Fixing Failed States: A Framework for Rebuilding a Fractured World

JOANNE MYERS: Good morning. I'm Joanne Myers, Director of Public Affairs Programs. On behalf of the Carnegie Council, I would like to welcome our members and guests, and to thank you for joining us.

Today it is a pleasure to welcome Ashraf Ghani and Clare Lockhart, authors of Fixing Failed States: A Framework for Rebuilding a Fractured World.

Scholars often disagree about how to define a failed state. Most, though, will concur that failing or failed states are among the world's gravest challenges. Failed states are described as ones that have lost control over most of their territory and have stopped delivering even the most basic services to their people. They are unable or unwilling to provide their citizens with the core functions of a state, such as security, protection of property, basic public services, and essential infrastructure. Failed states are actual or potential sources of terrorism, drug and human trafficking, absolute poverty, ethnic conflict, disease, genocide, and refugees.

Problems such as these do not just contain themselves to the borders of troubled nations. On the contrary, since 9/11, we have seen how these situations have spilled over into other countries and planted the seeds of chaos for the rest of the world. Although the international community has devoted billions of dollars and countless hours in attempting to solve the problems of these dysfunctional nations, by and large these efforts have not succeeded.

With the publication of Fixing Failed States, Ashraf Ghani and Clare Lockhart, who is also with us this morning and will be part of our Q&A, have filled a critical gap in our understanding of the process of development, security, and state building. With their vast experience in tackling the problems presented by failed states, they understand only too well why international approaches to date, whether humanitarian, development aid, or military assistance, have rarely proven successful. Still, they believe that the world has the resources and imagination to arrive at solutions, and they argue for an international response to create functioning states.

This book proposes a strategic framework for defining the functions of the state and designing the organizational structure required for the performance of those roles, and aligns the actors needed for state building. They argue for an integrated state-building approach which assigns responsibility equally among the international community, national leaders, and citizens, and maps out a clear path to political and economic stability, from providing the infrastructure to the rule of law.

For those of you who are not familiar with our speaker, I'm confident that by the time Mr. Ghani's presentation is over, you will understand why his experience and his forthright and honest attitude in dealing with collapsing states stamps him not only as a person to be listened to, but as an individual who deserves the widespread recognition and respect he has earned worldwide.

Ashraf Ghani has spent years in academia studying state building and social transformation, and more than a decade in executive positions at the World Bank, trying to map new policy in these fields. As the first post-Taliban finance minister responsible for the reconstruction of Afghanistan, our speaker held one of the most challenging jobs on earth and is all too familiar with the full array of problems that beset failed states. In just 30 months, he carried out radical and effective reforms, such as creating a new currency, producing a new budget, and enacting new tariffs, as well as preparing for the elections of October 2004. This experience grounded his analysis of failed states in a rare sense of reality. His management skills, which sparked an economically viable post-Taliban Afghanistan, earned him Asia's vote as the best finance minister on the continent.

In 2006, he was a candidate to succeed Kofi Annan as secretary-general of the United Nations. He has also been nominated to head the World Bank.

Currently, Mr. Ghani and his coauthor, Clare, are cofounders of the Washington-based Institute for State Effectiveness, which is now advising on the state-building process in Kosovo, Liberia, Southern Sudan, Nepal, Lebanon, and Haiti.

Today, in our interconnected world, the fate of failed states is one shared by all of us. It is central to how the world will evolve in the decades ahead. Even though it may be challenging to deal with these problems, not to do so is far worse.

To learn more about how we can correct the problems of failed states and rebuild a fractured world, please join me in welcoming our guests today, Ashraf Ghani and Clare Lockhart

ASHRAF GHANI: Thank you for the general introduction. Good morning. It's a pleasure to be with you.

State theory has fallen behind state practice. State practice is much richer than what state theory has tried to deal with. This book is an attempt to think from practice backward and upward to theory, rather than to begin with theory downward. The main reason: Our theory of the state is defined by Max Weber's lecture in Munich in 1919, in the middle of the Bavarian revolution, and hence, the overwhelming definition of the state by the claim to a legitimate monopoly of violence.

Today no OECD country would use violence against its citizens. The use of violence has receded to the background. Nine-tenths of the legitimacy of the state is derived from performance of core functions for their citizens. It's the state of infrastructure. In the United States, of course, no infrastructure gets a grade above C minus.

So failure is not confined, first of all, to developing countries. From a citizen's perspective, citizens grade the performance of their states on the basis of core functions.

