Marshall Memorial Fellowship: Expanding the U.S.’s Economic Development Reach in a Time of Stressed Federal Budgets

Economic development is an important soft power tool the United States often deploys to help promote free market principles, promote its diplomatic relations, and prevent the need for hard power tactics. The creation of sustainable jobs in particular can help develop and strengthen the middle class, the economic group that has the most power to stabilize a nation or help it transition to liberal, democracy.

The U.S. federal toolkit for economic development includes programs through the U.S. Agency for International Development (USAID), financial support to the World Bank and International Monetary Fund (IMF) and Office for Overseas Private Investment (OPIC), to name a few. Yet with its economic mite challenged with the financial crisis 2008, and presumably for the foreseeable future, the U.S. is now grappling with budget constraints and a public more inclined to expend limited federal resources on domestic challenges—which in turn has limited its ability to flex is economic “soft power” muscle.

Curtailing this form of U.S. influence abroad, however, is dangerous, short-sighted, and could lead to longer-term and more costly interventions if countries’ growth either stagnates or their middle classes loose strength.

U.S. power is also exercised through the business sector. American companies doing business overseas provide an additional, but underutilized, tool for U.S. economic development targets. As one measure, the U.S. net Foreign Direct Investment (FDI) outflows tops $300 Billion annually, making it the largest contributor to FDI in the world. Corporations doing business overseas often measure outcomes using traditional business metrics of profit, market share and growth. However, if provided with incentives and access to development metrics and monitoring techniques the U.S. could augment its economic development programs with sustainable job creation driven by the private sector.

There are a number of best practice models in Europe that the United States could leverage in designing an appropriate series of metrics to support a program of this nature. The CDC group based out of London, for example, is a £3 Billion public limited company originally established by the United Kingdom’s Department for International Development (DFID), set up to support and build business through private sector investment. The CDC makes investment decisions to spur job creation in industries with the greatest impact in countries that might otherwise struggle to attract private sector investment in Asia and Africa. Similarly, the Economic Cooperation Organization (ECO) Trade and Development Bank out of Istanbul, Turkey provides financing to commercial banks, microfinance institutions and government projects with the goal of both profit realization and sustainable development outcomes. ECO Bank invests in the region spanning from Turkey to Kazakhstan and uses a sophisticated vetting model when choosing investments. Investments selected must target job creation, income generation and education conditions. Both ECO Bank and CDC Group work closely with the recipients and recipient banks to design business models that incorporate and monitor economic development indicators; both are successfully creating and sustaining new jobs and are profitable.  

U.S. private companies are uniquely positioned to immediately contribute to American economic development targets. Tax incentives and access to development models and metrics could motivate and assist companies in designing and implementing business plans that include job creation for host country nationals, investment of profit into training and educational programs and better health services for their host country employees. Companies can benefit by having a healthier and more productive workforce, higher retention levels and stronger buy-in from the host community. Further, consciously making the tradeoff between a slightly lowered profit margin in the short-term and investing in a sustainable, job creating business model will help serve U.S. strategic goals of stabilization in some of the world’s more challenging locations.