Aid Thoughts

Digesting the difficult decisions of development

The Prisoner’s Dilemma and the Power of Ideas

Feb 6

Posted by Ranil Dissanayake in Uncategorized | 2 Comments

A friend of mine has lent me an old copy of the London Review of Books (December 2008 – such are the luxuries of an island paradise). Part of a letter it published caught my attention:

This is what I remember [Chistopher Isherwood] saying about Klaus Mann:

‘Klaus was in despair, always, but in the 1940s, during the days of the Stockholm Peace Pledge, he and many other famous European intellectuals and artists set up a plan for all of them – in protest against the development of atomic bombs – to create and sign a document of protest in which they would declare their agreement to kill themselves on a certain specific date. This mass suicide of artists and intellectuals would draw attention in all the news media all around the world and the impact would bring peace for ever’

It turned out that Klaus Mann was the only one of those who had pledged to kill themselves on the set date who did kill himself on that date. His death received little attention anywhere.

Economists will recognise the pledge made by Mann and his fellow (apparently exceedingly optimistic) intellectuals and artists as a version of the Prisoner’s Dilemma. It appears as if each of the people involved welshed on the promise to kill themselves in the hope that enough of the others would still do so to bring about their desired outcome, namely unilateral disarmament of nuclear capabilities.

What interests me is why Klaus Mann didn’t do the same. I think it has something to do with the power of an idea to motivate action, even when it appears to fly in the face of rationality. Resistance movements very often are characterised by this: think of the Maji Maji rebellion, for example, or John Chilembwe’s rising in Malawi. These were resistance actions that were objectively almost certain to fail (as they did). Still, many gave their lives in support of them. This isn’t something economics deals with very well, which is why, for all the proliferation of economists dealing with conflict, we should never let go of the importance of historical and sociological analysis of motivation.

Drop Haiti’s debt? Why lend in the first place?

Feb 4

Posted by Ranil Dissanayake in Aid, Economics, Worst practices | No Comments

My friend Dan has written a really interesting piece for the HuffPo on the incentives for lending to poor countries.

From the donor perspective, he points out that a loan spread out over a long period allows donors to provide more in nominal terms than a one-off or shorter term donation in the form of a grant. What’s more:

Governments in rich countries liked this arrangement [lending], too, as it seemed to suggest that the poor countries could become responsible citizens in the global economy, receiving credit rather than just handouts.

From the point of view of the borrowing Government, the incentives are relatively clear:

… the chances may be pretty low that 1) the same government will be around when the loan needs to be repaid and/or 2) the government will actually be able to repay it. So, for the current government, there is much more incentive to take the loan — it’s another $17 million [in the example he cites] to play with, with almost no strings attached.

Dan makes the very important point that while debt relief or cancellation is a one-off benefit, it does nothing to change the underlying incentives that make lending an attractive option to so many development actors.

I was in Malawi when the Government reached the HIPC Completion Point, which qualified them for major debt relief and cancellation. In addition to the reduced burden of interest payments, the other major benefit that allowed the Government was increased flexibility in borrowing – the IMF would allow them to borrow more per year, on slightly worse terms. While the technocrats in Government were committed to maintaining prudence in its borrowing practices by setting internal ceilings on borrowing and undertaking stringent Debt Sustainability Analyses regularly as in much of Sub-Saharan Africa, what the President or Minister says, goes. And that may mean compromising these principles.

In the first post-HIPC years, initial indications seem to be that developing country Governments are sliding slowly back into unsustainable debt. I’ve spoken about incentives before, and I continue to hold that until we address the incentives at work in the development system, many of the worst problems we encounter will prove resilient to our attempts to change them.

Tags: ,

Nor any drop to drink

Feb 2

Posted by Matt in Africa | 4 Comments

When the public provision of a clean environment is lacking, the private sector usually moves in with less-than-ideal alternatives.

When the public provision of a clean environment is lacking, the private sector usually moves in with imperfect alternatives.

From Rachel Strohm’s twitter feed: Forbes lists ranks the the world’s most polluted cities – most of them are in Africa.

Dar es Salaam (where I am at the moment) is ranked 12th!

The capital of this east African country continues to grow population-wise, putting a stress on the city’s sanitation programs. Solid waste, entering the Msimbazi River, contributes to widely spread infectious diseases among the population.

Yikes. I think it’s time to stop brushing my teeth with tap water.

Tags:

Ned Flanders goes to Haiti

Feb 2

Posted by Ranil Dissanayake in Worst practices | 3 Comments

Papa needs a brand new... orphan?

"Papa needs a brand new... orphan?"

I presume everyone has heard about the American church group who have been rounding up random kids in Haiti to adopt.

Has the effect of Brangelina and Madonna been to move adoption right up to the top of development responses? I am genuinely shocked. Many of these children apparently aren’t even orphans. What were they thinking?

“Whaddya mean you still have parents? You’re poor, aren’t you? There’s a collapsed building next to you. Bring your lying ass over here. We’re taking you to the Dominican Republic.”

