Hopeless cause of the week: save Madagascar!

Aid Watch has a stubborn attachment to excellent but possibly hopeless causes… Madagascar, a country we first blogged about in June and then again in August, may be down to its last few days as regards AGOA, the US preference program that underpins about 50 percent of the country's $500 million textile industry.  Because of the change of government that took place in Madagascar in March, the US has been steadily threatening to suspend its AGOA eligibility unless the country returns pronto to constitutional government.  A committee consisting of representatives from State, Commerce, Labor, Treasury, USAID, the NSC and the USTR has been deliberating for several days on whether Madagascar's transgressions merit suspension from AGOA.

With little likelihood that egregious democracy and human rights violators like Gabon and Angola will be suspended from AGOA, it's hard not to be cynical about why Madagascar has come under such scrutiny for a regime change in which a highly experienced kleptocrat was replaced by a less experienced one.  Or why, suddenly, there is such concern about a return to constitutional government when it's not at all clear that Madagascar's leaders over the last 40 years have ever placed the interests of their people above their own.  We can be fairly sure that if Madagascar were pumping oil instead of just looking for it the country's AGOA status would not even be under consideration. Still, we’re going to try not to be cynical.

We don’t know WHAT the AGOA eligibility committee on Madagascar is talking about. (The committee doesn't actually make the final decision on AGOA.  They make a recommendation to the president who typically announces who's in and who's out around Christmas time.)  But we imagine the discussion breaks down in two ways.  On one side, there are the idealists who believe that the AGOA goals of promoting democracy and good governance will never be achieved unless the US gets serious about sanctioning individuals who overthrow democratically elected governments.  After seeing Madagascar's political leaders backslide, prevaricate and just plain lie about their intentions in on-going negotiations brokered by the AU, SADC and the UN, the idealists are skeptical about whether these leaders - none of whom is a poster child for good governance - are serious about resolving their long standing differences.  The idealists are probably right.  These political adversaries, who have overthrown one another like kids playing leapfrog, despise each other.  We can expect that, AGOA or no AGOA, political friction, back-stabbing and jockeying for position will continue in Madagascar for years to come - just like in most countries.

On the other side of the committee table, there are the realists who recognize that cutting off AGOA is unlikely to have any effect on those behind the overthrow of the previous government but will vaporize millions upon millions of dollars of foreign investment in Madagascar, some of it by US companies, and dump tens of thousands of young female workers trying to feed their kids into the streets.

So what to do?  Cancel AGOA in support of a principle that will do nothing to advance good governance in Africa, or continue it and support workers and investors who had nothing to do with the whole business?  Forgive us for our presumption that this is a fairly obvious call.

This is an interesting test of whether independent observers who actually care about Madagascar have any effect on US government decisions in our democracy, or whether the departments concerned simply act with impunity to pursue their own interests and agendas. The rest is up to you, most esteemed AGOA committee. -- Update: Take action on this cause! Send an email to Florizelle Liser (Florie_Liser@ustr.eop.gov), Assistant U.S. Trade Representative for Africa, telling her not to cancel AGOA in Madagascar.

Famine Cover-Ups vs. Fake Famines

Is Ethiopia having a famine? As often is the case, there are two forces pulling in opposite directions that make it hard to answer the question. On the one hand, the authoritarian government wants to cover up any famine to mute criticism of its performance.  Ethiopia is due for elections next year, and the government is determined not to go the way of previous regimes toppled in part because of anger at famines in the 1970s and 1990s. The government’s solution? Prohibit journalists from entering the worst-off areas, and fight tooth and nail with aid agencies to repress or delay information on humanitarian needs.

Complicating the situation further is that the government army is operating against insurgents in the suspected famine areas in the South and cites security reasons for not allowing outsiders to enter, so nobody really knows what is happening there.

On the other hand, NGOs have a well known tendency to cry wolf and exaggerate—to see famine where there is no famine—perhaps in order to raise more money for their own organization (I am echoing here fierce accusations of exactly this from Ethiopians I talked to during my visit who were NOT allied with the government).

For example, aid organizations and journalists saw signs of famine in Mali in the summer of 2005. Reuters reported that aid and donations were urgently needed in Mali “where the same famine that struck neighboring Niger is intensifying.” In another article, an Oxfam official was quoted saying: “They say there's no famine in Mali, but that's false. People aren't able to eat for three or four days. Forget the political or academic definitions.” While Mali had suffered a series of droughts and an invasion of locusts which exacerbated the chronic food insecurity there, deaths did not approach famine levels. The predicted high numbers of deaths from famine in Niger in 2005 and Malawi in 2002 also thankfully did not materialize. It’s impossible to know how last minute appeals for funds may have affected these outcomes, but the fact remains that desperate pleas to end exaggerated famines are a blunt  instrument in addressing the causes of chronic malnutrition and long term food insecurity.

In his classic book “Famine Crimes” Alex De Waal observes that NGOs make “habitual inflation of estimates of expected deaths.” De Waal notes that during the pre-Christmas prime fundraising season, ‘One million dead by Christmas’… has been heard every year since 1968 and has never been remotely close to the truth.”

Put into the current mix a credulous Western media that is happy to check the box "Ethiopia = famine," and is unable to handle subtleties like chronic food insecurity and chronic malnutrition vs. emergency famine. Between unreliable media, NGOs, and government, it is tragically difficult to know when tragedy is happening.

Is the agency that’s all about country ownership giving up on country ownership?

The Millennium Challenge Corporation was created in 2004 to be a different kind of aid agency, a model that would correct the mistakes of other development agencies and put lessons gleaned from decades of experience into practice. Belief in country ownership—the widely-accepted idea that country-led development is critical to the success of sustainable development—was one of MCC’s founding principles. At an event this fall the acting CEO said, “Country ownership is not just a catchphrase at the Millennium Challenge Corporation.  Though it has its share of challenges, it is—and will remain—a guiding principle.”

So why are people close to the organization saying that MCC’s commitment to ownership is eroding?

In the MCC model, a country competes with other countries to be pronounced eligible for funding by showing dedication to growth-oriented policies along 17 different indicators. From there, the country comes up with its own proposal, which should be developed with the input of the country’s citizens, “including women, non-governmental organizations, and the private sector.” The project, which should be “fully implemented, managed and maintained by the country,”  must be “able to measure both economic growth and poverty reduction,” and, for the real kicker, must be done in five years.

These guidelines conform to industry best practice. And the five year limit on compacts creates the pressure for countries to focus on the project and show results.

Only problem is, meeting these targets is easier said than done for even the most capable of poor country governments. In theory, five years is enough to finish the projects, but in practice, those five years have at times been whittled away by the time it takes to complete thorough pre-project studies and build the capacity of a brand new agency to guide the process from start to finish.

