Guest bloggers with different points of view

Aid Watch will invite guest bloggers from time to time to represent a variety of points of view about aid. Today, we host Owen Barder, who is the Addis Ababa-based director of aidinfo.org, an initiative to accelerate poverty reduction by making aid more transparent. Aidinfo is part of Development Initiatives, a UK-based development consultancy. Owen disagreed strongly with our post last Friday on British aid favoring bad governments through direct budget support.

Why Does British Foreign Aid Prefer Poor Governments Over Poor People?

European donors are moving towards increasing direct budget support to governments of aid-receiving countries. Leading the charge is the UK, which gives the largest percentage of direct budget support of any bilateral or multilateral donor (although the World Bank, the European Commission, the US and France also give substantial budget support). Giving cash directly to host country governments for use in the general budget for public spending has a number of advantages. The donors say it gives recipient governments more predictability, and more control over the aid resources being funneled in. Rather than serving a plethora of masters in the international donor community, funds given as budget support can be corralled by the host government and spent coherently according to host government priorities, while building government capacity to do what everyone wants governments to do for themselves in the long run: competently manage their own affairs. The aid jargon for this is “country ownership.”

So how is this working out in practice? In 2007, the UK gave 20 percent of their total bilateral ODA in the form of budget support to 13 countries: Tanzania, Ethiopia, Pakistan, Ghana, Uganda, Mozambique, Vietnam, Malawi, Zambia, India, Sierra Leone, Nepal, and Nicaragua. (Source)

Of this list, only Ghana and India were classified as “free” by the annual Freedom House ratings on democracy (according to either the 2007 or 2008 rating). For the 11 other countries that did get British budget support, how much is there “country ownership” when the government is not democratically accountable to the “country”?

Moreover, Human Rights Watch (HRW) accused some of these governments of serious human rights violations. Ethiopia’s autocratic government, which is inexplicably the largest recipient of UK budget support in Africa, won 99% of the vote in the last “election.” The government army is accused by HRW of war crimes in the Somali region of Ethiopia. Nor is this brand new -- neither army officers nor civilian officials have been “held accountable for crimes against humanity that ENDF (Ethiopian National Defense Force) forces carried out against ethnic Anuak communities during a counterinsurgency campaign in Gambella region in late 2003 and 2004.” HRW also notes that today: “Credible reports indicate that vital food aid to the drought-affected [Somali] region has been diverted and misused as a weapon to starve out rebel-held areas.” Ironically, Ethiopia’s autocratic ruler, Meles Zenawi, was the Africa representative at the recent G-20 meeting campaigning for more aid to Africa during the current crisis, because, among other reasons, Meles said “people who were getting some food would cease to get it and … would die” (from an article in Wednesday's Financial Times.)

As for Vietnam, HRW reports: “In March 2008 police arrested Bui Kim Thanh, an activist who defended victims of land confiscation and involuntarily committed her to a mental hospital for the second time in two years. … In October a Hanoi court sentenced reporters Nguyen Viet Chien of Young People (Thanh Nien) newspaper to two years in prison and Nguyen Van Hai from Youth (Tuoi Tre) to two years’ “re-education” for having exposed a major corruption scandal in 2005…..”

Oh yes, and let’s consider corruption, which may affect whether aid to governments translates into aid to poor people. Another country on the UK budget support list, Malawi, had received $148 million in budget support from its donors from 2000 to 2004. It ended those four years with poorer government capacity and greater fiscal instability than it began them, according to one evaluation. Also during those four years, the Malawian president was accused of awarding fraudulent contracts, and government officials achieved new lows when they sold off all 160,000 tons of the country’s grain reserves for personal profit. In the ensuing famine, provoked by drought and floods but made worse by the loss of the grain reserves, the government had to borrow an additional $28 million to feed its starving people. Yet Malawi continues to receive British budget support today.

Elsewhere on the corruption front, British aid continues to give direct transfers to the Sierra Leonean government even though its own 2006 report found that previous support to the “Anti-Corruption Commission” had “made no progress on the overall goal of reducing corruption, had made no impact on reducing real or perceived levels of corruption, had suffered a fall in institutional capacity since the previous year.” (Quote from a 2008 Transparency International report). Sierra Leone is ranked the 158th worst country in the world on corruption (where the worst ranking is 180th).

Of course, low income countries have lower ratings on democracy, human rights, and corruption than richer countries, so poverty-alleviation aid has to face the tricky tradeoff of directing aid to the poorest countries while trying to avoid the most corrupt and autocratic ones. Unfortunately, a recent article found that the UK was one of the best (least bad) official aid agencies in doing this, so most of the others are apparently even worse.

This study did not consider the issue of direct budget support. There is nothing that says you have to give aid meant for the poorest peoples directly to their governments, if the latter are tyrannical and corrupt. With the examples above, which side are UK aid officials on, on the side of poor people or on the side of the governments that oppress them?

"If You Don't Trust People You Know, It's Over!"

It would be so much easier for economists and aid workers to sidestep discussions of the role of culture in economic development. It's so hard to quantify, so slippery to define, and nearly impossible to graph. In this clip from the Development Research Institute's recent conference, NYU Professor Leonard Wantchekon talks about a cultural challenge to development in the country where he grew up, Benin.
Leonard Wantchekon on the Lack of Intra-Community Trust in Benin from DRI on Vimeo.

Wantchekon has traced this lack of trust to the historical legacy of the slave trade, in a research paper he co-authored with Nathan Nunn.

