Three Afghan success stories

Today, finally a break from the doom and gloom on Afghanistan! Clare Lockhart, the CEO of the Institute for State Effectiveness, spoke at DRI’s annual conference last month and gave three examples of what has gone right in the international effort to rebuild Afghanistan. These reforms and projects have lasted despite worsening security conditions and will—Lockhart says—form part of the foundation for the next generation of reforms in Kabul.

1) Hawala dealers implement Afghan currency exchange. In 2001, there were three currencies in circulation in Afghanistan, all produced illegally by warlords, with frequently fluctuating values that only the hawala dealers—the country’s informal currency exchangers—could decipher. To move to one unified currency, international donors recommended that Afghanistan switch to the dollar for two years in an expensive and lengthy process that would require the assistance of 15,000 UN bureaucrats. Instead, the Afghans decided to tap into the extensive networks of the local hawala dealers. Once enlisted, they were able to reach every village and change the currency in just 4 months. Clare commented:

To me that’s a lesson of instead of us looking at what’s not there and what do we need to bring in from the outside, how do we turn it around and learn how to …look at what is there. What are the assets that exist on the ground, what are the networks, what are the traditional and existing ways that people manage their daily lives? And how can those be harnessed to the urgent and important tasks of the day?

2) Aid underwrites risk so Afghan telecom can take off. Telecoms were reluctant to enter the risky, post-US invasion Afghan market. Donors had suggested that the Afghan government would actually have to pay the telecoms to provide service. Instead, the government and the international community came up with an innovative way to cover the risk and spur investment. OPIC- a US agency that promotes development in emerging markets- stepped in to write a risk guarantee for $20 million for the firms willing to compete for government licenses. The $20 million was never used, and after $1 billion investment in the sector, there are now more than 11 million phones in Afghanistan.

3) Village-level grant program taps village know-how. Afghanistan’s National Solidarity Program has provided grants to thousands of Afghan villages. The village councils choose how to spend the money, but must post their accounts publicly. Funds for the program are pooled into a locked trust fund that can only be replenished by donors once they’ve seen project audit reports. The program is growing as villages combine grants to take on larger projects, like an irrigation system or a regional maternal hospital, and although the NSP has developed some opposition from politicians who would prefer to be able to skim money off the top of these grants, it has also attracted wide support.

To hear Clare Lockhart tell these stories, listen to this 8-minute clip. If you have the time, it’s also well worth listening to her full presentation with slide show on the DRI website, here. [audio:http://aidwatchers.com/wp/wp-content/uploads/2010/03/Lockhart-Afghan-Success.mp3|titles=Lockhart-Afghan-Success]

We wouldn’t be Aid Watch if we didn’t note that Lockhart is also an outspoken critic of failures in the aid system. Her talk contains many tragic examples of aid failures in Afghanistan, which we’ll post another day on the blog.

Who ya gonna call? Entrepreneurs!

Just a decade ago it seemed we were stuck with landlines. State-owned telephone companies were largely entrenched, sclerotic organizations that provided poor, delayed, or simply unavailable service —even in some rich European countries, and nearly universally in poor countries. These maps (with data from 2001, 2004, and 2008) show how cell phones have quickly bypassed the dysfunctional landline companies and emerged as a triumph of bottom-up entrepreneurial success.

The measure is cell phone subscribers per 100 population, with darker shades of blue indicating movement from 0-20 to 20-30 to 30-40 to above 40 (above 40 is the dark blue shade that is most evident in all the graphs).

Note the darker blue color now encroaching on all sides of the African continent. This gives us hope that the dynamism of the bottom from entrepreneurs can overcome sclerosis at the top.

2001:

2004:

2008:

Data source: World Development Indicators

Was that foreign aid … or a campaign contribution?

The scholarly literature on aid effectiveness focuses on answering one of two questions: 1) Is aid effective at causing growth? And 2) Is aid effective at reducing poverty? But what about when growth and poverty reduction aren’t the goals? What if the purpose of some aid is to influence a foreign election?

Some clever forensic statistic work is suggestive that bilateral donors use aid (ODA) to influence elections. They give more aid to friendly governments in election years...

An administration that is two standard deviations more politically aligned with the donor can expect to receive $19 million more in ODA flows during an election year relative to a non-election year than the less aligned administration.

And less aid to unfriendly governments in election years...

…an administration one standard deviation below the mean level of donor-alignment receives $8 million less on average during an election year.

It’s also suggestive that the results were most pronounced in highly-contested elections.

