Set a Big Goal. Give All to Meet It. This is Stupid.

The first two sentences come out of thousands of commencement addresses, not to mention inspirational foreign aid addresses. But they’re bad advice. Social entrepreneurs in foreign aid might learn from private sector entrepreneurs, who don’t stick to fixed goals.

A University of Illinois graduate moved to Silicon Valley with a great goal (perhaps inspired by the Illini commencement address) – develop security software for hot-selling handheld devices like the Palm Pilot. He assumed that enterprises were soon going to be using Palms as primary means of communication and sharing documents, and would need security to protect business secrets. “Any minute now, there’ll be millions of people begging for security on their handheld devices,” he thought. He was wrong – he never found a demand for handheld security software.

He could have kept trying to make his original idea work. Entrepreneurs that do stick to fixed goals are very good at least at one thing – wasting investors’ money. An idea for an online grocery startup, Webvan, managed to go through $1 billion before finally pulling the plug.

Illinois Man was different. He shifted to Plan B. Sell his cryptography software. Still no takers. We can skip over Plans C, D, and E, which all failed.

Plan F was a system for securely transferring cash from one Palm Pilot to another. He put a demo on the Internet so people could see how great it would be for Palm Pilots. People liked the web demo and started using it for real transactions, while the demand from Palm users still failed to materialize. eBay users started asking if they could put the web demo in their ads for people to pay them. There was no demand for the product, only for the web demo.

Illinois Man finally realized what might succeed. He forgot about Palm Pilots. Plan G was a system for making secure online payments for sites like eBay. His Plan G company was called PayPal, and his name was Max Levchin. eBay eventually bought PayPal for $1.5 billion. The story is from a new book by John Mullins and Randy Komisar, Getting to Plan B.

This principle translates to social entrepreneurship. Mohammed Yunus was trained as an irrigation economist. If he had stuck to fixed goals they would have involved irrigation. We would never of heard of him or of microcredit (at least until someone else without fixed goals came along).

Why is entrepreneurship so hard? It is always very uncertain what you can do well that the customers will want. Finding that sweet spot is a process of trial and error and gathering feedback. Research cited by Mullins and Komisar shows it takes 58 new product ideas to develop one successful product.

An even better book on this theme of searching for what works rather than sticking to the pre-conceived plan is Bill Duggan’s Strategic Intuition. Duggan uses a nice military analogy. Why was Napoleon such a successful general? Before Napoleon, military strategy was about how to take a fixed position from the enemy. Napoleon realized that the point of a war was to defeat the other army. He said, forget the targets, just keep the army moving relative to the other army until you are in the most advantageous position, then attack.

Of course, this advice about flexible goals might conflict with previous advice about specialization. Yes, you want to get the gains from specialization, but be flexible about what your specialization will produce for the customers. So you might be a health specialist, but which among many interventions that you could do will pay off? James Grant, a former director of UNICEF, knew he wanted to save children’s lives, but he was open to any way to do it. He and his staff stumbled on oral rehydration therapy, which has since saved millions of babies from dying from diarrheal diseases at a cost of about 12 cents per dose.

The economists’ version of this mentality is to keep doing and redoing your cost/benefit analysis. The rational next step is one with the highest ratio of benefits to costs. Many goals are set that ignore cost/benefit analysis altogether (Millennium Development Goals, for example). Other goals might be set with some vague notion of predicted costs and benefits, but these predictions are usually wrong. You have to be willing to adjust as benefits and costs turn out to be different that expected, and often shift to another activity altogether – Plans B,C,D,…Z.

Obviously the official aid world of MDG Plans and Poverty Reduction Strategy Papers does not have a clue about the entrepreneurship needed to solve problems.

Official aid doesn’t know how to operate in a world where most Problems are solved by entrepreneurs who originally intended to solve a DIFFERENT Problem. So it’s up to you private and social entrepreneurs.