Stories like these point to the importance of bottom-up approaches to development. One-size-fits-all grand plans inevitably lack the cultural specificity to tease out and cope with these potential barriers. Are there other examples of unexpected cultural challenges to development that you've come across?

Who's Worse, the Pope or the Condom Mafia, on AIDS?

A New York Times editorial today condemns Pope Benedict XVI for saying at the beginning of his current trip to Africa that condom distribution makes the African AIDS epidemic worse. His exact words were that AIDS was "a tragedy that cannot be overcome by money alone, that cannot be overcome through the distribution of condoms, which even aggravates the problems." The Pope was completely right on the first two phrases in this sentence. Indeed the Condom Mafia, who are going through orgies of ritual abuse of the Pope today after this statement, have much to answer for themselves for obsessively pushing the Give Everyone a Condom model long after it became clear that it wasn’t working in Africa. The work of Daniel Halperin, Helen Epstein, and many others have made it clear that campaigns to reduce the number of concurrent sexual partners is probably a much more effective strategy than simply flooding Africa with condoms (the latter has been done already in many high AIDS countries like Botswana with seemingly no effect). If the Pope can help on the multiple lovers problem with some old-fashioned preaching about sexual fidelity, more power to the Pope.

Where the Pope got into trouble was with the last phrase, that condoms make AIDS worse. From the standpoint of the individual, this is obvious nonsense, you are much less likely to get AIDS if you use a condom. The reason that mass condom distribution has not worked is that far too many people don’t use the condoms. One among the many possible reasons that people don’t use condoms is that religious leaders like the Pope tell them not to, or they believe unscientific statements like the Pope’s that “condoms aggravate the problem.” So it is tragically circular for the Pope to condemn the condom campaigns for not working, when one reason they don’t work is that the Pope has previously condemned condoms.

Thieves and Donors: Agencies Struggle to Respond to a Little Constructive Criticism on Tajikistan

Last month, the International Crisis Group came out with a report describing the "profound and all-pervasive nature of corruption in Tajikistan," and recommending that the international donor community "institute a totally new framework for the provision of aid to Tajikistan." Since "most" of the substantial amount of money provided by international donors (some $300 million in 2006) "is believed to be lost to corruption before it gets anywhere near its intended recipients" the ICG reasonably recommended that donors take another look at whether it is good idea to give Tajikistan direct budget support (that is, provide cash directly to the Ministry of Finance to go into the budget for public spending). If the government doesn't get into shape, they said, donors should keep on funding humanitarian relief but cut off direct budget support.

We wondered what Tajikistan’s donors would say about these recommendations. In an ideal universe of flexible, accountable aid, surely donors would welcome impartial, externally-funded research. They would have in place some mechanism to evaluate the recommendations and determine whether existing aid programs should be tweaked or even discontinued in light of new findings...right?

To their credit, the donors we spoke with were aware of the ICG recommendations, and all responded (though some more slowly and reluctantly than others) to our questions.

The IMF told us that the majority of the ICG findings didn’t apply to them: the IMF doesn’t give direct budget support, and it doesn’t fund specific projects. As it happens, though, a new IMF loan of $120 million was announced the same week the ICG report came out. The loan will go the central bank to bolster Tajikistan’s foreign currency reserves. "As is the case in all IMF programs, we will also conduct a safeguards assessment that seeks to confirm that IMF resources are used as intended" said the IMF rep in an email message. We just wonder if this is the same safeguards assessment that was conducted before the last six misreporting incidents between Tajikistan and the IMF, the most serious of which required Tajikistan to give back some $50 million dollars and hire Ernst and Young to conduct an independent audit of the National Bank.

So who is giving direct budget support to Tajikistan? The World Bank’s portfolio for 2006 to 2010 includes $30 million in direct budget support. A new agreement, also reached the same week that the ICG report came out, will add $20 million to that figure, bringing budget support to 30 percent of the World Bank’s total grants in Tajikistan.

Reached via email in Dushanbe, the World Bank rep said of the ICG report: “We do not find ourselves in a position to comment on those recommendations…what we can say though is that the World Bank is aiming to support the people of Tajikistan…and the monitoring and audit systems in World Bank-funded projects are carefully designed to ensure that the funds reach those whom they were intended for.”

At the same time, though, the World Bank rep sent us a case study commissioned by Brookings (forthcoming) on aid effectiveness in Tajikistan. This report’s key conclusions are worth quoting at length:

The existing aid coordination architecture and interaction mechanisms between the Government and development partners are unable to ensure efficient use of foreign aid resources being provided to Tajikistan. As a result, planned (or expected) results and impact are substantially different from those realized on the ground. External assistance...has resulted in the perverse situation of a lack of incentives and inability to focus on and pay attention to the long-term determinants of domestic growth and appropriate political and economic institutions.

What do you think? Are donors in Tajikistan and elsewhere doing enough to safeguard aid funds and make sure they reach the poor? Or are they taking the path of least resistance, responding to strong institutional incentives that require donor organizations to keep the money flowing? What more do you think can be done?

The G-20 this weekend: A model international summit

The FT gave this straight-faced summary of the G-20 Meeting: "Although the meeting ended without specific new commitments and no country or central bank would be forced to change any existing policy in light of the communiqué, the participants ...said they were pleased by the spirit of cooperation among the Group of 20 leading and emerging economies."

This is why politicians love summits -- they get credit for doing something while they are in fact doing nothing.