A recent example:

In [2006] elections, the U.S.-supported incumbent, the Palestinian Authority (P.A.), faced strong opposition from Hamas. In the weeks preceding the elections the United States Agency for International Development Assistance (USAID) funded several development programs including the distribution of free food and water, a street-cleaning campaign, and computers for community centers. The USAID money was even used to fund a national youth soccer tournament A progress report distributed to USAID and State Department officials was strikingly candid about the purpose of this aid:

“Public outreach is integrated into the design of each project to highlight the role of the P.A. in meeting citizens needs. The plan is to have events running every day of the coming week, beginning 13 January, such that there is a constant stream of announcements and public outreach about positive happenings all over Palestinian areas in the critical week before the elections.”

The whole paper, by Michael Faye of McKinsey and Paul Niehaus of UCSD, is here.

My pro-government rant

When I give talks celebrating individual creativity as a driver for development, there is always one or more questioners afterwards who asks nervously, “don’t you see ANY role for government?” The answer is: OF COURSE. Government provides public goods. You could argue that one good that has such large external benefits that it’s at least partly a public good is Education. Public education is a major contributor to American economic development.

These thoughts are prompted by cheering along West Virginia University’s epic victory over U. Kentucky last night in the NCAA basketball tournament. A government sponsored and funded university, West Virginia U played an important role in my family. It educated  both my grandparents and my parents (and, wandering off message, they each MET and married there, so I owe WVU thanks for existing at all). WVU allowed a poor fatherless boy a chance to get a Ph.D. in biology and realize the American dream (my father).

So here’s a chance to praise the Government for its role in development, and yes, development’s not ONLY about private individual dynamism.

Is it OK to make ethnic slurs about some groups of white people?

For tonight's NCAA basketball showdown between U of Kentucky and West Virginia U, I bet the Kentuckians Dennis Whittle and April Harding some West Virginia maple syrup against Dennis' bet of a country ham and April's bet of a Derby pie. Of course, some of  you are thinking why didn't you bet {insert insulting Appalachian stereotype here}?

Both Kentucky and West Virginia suffer from frequent ethnic jokes involving some combination of:

• incest
• feuds
• moonshine
• reference to movie Deliverance (which actually takes place in Georgia)

Which makes me wonder, why is still OK to make ethnic slurs against some groups of people as long as they are white? Perhaps it reflects this furious pent up demand by white people for  ethnic slurs, cruelly thwarted by the civil rights movement (also known as "political correctness" if you  were not a big fan of the civil rights movement).  I've had people tell me insulting jokes about West Virginians even AFTER they know I was born in West Virginia.

Of course,  ethnic slurs are pretty universal around the world. Latin American soccer games are famous for having fans taunt the visiting team with ethnic slurs.

Gujarati hotels and Chaldean liquor stores

UPDATE 2 (3/27, 8:24am EDT) Great academic paper on Jewish domination of the diamond trade (see end of post) UPDATE (3/26, 12:34EDT) Great NYT mag article explaining the details of the Gujarati hotel story (see end of post)

I’ve long been fascinated by the Vietnamese nail salon phenomenon. My female friends report a remarkably high concentration of Vietnamese women in nail salons in US cities. I even heard there was a nail trade magazine for the US market that is in Vietnamese. Alas I was never able to do more to document this systematically. Today I happened to stumble over a University of Chicago Ph.D. dissertation by Martin Mandorff that finally nailed it (bad pun was unavoidable).

Mandorff shows that ethnic specialization is remarkably widespread among US immigrants. The following table from 2000 census data shows the leading specializations (the OVER is how much males from that group are over-represented in the industry,* is for self-employed and ** is for employees).

Gujaratis (already famous worldwide as entrepreneurs and traders) are even more specialized as hotel owners. And then there is a group that I had only vaguely heard of: Chaldeans – they are Aramaic-speaking Roman Catholics from northern Iraq. They’ve got the liquor franchise.

It’s amazing how something so unexpected appears from the spontaneous efforts and social interactions of ethnic entrepreneurs. Mandorff of course has much more detailed and analytical explanations, which you should check out.

The phenomenon of ethnic business networks is of course not new, but it’s far more widespread than most people realize (almost every African nation has an indigenous group known as the entrepreneurs and traders –the Hausa in Nigeria, Gurage in Ethiopia, Serahule in the Gambia, etc.) And it’s too well known to even bother mentioning the famous merchant diasporas like the Jews, the Lebanese, East African Indians, overseas Chinese in SE Asia, and so on. Thomas Sowell has written at least TWO insightful books on the phenomenon: Race and Culture, and  Migrations and Cultures.  Avner Greif's now standard explanation  (at least partial explanation) for ethnic networks was that small ethnic clusters could use the the threat of explusion from the group to enforce contracts and other trustworthy behavior (a more precise version was worked out in his  famous article on the experience of Mediterranean traders called Maghribis --11th century Jews in Cairo).

