This is part of my effort to write my way through a number of development-focused books, starting with The White Man’s Burden. Previous chapters: one, two, three, four, five, six, seven, eight, nine, ten
This is it, folks – the final chapter, where Easterly will rain down catch-all solutions to the myriad problems of aid and development. Right?
Of course not! As he notes, “If you think I will now offer a utopian blueprint to fix aid’s complex problems, then I have done a really bad job in the previous chapters at explaining the problems with utopian blueprints.” So… end of chapter, end of book, right? Not quite.
Right away, Easterly recommends ditching the utopian goals and instead contends,
“The aim should be to make individuals better off, not to transform governments or societies… Put the focus back where it belongs: get the poorest people in the world such obvious goods as the vaccines, the antibiotics, the food supplements, the improved seeds, the fertilizer, the roads, the boreholes, the water pipes, the textbooks, and the nurses.”
This sounds great to me! In addition to project-based aid, Easterly also argues that aid agencies could work on higher-level concerns such as,
“…distilling practical knowledge on operating banking systems or stock markets… simplifying business regulations, or making piecemeal reforms that promote a merit-based civil service”
Here’s what I intuit Easterly as arguing: there’s a sizable amount of aid that works – focus on that. This is essentially the opposite of what I expected coming into the book, but I’m glad that this is the argument he lands on; it’s pragmatic, partially technocratic, and narrowly-focused – which is where my intuition generally tells me to go.
What else? First, have the aid agencies put a focus on research — ex ante and ex post intervention, so that knowledge can be shared and “best-for-now practices” (my phrase, not his) can be discovered. Share results – especially failures – and always keep the focus on what can help the poor. As Easterly notes about education interventions in Kenya, “The lesson of all this research is that some equally plausible interventions work and others don’t.” It’s the on-the-ground research that distinguishes interventions that sound good with interventions that do good.
Next up: specialization. This would be a huge shift for most multilateral agencies, and the politicking to get it done would be ridiculous. Which is not to say that it can’t be done – I have all kinds of models scribbled in my notes – just that a degree of caution may be warranted. If the multilateral agencies can’t be revamped, perhaps the way they implement change can be, with a focus on competitive bidding, transparency, and incremental gains. I suspect I’ll have more to say on this in the future, as I continue learning.
Easterly points out two researchers – Dennis Whittle and Mari Kuraishi – who have proposed something similar to what I had in mind: a “marketplace instead of central planning, a kind of eBay meets foreign aid.” Their website – www.globalgiving.com – is well worth a look; I think it needs some revamping but the backbone is in place to do some pretty cool things.
There are a number of other innovative ideas that Easterly touches on: vouchers, conditional cash transfers, and prizes all stuck out to me as plausible interventions that could be pretty neat to see in practice. Conditional cash transfers are big in Mexico (the Progresa program) and have shown success; in Poor Economics, Esther Duflo and Arhibit Banerjee discuss this in some detail. Prizes have more to do with research (finding a successful vaccine for malaria, say) than on-the-ground implementation, but definitely appear to play a role.
All in all, an interesting chapter to capstone an interesting book. A summary post will be up next with some of my final, overarching thoughts.
We’re on home stretch of the book, with Easterly focusing on the success stories of Japan and China (countries never colonized by the West), and the atypical success stories of previously-colonized Singapore and Hong Kong. The thesis of the chapter may best be described in Easterly’s contention that “It is easier to search for solutions to your own problems than to those of others.” While this statement doesn’t scale (I’d actually contend that in a lot of cases, he basically has it backwards – sometimes an outside pair of eyes can provide the solution that insiders are blind to), let’s go with it for now.
