This week's editor

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Adam Ramsay is co-editor of OurKingdom.

Rana Plaza: the struggle continues

A year after the huge loss of mainly-female Bangladeshi garment workers’ lives at Rana Plaza, unions are still fighting for compensation for the victims, safety at work and a living wage

The Cyprus 'bail-in' blunder: a template for Europe?

The justification for the ‘rescue’ plan for Cyprus appears reasonable: taxpayers should not have to pay for the costly mistakes of bankers and ‘tax havens’ should be eliminated. But the ‘bail-in’ plan does not achieve these objectives.

An investment wonderland? Reality checks

Since the collapse of the USSR investors have flocked to Russia, tempted by the high rates of return and the Alice in Wonderland atmosphere in Moscow, where everything seems possible. But the Russian business community has rather less faith in the future promised them by their government, says Pavel Usanov

Russian consumerism: market boom chaos

The collapse of the USSR replaced the perennial shortages of goods and services with the problem of low incomes and rising prices. Today management is grossly inefficient, but rampant corruption blocks any moves to improve the situation. People complain, but they still vote as they’re told at elections, says Vladimir Gryaznyevich

Russia: an Oprichnik economy

Owning a business in Russia today is a hazardous affair: each year thousands of companies close after their owners are accused of ‘economic crimes’ and face either prison or protection payments to government officials. Andrey Zaostrovtsev describes a system reminiscent of an equally lawless period in Russia’s past (photo: RIA Novosti Agency).

Whatever happened to Russia’s economic miracle?

The first eight years of the last decade were incredibly successful for Russia’s economy, but the crisis of 2008 hit hard and growth remains decidedly sluggish. Dmitry Travin wonders whether the country’s economy will ever be able to regain the Midas touch.

India Burning

When the rice harvest season finishes in a few weeks, fields in India will turn black as farmers burn thousands of acres. This practice shows one of the failures of the Green Revolution, with devastating regional and global consequences. A food-security-obsessed India cannot ignore these issues for much longer.

If voting could change anything: the 2012 Catalan Elections

A vote next week will probably enable the controversial referendum on independence in Catalonia. Madrid continues to try to thwart the move, while demonstrations – and statistics – tell a different story

Migration and development: a question of barriers

Immigration policy should balance both the needs of the British economy and the developmental impact the policy will have on countries of origin. Overcoming popular and political resistance to this will not be easy, but it is a conversation that needs to start now.

Bolivian highway: omen of an emerging new regional and world order

A highway to be built through a national park and indigenous lands has sparked protests in Bolivia. The author contends that far more than just an issue in Bolivian politics, this dispute is played out in the region with a more aggressive Brazil shaping Latin relations and internationally, between a newly assertive China and a waning United States. 

Don’t bank on gender equality from the UK high street

Women are facing a double-bind, bearing the brunt of banks' practices both in the build up to, and in the wake of, the economic crisis. In a feminised recession, with women bearing the brunt of job losses and austerity measures, do we now need to add another grim example – women being undermined by their banks?

Is Russia’s protest movement a flash in the pan?

Putin is back in power and the numbers of Russians actively protesting against the regime have dwindled. Six months on, what has the protest movement achieved and does it have a future? Dmitry Travin points to huge differences of opinion in different areas of the country and among different strata of society, and concludes it all depends on the economy.

Supply Side and Plan A - the straightest path to human tragedy

The Coalition's economic 'Plan A' ultimately has a strategy of wage repression at its heart. This will undermine the conditions needed for economic revival but, above all, will impose incalculable human costs on the mass of British people 

Why the gender pay gap matters

With so many families in Britain struggling in the face of the Coalition's austerity measures, wage inequalities between men and women seem low down on almost everyone's agenda. But as increasing numbers of households depend on women’s wages, equal pay for equal work is a more pertinent demand than ever, says Ray Filar

Threat to opportunity: the new logic of climate policy

In the clutches of recession, the Ryanair chief executive may now breathe a sigh of relief as binding emission reductions seem further off than ever before. Now, the only thinkable solutions to climate change are those which also provide an immediate, tangible boost to economic growth. But can market logic provide the solution to this ever-escalating crisis?