It’s all a very big hint that social and family relationships, culture, and self-organizing networks are an important part of economic development that has been much neglected by previous generations of development economists. Now the tide is turning – I gave a whole two-hour Ph.D. class on Wednesday that only scratched the surface of recent research by economists on culture, social norms, and development.

UPDATE: just received link to an NYT article by the always amazing Tunku Varadarajan (formerly at Wall Street Journal, now colleague of mine at NYU) explaining where the Gujarati dominance of hotels came from:

70 percent of all Indian motel owners -- or a third of all motel owners in America -- are called Patel, a surname that indicates they are members of a Gujarati Hindu subcaste. ... ''In some American small towns they think 'Patel' is an Indian word for 'motel.'"

{Patels are members of a caste called} vaishyas, or traders, who were once employed to calculate the tithes that were owed to medieval kings by farmers in Gujarat, an Indian state on the Arabian Sea.

More great details follow in Tunku's article on how the "Patel Motel Cartel" came about in America.

UDPATE 2: An academic paper that traces the origins of Hasidic Jews dominating the 47th Street Diamond District in Manhattan all the way back to the 11th century, with some suggested explanations.

New portal seeks to liberate aid data

UPDATE 3/26/10 11:50 EDT: Some readers have asked for more specific information on how AidData differs from the OECD project-level database. See the comments section for detailed answers from the AidData team. AidData, a new development finance data portal, was launched on Tuesday along with a companion blog called The First Tranche. From their inaugural post:

AidData 1.0…assembles more aid projects from more donors totaling more dollars than have ever been available from a single source before. AidData catalogues nearly one million projects that were financed between 1945 and 2009, adding or augmenting data on $1.9 trillion of development finance records. We currently have data from 87 different donors, and data from even more donors will come online every few months.

According to a report from the AidData conference in Oxford today, the new portal adds both breadth (more donors) and depth (greater detail at the project level) to the current aid data resources like OECD-CRS. The AidData portal contains some project-level data on where aid money flows from lesser-known donors like Saudia Arabia (Togo? Gambia?), South Africa (what’s going on with Guinea?), Kuwait, Poland, and Chile.

Presenters at the conference in Oxford this week based their work on the newly-available data from the AidData portal. They used the data to propose answers to questions like— - Does foreign aid bring about regime change? - Are “oil” donors like Saudi and Kuwait becoming more or less generous with rising income? - Will China remain a “rogue donor” or is it moving towards greater integration with traditional donors? Some exploratory tinkering with the site reveals that the AidData team—made up of scholars, researchers and practitioners from William and Mary, Brigham Young University, and Development Gateway—has created a relatively user-friendly interface on their site. The group’s geeky motto gets a second from Aid Watch: "Liberate the Data!"

-- Rescheduled NYU event for readers in New York: Professor Brautigam, American University professor and author of the new book The Dragon’s Gift: The Real Story of China in Africa, is giving a lunchtime seminar at NYU today. (The event was rescheduled because of a snowstorm in February.) Read our previous blog post on the book, or click here for more information about the event.

The “smart power” military-industrial complex takes off

What do Lockheed Martin Corp, Northrop Grumman Corp, and L-3 Communications Inc. have in common? Yes, all are top 10 Pentagon contractors. But they are also increasingly winning lucrative government contracts to implement “smart power” or “nation-building” programs—like educating peacekeeping troops in human-rights law, sending anthropologists to Afghanistan to understand local culture, mentoring Liberian prosecutors to combat corruption and crime, and rebuilding airports and government ministries.

Hillary Clinton and others in the administration have helped pave the way for this shift by calling for a “smart power” approach in which the 3Ds—defense, diplomacy and development—are mutually reinforcing (which we respectfully acknowledged by giving the 3Ds idea our Grand Prize for Worst in Aid).

From yesterday’s Wall Street Journal (subscription required):

Defense firms are eager to oblige. "The definition of global security is changing," says Lockheed's Chairman and Chief Executive Robert Stevens. He wants the maker of the Air Force's most advanced fighters to become a central player in the U.S. campaign to use economic and political means to align countries with American strategic interests

Last year, Lockheed had two of its highest profile programs, the F-22 Raptor fighter and a fleet of presidential helicopters, ended by the Obama administration. Now, Lockheed is one of several defense firms expected to bid for a new State Department contract to support "criminal justice sector development programs world-wide," that could be worth up to $30 billion over five years.

