Foreign Policy Briefing No. 27 November 8, 1993
LOOSE CANNON: THE NATIONAL ENDOWMENT FOR DEMOCRACY
by Barbara Conry
Barbara Conry is a foreign policy analyst at the Cato Institute in Washington,
D.C.
Executive Summary
The National Endowment for Democracy is a foreign
policy loose cannon. Promoting democracy is a nebulous
objective that can be manipulated to justify any whim
of the special-interest groups--the Republican and
Democratic parties, organized labor, and the U.S.
Chamber of Commerce--that control most of NED's funds.
As those groups execute their own foreign policies,
they often work against American interests and meddle
needlessly in the affairs of other countries, under-
mining the democratic movements NED was designed to
assist. Moreover, the end of the Cold War has nulli-
fied any usefulness that such an organization might
ever have had. There is no longer a rival superpower
mounting an effective ideological challenge, and democ-
racy is progressing remarkably well on its own.
NED, which also has a history of corruption and
financial mismanagement, is superfluous at best and
often destructive. Through the endowment, the American
taxpayer has paid for special-interest groups to harass
the duly elected governments of friendly countries,
interfere in foreign elections, and foster the corrup-
tion of democratic movements.
Introduction
This is a demonstration that you can have the most
egregious abuse in the world for taxpayers' dol-
lars under [a] program and bring it here [to Wash-
ington] and you would find support for that pro-
gram. . . . If we cannot cut this, Lord, we cannot
cut anything.
--Sen. Byron L. Dorgan
The buzzwords of the budget season have been "cut
spending first." We could, perhaps, begin with the National
Endowment for Democracy. Its past is rife with scandals,
financial and otherwise. It has absolutely no "hometown"
constituency; not one member of Congress would face angry
voters demanding to know why "their" program had been
cut.
Very few voters would even have heard of it. Moreover, NED
is emblematic of inside-the-beltway political logrolling,
the type of enterprise that Washington-weary and government-
wary voters--including the coveted Perot constituency--would
love to see abolished. Such a victimless cut would appear
the perfect candidate for the budgetary ax. Yet many mem-
bers of Congress seem to think that the program should get
yet another hefty funding boost, its fourth consecutive
increase, which would allow NED's budget to more than double
in four years.
NED is a little-known foreign aid program intended to
promote democracy abroad. It is a nominally private organi-
zation, but all of its funds come from the federal treasury.
Although small in comparison with other federal programs--
its annual budget has ranged from a low of $15 million in
1987 to a high of $27.5 million in 1992--NED has been con-
troversial throughout its 10-year history, engendering
intense congressional debate that cuts across party lines.
Moreover, although it is a child of the Cold War, NED con-
tinues to be a strong point of contention in the post-Cold
War era. This year, for instance, NED represented only $35
million of a $23 billion Senate appropriations bill, yet it
attracted more speakers to the floor than any other item in
the bill.(1)
During deliberations on the fiscal year 1994 budget in
the summer of 1993, the Senate approved an appropriation of
$35 million, a decrease from the $50 million recommended by
the Foreign Relations Committee and included in the foreign
aid authorization bill. NED fared worse in the House appro-
priations bill. Its entire budget was deleted even though
$17.5 million had previously been allocated in the House
authorization bill. But even the Senate figures represent a
sharp rebuff to Clinton's proposal to increase NED's budget
by 66 percent from FY93, which would have brought the NED
budget to $50 million. The final fate of NED's FY94 budget
will be decided in conference committee.
The debate over NED is not a debate about democracy; no
one is disputing that democracy and liberty are worthwhile
goals. Rather, the controversy surrounding NED questions
the wisdom of giving a quasi-private organization the fiat
to pursue what is effectively an independent foreign policy
under the guise of "promoting democracy." Proponents
of NED
maintain that a private organization is necessary to over-
come the restraints that limit the activities of a govern-
ment agency, yet they insist that the American taxpayer
provide full funding for this initiative. NED's detractors
point to the inherent contradiction of a publicly funded
organization that is charged with executing foreign policy
(a power expressly given to the federal government in the
Constitution) yet exempt from nearly all political and
administrative controls. Still another aspect of the debate
is whether NED is simply a relic of the Cold War that should
be eliminated for that reason. During the Cold War, the
Soviet Union led a powerful ideological campaign against
democracy, but there is no longer any such pervasive, sys-
temic threat to freedom. Critics contend, therefore, that
even if there was once a national security rationale for
funding NED, that rationale no longer exists.