We in development aid perfected this art of summiteering before anyone else. We get the record for getting everyone to agree to the loftiest goals while nobody in fact has to make any "specific new commitments" or "change any existing policy". We call them Millennium Development Goals.

When Will There Be Good News? Does it Help There Already Was Some?

In the midst of the general doom and gloom, fears about how the crisis will affect poor countries, and fierce criticism of markets, states, and aid agencies, perhaps it’s healthy to step back to the big picture, to recognize there has already been some very real good news. The graph below shows some overall statistics for the developing world:

This graph has a mixture of good news that all of the much-criticized triad of markets, states, and aid can take partial credit for. Markets obviously get at least some credit for the reduction in global poverty and increase of global average income. States supply public goods like education, water, and health, and there has been progress on all of these. Aid deserves some credit for successes in health, as already stressed in a previous blog post.

One group that doesn’t deserve much credit is “development experts,” because there is a terrible crisis of confidence in development economics now, where we all freely confess we don’t really know what to advise governments on how to speed up development.

Positive stories are also important to correct unbalanced stereotypes, like the one discussed a couple of days ago by June Arunga on this blog about the rich American woman who couldn’t believe Africans had cell phones. The figure below shows the huge cell phone boom in Africa (the world’s most rapidly growing cell phone market). This one is a success for resourceful African entrepreneurs, like Alieuh Conteh who started a cell phone business right in the middle of the civil war in the DR Congo, with makeshift cell phone towers made out of pieces of scrap metal welded together. He got millions of subscribers and eventually sold the company for a ten-figure sum.

Yes, there is a terrible crisis now, not to mention that all of these indicators are still deeply unsatisfactory, so we all keep criticizing and holding accountable the market, state, and aid actors who fall so woefully short. But let none of us forget how much development already happened over the last half-century, which may inspire us with hope that more step-by-step improvements in markets, states, and aid could make even more development possible.

Amartya Sen on Moralism, Maoism, and Capitalism

Professor Sen has an article on Capitalism beyond the Crisis in the current New York Review of Books. He has a shorter summary in the Financial Times today. I share the universal respect for Professor Sen, but must respectfully disagree on some of his take on capitalism in crisis:

He points out that even Mr. Free Market Invisible Hand, Adam Smith, was aware that you need more than self-interest to make capitalism work. You also need moral values like trust, honesty, and prudence (none of which has been too obvious in the financial sector lately), so business people can do transactions without cheating each other. His story is that free market proponents forgot all that in the run-up to the current crisis. If this is true, free market proponents are amazingly lazy, not bothering to read the zillion articles by economists on precisely these values in the last 15 years. The interesting question is where do these values come from? As this recent research shows, they COULD still arise even in a world of pure self-interest, since self-interested individuals could rationally find ways to bind themselves to norms of good behavior so that they can do repeated transactions with each other (probably helped along by pre-existing norms based on culture or human evolution -- see previous post on values). A norm of trust can sustain a free market driven by the profit motive (usually supplemented by formal institutions). And why do the values sometimes break down? Unfortunately, a norm of distrust is also another possible equilibrium, in which you expect everyone else to be untrustworthy and so you are untrustworthy too. A bunch of cheaters could catch everyone by surprise, destroy trust, and we jump to the bad equilibrium. I don’t know if this has anything to do with the current crisis, but I suspect this type of analysis, as practiced by tons of recent research on values and norms, is more useful than moral sermonizing to those (probably nonexistent) economists who didn’t know you need trust as well as the profit motive.

One last footnote: Professor Sen shows some rather surprising nostalgia for Maoism (in the NYRB but not the FT) over the current Chinese system. He is upset the gains in life expectancy slowed down after China moved from Maoism towards (at least partial) free markets. I would have thought you might also want to count the greatest escape from poverty in human history with the change from Maoism to partial capitalism. I also wouldn’t have thought that you would want to bring up Maoist China in an article on moral values. (Great Leap Forward/Famine/Cultural Revolution/50 million killed by Mao, am I missing something?)

"Africans Have Cell Phones? Who Do They Call?"

Kenyan businesswoman June Arunga on how negative stereotypes of Africa are hurting investment in Africa (from the recent Aid Watch conference at NYU): June Arunga on Western Attitudes Towards Business in Africa from DRI on Vimeo.

African Governments Should Be Accountable to Their Own People, Not Aid Agencies (Maybe Not Even the ICC)

Award-winning Ugandan journalist Andrew Mwenda was eloquent on this point at our recent conference: Andrew Mwenda on Taxation and Accountability in International Aid from LF on Vimeo.

Some recent research supports his view -- aid is associated with less democracy, and of course less democracy means less accountability to your own people:

Simeon Djankov & Jose Montalvo & Marta Reynal-Querol, 2008. "The Curse of Aid," Journal of Economic Growth, Springer, vol. 13(3), pages 169-194. Link to abstract here.

Perhaps a distantly related issue -- Some are also wondering if it really helps to make Sudan's leader accountable to outsiders, in this case the International Criminal Court. The always perceptive Alex de Waal is not so sure.

Can You Justify Buying Fine Wine Rather Than Saving the Life of an African Child?

Peter Singer's new book argues that this choice is equivalent to whether one of us rich people would rescue a drowing child in a pond even if it ruins our clothes (most rich people would save the drowning child, but would also choose to buy the fine wine). The argument is both deeply moving and deeply problematic. See the book review here in today's Wall Street Journal.