MCC is also responding to pressure from Congress—which determines the level of funding the organization will receive each year—to get compacts signed and dollars out the door. “We would love to convince people that our constituency is the poor...but we answer to Congress,” said an MCC employee. As a result, some observers say that the agency has shifted from its intended supervisory role to taking on greater participation in program design. The idea is to empower the host country government, said the MCC employee, but “sometimes we had to take the pen and write the terms of reference ourselves.”

Evidence for this shift can be found through the organization’s website, where publicly-posted information on procurements shows that the MCC is acting as counterparty to contracts for firms to work on compact development.

In the past, MCC hired independent engineering firms to provide due diligence and implementation oversight for infrastructure projects.  Now, the scope of work allows the MCC to hire firms to work on compact design as well. This seemingly small and easily-overlooked detail actually represents a “fundamental shift in the way we operate,” according to a source with detailed knowledge of the matter.

MCC leadership disagreed with this interpretation of their contracting procedures. “I can assure you that we’re not departing from our full embracing of our concept of host country ownership. I think we have gotten more sophisticated over the last five years in terms of what it looks like,” said Dick Day, Managing Director for Compact Development.

“We have very much learned from our experience,” said Day. “Some countries have sufficient capacity to do it all on their own.... Others need and want us to come alongside them and help them along the way, including during the compact development phase.” MCC’s experience with Senegal, Jordan and Moldova illustrate that country governments have varying levels of capacity to complete project design work in a timely way, he said.

Day described two areas of “evolution” in the way MCC does business. The first is the “overall concept of being more engaged as a partner.” The second is shifting the bulk of the compact design work (feasibility study, environmental impact assessment and some early engineering design work) to the period before the compact is signed with the host country government. This allows the host country governments to take more of the five years to carry out implementation of the project, but it may also give the MCC more latitude to increase their level of engagement in the process of designing the project when required, or - as a skeptic might phrase it less carefully - “do it for them.”

From at least one MCC employee’s perspective, these changes in MCC procedures mean “we are now contracting with engineering firms to do design work that the countries used to do, clear and simple.”

Africa is Rich

…as well as Poor. I don’t dispute, and I do care very much about changing, the well known material and health deprivation in Africa. But Life doesn’t have only one dimension.

These thoughts were prompted by a recent seven-day journey on foot through the highlands of North Wollo, Ethiopia.[1] Going through a district with no roads, no electricity, no wheeled vehicles, no source of energy other than animal and human power, threshing and winnowing grain with Biblical technology, amidst rock-walled villages with tukuls of sticks, mud, and thatch, no signs of “modernity” of any kind, you might think the focus could only be on poverty.

Yet I was struck also by many other things: the centuries-old Ethiopian Orthodox Christianity, with a beautiful church in each village, the coffee ceremony associated with the homeland of coffee, the wonderful cuisine, the tenacious skill and hard work needed to reap a rich harvest of teff, wheat, and barley out of a rocky land, the hospitality of the villagers who invited us to share their homemade beer after church services, and - above all - the dignity of local people proud of their Amhara history and culture, who don’t consider themselves “the poor.”

These experiences were courtesy of a remarkable community tourism NGO called TESFA (Tourism in Ethiopia for Sustainable Future Alternatives).

Some development professionals acted as entrepreneurs with local communities, letting them in on the strange notion that some faranji would be delighted to pay large sums to do the hard work of climbing up and down escarpments. Aid agencies and embassies (Save the Children UK, Irish Aid, Dutch and British Embassies) provided start up capital to build guest camps.

Eschewing the voyeurism of marketing poverty itself (like a few tourism projects criticized on this blog), the villagers gradually realized that they were sitting on a tourism gold mine of spectacular scenery and rich culture. TESFA is now Ethiopian-run, and the emphasis is on local guides and villagers providing all the services to the trekkers who pass through, supplementing their incomes through offering something of great value in the world market for trekking destinations. (Adventure travelers and trekkers everywhere – you can’t miss this. You don’t have to be in great shape either – I wasn’t and was fine.)

Which brings me back to the idea: Africa is Rich, as well as Poor.

At home, we don’t value people around us only by their numerical income – we also recognize courtesy, classiness, intelligence, loyalty, familial devotion, community dedication, spirituality, peacefulness, creativity, beauty, style, kindness, athleticism, artistry, and many other dimensions.

So why do we insist on defining Africans only on the dimension in which Africa looks worst – material income – when on some other dimensions Africa compares well to the West?  Wouldn’t it be a lot less patronizing if we recognized the riches as well as the poverty of Africa?

[1] (obligatory caveat that generalizations about “Africa” based on one district are silly, but a way to start a conversation)

Friday Roundup: Who Will Implement US Aid to Pakistan?

With a USAID administrator at long last named and awaiting confirmation, some of pieces of the overall US development strategy should finally begin falling into place. Will we then get some answers on what the heck is going on with US aid in Pakistan? Those of you who follow the region know that in October, Congress moved to triple current levels of non-military aid to Pakistan, approving a package for $7.5 billion over the next five years. After that, the fight broke out. The State Department and special envoy Richard Holbrooke sketched out plans to abruptly funnel the money through the Pakistani government and Pakistani NGOs, rather than through American contractors, who implement the majority of USAID’s contracts at the moment. The idea is to cut the overhead costs of working with foreign contractors, build the capacity of local organizations, and get results fast.

The NYT reported the means and ends of the new aid money: “American officials say the main goals of the new assistance will be to shore up the crumbling Pakistani state by building infrastructure like roads and power plants, and to improve the standing of the United States with the Pakistani people.”

Note the assumption here that development is a tool for achieving diplomacy goals, and that it can be used to achieve these goals in short order. I wonder: have they taken a hard look at Afghanistan’s ring road project, which remains unfinished after taking the lives of 162 contractors and $1.4 billion in foreign aid funds? As for winning hearts and minds, conditions of the new aid bill have caused anger at what many Pakistanis perceive as American interference in Pakistani affairs, with one Pakistani politician calling the bill “the charter for new colonization.” Public opinion polls show overwhelming opposition to US military activity in Pakistan, and popular resentment towards the US appears to be growing, influenced by opposition to drone attacks in Pakistan and events in Iraq and Afghanistan (and fed even by Pakistani pop musicians.) So if hearts and minds can be won with development dollars at all, it is bound to be a long, expensive, uphill slog.

Unsurprisingly, USAID and their contractors are opposed to the State Department reshuffle. A sensitive but unclassified memo leaked to USA Today from a senior USAID economist complained of “contradictory objectives” and protested that “directing an immediate shift away from US contractors already on the ground to local implementers without an appropriate transition period will seriously compromise the more important requirements for quick counterinsurgency and economic impacts.” Local organizations, he said, are not equipped to follow the complex accounting and reporting procedures required to ensure that the money is spent properly.