Japan’s success can partially be ascribed to their attitude towards the West in the 1860s:
“’Japanese spirit, Western learning.’ The young revolutionaries combined patriotism with pragmatism – they realized the West was ahead, and they wanted to borrow Western methods to catch up, while preserving Japanese institutions, culture, and independence… They invited Westerners to Tokyo, and themselves went on long tours of the West. But this was to create no dependence on the West; the watchword was ‘self-help’”
With strong government institutions, private property rights, and a sufficient tax base, Japan was poised to capture the gains from the private sector’s innovation (known to those us in the West as giant conglomerates like Mitsubishi), and success begat success. Then came World War II and the annihilation of Japan, followed by America’s rebuilding of the decimated country (physically and institutionally). I think it’s fair to say that much of what America did was similar to its Marshall Plan in Europe – the physical and institutional infrastructure existed previously, so Japan simply needed the funding and the time to rebuild.
But what, if anything, should Japan’s experience tell us about foreign aid specifically? Monetarily, Western foreign aid was sparse – but that’s because it wasn’t needed. Indeed, it’s difficult for me to ascribe any significant lesson from Japan to the developing world today with respect to monetary aid. What was needed included Western expertise from a technological and business management standpoint, which can be seen throughout Japan’s history: the “Western methods” the revolutionaries picked up in the 1860s and Deming’s post-war injection of operations expertise led to the creation of some of the world’s most vibrant and prosperous companies (Sony, Mitsubishi, and Toyota among myriad others). I think this lesson is largely transferable; where possible, Western methods, expertise, and general know-how can serve as innovation catalysts for entrepreneurs and innovators in the developing world – if done in a culturally-sensitive and humble way.
Next up: what’s the deal with Singapore and Hong Kong? They’re both former colonies, yet they’re killing it in the global marketplace. Easterly holds that their success can partially be explained by the fact that,
“they were unoccupied territories that the British colonized with the permission (or coercion) of the nearby local rulers….The British also left the Chinese communities free to pursue their incomprehensible customs and more of less govern themselves…”
To simplify things a bit: the former colonies are successful today because the British didn’t upend everything – mainly because there wasn’t much to upend in the first place. Here too, I think it’s tough to make the argument that significant lessons for today’s environment can be learned from Singapore and Hong Kong, other than a very general “try not to change everything as you try to help – only do what’s absolutely necessary.” Even this is problematic: “absolutely necessary” is an awfully flexible phrase, open to wide interpretation with the benefits of hindsight.
Next up: China. Let’s be honest: China is a weird success story; as Easterly notes,
“It is an unconventional homegrown success, failing to follow any Western blueprint for how to be modern. It combines lack of property rights with free markets, Communist Party dictatorship with feedback on local public services, and municipal state enterprises with private ones.
I am decidedly not an authority on recent Chinese history, so I have a hard time taking a critical eye towards this section; it’s impossible to ascribe China’s success to any one causal explanation, and it’s hard to say if China’s “weirdness” will continue to be a boon for its unheard of growth.
In any event, Easterly’s claim about China – and subsequently India – is that Western intervention was not the proximate cause of their growth; homegrown Searchers were. He holds that the World Bank and IMF are trying to take credit for a success that isn’t theirs. This may or may not be true, but it’s kind of a specious argument; successful development can’t be ascribed to Western help, but all cases of unsuccessful development are at least partially caused by Western ineptitude, Easterly seems to argue.
In short order, Turkey, Botswana, and Chile are heralded as exemplars of homegrown development. I’d rather not touch on Chile (much has been written about Milton Friedman’s “Chicago Boys” and their influence on the country – well worth reading up on), but Botswana warrants some attention. Easterly holds that Botswana is an example of an African country that shows that “if Africans can get good government from their rulers, the abundance of natural resources can be turned into a blessing.” At the same time, Botswana doesn’t typify African countries, so it’s hard to draw a 1:1 conclusion:
“…favorable factors were benign neglect by Britain during the colonial period, the absence of ethnic conflict because of the relative homogeneity of the Tswana people, and clear indigenous property rights based on cattle holdings.”
