Ropey use of picture editor notwithstanding…

Here at Aid Thoughts, we tend to be on the cynical side of of the ‘blind optimism/dead-eyed cynicism’ divide that cleaves the development world (and there was a time when my professional responsibilities would not have prevented me from aiming a sharp, angry jab at certain famous development economists at this point).  One thing, though, that we have never disputed the value of, is having good, clever, questioning but ultimately hopeful people working day and night at unpicking all the difficult questions that we have to deal with on a daily basis.

So, it’s a pretty good thing that those four adjectives would be the first ones I choose when asked to describe Matt (well, okay, they’d come after ‘geek’ and ‘awesome’, but then they’re normally taken as read with him). So given that he’s got just 8 days before he submits his dphil and embarks on what will no doubt be a brilliant career, I’ve returned for one more Aid Thoughts post with a simple message for a change:

Matt, kick ass in your dphil and get a real job, you loafer. More people like you are needed.

Obscure Causality

"I knew something was obstructing the fish's breathing..."

I’m currently on the shelf, waiting for my new job to start, and I’ve been filling the time doing a lot of reading. Mainly fiction from developing countries (which sometimes tell us quite a lot about the process of development), but I’ve also been re-reading David Landes’ The Wealth and Poverty of Nations, in which he looks at why the West is so wealthy through historical analysis. To sum up a five hundred page book in a few sentences, his argument is: the West had better natural endowments, and learnt respect for property rights earlier and better than other countries, which when coupled with an innovative impulse in Judeo-Christian societies lacking in others, ensured that it pulled away from other regions early and decisively. He is absolutely adamant that ‘for the last thousand years, Europe (the West) has been the prime mover in development and modernity’.

Consensus among historians now is that Landes’ argument is, not to put too fine a point on it, wrong in a number of aspects. Most centrally, his claim that Europe has been the world leader for one thousand years has taken heavy knocks of late. Kenneth Pomeranz’ The Great Divergence was the big counterargument, suggesting that ‘European exceptionalism’ emerges much later, perhaps in the 18th Century or even a little after this. This squares very much with the view taken by those historians who have taken the widest and most comprehensive view of the emergence of the world we live in, Chris Bayly and Victor Lieberman (of whose book I’ve only read the introduction – the other couple of thousand pages will have to wait).

Despite covering a period 500 or so years ago, this argument actually has great relevance for the modern business of development and moving people out of poverty. Though the bulk of historians suggest European dominance in the world economy happens late, there is a strong argument that those things that would eventually allow Europe to pull ahead of the rest start to emerge a couple of centuries before economic development truly accelerates away.

These characteristics and advances that would propel growth include property rights and innovation as specified by Landes, but also encompassing military organization and capacity, the emergence of maritime expeditions (which would lead to extraction of resources and the mercantilist system), and the development of credit and banking services, as well as new forms of ownership and patterns of landholding This is a really important point: the motors of development took around 200 years or more to interact and whir into action for the first-movers in modern development processes. Later developers also show a long lead-in for development: Japan since the Meiji Restoration in 1868 after which changes widely held to be important preconditions for the emergence of Japan as economic power in the 20th Century were introduced.

Why is this important? It raises the possibility that the time scales we’re talking about in modern development might be completely out of proportion to the those that historical development processes have taken, because we’ve been so engaged with proximate causes of transformation rather than underlying ones. I’m not suggesting that all development processes will and should take 200 years. Far from it – you would expect first movers to take far longer catch-up nations for a number of reasons, and we know much more about economies and care much more about generalizing economic development than at any stage before in human history. That said, of we accept that underlying causes of development operate over very long time frames, there are important implications for development thinking.

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A Couple of Provocative Thoughts

Don't provoke him. You wouldn't like him when he's angry.

A few weeks ago, Nick Eubank wrote a piece about Somaliland in the Guardian’s Poverty Matters blog. Somaliland is an interesting one – it’s a state that is not officially recognized and therefore in receipt of less aid than would be expected (though it is incorrect to assert, as he does, that it receives no foreign aid), but is performing well above reasonable expectations. They have a pretty well-functioning democracy, biometric passports – like Lee, I still can’t get over this – and pretty good economic performance.

Eubank suggests that it’s the very lack of aid and subsequent development of tax structures that has led to Somaliland’s good performance, a view to which I have some sympathy. I’ve written in the past about why developing taxation systems is crucially important for all developing countries and why it tends to be difficult. If a side-effect of Somaliland’s lack of access to aid is being forced to be more representative and more developmental, could there possibly be a benefit to restricting rather than increasing aid volumes?

