Problems of Post-Communism, September-October 1996

Since 1989, the US government has sponsored a wide array of economic, political, and humanitarian assistance programs aimed at helping the countries of Eastern Europe and the former Soviet Union carry out the transition to capitalism and democracy. Although far short of the Marshall Plan in magnitude, the US effort to aid the former communist countries has nonetheless entailed considerable resources, more than $2 billion for Central and Eastern Europe and close to $10 billion for the former Soviet Union.[l] Driven by a sense of historic urgency, this assistance effort was put together in a tremendous hurry, with maximal attention on getting aid flowing as rapidly as possible and minimal attention on organizational design and innovation. Although the aid initially unfolded in a honeymoon phase of sorts, in the past few years it has increasingly attracted criticism, above and beyond the frequent laments from some quarters over what some people believe to be its insufficient quantity. The highly worrying trend away from market reforms and liberal democracy in a number of countries of the region, particularly in many former Soviet republics, has fueled debate as to whether the US assistance effort has fallen short and, if so, why.

Both foreign external analysts and local participants report a fairly consistent litany of operational problems with US assistance: too much of the aid goes to American organizations rather than to people in the target countries; the aid is often too concentrated in large, topdown projects rather than smaller, grassroots efforts; and it is too often based on predetermined US-oriented models rather than on local realities.[2] US aid officials respond to such criticisms with assurances that they are listening and with promises of appropriate reforms, but actual modifications of the aid have been relatively few. Recipients of US assistance and participants in the programs say that the main change they have noticed is heightened pressure from aid officials to come up with pithy anecdotes of success as well as quantifiable measurements of progress to persuade dubious US congressmen that aid is money well spent.

The lack of much real response to the criticisms of US assistance is not primarily a result of indifference or cynicism on the part of assistance officials. It is due instead to the deeply entrenched psychological and bureaucratic structures that encase US assistance programs. Under the able leadership of Brian Atwood, the main US foreign aid agency, the US Agency for International Development (USAID), has been carrying out a serious restructuring effort in recent years. Although this process is valuable, it focuses primarily on redefining strategic priorities and reorganizing internal structures; it has had less effect on the deeply held assumptions about the basic methods of US foreign assistance. Within the US aid community, there remains a stubborn inability to imagine fundamental changes in the way foreign aid is carried out. The only impetus for serious change emanates from enemies of foreign aid, who propose alternatives that are justified as efforts to improve aid but are rooted largely in an underlying desire to reduce drastically or eliminate aid. An unfortunate consequence of this latter fact is that the aid community has come to associate the very idea of serious changes in foreign aid with hostility toward aid itself, rather than recognizing that such ideas can also be stimulated by a belief that aid is important and that it is in need of serious improvement.

Fortunately, there exists a positive example of a different way of giving aid to Eastern Europe and the former Soviet Union, and it is not merely a small, experimental program, which, although interesting, is obviously limited to particular circumstances. Rather, it is a very large donor carrying out wide-ranging assistance programs in most countries of the region. That donor is George Soros and his philanthropic creation, the Soros foundations. The Soros foundations are a network of national foundations in twenty-one countries of the region (and in South Africa and Haiti), together with two regionally operating foundations in New York and Budapest. The common purpose of the Soros foundations is to promote societies that are open both internally and to the world. The emphasis on open societies reflects George Soros's belief that "we need a forum of social organization which allows people with different opinions and different interests to live together in peace. . . . Open society not only allows but requires everyone to think for himself and make his own choices. This brings freedom, innovation, and prosperity."[3] A major emphasis of the Soros foundations is educational assistance, supporting the revamping of postcommunist primary, secondary, and university educational systems, and helping tens of thousands of persons in postcommunist societies to travel to the West for short to medium periods to study or to participate in international conferences or other forms of professional development and foreign exposure. Other principal focuses include media development, human rights, cultural renovation, and civil society development generally.