We can decry colonialism all we want, but we’re stuck with its deleterious effects. Most African countries don’t have the mix of favorable conditions that Botswana does, so the question isn’t “How can we scale Botswana’s success to other African countries,” it’s more like “How can we assist in developing the institutions necessary to allow other African countries to positively draw from Botswana’s experience?” As we’ve seen throughout the book, Easterly would hold that we shouldn’t play a part in that – democracy and free markets are great, but implementing both in a country ready for neither is a recipe for disaster. My intuition says that there should be a third way that is more moderate, but I’m also very new to this, so I’ll hold off on thinking through these possibilities on paper for now.
Taking the age of colonialism to the age of invasion, Easterly looks to the recent past to understand if Western military intervention has led to boom or bust by analyzing countries caught up in the Cold War.
Here’s the thing: analyzing America’s Cold War interventions in terms of the countries invaded isn’t a particularly difficult thing to do – it’s easy to see that almost everything about them is negative. To back up perception with data:
“Statistically, the cold war countries in table 8 have far worse institutional outcomes than other developing countries on all six dimensions that World Bank researchers measured in 2004: democracy, political stability, government effectiveness, regulatory quality, rule of law, and corruption”
(The countries, if you’re interested, are present-day Vietnam, Cambodia, Afghanistan, Guatemala, Korea, Iran, Liberia, Ethiopia, El Salvador, Nicaragua, Democratic Republic of Congo, and Angola).
Again, we’re stuck with corrupted data – these countries aren’t random (whether the reason was defensible or not, there was a reason the United States became involved with them), but the conclusion can still be broadly drawn: none of the listed countries turned out great (with the possible exception of South Korea, though that needs to be weighed against the famines and general craziness of its northern cousin).
As an aside: in his sardonic way, Easterly also grades the interventions in terms of a silver lining for America (to use Ethiopia as an example: “Live Aid concert to help Ethiopia in 1985 gave valuable experience to Live 8 musicians to help Africa twenty years later”). I thought this was cutting and sad-funny.
The next section of the book focuses on the case studies of Nicaragua and Angola. In Nicaragua, the United States backed the right-wing Contras (whom President Reagan called “the moral equal of our Founding Fathers” as word leaked of significant human rights abuses) over the Communist Sandinistas by providing arms and training. The stated goal of this was to protect America, ostensibly from the possibility of one or more Communist countries in Central America serving as a satellite or weapons cache of the Soviet Union; in the overheated rhetoric of the Cold War this seemed to convince enough Americans. History hasn’t judged the American intervention a success, though; economic growth has been stagnant and the political system is a mess in Nicaragua. To be fair, this may have been the case without American intervention – it could even be worse, really – but the balance of the evidence seems to show that intervening was a mistake paid for in local lives.
Angola is a fascinating case of colonization leading to long-term instability and chaos. In short: Portugal colonized the area, putting Portuguese in positions of government and economic power; native Angolans started a guerilla war for independence in 1961, and were granted it in 1975 in a very haphazard faction as the Portuguese fled. Without authority and worried about the future, the white business leaders fled, leaving both the civil service and the economy in tatters. After independence, the multiple Angolan rebel groups could not get along – partly because the Soviet Union, United States, and Portugal each backed a different group – and Angola was stuck in civil war for the next twenty-seven years.
Each of these case studies typifies the (possibly inevitable) errors that Western and Soviet incursion into local military affairs led to: an increase in arms and bloodshed; prolonging the conflict; propping up a less-than-satisfactory leadership group post-conflict. I want to make a comparison to America’s past conflicts, but it’s difficult to do: without French involvement in the Revolutionary War (spurned by its self-interest), the colonists could very well have lost; with British involvement in the Civil War (for selfish, cotton-importing reasons) the North could very easily have let the South secede. Comparisons are messy. What’s less messy is that a decisive victory is better than a muddy, brokered peace, all things considered:
“…peace usually succeeds war because of a decisive victory by one side, not because of negotiated settlements by outsiders. The intuition is simple: military victors are likely to form a more stable government, whereas a coalition of recent antagonists imposed by outside planners is like to be unstable…There can be awful military victors as well as good ones, but local actors are statistically more likely to find peace on their own.”