Africa won’t be overlooked:

Africa—where few U.S. troops are stationed—is a major focus. Many countries on this continent already are, or risk becoming, failed states. While they previously hadn't been considered a threat to the U.S., that view is changing. Somalia's nexus of terrorism and piracy is one example of how destabilized countries can become a redoubt for al Qaeda or other terrorist groups.

The U.S. military is already overstretched between Iraq and Afghanistan. So the Pentagon is eager to send defense firms to fill the gaps, in the hope that investing millions in training or advisory programs today may stave off a regional calamity that could cost billions in the future.

"Africa certainly is an area of interest to our U.S. government customers, and what's important to our customers is important to us," said Lockheed's Mr. Stevens.

UPDATE: Vijaya Ramachandran reminded us on Twitter that she had a related post "Blurring the Line Between Defense and Development" on the CGD Blog:

In a little-noticed move in January, private military contractor DynCorp bought 100% of the shares of international development contractor Casals & Associates ....The .. merger suggests a blurring of the line between development and defense in the private sector, as well.

...what happens when unarmed development project managers and heavily armed private security providers work under the same company brand? How will local people respond to a company employed by both USAID and the U.S. military?

On the other hand, there are some clear advantages to the new approach....

Stop panicking: Capitalism repeatedly recovers from financial crises

UPDATE 2 (3/24, 12:59PM EDT) Tyler Cowen is almost convinced (see end of this post) UPDATE (3/23, 2:30 EDT): see GREAT responses by Ross Levine and Mark Thoma at the end of this post

I am just beginning to dive into the awesome book by Carmen Reinhart and Ken Rogoff, This Time is Different: Eight Centuries of Financial Folly. Along with great analysis, they have some wonderful pictures, evidence, and data. What I say here is my own take on it.

First, financial crises are remarkably common. Their Figure 5.1 shows the number of countries that have defaulted on their external debt (one possible dimension of a financial crisis) over the last two centuries. The numbers come in episodic waves of defaults and involve a remarkably high number of countries in each wave:

Second, the global capitalist system does well in the long run anyway.  Average per capita income in the world (a shaky estimate, but probably right order of magnitude) increased by a multiple of 12 over 1800-2008, despite repeated epidemics of financial crises.

The US is arguably the country with democratic capitalism the longest, and it also shows a steady upward trend from 1870 to the present, despite repeated banking crises (using those identified by Reinhart and Rogoff), with usually little effect of each crisis on output relative to trend (except for the Great Depression).

I don’t mean to minimize the short run pain that the current financial crisis has caused. It’s horrible. But there is no reason to panic about the long run growth potential looking forward.

The obvious rejoinder is Keynes’ “in the long run, we are all dead.” But we can’t ignore that Capitalism already survived repeated financial crises and has made us all vastly better off despite them. So here’s a counter-quote: “In the long run, we are all better off because our dead ancestors stuck with capitalism.”

UPDATE (3/23, 2:30PM EDT) Ross Levine, the scholar whom I trust most about addressing financial crises, sent me the following comment by email when I asked him his opinion:

This is a great summary! I would, however, point out that this crisis could be different, depending on your view of the adaptability and elasticity of institutions.  In particular, this crisis, including the build-up and the resolution, involved a massive redistribution of wealth to the very wealthy.  It also involved an unprecedented decline in market discipline through government policy.  Thus, from my perspective, to get the Reinhart and Rogoff result over the next decade or so, this must involve an institutional adjustment to correct the distorted incentives that currently exist.  What are the forces that lead to this type of adjustment in some economies and not in others?

Mark Thoma, on his great blog Economist's View, responded to my request for a comment. A summary (see his post for his full response):

My take is a bit different. The graph of per capita income from 1870 - 2008 seems to say we shouldn't worry that aggressive intervention to stimulate the economy will cause long-run problems. It may help substantially in the short-run, but the graph above indicates it's unlikely to have long-run consequences. So, I agree, let's not panic. Let's not panic and start reducing stimulus measures too soon, or be too timid with stimulative policies, out of fear it might harm long-run growth.

....

Finally, on the general "stop panicking" message, when people are hurting -- and they are -- we ought to panic. Legislators have given little indication that the understand the urgency of the employment problem we face. We need more panic, not less, about the employment situation.

UPDATE 2: Tyler Cowen on a view he "toys with but does not (yet?) hold":

Financial panics and economic crises are nearly inevitable...

