Aid and the UN Summit

Tim Worstall reacts to an article by Bill Easterly which I quoted here last week.  Bill Easterly argues that we do not have evidence to support the view that countries are caught in a poverty trap, or that countries can be helped to "take off" in a virtuous circle of growth and rising prosperity.

Tim says:

timworstall.jpg

But when a respected academic in the field (as Bill Easterly is) says that the basic structure of the problem has been misidentified, and that thus our solution is completely wrong, don’t you think we might want to sit down and have a little discussion? Instead of throwing money at it in a way that we know is incorrrect? 

Of course, that isn’t what Bill Easterly says at all. He would be horrified at being misrepresented in this way. 

This is not a debate about whether aid works (which we know it does, on average).  Nor is it a debate about the many good things that can be done with aid to help countries to grow and reduce poverty.  Bill Easterly would agree with Jeff Sachs and just about every other development expert that these are good things to do, and we should do more of them.

At the heart of the debate is a different question.  Bill Easterly (and many of his colleagues at CGD, including me) think that Jeff Sachs overstates the effect that more money, by itself, will make to developing countries.  We think that there are many things that poor countries can and should do to help themselves, most of which go under the general banner of improved governance.  We think that there are many things that rich countries can and should do, over and above giving aid, to help poor countries, including opening our markets, reducing conflict, tackling corruption, intelligent migration policies, tackling climate change, and reducing the arms trade. Aid is an important part of the story, which definitely helps, but it is only part of the story.  Bill Easterly’s point is that it is simplistic to think that we can throw money at the problem and think that this alone will solve it.

In a debate between experts like Bill Easterly and Jeff Sachs, the common ground is often taken for granted, and the discussion focuses areas of difference. To an outsider it may look as if views are heavily polarised.  In reality, there is a great deal of agreement: neither Bill Easterly nor Jeff Sachs would say that aid alone is enough; and neither would say that aid is not effective in reducing poverty. They would both agree that the rich countries have a moral duty (as well as it being in their self interest) to give more aid, and to give that aid better.  They would agree that there are many other things that the goverments of poor countries and rich countries should do to accelerate the reduction of poverty.

Nothing like Tim’s conclusion follows.  Nobody thinks that "the basic structure of the problem has been misidentified".  Nobody thinks "our solution is completely wrong". There is a remarkable amount of consensus about the causes of the problem of poverty. There is very widespread agreement, supported by evidence, that aid is effective in promoting sustained economic growth, as well as directly alleviating the effects of poverty in the short term.  Far from "throwing money at it in a way that we know is incorrrect", we have clear evidence that aid expenditure is one of the most productive investments of funds that we know of, yielding higher returns than other public or private investments.

So, Tim asks, "don’t you think we might want to sit down and have a little discussion"?  There are endless discussions on all this, including one at the United Nations next week.  The last thing we need is more discussion. The international community made a historic commitment at the beginning of this Millennium to a set of goals of profound importance, including to halve the proportion of people living in poverty by 2015.  We know that we are not on track to meet those goals.  Furthermore, we know what we could do to meet them.  It would not be particularly expensive for the rich countries – indeed some of the measures, such as opening our markets, would make us better off.   The summit next week is an opportunity for the rich nations to recognise that we are not doing enough to live up to the goals that we have set ourselves. We should agree now to do the simple and inexpensive things, which we know work, to put the misery of world poverty behind us.

5 comments on “Aid and the UN Summit”

  1. Perhaps the problem is that the policy makers do not understand the distinctions you are making here.

    “We think that there are many things that poor countries can and should do to help themselves, most of which go under the general banner of improved governance. We think that there are many things that rich countries can and should do, over and above giving aid, to help poor countries, including opening our markets, reducing conflict, tackling corruption, intelligent migration policies, tackling climate change, and reducing the arms trade.”
    I agree.
    “They would both agree that the rich countries have a moral duty (as well as it being in their self interest)”…to help make the poor rich.
    I agree.

    “Nobody thinks that “the basic structure of the problem has been misidentified”. Nobody thinks “our solution is completely wrong”.”

    Yes, they do, you included, if you think for a moment. You and I agree that the single simplest thing that could be done to alleviate poverty is the abolition of rich world import restrictions (with the associated agricultural idiocies).