They may also have slightly unrealistic expectations of Haitian jail conditions these days. A quote from the Grauniad article I linked above:

One of their lawyers said they were being treated poorly: “There is no air conditioning, no electricity. It is very disturbing,” Attorney Jorge Puello said by phone from the Dominican Republic, where the Baptists hoped to shelter the children in a rented beach hotel.

Dudes, you’re in jail. In Zanzibar I don’t have that stuff in my apartment *at all* anymore.

Tags: , ,

Media and the benefits of giving

Jan 31

Posted by Matt in Poverty porn | No Comments

ACooper_23G.jpg

I was in a gym yesterday on the Msasani peninsula, watching the news on a muted television, surrounded by over-pumped expats. An ad came up for a CNN special report to be aired that evening. The name?

Anderson Cooper Presents:

CNN Heroes: Saving Haiti

Tags:

Habari ya Umeme?

Jan 29

Posted by Ranil Dissanayake in Africa, Development | 3 Comments

Missing in action.

Missing in action.

Nipashe and its English-language sister publication, The Guardian, have reported a few facts about Zanzibar’s ongoing power outage, which I’ve blogged about before. The title of the piece in Swahili is ‘SMZ: Umeme unaikosesha serikali mapato kibao’, which basically translates to ‘RGoZ: Electricity is causing a huge loss of Government revenue’.

I can’t find the online versions of the article in either Swahili or English, but it basically takes a few indicative facts given out by the Minister of Finance about the economic impact of the ukosefu and uses them to illustrate the scale of the economic crisis engulfing Zanzibar at the moment. Highlights:

  • Telecommunications companies are hit particularly badly. Zantel, a local mobile services provider, has seen monthly revenues drop from TSh 6.7 billion (roughly US$ 5 million) to around Tsh 3 billion (largely because people are seeking to conserve their phone batteries by using them as little as possible, except in emergencies)
  • This has a knock-on effect on Government revenues. Zantel alone normally accounts for Tsh 465 million per month in VAT, an amount that is expected to fall significantly in response to this reduction in revenues (the maths doesn’t quite tally here, but I’m reporting the newspaper’s figures)
  • Zanzibar’s electrical company, ZECO, is contributing no VAT whatsoever to the Government’s revenue basket either, since it is unable to provide any electricity through the national grid at all. Its normal contribution is about Tsh 72 million per month
  • Trade and Industry is also suffering. Some factories have closed, and as a result, people have lost work.
  • Initial indications suggest that the Government alone is losing up to 30% of its revenues each month due to the outage.

There is no further comment in the article beyond what the Minister of Finance announced. However, a little more, from my reading of the situation:

  • The VAT issue is of major importance. I’ve pointed out before that countries with large informal sectors and poorly developed tax structures depend disproportionately on VAT to raise revenues. Reduced VAT is in the short-term sharply increasing aid dependency in a place that is already heavily aid dependent. What’s more, this reduces the scope for autonomous action by domestic actors
  • The reduction in Zantel’s revenue is likely to be replicated in direction (though not necessarily size) across the board in Zanzibar, as most people are finding basic necessities more expensive and spending less on everything other than essentials
  • Profits are doing even worse than revenues: whatever money you are making is coming at a higher average cost due to the expense of running generators in businesses not designed to be generator-dependent.
  • In addition to this, noises from people working in the sector suggest tourism is down significantly from the same period last year
  • On the sunny side of things, I’m assured that the closing of factories is likely to be temporary and the loss of jobs is closer to forced unpaid leave than mass layoffs

As someone who believes that development must be driven by the development and growth of domestic capitalism, it’s sobering news. With electricity hopefully to be restored at the end of February, we will be able to start calculating the precise cost of this outage (indeed, initial data collection has already started), and seeing what damage to the economy has been done and how it can be repaired. On the plus side, this has focused attention on the basic business environment and we must take this opportunity to improve it significantly once the immediate problems are resolved.

Tags: ,

Grameen Through the Looking Glass

Jan 28

Posted by Guest in Aid, Development, Political Economy | 1 Comment

grameen2

By Carmine Paolo de Salvo

In this guest post, I wish to focus on my direct experiences of a famous experiment in development, one which is meant to bring prosperity and progress to those that have never experienced it. I refer to the Grameen Bank in Bangladesh, and I am sure that the readers of this blog will know what the Grameen Bank is, so I don’t need to spend any time explaining it.

As with many people around the world, my interest in Grameen Bank was triggered by the award of the 2006 Nobel Peace Prize to it and to its founder, Dr. Muhammad Yunus. After reading “The Banker to the Poor” (Yunus’ bestselling autobiography) and finishing my studies, in September 2009 I went to the Grameen Bank headquarters in Dhaka, Bangladesh, to spend there a month as an intern.