NED's Quasi-Private Status
Founded in 1983 following an impassioned call by Presi-
dent Ronald Reagan for renewed efforts to promote global
democracy, NED was designed to assist democratic movements
abroad in ways that were beyond the reach of established
federal programs. NED's founders were concerned that tradi-
tional democracy-building agencies such as the Agency for
International Development (AID) and the U.S. Information
Agency (USIA), as official government programs, faced legal
and political restrictions that limited their activities.
Proponents argued that a private aid agency would be
able to operate more freely and at the same time escape the
stigma attached to U.S. foreign aid in many parts of the
world. With that in mind, Congress created NED as a pri-
vate, nonprofit corporation, although its funding came
directly from the federal government as an earmarked item in
the USIA budget. From NED, approximately 70 percent of
available grant money goes to four "core" grantees:
the
National Democratic Institute for International Affairs, the
International Republican Institute, the Free Trade Union
Institute of the AFL-CIO (FTUI), and the Center for Interna-
tional Private Enterprise of the U.S. Chamber of Commerce.
Those organizations, deliberately chosen to convey a sense
of balance between left and right, labor and big business,
then determine which groups abroad receive grants for their
activities to further democracy. The remaining 30 percent
of available grant money is designated "discretionary"
funding to be distributed directly by NED.
That convoluted organizational structure seems to be
based on the premise that government money, if filtered
through enough layers of bureaucracy, becomes "private"
funding, an illogical and dangerously misleading assumption.
In effect, the NED structure allows private organizations
(in this case organizations with very distinct and disparate
interests) to pursue their own foreign policy agendas with-
out regard to official policy. The vague public-private
status of NED blurs the line between U.S. foreign policy and
those special-interest agendas. Consequently, NED initia-
tives have often been misconstrued--understandably--by
foreign populations as official policy. In view of NED's
affinity for controversial programs, such confusion between
official and private policy is decidedly contrary to the
best interests of the United States.
The NED structure also distorts accountability, making
it difficult to ascertain at what level mismanagement and
poor judgment have occurred in any particular instance.
Moreover, despite all attempts to camouflage the government
funding, NED continues to suffer from the tarnished image
associated with U.S. foreign aid in general. Indeed, NED is
resented as American interference; it is often further
resented because it attempts to deceive foreigners into
viewing its programs as private assistance. In the final
analysis, the endowment embodies the most negative aspects
of both private aid and official foreign aid--the pitfalls
of decentralized "loose cannon" foreign policy efforts
combined with the impression that the United States is
trying to "run the show" around the world.
NED as Political Pork
When NED was created, some of the more perceptive
members of Congress warned of those dangers, only to be
dismissed as short-sighted isolationists. Recalling those
debates, Sen. Byron L. Dorgan (D-N.D.) noted that NED's
defenders still tar opponents in that fashion:
We critics of NED are somehow categorized as peo-
ple who cannot quite see over the horizon. We
just do not get it when it comes to these big
international things like the National Endowment
for Democracy. . . . If you do not agree with the
democracy-speak or the international-speak or the
trade-speak here in Washington, D.C., then you are
an isolationist.(2)
NED's 10-year history has proven the skeptics right, how-
ever. On a number of occasions the lack of coordination
between NED and the federal government has resulted in NED
programs that undermine official U.S. foreign policy.
Examples of NED failures are ubiquitous, but NED's defenders
are hard-pressed to cite definitive successes.
At its most innocuous, NED is a slush fund for politi-
cians.(3) Journalist David Corn has described it as "a
porkbarrel for a small circle of Republican and Democratic
party activists, conservative trade unionists and free-
marketeers who use the endowment money to run their own
mini-State Departments."(4) The distribution of money
to
opposing interest groups helps NED deflect charges of parti-
sanship in the distribution of pork, but the fact remains
that the taxpayer is picking up the tab for politicking.
Moreover, although the four core grantees appear to
represent diverse constituencies, Corn and other liberal
critics accuse NED of leaning too far to the right, because
the Republican party, business (represented by the Chamber
of Commerce group), and organized labor all generally adopt
a conservative stance when it comes to foreign policy. That
leaves only the National Democratic Institute to represent
more liberal views.