Then again, USAID’s track record for success in Pakistan post 9/11 is spotty at best, with reports from CSIS (quoted below) and Harvard finding that US development aid spending has been hampered by security concerns, plagued by unnecessarily high overhead costs, and is unlikely to be effective in the tribal areas: “The process of building schools and opening health clinics is unlikely to produce development in any broad sense. What is more likely… is that the system of patronage used to maintain political authority will also co-opt the development funds provided to the tribal areas.”

USAID later issued a press release noting that “big changes” are “imminent” but insisting that current USAID programs would not be terminated.  So what's the plan??

Lies My Poets Told Me: The Prehistory of Development Economics

This post is by Adam Martin, a post-doctoral fellow at DRI. A couple months ago, Bill addressed the imperial origins of state-led development, arguing that economic development was a substitute for racism as a rationalization of empire. I think it’s worthwhile to delve a bit further into the intellectual and social context in which these ideas were put forward.

Why bother? Because ideas matter for policy. There are good, hard-nosed reasons for believing that rationales are not mere epiphenomena of political interests. Understanding why and how certain policies are implemented requires some digging into the justifications of policymakers. A bit of intellectual archaeology might also identify some path dependence in economic thinking about development. The point is not to impugn the motives of current policymakers or academic researchers, but to shed light on any hidden intellectual baggage that might be weighing down their efforts. Old dead economists might teach us something valuable after all.

How do the ideas of economists fit into this historical collision of racism, imperialism, and international politics that gave us the development establishment? Before jumping right into more proximate causes, a bit of pre-history might help set the scene. WWII was not the dismal science's first collision with race and empire. As it turns out, the "dismal" moniker that economists have long enjoyed stems from those very debates.

David Levy and Sandra Peart have extensively chronicled the relationship between classical economics and the racism contemporary to it. The surprise ending? The economists were the good guys. That's right. Vile, contemptible economists--apologists for markets, purveyors of selfishness--were the public defenders of racial equality (along with the "Exeter Hall" evangelical Christians). Then who were the bad guys? The poets: Thomas Carlyle, John Ruskin, and everyone's favorite literary critic of capitalism, Charles Dickens. It was Carlyle who christened economics as the dismal science, in contrast with the "gay science" of poetry. The context is shocking:

Truly, my philanthropic friends, Exeter Hall philanthropy is wonderful; and the social science -- not a "gay science," but a rueful --which finds the secret of this universe in "supply and demand," and reduces the duty of human governors to that of letting men alone, is also wonderful. Not a "gay science," I should say, like some we have heard of; no, a dreary, desolate and, indeed, quite abject and distressing one; what we might call, by way of eminence, the dismal science. These two, Exeter Hall philanthropy and the Dismal Science, led by any sacred cause of black emancipation, or the like, to fall in love and make a wedding of it -- will give birth to progenies and prodigies: dark extensive moon-calves, unnameable abortions, wide-coiled monstrosities, such as the world has not seen hitherto!

Carlyle is arguing here for the reintroduction of slavery in the West Indian colonies. John Stuart Mill responded, in line with classical economists' assumption of a deep human homogeneity. Differences between societies are the result of the incentives individuals face, meaning that history and institutions are the root cause of different levels of development. By contrast, the Romantic poets argued that inherent differences between individuals justified hierarchical relationships--for the good of the lesser races, of course. They longed for bygone feudalism when better men cared for their inferiors, while the economists argued that equals should come together in mutually beneficial market exchange.

Economists played this part again in the debate over Irish home rule, arguing that Ireland's economic backwardness was due to bad institutional arrangements, themselves the result of centuries of British invasions. For their part, the economists' opponents depicted them--personified as John Bright--as peddling snake oil to the subhuman Irish.

In both these cases, economists' underlying egalitarianism clashed with paternalism of an ugly sort. The "dismal" label should be worn as a badge of honor for precisely this reason. But why did later dismal scientists sign on so readily to the paternalist project of development? Why were voices like Bauer and Frankel so rare? I don't think the abandonment of racist language is a sufficient cause. Other tectonic shifts in economic thought took place in the intervening decades. Which were decisive? This is an open question worth pursuing further.

We Were Starting to Think It Might Never Happen...

...but after months of delay, the Obama administration has finally named a nominee for the position of USAID administrator. The Center for Global Development's Sheila Herrling was among the first to mention Shah as a last minute candidate:

[R]ecent activity on our poll shows an unusual flurry of write-ins for Raj Shah, currently serving as Undersecretary for Research, Education and Economics at USDA.   Could this be the final twist of fate?

Politico picked up the gossip on Monday and added some details on this little-known candidate's bio...

Whiz kid (he's 36), the former Bill and Melinda Gates Foundation director of agriculture development and financial services, and manager of the foundation's $1.5 billion vaccine fund. A trained medical doctor, Shah has some interesting political credentials, having campaigned for Obama, [and] served as the former health care policy advisor to Al Gore's presidential campaign.... He was confirmed in April just a month after being announced without a hitch, and has been involved in numerous philanthropic efforts to combat poverty in India and around the world, and worked at the World Health Organization.

...before breaking the news on Tuesday afternoon, just a few hours before the White House made their official announcement.

After waiting so long, early reactions from the development community so far seem to run towards excitement and relief, although some have voiced concern that Shah's youth and status as a relative unknown outside of Washington (as compared to Paul Farmer, for example) may be a sign that the Obama administration does not plan to elevate USAID to a cabinet-level agency or restore the level of power and prestige to the agency that those in the movement to reform USAID would like to see.  Maybe Shah's age worked  in his favor at least in getting him more quickly though the notoriously arduous vetting process.

An article  in the New York Times last year featured Shah's work at the head of the Gates Foundation's agricultural development  program in Africa, and described a typical program under Shah's stewardship: "close to the ground and oriented toward practical innovation that reduces risk for small farmers and increases their incomes."

A passage at the end of the piece in which the author describes Shah's response to criticism of his approach may hint at the kind of leader Shah will be as head of USAID. While others are "contemptuous" or "disdainful" of their detractors, "Shah seemed unhappy."

“After I went to Berkeley to meet with the Food First people,” he told me, “I came away very much wanting to work more closely with agro-ecological groups. We talk to anyone who will talk to us. How could we aspire to be transformational if we didn’t?” He paused, and then added musingly: “I guess I really don’t know why there is so much hostility. I really think we have something to learn from them.”

Who knows, perhaps this augurs a USAID more open to listening to its critics.

History Matters: If you paid a $4 poll tax in 1910, your great-grandchild gets a polio vaccine today

In colonial Nigeria in the last years of the 19th century, a strange quirk of history led the British rulers to draw an arbitrary boundary line along the 7˚10' N line of latitude, separating the population into two separate administrative districts.