Does Respecting the Individual Promote Prosperity?

I am covering in my Ph.D. development class today a fascinating new body of research by economists that studies the effects of cultural values on economic development (see some references at the bottom). To drastically oversimplify, values across different cultures lie along a spectrum between two separate poles: (1) valuing individual autonomy, believing in equal treatment of individuals, reliance on formal law, the same moral standards apply to all, enforcement of morality is between individuals vs. (2) seeing the individual mainly or only as part of the group, different standards of treatment for group insiders and outsiders, morality only applies to interactions within the group, group enforcement of moral standards, reliance on informal rather than formal institutions.

To continue the drastic oversimplification, the values closer to the first pole are more consistent with the kind of good government associated with democratic capitalism, while values closer to the second pole are more associated with authoritarian and collectivist politics and economics. Measurement of all this stuff is a tricky issue, but here are two illustrative associations:

Then it also turns out this same measure can predict which countries are richer or poorer:

I’m sure there are several issues that occur immediately to readers: (1) the huge variance around the fitted line, and (2) possible reverse causality from development/democracy to values.

On (1), in defense of the statistical associations shown, scatter plots always look terrible if you are not used to them. This is a remarkably strong statistical association by normal standards. However, it certainly is true that culture is not destiny as there is a huge variance of outcomes for the “group values” cultures. Singapore succeeds despite collectivist values, for example. One interesting bit of research suggests that “group values” cultures will export products that don’t require as much impersonal contract enforcement, and thus values is part of what makes you specialize, and specialization is away of getting around cultural “disadvantages.”

On (2), the research suggests that values are determined by more long run factors, such as a long history of despotic rule (yes there is reverse causality from despotism to values but it operates over a very long time), and also intriguing clues about long run cultural values that are contained in linguistic structure within each culture (do you have to say the subject pronouns “I” and “he/she”, as in English, or can you drop them, as in Spanish, along with whether there are different forms of “you” depending on the status of the person you are addressing). Using these determinants of values, researchers have made some progress on establishing a causal link from values to development/democracy.

So the bottom line (again drastically oversimplified) could be something like “the value of individual liberty promotes prosperity.”

So all of the discussion we have already had on this blog on how aid agencies seem to have so little respect for the poor as individuals seems more relevant than ever.

References (not responsible for my simplifications!):

Guido Tabellini, Institutions and Culture, Presidential lecture presented at the meetings of the European Economic Association,Budapest, August 2007. (Tabellini talks about “generalized vs. limited morality” and “trust & respect”)

Licht, Amir N., Chanan Goldschmidt, and Shalom H. Schwartz (2007), Culture rules: The foundations of the rule of law and other norms of governance, Journal of Comparative Economics, 35 659–688.

Why So Scared of “Free Markets”?

The debate of the last few days on this blog reminded me again of how strong is the visceral negative reaction to an argument for “free markets” (those dreaded words are practically an epithet by now) in development. Part of this may be justified; let’s explore this in a Q and A. Q. Isn’t the case for markets a purely ideological one, which just serves to protect the interests of the rich?

A. True, it often has been. There is an ideological camp that will twist evidence to support free markets. They overpromise on how soon and how much development "markets" will deliver. They coerce other countries to accept "markets," bypassing the democratic process, which leads to a xenophobic backlash. And some in this camp do just want to defend the rich against ANY policy that hurts the rich even if it is a “free market” policy, so some are hypocritical.

However, beware of the fallacy called “Affirming the consequent.” If you are a Nazi, Then you like Wagner’s operas. It does not follow that: If you like Wagner’s operas, Then you are a Nazi. Similarly, suppose we agree: If you are a free market ideologue, Then you will defend free markets. However, it does not follow that If you defend free markets, then you are an ideologue. My posts presented evidence for markets as a development strategy. Feel free to disagree with the evidence, but don’t jump to the “ideologue” conclusion (see earlier blog discussion of how “ideologue” accusations are used as trump cards to try to win an argument).

Q. Don’t defenders of markets understand the role of the government to provide public goods, like institutions and infrastructure?

A. Yes, of course they do. The frequency with which this question comes up itself illustrates the strength of the negative reaction to pro-market arguments. Is it really likely that a Ph.D. economist would never have heard of public goods?

Q. So why criticize the Rosenstein-Rodan 1943/Collier and Unido 2009 argument for state-led industrialization?

A. These arguments argue for an industrialization “poverty trap” because of increasing returns in industry, which requires vigorous state “coordination and planning” in the poorest economies to escape. This is way beyond the “state covers public goods, market covers private goods” consensus of mainstream economics. In development, there were many attempts at force-fed industrialization based on this constantly-recycled idea (especially Africa, Middle East, and Latin America), which failed. Historically, industrialization arose in initially poor countries which have since become rich, with the common theme a heavy reliance on both domestic and international market opportunities and decentralized private entrepreneurship. First, we had UK, US, the rest of Western Europe, Australia, New Zealand, then Japan, then late industrialization in the European periphery (Ireland/Greece/Spain/Portugal), East Asian Gang of Four, and most recently China and India. Some of these cases had some kinds of industrial policies in common with the failures mentioned above, but they also had a heavy reliance on markets in common with other successes, to pass the ultimate verdict on scaling up successes. If you have a successful case that follows both policies A and B, and A has a record of success elsewhere and B has a record of failure elsewhere, shouldn’t you give more credit to A than B for the success of this case?

