A Critique of Development Approaches

William Easterly, The White Man’s Burden: Why the West’s Efforts To Aid the Rest Have Done So Much Ill and So Little Good (New York: Penguin Press, 2006)

From Chapter One (pages4 – 6)

“This is the tragedy in which the West spent $2.3 trillion on foreign aid over the last five decades and still has not managed to get twelve-cent medicines to children to prevent half of all malaria deaths. The West spent $2.3 trillion and still had not managed to get four-dollar bed nets to poor families. The West spent $2.3 trillion and still had not managed to get three dollars to each new mother to prevent five million child deaths….

“The short answer on why poor children don’t get twelve-cent medicines, while healthy children do get Harry Potter, is that twelve-cent medicines are supplied by Planners while Harry Potter is supplied by Searchers….The mentality of Searchers in markets is a guide to a constructive approach to foreign aid.

In foreign aid, Planners announce good intentions but don’t motivate anyone to carry them out; Searchers find things that work and get some reward. Planners raise expectations but take no responsibility for meeting them; Searchers accept responsibility for their actions. Planners determine what to supply; Searchers find out what is in demand. Planners apply global blueprints; Searchers adapt to local conditions. Planners at the top lack knowledge of the bottom; Searchers find out what the reality is at the bottom….

A Planner thinks he already knows the answers; he thinks of poverty as a technical engineering problem that his answers will solve. A Searcher admits he doesn’t know the answers in advance; he believes that poverty is a complicated tangle of political, social, historical, institutional, and technological factors. A Searcher hopes to find answers to individual problems only by trial and error experimentation. A Planner believers outsiders know enough to impose solutions. A Searcher believes only insiders have enough knowledge to find solutions, and that most solutions must be homegrown.

Columbia University professor and director of the United Nations Millennium Project Jeffrey Sachs is an eloquent and compassionate man. I am always moved when I listen to him speak. Unfortunately, his intellectual solutions are less convincing. Professor Sachs offers a Big Plan to end world poverty, with solutions ranging from nitrogen-fixing leguminous trees to replenish soil fertility, to antiretroviral therapy for AIDS, to specially programmed cell phone to provide real-time data to health planners….”

From page 27& 28

“The world’s poor do not have to wait passively for the West to save them (and they are not so waiting). The poor are their own best Searchers. While Western Planners were discussing whether to increase foreign aid by $50 billion for all poor countries, the citizens of just two large poor countries—India and China—were generating an increase of income for themselves of $715 billion every year. The Gang of Four—Hong Kong, Korea, Singapore, and Taiwan—went from third world to first over the last four decades. China, India, and the Gang of Four did this through the efforts of many decentralized agents participating in markets (the ideal vehicle for feedback and accountability.)…

Poor people have already accomplished far more for themselves than the Planners have accomplished for them…. Although the West could help alleviate more of the poor’s sufferings if it relied more on Searchers in aid agencies and those on the ground, the West cannot transform the Rest…. The main hoe for the poor is for them to be their own Searchers, borrowing idea and technology from the West when it suits them to do so.”

Dambisa Moyo, Dead Aid: Why Aid is Not Working and How There is a Better Way for Africa (New York: Farrar, Straus, Giroux, 2009).

From Foreword by Niall Ferguson (page ix) “Why, asks Moyo, do the majority of sub-Saharan countries ‘flounder in a seemingly never-ending cycle of corruption, disease, poverty, and aid-dependency’, despite the fact that their countries have received more than US$300 billion in development assistance since 1970. The answer she gives is that African countries are poor precisely because of all that aid. Despite the widespread Western belief that ‘the rich should help the poor, and the form of this help should be aid’, the reality is that aid has helped make the poor poorer, and growth slower. In Moyo’s startling words: ‘Aid has been, and continues to be, an unmitigated political, economic, and humanitarian disaster for most parts of the developing world.’ In short, it is (as Karl Kraus said of Freudianism) ‘the disease of which it pretends to be the cure’.

The correlation is certainly suggestive, even if the causation may be debated. Over the past thirty years, according to Moyo, the most aid-dependent countries have exhibited an average annual growth rate of minus 0.2 per cent. Between 1970 and 1998, when aid flows to Africa were at their peak, the poverty rate in Africa actually rose from 11 per cent to a staggering 66 per cent.

Why? Moyo’s crucial insight is that the receipt of concessional (non-emergency) loands and grants has much the same effect in Africa as the possession of a valuable natural resource: it’s a kind of curse because it encourages corruption and conflict, while at the same time discouraging free enterprise.”

From page 3

“Over the past five years, there have been signs that warrant a sliver of optimism. Many African economies have posted annual growth rates around 5 per cent, and a number of countries now host democratic elections.

Three factors are at the core of the African revival.

• • • First, the surge in commodity prices – oil, copper, gold, and foodstuff – in the last several years has fuelled African exports and increased export revenue.
    • Second, on the back of the market-based policies instituted in the late 1980s, African countries have benefitted from a positive policy divident. This has left Africa’s macro-economic fundamentals on the up (growth on the rise, inflation down, more transparent, prudent, and stable monetary and fiscal performance). And despite the news headlines, there have been some noteworthy improvements in social indicators in some countries. In Kenya, for example, HIV prevalence rates have fallen from 15 per cent in 2001 to 6 per cent at the end of 2006.
    • Third, there have been some notable strides in the political landscape across the continent; more than just on paper. For example of forty-eight sub-Saharan African countries, over 50 per cent hold regular democratic elections that can be deemed free and fair.”