Below the line, the colonial government raised money by levying taxes on imported alcohol and other goods that came through Southern Protectorate’s sea ports. Above the line, the administrators of the landlocked Northern Protectorate had no sea ports, and instead raised money through direct taxes. In the areas near the border, this took the form of a simple poll tax, where tax officials collected from each citizen the equivalent of between $4 and $20 in today’s dollars.

Could this seemingly minor difference—created over a century ago by a long-defunct colonial administration, and long ago erased by subsequent administrative divisions—possibly still matter today?

Yes, it could, according to Daniel Berger, a PhD student in politics at NYU. Berger’s paper, Taxes, Institutions and Local Governance: Evidence from a Natural Experiment in Colonial Nigeria, finds that the “simple act of having to collect taxes caused governments to be forced to build the capacity which can now provide basic government services.” As a result, governance today is “significantly better” in areas just above the line than in those just below it.

After looking at historical evidence and running statistical tests, Berger finds that there is no evidence of pre-existing differences among the people living very close to the arbitrary boundary on either side, and so is able to rule out the possibility that some third factor could account for the differences in governance that remain today.

The results are threefold. Berger uses Afrobarometer public opinion data to show that residents just above the line are happier with their local governments, and his use of demographic survey data shows that local governments just below the line spend 10 percent more of their budget on salaries ("an indicator of less competent government.") Zeroing in on the propensity of mothers to vaccinate their child as a way to get at a precise measure of the quality of public service delivery, Berger finds that “living just below the line leads to a 10.7 percentage point reduction in the probability that her child will be vaccinated for polio.”

The conditions created by the administrative division led to two different equilibria, which help explain how the differences above and below the line were able to persist over time:

In the first, the local government does little except extract what few bribes it can….There is no incentive for hard work, as bureaucrats will neither be able to extract appreciably more rents (due to the limited amount of money available in the local economy) nor will they be able to improve government functioning on their own (since efficient functioning requires the entire bureaucracy working together). This also leads to a knock on effect on the human capital available to the local governments as the families which control the local government have no reason to steer their smartest children into local government service.

The second equilibrium is one in which significant services are actually delivered. Here, the local government is capable of delivering local basic public services with a reasonable level of efficiency and honesty. This grants sufficient legitimacy to the local government that they are able to collect local taxes, which never go to the center. They can then pay themselves regularly despite the fact that they are not regularly receiving the transfers they are due from the center. Here hard work does make a difference.

Berger’s conclusions also speak to the strength of norms and informal institutions. While the formal institutions—the idiosyncratic colonial structure of taxation—that created the original difference in bureaucratic capacity were long ago swept away, it is the informal norms, transmitted across generations, that persist and lead to the different outcomes we see today.

You may wonder what whim caused the British create this artificial boundary in the first place. The literature tells us that the British were worried that a colonial official senior enough to administer the whole undivided territory of Nigeria would be too old and too weak to survive the malarial climate. By cutting the province in two, the British could send two younger and heartier (but less-experienced) governors instead.

So, to simplify: measurable differences in the perception and quality of local government provision service persist between otherwise identical populations just north and south of Nigeria’s the 7˚10' N latitude line…all for fear of a malarial mosquito.

Friday Round Up

Monkeys Do Markets In a recent experiment, a team of scientists trained a vervet monkey to open a container of apples, a task no other monkey in her group could do. She was well-compensated for this service by the other monkeys, who began to spend a lot of time grooming her (apparently, grooming is the monkey unit of exchange). Then, the scientists trained another monkey in the group to get the apples, and the “price” for the service (ie the amount of grooming the apple-providing monkeys received) went down. NPR Correspondent Alex Bloomberg explained:

[W]hen there was a monkey monopoly on the skill, the monkeys paid one price. But when it became a duopoly, the price fell to an equilibrium point, about half of what it had been. And this all happened despite the fact that we're talking about monkeys here. Monkeys can't do math.

What’s the point, other than research studies are really bizarre? Acquiring a sought-after new job skill leads to a higher income, even among monkeys. And, monkey markets can still set prices, even though the market participants can’t add, sign contracts, or talk. And, perhaps, complex markets can be the product of an unintentional, spontaneous order:  Out of the chaos of many monkeys running around hitting one another on the heads, pulling nits off each other’s fur, following only the simple rules of monkey hierarchies and monkey appetites…a functioning market emerges.

The Most Remote Place in the World is Three Weeks from Anywhere

Along the lines of our recent post, Africa Desperately Needs Trade Links: A Pictorial Essay, check out this feature from the New Scientist.

Bad Bosses Suck (Worse than War?)

I can think of lots of reasons why a local aid worker in Iraq might forego a secure paycheck and quit their job. Long lines and indignities at the security checkpoints to get in and out of the Green Zone every day. The dangers inherent to working with foreigners, like the threat of kidnapping or injury to themselves or their families.

But a paper based on conversations with local and international aid staff working in Iraq found that staff attrition and high turnover was more commonly caused by plain old bad bosses and poor treatment of staff. That’s not to say that poor management and dangerous environments aren’t linked in some causal way.  The paper pointed out that difficulties of aid worker life in hostile environments, like the lack of frequent contact with beneficiaries, problems building trust, and disparities in the amount of risk assumed by Iraqis vs international staff, magnify the effects of bad management.

I’m sure these “lessons learned” are old news to anyone who’s done aid work amidst hostilities.  But they are worth noting this week as observers of the attack on the UN guesthouse in Kabul asked whether there will soon be a Green Zone in Afghanistan, and in light of last month’s decision to bump up the amount of non-military aid the US gives to Pakistan, which may (or then again, may not, depending on how the aid is distributed) give aid workers a larger footprint there.

China in Africa

Finally, a couple notable books out to shed light on the little-understood subject of China’s  aid to Africa: The Dragon's Gift: The Real Story of China in Africa by Deborah Brautigam, and China into Africa: Trade, Aid, and Influence, a collection of essays published by Brookings.

Seeing the Light on a Rights-Based Approach to Development

Today's guest blogger, Tim Ogden, is the editor-in-chief of Philanthropy Action. Bill Easterly has been a frequent critic of the rights-based approach to development, most recently in his article in the FT focusing on the “right to health.” For as long as I’ve known about the rights-based approach I’ve agreed with him. Recently, though, I’ve seen the light.

For those unfamiliar with the rights-based approach to development, it starts with defining inalienable human rights—and then seeks to ensure that those rights are enforced. The idea is that if you help people assert their rights and strengthen relevant institutions to respect those rights, everyone wins.

