This week's editor

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Adam Ramsay is co-editor of OurKingdom.

Fundamental to sustainable and just globalisation, questions of economics, finance and trade are too serious for rhetoric. OpenDemocracy debates and articles get to the heart of the most difficult questions.

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

Violence visited on Cambodian garment workers

Cambodian garment workers make around $80 a month, taking on long hours of overtime in harsh conditions. Now workers across the country are standing up for themselves to demand more—but the fight for a better wage in Cambodia is a dangerous one. At least four garment workers were killed this month during a crackdown on protesters demanding a decent wage from the government and international clothing companies. This video shows the workers who are standing up—and the violence consistently employed to keep them quiet.

The mind of the traffickers

Consumer campaigns, self-help methodology and those who risk their lives to defend others cannot match the power of the trafficking industry. Jennifer Allsopp, reporting on the Trust Women conference, looks for the core strategic thread that would take seriously the question of where power, and hence obligation lies.

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.

The gender gap and the American presidential election

Will the gender gap that decisively helped Bill Clinton and Barack Obama win the presidency again? Only if women remember who waged the 'war against women', against their economic equality and against their reproductive rights, says Ruth Rosen  

Development and religion: ambivalent policy, grounded practice

Development policy seems to swing between a Marmite-style love-it-or-hate-it approach to religion. Yet practice on the ground is more subtle—and more effective. Cassandra Balchin suggests why this gap exists between policy and practice

Chinese companies under scrutiny in Zimbabwe

Ten years into the Look East policy, Zimbabwe is showing itself to be a not-so-satisfied customer of Chinese investment.

Armed conflict, land grabs and big business: Colombia’s deadly pact

The recent assassination of Colombian marxist insurgent group leader Alfonso Cano has been hailed internationally as an advance towards peace, giving Colombia a boost down the path to becoming the latest emerging market of Latin America. A closer look at the history and nature of Colombia's nearly 50 year-long armed struggle, however, tells us otherwise.

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.

The curse of commodities

The small south-east Asian nation of East Timor, also known as Timor-Leste, is no stranger to suffering and dashed hopes. This is a rich land whose people are poor - desperately poor. After 24 years of brutal occupation by its large neighbour Indonesia, independence brought with it many hopes and dreams. The island’s substantial mineral wealth further increased these expectations.

In the past two years the country has received an average of $1.1 billion a year in oil and gas revenues. A substantial amount if one takes into account its tiny population of just one million.

However, the long-suffering people have seen very little of this wealth come their way. Unemployment remains high, reaching 80 percent in the capital city, and the countryside left in a state of abandonment. While poverty has been part of daily life for the majority, it now exists side by side with small pockets of scandalous affluence resulting from the oil bonanza.

While most people live on less than a dollar a day, the 350 foreign advisors hired by the Timorese government have salaries as high as $20,000 a month, while government officials drive Lexus, Mercedes and luxury four-by-four vehicles along the potholed streets of Dili. Power cuts are frequent, with a dozen cuts a day a common occurrence.

These pockets of wealth in the middle of extreme poverty are fast breeding prostitution and drug addiction. 

Timor L'Este - facts

The economy of Timor L'Este largely relies on foreign aid and government spending generated from petroleum revenues. The enormous rebound in economic growth in 2007 (19.8%) has been assigned mostly to international personnel deployed in the country. Their spending generated a high demand for houses, goods and services while the security situation remained weak. After violence broke out in 2006, the economy contracted sharply. Reconstruction measures added to the high growth rate in 2007. The numbers are expected to have fallen back to around 3% in 2008 (official numbers not yet avaliable), which demonstrates the instability of the economy and its lack of self-sufficiency.

In the future much will depend on the government's ability to direct a steady flow of oil and gas revenues into the country in order to stimulate its economy and fight the still alarming degree of poverty. Crucial to this is Timor's sovereign wealth fund that currently comprises US$3.2 billion and is ranked the third-best run sovereign wealth fund (PDF) in the world by the Peterson Institute of International Economics. It was developed after the Norwegian model in close cooperation with Norway's "Oil for Development"-programme.