We observed from the perspective of the World Bank the state in practice—South Asia, East Asia, Russia, et cetera. In Afghanistan, suddenly, in the wake of 9/11, we had to confront the challenge. What we found was extraordinary. Citizens, whether in Afghanistan or in Russia, had the same expectations that their governments would act for them and on their behalf and with some degree of credibility. One major reason for this is, of course, the globalization of the media. Ninety-one percent of Afghan men and 87 percent of Afghan women, for instance, listen to three radio stations a day. They were far more informed on international affairs than I ever was, because their lives depended on it.

Because of this, we have to remove from our view the perspective that we are dealing with "them and us." Today, we are dealing with an extraordinarily interconnected world.

But if we are to move forward, then how do we redefine some of these core functions? What we have proposed are ten functions that we feel, in practice, emerge from the performance of the state. I will illustrate with three of these first and then argue why there is a double failure regarding state building. One part of that failure is the architecture that we have inherited from the 20th century, the international architecture, and the other is the lack of responsibility of national leaders.

Then I will illustrate, with a story of hope, how a number of countries and regions actually got it right. The problem is not new. Underneath our gaze, a number of other countries in the last 40 years have managed to overcome this problem. The problem has been that their story is not incorporated for the lessons learned.

So first, the most important function of the state and the one that provides the glue for all others is the rule of law. But what do we mean by rule of law? First we have to differentiate bad lawmaking from good lawmaking. Segregation was an example of bad lawmaking. Unequal under the law is not the same as a citizen-based rule of law. But precisely because it was bad lawmaking, and yet there was an architecture of rule of law, that bad lawmaking could be challenged through the law and change brought about successfully.

So one of the key characteristics of rule of law is that there are legal mechanisms for a change of the rules. Rigidity in rules itself becomes a ground for challenging those rules. A success of democracy and democratic governance is precisely that it allows for channeling of dissent to take legal form. But those that suppress that are actually undermining it.

The second issue regarding rule of law is whether rulers are subject to the rule of law. The most important characteristic of this is orderly succession to office. In the Middle East the major problem has historically been succession to high office. Unless succession to high office is handled through rules, the individual becomes the focus, rather than the system.

An important and often not realized example of rule of law is the Indian Army. Not a single Indian Army leader, to my knowledge, has ever run for political office. Not a single Indian Army's chief of staff's term of office has ever been extended.

The other part about rule of law is that this is the resource that makes other formations possible. So both regarding the formation of the market and regarding formation of civil society, without rule of law this becomes very difficult.

The obstacles that arise are precisely from the nature of bad rules versus rules in an architecture that is flexible. A lot of dissent in a lot of countries arises because legislation is too tight; too many things are forbidden rather than permitted. That again is because of the extraordinary legacy of colonial rule, when everything had to be regulated, versus an open architecture that allows for initiative. Here, the question is levels of government.

A bad illustration of this is when everything has to be approved from the capital. A good illustration is when an enormous amount of initiative, bottom up, can actually be realized.

A second illustration of a core function of the state is public finance. Politicians, policymakers, diplomats, generals find accounts boring, but without accountants there cannot be accountability. At times, you need a lot more accountants in these situations than you need soldiers, because those accountants actually manage to save the lives of thousands of soldiers.

Let's take an example. Companies routinely share their balance sheets. How many governments do we know that share their balance sheets? Countries that have oil, most of them, never disclose to the world or to their population the revenue from the oil. All of this is off-budget. So immediately, by focusing on public finance, one finds a vehicle as to whether accountability is enshrined in procedures and processes or whether certain people are above the law.

But also this goes to the core issue of the relationship between citizens and governments and the dysfunctionality of the current aid system. Particularly United Nations agencies, for example, do not disclose what they spend to the people where they operate. In my three years as finance minister of Afghanistan, I disclosed the budget of Afghanistan continuously, on a monthly basis, to the press and to the citizens. No UN agency, no international organization ever matched me. The UN agencies categorically refused.

The latest report from the Government Accountability Office indicates that six of the UN agencies are even refusing to disclose their audits to their Board of Governors. Why? Because they are saying their accounting standards are not up to modern standards, and individuals would be exposed and they would be sued. Well, if their accounting standards are not up to modern standards, why are we entrusting them with public accountability in the rest of the world?

The other part is that people find the budget boring. But the budget is the core arena where all decisions and tradeoffs take place. The budget is an inherently social and political process, because that's where the tradeoffs have to take place.

My colleague, Clare Lockhart, and I have been arguing that if we want accountability, then we need to get the global public finance accountability on a matrix and disclose these to the citizens. Some oil-producing countries still have 60,000 different bank accounts, where 60,000 different individuals or combinations of them have the right to draw money in the name of the public.