My epiphany on the rights-based approach came during a conversation with a friend on why practices in some areas are susceptible to evidence while others are not. My friend mentioned a conversation he had recently had with a cardiologist who noted that the practice of cardiology has essentially changed completely in the last five years. Why? Because the fear of malpractice suits made all cardiologists pay close attention to the latest research and adjust their practice accordingly. Simply not keeping up with the latest innovations was grounds for a costly lawsuit. We began joking about how the field of education would change if a parent could sue a school district because their child wasn’t taught to read the using the techniques proven most effective.

That’s when the hidden brilliance (brilliance, I tell you!) of the rights-based approach hit me. As Bill has shown in his books and the Aid Watch blog, practices that have proven ineffective and even harmful remain staples of the development industry for decades. No amount of evidence, or lack thereof, seems to have much impact on practice.

But if we adopt the rights-based approach, think of what we could accomplish! Right now, the poor can’t sue an aid agency or NGO for malpractice, no matter what they’re doing. But if we recognized the rights of the poor as expressed by the rights-based approach, then they could hold aid agencies accountable by suing for having their rights violated. I wonder how many aid programs wouldn’t be covered under the right to freedom from “arbitrary interference with privacy, family, home or correspondence.”

It goes further. Imagine a world where Ethiopians sue USAID for delivering in-kind food aid because their rights (specifically the right to adequate food) have been violated. Or Kenyans sue DfID because its support for education hasn’t been adjusted to reflect the latest research on what actually helps children learn more (surprise, it’s making teachers accountable to their communities not the civil service!)

Dare we hope for a day when the poor from around the world file a class action suit against the UN High Commissioner for Human Rights for advocating a rights-based approach to development without evidence that it does anything other than perpetuate bureaucratese and wasted aid dollars? Finally making aid accountable to the poor is just a few rights away!

All we need now is to really adopt the rights-based approach—and of course a new NGO to handle all the class action suits. Anybody got a catchy acronym?

P.T. Bauer, Development Prophet

This post is by Claudia Williamson, a post-doctoral fellow at DRI. P.T. Bauer was a brilliant development economist who began writing in the 1940s, and published many influential works throughout the 50s, 60s and 70s, when most of his profession favored central planning and government solutions.*  Bauer preferred bottom-up solutions and focused on the importance of institutions to align incentives and provide information to promote social cooperation and economic growth.

Relying on basic economic principles and logic, Bauer made bold arguments that are surprisingly relevant today.

Bauer said: The vicious circle of poverty “is in obvious conflict with simple reality.”

Proponents of the “poverty trap” explanation argue that underdeveloped countries are so poor that individuals can’t save enough to support the investment necessary to generate economic growth.  The only way to break out of the cycle is through external funding.

Bauer argued that the poverty trap cannot be a binding constraint.  The mere existence of prosperous individuals and societies—most of which have emerged from poverty without the assistance of foreign aid—flies in the face of the poverty trap.    While it is true that poor people can’t save as much relative to rich people, if the right incentives are in place, small scale savings will lead to small scale investment, which in turn will generate marginally higher incomes leading to medium scale savings and investment, thus creating a “friendly circle of wealth.”

Bauer said: “Guilt-ridden people hope to assuage their feelings simply by giving away money…without questioning the results: what matters is to give away money, not what results from this process.”

At the recent World Bank annual meeting, the Development Committee praised the World Bank’s “vigorous response” to the global financial crisis, which they quantified as “a tripling of IBRD commitments to $33 billion this year and IDA reaching a historic level of $14 billion.”

While most development agencies profess a commitment to measurable results and outcomes, “results” in development are puzzlingly often equated with volume of loans given or number of grants handed out. According to Bauer, the reason for this apparent contradiction is that collective guilt has replaced individual responsibility. Because the West feels responsible for the lack of development in the rest of the world, what matters is to give away money, not actually see results.

Bauer said: “Foreign aid is demonstrably neither necessary nor sufficient to promote economic progress in the so-called Third World and is indeed much more likely to inhibit economic advancement than it is to promote it.”

Foreign aid inflows alter the incentives of recipient governments, argued Bauer, increasing the power of the (often dictatorial) government, promoting dependency and encouraging rent seeking.  Aid ignores the fundamentals that are necessary for economic development: the primacy of property rights and the importance of informal norms and culture for economic change.

Bauer said: There is a “need to restate the obvious.”

If Bauer said it all, why is it still so vital that new research follow in his footsteps?

Bauer’s answer comes from George Orwell, who lamented in 1939: “we have sunk to such a depth that the restatement of the obvious has become the first duty of intelligent men.”  What may be obvious to some is counterintuitive for many.

There is a need to restate the obvious.

---

*Update:  Thanks to astute readers for prompting us to be more precise on the time when Bauer began writing. As a few of you pointed out, Bauer's influence spanned many decades: he published his first major work, "The Working of Rubber Regulation," in 1946,  and continued publishing through the 1990s. A collection of Bauer's essays, entitled "From Subsistence to Exchange," with an introduction by Amartya Sen, was published in 2000, two years before his death.  The opening sentence of the blog has been changed to more accurately reflect this. - Eds.

Misunderstanding Randomness

In next week's New York Review of Books, Korean development economist Ha-Joon Chang responds to a review of his new book, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. Chang defends his argument that the majority of rich nations today benefited from infant industry protection, and stands by his analysis that developing countries under an interventionist regime grew faster than those with neoliberal policies, looking at the period from 1980 to 2000. Pointing  to Switzerland, which didn't give women the vote until 1971, he disputes his reviewer's argument that representative democracy was a key to the economic development of Western countries. Chang concludes:

Mr. Easterly says that economic growth does not come from "experts" like me but entrepreneurs, like Ju-Yung Chung, the legendary founder of Hyundai. He conveniently omits the details that prove my point: before it succeeded in the world market, Chung's auto venture was supported by decades of import bans, export subsidies, and tariff protection.

For  Easterly, these salvos only strengthen his original argument that Chang finds "spurious patterns in partially random economic outcomes." Chang's rebuttals on infant industry protection and growth rates under neoliberal vs. interventionist regimes are further examples of  "selective use of evidence (confirmation bias) and excessive reliance on too little data."

Easterly continues:

Chang misses the point on how the evidence for any one good thing—like representative democracy—is only reliable in the very long run (lots of data) and cannot be confirmed or rejected with only a few examples (too little data). So he refutes my case for democracy with lots of data—by reliance on too little data (whether women in one country—Switzerland—could vote after 1971? Of course this is not trivial from a moral standpoint, but its weight as evidence is minuscule). The now-rich countries have been more democratic than the rest of the world on average in the long run and have been steadily increasing in democracy.