At the same time, conservative critics bring up the
issue of proportion among the four main recipients: the AFL-
CIO receives approximately 40 percent of available funding,
while each of the other groups receives around 10 percent.
That imbalance has prompted speculation that NED is in the
hands of the neo-Trotskyite Social Democrats/USA, whose
membership includes both NED president Carl Gershman and a
number of AFL-CIO officials involved with the endowment.(5)
Such political rancor is inevitable when an organization is
authorized to pursue partisan agendas abroad at taxpayers'
expense.
NED's handling of its discretionary grant money has
also met with harsh criticism. Audits have indicated that
much of that money is used to subsidize travel--"political
tourism"--for NED board members and friends, although the
four core grantees also spend money on junkets. Sen. John
McCain (R-Ariz.) recalled: "They would go down in the win-
tertime, back in 1983, 1984, and 1985, and they would meet
in the Bahamas and swim out on the nice sandy beaches. . . .
They would call it very important meetings."(6) In 1990
the
AFL-CIO's FTUI reported excursions to Romania every few
months, where NED visitors stayed at the Intercontinental
Hotel, the most expensive lodging in Bucharest. Two Roma-
nian labor leaders also traveled--courtesy of NED--to Las
Vegas for a Postal Workers Union convention.(7) Sen. Dale
Bumpers (D-Ark.) has described NED's largesse as "first
class airfare for everybody."(8)
NED's Mischief Overseas
Unfortunately, the types of substantive projects that
NED has promoted may make many people nostalgic for the
comparative insipidity of paying for political junkets. On
a number of occasions, for example, NED has taken advantage
of its alleged private status to influence foreign elec-
tions, an activity that is beyond the scope of AID or USIA
and would otherwise be possible only through a CIA covert
operation. Such activities, it may also be worth noting,
would be illegal for foreign groups operating in the United
States. As columnist Mary McGrory mused:
What if a public-spirited group of Italians, whose
turnout rate in national elections is in the 90's,
should decide to come over here and run a campaign
to induce more Americans to participate in their
democratic practices? Our last score in our most
important civil rites was a pitiable 55 percent.
But let another country tell us what to do? Not,
as Eliza Doolittle said, bloody likely.(9)
What finally drew public attention to NED's meddling in
foreign elections was an aborted attempt to provide opposi-
tion candidate Violeta Chamorro with $3 million in funding
for her 1989 election campaign against Nicaraguan President
Daniel Ortega. The plan was abandoned after it was deter-
mined that NED's charter, which expressly forbids campaign
contributions, would be violated. In the end, the money was
channeled to programs that aided Chamorro indirectly rather
than through direct campaign contributions. That incident
illustrated that NED had no qualms about interfering in
elections in general and stopped short in the Nicaragua case
only because of blatant illegality. In 1988, for example,
the endowment had given $600,000 to organizations working to
defeat Chilean leader Augusto Pinochet. NED considered that
endeavor entirely appropriate, even though the recipients
themselves lamented it as American intervention in the
electoral process. One recipient, contemplating the "hard
moral dilemmas" involved in accepting U.S. funds, admitted
his reluctance to accept the money, which he bemoaned as a
"lesser evil" than the reelection of Pinochet.(10)
NED was
involved in similar activities in 1990 in Czechoslovakia,
where it was criticized for funding 2 parties close to
Vaclav Havel to the exclusion of 22 other legitimate par-
ties.(11) So while NED may stop short of violating the letter
of its charter by giving direct contributions to specific
candidates, it clearly does use funds to interfere with
foreign democratic processes. Its willingness to do so
ignores the innate contradiction between free elections and
outside interference in the electoral process. As George
Washington warned in his farewell address, "Foreign influ-
ence is one of the most baneful foes of republican govern-
ment."(12)
Those particular examples of intervention in foreign
elections, if ethically questionable, at least appear con-
sistent with U.S. interests and foreign policy objectives,
which is more than can be said for many NED initiatives. In
a number of instances, NED activities have worked against
official U.S. policy and sometimes even against democratic
values. In Panama's 1984 elections, for instance, the
endowment funded a military-backed candidate, Nicholas
Ardito Barletta, in direct contradiction of U.S. policy
toward Panama, which was to oppose military rule. The U.S.