If we’re comparing instances where America did get militarily involved, does it makes sense to also look to examples of instances where America didn’t get militarily involved? Were the outcomes better? Counterfactuals are especially difficult (we don’t know what today would be like with intervention, of course), but my intuition is that Western intervention in Rwanda and Sudan could have stanched the atrocious genocides (a tautology, to be sure) that occurred. More recently, it’s possible that American intervention in Syria could shorten the conflict and oust Bashir Al-Assad there. All of these examples are too recent to judge – and genocides are probably different than “typical” conflicts from a moral and tactical standpoint – but it seems to me that it’s a discussion worth having. Again: it’s messy, and there’s almost certainly no one answer.
So where does that leave us? Foreign incursion into local conflicts – especially for selfish reasons – appears to be a net negative, though an argument can be made that in certain instances intervention could be justified. Not exactly clear-cut, but then again nuanced situations rarely are.
Originally, I thought I could combine Chapters Eight and Nine – they’re less development-focused, shorter, etc. Turns out, they’re both pretty interesting and I found myself writing too many words for one post; so, on to Chapter Eight.
First, the definition of “post-modern imperialism:”
“The complicated mixes of international and domestic governance structures evolving… similar to classical imperialism, these efforts involve a remarkable degree of control over domestic political authority and basic economic functions by foreign countries”
In other words, it’s an offshoot of former Defense Secretary Donald Rumsfeld’s “Pottery Barn” theory of nation-state aggression: “You break it, you buy it.” The most generous explanation for this mindset is that the nascent governments put in place after a war may actually need assistance – without which they may be more likely to collapse and leave the polity in an arguably-worse place than it was before. The more tongue-in-cheek explanation may be that many people believe spreading peace and democracy throughout the world requires suspending peace and democracy for a time – a rather Orwellian explanation.
Easterly has a dim view of post-modern imperialism, which he likens to colonialism and – perhaps more controversially – the mindset and actions of modern-day development agencies:
“Like today’s donors and post-modern imperialists, the colonizers were outside Planners who could never know the reality on the ground. Like their modern-day counterparts, colonizers often unwittingly destabilized the balance of internal power”
I think the argument can be made that this sentence is both essentially true and deeply unconstructive – one that gives off way, way more heat than light. Putting today’s foreign aid donors in the same boat with war-waging post-modern imperialists and colonizers seems like a rather severe comparison, meant to elicit emotion rather than reason. It is true that today’s donors often unwittingly tip the scales in ways that are unpredictable and negative (see: DRC, Angola, Afghanistan, Iraq, etc.); it is not necessary to conclude that, because of this, they are similar in word and deed to the colonizers of old, or the warmongers of new. I don’t think the discussion of aid is helped by direct comparison to slave-traders or armies that kill untold numbers of people.
Next, Easterly concludes that “non-colonies had more rapid increases in secondary education from 1960 to 2001” and “growth per capita from 1950 to 2001 was 1.7 percentage points higher in the non-colonies than the non-settlement colonies.” These are seemingly-damning statistics, capstoned by the claim that “economic miracles are uncommon under any circumstances, but they seem to be more likely among non-colonies than colonies.”
This many very well be true! But the premises don’t lead to the conclusion, in my opinion, because the countries aren’t random; as Easterly writes, “they wound up that way because of factors that influenced their social evolution.” In other words, there are important reasons why countries such as China and Japan weren’t colonized, and they may very well be the same reasons that they became economic miracles.
Let’s assume that Easterly’s contention is basically true; it’s still far from clear that the “economic miracles” argument holds up to further scrutiny. As Easterly readily brings up, the top-line figures mask wide variation between the non-colonies – China has had fantastic growth, Afghanistan and Ethiopia less so. Remove China from the group and it’s not clear that non-colonies would have out-performed the former colonies; China has posted such unprecedented growth over the past 30 years that it tips the scale in any comparison. This isn’t to say that subjecting the continent of Africa to arbitrary borders, slavery, and subjugation was positive – merely that from a growth perspective it’s difficult, if not impossible, to compare them to non-colonies.