What I want to do in this post is to compare briefly what I had read in Dr. Yunus’ book  and what I actually was able to see during my experience in Bangladesh. I honestly believe that in the book there is little that can be considered false, but, at the same time, the impression that Yunus gives of the Bank’s activities is, in some respects, misleading. My opinion, of course, is not based on any robust statistical evidence, but was rather built directly in the villages in which Grameen operates, among real people, notwithstanding the limiting but necessary presence of an interpreter (I’m not so fluent in Bangla, sorry!). I am not going to share my ideas on the classical critiques that are raised against microcredit (in particular the level of interest rates due to high management costs and the support it gives to a petty form of entrepreneurship, which many don’t consider helpful) because they are already well-known and it would take me too long to repeat them here. I will instead limit my comments to three points that caught my attention and on which I would be interested in hearing feedback from others with greater expertise in the field.

Read the rest of this entry »

Tags: , ,

From the files of the No. 1 Bumbling Aid Agency

Jan 26

Posted by Matt in Africa, Poverty porn | 1 Comment

A while ago Ranil took a pot shot at the No. 1 Ladies’ Detective Agency – accusing it of being patronising. Others are more worried about relatively rosy-picture McCall Smith paints of the continent.

This Is Africa (awfully named, but then again we’re called Aid Thoughts) has a wonderful suggestion for McCall’s next project – to satisfy those that prefer their vision of Africa dry and bleak:

Bowing to the criticism, McCall Smith announced plans for a new series, The No. 1 Malnourished AIDS Orphans Agency. This will be followed by a film adaptation of his unreleased novella, The No. 1 Brutal Kleptocrats Club, starring Don Cheadle.

Tags:

I don’t normally link things like this, but…

Jan 24

Posted by Ranil Dissanayake in Aid, Uncategorized | 2 Comments

Suddenly, my own contribution seems pathetically inadequate.

Tags: ,

Development as Anarchism?

Jan 22

Posted by Ranil Dissanayake in Development, History | 14 Comments

Continuing through the fantastic Hobsbawm book I’m currently reading, I was struck by the similarities between a current debate in development and one that Hobsbawm wrote about in the 1960s.

William Easterly conceives the battleground in development policy as a fight between ‘planners’ and ‘searchers’. He scorns the planners as blind men drawing and then following maps for terrain that can not be known. Searchers, on the other hand, are where hope lies. Without grand plans, they try; they fail. They try again. They fail better. Eventually they succeed. And eventually one of these successes lights a fuse for larger development, or all of these successes build upon each other until the economy is fully formed.

Easterly’s enemies are those who believe that the economy and economic development path can be planned. Ha-Joon Chang is one, believing that industrial policy is a central component of development success. Yet Easterly is definitely fair in maligning all planners, including those who ‘plan for markets’ by dismantling all vestiges of the pre-existing economy and its controls and letting the market do it’s magic.

This argument is oddly reminiscent of an older intellectual approach in a very different context. Anarchism historically sought to bring down Governments through constant, random, revolutionary acts. At least one, they felt, would eventually prove to be the spark of revolution. This approach contrasted with, for example, revolutionary socialists, for whom planned revolution was required to effect a change in the way the state was structured.

It’s not such a bizarre comparison to make – anarchism ran aground because its approach equated the failure of many planned revolutions to materialize with the bankruptcy of the planning approach, instead believing that random acts have a better chance of success. What this analysis failed to recognize was that these plans depended on the confluence of certain social, economic and political conditions. When they did not obtain, the plans would not come to fruition, or would fail when attempted. What this denotes is not the fundamental uselessness of the plan, but the reality that all plans must depend also on external factors. In other words, the conditions were not right for this plan to succeed; or this plan was not right for these conditions, but it was not the case that planning as an approach was inherently unsuccessful.

Anarchism attempted to remove the tyranny of circumstance. When an opportunity to act arose, it was taken. Very occasionally this led to massive social unrest, but most often it fizzled out because the opportunities were not built upon, precisely because concerted efforts require some level of planning. This is not to deny the importance of the ‘searchers’, those who act upon circumstance and build successes. They are central to success. It is simply to point out that their impact is maximized when set within a structure designed to do so.

In development, success is likely to be contingent on a wide array of conditions: is the government actively malignant, helpful or not such a strong influence one way or another? What are the natural resources available? Are there terms-of-trade trends that will influence macroeconomic conditions? What is the level of development in domestic capitalism? And so on and so on.

That plans often fail isn’t necessarily surprising. We need to consider all of these questions before we decide on either a plan that suits the circumstances or on an approach to change the circumstances till we can apply a reasonable plan. That this is difficult and will often fail should not be taken to mean something that it doesn’t. Trying to build on success as and when it is found is by no means more likely to succeed. In fact, in the knowledge that so much needs to change and so many efforts need to be coordinated, it rather seems that it is a more difficult approach, less likely to succeed; albeit one that is also less likely to fail outright simply because it doesn’t set for itself clear criteria by which it can be judged.

Skepticism of the grand plans is important. We need it to remind us that we must constantly prune our planning instincts and constantly assess conditions and plans that seek to exploit them. Yet planning itself should not rejected – the problems we deal with are too many and too interlinked to address without the coherence it can bring.

Tags: ,