It’s a provocative idea, because it flies in the face of almost everything we’re led to believe about development and levels of development funding, but as a thought experiment, it’s worth considering. It would be likely to yield specific benefits:

  • Most obviously, it incentivizes the creation of a viable tax regime with the benefits of accountability, representation and responsiveness that issue from one
  • It also creates far more pressure to achieve concrete and valuable results than any system of performance assessment – strictly limited aid volumes makes failure far more costly
  • Ownership would take a big boost. The biggest boon to local ownership of the aid agenda would be the ability and necessity to refuse aid packages that are not wanted. If bad aid or aid out of line with the local development vision replaces good aid, the incentive to exercise ownership of the agenda and refuse the aid is that much higher
  • A limited volume of aid would mean that the limited management capacity of local institutions is not stretched over hundreds of projects and programmes (as is the case now), but focused on a few tightly prioritized programmes, with consequent benefits for implementation.

Offsetting these benefits is the obvious drawback that much of what needs to be done could not be financed with a strict aid ceiling. The value of the thought experiment is not to assess whether we should cap aid, but to see what benefits it would bring so we can work out how to generate these benefits without limiting aid volumes. The hardest two to incentivize without some resource constraint are the improved ownership (which really requires that local institutions to refuse aid far more than they actually do) and the management effects. Suggestions welcome.

Staying in the region, Chris Blattman also linked to a paper suggesting that Somalia was better off without a state. While the writer of the original paper seems to be a libertarian (and somehow the headline ‘Libertarian Dislikes Government’ isn’t all that shocking), it does make an interesting basic point: the correct counterfactual when we consider poorly governed or chaotic states is not a ‘good’ Government, but a ‘different’ one. This is something to bear in mind when we consider countries with corrupt, dictatorial or ineffectual Governments. Very often it’s not the specific leadership or political party that is at the root of bad governance or decline, but the structural characteristics of their rule: their relationship with the opposition, their relationships with the public, their ability to govern effectively and the options open to them. In very different contexts I’ve argued this for Malawi and Zimbabwe. In Malawi, the same leadership was fine in one political context and dictatorial in another. In Zimbabwe, the temptation to lay all blame at the feet of a very convenient (and abhorrent) villain blinds many to the complex roots of his crimes and Zimbabwe’s decline. The saddest thing is that this point is often neglected even by immensely powerful decision makers – the invasions of Afghanistan and Iraq both show marks of this error.

Going back to the original article, is there a case to be made for statelessness when the Government is predatory? The argument is strongest in the static view, comparing a bad state and statelessness. The more dynamic the view taken, where we consider how tyrannical or corrupt regimes can become effective ones, the less this view makes sense, though it’s also true that plenty of tyrannical regimes didn’t evolve but were overthrown. Again, the thought experiment of whether some developing countries would be better off stateless is most valuable in focusing our attention on the long term needs and real dynamics of state building – not just in terms of building institutions but understanding how bad or predatory institutions can evolve into good ones. It’s happened in many countries, and links back to the questions of accountability, representation and taxation discussed above.

A Little Too Idealized

Anyone remember the ending of Pleasantville?

Lee, who is a big proponent of direct cash transfers, has suggested that the erosion of Direct Budget Support might not be such a bad thing. He says:

Cash-on-delivery is a close relative of budget support, but it does even more for empowerment and respect, as it manages to do away with all the process conditionality required for budget support, by paying only for results. No need to worry about PFM systems. Either the government delivers for its people, or it doesn’t, no need for us tell them how to do it.

Cash transfers to individuals goes one step further from respect and empowerment for developing country governments, to respect and empowerment for poor individuals. It seem so obvious, when our goal is to make poor people less poor, to just give them the cash, especially when it is feasible at low overheads (see GiveDirectly) and globally affordable (see Charles Kenny).

He goes on to say:

So for just one hundred dollars a year each we could eradicate extreme poverty.

(emphasis in the original).

Lee’s point is that new aid mechanisms might be more valuable than traditional modes of support, but he idealises his preferred mechanisms beyond reason.