Q. What about Dani Rodrik’s questioning of the Jong-Wha Lee results on the negative effects of Korean industrial policy?

A. Dani, You are right to call me on this when I have other papers scornful of identifying policy effects from cross-country growth regressions. I thought the Lee paper deserved a little more consideration because it was NOT a typical cross-country regression; it was such a rare attempt to study within-country and cross-period effects of a policy regime, it had a parsimonious specification that alleviates the usual concerns about data mining; and and in particular it is even more rare to do all this to systematically test Korean industrial policy variations across period and industry. Lee’s systematic empirical approach contrasts with the anecdotal quality of most discussions of Korean industrial policy. Another paper by E. Kim in JDE in 2000 tends to confirm Lee’s results on Korean cross-time, cross-sector variations in response to industrial trade policies. Beason and Weinstein had a 1996 paper in RE Stat that also questions the conventional wisdom about positive effects of industrial policy in Japan.

Q. But hasn’t the current crisis discredited “free markets”?

The history of markets is one of periodic crises (especially financial crises) and recoveries, including major episodes of creative destruction, but with steady positive long run growth despite severe fluctuations around the trend. The huge fallibility of human actors makes the case for markets stronger, not weaker. The market itself triggers the corrective actions by both public and private actors when these actors do stupid things, like give too many mortgages to people who were not creditworthy and then try to cover it up with fancy securitization. The collapse of financial markets was a severe wake up call to change this stupid behavior; creative destruction is wiping out firms that made huge mistakes (despite some well-publicized cases of individual CEOs getting bonuses despite their stupid actions). New firms or restructured firms will not make the same mistakes (even if they find new mistakes to cause some new crisis). Since we recovered from all the previous crises of capitalism, it seems likely we will recover from this one. A knee-jerk rejection of markets (especially in poor countries) will likely postpone rather than accelerate the recovery, which made the anti-market arguments of the Collier/UNIDO report particularly ill-timed.

Asian Success Mythology

The blog yesterday provoked a lot of healthy debate about my claim that industrialization is mainly market-driven rather than state-driven, using Korea, China, and India as examples of industrialization out of poverty. I know I am going against the conventional wisdom of the great Asian “developmental state,” authoritarian and heavily involved in planning industrialization. So let me explain why. When I said we can only test what works on average, I am talking about what propositions are testable and falsifiable, using Karl Popper’s definition of what is “real” science. There is no way to test policies if you allow what works to be different in every year and every country, since a hypothesis about ANY policy will always fit the data perfectly under this assumption. I am not implying imposing the same blueprint everywhere, since “what works” is usually too general and can only guide general policy orientation. Of course, I agree that context matters a lot and so policy-makers should use whatever alternative sources of information or political instinct they have available to adjust the policy orientation to local circumstances.

So my general claim is that heavy reliance on markets is associated with long-run success, using as data the Asian successes, the earlier European and North America/Australia/New Zealand successes, the failure of non-market central planning in the Communist Bloc, and the failures of statist policies in Latin America, the Middle East, and Africa. It is true that Asian successes used state intervention more than the earlier European examples, but on average state intervention does poorly across all countries, so we have no Popper-standard evidence that state intervention contributed to their success. So my claim is based on evidence, not ideology.

We could also test industrial policy using within-country data. A well-known old study by Korean economist Jong-Wha Lee ("Government Interventions and Productivity Growth," Journal of Economic Growth, 1(3), September 1996, 391-414) found that government-favored sectors in South Korea actually had worse productivity growth than those that were not government-favored.

There is also the fact that South Korea (which had populist policies in the 1950s), India, and China had rapid growth after they shifted towards much LESS state intervention in the economy. I’m not sure that this one would pass the Popper test, however, since economists’ attempts to explain short- to medium-run shifts in growth have not been very successful world wide.

Now, let's go back to country data and look at the suggestion that we focus only on the success stories in East Asia. This has indeed been the predominant approach and has reinforced what I think is the fallacious conventional wisdom on the "industrial policy success" in East Asia. Looking only at the successes causes "survivor bias" about what really works.

Suppose we have a group of drivers leave New York at the same time to drive to Washington, and we interview the first 5 drivers who arrive in Washington. We find that they drove Lamborghinis at 150 mph, weaving in and out of traffic down the New Jersey Turnpike and I-95, out-running Highway Patrol cars who tried to stop them. Are they models for success getting from New York to Washington?

No, because since we only studied the “successful” first 5 drivers to arrive, we didn’t know about the vast majority of Lamborghini “failures” – the drivers who got into fatal accidents or were caught by the Highway Patrol and jailed for insanely reckless driving. On average, this approach was a disaster. On average, soccer moms driving mini-vans outperformed the Lamborghini drivers, if we study BOTH successes and failures.

So Asian success either happened in spite of statist industrial policy, not because of it, or industrial policy was an incredibly risky strategy that usually fails but occasionally has big successes, possibly in East Asia.

Either view would help explain why a huge amount of effort spent imitating East Asian success stories has NOT successfully replicated that success anywhere else.

So I stand by my claim that the 66-year-old idea of state-promoted industrialization has failed, and that it was irresponsible of Collier and UNIDO to resurrect it as a “major conceptual breakthrough.”