More and more, people will turn to the wisdom of the great 19th century economists on financial panics, bank runs, and the like.  It was an intellectual mistake to think we had ever left that world for good.

How is the aid industry like a piano recital? A defense of aid

In 1991, India faced a looming balance of payments crisis. India’s leaders responded, making what are now generally agreed to be some very good decisions: they devalued the exchange rate and instituted a systematic set of economic reforms that lowered high trade barriers and eliminated repressive internal regulations, helping to dismantle India’s notorious license-permit Raj. These reforms averted what might have been years of stagnation or slow growth (avoiding the fate of a Mexico or a Brazil in the 1980s). The reforms also paved the way for the next decade and a half of accelerated growth, and helped some 300 million people escape extreme, grinding poverty. Lant Pritchett, Professor at Harvard’s Kennedy School for Government, argues that the aid industry deserves credit for these reforms and the associated huge improvement in human well-being, but not quite in the way you might expect.

It wasn’t that the World Bank and the IMF required India to make those reforms through conditionality. Instead, Pritchett says, it was the existence of a broad, international movement called “Development,” and an industry called “Aid” that created the conditions for Indian leaders to act as they did.

How so? First, many policy makers involved in India’s reforms spent their early careers working abroad for multilaterals, gaining exposure to ideas not prevalent in India at the time, and gaining experience watching these ideas either work or crash and burn in countries around the world.

Second, the aid industry funds the thousands upon thousands of obscure, detailed economics papers and studies that make up the knowledge base of the movement called Development. Without the painstaking work behind those studies, the movement of Development would never have a chance at producing those rare, brilliant insights with the power to transform hundreds of millions of lives.

To produce those fortuitous moments of brilliance, where the right policy meets the right person and the right opportunity, the movement called Development has to have the depth and breadth within it to produce detailed technical knowledge on a million different topics from tariff codes in India, to migrant remittances in Spain, to firm governance in Korea. Here’s where the piano recital part comes in:

I see the aid industry a lot like a piano recital. It’s kind of boring and it’s tedious and most of the people are wasting their time. But every now and again by God we make a difference and when we do make a difference it really transforms economies and lives for a very long time....

Any movement, be it development or classical music, has to maintain its core.  Music has thousands of young aspiring pianists performing bad recitals that no one but their parents want to hear, all for the purpose of producing just one virtuoso Vladimir Horowitz or one innovative Philip Glass. Aid projects that can’t demonstrate impact and economics papers read by an audience of ten are the development movement’s equivalent of a million and one timid and dissonant renditions of Für Elise performed in student piano recitals the world over. But they are the core that allows for the possibility of “transformational excellence” in a movement.

For Pritchett, what aid does best is to “form the base of the pyramid that creates the possibility of the top.” And the power of successes in development—the rare policy insight, or the competent handling of a potentially disastrous crisis—is so great, and has the power to transform so many lives, that those successes justify the existence of the whole flawed movement, many times over.

Agreements or counter-arguments, anyone?

You can watch Lant Pritchett’s full presentation from the 2010 DRI annual conference, in which he argues this case much more skillfully (and employing other entertaining metaphors), in the audio slideshow below. The audio file of the Q&A following the talk is also posted.

Lant Pritchett: The Best of Aid

Lant Pritchett Q&A

[audio:http://aidwatchers.com/wp/wp-content/uploads/2010/03/11-Afternoon-QA-Lant-Pritchett1.mp3|titles=Q&A Lant Pritchett]

Weirdest story award: how gays in the military cause genocide

An empirical analysis by a retired top US Marine General and former NATO Commander. From the always dependable Amanda Taub at the indispensable blog Wronging Rights., which usually wins the weirdest story award in this corner of the blogosphere.

Ghana. 1970.

Beware the fury of a patient man: Michael Clemens on Millennium Villages

Michael Clemens at the Center for Global Development is a very calm,  judicious, sensible guy. But even he has finally lost patience with the lack of any serious evaluation of the Millennium Villages: Why a Careful Evaluation of the Millennium Villages is Not Optional

UPDATE (3/20, 8:16am) Chris Blattman adds his take on this.

The leader bias – for example, this blog

One of our many cognitive biases is to give too much credit for a group undertaking to the leader (or most visible member) of the group. I could illustrate that with how country leaders get too much credit for development success, how firm CEOs get too much credit, how soloists and conductors get too much credit relative to the orchestra … but I want to use the example of ME getting too much credit … for this blog. This is of course assuming that you like this blog (if you don’t, then I DO deserve all the blame).