Firstly, cash-on-delivery aid is in and of itself a massive and binding conditionality. If the deliverables are all in easily measured sectors, such as health, or education, or in big donor concern areas like governance, all COD does is make all aid conditional on achievement in these areas. It’s very likely that COD will wind up being associated with far more stringent conditionality than budget support or any other method of disbursing aid to date, where conditionality is weaker and negotiated across a range of issues with developing country Governments. Just as current GBS systems serve to distort local priorities towards those that donors want to reward, so will COD – but much more directly. If anything, it seems less founded on trust and respect than a standard GBS system with a performance assessment framework.

Secondly, Lee’s assessment of direct cash transfers makes the implicit assumption that all long-term constraints to economic development are either found at the individual level or can be solved by atomized action by individuals, thereby making further implicit assumptions about the transactions costs to joint action by individuals. Basically this suggests that a direct payment to individuals will solve all of the causes of poverty, which puts enormous faith in the market to provide education, health, security and other goods that have in no country in the world been provided effectively in their entirety by private enterprise.

The final statement is basically suggesting that the solution to world poverty is a permanent system of handouts, which I doubt anyone really sees as an ideal solution. If we decide this is the only thing for it, it’s a profoundly pessimistic conclusion, one for which I see little evidence – plenty of countries have escaped poverty without permanent subsidization from the world’s rich.

I’m not suggesting that COD or cash transfers should be discounted – both will probably form part of a good balance of aid modalities – but the suggestion that traditional forms of aid can be entirely replaced by them, before any unambiguous evidence suggests this is a little hyperbolic.

What Now?

"What now? Let me tell you what now. I'mma call a couple of hard, pipe-hitting development economists ..."

In an e-mail exchange, Matt and I agreed that there haven’t been any really interesting and engaging development debates recently: this has been one reason (among many) for our recent relative silence. It’s worth looking at this calming of the intellectual waters around development a little further. There are a couple of interesting points about the way in which the debates have died down.

The first point to notice is that the debates have not died down because any kind of consensus has been reached. Bill Easterly and Jeffrey Sachs are not running down the beach hand in hand, singing about sunshine and Millennium Villages; nor is Dambisa Moyo finding support from, well, anyone. Debates have died down precisely because the prime movers in them have been so intellectually intransigent. Sachs has refused to address in any systematic way the myriad issues with his ‘big push writ small’ model; and Easterly continues to maintain a largely false dichotomy between planners and searchers; likewise, Dambisa Moyo (and her more considered fellow aid critics) did not precipitate a retrenchment of aid policy – though the pre-existing value for money and ‘beyond aid’ agendas became better defined and became more prominent.

This is worrying. For our thinking to progress, we generally need either a process of intellectual creative destruction – whereby new ideas replace old ones they render obsolete – or a process of refinement and ‘bargaining’ between different ideological camps to generate a more nuanced approach to development theory. Right now neither of these seems to be happening. The main intellectual debates about how development should proceed have been deadlocked (with the exception of a few of the more thoughtful writers), and while the critiques of whether aid or non-aid methods of development assistance should be used has progressed, this is really about the means of implementing policy visions rather than the visions themselves.

This has caused three problems that I can see. Firstly, there’s a lack of coherence in current development policy; some policies based on a libertarian ‘searchers’ agenda (unconditional cash transfers to individuals for example) are pursued and assessed on a micro-level basis, coexisting alongside interventionist social-level policies, potentially compromising both broad approaches. This is not to say the correct approach would not incorporate elements of both, but that this should be by design and not because two camps are pushing their own agenda irrespective of the bigger picture.

Secondly, the failure of the different development agendas to find a common ground or even to respond effectively to each other has led to stasis in the generation of new ideas. The big thinkers and big ideas are so far apart from each other, and so fundamentally opposed, it seems that they are not being forced to reassess their own positions. This manifests in a shortage of new ‘big question’ thinking about development. This might not be such a bad thing – big question thinking hasn’t provided any unambiguous solutions and there might not be any grand theory of development, but the constant search for them has been strengthening our understanding, despite the imperfections of each one.

The third problem with the current development discourse that I see is that for the first time in my memory, the issue dominating the field is not a theory or an idea, but a research method: randomized evaluation. There has been some excellent writing about RCTs (the Development Impact blog is easily the best thing to happen to the blogosphere in the last year or two), but it is curious that more debates spring up about how well they can provide generalizable conclusions than about the kinds of intervention they are assessing. It’s symptomatic of an ever-increasing dominance of a micro-approach to development interventions, which has many benefits, but does not contribute enormously to discussion of the optimal array of interventions and sequencing issues. It is also ill-suited to assessment of macroeconomic issues and policies.

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Property Righteous

GET OFF MY PROPERTY!

