Economic and Development Problems in South Africa and Africa Session 3 - Aid
description
Transcript of Economic and Development Problems in South Africa and Africa Session 3 - Aid
Department of Economics
Faculty of Economic and Management Sciences
Economic and Development Problems in South Africa and Africa
Session 3 - Aid
2
Understand the “Aid debate”
1. What are the main arguments for and against traditional forms of aid?
2. What is the way forward i.t.o. aid?
• Incorporate objections and propose a thoughtful solution
Aims for today
3
Aid – The good, the bad, and the ugly
• THE GOOD• Poverty Trap• Big Push• Firemen logic
• THE BAD• Planners vs Searchers
(Easterly)• Feedback &
accountability• Volatility & Voluntarism• Lack of coordination • Policy conditionality • A cartel of good
intentions (Easterly)
• AND THE UGLY• Political, commercial and
strategic interests of donors
4
Aid – The ‘good’...
• Sachs • ‘Poverty trap’ • Firemen logic• Big push• Conclusion?
• BIG SOLUTION
Health – Education - Infrastructure
If we want to end poverty in our lifetime, what does this require of aid??
Poverty
Living hand-to-mouth
No savingNo investment
No infrastructure. Capital,
tech
5
• Initially = gap funding view of aid• Developing countries are poor because they have too
little money• Consequently cannot buy sufficient capital,
infrastructure and expertise• If developed countries can transfer sufficient
goods/money, this should solve poverty and fuel growth in developing countries
• “Before peddling their simplistic concoction of free markets and self-help, they and we should think about the realities of life, in which all of us need help at some time or other and in countless ways, and even more importantly we should think about the life-and-death consequences for impoverished people who are denied that help.” - Sachs
• SuccessesA. ARV’s (40 000 1mil in 5 yrs)B. Smallpox eradication C. Measles (100 000 40 000)D. River-blindness
Aid – The ‘good’...(cont)
6
Aid – The ‘good’...(cont)
7
But…what does history say?
Easterly -
• $2.3 trillion over last 50 years
• What do we have to show for it?
• {Duflo counterfactual}
‘Post-hoc ergo propter hoc’
8
Aid – The bad...
• “Two years after the breakup of the Soviet Union, British economist Paul Seabright was talking with a senior Russian official who was visiting the UK to learn about the free market. “Please understand that we are keen to move towards a market system,” the official said, “But we need to understand the fundamental details of how such a system works. Tell me, for example: who is in charge of the supply of bread to the population of London?” The familiar but still astonishing answer to this question is that in a market economy, everyone is in charge. ”
• What does the bread supply in London have to do with aid?!
• Planners vs Searchers (Easterly)• ‘Utopian social engineering’ vs ‘piecemeal
democratic reform’ (Popper)
9
Aid – The bad...
• “Two years after the breakup of the Soviet Union, British economist Paul Seabright was talking with a senior Russian official who was visiting the UK to learn about the free market. “Please understand that we are keen to move towards a market system,” the official said, “But we need to understand the fundamental details of how such a system works. Tell me, for example: who is in charge of the supply of bread to the population of London?” The familiar but still astonishing answer to this question is that in a market economy, everyone is in charge. ”
• What does the bread supply in London have to do with aid?!
• Planners vs Searchers (Easterly)• ‘Utopian social engineering’ vs ‘piecemeal
democratic reform’ (Popper)
Conclusion? SMALL SOLUTIONS
10
Asking the right question?
1. If we want to end poverty in our lifetime, what does this require of aid? ?
(Sachs)
________________________________
2. What can aid do for poor people? ?
(Easterly)
{Al-Jazeera Clip – Easterly}
11
Aid – The bad...(cont)
• Political and governance dimensions of aid relationship • ‘Ownership’ an article of faith• Governance = ‘activities, institutions, and processes involved in
effectively managing and running a countries affairs in all it’s different spheres, economic, political and administrative, including the relationships between the state and the wider society” (Ridell, 372)
• Trilemma:1. Aid needs institutions to work, 2. The poor need aid, 3. Poor countries usually have bad institutions
• Feedback & Accountability - Who is responsible if the aid does not accomplish what it was meant to? (warm glow & Inter-temporal accountability?)
• Most often, countries with greatest need for development aid have the least capacity/ability/commitment to put the aid to good use (Riddell) – lack institutions• Resource rich but policy poor?