What I really want to do here is to give well-deserved and long overdue credit to my fellow blogger, Development Research Institute Associate Director Laura Freschi. She has sole-authored many of the biggest hits here on the blog, including pieces on Do Millennium Villages Work? and History Matters.  The piece on Haiti Earthquake Relief was our 3^rd most popular ever, and it was done while I was on vacation. She has co-authored many pieces with me in which she more than carried her share of the load. Behind the scenes, she manages the blog, ran the Best and Worst contest, does a lot of research, finds great guest contributors, and exerts her street smarts and good judgment to restrain Yours Truly from some ill-considered posts.

Yet despite all this, I have often gotten comments (usually favorable) on her posts that are attributed to ME as if I had written them. During the big critical discussion on the Aid Watch blog that we had last week, all the praise and blame was aimed at me alone (again the attribution of blame was correct, but not the praise). Admittedly, this discussion was partly about my personal tone, but Laura’s important role in the Aid Watch blog overall was overlooked. (And even on my personal tone, I would have been in even more trouble with some of you critics if she had not been a restraining and balancing influence).

Maybe I have been acting in some way that hogs all the attention, but if so, I want to correct that now. Please get over the leader bias on this blog, this blog too is a small spontaneous order in which everyone is contributing – and so here I say, thank you, Laura.

Undercover Economist goes public for randomized controlled trials

Tim Harford column in today's FT (VERY strong endorsement of RCTs)

Economics tells countries to specialize…including specializing in economics

One of the most venerable and I think most powerful wealth-creating ideas in economics is the package of comparative advantage, gains from specialization, and gains from trade. As we all know, different countries just do different things well: the Swiss give us chocolates, the Germans give us beer, the French give us wine, and the British give us…um…they give us … um…um… Oh wait, the British were the ones who gave us the ideas of comparative advantage & gains from specialization & trade in the first place!

These thoughts were prompted by a Greg Mankiw blog that advised potential Econ Ph.D.  students where to go to school based on rankings of economics departments. One of the rankings was global, which allowed you to see where in the world are the best economics departments. I knew of course that the US does well in Economics Graduate Programs (we are only good at two things, the other being Hollywood movies, so please don’t begrudge us this). The UK itself is a bit shrunken from its former Economics self but still does well, but I was struck particularly how well Canada and Australia do (see picture). Hence, almost 90 percent of the best economics departments in the world are in just four places, all of which were settled by the British if they are not actually British.

Adam Smith’s descendants cast a long shadow….

Best in Aid: The Grand Prize

As long as there are disasters, there will always be people who want to help by whatever means first strikes their fancy. There will be those who insist on giving shoes (including such high profile experts as Jessica Simpson and Kim Kardashian). Still others offer used yoga mats, or baby formula. Ports and roads clogged up with shoes and yoga mats cannot deliver essential medicines, food and supplies. Then there are those who swoop in to adopt children before their extended families have had time to locate them; or just show up to ‘help’ as unskilled volunteers, adding to the confusion and occupying jobs that could go to locals. And there will always be organizations around to capitalize on those uninformed good intentions.

But now there is a small but growing chorus of voices dedicated to equipping individual donors with information on how to help effectively in a crisis. This movement has the power to harness the generosity of individuals, change ingrained giving practices, and create positive pressure on NGOs and aid agencies to demonstrate the impact of their work.

That’s why the award for Best in Aid goes to…the Smart Giving movement, nominated by Saundra Schimmelpfennig of the blog Good Intentions are Not Enough.

This year, a week after the Haiti quake, Stephanie Strom of the New York Times wrote a story on the “unprecedented effort” to teach Americans to resist the impulse to send the wrong goods to Haiti.  Many advocated just sending something very much needed and which has a low transport cost to value ratio: cash. The advice to send cash “appears to be reaching a tipping point,” wrote Strom. Some Americans saw first-hand the piles of unneeded clothing donations in the aftermath of Katrina, or heard about aid distribution problems after the Asian tsunami. Now, people are hearing the message from politicians and policy makers spreading the word on Smart Giving to Haiti in real time, in time to prevent mistakes that cause unnecessary suffering and tragedy.

Contrast Strom’s story with the high profile stories that have appeared consistently since the current surge in interest in global poverty started earlier this decade, like this NYT headline:

Coverage of both global poverty and disasters always stressed the same thing: how much was needed in TOTAL donations. It was never about the danger of the WRONG donations. Today it is.

