolnick, Jr, (eds.)
(1993), U.S. Foreign Policy in Transition (Chicago: Nelson-Hall).

283
Wood, Robert C. (1970), "When Government Works," The Public Interest,
no. 18., pp. 39-51.
(1986), From Marshall Plan to Debt Crisis: Foreign Aid
and Development Choices (Berkeley: University of California
Press).
Woodward, Bob (1994), The Agenda: Inside the Clinton White House, (New
York: Simon & Schuster).
World Bank (1989), Sub-Saharan Africa: From Crisis to Sustainable
Growth (Washington: The World Bank).
Yaeger, Rodger (1989), Tanzania: An African Experiment (Boulder CO:
Westview Press).
Yankelovich, Daniel and Larry Kaagan (1987), "Assertive America" in
William G. Hyland (ed.) The Reagan Foreign Policy.
Yin, Robert K. (1989), Case Study Research: Design and Methods 2nd
ed.(Newbury Park CA: Sage Publications).
Zimmerman, Robert (1993), Dollars, Diplomacy, and Dependency: Dilemmas
of U.S. Foreign Aid (Boulder CO: Lynne Reinner).
Zuckerman, Harriet (1972), "Interviewing an Ultra-Elite," Public Opinion
Quarterly, vol. 36, pp. 159-175.
I

284
i
BIOGRAPHICAL SKETCH
Stephen L. Snook received his Bachelors of Arts degree from the
University of Minnesota. His formal education was greatly enhanced by
his service as a Peace Corps volunteer and his subsequent work on two
different AID-funded projects in Africa.
I

I certify that I
conforms to acceptable
adequate, in scope and
Doctor of Philosophy.
tud
have read this s
standards of schol
quality, as a dis
d that in my opinion it
presentation aii3l is fully
tion for the degree of
Goran Hyden, C
Professor of
Jrman
.tical Science
I certify that I have read this study and that in my opinion it
conforms to acceptable standards of scholarly presentation and is fully
adequate, in scope and quality, as a dissertation for the degree of
Doctor of Philosophy.
M.Vednn Brown
Ass(i/stant Professor of Political
Science
I certify that I have read this study and that in my opinion it
conforms to acceptable standards of scholarly presentation and is fully
adequate, in scope and quality, as a dissertation for the degree of
Doctor of Philosophy.
Associate Professor of Political
Science
I certify that I have read this study and that in my opinion it
conforms to acceptable standards of scholarly presentation and is fully
adequate, in scope and quality, as a dissertation for the degree of
Doctor of Philosophy.
Professor of Political Science
I certify that I
conforms to acceptable
adequate, in scope and
Doctor of Philosophy.
have read this study and that in my opinion it
standards of scholarly presentation and is fully
quality, as a dissye^tatioru^for the degree of
Chris Andrew
Professor of Food and Resource
Economics

This dissertation was submitted to the Graduate Faculty of the
Department of Political Science in the College of Liberal Arts and
Sciences and to the Graduate School and was accepted as partial
fulfillment of the requirements for the degpee of Doctor^of ^hilpsophy.