Easterly holds that there are three ways that the West caused long-term fractures in myriad African societies:
“First, the West gave territory to one group that a different group already believed it possessed. Second, the West drew boundary lines splitting an ethnic group into two or more parts across nations, frustrating nationalist ambitions of that group and creating ethnic minority problems in two or more resulting nations. Third, the West combined into a single nation two or more groups that were historical enemies”
It’s not hard to think of countries that fit one or more of these: Israel-Palestine, Afghanistan, Pakistan, Rwanda, etc. He then cites studies that corroborate the claim, including an innovative study that looked at a nation’s borders: “…artificially straight borders were statistically associated with less democracy, higher infant mortality, more illiteracy, less childhood immunization, and less access to clean water” – borders which colonial powers created.
A similar story plays out in Israel-Palestine, India, Pakistan, and Sudan – many of which remain today, or recently were, global “hotspots.” All were influenced by Western intervention, culminating in decades of war, untold human losses, and stunted economic growth. Out of these countries, only India has remained relatively peaceful and growth-driven (even so, the spectre of nuclear war with Pakistan over Kashmir in 2005 loomed large); Israel-Palestine is a fractured, apartheid-esque state, and Sudan is now split after decades of ethnic strife and a genocide.
I found this section very persuasive: Western intervention successes (arguably South Korea, though that obviously overlooks North Korea) are much rarer than abject failures. At the same time, I’m drawn to the idea that, as a nation that has done a lot of harm, America should do what it can to support the development of these areas. The premise of “Aid has been ineffective in the past” doesn’t lead to the conclusion of “Stop trying,” in my opinion.
I’ll leave out discussion on a lengthy section of the chapter that focuses on Zaire/Democratic Republic of Congo, only because I don’t yet know enough about the area. If you’re interested in its history, I’d recommend looking into King Leopold’s Ghost and Dancing in the Shadows of Monsters, two supposedly-fantastic books that cover its time as a colonial state through the present day.
This chapter explores one of the central questions development thinkers should continuously ask: “What would aid recipients do with funding if they made the decisions?” Easterly uses the Western response to HIV/AIDS in Africa to make two key points related to this question: top-down Planners can often be woefully out of touch with the realities at the bottom, and the Western world’s fascination with AIDS treatment is economically inefficient and antithetical to doing the most good. He questions whether aid recipients would put so much emphasis on treatment at the expense of prevention or other aims.
Easterly begins with what he calls “The White Man’s Burden Paradox” (modeled off the paradox of evil); he notes that the follow three conditions cannot be all true:
“1) The White Man’s Burden is acting in the interests of the poor in the Rest; 2) The White Man’s Burden is effective at resolving poor people’s problems; and 3) Lots of bad things, whose prevention was affordable, are happening to poor people”
This seems logically inconsistent to me – the word affordable is very open to interpretation, and #1 can hold without meaning that all of the interests of the poor are being acted on – but the general point still feels about right: for areas where the West does focus, #3 still occurs far too often.
As Easterly notes here and elsewhere in the book, Western interventions to improve health are more successful than other Western interventions (for a variety of postulated reasons) – so then why was the response to the African AIDS crisis so poor? It seems that part of the issue was that aid agencies realized the potential scope of the issue but did little to attack it early; the World Bank made a $1 million grant to the World Health Organization to fight AIDS in 1988, a rounding error in its funding.
Another possible reason is that Planners were out of touch at the top “with the tragedy at the bottom;” that they failed to appreciate the scope of the impending crisis because they were too far removed from the countries where it was fomenting. And finally, the lack of response could be due to the “Kitty Genovese Effect” – everyone expected everyone else to do something, but no one did until the crisis was full-blown.
The issue of HIV/AIDS treatment in Africa is next, and Easterly lucidly lays out the contention that “compassion is driving the fight against AIDS in Africa in a direction that may cost more lives than it saves” because money is being spent on treatment of AIDS, not prevention of HIV or other diseases. The specifics of this argument were totally new to me, and it made me question my tacit support for initiatives like the President’s Emergency Plan for AIDS Relief (PEPFAR), President Bush’s $15 billion AIDS relief program passed in 2003.