    Whatever Sachs and you think about there being great agreement, what politicians and decision makers have taken away from the debate is that the problem is one of a poverty trap, which can and will be solved by a step change in the level of aid. So that’s what they’ve agreed to do.

    They are not doing the obvious and simple thing which we most want them to do, getting on with the Doha Round. So there is indeed, amongst those who make the decisions, a misindentification.

    Specifically with the Easterly paper, a similar thing is true. Whatever Sachs says in academic papers what we’ve ended up with in the MDG and so on is a plan to solve a poverty gap. Which as Easterly states, isn’t the problem.

    My problem with all of these things is reasonably simple. You want aid at almost any cost because you are convinced that almost any aid will help alleviate poverty and suffering. Can’t blame you for that thought, although I would remind you of something you said a few weeks ago, that bureaucrats like yourself tend to have a small stock of answers to all questions. I’m not surprised that someone who administers government aid (when not on sabbatical) thinks that government aid is a suitable gift for all occasions.

    Do I oppose aid? No, of course not. Do I oppose (sometimes) the call for more IDA? Yes, because there are many things to which I think that is not the solution. I tend to think that there is only so much political capital to go round, what gets spent on one aspect of a problem cannot be spent on other aspects of it. There’s been a huge amount invested in getting the G8 to commit to the Sachs plan. That same effort, if expended on the Doha Round, would have brought (I think anyway) greater benefits. And I don’t think we could have both, for people now think, with the aid question sorted, that this is a problem solved. So we can’t go back and say, right farmers, you’re screwed, we need to save the poor, because everyone already thinks the poor are saved (however true or not that may be….and I hope I’m proved wrong by a successful conclusion to the Round).

    I’ve banged on in various places about the value of competetive telecoms markets (You said this was dificult as monopolies were a major source of hard currency…..why several private sector companies would be less of a source, assuming a floating exchange rate, I’m not sure.) because they seem to be one of these obvious things that don’t require financial aid, just the provision of knowledge. If it really is true that a rise in 10 per 100 with mobiles increases GDP growth by 0.6% (and it seems a robust result) then why isn’t every aid bureaucrat telling every government that fact?

    The question you asked me by email, should there be aid and trade, or trade first and only then aid no, I’m not (whatever impression I’ve given) stating that either only trade or no aid until we and they have refomed trade. Send the cheques by all means.

    No, what I want is for the debate to proceed in that manner, for people to think about these things in the correct order.
    What’s the best thing we can do for the poor? Open out markets. Good, let’s go do that. What’s the next thing? They should open theirs. Fine, let’s try to convince them of that. If they don’t want to believe us, fine. Their loss.
    The only time (except in rhetoric) that I would want there not to be aid as well, going on in the background while we do this, is if some of that aid stops people from doing the better things that should be done. I can think of at least three ways in which this might happen.

    1) Western protectionsists stating that we don’t need to do anything because Mr. Sach’s lovely plan is going to solve the problem.
    2)Third World protectionists (including such as Christian Aid) thinking that opening their markets is not necessary or even not desirable as the lovely aid plan is going to solve the problem
    3) Aid supporting a regime which without it would be developing better governance (which as the Easterly paper shows, is the real problem). Mobutu is an old example of this but I’m sure we could find a more up to date one. (Chavez offering cheap oil to Castro perhaps?)

    In short, my opposition to the rhetoric of “more aid now” is just that, opposition to the rhetoric. Spend money, by all means. But do it in the background and save the rhetoric for the important things, like trade. I’m perfectly happy for Hilary Benn to spend 0.7% of GDP on aid as long as Gordon Brwon and whichever twit is currently agrictulture minister are screaming in rage at the EU to abolish the zollverein.

  2. “There is very widespread agreement, supported by evidence, that aid is effective in promoting sustained economic growth, as well as directly alleviating the effects of poverty in the short term. Far from “throwing money at it in a way that we know is incorrrect”, we have clear evidence that aid expenditure is one of the most productive investments of funds that we know of, yielding higher returns than other public or private investments.”