The other part about public finance is that we really carry the legacy of the 19th century. The budget is a yearly cycle. Why in God's name should a budget in the 21st century be a yearly cycle? You know what this convention results in? At the beginning of the year there's a flood of money, in the middle there's a drought, and in the last month everybody jumps to spend, because no one who has ever worked in an international organization or in a public bureaucracy would want to give the money back. That is all a product of this one rule that you are bound by the yearly pattern of expenditures.

Just look at USAID and what it does. Ambassador Khalilzad and I are old friends, so I'm permitted to tease him.

The third area, which has really become central and is not often appreciated—though highly appreciated, of course, in this country—is human development. The GI Bill of Rights was probably the most extraordinary act of investing in human capital. It literally changed the face of America, because it offered, largely, men, though some women—I had the privilege of studying that generation, because most of them were my teachers—to create a new America, where a middle class became possible and upward social mobility took place.

In Afghanistan in 2002, we had to fight the international organizations for support for higher education.One of the New Millennium Goals, which is right in itself, emphasizes primary education. But how can you create management and leadership in these countries without investing in higher education? What's the price? $2 billion a year alone goes to Africa in technical assistance to provide for 60,000 expatriates. And what do they do? In Tanzania alone, every year they write 1,200 reports back to the donors. The donors and the consultants read these reports. They have no relationship to the citizens. Why? Because still we are refusing to invest in higher education in the countries that need it most.

Ambassador Khalilzad and I are a product of a competitive selection process in our class. Its most important contribution, of course, has been to the United States—not only Ambassador Khalilzad, but our other friend who is now president of a university in California, another one who is vice president of MCI, and a third who is the dean of Carleton. All of us came from rural Afghanistan. But a process of investing in human capital creates extraordinary potential. Yet we ignore it.

Countries that have not done this pay for it, because dependence is perpetuated.

If we go to the double theory we can illustrate other functions, but it should bring to the core one clear lesson. The person who grasped this best was John Dewey, in 1929, in The Public and Its Problems. That's when he came face to face with the concept of public power and what constitutes a public, and how to judge a state. He said a state is best judged by performance of its core functions.

The other was that there is no essence to the state. It is a social process that produces an agreement as to what the state should or should not do. So it both sheds functions and assumes functions. Instead of embarking on a platonic search for what the essence of the state is, we should focus on the social process that allows us to agree and then measure and judge.

In terms of the failure, first, of course, 40 to 60 countries, involving about 2 billion people, are at stake here. The key issue is direction. Namely, if things were going towards improvement, we would be saying that it's a problem that we are in the process of solving. Unfortunately, that has not been universal. There is both progress and regression. History does not have a progressive direction. Our monotheistic beliefs have given us a sense that history's direction is always forward. That, unfortunately, is not the case of the socioeconomic process.

An extraordinary amount hangs on the balance of getting state building right. Iraq and Afghanistan are the primary examples that get the news. But we have been in Kosovo and Lebanon, in South Sudan, and elsewhere. All of these raise the problem that the citizens' view of what the government should do is far more sophisticated than the government's view of how it should govern.

What is the failure? One part is international, with 20th-century institutions that have not risen to the challenge of facing the 21st-century challenge. Shashi Tharoorwas very much a part of the UN report that argued two things: (1) Problems without passports. Today's 21st-century challenges are not bound by passports. They cannot be bound within sovereign borders.

(2) An effective state is the key to containing these challenges. But in order to build an effective state, we need to discard our old notions of sovereignty, because governments should not be permitted to abuse their citizens. The General Assembly's acceptance of the doctrine of the duty to protect is an important advance in our thinking. Now, of course, based on that, practice has to evolve. But the first major step in that regard has been taken.

The problem, however, arises from the current organization of the international system. Sovereign states are the constitutive units of the United Nations, the World Bank, and others.

So let's contrast the world of 1945 with now. There were 60 NGOs in 1945, a million NGOs in Latin America alone today.

The corporations had no space in that world, because kings deeply distrusted corporations because of the Great Depression. Economies were national. Kings, again, ensured that flow of money was restricted. Today we are living in a world of flux. But our mental models in the international organizations still emanate from the practices of the past.

Let me take two illustrations. In November of 2001, I had the privilege of serving as adviser to the United Nations on Afghanistan. I was really shocked, because my first meeting with heads of agencies involved what to do for the citizens of Afghanistan. Their main argument was the following: "Isn't it extraordinary? For the next 20 years, we are going to be in Afghanistan, and that's going to solve our financing problem."