The Timorese economy relies heavily on its oil and natural gas resources, which account for roughly 98% of the country's revenues. It is therefore a sign of hope to see that the Petroleum Fund is well-managed. However, as long as corruption and violence prevail, the temptation is great for future governments to get their hands on the fund.

Near schools men wait in their cars for young girls to approach them. A young school girl relates her story, “we approach them and tell them we need a new pair of shoes to go to a party. We go with them and then do it and get our shoes". Girls are reported to have sold their bodies for as little as $5. In the countryside local journalists have reported various cases of girls as young as 10 prostituting themselves for $1.

As described by a local reporter: “In the districts the parents receive the money and sit on their veranda while their daughters are used inside their own house. This is how bad poverty is in our country.”

Traffic in young girls is becoming a serious problem. A group of 18 young girls were rescued from foreign traffickers near the border with Indonesia early this year. In a devotedly Catholic country the issue of prostitution is often ignored. Many of the women are being abused and raped by the police. Fear of reporting and social hypocrisy aggravates the problem even further.

The condition of women in Timor is, by any measure, dreadful. The country has one of the highest rates of violence against women in the world with 70 percent of the country's prison population made up of individuals convicted of rape and domestic violence.

The fact that many prominent figures in society are rumoured to visit prostitutes makes the issue even harder to address. There are persistent rumours of high-ranking government officials frequenting brothels that host young Timorese girls in addition to Indonesian, Thai, Chinese and Philippino prostitutes. A Timorese policemen from the elite CSP unit charged with VIP protection tells me with a naughty smile:

“I went to pick up Chinese girls many times for a mao bot (big brother)”
How big I ask him. A minister? “Bot diak” “bigger" he replies.

The nocturnal habits of the Timorese leadership further undermine any attempt at helping the daughters of Timor, who, after 24 years of rape and humiliation under the Indonesian military, now see their own leaders and self-proclaimed liberators turn their backs on them. Many women are being lost while their leaders pretend to be rich.

Official name República Democrática Timor-Leste (RDTL)
Government Republic, Parliamentary System
President Dr. José Ramos-Horta
Prime minister Xanana Gusmao
Capital Dili
Population 925,000 (2004 Census)
Religion Predominantly Roman Catholic, with Muslim and Protestant Christian minorities
Languages Tetum and Portuguese (official); English and Bahasa Indonesia (working languages) and dozens of native languages/dialects
GDP (per capita, PPP US$) $668
Economic growth 2006: 2.3%
2006: -3.4%
2007: 19.8%
Poverty 43% of population living on less than 1.25 US$ a day, making it the poorest country in East Asia & Pacific
Income distribution & inequality
Gini index: 39.52%
(with 0%=perfect income equality, 100%=perfect income inequality

Currency American dollar
Main exports Coffee, oil and natural gas
Life expectancy 60,2 years
Human development index 0.483 (ranks 158th out of 179 countries)
Sources: UNDP – The Human Development Index, World Bank Regional Data Data compiled by Dennis Nottebaum

The country is also attracting a growing number of foreign sex workers brought into the country by Chinese and south-east Asian crime syndicates. According to The Alola Foundation, an NGO headed by Prime Minister Gusmao's Australian wife, more than 200 foreign sex workers are believed to be in Timor - many against their will. Alola is one of the very few organisations that has paid any attention to the plight of the many Timorese and foreign girls.

As I walked out of a Dili night club I saw a young girl not more than eight years old holding her little brother, who was about four, by the hand. I asked them what they are doing here at three o'clock in the morning, "You should be at home", I say. She says "need money to buy food”. I press them further, after a few more questions the girl, with innocence still in her eyes, tells me. “My older brother sends me, he is at the end of the road, if I don’t get money he beats me". I give her $5 and walk away still wondering if I did the right thing. Children don’t belong on the street and certainly not in an oil-rich nation.