Mlodinow's book [The Drunkard's Walk, reviewed in the same article] warned that our brains are so hard-wired to misunderstand randomness that we make the same mistakes even after somebody points out the mistakes. I have been guilty of this myself in my own career, and unfortunately Chang now does the same with this letter.

Find the full exchange here.

Bill Goes to Africa

Hello, aid watchers. I am Africa-bound and will go off the Internet for the next 2 weeks (out of choice, not technological constraints). Laura will be running the blog in my absence. When I come back I will tell you about any experiences of interest.

Maybe when I come back I will also wearily comment on the latest aid-and-growth regression paper, the 1 millionth attempt to resolve the relationship in a cross-country growth regression literature that is now largely discredited in academia.

All the best, Bill

The New Evangelists: Bill and Melinda Gates Spread the Good News on Global Health Aid

People usually come to the capital to criticize to government, Bill Gates joked at the start of his speech on Tuesday in Washington, but “we’re here to say two words you don’t often hear about government programs: Thank you.” The Gateses’ mission wasn’t just about gratitude, but to sell the simple—and, some might argue, simplistic—message that US government investment in global health works. They weren’t asking for money for themselves (the Gates foundation already has so much money to spend each year that they discourage individual donations), but rather to lobby US policy makers and citizens to continue the increasing American investment in global health.

Americans only hear the horrible stories about disease and malnutrition in the developing world, the Gateses said. The idea behind their new public advocacy initiative, the Living Proof Project, is to tell the stories of people in the developing world who are alive today because of US interventions in global health.

The reduction in mortality for children under five, from 20 million deaths per year in 1960 to eight million per year in 2008 is, Bill Gates said, one of the biggest accomplishments in the last 100 years. This happened because of higher incomes and smart spending on global health, and Bill says the US is largely to thank for it.

The Gateses talked about success in decreasing prices and increasing access to anti-retroviral treatments for AIDS patients, and praised the “American tax dollars” that have enabled “slow but real progress” towards finding an AIDS vaccine.

Bill Gates also talked about making “substantial progress” against malaria for the first time since the 1970s, arguing that scaled up indoor spraying and bednet distribution since 2004 has led to large reductions in malaria cases. [We’ve written posts on the Gateses’ erroneous use of African malaria data three separate times, with spectacularly non-existent effect on the Gateses.]

Gates went on to address some arguments that “skeptics” (who could they possibly be?) might level against the optimistic approach to global health.

There have been problems with corruption, he acknowledged, “if you look back at the history of aid” and “some of it ended up in the pocket of the local dictator.” But today’s global health spending, he argued, is different because it is more measurable. With health interventions, “we can measure the impacts, we can make sure the vaccines are getting to the children,” he said, though he left unclear how you identify the corrupt link in the chain from funding to inputs to outputs involving many separate actors.

To those concerned that aid creates a culture of dependency, Gates again pointed at history, saying that nearly twice as many countries in the 1960s received aid compared to today. Countries like Egypt, Brazil and Thailand, he said, are “not net recipients of aid.”  He predicted that the world will see increasing numbers of countries currently on aid becoming self-sufficient. We hope that includes the many countries that have become steadily more aid-dependent for five decades.

There’s been little substantive commentary on the speech in the news or blogosphere so far. Judging from the tenor of the enthusiastic real-time comments from viewers during the speech (“What can we do? Who to call or write?” and “I love hearing about the positive progress we have made...it is so rare that this fact is broadcasted,” for example), the Gateses were preaching to the choir.

This NPR interview,  though just seven minutes long, is actually meatier than the Gateses’ speech. In it, the interviewer gets Bill and Melinda Gates to talk honestly about why the Gates Foundation behaves differently than governments (“we can take risks where a government won’t or can’t”), and how their entrepreneurial approach to development problems allows them to acknowledge failures and change their approach midstream. Great!

Melinda Gates retells the story of delivering the rotavirus vaccine (but without the relentlessly optimistic spin from the speech). They worked with a scientist to develop a lifesaving vaccine, but failed with something much more mundane: producing the right packaging. They didn’t realize that they needed to put the doses in small containers so that it could be refrigerated all the way from the lab to remote locations in Nicaragua. She said: “You just learn from it and say okay, that’s a small mistake we made, and we’re not going to make that mistake again.” Kudos again! Would you mind if we called you “searchers”?

But all of this left us with one big unanswered question.  If the Gateses indeed have a much-improved aid model, then why this big campaign to defend US government aid agencies (including USAID), whom we and many others have documented do not change in response to – or even acknowledge – failures?

The Political Economy of Aid Optimism or Pessimism

Bill and Melinda Gates are making a big media presentation today at 7pm of their Living Proof Project, in which they document aid successes in health. They call themselves “Impatient Optimists.” We can comment more after we hear their presentation. However, they invited comment already by posting progress reports on the Living Proof website. Actually, we have also previously argued that aid has been more successful in health than in other areas.  However, one petty and parochial concern we had about the progress reports is that Bill and Melinda Gates continue to make a case for malaria success stories based on bad or fake data that we have criticized on this blog already twice. The Gateses were aware of our blog because they responded to it at the Chronicle of Philanthropy.

Yet they continue to use the WHO 2008 World Malaria Report as their main source for data on malaria prevalence and deaths from malaria in Africa. As we pointed out in the earlier post, the report establishes such low standards for data reliability that some of the numbers hardly seem worth quoting. From the WHO report: “reliable data on malaria are scarce. In these countries estimates were developed based on local climate conditions, which correlate with malaria risk, and the average rate at which people become ill with the disease in the area.” Where convincing estimates from real reported cases of malaria could not be made, figures were extrapolated “from an empirical relationship between measures of malaria transmission risk and case incidence.”

In Rwanda, which the Gateses say showed a dramatic 45 percent reduction in the number of deaths from 2001 to 2006, a closer look at the WHO data shows that there is an estimate of 3.3 million malaria cases in 2006, with an upper bound of 4.1 million and a lower bound of 2.5 million. And, according to which method is used to estimate cases, the trend can be made to show that malaria incidence is actually on the rise. The Gateses also highlight Zambia as a “remarkable success,” claiming that “overall malaria deaths decreased by 37 percent between 2001 and 2006.” While they provide no citation for this figure it appears to come from the very same WHO report, which concedes that compared to African countries with smaller populations, “nationwide effects of malaria control, as judged from surveillance data” in Zambia are “less clear.”

The downside of all this is that it appears we are having no effect whatsoever on the Gates’ use of fake or bad numbers and thus on the highest profile analysis of malaria in the world. The Gateses ignore our recommendation (and that of others) that they invest MUCH more in better data collection to know when GENUINE progress is happening. (Would Gates have put up with a Microsoft marketing executive who reported Windows sales were somewhere between 2.5 and 4.1 million, which may be either lower or higher than previous periods’ equally unreliable numbers?)  Are we insanely pig-headed for insisting that African malaria data be something a little more reliable than if the Gateses had asked the pre-K class at the Microsoft Day Care Center to give their guess?