In two months, I resigned and went and joined the Afghan government, so I could coordinate the United Nations.

The issue is fundamental: Either the UN agencies should be funded like the World Bank or others or not asked to do the tasks that compete with governments. This is a fundamental choice that needs to be made. An enormous number of obligations are placed on the United Nations without investing in it. The United Nations becomes the last resort of international legitimate action, but not the first. Without investing in its capabilities, it cannot perform the obligations that are imposed on it.

The second is an illustration from when I took over the Finance Ministry. If you really want to be popular, the last thing you want to become is finance minister. President Karzai offered me all these other posts, and I said, "No. I'd rather take finance—one, to assure you that I'm not running for office, and two, because nobody else will say no."

Then I asked the World Bank, "Could you answer, please, two questions? What should the Ministry of Finance do and what should it not do?"

I thought, these are my colleagues and they knew—for 60 years, they had been working on this—and that they would come with a dozen suggestions. They said, "Well, we need some time. We'll have a conference for you," and they did, six months later. They didn't answer any of my questions.

Until today, neither the World Bank nor the Asian Development Bank nor any of the international financial institutions has a manual on how to run ministries of finance. My colleague and I are preparing that now.

They have piecemeal, but not a system approach. Why? Because the focus has been on projects. Individual projects are financed. There are hundreds of these projects in each country, and the entire attention is on that.

So what happens? An extraordinary leaching-away of talent from the most talented segments of national actors to the international part.

Again, to illustrate from Afghanistan: We had 240,000 civil servants in 2001 who were quite willing to work for $50 a month. By 2004, all the talented ones had left to become drivers for the United Nations or the World Bank or the NGOs. A driver for the United Nations was being paid $400; a university professor was being paid $50. So 60,000 Afghans went.

Then they were coming and saying, "Oh, but we are making this extraordinary investment in the development of human capability."

Something is amiss with this picture.

But the other part is national failure. This is a double failure, and the implications of that need to be understood. Part of this, of course, in most of these countries is that a very small elite does not want to expand the size of the pie. Political office becomes the ground for accumulation of personal wealth and its denial to others.

Time and again in post-conflict conditions, one fact emerges, whether it's the Balkans, whether it's Cambodia, whether it's now Afghanistan: criminalization of the economy. The international community has been completely helpless in preventing criminalization of the economy. That is where the other set of interests comes. Why is it that after a peace agreement, within five years, 50 percent reverts back to conflict? Part of it is that interests in insecurity, in instability get to be greater than interests in stability. The political process that needs to become inclusive and produce national agreement actually does not take place.

One can elaborate on this further. But how did success take place? Instead of failures, how do we look at success?

First, look at Singapore. The Singapore of the 1950s, Gunnar Myrdal argued, was going to explode. It exploded into growth. Of course, the same prediction was made regarding South Korea and Taiwan. But Singapore is the one we have studied very closely.

The first part is collective leadership. Lee Kuan Yew gets all the credit, but it was actually a team of three.

Second, they simplified their developmental strategy, jobs and housing as the core issue.

Third, they went against the then-prevalent notion of national economy and invited multinational corporations.

Fourth, they were relentless in sensing opportunities. I will illustrate with one example. Singapore has become a major player in international banking, basically on the realization that time could be put to their advantage. There was a gap of six hours when the banking system was not functioning as an international system. Lee Kuan Yew sensed this and then scaled up to meet that. Based on this, they have become an extraordinary player.

Spain, where again we had the privilege of talking to the six key ministers who were responsible for the transformation of Spain after 1975—there again, what is significant is transformation through rule of law. Every aspect of transformation was done through an extraordinary set of legal agreements. Second was also seizing the opportunity to join Europe and accept European standards of governance. Their most difficult challenge was how to dismantle a protectionist system and create the revenue base. Twenty-five percent of the Spanish population now is in university. Of course, they have above-average European standards.

But at the core of it, like Singapore, was a very simple mechanism—the creation of a domestic construction industry. Both Singapore and Spain demonstrate beyond doubt that the question of absorptive capacity that so much the aid system talks about cannot be dealt with unless there is a functioning domestic construction industry. This very simple fact does not receive attention.

The other story that is equally striking is the story of the American South. Alabama last year had $9 billion in tourist revenue—Alabama, Governor George Wallace's Alabama, "Segregation now, segregation tomorrow, segregation forever." Georgia today would be the 17th-largest economy of the world if it were an independent country. Yet its governor grew up in a house without running water and went to a one-room school.