ambassador at the time, James E. Biggs, objected vehemently
in a secret cable, "The embassy requests that this hair-
brained project be abandoned before it hits the fan."(13)
An even more dubious initiative was NED's involvement
in Costa Rica. Not only is Costa Rica a well-established
democracy--former president George Bush visited the country
in 1989 to celebrate 100 years of democracy there--it is the
only stable democracy in Central America. But Costa Rican
president Oscar Arias had opposed Ronald Reagan's policy in
Central America, especially his support of the Nicaraguan
Contras. Arias received the Nobel Peace Prize for his
efforts to dampen conflicts in the region, but he incurred
the wrath of right-wing NED activists. So from 1986 to 1988
NED gave money to Arias's political opposition, which was
also strongly supported by Panamanian dictator Manuel
Noriega. As Rep. Stephen Solarz (D-N.Y.) commented: "They
may technically have been within the law, but I felt this
clearly violated the spirit. . . . The whole purpose of NED
is to facilitate the emergence of democracy where it doesn't
exist and preserve it where it does exist. In Costa Rica,
neither of these [conditions] applies."(14)
Sometimes NED grants have worked in ways that are
simply bizarre. In the mid-1980s, for example, the AFL-
CIO's FTUI approved a grant of $1.5 million to defend democ-
racy in France, which was astonishing for several reasons.
First of all, French democracy in the 1980s did not appear
to be so fragile that it required financial assistance from
American taxpayers to sustain itself. The government of
Franáois Mitterrand was duly elected within a democratic
system nearly as old as America's. The AFL-CIO, however,
determined that France's socialist government was permitting
a dangerous rise of communist influence. According to the
late Irving Brown, Paris-based director of international
relations for the AFL-CIO at the time of the incident:
"France . . . is threatened by the Communist apparatus.
. . . It is a clear and present danger if the present is
thought of as 10 years from now."(15)
That mentality has resulted in AFL-CIO support for
highly controversial causes. One of the French groups that
received funding, the National Inter-University Union, was
widely viewed as a cauldron of rightist extremism and xeno-
phobia and rumored also to have ties to terrorists.(16) Sure-
ly, the U.S. government did not intend to fund authoritarian
groups that work to undermine the government of a stable
democratic nation.
Indeed, when NED's activities in France were publicized
in an expose by the French newspaper LibÇration, the
U.S.
government disassociated itself from the endeavor. While no
serious rift in American-French relations seems to have
resulted from that diplomatic faux pas, it certainly illus-
trates the peril of allowing the AFL-CIO (or any other
private group) to pursue an independent foreign policy with
taxpayers' money.
The policy is especially dangerous in view of the
ambiguity that often surrounds the origins of grants that go
through NED. Even the recipients do not always know the
precise source of their funding. If NED obscures the
sources of funds to the grantees, confusion between NED's
"private" foreign policy and official U.S. policy
is to be
expected. One grantee, the Committee for Transatlantic
Understanding, received $49,000 from what it thought was the
American Youth Council. The committee later found out the
money was actually from NED. In another instance, a grant
of $10,000 was given for three leaders of Equity, the ac-
tors' union, to attend a conference on international ex-
change of stage actors.(17) While Equity realized the money
came from the federal government, the recipients were un-
aware of the NED connection. If the recipients cannot
clearly identify the source of NED funds, foreign govern-
ments or political movements certainly will have problems
identifying the instigators of NED's foreign policy ven-
tures.
Harming Fragile Democracies
It is the height of arrogance to assume that America's
international reputation is so secure that the United States
can afford to risk misunderstandings caused by private
organizations' representing their agendas as American poli-
cy. It is true that the State Department, the National
Security Council, and the other agencies of the federal
government responsible for foreign policy can make grave
mistakes. They are at least theoretically accountable for
their errors, however. As Rep. Paul Kanjorski (D-Pa.) said
during recent congressional debate on the issue,
If we are going to make fools of ourselves around
the world with our foreign policy and our involve-
ment in the internal political affairs of foreign
nations, let our State Department and let our
president make that mistake, not a private entity
funded by the . . . taxpayers of the U.S.(18)
The favoritism exhibited in the private conduct of
foreign policy raises further complications. By dealing
with private groups abroad rather than foreign governments,
NED invariably ends up playing favorites, engendering strife
within the very democratic movements it seeks to assist.