    Bill Easterly appears less convinced than you are of that. From the paper:

    “We can check further on some of the intermediate steps in the Big Push. Sachs said that large aid increases would finance “…a ‘big push’ in public investments to produce a rapid “step” increase in Africa’s underlying productivity, both rural and urban.” Over 1970-94, there is good data on public investment for 22 African countries. These countries’ governments spent $342 billion on public investment. The donors gave these same countries’ governments $187 billion in aid over this period. Unfortunately, the corresponding “step” increase in productivity, measured as per capita growth over this period, was zero.”

    Maybe there’s some nuance I haven’t quite got there but that really doesn’t look like a ringing endoresment of IDA.

    I do have one suggestion though. As you work with Easterly, why don’t you go ask him what he really means in hte paper?

    Owen replies: Tim: thank you for these comments. Together they form a much more balanced and nuanced position than the one you take in your original post.

    We seem to agree on quite a bit of this. I would say that our main disagreement is on the extent to which arguing for more aid uses up scarce political capital which could be used to secure trade reforms. The UK Government has not been ignoring trade – the top three priorities for 2005 were trade, aid and debt. But it recognised that trade would have to be addressed in Hong Kong, not Gleneagles, as part of the WTO process. In some ways, this separation between aid and trade may be helpful, as it enables us to put pressure on both, and prevent the kind of trade-off you fear. Not only do I not think there is a trade-off, I think they are complementary.

    I quibble with some details of your comments:

    • They did not, at Gleneagles, agree to a step change in aid. They didn’t increase aid at all, as far as I can tell.
    • I am not convinced that “almost any aid will help alleviate poverty and suffering”. But I am convinced that on average it does. I would like to see aid given much, much better, so that it saves even more lives and creates even more growth.
    • You are right that, as a bureaucrat, I work (or am on sabbatical from) an organisation that delivers aid, so you might think I have an interest in arguing for it. But we bureaucrats are wily folk, and if aid disappeared tomorrow, we would have no difficulty finding other stuff to do! Seriously, much of what DFID does now is to do with policies on trade, conflict, corruption, governance … and quite a bit of this is just as interesting and rewarding as managing aid projects. Furthermore, I argue for giving aid in ways which is much less onerous for donor and recipient (ie employs fewer bureaucrats) – which suggests that I am not wholly motivated by keeping myself in work.
    • I haven’t looked at the study on mobile phones and growth which the Economist quoted; I would be surprised if these were not correlated but also surprised if the studies can show robustly which way the causation goes.
    • On telecoms: I have no hesitation in recommending telecom liberalisation to anyone that will listen. I agree that there is the prospect of larger revenues from growing, prosperous private companies in the future than from state-owned telephone companies today. But there will be a trough in revenues between the liberalisation and those (likely but uncertain) benefits materialising. For a government that is constrained in liquidity and access to foreign currency, there is no easy way to get from here to there. We the donors should be giving aid to help them to make this transition. (And supporting governments that want to invest in other reforms that are expensive in the short term but beneficial in the long run.)
    • Like you, I’m worried about aid which supports bad regimes and delays governance reforms. We largely kicked the habit after the Berlin Wall came down, though we seem to be being drawn back to giving aid for strategic reasons in the so-called Global War on Terrorism (eg increasing aid to Pakistan). I’m also against giving aid to badly governed countries because there are so many well-governed countries that could use more aid well. Countries like Mali, Senegal and Tanzania, which are reasonably well governed, could quite easily use a LOT more aid.
    • Bill’s opposition is to “The Big Push”, not to aid in general.

    Owen

  3. ” They did not, at Gleneagles, agree to a step change in aid. They didn’t increase aid at all, as far as I can tell.”

    I agree that that’s the way it looks now, after we’ve unravelled the double counting etc. But that is what they said they were doing, especially with G. Brown’s IFF. (Which I know you are not all that happy with anyway.)

Leave a Reply

Your email address will not be published. Required fields are marked *

Published by

Owen Barder

Owen is Senior Fellow and Director for Europe at the Center for Global Development and a Visiting Professor in Practice at the London School of Economics. Owen was a civil servant for a quarter of a century, working in Number 10, the Treasury and the Department for International Development. Owen hosts the Development Drums podcast, and is the author Running for Fitness, the book and website. Owen is on Twitter and