If shirts could speak and 'we the people' would listen

I’ve just returned from Bangladesh, and I am angry. Not, of course, with the people. They were beautiful, and incredibly warm and open, inviting us into their humble homes and often sitting with us into the night in small, windowless, poorly-lit union offices telling us stories of their lives as garment workers. They answered all of our questions with patience, and asked questions of their own.

I am angry because of what is happening to these workers, who sew our garments. There are two million garment workers in Bangladesh, and 85% of them are young women 16-25 years old. Each year they sew $2.8 billion worth of clothing for export to Europe and another $2 billion for the United States.

Debtonation: how globalisation dies

A single day, 9 August 2007, will go down in history as "debtonation day" - the beginning of the end of the deregulation and privatisation of finance that marks the era of globalisation.

It is a moment that I (alongside many others) had long predicted, most notably in an article for openDemocracy written in 2003 (see "The coming first world debt crisis" [1 September 2003], and my book of the same title [Palgrave, 2006]). The problem, as with Cassandras in other areas of life, was to gauge the precise timing of the global financial crisis that we knew was approaching.

The end of gentlemanly capitalism

Over the past week, we - the rich-world voter and taxpayer - have bailed out the hedge-funds, their bankers and their counterparts caught in the global squeeze on credit. Again. It happened in 2001 and in 1998. The financial system has once more fallen into the soft, bouncy, but ultimately comfortable safety-net (trampoline?) that we - all of us together, through our central banks and the losses we are prepared to underwrite as taxpayers - extend to troubled financiers.

Brazil, the United States and ethanol

Biofuel production could offer Brasilia and Washington a source of partnership rather than of conflict, says Rodrigo de Almeida.

How to ease global inequality: Branko Milanovic interviewed

The World Bank economist talks to openDemocracy about globalisation, inequality and labour mobility.

Wealth versus health - the Thai frontier

Affordable drugs are crucial for fighting AIDS in developing countries, but the United States puts their availability at risk through its harsh trade agreements. Will Thailand stop the US in its tracks, and help protect access to life-saving treatments for citizens worldwide?

Gleneagles, 7/7 and Africa

The effect of the London bombs was to aid the powerful and damage the weak. Campaigners for global justice must not be deflected, says Ann Pettifor.

Wonderful shrinking world

The pundits who embrace or reject globalisation too often live in an eternal present and ignore the lessons of the phenomenon’s deep past, says Alex MacGillivray.

The Brazilian hat-trick

Never ruffle the feathers of a Brazilian diplomat. Failure to grant the country a permanent seat in an international organisation may well result in its representatives storming out of the offending body – for good. That is just what happened eighty years ago, when Brazil's frock-coated ambassador announced that the country would withdraw from the League of Nations. In 1926, the league was still optimistically seen as a major innovation in global governance, with a rapidly growing membership espousing the principle of equal weight for every country, no matter how small or puny.

Free trade? When it suits us

The world's leading trade powers are seeking to carve out a new deal on globalisation. Tom Burgis suspects the rich world is hoping to have its cake and eat it.

The trade gangs of Hong Kong

The ultra-competitive world of trade negotiations sees multiple alliances battling for preference and interest. Alex MacGillivray maps the maze, and reports on a new responsibility-based approach evolving behind the scenes in Hong Kong.

The WTO's raw deal

As another global trade summit ends in a raw deal for the poor, Tom Burgis reports from Hong Kong on the changing dynamics between protest and power.

Why the poorest countries need a WTO

The pessimism surrounding the World Trade Organisation meeting in Hong Kong contrasts with the feelgood outcome of the Montreal climate-change summit. But Ehsan Masood argues that even a flawed WTO compares favourably with other United Nations institutions in giving the poorest nations voice and influence.

The siege of Hong Kong

As thousands of ministers, trade mandarins and protesters gather for this week’s crunch World Trade Organisation ministerial, Tom Burgis reports from Hong Kong, where the stakes could not be higher.

Tamil Nadu after the tsunami: hopes and obstacles

Their world turned upside down in the great Indian Ocean tsunami of December 2004. Six months on, the fishing communities of southeast India struggle to rebuild their lives. Kirsty Hughes reports from a forgotten frontline of reconstruction.
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