From page 75-76

“Africa is addicted to aid. For the past sisty years if has been fed aid. Like any addict it needs and depends on its regular fix, finding it hard, if not impossible, to contemplate existence in an aid-less world. In Africa, the West had found its perfect client to deal with.

This book provides a blueprint, a road map, for Africa to wean itself off aid. This goal cannot be easily achieved without the cooperation of donors. And like the challenges someone addicted to drugs might face, the withdrawal is bound to be painful. Drug-taker, or drug-pusher, in the end someone has to have the courage to say no.

What follows is a menu of alternatives to fund economic development across poor countries. If implemented in the most efficient way, each of these solutions will help to dramatically reduce Africa’s dependency on aid. The alternatives to aid are predicated on transparency, do not foster rampant corruption, and through their development provide the life-blood through which Africa’s social capital and economies can grow.

The Dead Aid  proposal envisages a gradual (but uncompromising) reduction in systematic aid over a five- to ten-year period. However worthwhile the goal to reduce and even eliminate aid is, it would not be practical or realistic to see aid immediately drop to zero. Nor, in the interim, might it be desirable.”

Dani Rodrik, One Economics Many Recipes: Globalization, Institutions, and Economic Growth (Princeton NJ: Princeton University Press, 2007)

From Introduction (pages 2 – 4)

Economic growth is the most powerful instrument for reducing poverty. If you look at a map of the world today and ask where there is the greatest incidence of poverty, the simplest answer is: where there has been the least amount of growth since the onset of modern economic growth around the middle of the eighteenth century. Economic growth can be powerful over much shorter periods of time as well. China’s rapid growth since 1980 has allowed more than 400 million of its citizens to pull themselves above the poverty line (the dollar-a-day benchmark). Of course, growth is not a panacea, and there are certainly cases where health and social indicators have not improved despite sustained growth over periods of a decade or more.”…

“All of this diverse experience with growth has happened in an era of rapid globalization, during which countries have become increasingly open to forces emanating from outside their borders. The fact that they have responded so differently is evidence enough—if any is needed—that national policy choices are the ultimate determinant of economic growth. At the same time, successful countries are those that have leverages the forces of globalization to their benefit. China and India would not have done nearly as well without access to relatively open markets for goods and services in the advanced countries. But their success was also due to their governments’ concerted efforts to restructure and diversify their economies.”…

“It is common for policy advisors to recommend growth strategies to countries without having a solid grasp of the ups and downs of their recent economic performance—that is, without understanding the nature of the growth process in that economy. Econometricians are still hard at work looking for the growth-promoting effects of policies that countries in Latin America and elsewhere embraced enthusiastically a quarter century ago.”…

“I remain a believer in the ability of governments to do goo and change their societies for the better. Government has a positive role to play in stimulating economic development beyond enabling markets to function well.”…

“I believe that appropriate growth policies are almost always context specific. This is not because economics works differently in different settings, but because the environments in which households, firms, and investors operate differ in terms of the opportunities and constraints they present.… Learning from other countries is always useful—indeed it is indispensable. But straightforward borrowing (or rejection) of policies without a full understanding of the context that enabled them to be successful (or led them to be failures) is a recipe for disaster.”

From Chapter Nine (pages 238 – 240)

“But look closer at the Chinese experience, and you discover that it is hardly a poster child for globalization. China’s economic policies have violated virtually every rule by which the proselytizers of globalization would like the game to be played. China did not liberalize its trade regime to any significant extent, and it joined the World Trade Organization (WTO) only in 2001. Chinese currency markets were not unified until 1994. China resolutely refused to open its financial markets to foreigners, again until very recently. Most striking of all, China achieved its transformation without adopting private-property right, let alone privatizing its state enterprises. China’s policymakers were practical enough to understand the role that private incentives and markets could play in producing results. But they were also smart enough to realize that the solution to their problems lay in institutional innovations suited to the local conditions—the household responsibility system, township and village enterprises, special economic zones, partial liberalization in agriculture and industry—rather than off-the-shelf blueprints and Western rules of good behavior.

The remarkable thing about China is that is has achieved integration with the world economy despite having ignored these rules—and indeed because it did so….

China’s experience may represent an extreme case, but it is by no means an exception. Earlier successes such as South Korea and Taiwan tell a similar story. Economic development often requires unconventional strategies that fit awkwardly with the ideology of free trade and free capital flows. South Korea and Taiwan made extensive use of import quotas, local content requirements, patent infringements, and export subsidies—all of which are currently prohibited by the WTO. Both countries heavily regulated capital flows well into the 1990s. India managed to increase its growth rate through the adoption of more probusiness policies, despite having one of the world’s most protectionist trade regimes. Its comparatively mild import liberalization in the 1990s came a decade after the onset of higher growth in the early 1980s. And India has yet to open itself up to world financial markets—which is why it emerged unscathed from the Asian financial crisis of 1997.

By contrast, many of the countries that have opened themselves up to trade and capital flows with abandon have been rewarded with financial crises and disappointing performance. Latin America, the region that adopted the globalization agenda with the greatest enthusiasm in the 1990s, has suffered rising inequality, enormous volatility, and economic growth rates significantly below those of the post-World War II decades. Argentina represents a particularly tragic case. It tried harder in the 1990s than virtually any country to endear itself to international capital markets, only to be the victim of an abrupt reversal in “market sentiment” by the end of the decade….

What these countries’ experience tells us, therefore, is that while global markets are good for poor countries, the rules according to which they are being asked to play the game are often not.”