The UN’s 66-Year-Old Virgin

The UN has just announced a big new idea in the war on global poverty, in its just-released Industrial Development Report 2009. In the words of the United Nations Industrial Development Organization (UNIDO) Director General, Dr Kandeh Yumkella, “Our Report represents a major conceptual breakthrough on how to tackle global poverty through sustainable industrial development.” What was the breakthrough idea? Take government action to reap increasing returns to scale to industrial production, to get out of the free market’s “poverty trap” of low-scale industrial production.

The only problem with this major conceptual breakthrough is that it is 66 years old. It was presented in almost the same words in one of the first and most famous articles of development economics, by Paul Rosenstein-Rodan in 1943:

Paul Rosenstein-Rodan 1943	UNIDO report 2009
“It is generally agreed that industrialisation of "international depressed areas " …is the way of achieving a more equal distribution of income between different areas of the world by raising incomes in depressed areas ….”	“Industrialization is integral to economic development… [For] the bottom billion, manufactured exports are likely to offer more scope for long term productivity growth than either agriculture or natural resources.”
“If we create a sufficiently large investment unit by including all the new industries of the region, external economies will become internal profits out of which dividends may be paid easily.”	“Because they still do not have industrial agglomerations, they are unable to be competitive against countries that have…there is a threshold of competitiveness to be surmounted. Once that threshold is crossed, growth is explosive.”
“If the industrialization of international depressed areas were to rely entirely on the normal incentive of private entrepreneurs, the process would … be very much slower.”	“There is an important role for public action, as purely market-driven processes will yield prolonged stagnation.”

Professor Rosenstein-Rodan in 1943 can be saluted for thinking of a creative new theory. Today’s authors (such as lead author Paul Collier) seem a bit less creative for recycling the exact same theory, especially after 66 years of experience that contradicted every prediction of this theory. Initially very poor countries like South Korea and more recently China and India had no trouble with industrial growth through market forces, and virtually every attempt at state-forced industrialization has failed. UNIDO endorsed many of these state industrialization attempts in the countries that, as a result of many such failures, Collier now calls the Bottom Billion.

Recyling old failed ideas after 66 years might be another small hint that UN accountability is a wee bit deficient.

Unsung Hero Resurrects US Tied Aid Reporting

Official US aid policy is to slow down emergency aid as much as possible when people are dying. Well, they probably wouldn’t put it like that, but that is the consequence of a practice known as aid tying, whereby US aid must be spent on products from US companies. For emergency food aid, this causes huge delays in food shipments as the food has to come from the American Midwest rather than from easily available sources close to the emergency site. Bloomberg.com reported in December 2008 on the six-month journey of a bag of dried peas from Nebraska to Ethiopia, while in Ethiopia a grandfather watched seven of his grandchildren starve to death, victims of a famine foreseen for months.

Everyone from aid cheerleaders to aid skeptics decries aid tying. The US was reputed to be one of the worst offenders, but we didn’t know for sure, because the US government brazenly stopped publicly reporting how much of its aid was tied back in 1996 (unlike all other rich country donors). In 1996, when the US stopped reporting complete tied aid statistics to the OECD, 28 percent of its aid was untied, while the donor country average was 71 percent.

But now for some good news. USAID has finally restarted gathering and reporting data on how much US foreign assistance is tied. As far as Aid Watch can find out, this did not reflect any change in official policy at the top. One working level USAID staffer simply took the initiative on their own to do the right thing and report aid tying (apparently there are Searchers and not only Planners at USAID). Transparency is the first step to accountability for aid. Alas, incentives for transparency are weak (as far as we can tell, Aid Watch is the first to notice the end of the 9-year hiatus in US aid tying reporting).

The USAID official responsible for this change in 2006, who preferred to remain anonymous in our blog, said that the general trend in the US is towards less tied aid across the board, citing new programs under the MCC, HIV/AIDS activities, and aid to sub-Saharan Africa which are not subject to tied aid requirements. The new statistics now show 69 percent of US aid to be untied (as of 2007), compared to an average for all OECD donors of 85 percent.

“I developed a methodology for the identification of tying status based on solicitation notices, blanket untying, and other factors,” the USAID official said in an email message. Calling for a more transparent form of reporting for all donor countries, he said that reporting from other donors is at times “not supported by actual open bidding at the prime contractor level…so I wanted to perform the identification as correctly as possible.”

Hopefully, more transparency will lead to more accountability for reaching the poor. As recently as 2003 a document on the USAID website shamelessly stated: "The principal beneficiary of America's foreign assistance programs has always been the United States. Close to 80 percent of USAID's contracts and grants go directly to American firms" (source). As the international campaign for untying aid has gathered force, such self-interest has become less acceptable (the 2003 document is no longer on the USAID web site.)

There is still a ways to go. Virtually all US food aid is still required to be produced and packaged right here in the US (according to the original text of the mammoth, much-amended and much-maligned Foreign Assistance Act of 1961—that's PL 87-195 Sec 604(c) for anyone who wants to look it up).

Going back to even more dusty and remote legislation, it is the 1936 Merchant Marine Act that requires 75 percent of US food aid to be shipped on US-flag carriers. That’s money in the pocket of the US shipping industry, a blow to fair and free markets, and a failure for aid efficiency: a 2007 report by the GAO found that a major challenge continuing to hinder the efficiency of US food aid programs was “legal requirements that result in the awarding of food aid contracts to more expensive providers and contribute to delivery delays.”

In early 2008, with global food prices on the rise, the Bush administration tried to convince Congress to allow 25 percent of US food aid to be sourced locally—to allow aid agencies to buy food closer to where people need it and get it to them more quickly, cutting out the slow, cross-continental journey of the Nebraskan dried peas. But Congress quickly voted this down.