Fake it till you make it

A new report slams the UK’s aid agency with accusations of spending money on “Fake Aid.” Produced by the London-based International Policy Network (IPN), “Fake Aid” casts a critical eye on the agency’s communications programming, finding that “increasing amounts of DfID funds are channeled through non-governmental organizations (NGOs) to fund lobbying activities, marketing and the promotion of political ideology, often within the UK.” The report uses DfID documents to show that the aid agency uses its communications budget to promote the human-rights based approach to development (which we have debated a number of times on this blog), intentionally crowding out other approaches. The budget for DfID’s communications programs has more than tripled since 2000, from £40 million in 2000 to £140 million in 2008.

Much of this money is spent through a group of NGOs—including Oxfam UK, Save the Children UK, ActionAid and Christian Aid—which receive unrestricted DfID funds thanks to long-standing relationships with the aid agency, rather than a competitive bidding process. According to a UK government audit document, open bidding was introduced after most of these organizations were already selected, and currently remains closed to new applicants.

DfID also lacks adequate information to judge whether the funds given to these organizations are appropriately spent, since reporting practices have been characterized by self-reported, inconsistent data, and a lack of external, independent evaluations, again according to a UK government audit and DfID annual reviews.

For example, over a five-year period, DfID faulted the Catholic Agency for Overseas Relief (CAFOD) for failing to provide “an overview of the progress and impact of the programme as a whole” and criticized them for measuring inputs rather than results, but still renewed their funding in 2008 for £13.8 million.

One organization funded by DfID persuaded the government of Gambia to ban all-inclusive package holidays, an outcome which seems to contradict the UK’s policy on trade and development to promote the private sector as an important driver of poverty reduction.

The effectiveness of another organization, both founded and entirely funded by DfID to “provide a forum for BME [black and ethnic minority] voluntary and community sector organizations and communities on issues relating to international development,” was challenged by an independent audit. The audit found that there was no working email address for almost half the group’s members, and that “there is a lack of clarity over the purpose of the organization.”

Despite these examples of poor practice, we would suggest a few points of disagreement with the conclusions in “Fake Aid”:

First, it is not unreasonable for DfID to spend money educating UK tax payers about what DfID does, or about international development issues, as the report implies. IPN calls this “propaganda” but doesn’t convincingly explain how “propaganda” is different from “making people aware of concepts that IPN happens to disagree with.”

Second, while £140 million is a sizable sum (enough for 230 million malaria treatments says IPN) it is still less than 3 percent of DfID’s total budget. In an industry with no consistent financial practices, it’s hard to say what is normal, but it would come as no surprise to find that most nonprofits, and most aid agencies, spend more than 3 percent on communications and publicity.

“Fake Aid” concludes: “As the total amount spent on these programs reaches the £1 billion mark, it is reasonable to ask whether they have improved the lives of people in poor countries.” It is a fair question. These programs may be an appropriate use of DfID funds, but the burden falls to DfID to prove it.

Industrial Policy Showdown at World Bank: the policy that may not exist also may not work

The World Bank’s PSD Blog has a good discussion of the debate last Monday between Justin Lin (Chief Economist of the World Bank), Ann Harrison (Head of trade policy division at the Bank and well-known trade economist), and myself (random trouble-maker). The debate was very civil, and I am very grateful to Justin Lin for being so willing to debate his ideas openly (as opposed say to a former Chief Economist who forced me to seek political asylum to escape his enforcers :>) The debate basically boiled down to who is more likely to discover the country’s comparative advantage, the government or decentralized entrepreneurs.

(1) the argument for the government

-- according to Ann Harrison, there could be “latent comparative advantage” in industries with increasing returns – i.e., falling unit costs the more is produced. In these industries, they don’t have a cost advantage now because they are not producing much, but if they produced more they would have lower costs. A government could promote an industry to turn latent into actual advantage.

--according to Justin Lin, the market can handle static efficiency, but can’t handle the transition from one stage of exporting to another, like from lighter to heavier industry. All the government needs to do is look ahead at those countries ahead of it on the technological ladder and promote the next rung on the ladder to find the country’s true comparative advantage.

(2) The argument for many decentralized entrepreneurs seeking the next Big Hit

--If it's so easy for governments to do it, why do we have no success stories of imitating East Asian tigers?

