Diplomacy as Investment Strategy: Why Increasing State Department Funding Is a Value-Add to the American Taxpayer


By Simone Bak, Columnist

Photo: Alex Wong/Getty Images

Before his departure, former Secretary of State Rex Tillerson remarked that a shrunken Department of State would produce the largest value-add for the American people.[i] The White House’s FY18 proposed budget, which cut the US International Affairs budget by $58.8 billion and increased military spending by roughly the same amount,[ii] reflects Tillerson’s chary view of funding diplomacy. Mr. Tillerson’s move to underfund US diplomacy exhibits a surprising lack of business acumen, especially coming from a former oil tycoon and long-time Exxon Mobil executive.  A vital component of the US foreign policy tool kit, diplomacy offers lower-cost, high-return solutions that no other branch of the executive can provide, making for a sound investment strategy. In order to reap the largest benefit for the American people, Congress and the White House should fund the State Department more, not less.

At its basics, a good return on investment strategy relies on low-cost, high-return ventures in well-managed organizations with long term ‘market values.’[iii] As a government agency, the State Department is not measured on its financial earnings, as its main requirement is to spend government money rather than to produce quarterly financial statements. However, many of its results-oriented programs produce profits of another order. Coercive diplomacy produces net safety by avoiding war through the threat of mutual destruction.[iv] Composing a large portion of State Department activities, persuasive diplomacy influences norms, molds foreign state behavior to better align with US interests,[v] and ultimately helps the U.S. to minimize expensive conflicts through democracy promotion.[vi] For instance, State’s Educational and Cultural Affairs (ECA) programs train the world’s future leaders and positively impact their views of the United States government and the American people.  Alumni from ECA programs have gone on to positions of international prominence: 570 current or former heads of state, 31 heads of international organizations, and 64 representatives to the United Nations.[vii] Similarly, the State Department funded Broadcasting Board of Governors (BBG) fosters freedom of the press and dialogue around diplomacy in regions of the world which are critical to US national security interests. The BBG makes a particularly significant impact in the Middle East, where it reaches over 27.5 million people across the region through media outlets, directly challenging the narratives of violent extremist organizations.[viii] While only a snapshot of State’s persuasive diplomatic programs, ECA and BBG exemplify the ability to shape a wide range of state and societal behaviors in accordance with US interests at relatively low cost ($646 million and $685 million USD in FY18, respectively).[ix]

State also delivers exceptional fiscal product from deeply discounted monetary inputs, delivering billions of dollars to the US taxpayer vis-à-vis economic statecraft,[x] and ultimately contributing to its long-term investment value. [xi]  State Department economic officers negotiate overseas trade deals for multitudes of small and medium American businesses, promote American-made products in foreign markets, and help settle larger trade disputes with foreign governments. These activities put money back in the American taxpayer’s pockets while generating profits sufficient to sustain State’s activities. A recent case study by the Columbia University of State’s economic activities in 1979 demonstrates that marginal increases in economic officer activity would generate profits to US taxpayers in excess of the entire State Department budget. The study has clear corollaries for policy today: Increased global economic complexity and interdependence necessitate funding additional economic posts. By leveraging State’s low-cost efficacy in negotiating trade deals, additional economic posts could generate indirect financial gains to justify the entirety of the department’s operating costs.[xii]

In an age of a $20 trillion USD federal budget deficit, allocating scant resources wisely should be the ultimate US national security fiscal strategy. In reality, US leaders often choose the exact opposite. For the past 25 years, Congress and the White House have routinely underfunded the State Department, making it difficult to train and retain human capital, and carry out routine diplomatic tasks that produce a profit at already low costs.[xiii] Instead, leaders often funnel money to large accounts with dubious returns on investment. Examples abound, but more notorious cases include the F-35 Joint Strike Fighter program, whose most recent $406 billion upgrade exceeds the White House’s FY19 State Department budget 14-fold[xiv] (and has yet to fly in combat under US command),[xv] or the Overseas Contingency Operation (OCO) account, an essentially unmonitored $83 billion USD government ‘slush fund.’[xvi]

The programs run by State Department employees make a good investment because their consistent management and positive results yield long-term dividends to both US grand strategy and the American taxpayer. This opinion is supported not only by career diplomats, but also by former US military leaders who believe increased funding to the State Department is necessary to US foreign policy’s operational effectiveness.[xvii] President Trump’s move to cut wasteful OCO spending[xviii] and Secretary Pompeo’s stated intent to lift the State Department hiring freeze[xix] are steps in the right direction for US budgetary and diplomatic efficacy. However, these steps don’t go nearly far enough, as more funding ought to be redirected towards programs that secure US national security strategy objectives through proven outputs, including those executed by the State Department. Furthermore, the baseline stakeholder of US national security, the American taxpayer, favors diplomacy as a first line of defense.[xx] At the same time, the American taxpayer also believes that the US government does not spend foreign aid dollars wisely.[xxi]  Not only should the US government fund the State Department at more appropriate levels; government leaders should also better explain the fiscal and physical security benefits they reap from diplomatic activities abroad to their domestic stakeholders.  Were they to do so, Americans may not only better understand diplomacy’s value-add to their daily lives more thoroughly. Their votes could be vital in reprioritizing and embracing the necessary means for securing American interests abroad.