The Soros foundations currently spend approximately $300 million per year. Almost half is spent by the national foundations and half by the institutes in New York and Budapest and by other special Soros initiatives, including the Central European University in Budapest and Warsaw, and the International Science Foundation in Russia. The amount of Soros assistance to the region puts the Soros foundations in the top league of Western donors.

With his enormous wealth, mercurial personality, and driving, often highly politicized international activism, George Soros has not only made both friends and enemies in large numbers, he has attracted considerable media attention along the way.[4] Journalists and other observers, however, have focused primarily on Soros the man and much less on the actual operation of his philanthropic empire. Obviously the two are deeply intertwined, but underneath the stir of Soros's particular personal crusades and outspoken positions, a great deal of day-to-day work of the Soros foundations merits examination on its own terms.

A comprehensive study of the work of the Soros foundations is well beyond the scope of this article. What is presented here is only an analysis of the basic assistance-giving methods of the Soros national foundations, through a portrait of the Soros operation in one country, Romania, with a focus on how the Soros methods differ from those of official US foreign aid. In the course of research during 1994 and 1995 examining foreign-sponsored efforts to promote democracy in Romania, I had the opportunity to observe the operations in that country of both the Soros foundations and USAID, as well as other Western donors.[5] I was struck by the systematically different methodology used by the Soros foundations compared to other actors. The work of the Soros national foundation in Romania is not typical of all the activities of the Soros foundations. It differs, for example, from the more high-profile, politicized involvement of Soros in Poland and Hungary and the big-ticket institution-building initiatives, such as the controversial Central European University. But it is at least somewhat typical of the work of many of the less high-profile national foundations that constitute a significant share of the overall effort of the Soros foundations. As such it is useful as a window into an interesting and potentially instructive universe of foreign aid.

Paying Heed to Localism

As a guiding principle of foreign aid, localism has the same special status as many other received truths in governmental affairs, such as the need for bureaucratic innovation and efficiency—it is much cited but rarely practiced. Western assistance officials are quick to talk of the need for, among other things, sensitivity to the local environment, local "ownership" of assistance programs, and local capacity-building. Yet, in Eastern Europe and the former Soviet Union, much of the Western aid of the past six years has been unloaded in rapid fashion without much attempt to involve locals in the process, to ensure that aid gets to locals, to design assistance programs on the basis of conceptions of societal change that reflect a deep understanding of local conditions, or to keep locals well informed about the assistance. What fundamentally characterizes the Soros approach, and distinguishes it from the approaches of other major Western donors, is its genuine localism on all these counts. A side-by-side comparison of USAID and Soros in Romania highlights this fact.

Consider first the issue of who runs the aid programs. USAID, like most Western official donors, operates in Romania through a small bubble colony. The USAID field office in Romania is a tiny piece of the American government transplanted in Romania. All of the senior positions on the small professional staff are held by Americans, who serve in Romania on tours of duty lasting two to four years. Many of the major decisions about US assistance in Romania, including not just what types of projects shall be funded but who will be awarded the assistance contracts and grants, are made in Washington, with the field office playing only a consultative role. The in-country USAID representatives spend most of their time dealing with USAID Washington and with the US contractors and grantees who are the main recipients of USAID's funding. The USAID representatives have little time to get out of the mission and limited contacts with Romanians. They operate very much on the surface of the society they are trying to help transform.

In contrast, the Soros operation in Romania, the Soros Foundation for an Open Society—Romania, has very little character of an outpost of a foreign organization. At each of the four branches of Soros Romania (unlike almost all Western donors in Romania, Soros has offices outside Bucharest, in three provincial cities), the board of directors, the management, and the staff are all Romanians. The selection committees that Soros Romania uses for its many open grants competitions are similarly all local. Unlike the USAID office in Romania, Soros Romania has the primary responsibility for decisions about allocating assistance funds in the country. Soros New York exercises some oversight over the activities of the national foundations, but that relationship is generally much less close and less control-based than the relationship between USAID Washington and its field offices in the region.