Last June, a remarkably diluted version of the Bush proposal was finally passed, creating a pilot program to “test” the results of local and regional food aid purchases. While the Bush plan would have allocated $300 million, this program is capped at $25 million per year (about 1 percent of the US food aid budget). An article in Business Week quoted former USAID administrator and Georgetown Professor Andrew Natsios’ reaction to this bill: “We don’t need a pilot like this. It works, we know it works.”

While the political coalition that funds international aid continues to prefer US shipping and farm interests over saving poor people’s lives, today we can count one small victory for aid transparency. In order to reform destructive aid practices, we need to know what those practices are. Thanks to the efforts of one unsung USAID staffer, we are a little bit closer to that goal.

A Tale of Two Refrigerators

In 2001 in southern Sudan, it was a time of peace between wars. It was a time ripe for treating diseases that kill thousands of children every year. It was an opportune time for measles vaccination to halt outbreaks of one of the world’s most preventable diseases. The Measles Initiative, founded by the WHO, UNICEF, the CDC and the American Red Cross, was created to address this significant challenge. In the rural county where I ran an NGO, over 1,200 young children died of measles over four months in early 2001. The death toll was devastating to our school children and their families: local villagers did not have the resources to combat the outbreak except to bury the dead.

When we reported the outbreak to the WHO, the officials we corresponded with expressed shock and dismay that our communities had no access to a vaccination program to stop the spread. But the WHO was caught in a Catch-22 of their own devising: they were unwilling to allocate resources and send doctors unless they could be certain the outbreak was measles, but they couldn’t be certain it was measles without a clinical diagnosis by qualified medical personnel.

Our NGO shipped out videotape of the infected children to one of the Measles Initiative partners. A medical doctor and global measles expert said the video was some of the best footage of children with measles he’d ever seen, but unfortunately Sudan wasn’t on the list to have a measles eradication program that year and he couldn’t be certain without seeing the patients. Even with the clear video footage, a senior WHO official still wouldn’t attribute the children’s deaths to measles nor send an investigative team. So, as far as we know, the children who died in eastern Upper Nile state in 2001 were never counted in the WHO’s official measles statistics.

Worse yet, the WHO wouldn’t supply vaccines to inoculate children and stop the outbreak without a refrigerator to store them, and the remote communities where we worked had no refrigerator and no reliable power source. UNICEF, we were told, would provide a fridge if the number of diagnosed deaths from measles was significant. But with no qualified medical personnel to diagnose a “significant” number of deaths in our area, we didn’t qualify.

In cooperation with Save the Children (US) and funded by USAID, our NGO set up a medical clinic and put qualified African medical staff in place. Training on running a vaccination program was provided and record-keeping started. The communities waited impatiently for the vaccination program as more children died in subsequent outbreaks. There were hundreds more deaths diagnosed from measles each time. Our NGO was repeatedly told it was “near the top” of the waiting list, but years passed with no refrigerator and no vaccines.

Another outbreak of measles started in mid-2008. In desperation, our NGO raised private funds to purchase a refrigerator and fly it into the isolated area where we worked. Within a few months, our new refrigerator was in place and ready to hold the free vaccines that the Measles Initiative promised to qualified organizations. We have found that “free” is a relative term in Africa, however. We quickly learned that a small number of vaccines were available to us at a regional distribution center, a $5000 air charter flight away.

Just last week, a second refrigerator was delivered, this time courtesy of Save the Children (US), nearly seven years after the original request was made. According to locals, thousands of children have died of measles in the mean time, but the major aid agencies still cannot work together to provide truly free vaccines. Seven years later, this community has two empty refrigerators and still no means to keep their children dying from measles. The refrigerator excuse is gone but the vaccines are effectively out of reach.

Even a time between wars is not the best of times for the poor in rural Sudan. As it turned out, it has been a time of bureaucratic “defer and delay” from the UN aid agencies who failed to provide the vaccines needed to save vulnerable children dying from a preventable disease. After seven years, Save the Children (US) is making the most progress, which is disappointingly slow.

It makes me wonder if the 90% drop in measles infection rate between 2000 and 2006 claimed by the WHO is accurate, or if the children who are dying are just too much trouble for them to count.

MADE-UP MALARIA DATA ROUND 2: Gates Foundation responds, WHO graciously offers not to respond

The modest aim of an initiative like Aid Watch is to be one more small voice holding aid agencies and foundations accountable for doing good things for poor people. The aim of more accountability is to induce improved behavior by those guys, so that aid will work better. The Aid Watch blog already has had its first small test on trying to induce accountability. This post took Bill and Melinda Gates to task for claiming in the Financial Times that foreign aid had big victories over malaria in countries like Rwanda and Ethiopia, because the WHO country data they based it on was made up and later contradicted by the WHO itself.

The Gates Foundation did respond to this criticism, to their great credit (not directly, but that’s OK, it was visible enough in a response to the Chronicle of Philanthropy’s coverage of this controversy.)

What was their response to criticism for using invalid country data? Oops, they offered more invalid country data. The Gates Foundation spokesman offered the country data on Rwanda and Ethiopia from this journal article as defense for the Gateses’ claims on those countries' victories over malaria.

What does the cited article actually say? “Districts and health facilities were not randomly selected, but constituted a (stratified) convenience sample, selecting those sites where intervention scale-up had been relatively rapid and successful … Therefore, estimated impacts cannot be extrapolated to the countries nation-wide.”