--Ann pointed out that we have little evidence of any actual government policies aimed at finding “latent comparative advantage.” Even deeper than whether industrial policy works is the question of whether it even exists in the real world.

--there are almost 3000 manufacturing products to choose from, so how much guidance does the government get from looking ahead at a very broadly defined “technological ladder?” Entrepreneurs discovered such surprising Big Hits as Fiji exporting women’s cotton suits to the US and Egyptian exports of ceramic toilets to Italy.

--the central government has limited knowledge, limited skills, no direct rewards for finding winners, and lots of problems with corruption (Lant Pritchett reminded me of a recent paper that documented that we can’t even trust Indian civil servants to give out drivers’ licenses) as it tries to pick winners. Entrepreneurs have lots of local knowledge about their industry, specialized skills in that industry, abundant rewards for success, and will not steal from themselves.

--much of the “evidence” that industrial policy “works” is selectively picked from a huge amount of random variation. It focuses almost entirely on industrial policy successes and doesn’t document the much more numerous failures.

In the end, the question boils down to: does a poor country government have a comparative advantage in discovering a poor country’s comparative advantage?

Smart rules and stupid outcomes: the Skip Gates teachable moment

This teachable moment is not only about race. It includes understanding why the Cambridge MA police department would arrest Skip Gates for breaking into his own home, and then continue to insist after a huge outcry that they did the right thing.

My guess is that Sergeant James Crowley was following an inflexible rule that you arrest anyone who shouts angrily at a cop. This may be a good general rule to identify dangerous persons, and having many such rules allows the department to cope with an enormous policing task with limited staff. The support that Sergeant Crowley attracted from other policeman elsewhere may reflect their sympathy with such rules (although the New York Times found wide variations in the extent to which this particular rule is followed).

All organizations have rules for their staff, whose purposes is saving on costs and staff time by prescribing routine responses to different situations. McDonalds makes a ton of money by having rules that can be implemented on a large scale by a relatively small and unskilled staff. As usual in economics, however, there are tradeoffs. Robotic rules may lead to stupid outcomes, outraging and driving away the customers.

I once had a customer service person insist that I could not return a bookcase because I had already opened the box. She admitted I had a valid reason for returning it -- that it was missing a crucial set of screws -- which I could only have discovered by opening the box. But no amount of argument could make her depart from the rule against open box returns. (After further persistence, I eventually got the company to give me the missing screws.)

So organizations choose rule policies that find the sweet spot trading off lower costs of inflexible rules against possibly even higher costs of outraging the customers with stupid outcomes. For private firms, the sweet spot is determined by supply and demand – consumers may be willing to put up with a small amount of stupid outcomes from rules that get them a cheaper product. So a rule is not automatically bad because it leads on a few occasions to a stupid result.

Obviously, the police rule in Gates’ case led to a stupid outcome. The question is what is the sweet spot for police departments? Public bureaucracies don’t respond directly to customer demand in finding their sweet spot, it’s politically determined. Since many of the suspect “customers” are poor and powerless, police departments likely choose to err on the side of sticking to the rules and putting up with the outraged suspects. And historically, they were more likely to perpetrate outrages on black suspects than on white suspects.

All of which suggests something more damning than stupid behavior by one policeman – it looks like the Cambridge, Massachusetts police department has chosen a sweet spot very easy on its own officers and very hard on its customers – and perhaps even harder on the black customers. This is morally and politically unacceptable; the Cambridge Police seem more insulated against democratic accountability than they should be.

Of course, there are a lot of parallels in unaccountable aid agencies. This blog has pointed out cases where USAID refuses to change even when outside critics point out egregious misbehavior. They follow the low-effort rule “just keep doing what you are already doing,” because the critics have little political power over them.

So perhaps as Obama, Gates, and Crowley share a Sam Adams, they can move beyond who said what and discuss making public bureaucracies more politically accountable to the citizens.

Don’t say colonialism! the debate on Paul Collier

Boston Review has a special issue on Paul Collier’s ideas about how the international community can help “the Bottom Billion,” with some commentators including myself. For the first time, Professor Collier responds to some of the criticisms I have made of his arguments, so this is a good opportunity to see if we can advance the debate.