Here again, investment in human capability and infrastructure and a relentless pursuit of change is imperative.

The southern states of the United States now have 91 percent of the income of the northern states, but the purchasing power is greater. So there are major lessons there.

The last example, of course, is the European Union itself. In the European Union, the most important thing that we come to is the design of the aid system. When the Marshall Plan, one of the most generous acts of global stewardship, was undertaken, there were six different designs that were proposed. One of them resembled very much the operation of the aid system as it's practiced today—micromanagement at the project level. The men and women who were then in charge wisely rejected that option. A lot of people are arguing, yes, it was extraordinary human European capacity. It also had to do with the design of the Marshall Plan. Had the alternative—and there is a fantastic study on this—been pursued, we would not have had the same consequences.

Design matters. A lot of our institutions are matters of design. The EU, in this regard, is extremely important. Who would have thought that steel and coal would provide the basis of network sovereignty and rethinking of some of the most significant conflicts of the 20th century? But that step-by-step, pragmatic process again has implications.

One of the issues that would be particularly of importance—South Asia, instead of grand designs, could be power and transit between Central Asia and South Asia—of course, including India, going through Pakistan.

The major conclusion that we are deriving from this is that underneath the failures there is also a series of successful transformations. The challenge to us becomes how to build on those—not copy blindly, because some of them, of course, were determined by a specific set of circumstances, but to be able to think creatively. Here, the core shift needs to take place to what we are calling national programs—namely, that instead of thousands of projects, you actually come to empower people. I illustrate this and then close.

In 2002, we had the task of either designing a specific series of top-down decisions for Afghan villagers—of whom there are about 40,000—or entrusting them to make their decisions. I designed a program called National Solidarity that was a program of block grants to villages. From $20,000 to $60,000, depending on the size of the village, was given to them. What they had to do was to vote, in a secret ballot-based election, to select their leaders. Both men and women had to vote. Seventy percent of the village had to be present for making a decision on their priorities, and then all their accounts had to be posted.

Thirty-three thousand villages are now included in this program. They have implemented thousands of projects.

One illustration: Building a school through National Solidarity costs $40,000, and they usually put in $10,000 of them. When a school is built through USAID, it costs $250,000. USAID promised us 400 schools. It built eight, and the roofs of four of them collapsed. National Solidarity built over 400, without promising any, and none of them has collapsed.

We keep talking about democratic processes, but we are actually deeply elitist, because when it comes to that critical issue as to whether we are willing to transfer decision rights in a meaningful way to other people, we refuse. But if we do, trust is actually generated. National Solidarity is an illustration of that. Wherever there is National Solidarity, the trust, both in the Afghan government and in the international system, is much higher.

Because of that, what we are proposing is, one, a debate on state functions. The international community needs to reach agreement on some understanding of core functions of the state. It has no map. Particularly in post-conflict or in poor countries, the leaders of these countries that we talk to are extremely confused. Monday, it's one set of priorities from the international system; Tuesday, it's another; Wednesday, it's a third. The system needs to be simplified. That can come to an agreement on core functions.

Second is an index of state functions that we have prepared, which ultimately needs to be done by the United Nations and the World Bank in combination. Instead of issuing thousands of reports, why don't we use the meeting of the General Assembly of the United Nations on one index and see where people figure? Naming, but also shaming, is going to be extremely important in this process.

Third is networking of the people with places where success is happening. The technical assistance industry is worse, in our experience, than the extractive industry of old, because it has no standards.

Afghans used to come to me and say, "You know, you told us that international experts are coming. Why do I need to teach them arithmetic?" They were being paid $1,500 a day, my colleagues. (I, of course, got no money, because for five years I thought I needed to pay back my education debt to the country that invested in it.) They were saying, "For $50, we could do this arithmetic."

So I think there is a will to win. There is a series of very important problems, but out of our collective imagination, we are capable of rising and solving them. Thank you.

QUESTION: Ashraf, thank you. That was magisterial, as one always expects from you.

There was such a wealth of ideas that I don't think I'm going to explore any of them specifically. I'm sure there is a lot to talk about. But I would like you to address one issue that you didn't mention, which I thought you briefly began to hint at, then moved away from—the paradox of our times, that we are now living in a world in which increasingly problems transcend state boundaries, opportunities transcend state boundaries, and at the same time, states fail where they are most needed.

We see this not only in the so-called failed or failing states. We even see this in successful states.

