In 1988, Rausser was appointed Chief Economist of the U.S. Agency for International Development (USAID). Rausser initiated his role as Chief Economist by securing the assignment from the administration to develop a new approach to AID’s country development strategy statements. In this revised strategy statement, the focus was on food security and the need to counter political economic forces in various countries to move in the direction of the public interest and provide more support for food security and effective productive schemes. He promoted this new approach among the administrative staff at the central office of AID. Once he received their support, he followed with a proposal to increase the number of people with a passion of solving food security problems in impoverished and less-developed countries. This proposal led to an engagement of major university economists, sociologist and political scientists in AID’s new agenda. Subsequently, he made a major presentation in 1989 to more than 500 field staff of AID located in missions throughout the developing world at a major conference in Washington D.C. He subsequently visited many of the missions, met with cabinet ministers in numerous countries including Afghanistan, Bangladesh, Indonesia, Pakistan, the Philippines, Thailand, Costa Rica, El Salvador, Guatemala, Honduras, and Sri Lanka. In each instance, he selected a champion in each specific mission and worked closely with them to implement policy reforms to achieve greater productivity and long-term improvements in food security. For those countries where the political economic forces could be effectively countered, there was much success with millions of lives saved.
In one instance in Indonesia, the mission director, David Merrill, worked closely with Dr. Rausser to restructure the intergovernmental group on Indonesia and to present a formal United States pledging statement to the Hague for actively pursuing food security, recognizing the obstacles of the current political-economic landscape and the current distribution of political power. The United States pledge, along with other countries, provided the external financing to jumpstart agriculture and food assistance. Significant external financing was also provided to support health and the reduction of malnutrition.
With his 1990 article “A New Paradigm for Policy Reform and Economic Development,” and with dozens of further publications on the same theme, Dr. Rausser argued that international agencies (e.g., the IMF and the World Bank) and donor agencies (e.g., AID) should not make assistance conditional on outcomes or establishment of particular government policies. Instead, his work made clear that decision-making about which countries are given priority for economic assistance should emphasize underlying constitutions and the design of institutions. He wrote in 1992:
These arrangements are usually overlooked in ideological debate and in scholarly research, and their importance is not generally appreciated in either the mature market economies or in the societies in transition. . . .[But] privatized enterprises will work well only after a society has established the institutions that are needed for an efficient private sector.
For example, he argued, democratic governmental and judicial institutions are critical to the enforcement of contracts, the security of private property and the assignment of liability for wrongful conduct. Without sound constitutional structures, there is likely to be a maldistribution of political power[1], in which political agents are unencumbered in pursuing self-interest rather than the public interest. In essence, he argued that the underlying constitution must be designed to establish the credible guidelines and mechanisms for “rules by which rules are made.” In a 1993 publication in World Development, he proposed that for the former communist regimes throughout Eastern Europe and the former Soviet Union, “The public sector must play a dominant role during the transition process and will be effective if and only if a well-designed constitution and an associated legal and regulatory infrastructure is first established.”