[i] Raymond P. Hicks and Matthew Connelly, “Underfunding the State Department Could Hurt U.S. Exports – and U.S. Companies,” Washington Post, February 14, 2018, https://www.washingtonpost.com/news/monkey-cage/wp/2018/02/14/underfunding-the-state-department-could-hurt-u-s-exports-and-u-s-companies/?noredirect=on&utm_term=.4778256a9c50.

[ii] Ilan Goldberg, “The State Department is Already Running on Fumes,” Politico, February 28, 2017,  https://www.politico.com/magazine/story/2017/02/state-department-diplomacy-budget-214841.

[iii] Robert G. Hagstrom, The Warren Buffett Way (Hoboken, New Jersey: Wiley, 2014), 230.

[iv] Thomas C. Schelling, Arms and Influence (New Haven, CT: Yale University Press, 1966), 33.

[v] John G. Ikenberry and Charles A. Kupchan, “Socialization and Hegemonic Power,” International Organization 44, no. 3 (1990), 283-315.

[vi] Edward D. Mansfield and Jack Snyder, “Democratization and War,” Foreign Affairs 74, no. 3 (May/June 1995): 79-97.

[vii] U.S. Department of State, Bureau of Educational and Cultural Affairs, “ECA Facts and Figures,” accessed 7 May 2018, https://eca.state.gov/impact/facts-and-figures.

[viii] “Impact Fact Sheet,” Broadcast Board of Governors, January 2017, https://www.bbg.gov/wp-content/media/2016/06/Impact_Fact_Sheet_January2017.pdf.

[ix] Staff Writer, “Congress Finalizes FY18 Spending: Rejects ‘Doctrine of Retreat,’ Restores Funding for International Affairs Budget,” March 23, 2018,


[x] Matthew P. Goodman, “Downgrading State’s Economic Diplomacy,” The Center for Strategic and International Studies, June 6, 2017, https://www.csis.org/analysis/downgrading-states-economic-diplomacy.

[xi] Hagstrom, The Warren Buffett Way, 230.

[xii] Raymond P. Hicks and Matthew Connelly, “Underfunding the State Department.”

[xiii] Miriam Pemberton and Lawrence Korb, “Rebalancing our National Security: The Benefits of Implementing a Unified National Security Budget,” Center for New American Security, 30 October 2012, https://www.americanprogress.org/issues/security/reports/2012/10/30/43074/rebalancing-our-national-security.

[xiv] U.S. Office of Management and Budget, An American Budget: Fiscal Year 2019 (Washington, D.C., 2018), 144, accessed May 29, 2018, https://www.whitehouse.gov/wp-content/uploads/2018/02/budget-fy2019.pdf.

[xv] Anthony Capaccio, “F-35 Program Costs Jump to $406.5 Billion in Latest Estimate,” Bloomberg, July 10, 2017, https://www.bloomberg.com/news/articles/2017-07-10/f-35-program-costs-jump-to-406-billion-in-new-pentagon-estimate.

[xvi] Ryan Alexander, “Off-Budget, Not Out of Mind: The Overseas Contingency Operations Account Is Just a Slush Fund for the Pentagon,” U.S. News, June 20, 2017, https://www.usnews.com/opinion/economic-intelligence/articles/2017-06-20/the-overseas-contingency-operations-account-is-just-a-pentagon-slush-fund; “Congress Passes Landmark Budget Deal and Six-Week CR, Paving the Way for Final Decisions on FY18 Spending,” U.S. Global Leadership Coalition, February 19, 2018, http://www.usglc.org/the-budget/congress-passes-landmark-budget-deal-six-week-cr-paving-way-final-decisions-fy18-spending/.

[xvii] Rebecca Kheel, “Retired Generals Urge Congress Not to Cut Funds for Diplomacy,” The Hill, February 27, 2017, http://thehill.com/policy/defense/321395-retired-generals-urge-congress-to-fully-fund-diplomacy.

[xviii] U.S. Department of State, Briefing on the President’s Fiscal Year 2019 Budget Request for the U.S. Department of State, by John J. Sullivan and Mark Green, (Washington, D.C., 2018),  https://www.state.gov/r/pa/prs/ps/2018/02/278256.htm.

[xix] Kylie Atwood, “Mike Pompeo Lifts Hiring Freeze at the State Department,” CBS News, May 15, 2018, https://www.cbsnews.com/news/mike-pompeo-lifts-hiring-freeze-at-state-department/.

[xx] “The Partisan Divide on Political Values Grows Even Wider,” Pew Research Center, October 5, 2017, http://www.people-press.org/2017/10/05/3-foreign-policy/.

[xxi] Vanessa Williams, “Americans Overestimate Foreign Aid? Not So Fast,” Brookings, March 19, 2018, https://www.brookings.edu/blog/fixgov/2018/03/19/americans-overestimate-foreign-aid-not-so-fast/.

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