A local foundation of this sort is by no means easily born. As in many countries of the region, to establish the operation Soros sent a person from the United States—someone with significant personal ties to the country in question, including command of the language—to get things under way. In Romania, this person performed vast labors in a difficult, fluid environment, including hiring and training staff, instituting operating procedures and initial program areas, and selecting board members. After the intensive start-up period, which lasted about two years, she reduced her role considerably, eventually leaving the country, and the local management and staff took over completely.

The wild card in this picture of relatively freestanding local institutions under a single Soros umbrella is Soros himself. In some countries he takes a strong, albeit usually sporadic interest in the work of the national foundations and plunges in unpredictably to shape and even micromanage their activities. In others, he maintains a more measured role. The degree of his involvement in the work of each national foundation depends both on his interest in the country itself and the nature of his relationship with (or perhaps more accurately, the degree of his trust in) the local director of the foundation. Soros's philanthropic enterprise has grown very large, yet it remains highly personalized.

The difference between a bubble colony and a relatively independent branch is highlighted by the size of USAID's and Soros's incountry Romania operations. USAID, which has expended $30 million to $40 million per year on Romania-related programs in recent years, generally employs about twenty people (including administrative staff) in the USAID office. Soros Romania, which gives $10 million to $12 million of assistance per year, employs approximately seventy people in its four branches. The much larger number of employees at Soros Romania reflects its much greater level of responsibility with regard to programming and its much lesser reliance on managerial and technical support from external Soros institutions. It is also related to Soros's much more labor-intensive assistance methods—giving out many small grants to locals rather than large bloc grants or contracts with US organizations. Yet, because the cost of local employees is dramatically lower than that for expatriates, sometimes by a factor of twenty or thirty, the total salary and benefits cost of the approximately seventy Soros Romania employees is about the same as the combined salary and benefits cost of four of USAID's US employees in Bucharest.[6]

A second key point of difference is the targeting of the assistance. Most USAID funds for Romanian programs go to American organizations: US consulting groups, accountant firms, nonprofit non-governmental organizations (NGOs), universities, and other organizations. Most of the contracts and grants to US organizations are relatively large, ranging from a few hundred thousand dollars to several million dollars in the case of some of the main economic reform programs. The US contractors and grantees deliver training and technical assistance to Romanians, in the form of workshops, conferences, seminars, organizational advice, counseling, expert analysis, and studies. Such assistance is generally delivered in Romania by US experts, either on short-term visits or one- to two-year technical consultancies. Some of the US contractors and grantees operate entirely from outside Romania, sending in people for specific tasks; others maintain small local offices, usually staffed by one or two Americans and, in some cases, a few local administrative assistants. In a few small grants programs that have been established by USAID, the grants do go to Romanians, but USAID and embassy personnel, or a US contractor, are responsible for decisions about the allocation of funds.

Soros Romania's assistance follows the inverse pattern—most of it goes directly to Romanian individuals and groups; only a small share goes to people and organizations outside the country. The assistance to groups in Romania generally consists of small grants (usually $5,000 to $25,000) to organizations within a sector, such as media, human rights, or public health. A sizable proportion of Soros Romania's funds go to individual Romanians, usually as educational scholarships for short- to medium-term study abroad or professional development activities requiring travel abroad. The grants to individuals are usually micro-grants in US assistance terms, ranging from as low as $40 up to a few thousand dollars. Although the dollar amounts of such grants are small, they are nonetheless significant to the recipients given that the average annual salary in Romania is approximately $1,500. The small share of Soros Romania's funds that goes to foreign organizations is primarily directed at Western universities or NGOs for educational activities in Romania.

A third facet of Soros's localism concerns the design of projects. USAID programs are generally designed by Americans, either USAID staff in Washington, consultants hired in Washington and sent out on project design missions to Romania, or US contractors and grantees already involved in related assistance programs. In contrast, Soros Romania's programs are designed primarily by Romanians, usually the program staff of Soros Romania, although Soros New York and Budapest sometimes contribute technical design assistance to the design of programs in Romania, or create regional programs that include Romania.

