In January 2004, the Bush administration established the Millennium Challenge Corporation, an innovative new mechanism for disbursing foreign aid. With billions in new funding and strong bipartisan support, the MCC promised to reward developing nations that practice good governance and respect economic freedom by providing them greater assistance.

Foreign aid programs of the past decades have attempted to reduce poverty while introducing necessary reforms in recipient countries through “conditionality”--the practice of requiring economic or political policy changes in exchange for aid. It is now generally agreed that these programs have failed. Recipient governments have pretended to reform, and...

Indicator-based competitionshiftsthe locus of development from aid agencies to local governments in developing countries.

The most important U.S. aid vehicle, the United States Agency for International Development (USAID), has failed disastrously in its mission.