First, I have to remind those who don’t like debates that they do play a constructive role. Psychologists have documented the phenomenon of “groupthink,” in which every member of a group believes something becauses every other member of the group believes it, often prodded by an authority figure. A dissenter is very useful even if the dissenter is WRONG and the group is RIGHT as a challenge to make them independently justify their arguments, not just echo each other. Of course, when groupthink is WRONG, then you need dissenters far more. Dissenters can even prevent plane crashes when “groupthink” in the cockpit goes in a bad direction! (see the discussion in the great book Sway)

Second, I congratulate Prof. Collier on his success in convincing many influential people of his arguments. However, such success does make it even more essential that his dissenters are answered. It is understandable that Prof. C is a bit impatient with the few remaining dissenters after his success at persuading Downing Street and Beltway think tanks; he keeps citing eminent authorities who agree with him; he classifies the two dissenters in this Boston Review issue – Berkeley Professor Edward Miguel and myself – as outside “the core of the serious range for policy discussion.”

It is also understandable that the busy professor has not had enough time to fully read up on the arguments against him, the more serious of which he ignores and the less serious of which he misunderstands. He ignores the evidence against his image of catastrophic economic growth lasting forever – so central to his Bottom Billion concept – instead, movement back towards world averages is characteristic of previously poor growth performers on average. And as Miguel pointed out, and Collier acknowledges, Africa has already moved back to average world economic growth since the new millennium.

Collier is also upset that I “grossly misrepresented” him by saying he had a “poverty trap” theory of the Bottom Billion. The usual notion of a poverty trap is that poverty causes something bad to happen, and then that something bad prevents growth out of poverty, so you are trapped. Prof. Collier says that “poverty” is one of the factors that makes “rebellion easy,” as well as military coups. And “even the possibility of war is enough to deter investment and stunt growth,” and the same with unpredictable coups. So the “something bad” is war or coups, which makes growth impossible. Collier’s argument actually fits perfectly the definition of “poverty trap.” However, let’s honor his wish to call it something else, perhaps a “an income deficiency snare.”

I have for too long been harping on how unreliable is the “data mining” apparently used by Collier. Collier knows that few outside academia care about these statistical problems, so he plays to his audience by asserting hidden motives: “behind expressions of statistical fastidiousness lurks a recognizable philosophical hostility to public action.” Once again the harried Prof. Collier did not have the time to read my “New Data, New Doubts” paper that he cites (which partially applied to Collier’s own earlier work on aid and growth), so he missed the point – if an old result disappears with new data, that is consistent with the original result coming from “data mining” on the old sample of data.

I was foolish enough to refer to Collier’s recommended policies as “colonialism,” which he deems “coarse thought, not statistical rigor.” Collier understandably paints me as the wild-eyed extremist, while he is the reasonable advocate for democratically sanctioned international peacekeepers. Let’s double check, just to be sure. The UN Security Council decides on military intervention (“peacekeepers”) or a Great Power does it on their own. Two of the Council’s permanent members are authoritarian, most of the Great Powers follow their own geo-strategic interests most of the time, and none of them have any democratic rights for Bottom Billion citizens to make Security Council or Great Power foreign policy decisions. (Small caveat: There never has existed or will exist a benevolent and politically neutral international force that will rapidly deploy to surgically solve Bottom Billion problems.) Yet the Great Powers will decide according to Collier’s proposals whether an “area or people” are allowed to have elections, whether the elections are legitimate when allowed, and when to send in the military (which, despite the nice “peacekeepers” label, are in a purely technical sense made up of soldiers carrying guns that are aimed at people.)

The dictionary definition of “colonialism” is “Control by one power over a dependent area or people.” I agree that permanent colonies are a thing of the past, but the above description sure sounded a lot like “control” of “a dependent area” by outside powers. Many may indeed think me way out of line to call Collier’s proposals by the inflammatory word “colonialism” just because of the technicality that they actually fit the definition of “colonialism.” But us dissenters will persist anyway because the Bottom Billion deserve better than control by a development expert with an army, they deserve democratic rights just as much as all the other Billions.

