Dead Aid Bandwagon

If you are a development nerd, you have probably read ad nauseam about Dambisa Moyo’s new book, Dead Aid. In the last few months, there has been an interesting debate happening between different schools of thought. Essentially, Moyo argues that foreign aid to African countries is one of the preeminent root causes of Africa’s underdevelopment (for lack of a better word), and that instead of throwing billions of (wasted) dollars into the hands of dicators, African governments should instead be given access to more private finance. 


Having worked at the World Bank and Goldman Sachs, Moyo – who hails from Zambia – offers a refreshing perspective on the aid debate (which is typically dominated by white males… no surprises there, right?)


Her book unleashed an outpouring of commentary – some condemning her views, others wholeheartedly agreeing, and everything in between. I have been tempted to throw in my two cents, but the more I read about it, the more convinced I am that a) everything that could be said, has been said and, b) the debate over whether aid should be stopped or not is such a macro discussion that, ultimately, we’re getting stuck at the “50,000 foot” view – and that doesn’t really help move the debate forward constructively. Because, as we all know, foreign aid will NOT end – even if you were able to show by a+b=c that aid caused most of Africa’s problems, Official Development Aid (ODA) is still a critical foreign policy tool, and to call for its halt is unrealistic.

Anyway.  

Most recently, Francis Fukuyama voiced his opinion on the matter in Slate. He compares Moyo’s argument with another prominent African scholar’s views, Wangari Maatai. His piece, I thought, actually touches on a couple of really key issues, which most commentary on “Dead Aid” have failed to focus on. Excerpt:

Both women see sub-Saharan Africa’s fundamental problem not as one of resources, human or natural, or as a matter of geography, but, rather, as one of bad government. Far too many regimes in Africa have become patronage machines in which political power is sought by “big men” for the sole purpose of acquiring resources—resources that are funneled either back to the networks of supporters who helped a particular leader come to power or else into the proverbial Swiss bank account. There is no concept of public good; politics has devolved instead into a zero-sum struggle to appropriate the state and whatever assets it can control.

This view actually echoes what one of the most prominent French African scholars, Jean Francois Bayart, writes in his book “L’Etat en Afrique: La politique du ventre“. In this book, he writes that the “politics of the belly” – which is to say the political culture that is prevalent in Africa whereby rulers seek to accumulate power and possessions –  is not only the fundamental issue that has been plaguing the continent, but also a product of its very particular social, political and economic history. In his book (which I unfortunately don’t think has been translated into English), he describes how complex social and political networks arose in the context of colonial and post colonial sub-Saharan Africa, and how the polity that emerged is defined by an intricate interplay between foreign dependency, reliance on local (and often socially constructed) tribal or ethnic identities and leaders’ destructive desire to selfishly accumulate resources. 

Of course, given that we’re talking about a whole continent, generalizations are very hard to make – so while one can certainly find counter points to Bayart and Fukuyama’s argument, there is an element of truth to it, which to me captures the most powerful criticism of Moyo’s book: it’s not aid per se that’s the problem – it’s what’s being done with it, and how it’s being managed. And of course, Moyo knows this. But, as Owen Barder notes:

It seems to me that Dambisa Moyo has set up a false dichotomy between aid and entrepreneurship. Many of the things Moyo would like to see – better access to financial services, a better business environment, lower tariffs – can be (and are) supported by aid. 

It’s been frustrating to read Bono’s response to Moyo, as well as the reactions from a lot of people “shocked” that Moyo would call for an end to foreign aid. But, if (like me…) you subscribe to the Easterly school of thought that holds that most ODA ends up being horribly wasted and that an entirely new ODA regime needs to come about, then her argument, while virulent and, frankly, aggressive, makes sense. 

Just recently, from (of all places) USA Today:

Two United Nations agencies spent millions in U.S. money on substandard Afghanistan construction projects, including a central bank without electricity and a bridge at risk of “life threatening” collapse. 

In the current context, I think it’s great to debate the virtues (or lack thereof) of ODA – however, focusing on that macro question shouldn’t be a reason to turn our focus away from the real issue: today, there are millions of aid dollars at work – how do we actually make them work, with a view to incrementally decrease countries’ dependence on foreign assistance? 

Oh, aid effectiveness… You are hella elusive. 

Reconciling economic and social goals in development

If you boil it down to its most basic propositions, sustainability can be achieved by reconciling economic and broad social goals. However, striking a good balance between the – often – conflicting goals is a lot easier said than done. The World Bank is acting a little schizophrenic in South Asia:

The World Bank Group’s board appears to be operating under a severe case of cognitive dissonance, supporting efforts to save tigers – threatened in India and Bangladesh by habitat loss due to climate change – while helping build coal-fired power plants that will only speed up this process.