Taxation: Bahrain's alternative path to political reform

Bahrain's uprising was curtailed by a brutal crackdown. Could the rising sectarianism and tense Sunni-Shia divide be reversed through taxation?

The Russian banking system: between the market and the state

For the last 20 years Russian attitudes to banks have been ambivalent. From no trust at all to feverish delight at the interest rates delivered by the oil boom and back to severe doubts during the recent crisis period. Competition needs to develop and the banks need to come out of the hands of the state, says Pavel Usanov

The German left’s defence of Europe

While Angela Merkel opts for a narrow definition of the German interest, the opposition champions a return to European collectivism based on leftist values

Are higher tuition fees justified?

Are higher tuition fees justified by the cost of providing undergraduate education? Chris Goodall breaks down the cost of one sought-after degree course, and comes to some controversial conclusions.

Kickstarting the Kyrgyz economy

On 8 April 2010 Kyrgyzstan experienced its second revolution in five years. The corrupt regime of President Bakiev fell as citizens rebelled after government troops opened fire on protesters, killing more than 80 people and wounding 1500. The new interim government is now preparing elections.

Remembering Gaidar, man of many talents

Unfairly savaged by Russian populists, Russia’s radical reformer was a brilliant technocrat, a rigorous academic, and a good man. Marek Dabrowski remembers his friend Yegor Gaidar.

In search of honest money

Making money work for society will require splitting out its three roles

Recovery requires redistribution

As governments everywhere struggle with cutting deficits without hammering the recovery from the financial crisis, a new book argues that Keynes has had the solution for a long time.

Not poverty, but lack of freedom

International economic indicators suggest that Russia’s problems are not those of the developing world. Relatively speaking, its people are not poor. But its economy is just not free

Killing aid

Dambisa Moyo is tired and frustrated by the aid apparatus that has not only come to “trap” poor and indebted African states but is, in her view, the root cause of poverty. The central argument of Dead Aid is that aid is the fundamental cause of poverty and therefore eliminating aid is critical to spur growth in ailing African states. Aid is the disease that we must treat to bring us back to full economic health. A bold and daring statement built around the central belief that aid distorts incentives among policymakers and society at large. It makes governments less accountable to their citizens and has led to civil wars, rampant corruption (electoral and otherwise) and has been central to an undercurrent of irresponsibility culminating in increased and self-reinforcing poverty since the end of colonialism. None of these arguments are new of course, but Dambisa is probably the first economist to boldly claim that aid causes poverty.

This article is a review of Dambisa Moyo "Dead Aid"

Also in openDemocracy:

Anna Lekvall, "Democracy and Aid: the missing link" (13 May 2009)
If aid is the disease that causes endless bleeding, to stop the bleeding you simply need to stop aid, the only challenge therefore is how to do it. The Dead Aid solution is a five year exit strategy built around the idea of incentivising poor countries to access finance on international markets, supported by the tripod of microfinance, trade/foreign direct investment (FDI) and remittances. In the Dead Aid world there’s a stash of money out there on the international financial markets that is just waiting to be tapped by any African country willing to invest in a credit rating. If African countries can enter these markets and borrow, it would provide the right incentives to spark good governance since the international markets would be more willing to “punish” bad behaviour compared to those that provide aid at infinitum. In other words, borrowing through international financial markets is a sort of "self commitment mechanism" to good governance, and with that comes better long term prosperity.

It is certainly likely to be slightly more expensive than “easy money” that concessional loans and grants bring, but by rejecting these overtures nation states will find themselves on a better path to prosperity. The trouble is that African governments have limited incentives to do this on their own, though some have made progress in this direction, so they need to be compelled through the Dead Aid proposal of terminating aid completely within a five year period.

Radical stuff indeed, but is it too radical? Depending on your view of aid, this is either the most ingenious idea you have ever come across or the most naive, if not downright reckless. At this present time when many western countries are tightening their belts and some are seeking aid themselves due to the fallout from the credit crunch and many people are growing weary of Darfur, Guinea Bissau, Mauritania and Zimbabwe, the Dead Aid message is likely find some appeal not just in your Daily Mail or Fox News . I am afraid to say, and with deep sorrow, that the Dead Aid proposal falls far short in many areas, with at least four worth highlighting.