The localism of Soros's design approach goes beyond merely who designs the programs to the basic nature of the programs themselves. Generally speaking, USAID's economic and political assistance programs in Romania consist of efforts to encourage major domestic institutions, such as executive branch ministries, the parliament, the judiciary, political parties, labor unions, and the media, to take on the basic organizational features and operating practices of parallel institutions in established Western democracies—more particularly, the United States. Each assistance program defines a set of specific institutional goals (e.g., to revise the internal organization of the Ministry of Finance, to design a privatization program, to increase the independence of judges, to change the committee system in parliament, to establish modern campaign methods among certain political parties, or to reform the internal organization of labor unions). US and other foreign experts then are sent to Romania to try to train, advise, and persuade those institutions to make the necessary organizational changes and adopt the necessary policies and practices.

Soros Romania's assistance efforts do not generally aim to produce particular institutional endpoints. Rather they seek to increase the knowledge and skills of local individuals who may make a useful contribution to their society's development or to allow local organizations that are already engaged in some work that fosters a more open society, particularly media organizations and NGOs, to expand their activities. Soros program officers concentrate relatively little on drawing up institutional blueprints and goals for Romanian institutions and quite a bit on identifying appropriate people and organizations to assist.

At the risk of oversimplification, the variance between the two approaches to assistance is the same as that between a focus on the process rather than on the result. USAID emphasizes the results it wants to help post-communist societies achieve (namely, a market economy and a democratic political system) and characterizes its specific programs as building blocks relating to these goals. An underlying assumption of this approach is that process is the servant of result. In the case of Romania, for example, if external donors and Romanians focus sufficiently on defining and endorsing the desired results of political and economic transformation, a process to achieve those results will follow. Soros Romania focuses instead on trying to foster or strengthen a process of change, by supporting individuals who are seeking to change, rather than on results per se. Process is assumed to be the master of result—if the right process of change gains strength, Soros believes, the result will be good. Soros is not indifferent to endpoints; in fact his underlying goals are essentially similar to USAID's. An open society, he says, "is something akin to what we have in Western Europe and North America."[7]

A final distinguishing element of Soros's localism concerns transparency. USAID is an organization of limited transparency. Its annual reports to the US Congress on assistance to Eastern Europe and to the former Soviet Union contain some information about categories of assistance and descriptions of programs. They do not, however, include complete lists of grantees and of the dollar amounts of specific grants and contracts. During my research, I was able through repeated phone calls and letters to USAID employees over a period of several months to obtain such information for Romania, but it required considerable persistence as well as knowledge of USAID's internal structures. The Soros foundations, as an overall network of philanthropic institutions, also offer only limited transparency. It was only in 1995, after more than ten years of operation, that the Soros foundations issued a comprehensive report on their activities. At the individual country level, however, the Soros operations are often quite transparent. Each year, Soros Romania issues a report that lists every grant, down to the smallest micro-grant, made during the past year, including the amount, the name of the grantee, and the purpose of the grant. Soros Romania is also notably transparent with respect to its internal decisionmaking processes, for example, listing the names of the persons on the boards that award grants in specific program areas.

A key difference in the transparency of the two assistance efforts is not how much information they make public but to whom they direct it. USAID's outreach is directed primarily at Washington, in particular at Congress, upon whom USAID depends for funding. USAID Bucharest works overtime keeping USAID Washington informed about US assistance in Romania. USAID Washington in turn targets Congress for its outreach efforts. Keeping Romanians informed about USAID's work in Romania is much less a concern, if it is one at all. In contrast, the main audience of Soros Romania's outreach work is Romanian, as evidenced by the issuance of the detailed annual report in Romania, primarily for distribution to Romanians.

Benefits of Localism

It is unfortunately not possible to measure precisely the respective impact of USAID's and Soros's assistance in Romania and thereby determine the relative value of their different methods and structures of operation. Both USAID and Soros Romania have carried out evaluations of their activities in Romania, but such evaluations provide only fairly general and often not very searching information about the actual impact of assistance. In general, the effects of foreign assistance are simply not ascertainable in a definitive way, a fact that has bedeviled the whole enterprise of foreign aid for decades. Nonetheless, some positive consequences of Soros's distinctive approach are apparent through observation.

