Let them have “Good Institutions”

The people in poor countries have the same aspirations as those in rich countries — to have the same chances and opportunities, good health care, clean running water in their homes and high-quality schools for their children. The problem is that their aspirations are blocked today — as the aspirations of black people were in apartheid South Africa — by extractive institutions. The poor don’t pull themselves out of poverty, because the basic ability to do so is denied them. You could see this in the protests behind the Arab Spring: those in Cairo’s Tahrir Square spoke in one voice about the corruption of the government, its inability to deliver public services and the lack of equality of opportunity. Poverty in Egypt cannot be eradicated with a bit more aid. As the protestors recognised, the economic impediments they faced stemmed from the way political power was exercised and monopolised by a narrow elite.

…… Making institutions more inclusive is about changing the politics of a society to empower the poor — the empowerment of those disenfranchised, excluded and often repressed by those monopolising power. Aid can help. But it needs to be used in such a way as to help civil society mobilise collectively, find a voice and get involved with decision-making. It needs to help manufacture inclusion.

That is Daron Acemoglu and James Robinson writing in The Spectator on Why foreign aid fails – and how to really help Africa.

I am a firm believer in the fact that “institutions rule” and are “the fundamental cause” of long-run economic growth and political stability. That said, I think this latest addition to the “Aid Debate” also detracts from the real issues regarding the efficacy of aid. It also runs the risk of creating the impression that the promotion of good institutions is a substitute for all forms of aid, or worse, that aid has led to the persistence of bad institutions and endemic poverty in poor countries.

How would the Central African Republic look today if it hadn’t received any kind of foreign aid over the years? I, for one, don’t think that it would be a bastion of political stability and stellar economic performance.

Strong and stable institutions are absolutely essential for the achievement of political and economic stability and general improvement of human welfare. And we should definitely preach this gospel for all to hear. But they also take forever to emerge, and depend on all sorts of localized variables that an international institution builder would most certainly miss (also, see here). And in the meantime, we still have to deal with the challenge of making the lives of the poor better (and within their lifetimes, approx. 60 years). Under these conditions, single panaceas (aid-driven or not) will obviously not work, especially if they come in as vague a package as “good and inclusive institutions.”

Bill Gates on the Aid Debate

Critics are right to say there is no definitive proof that aid drives economic growth. But you could say the same thing about almost any other factor in the economy. It is very hard to know exactly which investments will spark economic growth, especially in the near term. However, we do know that aid drives improvements in health, agriculture, and infrastructure that correlate strongly with growth in the long run. Health aid saves lives and allows children to develop mentally and physically, which will pay off within a generation. Studies show that these children become healthier adults who work more productively. If you’re arguing against that kind of aid, you’ve got to argue that saving lives doesn’t matter to economic growth, or that saving lives simply doesn’t matter [3 Myths].

That is Bill Gates writing in his 2014 annual letter. If you haven’t read it yet, go ahead and read it. He makes some good points.

You should also read Jeff Sachs and William Easterly on their ongoing “debate.”

I think most reasonable people would agree that Sachs kind of oversold his big push idea in The End of Poverty. Or may be this was just a result of his attempt to shock the donor world into reaching the 0.7 percent mark in contributions. In any event it is unfortunate that the debate on the relative efficacy of aid left the pages of journal articles in its current form. It would have been more helpful if the debate spilled into the public in a policy-relevant form, with questions like: under what conditions does aid make a difference? What can we do to increase the efficacy of aid? What kinds of aid should we continue and what kinds should we abolish all together?

Obviously aid alone will not turn the Central African Republic into Denmark. It is also obvious that less corrupt governments do a better job of reducing infant mortality with aid money than their more corrupt counterparts. This is what policy-makers need to know, if they don’t already.

UPDATE: For more on this see Brett’s response to this post. And the BR forum on Making Aid Work.

Quick Hits On Development

Dear readers, this is your quarterly reminder to remind your friends (because I know you wouldn’t fall for this) in the development industry to shake off the messiah complex they may have developed in the course of their work.

1. Satire, courtesy of I Studied Abroad in Africa:

You go to one of those fabulously elitist schools where everyone talks about privilege, classism, racism, sexism, etc. as if they don’t practice it in real life. But in order to really see the world, they decide to go somewhere where they can understand what their privilege looks like. So they choose AFRICA! Yay! A whole continent dedicated to helping [non-Africans] people understand what it means to be poor and undeveloped.