Well, this is the third time we are saying this on this blog, so maybe we should give up. When people like the Gateses are so tenacious in the face of well-documented errors, it’s time for us economists to shift from normative recommendations (don’t claim progress based on pseudo-data!) to positive theory (what are the incentives to use bad numbers?)

What is the political economy of “impatient optimism”? Here is a possible political economy story – there are two types of political actors: (1) those who care more about the poor and want to make more effort to help them relative to other public priorities, and (2) those who care less and want to make less effort relative to other priorities.

Empirical studies and data that show that aid programs are having very positive results are very helpful to (1) and not to (2), while of course the reverse is helpful to (2) and not to (1). So each type has an incentive to selectively choose studies and data. Knowing this and knowing the public knows this, the caring type (1) might want to signal they are indeed caring by emphasizing positive studies and data, and may have no incentive to actually evaluate whether the positive data are correct or not. So the Gateses might want to say (as they did): “The money the US spends in developing countries to prevent disease and fight poverty is effective, empowers people, and is appreciated.”

If this purely descriptive theory is true, it could explain why some political actors stubbornly stick to positive data even if some obscure academic argues it is false or unreliable.

It cuts both ways – the anti-aid political actors would also have no incentive to recheck their favorite data or studies. Then the debate over evidence will not really be an intellectual debate at all, but just a political contest between two different political types.

Of course, we HATE this political economy theory when it’s applied to US. We are VERY unhappy when people conclude that because we are skeptical about malaria data quality (and thus whether they show progress), therefore we really don’t care about how many Africans are dying from malaria and wish that all government money went to subsidize fine dining in New York. And, the Gateses would probably not be fond of this political economy explanation of their actions and beliefs either. Both of us would prefer the alternative “academic” theory of belief formation, in which it is all based on evidence and data, not political interests.

How to distinguish which theory explains the behavior of any one actor is determined by the response to evidence AGAINST one’s prior position – do you change your beliefs at all? The Gateses seem to fail this test on malaria numbers. We hope we do better when it comes our time to be tested, as we should be.

Econometric methodology for human mating

I recently helped one of my single male graduate students in his search for a spouse. First, I suggested he conduct a randomized controlled trial of potential mates to identify the one with the best benefit/cost ratio. Unfortunately, all the women randomly selected for the study refused assignment to either the treatment or control groups, using language that does not usually enter academic discourse.

With the “gold standard” methods unavailable, I next recommended an econometric regression approach. He looked for data on a large sample of married women on various inputs (intelligence, beauty, education, family background, did they take a bath every day), as well as on output: marital happiness. Then he ran an econometric regression of output on inputs. Finally, he gathered data on available single women on all the characteristics in the econometric study. He made an out-of-sample prediction of predicted marital happiness. He visited the lucky woman who had the best predicted value in the entire singles sample, explained to her how he calculated her nuptial fitness, and suggested they get married. She called the police.

After I bailed him out of jail, he seemed much more reluctant than before to follow my best practice techniques to find out “who works” in the marriage market. Much later, I heard that he had gotten married. Reluctantly agreeing to talk to me, he described an unusual methodology. He had met various women relying on pure chance, used unconscious instincts to identify one woman as a promising mate, she reciprocated this gut feeling, and without any further rigorous testing they got married.

OK, all of us would admit love is not a science. But there are many other areas where we don’t follow rational decision-making models, and instead skip right to a decision for reasons that we cannot articulate. A great book on this is by Gerd Gigerenzer, Gut Feelings: The Intelligence of the Unconscious. There is also the old idea that not all useful knowledge can be explicitly written down, but some of it is “tacit knowledge” (see any writings by Michael Polanyi).

Is the aid world more like love or science? Probably somewhere in between. Obviously, there is a BIG role for rigorous research to evaluate aid interventions. Yet going from research to implementation must also involve a lot of gut instincts and tacit knowledge. I know experienced aid workers who say that they can tell right away from a site visit whether the project is working or not.

I don’t know if this is true, but certainly implementation involves non-quantifiable factors like people who have complicated motivations and interactions. A manager of an aid project must figure out how to get these people to do what is necessary to get the desired results. The manager (who also has complicated motivations) must adjust when the original blueprint runs into unexpected problems, which again relies more on acquired tacit knowledge than on science. (How to keep the bed net project going when the nets were first impounded and delayed at customs, the truck driver transporting the nets got drunk and didn’t make the trip, the clinic workers are off at a funeral for one of their coworkers, the foreign volunteer is too busy writing a blog and smoking pot, and the local village head is insulted that he was not consulted on the bed net distribution.) Certainly something similar is true also in running a private business or starting a new one – there is no owner’s manual for entrepreneurship.

So for donors and managers of aid funds, is finding the right project to fund more like econometrics or is it more like falling in love? How about a bit of both?

Why does aid hate critics, while medicine appreciates them?

Two stories ran today in the New York Times that showed the important role of critics in medicine. In the first, medical researchers found that the usual methods screening for prostate and breast cancer was not as effective as previously advertised. Screening successfully identifies small tumors and the rate of operating to remove such tumors has skyrocketed. But the screening regimen has failed to make much of a dent in the prevalence of large prostate and breast tumors, so their preventative value is not as great as previously thought. Many other researchers had already pointed out that there is no evidence that the relatively new PSA prostate screening test has reduced prostate cancer deaths (a message that failed to make it to my own doctor, who tells me I am definitely OK once the PSA comes back normal). To make things even worse, some of the operations on small tumors were unnecessary and even harmful: “They are finding cancers that do not need to be found because they would never spread and kill or even be noticed if left alone.” The American Cancer Society concluded that too much emphasis on screening “can come with a real risk of overtreating many small cancers while missing cancers that are deadly.”

In the second story, earlier reports of positive results of an AIDS vaccine trial are coming under more and more doubt. The issue is one very familiar to any statistical researcher – did the apparently positive results from the vaccine trial come from random fluctuations in noisy data, or were the positive outcomes definitely more than could have happened by chance? We have the arcane concept of “statistical significance” to answer this. The NYT ran a story a month ago on the same vaccine trial that suggested definite positive outcomes (“statistically significant”), while today’s story features critics of the original trial results who fear the results were just due to random noise (“not statistically significant.”)

Suppose these critics were operating in the aid world. Aid defenders would accuse the critics of not being constructive – these studies were 100 percent negative (so what’s your plan for eliminating prostate cancer deaths, you fancy-pants researcher, if you don’t like ours?) They would accuse them of hurting the cause of financing cancer and AIDS treatment. The attacks on the critics might even get personal.