Saundra Schimmelpfennig herself appeared in the NYT article, and many other news sources (among them CNN, NPR, USA Today, Canada’s CBC radio, WNYC, The Daily Beast, The San Francisco Chronicle, and the Christian news magazine World) sought her advice on everything from the dangers of adoption in the immediate aftermath of a disaster, to how to evaluate disaster relief volunteer opportunities. Here on Aid Watch, guest blogger Alanna Shaikh’s post on how not to help in Haiti, called Nobody wants your old shoes, became the blog’s second most popular and most-widely circulated piece ever (the first was a satire, which we’re no longer allowed to talk about).

The campaign against relying on overhead ratio as a measure of charity effectiveness is also part of the good giving message. In collaboration with six other nonprofits, Tim Ogden of Philanthropy Action launched a campaign last December to convince donors to dump the overhead ratio - the measure of how much money goes to programs versus administrative costs - as a primary means of evaluating the effectiveness of a charity. “We’re finally at a point where people do have an alternative,” said Ogden. In the last few years, organizations like GiveWell, Philanthropedia and Great Nonprofits have emerged to give people more useful information about charities, and to pressure charities to devote the resources to collecting that information and making it public.

Finally, the intensity of the debate on evaluation with randomized controlled trials in the academic world, and new organizations like 3IE (the International Initiative for Impact Evaluation) and DIME (the Development Impact Evaluation initiative at the World Bank), are other facets of the same movement. Behind the heated debate on what methods of evaluation to use, we see a much larger point – many more donors now insist on serious EVALUATION and ACCOUNTABILITY than used to do so.

As we’ve said on this blog before, accountability is not something that anyone accepts voluntarily. It is forced on political actors, aid agencies, and NGOs by sheer political power from below, from well-informed advocates for the poor and listening to poor people themselves. All of this may still be in its early stages, but since aid really CANNOT work without serious accountability, the Smart Giving movement is the best news to come along in aid in quite a while.

UPDATE: (3/20, 8:21am) the Center for Global Development reacts to our inclusion of 3IE, which was their brainchild.

Defending my homeboy Hayek from Freakonomics

Justin Wolfers has an amusing Freakonomics piece describing how anti-government conservatives are trying to use state intervention to get the anti-statist Friedrich Hayek taught in high school economics classes. Wolfers is completely right that this episode exposes the hypocrisy of these intellectual censors. (My favorite Mark Twain quote: “In the first place God made idiots. This was for practice. Then he made School Boards.”)

But after that Wolfers goes astray, piling on Hayek as just intellectually unworthy in general. Wolfers uses shaky exercises like number of citations in electronic academic journal archives. He says Larry Summers has as many citations as Hayek, so why not teach Larry Summers to high-schoolers? (not such a bad idea, actually).

Young Wolfers may not know the history of censorship of Hayek in the other direction. When I was in graduate school in The Middle Ages, Hayek was seen as so Far Right that you would be considered a nut to read him.

Since then, many more economists have realized that was extremely unfair to Hayek, including guess who, Larry Summers:

What's the single most important thing to learn from an economics course today? What I tried to leave my students with is the view that the invisible hand is more powerful than the [un]hidden hand. Things will happen in well-organized efforts without direction, controls, plans. That's the consensus among economists. That's the Hayek legacy.{{1}}

Hayek, who once wrote an essay called “Why I am not a conservative” was prescient in appreciating something that is much more trendy today, the idea of “spontaneous order” (Silicon Valley geeks write about a book a week on some aspect of the Internet being a spontaneous order.) My favorite Hayek quote gives a lot of insight into why development has been so hard to engineer from the top down:

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.

This reliance on individual spontaneity and creativity (and here we could include political entrepreneurs who achieve new and better ways to deliver public goods) is threatening to two very specific political factions:

• the Right
• the Left

Hayek knew that the Right was hypocritical about individual rights as much as the Left. The latter dictates what you can’t do in the market, the former wants to dictate almost everything else.

Although Wolfers doesn’t do this, many readers of his blog will fall for that classic trick, the Reverse Ideological Rejection: because ideologues like Hayek, therefore I should (ideologically) reject Hayek. This is in the same class as “Hitler liked Wagner’s Ring, therefore I should hate Wagner’s Ring.”

It’s sad that Hayek has been the victim of so many violations of the intellectual freedom for which he was one of the most eloquent and courageous spokesmen ever.