First, there’s a general lack of clear analytical rigour evidenced by elementary confusion in key areas : correlation/causality issues; definitional problems; poor evidence on policy counterfactuals; incomplete and unbalanced citation of evidence; and, perhaps more worryingly lack of general familiarity with refined areas of existing literature. Too many problematic issues to cover within this short review, but some key examples are worth highlighting.

In a number of instances Dead Aid embarrassingly confuses correlation with causality. For instance the correlation between foreign aid and savings, which Dambisa takes as strong evidence that foreign aid reduces domestic savings. It does not take a genius to work out that one expects poor nations to correlate with reduced domestic savings, and in so far as foreign aid is prevalent in poor countries, the issue of correlation between higher aid and low domestic savings becomes meaningless. Perhaps more worryingly is that in a number of places Dead Aid seems to rely on evidence just from single sources that always reinforces its general argument that aid is bad. So when Dead Aid posits that remittances are more effective than international aid, it ignores other studies that have shown remittances can also be a “curse”.

Evidence of poor research abound, with one of the glaring examples being the lack of reference and consideration of new emerging literature led by Daron Acemoglu and others on the importance of drawing a distinction between proximate and ultimate causes for underdevelopment. In many respect if aid was going to be a factor it would be nothing more than a proximate cause because ineffective aid preys on inefficient states, which are strongly determined by the existing distribution of power in society (ultimate cause).

Secondly, the treatment of aid in a homogeneous and aggregate way is particularly problematic. Dead Aid defines aid as the “sum total of concessional loans and grants”, but excludes “emergency aid” e.g. help for Darfur or the Asian Tsunami. There’s no distinction within Dead Aid between budget support, infrastructure aid, person to person aid, heath related aid, grants or concessional loans for discretionary spending. It is all discussed under one umbrella and handed the same fate. This is a remarkable assumption, especially given that the same book acknowledges the effectiveness of the Marshall Plan which largely focused on infrastructure spend. Surely the Marshall Plan demonstrates that a more nuanced assessment of aid has the potential to reach different conclusions? We may for example find that some of the aid is bad, some good and some requires further study.

This distinction is also important because we are now seeing a plethora of literature that suggests that some mechanisms work better than others e.g. cash based incentives as recently argued by Göran Holmqvist . When Britain gave Zambia £40m in 2007, I remarked that "I hope the money was new but not given freely". It presented a new opportunity for Britain to think outside the box and consider the possibility of converting this "new cash" into long term Kwacha bond claims of Zambians on the Zambia Government. Such a move would have helped restore much needed accountability in our system as well as strengthening our debt management practices. Britain could have allocated a share of the bonds to civil servants as part of civil service pay increase and so forth. The underlying point here is that not all form of aid leads to perverse incentives and indeed not all forms of aid perpetuate dependency. To put all aid in one basket makes the book appealing to the uninformed but it does not make for convincing argument to policymakers.

Thirdly, Dead Aid is characterised by a plethora of inconsistent arguments. A key example that stands out is the emotive issue of Chinese investment. Dambisa dedicates a whole chapter explaining why the “Chinese are our friends”, largely arguing from their historical involvement in Africa and their renewed commitment to trade and FDI. However, against a backdrop of Dead Aid’s “anti-dependency” rhetoric , the chant for China appears odd. Let us be clear, China is not only bringing FDI to Africa but it has also brought concessional loans and long term dependency. Zambia’s external debt has now risen to about $2bn since the HIPC completion point, a significant part of that is through new agreements with the Chinese government and Chinese businesses.

A closer look at Angola reveals the same truth. Not only is China investing heavily in that country but in exchange it is tying Angola and other countries to China for a long time reducing their options to renegotiate in the future. That is not necessarily bad, but if the central worry is that dependency leads to ineffective governments with poor incentives we should be honest enough to consider the possibility that China’s closeness to many African governments (which are not all democratic) may have similar negative impacts as aid. In addition, a more refined assessment of the China – Africa relationship would reveal that the issues go far beyond simple FDI but also relates to military cooperation and sometimes creating instability in various parts of Africa (see Michael Sata’s paper). More recently we have witnessed General Nkunda during the recent upsurge of violence in DRC use the China-DRC deal as a pretext for his insurrection, part of the so-called Coltan wars.