When the Bush administration funded anti-Sandinista groups
in an attempt to dethrone Daniel Ortega, the competition for
U.S. funds splintered the opposition, strengthening some
factions at the expense of others. Unfortunately, it was
often the strongest anti-Sandinista organizations that were
loath to "feed at the U.S. trough,"(19) and as a result
those
cornerstone groups, which should have led the movement, were
ultimately weakened. NED's blatant involvement was further
destructive in that it seemed to validate Ortega's charge
that the anti-Sandinistas were, from the outset, pawns of
the U.S. government. For any foreign organization or polit
ical movement to be perceived as an American puppet is
fatal, particularly in the Third World. NED's involvement
in Nicaragua probably hindered rather than helped the effort
to oust Ortega.
Although NED's defenders frequently boast that the
organization helped topple the communist dictators in East-
ern Europe, the role of NED in that momentous development
was marginal at best and in some cases actually counter-
productive. Poland is offered as the premier example of the
endowment's effectiveness. Yet Solidarity had begun to
challenge communism in 1980, three years before NED's cre-
ation. The decisive events leading to Poland's liberation a
decade later also had little to do with modest NED subsi-
dies. Only when Moscow decided that it would no longer prop
up its Leninist puppets throughout Eastern Europe did it
prove possible for Polish anti-communist factions to dis-
lodge the communist regime in Warsaw. NED was, at most, a
bit player in the process.
There are some critics who question whether NED's
involvement in Poland was beneficial at all. Howard Phil-
lips, chairman of the Conservative Caucus, a grassroots
lobbying organization, is one such skeptic.
While I am delighted that communism has fallen in
Poland, that [former communist strongman Wojceich]
Jaruzelski is no longer running Poland, I am not
persuaded that the opposition factions favored by
the AFL-CIO were the ones that reflected the re-
publican aspirations of the Polish people.(20)
Criticism of NED's involvement in Romania is even stronger.
The AFL-CIO's FTUI Romanian representatives selected FRATIA,
a trade union confederation, as their player in the Romanian
democratic process. According to leaders of other indepen-
dent trade unions, FTUI then proceeded to actively undermine
all unions not associated with FRATIA.
Uneven distribution of aid money, an inevitable result
of favoritism, also disturbs the financial equilibrium in
the opposition community. Echoing critics of NED's Nicara-
guan involvement, opponents of the endowment's activities in
Eastern Europe believe that NED's sowing of dissention has
harmed democracy far more than its financial support has
promoted it. Soviet dissident Vladimir Bukovsky has written
about the problems that ensue when private foreign organiza-
tions favor one dissident group over another:
When the NED, as it does, singles out this or that
Emigre magazine or Moscow newspaper to underwrite,
it corrupts both the market and the independence
of the press; as the prices of paper and printing
get pumped up, the unofficial publications find
themselves competing for foreign grants, rather
than Soviet readers, to survive.(21)
Administrative Problems
In addition to the political problems, a number of
administrative problems are inherent in NED's quasi-private
status. One of those problems is oversight. Since NED is
not a government entity, it is not subject to the same
oversight as an official agency. It does, however, have to
submit to audits on occasion, always with scathing results.
In March 1991, for instance, both the General Accounting
Office (GAO) and the Office of the Inspector General (OIG)
of USIA audited the endowment and revealed a number of major
problems.(22) Among the most serious charges were that NED
used inadequate procedures for evaluating the effectiveness
of its programs, made questionable decisions on awarding
grants, and mismanaged federal funds. Many of those irregu-
larities had also been cited in previous audits, but few
discernible improvements had been made.
The GAO and OIG specifically criticized NED's judgment
in its selection of programs. In addition to renewing
grants to organizations that had previously failed to demon-
strate success, NED approved funding for projects for which
no feasibility studies or other preliminary work had been
completed and therefore funded projects that were inviable
from the start. It further erred in awarding grants that
duplicated support from other agencies, primarily AID and
USIA. Since NED's very raison d'àtre is its supposed
abili-
ty to operate where official agencies cannot, the fact that
it supported the same programs as AID and USIA should be a
clear indication that the endowment is superfluous. NED's
failure to coordinate with other agencies and the consequent
duplication of awards to groups that were already receiving
significant U.S. support is yet another example of its
sloppy administration.