[[1]]quoted in The Commanding Heights: The Battle Between Government and the Marketplace that Is Remaking the Modern World, by Daniel Yergin and Joseph Stanislaw. New York: Simon & Schuster. 1998, pp. 150–151. (Thank you Wikipedia!)[[1]]

UPDATE:  my hometown newspaper The Village Voice has a blog post on how the Texas school board caused the "right-wing blogosphere" to light up. (HT to HayekCenter.org) It includes the Hayek controversy:

{The blog response} bodes well for conservative attempts to keep libertarians on board: Apparently all you have to do is give props to their favorite economists, and they'll go along with anything you want.

I am deservedly too obscure to be quoted in this story, but I guess the Voice hasn't heard about the whole "Hayek: I am not a conservative" thing. Also I'm not sure anyone at the Voice has never met a real libertarian, a group that is NOT disposed to "going along with anything you want."

UPDATE 2: Jacob T. Levy's blog takes on Wolfers on measuring Hayek's citation count versus other economists.  To make a long story short, there was a problem counting Hayek's because of the many variations on his first name(s), and once you correct for this he is in the same league as Milton Friedman and beyond Larry Summers.

Worst in Aid: The Grand Prize

Hillary Clinton recently declared: “We are working to elevate development and integrate it more closely with defense and diplomacy in the field…The three Ds must be mutually reinforcing.” Clinton says that the 3D approach will elevate development to the level of diplomacy and defense. Unfortunately, it could instead lower development further to an instrument employed to achieve military or political priorities. Clinton foresaw these objections: “There is a concern that integrating development means diluting it or politicizing it – giving up our long-term development goals to achieve short-term objectives.” She said reassuringly, “[t]hat is not what we mean, nor what we will do.”

But it’s too late. Sacrificing long term development aims for short term military and diplomatic objectives is what the US already does, and the 3Ds is making it worse. That’s why the Grand Prize for the Worst in Aid goes to…the 3D approach, nominated by an anonymous reader.

References to the "3D approach,"… have become so pervasive in foreign policy, development, and national security circles that they have taken on the status of self-evident, common wisdom. - J. Brian Atwood, former USAID administrator, February 2010

The frequent contradiction between defense and development is the most obvious instance of 3D dissonance. A coalition of eight NGOs in Afghanistan lamented that “[d]evelopment projects implemented with military money or through military-dominated structres aim to achieve fast results but are often poorly executed, inappropriate, and do not have sufficient community involvement to make them sustainable.” Nonetheless, increasing amounts of aid get channeled through the military, “while efforts to address the underlying causes of poverty and repair the destruction wrought by three decades of conflict and disorder are being sidelined.”

An Oxfam case study on programs to reform the security sector in “frontline” states like Iraq illustrated another way in which narrow military goals (to train and equip soldiers and police) are not entirely compatible with development goals. The report found that an increasing reliance on military contractors rather than civilians “has strongly reinforced the focus on operational capacity over accountability to civilian authority and respect for human rights.”

In the battle of the Ds, enervated development loses to pumped-up defense, and not just in Afghanistan and Iraq. The trend goes two ways: USAID is compelled to spend more and more of its budget on states that are strategically and militarily important (The 2011 foreign aid budget allocates 20 percent of State and USAID money for “securing frontline states.”) A development priority like India (with a huge chunk of the world’s poor) loses out. At the same time, a growing proportion of what the US calls Official Development Assistance flows through the Pentagon rather than USAID.

Frequent readers of the blog will already be familiar with our final example. On Christmas Eve in Madagascar, President Obama bowed to the exigencies of diplomacy when he punished the nondemocratic government of Madagascar by taking away trade access to U.S. markets. But this same action was disastrous for development.  Already, tens of thousands of jobs created textile exports to the United States under the African Growth and Opportunity Act (AGOA) have been lost. Factories are closing, increased competition among street workers is pushing down wages, and the effects are spilling over into neighboring countries that made inputs to Madagascar’s factories. Any claim that the Madagascar AGOA delisting was part of a high-return Diplomatic initiative to promote Democracy became a wee bit more tenuous when we saw Angola, Cameroon, and Ethiopia named on Christmas Eve as still eligible for AGOA.

[We could go on -- This week brought another collision of development and defense/diplomatic goals in Somalia.]

The lie that underlies the 3D framework is that development, diplomacy, and defense are complementary (or totally “mutually reinforcing”); that there are no difficult choices to be made. Alas, politicians are fond of denying the existence of tradeoffs (we are not trying to pick on Hillary in particular; many politicians are guilty of this).

The only 3D strategy that makes sense for development is one that acknowledges the frequent conflicts between these three very different goals as natural outcomes of their different agendas.  Then we can hold our politicians accountable when they sacrifice Development big-time to achieve small-time (or sometimes illusory) Diplomatic or Defense goals.