One of my critiques of my friend Tom Friedman's flat-world theory is that when he goes to a place like Infosys in Bangalore and is absolutely ecstatic about the First World conditions—the immaculate lawns, the air-conditioned buildings, everything that works, the videoconferencing—he forgets that this is an oasis into which people are coming from a city where traffic is congested, flyovers aren't built, power is breaking down, sanitation is failing, public transport, et cetera, et cetera.

So there is this whole question of whether, first of all, this contradiction can be explored a bit by you, but second, whether there is a danger that we are living in a world, increasingly, in which the state is irrelevant to the elites in our globalizing world and is failing where it is most needed, which is to the people who need the state to develop.

ASHRAF GHANI: Thank you for that extraordinary question.

I had the privilege of working in Karnataka in its remotest parts in 1991 to 1996. What you are saying, of course, is absolutely the heart of the matter. This dichotomy is what is at the heart of instability. Why would you get a Naxalite movement, a Maoist movement, in the very states of Andhra and Karnataka that are the source of such extraordinary attraction for international capital?

So the part that becomes really important is that unless we address this gap, the stability that we require for prosperity of the elites is not going to prove enduring. This is where the two things come together. It's not just security. Security and prosperity come together, to be broadened into a definition of human security. Without coming to terms with this, globalization's risks will increase radically.

Globalization has offered an enormous set of opportunities. The problem is that access to those opportunities is through the blind process of a lottery. We need to think about this. We have a piece exactly on this called "Harnessing Globalization." The risks of the failure of globalization are not sufficiently paid attention to. Then, when something like the food crisis comes, in India you see how the rush takes place to take a set of measures that are not going to prove enduring in the medium term, but, precisely because an election is at issue, the short-term measure is going to prevail.

Part of this, again, is because we have not truly invested in global institutions. We have national organizations, but we do not have global institutions to think through the process of globalization.

QUESTION: Ashraf, you said early on that the United Nations agencies ought to be funded in a way that follows the World Bank model. Can you explain a little bit what that means and how that model would go some way toward solving the deficiencies of the United Nations that you mentioned, and in particular, the disconnect between the United Nations and national governments that you spoke a good deal about?

ASHRAF GHANI: First, the World Bank is a meritocratic organization. UN agencies, by no criteria, are meritocratic organizations. Neither the staff within them nor their leaders believe that these are meritocratic organizations. So the first thing that needs to be done is a rigorous process of recruitment. No one at the World Bank questions the qualifications of another World Bank worker, regardless of their color, race, or gender. But at the United Nations, unfortunately, all issues come as to which nationality on the Security Council that has a seat has affected decisions.

Second is agreement on functions. The model of the UN agencies was based on the assumption that there is lack of capability in developing countries. I find a lot more capability in Nepal or in Afghanistan than in UN agencies, because 60 years has taken place. The police have extraordinary capabilities and can do a lot of things.

So what needs to be done is an agreement on what core functions today really need to be done in terms of global public goods. Is it AIDS? Is it the environment? Three or four—whatever.

A number of UN agencies are duplicative. That process has to be changed.

Third is that funding is provided on the basis of competing. UN agencies today subcontract for the World Bank, for the Asian Development Bank, for the European Union, and others. This puts them in the model of chasing money as their first priority. Then their cuts—the headquarters takes 20 percent, then 20 percent is taken for management in the field, and then they subcontract to an NGO.

This model is totally unviable. So the model needs to be revisited fundamentally in terms of saying what it is that is the competitive advantage of the United Nations. It's the United Nations system. After all, the World Bank and the IMF are part of the same system. The system-level integration needs to be done.

Lastly, money from the donor governments has to go on a long-term plan of at least 10 to 20 years, to enhance and invest in the capabilities.

Shashi, you know a lot more about this. I think close to 30 percent of the UN staff in New York is going to retire within a very short period. That offers, I think, an extraordinary opportunity for renewal of the system.

QUESTION: I have a question about the limits of outside action. You said—I think absolutely rightly—that the rule of law is the foundational principle. But the donor world has spent vast sums of money—if you think about the 1990s, the expenditures on rule-of-law issues, say, in Haiti or in Russia were enormous. The achievement out of that was zero. That's not because of the incompetence of internationals; it's because, as I think you hinted, if you have a political culture which views the rule of law as being dangerous to its survival as opposed to in its interests, it will find ways of frustrating it.

What do you do about the fact that the thing that is most foundational is the thing that maybe is the most resistant to even the most benevolently minded outside help?