The audits have also identified serious financial
mismanagement, which has occurred at all levels. Some
problems apparently have been innocent misunderstandings;
others seemed to stem from a cavalier attitude toward book-
keeping; still others have been clear, willful misuse of
federal funds. Although NED has been criticized for having
financial controls that are too lenient, both internally and
for its grantees, even the controls that are in place are
routinely violated.
The GAO found that NED subrecipients do not comply with
NED's minimal financial controls. In one case, a South
African group received $18,000 to sponsor an international
conference but used the money to finance office renovations
instead. On other occasions, NED grants were used for
personal expenses, including credit card payments and loans.
The four core grantees have violated a number of the finan-
cial controls as well. All four core recipients, particu-
larly the International Republican Institute, have charged
unallowable travel, per diem, and entertainment costs, in-
cluding first-class airfare and alcoholic beverages.
There has also been financial mismanagement within the
endowment. NED has failed to take appropriate action when
abuses at the recipient levels have been apparent. For
example, NED was aware that FTUI was not signing the re-
quired grant agreements with foreign subgrantees, yet the
endowment continued to fund those grants. In another in-
stance, NED's own internal audit identified the accounts of
one grant recipient, China Perspective, as "unauditable"
and
in violation of the terms of the grant. Yet the endowment
continued to authorize the publication's funding, totaling
$482,000, for another two years. Financial mismanagement is
thus clearly a problem at the level of the endowment itself
just as it is at the recipient levels.
Conclusion
NED's labyrinthine organizational structure is an
administrative and financial disaster. Its "democracy-
promoting" activities, which have ranged from extraneous
to
perplexing to counterproductive, are similarly unimpressive.
Even if one ignores such indications that NED is a failure,
and believes that NED has succeeding in using its unique
public-private status to support democracy abroad, the
endowment is a relic of the Cold War, and funding for the
endowment should be discontinued for that reason alone.
At one time it seemed that Congress realized that. As
Senator Bumpers pointed out in his recent congressional
testimony, NED was first funded in 1984, at the height of
the Cold War, with $18 million. By 1986, Gorbachev's first
year in power, funding was cut to $17.2 million, and by the
next year of Gorbachev's rule it seemed safe to cut NED's
funding to $15 million. Those cutbacks occurred during a
time of strong national economic growth when fiscal concerns
were given low priority. Inexplicably though, the appropri-
ation jumped dramatically once the Soviet Union dissolved:
in 1991 NED's budget grew from $17 million to $25 million
and in 1992 it increased to $27.5 million; in 1993 it grew
to $30 million. For FY94 NED appears likely to get $35
million.(23) Moreover, those tremendous increases have come
during a recession, and during a call for national sacri-
fice, when budget constraints should be of utmost impor-
tance. There is simply no justification for maintaining,
much less increasing, NED's funding.
It is true, as Heritage Foundation analyst James A.
Phillips stressed in his defense of NED as "an important
weapon in the war of ideas," that communist dictatorships
remain in control of China, Cuba, North Korea, and Vietnam.
It is also true that some of the former Soviet republics are
led by communists who have cynically assumed the mantle of
nationalism.(24) But that argument ignores the fact that in
virtually all of those countries, communism is losing, not
gaining, strength. Moreover, the remaining communist en-
claves are not attempting to export their ideology in the
aggressive Cold War style of the Soviet Union, nor do any
appear to have the resources to do so. Quite simply, the
democratic West has won the war of ideas against its commu-
nist adversaries.
NED was always an ineffectual weapon in that war of
ideas. Even when funds were not lost, either to poor man-
agement or pork-barrel politics, the substantive activities
that NED supported caused many more problems for American
foreign policy than it solved. Indeed, paying for political
tourism is almost an attractive alternative to funding
European extremists or intervening in elections in Central
America. Now that the Cold War is over, the slightest ghost
of justification for NED has disappeared. Congress should
recognize that and eliminate funding for the endowment.
Notes
(1) Congressional Record, 103rd Cong., 1st sess., July 28,
1993, p. S9637.
(2) Congressional Record, July 28, 1993, p. S9642.
(3) Martin Morse Wooster, "This Is No Way to Promote Democ
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