Another glaring inconsistency relates to the preferred metrics of measuring the extent of Africa’s aid led failures relative to the assumed metrics for measuring the success of proposed solutions. In assessing the state we are in, Dead Aid relies on national indicators such as GDP, life expectancy, level of external debt and so forth. However when it comes to assessing the extent to which the proposed solutions might be useful the book does not always stick to a consistent set of measures. For example to support the argument for microfinance, we are told Grameen Bank has helped lift many poor people out of poverty through helping “bank the unbankable”.

I am a fan of microfinance and a strong believer that aid properly directed at providing the right sorts of incentives, like IFAD are pursuing in Zambia to boost rural finance through the NARBARD style model , can produce positive results. What is particularly puzzling about the Dead Aid position is that if the metric for judging the effectiveness of microfinance is “lifting people out of poverty” at the micro level why not use the same measure for aid? If we are going to argue that remittances help bypass bureaucracy and can be effective in tackling schooling, not necessarily increase national GDP, why can’t we accept that the metric of “school attendance” is just as good a measure for assessing the effectiveness of certain aid interventions? Conversely if we are to judge the failure of aid interventions on their inability to raise national GDP (all things being equal) why don’t we accept that no empirical study to date has demonstrated that large initiatives of providing microfinance (e.g. in Bangladesh) has led to increases in GDP? The underlying point is that Dead Aid too often moves around between inconsistent measures for the problem and suggested solutions. Incidentally the IFAD initiative is a good example of effective aid that is unfortunately ignored by Dead Aid.

Fourth and finally, the solutions proposed by Dead Aid are ineffective. This is not surprising because without a clear definition of the problem, it is inevitable that the solutions would not work. But even if one was to accept Dead Aid’s basic premise that aid is bad, its solutions come far short. In order to assess whether any proposals would present an overall improvement beyond the status quo, we need to define what happens in the counterfactual carefully and then judge that against proposed policy initiatives.

In our scenario the counterfactual is the situation where we continue with the current process. We know already that Dead Aid has not demonstrated that this situation would lead to more aid driven poverty . More importantly, evidence in recent years from Zambia, Uganda, Kenya Tanzania and other countries shows an improving picture in terms of economic performance. This doesn’t mean aid causes good performance, but it does suggest growth is possible in the presence of aid even for nations at the bottom. It is therefore possible that in the presence of aid we may witness an improving counterfactual over time.

Two important questions flow from the above discussion : (1) what would be the impact of turning off the aid tap on poor nations relative to the counterfactual?; and (2) would these developing nations be able to borrow on the international markets, as an alternative to aid?

On (1) there’s no doubt that the answer largely depends on the economic and political situation in relevant nation states. For those countries with 20 % – 50% of national budgets supported by donor partners the adjustment would be too difficult and politically infeasible within the suggested five year time frame. The failure to implement their budgets would significantly weaken the human and physical infrastructures rendering these states ungovernable. More importantly locally targeted aid that is spearheaded by many aid organisations divorced from budget support would dwindle, possibly leading to multiple failed states. Dead Aid misses the point that even without aid, the incentive for military coups and emergence of vampire states would be remain because of the lucrative mineral wealth that exists. So the incentives for seeking alternative funding through financial markets as a way of survival are not always going to be as strong. Simply put for some countries turning off the aid tap would lead to chaos and breakdown in the rule of law.

As for replacing aid with borrowing, dwindling international capacity following the credit crunch (likely to persist beyond 2011/12) means there is no immediate prospect of accessible markets with significant cash to spread around. Even if African governments had strong incentives to enter these sorts of arrangements and with good initial credit ratings (which is highly unlikely) the process may be too prolonged and the outcomes would be uncertain given prevailing global economic conditions.

In short on both theory and practice, Dead Aid falls far short of what is expected of a book advocating such a radical proposal of “turning off the aid tap”. If there’s any consolation in this assessment, it is that Dead Aid will hopefully not find any intellectual traction. The analytical consensus remains that aid is important and the challenge is how to make it smarter, better and ultimately beneficial to the poor. This question has never been more urgent given the limited aid resources around. Dambisa is certainly right that now is the time to examine these issues and we can certainly do better than the present.

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