2. Bill Easterly on the Ideology of Development: This is an old piece (from 2007) but which should be required reading every week for development expats experts and the wider Global Bleeding Hearts Industrial Complex.

The ideology of Development is not only about having experts design your free market for you; it is about having the experts design a comprehensive, technical plan to solve all the problems of the poor. These experts see poverty as a purely technological problem, to be solved by engineering and the natural sciences, ignoring messy social sciences such as economics, politics, and sociology [This is also a warning to all you mono-issue activists out there. Life is complicated. Accept that fact and move on].

3. And this is how the Canadian International Development Agency, CIDA, defines international development on its website (granted it is in the youth, 13-16, section, but still):

International development is the term used to describe the activities that developed countries, called donor countries, like Canada, carry out to help poor or developing countries lift themselves out of poverty and raise their standard of living to one that is closer to the standard of living we have in Canada. About 2.6 billion people (about two out of five) live on less than $2 per day.

To reduce poverty, donor countries, like Canada, provide developing countries with technical expertise, goods and money.

 

Rational Impatience and marshmallows (and development)

Back in 1972 Stanford psychologist Walter Mischel conducted experiments in which he claimed to show a correlation between patience and later success in life – in the experiment kids who could wait for 15 minutes before getting two marshmallows, instead of eating one immediately, were likely to be more successful and self-controlled later in life. Michel attributed patience and self-control to some of the kids’ innate capacities.

It turns out that that might not be the case after all. Researchers in Rochester revisited the experiment and show that kids’ choices over whether to wait or not are “moderated by beliefs about environmental reliability,” in other words, kids react rationally to the proposed deal based on prior experience.

According to Celeste Kidd (more on this here), a University of Rochester grad student and lead author on the study:

“Being able to delay gratification — in this case to wait 15 difficult minutes to earn a second marshmallow — not only reflects a child’s capacity for self-control, it also reflects their belief about the practicality of waiting,”

Adding that:

“Delaying gratification is only the rational choice if the child believes a second marshmallow is likely to be delivered after a reasonably short delay.”

This reminded me of the interesting works in economic history (gated, sorry) that try to tackle issues of culture and socialization and their role in economic development. The punchline from these works is that group-specific socio-cultural values have long-lasting effects on attitudes towards investment, saving, entrepreneurship and ultimately economic development (Think of the fabled frugality and self-discipline of Weber’s protestants). Putting some of the critiques of these works aside for a moment, they are a reminder of just how COMPLEX development is.

Because material conditions both shape and are a result of prevailing cultural norms and practices (both Marx and Weber were right!) it becomes difficult to change one thing while ignoring the other (And this is even before you open the pandora’s box, viz: POLITICS). To put it simply, you cannot increase the investment rate in a society simply by throwing money at people. They will spend it on a new shrine for their god or marry a third wife.

This is not to say that it is impossible to transform entire societies in a short while, just that it is not easy, and that we should be humble enough to accept this fact when thinking about how to promote economic development in the bottom billion societies of the world.

How I would not lead the World Bank – Bill Easterly

For those, like me, who still miss Aid Watch, here is Easterly over at FP:

I would not appoint U.S.-educated elites vetted by their autocratic home governments to represent the underrepresented peoples of the world. I would not negotiate the contents of World Bank reports with governments in either the West or the Rest, except possibly for correcting typos.

I would not lead the World Bank by perpetuating the technocratic illusion that development is something “we” do to “them.” I would not ignore the rights of “them.” If the New York Times should happen to report on the front page that a World Bank-financed project torched the homes and crops of Ugandan farmers, I would not stonewall the investigation for the next 165 days, 4 hours, 37 minutes, and 20 seconds up to now.

More on this here.

And for more on leadership selection at IFIs see CGD’s policy brief here.

jeffrey gettleman is back

Texas in Africa has a piece on Gettleman’s style of journalism. Mr. Gettleman is of course not new to this type of criticism. I have voiced my opinion on his reporting style a few times before.

This is not an argument for the mis-representation of the goings on on the Continent. (By all means tell us who is starving and is under incredible disease burden or being killed in a civil conflict). It is an argument for respectful reporting of the suffering of other people. This sort of sensationalism that you often see on the front pages of major newspapers does more harm than good.

And about Kristof. He should know better. I guess it must feel great to walk into a conflict zone ridden with poverty and get the reception of a rock star such as what Kristof got in Goma.

The line between helping the needy and this sort of vulgar self-gratification can be thinly thin sometimes.