I think the term “cognitive dissonance” is very appropriate. The Center for Global Development calls the IFC’s plan to help finance the power plant is an “ultra mega mistake“. The latter article indirectly contributes to the debate concerning the rights of developing nations to consume as much energy in their development as richer nations did. This situation has lead to complicated negotiations over climate change strategy at a transnational level (a “social” goal), because of the economic implications – the relative impact of reducing carbon emissions matters hugely when it comes to economic development.

We have to acknowledge at least the a priori validity of the claim that developing nations should not have to be “unfairly” constrained in their economic development. One of the commenters on the CGD blog says this: “I worry about folks perched in fancy offices in DC, enjoying all the comforts that life can offer, trying to deprive other countries the opportunity to grow and prosper.” The issue, however, is not about “depriving” countries of “opportunities”, but to push for investment in clean energy everywhere, not just in developed countries. It seems to me that investing in monumental coal-fired power plants is likely to be a good short term solution: indeed, it will increase the energy production capacity in the region, which is a desirable goal.

However, the long term consequences are being ignored… Eventually, this power plant will really be obsolete, as new, cleaner, more efficient technologies are developed. The whole project costs $4 billion – I can’t help but wonder why these billions can’t be invested in research and development, instead of “old fashioned” power plants? I suppose that for now the answer is that the economic and financial returns on investing in R&D are not as attractive as what can be expected from the power plant investment.

So it goes – we continue to pursue short term solutions, even though we have acknowledged the need to reconcile social and economic goals, long term and short ones (in my mind, there is a correlation between short/long term and economic/social goals).

The Elusive Poverty Line

The $1 a day measure is a standard catch phrase for development and aid practicioners. It’s also a hotly debated issue – while some argue that it’s a useful measure that allows us to objectively assess levels of poverty in a country, others say that it’s meaningless, as a person living with twice the amount (or a 100% increase…) is still trying to make ends meet with only 2 bucks a day.

Grossly, that’s the concept.

I was just reading this interesting post on the CGD blog, about the World Bank’s re-evaluation of the poverty line to $1.25. I can just picture the half dozen World Bank experts, slaving over this report, analyzing data, running regressions….to come up with that brilliant conclusion: $1.25 is a MORE accurate delimitation for absolute poverty than just $1. They also had this insightful conclusion:

Second, Ravallion and co-authors suggest that differences in different countries’ choice of poverty line indicate that the definition of poverty is in fact subjective and depends on the social context.

Oh, is that so? I’m glad that we figured this out in 2008 – surely, no one previously had put forward THAT notion. So, finally, I suppose, this means that from now on the $1 a day measure is going to be used in a more nuanced way, by integrating qualitative analysis and contextual substance. A step in the right direction that should be acknowledged, in spite of the fact of the fact it’s a realization that comes into the game a few decades late.

While I understand that objective, quantitative indicators and economic measurements are necessary to the development and analysis of policy and its effects, that $1 day a day measure (sorry, $1.25 now) really doesn’t sit well with me. Particularly when I stumble across ideas such as these, ie. that people living on between $2 and $10 a day represent a “middle class” in developing countries. In the interest of full disclosure, I’ve only read the abstract of that paper, but regardless, while I see the rationale behind trying to understand

” the importance of relative prices in shaping consumption decisions or the power of norms/fashions in determining consumption”,


it seems to me that this type of discourse demeans (for lack of a better word) the experience of people struggling in the developing world.

Sure, people who live with $10/day ($3650/year) have infinitely more opportunities than those who live below the absolute poverty line – but they still do not have the type of opportunities available to a genuine middle class, like we have in the West. $3650 per year doesn’t allow for a lot of consumption choices, or choices in general, and definitely doesn’t allow people to save up for their retirement for instance. These people won’t get bank loans to get their kids to college, or a mortgage on their house, or have a credit card (or ten) that would deepen and broaden their horizons, their possibilities. I sure hope that a real middle class will emerge in the developing world – and here I’m thinking of the LDCs (least developed countries), since the BRICs (Brazil, Russia, India, China) of this world are already experiencing this.



For families struggling across the developing world, whether they have $1, $2 or $4 to spend every day makes probably makes a difference in the short run – you can buy more food, pay for your child’s school supplies, etc. However, in the long run, I believe these differences make only a marginal difference – and the lines between absolutely poor, relatively poor and “middle class” remain blurry.