I was skimming through one of my history books recently, and was struck once again by how much more circumspection they afford to the creation of property rights than the majority of economics and development texts that deal with them. There’s a strong strain in development thinking to the effect that fixing property rights is a necessary precursor to both economic development and economic justice. This comes up in work on fragile states and on non-conflict affected areas, with the strong implication that it’s not only necessary for economic development, but that it reflects a kind of moral progress for society.

There’s absolutely no doubt that there is a correlation between the existence of property rights and the onset or acceleration of economic development, a fact that has been long recognized by historians (indeed, one of the principal benefits to economic development brought by colonization on the Indian subcontinent was the association of property rights with legal structures able to sustain and enforce them). Having said this, though, there’s need to provide a little subtlety in the analysis of property rights by acknowledging some of the complexity in how they emerge and the mechanisms through which they impact on economic growth and social stability.

Perhaps the first misconception we need to shake a little relates to the presumed moral dimension of property rights. The recognition of property and rights to it is generally assumed to be a socially progressive step in the development of a society. Historically, this has rarely been the case; it has been a developmental step, but the establishment of mechanisms through which property can be formally claimed and protected through the coercive power of the state have usually followed land grab, asset seizure and similar means of regressive redistribution. Most commonly a powerful elite or group of elites seizes land by force and then uses its influence and financial clout to ensure legal ratification of its actions and protection of the assets and land seized. The classic example of this is the enclosures movement in England. Property rights, when domestically generated through internal demand systems, tend to come when one group has gained contested property and needs protection; when there is a social consensus of what property is and when the existing distribution of it is seen as just, property rights are lower on the agenda.

Following this thought a little, it also becomes apparent that the timing of the creation of property rights matters a great deal. If property rights are formalized after the redistributive process described above, they can be an important means of stimulating capitalism by creating a distinct classes of landowners or asset holders and landless or asset-less workers. This disjunct lies at the root of the capitalist/industrial transformation, as it sets up the system of capital applied to wage labour, creating the incentive structure that powers the extraordinary innovative impulse and dynamism that we find in modern economies. If, however, property rights are formalized rigidly early they can greatly reduce the possibility of accumulation, while protecting the rights of those less-powerful citizens; yet capitalism is based on just this accumulation.

This dilemma then brings us to a further subtlety often overlooked in discussions of property rights: that a central characteristic of property regimes must be flexibility. With flexibility, it becomes possible to facilitate the accumulation that at some stage must occur for the development of capitalism while maintaining a level of protection (and compensation) for those who must inevitably be losers in this process. This can soften the economic transitions that capitalism begets, but may also slow the process: a trade off that each society needs to assess for itself.

Finally, property rights might have some claim to universality as a concept, but as Hernando de Soto has shown, different societies have vastly different conceptions of what property is and how it should be recognized – something that policy on property rights rarely recognizes. International organisations are keen on transposing western property systems onto new areas, but the reality is the way in which property is codified and transferred differs quite greatly between different countries, even in the West, and in particular the ways in which property rights evolved in each country was dramatically different.

So what am I saying? Property rights are far more complex than simply being ‘a good thing’ that ‘must be prioritized for economic development’. We need to think much more sharply about exactly when and how they should be formalized, the rules and mechanisms that should be associated with them, how to match them to specific local conceptions of property and its transmission between owners. Economic development and transformation will not be the only criteria in this: social and political stability will matter as well. In short, property rights should be dealt with as a practical issue and not an abstraction.

In the midst of a bigger issue, some odd wording

The Guardian (via Reuters) is reporting on the demonstrations in Malawi. While the political issues that underly the demonstrations deserve their own post, I noted some odd wording in Reuters’ assessment of Malawi’s recent performance:

The outburst of public anger … was directed mainly at Mutharika, a former World Bank economist who was first elected in 2004 and has presided over six years of high-pace but aid-funded economic growth.

The freeze has left a yawning hole in the budget of a country that has relied on handouts for 40% of its revenues…

If we take this at face value, and assume that Malawi’s economic growth was ‘aid-funded’ (as opposed to aid-accelerated or aid-independent), is this a bad thing? It seems that Reuters is devaluing the economic growth because it has taken advantage of external assistance, but surely if the economic growth effect of aid is greater than the volume of aid, implying some kind of multiplicative effect of aid on growth in Malawi, this is a positive. It tells us that aid can indeed improve economic performance and contribute to growth, something that most aid workers and thinkers are deeply unsure of. The statement on Malawi’s ‘reliance on handouts’ also strikes me as a little disingenuous. A little digging by the staff would have shown them that while 40% of the budget surely constitutes aid dependency, this isn’t particularly high for the region, especially considering that Malawi gets almost all of it’s aid on budget, unlike most of its neighbours, and thus has a more accurate estimate of aid dependency than others countries, for whom estimates are almost universally biased downwards. I have seen incomplete estimates of aid dependency as high as 60%.