Let’s start with the top-line figures. According to the book, the rough costs of various health interventions in Africa are:
- HIV/AIDS: $304 per year per patient for highly active antiretroviral therapy (HAART) – $1,500 if all costs are included
- HIV/AIDS Prevention: $1-20 per year of life saved, $20-400 per HIV infection averted
- Tuberculosis: $10 per case
- Drug-Resistant Malaria: $1
- Vaccinations: “pennies per dose”
The takeaway: treatment of HIV/AIDS is about as expensive as it gets. Easterly attributes the zeal for treatment of HIV/AIDS to guilt (for not preventing the crisis when there was an opportunity to do so) and “SIBD Syndrome” (Something Is Being Done) – it’s easy to see someone improving on HAART and difficult to see someone not dying from malaria. To that end, PEPFAR actually restricted funding for prevention of HIV/AIDS to 20% of the total (with one-third of that going to abstinence-only programs) – showing that Western leaders often fund their own goals, not those of the people they are trying to help. It seems fair to believe that this amount of politicking and imposing culture is well above what could be considered unavoidable; abstinence-only hasn’t been shown to be effective anywhere, so it’s a waste of resources to push it on African countries.
This is an issue worthy of a lot more thought (at least for me); as Easterly puts it,
“The big question is whether poor Africans themselves would have chosen to spend scarce funds on prolonging so lives with AIDS treatment, as opposed to saving many lives with other health interventions.”
That’s a really tough question for someone generally optimistic about the effects of aid (done appropriately, anyway). With the funding for HIV/AIDS, it seems like a relatively straightforward answer: no, the poor Africans probably would not have spent those resources on HAART treatment. At the same time, there are myriad complexities that shouldn’t go unnoticed, too; for example, the fact that “studies in Cameroon, Guinea, Tanzania, and Uganda estimated that 30 to 70% of government drugs disappeared before reaching the patient” should give pause to the notion that the Africans themselves will always make the “best” decision.
The basic worry still stands, though; if the Western world is convinced that there is a place for Western aid, then it should grapple daily with the notion that the strictures it attaches to that aid are problematic, inefficient, and dilutive. Foreign aid is a scarce resource that is increasingly threatened by austerity measures in the United States, the United Kingdom, and elsewhere; making inefficient use of it both devalues the act itself (a dollar doesn’t go as far) and leads to poorer outcomes in areas where it is used.
PEPFAR and the World Health Organizations “3 by 5” campaign (to get three-million HIV-positive people on antiretrovirals by 2005) aren’t inherently bad – but they could be so much better. And – crucially – the path towards better is clear! There are – and always will be – myriad examples where the path is much murkier. If the West didn’t have the power to chart a clear path, how will we handle the less-obvious situations?
In the driest chapter of the book, Easterly discusses everyone’s favorite global money pot – the International Monetary Fund (IMF). It’s one of the Bretton Woods organizations (along with the World Bank and International Trade Organization), which makes it a multilateral aid donor — it receives contributions from member organizations and distributes funds to countries in need.
Which brings up the obvious question: which countries are “in need”? The first group is composed of those countries that need short-term “bailout” money – in the recent past, a few were South Korea, Thailand, and Mexico. More ambitiously, the IMF provides conditional loans to countries for large-scale projects; many, many countries have received this type of development loan (the next is likely Egypt). Often, the loan is a “standby arrangement,” which makes it “conditional on the government’s getting its finances in order so it can pay the loan back quickly.”
Easterly holds that the IMF does a better job with the former group than the latter: “on balance, the IMF has done useful short-term bailouts of poor countries experiencing financial crises, but it has done worse at promoting long-term development.” Which, conceptually, makes sense: the countries that are in financial crisis are probably slightly less likely to be “broken,” so a short-term injection of emergency cash could right them up and set them on their way. Not so much for the poorer, slightly-more-likely-to-be-corrupt countries.
