The World Bank notes that the average poor person confronts trade barriers roughly twice as high as those confronting the typical worker in an OECD country. In general, tariffs in advanced countries on imports from developing countries are four times higher than those on imports from other advanced countries. Exceptional protection is imposed against imports from many developing countries of many farm products (particularly in the EU and Japan), of textiles and clothing (notably in the United States and Canada) and of footwear. According to the World Bank, a new trade round coupled with market reforms could boost global income by $2.8 trillion over the next 15 years.7 If sub-Saharan Africa, for example, had maintained the share of world trade it had in 1980, annual exports would be $191 billion, more than double what they are today and almost four times the amount of the most ambitious calls for increased foreign aid.

Finally, remain mindful of the inherent limitations of aid and focus on the maintenance and expansion of private sector flows. No matter how successful the United States and other donor counties are at increasing state aid, it can never substitute for a healthy and conducive environment for private sector investment and capital formation. The hallmark of a good aid policy is one that strives to build a transmission belt from public to private investment flows.

THERE ARE good reasons to want to alleviate poverty, especially in the wake of September 11. But poverty is not exclusively an economic problem; it is a problem of political economy. Until this fact is squarely faced, no amount of aid will come remotely close to solving the problems that breed the hopelessness and despair the President wants to alleviate. We realty do have a passing fair idea of what policies can overcome poverty, but most efforts to educate leaders and bureaucrats about good economic practices flounder because we have too often ignored the reasons that leaders fall to do what is right for their country. To be frank, much U.S. economic aid during the Cold War was motivated by a desire to keep certain strategically situated autocrats on our side during that conflict. How well or how poorly they used our money was a secondary concern. This is no longer the case. Our aims remain political, as well they should, but now those political aims can be served only by getting positive results from the aid effort.

The Bush Administration has taken a major step forward in establishing new criteria for foreign aid, by explicitly linking assistance to good governance. The President has wisely avoided facile and misleading depictions of the sources of global poverty and terrorism. But many difficult questions remain. How can the needs of people living in poor countries be served without progress toward democratization, especially when they lack the institutions needed to generate growth or to interact with the global system? If we agree that, until the fundamentals are in place, development assistance will reach only a fraction of its potential effectiveness, does this imply that we should ignore poorly performing nations? How do we distinguish between "states that are poor because they perform poorly" and "states that perform poorly because they are poor"?

With few options for successful assistance, the challenges posed by poorly performing countries go well beyond the usual limits of what we have understood to constitute development policy. What makes the task ahead particularly daunting is that the ultimate solution to poverty comes down to nation-building. Yet, in vast parts of sub-Saharan Africa, Central Asia and elsewhere, states have atrophied, enabling them to be abused or captured by transnational terrorists, traffickers and smugglers. In a world where development is state-driven, what will happen to countries without minimally functioning states? What institutional alternatives should we be thinking about where an effectively functioning state is a distant reality? Overcoming the curse of bad government will require some particularly creative thinking, and much patience. Hard labors and long delays lay ahead, but a meaningful marker has been put down. At last we seem to have the definition of the problem down right.

Bruce Bueno de Mesquita is the Silver Professor of Politics at New York University and a Senior Fellow at Stanford's Hoover Institution. Hilton L. Root served in the current administration as U.S. Executive Director-Designate of the Asian Development Bank and as an advisor to the U.S. Treasury. He is currently a visiting fellow at the Economic Strategy Institute.

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