12
Aid – The bad...(cont)
Bureaucracy
• “It is a paradox of foreign aid that it demands the most from bureaucracy under the conditions in which bureaucracy functions worst”
• Crowding out? • Diverting entrepreneurial talent?
• Writing aid-proposals or completing donor-applications is a professional skill which immediately precludes thousands of smaller recipients from consideration.
13
World Bank Organization Chart
14
Perverse incentives of aid1. Foster dependency 2. Food aid crowding out farming3. Aid can protect (prop-up) bad
governments from the consequences of their own incompetence or imprudent policies
4. Donor dependence1. NGO’s become more bureaucratic and are accountable to
donors not recipients 2. Due to small tax base and large share of funds from donors,
government may become accountable and responsive to donors not voters
3. Who is the client?! (Principal – Agent problem)
Aid – The bad...(cont)
15
Aid – The bad...(cont)
Lack of coordination among aid agencies• 35 000 separate official aid transactions each
involving approx 25 donors• Competition? Replication? • Inefficiency? Parallel systems (Cannibalism?)• Undermines and reduces potential impact of aid
Policy conditionality• Do no harm?• Washington Consensus or Washington Confusion
‘Stabilize, Privatise, Liberalize’
16
Aid – The bad...(cont)
A cartel of good intentions (Easterly)1. Define their output as money dispersed rather than
services delivered 2. Produce many low-return observable outputs like
glossy reports and ‘frameworks” and few high-return less observable activities like ex-post evaluation. (only 5% of WB loans were evaluated ex-post, very few controlled experiments. Only evaluation = self-evaluation unobjective)
3. Engage in obfuscation, spin control, and amnesia (“new and improved”) so that there is little learning from the past
4. Put enormous demands on scarce administrative skills in poor countries
17
Aid – The bad...(cont)
A cartel of good intentions (Easterly)1. Define their output as money dispersed rather than
services delivered 2. Produce many low-return observable outputs like
glossy reports and ‘frameworks” and few high-return less observable activities like ex-post evaluation. (only 5% of WB loans were evaluated ex-post, very few controlled experiments. Only evaluation = self-evaluation unobjective)
3. Engage in obfuscation, spin control, and amnesia (“new and improved”) so that there is little learning from the past
4. Put enormous demands on scarce administrative skills in poor countries
18
Aid – The bad...(cont)
Is there anything new under the sun?
19
Aid – The bad...(cont)
‘do everything’ / Big Plan
20
Aid – The bad...(cont)
Volatility and Voluntarism in aid-giving• Due to voluntary nature of aid volatile• Volatility unpredictability Difficult to plan well• Multilateral vs Bilateral aid• Governments usually more stable than private
donors, but...“In short, the current methods of allocating aid for both emergency and development purposes, in aggregate or to particular countries, are not based on any system which effectively matches needs with the aid funds provided, or which even tries to do so”
(Ridell, 2007: 360) D&S
21
Dambisa Moyo
22
(Easterly, 2009: 2)
23
Aid – The bad...(cont)
24
Aid – and the ugly...
Political, commercial and strategic interests of donors• < 50% of all aid goes to the poorest 65 countries (2005
stats)• Strings attached
• 60% of ODA is ‘tied’ or partially tied i.e. The aid must be used solely/partially ‘for the purchase of goods and services, including technical assistance and consultancy services, originating in the donor country’ (Ridell, 2007: 358) [U.S-Iraq?!] [China-Africa! Chinese labourers]
• Increases costs by 20% and often means accepting resources which aren’t high on the priority list
• Decreases potential development impact of aid by 1/3• Opening potential markets, buying allegiance,
covert support?• And the plot thickens...
25
Aid – and the ugly...
Foreign aid – aiding our interests one nation at a time
• 60% of ODA is ‘tied’ or partially tied i.e. The aid must be used solely/partially ‘for the purchase of goods and services, including technical assistance and consultancy services, originating in the donor country’ (Ridell, 2007: 358) [U.S-Iraq?!]
• Increases costs by 20% and often means accepting resources which aren’t high on the priority list
• Decreases potential development impact of aid by 1/3
‘Yet the Americans wield influence over a regime (Egypt) that depends on them for $1.5 billion a year of aid and almost all its modern weaponry….Mr Mubarak’s immediate value to the superpower is summarised conveniently in a 2009 State Department cable disclosed by WikiLeaks. It says that America’s strong military relationship with Egypt has supported peace between Egypt and Israel and ensured critical access to the Suez Canal and Egyptian airspace for American military operations. Mr Mubarak and Egypt’s military leaders, the cable says, see America’s aid to Egypt as “untouchable compensation” for making and maintaining peace with Israel” (Economist, Feb 5th 2011)
26
Aid – and the ugly...