The IMF also plays the heavy for many countries, “often [forcing] the government to do unpopular things, such as cut subsidies for bread or cooking oil.” The main reason is two-fold: 1) subsidies for basic goods are often politically popular but economically inefficient; and 2) this is one of many ways the recipient government cuts expenses as part of the standby agreement. As a consultant, I can empathize with the role of the heavy: it’s often (implicitly) a big reason clients hire us, so I’m used to it. Of course, citizens don’t like it when prices for basic goods double, so a certain amount of rioting often occurs (as it currently the case in Jordan – though that wasn’t part of IMF cost-cutting).
Depending on how you look at it, the IMF is either really bad at providing loans (and thus, conditions to reform) to countries that are likely to collapse, or in providing loans to poorer countries, it naturally just accepts some poor outcomes, but the correlation is there either way: “statistically, spending a lot of time under an IMF program is associated with a higher risk of state collapse.” Easterly appears to take the former position, and recommends not getting involved with countries that can’t take it. This seems to be sound advice, though also a tall order, to attempt to provide funds and reform conditions to poor countries without accepting some level of risk.
In a way, the IMF acts as an enabler to poor countries: when they can’t repay their first IMF loan, it’ll often provide another loan – even without adhering to the initial conditions by which the loan was granted. In other words, the IMF is like the parent that keeps paying the kid allowance even when he/she isn’t doing the chores. Poor coordination makes the situation worse, as Western governments and other agencies kick in more debt to pay off old debt; this spiral continues until all parties admit the obvious: the country won’t be able to repay the loans. This led to the creation of a new acronym: HIPC (Heavily Indebted Poor Countries), and in 1996 “the IMF and the World Bank, for the first time in their history, forgave part of their own loan.” Anyone who remembers the 2008 financial meltdown in America will recognize the issue with this: moral hazard – or, in plain human speak, “countries will stop repaying loans because they know they’ll just be forgiven anyway.”
Easterly’s solution is to look back to the 1944 Bretton Woods conference and true-up the mission of the IMF and World Bank: “The World Bank, which is an aid agency, should just give the poorest countries grants, not loans… The IMF, which is not supposed to be an aid agency, should get out of the business of loaning money to the poorest, least creditworthy countries altogether.” This doesn’t strike me as a solution that fixes the problem: treating all poor-country funding as essentially “pre-forgiven” (which is basically what the grant would be, right?) isn’t likely to fix the underlying issue: that the money isn’t being put to productive use.
Off-the-cuff, another solution might be to accept the underlying conditions (i.e., don’t bother with the pre-conditions), then provide grant money for specific infrastructure projects – roads, dams, etc. Money’s fungible – a dollar is a dollar is a dollar – but at least something would come of it. This seems to be what Easterly is getting at but doesn’t explicate.
In Easterly’s view, the IMF is sitting on a giant pile of money that it should be lending to emerging markets (not the too-likely-to-fail countries) and doling out on an emergency basis; its role should be a stabilizer, not a fixer. With its recent funding of the Eurozone bailout, it seems to be heading in that direction. If that’s the case, the question is what the IMF should do with all of the additional contributions: give to the World Bank for development work? Rebate back to member countries?
“Foreign aid donors spent two billion dollars in Tanzania during the past twenty years building roads. The road network did not improve. Roads deteriorated faster than donors built new ones, due to lack of maintenance…The poor need roads; the aid bureaucracy fails to deliver them. We should be tough on a bureaucracy that fails to turn aid money into critical services for the poor.”
The block-quote above is a nice summation of the issue this chapter explores – why do aid bureaucracies fail, and what can be done to improve them? Reasons for aid agency failures are legion, but boil down to three overarching explanations: misdirected incentives, a dearth of accountability, and poor feedback mechanisms.