The Soros method of using local persons to design and oversee aid clearly has some significant advantages, particularly given that in most of the post-communist societies (in contrast to many developing countries) the quality of available human resources is often quite high. Soros Romania is able to recruit many top-caliber people. Its management and program staff are often stars: They represent the best and brightest of Romania's new emerging political society, and they command respect within the country (although they are also often criticized within Romania as arrogant). The Americans who work as consultants and local representatives for USAID-funded projects are not of the same quality. Some are excellent, but a number are distinctly second-string and so known in the Romanian circles within which they work. The difference in quality should not be surprising. Recruiting Americans to work as local representatives or technical consultants on US assistance projects in Romania is not always so easy. Such positions entail working in an out-of-the-way country, in not especially attractive circumstances, for US-government-scale pay, on assistance projects with futures that are being constantly threatened by political events in Washington. On the other hand, for a Romanian, working for the Soros foundations in Romania is a highly attractive job. It is a chance to work in a position of real responsibility, for good pay (in local terms), in a prestigious, innovative organization that evidences a long-term commitment to aiding Romania.

The establishment of a genuinely local organization to run the assistance means that programs can be designed and overseen by people with a real understanding of the sectors they are trying to shape, rather than by outsiders who usually have only a superficial, generic understanding of the particular sectors in question. Outsiders do sometimes bring a fresh perspective to a troubled sector, as well as valuable experience in assistance efforts with similar sectors in other countries. Yet, compared to foreign consultants, local program officers, if carefully selected, usually have a much greater knowledge of where the talent lies within a sector, how the sector has or has not been changing in the past years and why, and how the sector interacts with other institutions or forces within the society. This sort of knowledge permits the development of assistance programs that build productively on local realities rather than programs that try to produce changes that donors have decided should occur.

One example is civil society development—currently a highly fashionable theme at USAID and at many Western aid organizations. Civil society represents the inner associational fabric of a society, the unique institutional expression of the interests and inclinations that define a population. In assisting civil society development, however, Western bilateral donors have had a hard time not projecting their own quite specific views of the forms it should take. Consider, for example, USAID's new flagship program on civil society development, the Democracy Network program, a regional undertaking with separate projects in each country. This effort was specifically designed to be a cutting-edge example of localistic programming by USAID; however, it still bears the heavy imprint of external actors. In Romania, for example, a US NGO with no background or experience in the country, operating out of an office in Bucharest run by an American with no prior experience in the country (although several Romanians are on the staff), provides technical assistance and training, and eventually funding, to policy-oriented, public interest NGOs. The type of NGO selected for attention is in a specific category of institution within the wide gamut of civil society actors—a category that USAID Washington decided is critical to civil society development in the region as a whole. The program focuses on NGOs working in four areas, which were chosen not in relation to developments in the region but to match USAID's four global priority areas. The training and technical assistance is carried out primarily by American trainers, using essential principles developed in the United States.

Soros Romania also has many programs relating to civil society development; in fact, in some sense, all of Soros Romania's programs relate to that subject. With specific regard to NGO development, Soros's efforts differ from USAID's in various ways, reflecting the concern of the Romanian staff at Soros about the overall evolution of the sector and its relation to the larger society rather than activating a number of specific groups according to an externally developed plan. Thus, Soros has sponsored efforts to define and orient the general field of NGO development, including the development of a guide to all NGOs operating in the country, programs to bring together the emerging private business community with NGOs to work on the issue of NGO funding, and efforts to bring government officials into dialogue on the role of NGOs. Soros Romania does give assistance to specific NGOs, but it focuses less on delivering outside technical assistance than on making small grants to NGOs to help them expand their work.

An additional benefit of Soros's use of local persons to run its national foundations is that the experience of working in the foundations provides sustained, real-world training to locals in all aspects of the work, from policy formulation to financial management. This sort of training is in great demand in Romania and other former communist countries. Soros's extensive use of locals as directors and as members of award committees is also a multiple plus. It