If this were the aid world, the mainstreamers would dismiss the arguments over statistical significance as some obscure academic quarrel that needn’t concern them. How do I know this? I have criticized Paul Collier on numerous occasions for failing to establish statistical significance for many of his aid & military intervention results. I have argued that he is doing “data mining,” which is pretty much the equivalent of producing lots of results on the AIDS vaccine and reporting only the positive results. But I have yet to find anyone who cares about these critiques – on the contrary the whole American and British armies seem to base their strategies on Collier’s statistical results. In contrast, it’s almost comical to see the heroic lengths to which the writer Donald McNeil Jr. goes in the latest NYT AIDS vaccine story to explain statistical significance to NYT readers. He is saying, hey you really have to get this if you want to know: Did the vaccine in the trial Work -- or -- Not.

The other feature of both stories is that both throw doubt on excessive confidence in simple panaceas – screening and vaccines. They suggest reality is more complex and that we need to think of new ways of attacking difficult problems like cancer and AIDS. If you are familiar with the aid world, you will know the analogy is exact to how we discuss solving difficult problems like poverty.

So why does medicine welcome critics and aid hates them? Perhaps us aid critics are just not as good as the medical critics. Or perhaps it is because we care so much more whether medicine really works than whether aid or military intervention really works?

Big Plans vs. Real Plans

This guest post, by Jeffrey Barnes, Portfolio Manager at Abt Associates, is in response to yesterday's What must we do to end world poverty? At last, an answer. Aid Watch and other Easterly work, notably “The White Man’s Burden,” rail against the big plans of development. As this body of work rightly points out, there is a lot of paternalism involved in the Big Plans to “save” the poor. Easterly’s preferred alternative is “searching,” which at times sounds like semi-spontaneous experimentation that miraculously results in solutions to social and economic problems. Clearly, this is an exaggeration.

Top down vs. bottom up is not an either /or option.  It is a question of balance.  Top down plans made in Washington, New York and Geneva by people with little stake in or understanding of local situations are generally worthless. But bottom up approaches can also benefit from outside expertise, new technologies or external support. At some level, even searchers must plan.

Planning in the commercial world can be hugely successful.  A good business plan can mobilize a lot of capital and create significant wealth. What is it about this type of planning that can be emulated in the development world?

My experience of development planning leads me to the conclusion that there are, in fact, very few real plans in development. There are a lot of documents that are called plans, but these documents don’t really qualify as plans. A real plan describes in specific detail how the human, financial and technological resources that are under your control will be mobilized to produce a measurable result in a given time period.  This is what business plans do.  An entrepreneur (think searcher) would never begin implementing a business plan until all the financing, staff and equipment were in place.

Development plans fail to meet this definition of plans, either because the resources described in the plan are not under anyone’s control, or because the plan lacks specificity.   In the first case, development plans are better described as wish lists or advocacy documents. Think of all those national AIDS plans that describe every possible strategy against AIDS, but with the sources of financing and the implementing agencies to be determined. Such non-plans don’t serve as a guide to implementation—they are simply advocacy tools for governments to get donors to make pledges for different parts of the national wish list.   Even as one part of the plan starts, other parts of the plan remain inactive awaiting donor support. This is akin to starting a bicycle trip and hoping to find the handlebars and pedals along the way.  Little wonder that so few of these plans arrive at their intended destination.

The second kind of non-plan one sees in the development world is more accurately described as a process statement.  While financing may be in place, this kind of plan lacks specifics on who will be doing what, when and where. Most project proposals fall into this category. A proposal will name the principal staff and the stakeholders to be consulted, and it will describe the technical approaches and working principles to be adhered to (e.g. pro-poor, environmentally safe, gender equitable). But all the details of actual implementation are to be worked out later.

Eventually, such proposals might lead to some real plans, but this means that a large share of project “implementation” time is actually spent making and revising annual plans.  Sometimes, proposals lack specificity because so many of the variables (government stability, complementary activity by other groups) are outside the control of the plan’s authors. In business, plans with too many unknowns are not financed.  But in development, wishful thinking gets the better of such assessments.  Little wonder that so little is achieved in the typical project life cycle.

So please, Aid Watch, don’t give planning a bad name. Searchers use real plans, not wish lists or process statements. A real plan is made at the operational level, with little or no ambiguity about what resources are available, and who is to perform what activity at which time. If the development industry would ensure that all its plans met these criteria, it could prevent the top down processes that are so often doomed to failure.

What must we do to end world poverty? At last, an answer

OK, that’s too good to be true. There has been a search for sixty years for the right answer. Now most economists confess ignorance how to raise the rate of economic growth -- how to progress more rapidly towards development and the end of poverty. To get out of this dead end, I would respond to this question with more questions.

First, who is “we”? It seems like whoever “we” are, “we” must have unconstrained power to implement “the answer”, so “we” sounds like authoritarian leaders (national autocrats or World Bank officials dictating conditions).

Second, are “we” going to allow poor people to choose their own paths? Of course not, because “we” already know the “right answer” for them.

So this question only makes sense in approach to development that is authoritarian and paternalistic, using Top Down Planning, which in fact has been the prevailing – but unsuccessful – approach to development for six decades.

The paradox of development economics is that Development does NOT require any one person (Expert, Leader, or Aid Official) to have a comprehensive understanding of how to achieve Development (sort of like how evolution managed to happen on its own before Darwin).

(I am drawing on a lecture I gave here at NYU.)

Why is it so hard to figure out how to raise growth? Nobel Laureate Friedrich Hayek once suggested a possible answer:

The growth of reason is based on existence of differences. . . . {between} individuals, possessing different knowledge and different views. [I]ts results cannot be predicted . . . . [W]e cannot know which views will assist this growth and which will not.

Growth is innovation, and you can’t know in advance how to do the innovative thing, or else it wouldn’t be an innovation. Development is BOTTOM-UP outcome of lots of unpredictable individual successes and failures.

But this is not a counsel of hopelessness; in fact, it means economists can still say lots of useful things. You want an environment that is favorable for “searchers:” the private and social entrepreneurs who figure out these innovations. You want to create as many opportunities as possible through comparative advantage, gains from trade, and gains from specialization. This means individual rights, property rights, and not too much interference with markets or free trade. Public goods like infrastructure, health, and education are necessary, but arise best in response to demand, not determined by bureaucratic supply. This means a democratically accountable government. Individual freedom and democracy also allows social entrepreneurs to flourish.

Institutions are necessary to make markets work, but institutions also evolve from the Bottom Up, with pro-market institutions arising from values like individualism, trust, and respect for others.

So the paradox of development economics is that it’s the study of how to get rich without knowing how. As Hayek put it:

It is because every individual knows so little and… because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it.