ASHRAF GHANI: First, I had the privilege of working in Russia between 1996 and 2001. When I arrived, the coalminers had $2 billion in subsidies a year and seven months of unpaid wages. Their wages were being literally gambled upon in the banking system that was promising a lot of returns to managers.

Within six months, my colleagues and I had designed a system, without producing any foreign advisers, that paid everybody in time and food. What was the trick? Stitching capabilities together of what existed and putting the rules in place. That worked over a six-year period.

So a series of observations:

First, rule of law has become an industry. Take Kosovo. An enormous investment has taken place in this, but legally it is impossible to tell what is illegal in Kosovo—four contradictory systems in place. The United Nations that is in charge of Kosovo is above the law. Every single edict issued by the United Nations cannot be challenged, whether it's administrative or other. One part is the international system.

In Haiti, there is a fantastic study by the Academy of Administrative Sciences that shows the failure of the donors in terms of tailoring advice to context.

A lot of rule of law—I have the privilege of serving on two boards of the American Bar Association—American law is not global law. In Kosovo, for instance, we see that American advice is being provided, and then it has to be dismantled next year because of accession to the European Union. I was given draft laws that were literally written for Vietnam, without changing the name on the fifth page.

One part is that.

The other is the resistance. The resistance is where the question of leverage comes. Here, what we offer is a concept that we call "the open moment." The Russia of 1991 to 1997 was that kind of open moment, where there was a lot of willingness to experiment. But the work really failed. We did not have the sufficient wherewithal to understand the centrality of this and to work with it.

So when these opportunities come, we have to be able to work with the leaders and managers.

Second is advice. There is a lot of resistance to the word "conditionality." But rulers that are unaccountable should not be seen as having license to act in the name of their people without any obligations. This is why, again, I'm coming to the responsibility to protect that has opened up new ways of thinking about sovereignty that are really important. Because of that, there have to be measures to make sure that adherence takes place and that there is naming and shaming.

Lastly, we have to become practical. A lot of investment takes place in the executive branch. Very little takes place in a consistent way regarding centrality of rule of law.

QUESTION: I would like to ask whether you think, based on all that you have said, it's worth the effort and the energy to try to reform these UN structures, particularly the ones that work on the issues you are talking about, and whether you would consider taking a position at the United Nations to put some of your ideas into practice.

ASHRAF GHANI: The second one, no. I have been asked and I have refused. I have commitments to exploring and learning that still need to take place. My condition always for joining any organization is backward-mapping—namely, a set of objectives that have to be very clearly delineated, and see whether there is political commitment and will to their realization. Then one can get the task done.

Two issues: One, the charter is a human heritage that we could not dispense with. Second, the Universal Declaration of Human Rightsis a foundational document that would be impossible to reach agreement on today.

We have at the United Nations an extraordinary basis for international legitimacy. The political process of the United Nations is completely indispensable. You cannot deal with the issues of our time without a functioning United Nations. So I'm a very, very strong believer in that regard.

In terms of the agencies, the issue is twofold. One, like any other human institution, we need to examine relevance dispassionately, clearly, and then, based on an agreement, put the mechanisms in place. This is going to require change. I think buying the current staff to $200 million would be a very wise investment, so we can begin fresh with processes.

The convening power of the United Nations is really extraordinary. That's the one that is least appreciated. I saw this in October-November of 2001. When we were putting in the plans for Afghanistan, among other things we needed to create a central bank on an urgent basis. I picked up the phone and called Paul Volcker and said, "I'm at the United Nations. Will you advise?" He sent two retired governors of the Fed system within two hours to the United Nations. They didn't even wait for me to go. The advice that they provided us was worth more than all the advice that we received subsequently.

So there is a lot there that can be done. But the place, unfortunately, has not been managed. Corruption at the United Nations—I have gone through 10,000 pages of audit reports—is not something that is pleasing to its reputation. In the current auditing capability of the United Nations, every program in the Secretariat would be audited once in 25 years. Is that the sort of United Nations that we want the image to be providing?

Those of us who are friends of the United Nations want an accountable and transparent United Nations. Investing in that transparency and accountability, I think, will yield enormously.

QUESTION: Thank you for an extraordinary presentation. There is one area that you didn't have time to mention, and that's the dysfunctionality caused by ethnic and religious differences. You know this from Afghanistan. We are seeing this in Iraq. Think of Kenya. It's supposed to be an advanced, developed African state. It had elections, and the cleavages based on ethnicity and so forth came to the fore and led to riots and many people being killed.

How do you deal with ways to be more constructive and get people to work together, despite ethnic and religious differences?