Foreign aid – aiding our interests one nation at a time
Political, commercial and strategic interests of donors• < 50% of all aid goes to poorest 65 countries (2005
stats)• Strings attached
• 60% of ODA is ‘tied’ or partially tied i.e. The aid must be used solely/partially ‘for the purchase of goods and services, including technical assistance and consultancy services, originating in the donor country’ (Ridell, 2007: 358) [U.S-Iraq?!]
‘Yet the Americans wield influence over a regime (Egypt) that depends on them for $1.5 billion a year of aid and almost all its modern weaponry….Mr Mubarak’s immediate value to the superpower is summarised conveniently in a 2009 State Department cable disclosed by WikiLeaks. It says that America’s strong military relationship with Egypt has supported peace between Egypt and Israel and ensured critical access to the Suez Canal and Egyptian airspace for American military operations. Mr Mubarak and Egypt’s military leaders, the cable says, see America’s aid to Egypt as “untouchable compensation” for making and maintaining peace with Israel” (Economist, Feb 5th 2011)
Aid
27
Looking at the bigger picture• Other Government policies not supportive of aid
policies?• Poaching nurses and doctors? SA? DFID and UK
Health Dep• Trade?? – Arms and agriculture? (next slide)
Bigger picture?
28
Trade
• “Developed countries tariffs remain high on goods that are strategically important to developing economies, such as textiles and farm products” ??
Promising more aid is easier than dismantling politically sensitive agricultural subsidies that favour Western farmers at the expense of African ones.....
• Developed countries are quick to condemn trade in ‘blood diamonds’ which prolong and promote war, but little has been done to limit the sale of arms to many aid-recipient countries?? (Holistic strategy?) (French in Rwanda! During Genocide)
29
Getting the egos out the way...
“The aid sceptics—some of them veterans of the industry, their palms calloused from many previous bouts of hand-wringing over Africa—have all the best lines in the debate. Everything has been seen before, they say, nothing has worked. But what do they mean precisely? Do they mean that the World Health Organisation should abandon its efforts to put 3m HIV-carriers on anti-retroviral therapies? Perhaps those already on the drugs should hand them back, lest they succumb to “dependency”. Should Merck stop donating its drug, ivermectin, to potential victims of riverblindness? Let Togo reinvent the drug itself! Perhaps, in the name of self-reliance, Tanzania's government should stop giving pregnant women vouchers to buy mosquito nets. Get sewing, ladies!No one should be naive about aid. It cannot make poverty history, and it can do harm. But to say that nothing works is wrong. Cynicism is only the most common form of naivety. “
Esther Duflo: Social experiments to fight poverty
“Intelligence squared Aid to Africa debate”
30
1. Missing money (Sachs) vs. missing institutions (Easterly)?
2. Can one have a ‘big plan’ w.r.t. aid?3. Is a ‘big plan’ necessary to mobilise the
obese?4. Thematic vs. Mechanical outlook on
aid?5. To what extent is aid political? Does it
matter?6. Is aid really the key issue to tackle?
Trade?7. Can aid create good
policies/institutions? How?8. Aid 2.0 ???
Points to think about…
31
Readings…
• - Birdsall, N. 2008. Seven Deadly Sins: Reflections on Donor Failings In Easterly, W. (ed.)Reinventing Foreign Aid. Cambridge, Mass: The MIT Press.
• - Easterly, W. 2007. Planners vs Searchers. In The White Man’s Burden. Oxford: Oxford University Press.
• - Riddell, R. 2007. Why aid isn't working. In Does Foreign Aid Really Work? Oxford: Oxford University Press
32
Aid – discussion 10 Aug
Countries1. Nigeria - Bono2. Zimbabwe – Morgan Tsvangirai3. Angola – Dambisa Moyo4. South Africa – Nancy Birdsall5. Uganda – Jeffrey Sachs6. Ghana – William Easterly7. Rwanda – Paul Kagame8. Algeria – Jeffrey Sachs
You are presenting THEIR views, not yours. The whole group must participate but the group must have a spokesperson (must be different from country-presentation spokesperson)
33