Still, the Gates Foundation was a tad more responsive than the WHO, whose malaria chief first led astray the Gateses and the New York Times with false reports of victories over malaria based on made up country data, then the WHO issued totally different data in its official 2008 Malaria report a few months later, without ever retracting the New York Times story.

When Aid Watch’s intrepid investigator Laura Freschi approached the WHO for comment, she got the following response from the WHO Project Leader for Information Management & Communications, Epidemic and Pandemic Alert and Response (EPR):

“Hello. I have received your emails and phone call. However, WHO does not participate in blog discussions.

Thank you.”

It may seem obsessive to insist on good data, but bad data costs lives. The sad thing is that there have been SOME victories against malaria, and that solid data on WHAT is working WHERE is vital to guide the campaign against this tragic disease. Would Americans put up with the CDC using made up data to respond to a salmonella outbreak?

I guess Aid Watch is going to have to work a LOT harder to do our part to get a bit more accountability.

Participation of the poor in mainstreaming gender empowerment for civil society stakeholders to promote country ownership of good governance for community-driven sustainable development

I have just stumbled across a great series of articles on buzzwords in development. Some aid workers and development scholars are so jaded by these vague but ubiquitous buzzwords that they play “Development Bingo.” Whenever a development pro is giving a lecture, they hold Bingo cards marked with all the buzzwords and check them off whenever the lecturer mentions them in the talk. When they have got a full set of buzzwords, they stand up and shout “Development!” (No doubt leaving more than a few lecturers baffled.) My favorite article discovery is Andrea Cornwall, Historical Perspectives on Participation in Development, Commonwealth and Comparative Politics, Vol. 44, No. 1, 49-65, March 2006. Professor Cornwall is a brilliant anthropologist at the Institute of Development Studies at the University of Sussex. She also guest-edited a fascinating special issue of the journal Development in Practice (2007, Volume 17, Issue 4) devoted to “buzzwords and fuzzwords.”

In my favorite article, Professor Cornwall gives a history of how the aid powers that be have resorted to the buzzword of “participation” to convey good intentions to give the “power to the poor” over aid affairs, while never in fact ceding any such powers.

What is most scary is that “participation” as a buzzword goes all the way back into colonial times. In 1929, a British MP told the Parliament that they had a “moral responsibility” to give colonial subjects “some participation in the shaping of their own destinies.” Right after World War II, the Labour government would “inspire these {colonial subject} men with the hope that, as never before …. London could assist them in their work of extending popular participation in public affairs.” The irony that these promises were made by an authoritarian empire run from London apparently escaped notice. The US Foreign Assistance Act of 1966 similarly promised to emphasize “maximum participation…on the part of the people of the developing countries” -- all while the US was propping up dictatorial Cold War allies who were not too interested in giving power to anyone besides themselves.

Today of course, “participation” (and synonyms like “community-driven,” “empowering stakeholders”, “local ownership” etc. etc.) is everywhere in aid documents. Yet the aid powers giving away their power is not exactly going to happen anytime soon. Cornwall cites the 1998 World Bank “Participation” manual, which lists “the poor and disadvantaged” as only one of many stakeholder groups (another is “World Bank management, staff, and shareholders.”) I wonder which stakeholder is going to win the next battle.

The main function of buzzwords such as “participation” and “empowerment” is to paper over the ugly reality that there will be some battles of conflicting interests between “the poor and disadvantaged” and other more powerful groups like the World Bank and rulers of poor countries -- and that the poor will almost always lose such battles.

Using clear language instead of buzzwords would at least force us to confront the reality of the battle for real democratic rights. We should use words that have historically been associated with popular movements actually seeking power to the people (even if those are also misused and have conflicting meanings, at least they meant something historically).

One word that is extremely unpopular in aid documents but has great historical resonance on “power to the people” is “liberty.” Neither the 347 page World Bank 1998 “Participation Sourcebook” nor the 372-page World Bank 2006 “Empowerment in Practice” ever mentioned the word “liberty.” The poor cannot have liberty, but they can have lots of empowerment and participation and ownership and civil society. I’d rather have liberty myself.

Some cite good news on aid

A paper forthcoming in the Journal of Economic Literature states: "There are well known and striking donor success stories, like the elimination of smallpox, the near-eradication of river blindness and Guinea worm, the spread of oral rehydration therapy for treating infant diarrheal diseases, DDT campaigns against malarial mosquitoes (although later halted for environmental reasons), and the success of WHO vaccination programs against measles and other childhood diseases. The aid campaign against diseases in Africa … is likely the single biggest success story in the history of aid to Africa..."

"The well-known Kremer and Miguel paper showed a strong effect of deworming on worm infection rates in a district in Kenya, which reflected not only direct effects on children receiving the drugs but also surprisingly strong externalities to others in the same school or nearby schools."

"Breastfeeding, immunization against diarrheal diseases, micronutrient supplementation and oral rehydration therapy (ORT) have all been found to work in randomized trails in the fight against diarrhea....Case studies suggest ORT is another health aid success story, accounting for a substantial drop in diarrheal mortality since 1980."

Who is this wild-eyed aid optimist? Oops, it's me.

The point is that even those of us labeled as "aid critics" do not believe aid has been a universal failure. If we give you aid agencies grief on failures, it is because we have seen some successes, and we would like to see more!