ASHRAF GHANI: An extraordinarily good question. Thank you.

The first issue: Differences are part of our human psyche, when we are children, we are men, we are women, we are adults. The question becomes, how do you create crosscutting ties that bind us while appreciating our differences?

The first issue is, identity, particularly in the Middle East, is not a single strand. All of us who come from the Middle East and South Asia have seen the situational nature of identity. I speak one language to my mother—I speak always Persian to my mother and Pashto to the men, for some accident of history.

The issue here is the example of Canada. Canada has an extremely diverse population, but its social policy has been extraordinary in terms of weaving them together. It is one of the most successful examples of social policy that has wielded a very diverse geographical entity. Because of this, National Solidarity, in part, was inspired by the Canadian model.

In Afghanistan, when we started, everybody thought that we were investing in a different part of the country. Everybody knew their poverty, but they did not know the poverty of others. When we created National Solidarity, we created a mechanism through which people from one part of the country could go and visit the other. That's what brought them together.

But the most significant issue, I would like to argue, is not at the level of the people; it's at the level of the elite. When a country's leadership does not have an agenda of building an inclusive state, ethnicity becomes commerce. These identities acquire the form of political commerce, because they are traded in. So when people run out of ideas, they run on ethnic lines. Then it's the simplest line of mobilization.

So if we want to contain this, then we have to come with this notion.

The other point is that nationalism is based, in a lot of places, on a model of Russification—one dominant language, one dominant religion, one dominant ethnicity, et cetera. This does not work in the 21st century. We have to understand the way that globalization has unglued the economy and made it flexible. Now we have to deal with open borders.

When we were writing the Afghan constitution, one of my key attempts was to not call any language national, because I thought it was meaningless to call one of our 32 languages national and not call the 31 others national. If they are not national, these 31, what are they? Then, in terms of accepting the official language, we said all languages can be official. That removed an entire discussion on language as the basis of mobilization.

Two conclusions: One, the less effective the state is, the more these points of difference are going to become important, because when you have a fixed pie, dividing it becomes very important. Second, building inclusive institutions, particularly investing in people—the younger people—who can have these crosscutting ties becomes very, very important to holding these places together.

QUESTION: You spoke early in your remarks about efforts around 2002 to build up the university system. Could you expand on that a little bit? What are ways to help reinforce intellectual leadership in countries where, in many cases, universities are in crisis?

ASHRAF GHANI: First is an appreciation of the land-grant colleges in this country. That is an extraordinary asset that exists. From Cornell to Davis, Wisconsin, Minnesota, these are land-grant colleges that have become absolutely the foundation of prosperity and mobility in this country. What I have proposed for dealing with the drug issue in Afghanistan is an alliance of land-grant colleges. Six firms around the Beltway today are cornering the entire USAID assistance to Afghanistan. Why don't we open a network of universities as an alternative?

Second, distance learning now opens the prospects—an investment in 400 of us in the 1960s—with the same amount of money, now you can create the prospects for a first-rate educational institution, because distance learning really makes it possible to have access.

Third would be standards. When I had the privilege of running Kabul University for a short period, my main attempt was to devise a curriculum that would meet the needs of the 21st century. The U.S. and Europe are having older populations. We have just the opposite issue. Sixty-five percent of the population of Afghanistan is under 20. With that, we need to come to revalidate college education—not Ph.D.s, not master's—so it becomes functional, so one can devise a curriculum the way it was before the advent of the GI Bill of Rights that created higher education in this country, where a college degree actually gives you the skills to function in the market, function as a citizen, and have a commitment in terms of identity.

I was able to raise $8.2 billion for Afghanistan as minister of finance. I was only able to raise $40 million for Kabul University. I needed $120 million. It is ten times more difficult with the current obstacles—every single high-ranking official of the United States and Europe says, "Oh, yes, this is important," but when they go to their offices, they forget.

So another alliance has to come together to create this. The obstacles in this country are very real because of the culture of the Beltway. Both the security firms and the developmental firms have a very tight hold on foreign resources.

I will give you just one illustration. Two billion dollars goes in food aid a year. Sixty-five percent of it is cost of administration and transport.

If we can put together a coalition, that amount is extraordinary.

Let me just close with one example. I had the privilege of talking to all 9,000 students of Kabul University in a very open process, three months of consultation. When I went to the School of Islamic Theology, I didn't know what they were going to ask. You know what their two priorities were? Obligatory computer science and obligatory English. They want in. We are the ones who are excluding and shutting the doors to them.

JOANNE MYERS: Thank you very much, Ashraf.