It seems to me that of all the criticisms we might wish to make of Malawi and its economic management, turning aid into growth and accurately assessing a not-astronomical aid dependency ratio should be very, very low on the list.

Tomorrow Morning I Will Not Wake Up on the African Continent

It’s been a quiet few weeks for me: no lengthy, geeky rants have been going up here, though I’m still spewing them forth in conversation. The main reason for this is that I’ve been preparing to leave my post in Zanzibar to take up a job in the greyer pastures of England – personal and professional reasons – and so have been incredibly busy. Today I put in my last day at work, and will be flying out in a few hours. I’ve lived in Africa (mainly Eastern and Southern) for six years, so this feels like the end of an era. I very rarely write anything personal on Aid Thoughts, but I couldn’t let the occasion pass without some reflections on what have been the most important and transformative years of my life.

There’s a lot that I will not miss about living in this part of the world: frequent power cuts, fuel shortages, political shenanigans and repression; smug and culturally insensitive foreigners (aid workers, diplomats, businesspeople and tourists are all sometimes to be found here – I also make occasional inadvertent trips to this territory), mzungu prices, distance from friends and family, the lack of anonymity. But I don’t want to dwell on those things just now. I would rather think about the things I love and will miss about life here.

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On Rationality and Information

So, which is it?

No matter how desirable the proposed changes or how apparently uncontroversial, it takes very little to frighten an electorate. People are easily persuaded that they won’t be able to understand the technicalities. When in doubt, they vote for the status quo.

This is the historian Ross McKibbin writing in the London Review of Books about constitutional referendum in Australia, in the context of an article about the Liberal Democrats many failures in the coalition Government, including electoral reform.

I noticed the chaps over at Development Impact have recently had a couple of occasions recently to ask the $100 dollar bill question – if a reform is so good for a person or business, why wasn’t it done before we came and did a study and pilot of it? McKibbin touches on the answer. It’s not simple risk aversion; it’s a profound uncertainty among many people as to the level of their own technical understanding of issues, especially complex issues, one which is massively increased when two distinct sources of authority are campaigning in opposite directions. Imperfect knowledge of one’s own imperfect knowledge, to get Rumsfeldian.

It’s not unusual for an economist or hard-scientist to end an argument with clever people from other fields with a sentence that begins with the words ‘studies/experiments have demonstrated that …’ and ends with ‘of course, with a p-value of 0.01’, despite not being all that much more certain of their ground than their discussant. A rational decision depends not only on rationality and information, but on ability to process information and the range and vehemence of contrasting opinions. This is something we should bear in mind when we engage in our arguments on development policies; we often present extreme versions of our views in a ‘haggling’ approach to compromise. This might actually make decision making much harder than starting from a softer representation of what we know, doubts and all.

Dissing Development and Economics, Guardian Edition

"Gah! Bad Economics! Bad!"

The Guardian has produced one of those ‘we’re desperate for hits, so lets troll a little’ lists it’s so fond of, this time selecting the 100 Greatest Non-Fiction Books of all time. Though apparently selected by a blind man throwing darts in a library, there are some superb works in there – It’s nice to see EP Thompson and Eric Hobsbawm, though decidedly unsurprising.

What did jolt me a little was this: there is not a single book about development nor about economics in the entire list. They have one by Achebe (his famous The Image of Africa, which attacked Heart of Darkness and Conrad himself for racism), and they have We Wish To Inform You That Tomorrow We Will Be Killed With Our Families, Philip Gourevitch’s excellent account of the genocide in Rwanda, but that’s it. The economics omission is sad, but unsurprising, given the poor quality of the Guardian’s economics writing in general; the lack of a single real development tome is astonishing, what with it’s high profile International Development blog and constant articles by impressive development thinkers.

No Das Kapital? No Wealth of Nations? Development as Freedom? Africans? Mystery of Capital? The General Theory? Asia’s Next Giant?

Some previous recommendations from me here and here. Please add in the comments any development or economics works that you think should have made it in.