First up: incentives. We’re back to the classic “principal-agent” problem where “the principal is the rich country politicians and not the real customers, the poor in poor countries” – so aid agencies are incented to appease the rich country politicians rather than the poor aid recipients. If a rich country politician is persuaded that aid funding is a smart use of resources (a big if, admittedly), he/she needs to show that to constituents somehow, and it’s easier to do when appealing to the vision of Saving Poor People From Poverty than incrementally improving the lives of those same people. This causes aid agencies to overpromise on vague, utopian goals, which diverts resources away from small, tangible, ostensibly doable things. If the incentives are in the wrong place, it’s easier for aid bureaucracies to fail their recipients.
Additionally, if no single agency is accountable for the success or failure of a program, it’s hard to say which is successful and which is not, aid agencies can claim successes as their own and explain away failures as the fault of a different agency – no one is accountable. This may lead aid agency workers to slack off; as Easterly puts it, “When nobody can tell whether aid agency efforts make a difference, the aid agency managers have only weak incentives to exert effort.” This strikes me as a little pessimistic, but the general idea makes sense – without accountability, projects that aren’t successful can continue to be funded, which is a waste of resources; better to allocate resources towards projects and NGOs that are proven successes.
A corollary to the issue of accountability is that of feedback – if an agency doesn’t directly hear how it’s doing, it’s difficult to iterate and improve. Easterly argues this is missing from current aid agency efforts, partly because of the first two issues above.
Which begs the question – what can be done to mitigate these issues? Easterly argues that we should look to “have aid agencies specialize more in solving particular problems in particular countries, rather than having each agency responsible for everything.” This is a perfectly legitimate, reasonable thing to do – but the obvious question is: how? Who decides what each organization is going to specialize in, and where? My notebook is full of scribbles of potential models; I don’t think it’s an impossible thing – just really, really difficult to operationalize and coordinate. It would also require a mind-shift on the parts of the World Bank, USAID, DFID, etc. One potential model may point towards an increased role for “expert NGOs” to receive funding from the aid organizations for specific, measurable projects. Another area where I need to do more research.
The next section highlights the successes of aid; in a sentence: “Despite the zero-growth payoff to aid in Africa, there has been a fall in infant mortality and a rise in secondary enrollment in that most aid-intensive continent.” Easterly surmises that it may be easier for health interventions to be successful because the outcomes are clear – populations either get better or they don’t – which can help align incentives and is direct feedback. This points the way towards Easterly’s main contention – utopian goals of economic development and Ending Poverty may be non-starters, but there are discrete, narrow, piecemeal things that aid can do; therefore, we should do those.
In a sentence that really surprised me when I read it, Easterly takes it one step further: “Here is one way to make aid work better: aid donors should just bite the bullet and permanently fund road maintenance, textbooks, drugs for clinics, and other operating costs of development projects.” This sounds pretty gargantuan, but actually isn’t much different than the models for Teach for America, AmeriCorps, the Peace Corps, etc. – permanent injections of resources (in this case, funding from the government for short-term deployments of human capital) to improve on-the-ground efforts while institutions improve achingly slowly. Unfortunately, it also isn’t a sexy model – donors would love to eradicate AIDS in Tanzania more than ensuring roads are properly maintained there. It seems that aid agencies may need to focus on marketing these long-term efforts more effectively.
Another inefficient mechanism preferred by donors is the funneling of aid to purchases from their own country’s exporters (e.g., American-made insecticide-impregnated bed nets) – known as “tied aid.” This “lowers its value to the recipient because it restricts choice on what products can be purchased and from whom,” and can distort local markets. Tied aid seems like a pretty significant issue – one that rich countries should be much better at explaining to their constituents. I need to learn more about this.
Tying up the loose ends, Easterly ends this chapter by discussing the mechanisms that may allow aid agencies to better monitor and evaluate programs; he favors independent evaluation of programs and independent research divisions, with aid agencies putting funds into escrow accounts for both. It’s pretty shocking to think this isn’t already happening, and I’m hoping that in the time since this book was published this has happened.
I have more to research about approaches that emphasize NGO competition and specialization – this strikes me as a gap in current funding models. Where’s the Kickstarter & Kiva for foreign aid? Is it Kiva?