The Tipping Point: Fascinating but Mythological?

The “tipping point” is a popular concept covering a whole range of phenomena (and a best-selling book by Malcolm Gladwell) where individual behavior depends on the behavior of the herd.

Its original application was to racial segregation. Nobel Laureate Thomas Schelling developed a beautifully simple model for this. Suppose that whites have different degrees of racism – some would “tolerate” higher shares of nonwhites than others. Schelling showed that the less racist whites would still wind up exiting during tipping because of a chain reaction. At first only the most extreme racist whites exit. But their departure causes the white share to go down, making the second most extreme racist whites uncomfortable, so they also exit. The white share goes down some more, and so now even less racist whites will be uncomfortable being a white minority, and they will wind up exiting too. So the remarkable prediction of the tipping point model is that just a little bit of integration that directly bothered only the most racist whites wound up causing ALL of the whites to exit. So even if the typical white was perfectly happy with integrated neighborhoods, these neighborhoods would be so unstable that the final outcome would be extreme racial segregation. The segregated nonwhite neighborhood will remain permanently nonwhite. Segregated white neighborhoods (with a white share ABOVE the tipping point) will also be stable, because virtually all whites will tolerate a very small nonwhite share. So segregation happens through a chain reaction even though the average white did not want such extreme segregation.

It’s easy to imagine development applications for the tipping point idea. Suppose that people decide to get highly educated based on what is the share of highly educated people in the population. After all, it’s only worthwhile being educated if you can talk to and work with a lot of other highly educated people. If the share of educated people falls below a tipping point, a lot of people will stop getting highly educated, which decreases even further the incentive to get highly educated, and we get the same kind of chain reaction that happened in segregation. So a whole society can tip from high education to low education, below a certain “tipping point” of the share of the highly educated in the population. Assuming that low education causes poverty, this is a “poverty trap” story of low education and underdevelopment.

The tipping point stories are fascinating, but do we observe them in the real world? I got intrigued with this question a while ago, and eventually published a paper testing the predictions of the tipping point story (ungated version here) for its original application: racial segregation of US neighborhoods (reminder to self: my job is not only to blog, also to be a full time academic researcher that must “publish or perish”). The basic prediction is that mixed neighborhoods are unstable but segregated neighborhoods are stable. Data on American neighborhoods from 1970 to 2000 rejected these predictions – it was the segregated neighborhoods that were unstable. There was as much “white flight” out of all-white neighborhoods as there was out of mixed neighborhoods, and there was a white influx into segregated nonwhite neighborhoods. Neighborhoods are still very segregated in the year 2000, but not because of tipping. Maybe segregation exists because most whites really do want segregation, not because of a chain reaction due to herd behavior.

Of course, this is only one test of the tipping point for racial segregation over one time period. Maybe the tipping point is real in other contexts. But think twice and check for evidence before you accept popular stories like the Tipping Point.

Fund for Unsolvable Problems: is the IMF the new UN?

Scarcely another G-8 handshake goes by without piling another responsibility on the International Monetary Fund. The communiqué after the latest G8 Finance Ministers’ meeting last weekend asked the Fund to help devise “exit strategies” from stimulus at the exact right time in the exact right manner, which nobody knows and the G-8 cannot agree upon. Then they asked IMF should do more concessional lending to poor countries. So the IMF is only being put in charge of (1) the rich countries, and (2) the poor countries. Of course, no G8 country would really yield sovereignty on policy to the IMF, or even allow it to determine its bilateral foreign aid policies. What seems to be going on is the same kind of shadow play the Great Powers have long played with the UN: (1) a terrible international problem appears, (2) the Great Powers do not want to commit any real capital to reach a solution, or they cannot agree on a solution, or they simply don’t know the solution, (3) but the Great Powers must appear to act anyway, (4) so they put the UN in charge of the unsolvable problem, and then (5) blame the UN when the problem remains unsolved.

This five-act shadow play has worked out so well for the Great Powers in places like Somalia, the Congo, and Darfur that the G8 appears to have decided to try the same thing with the global financial crisis. Here, they don’t want to commit real capital to international coordination or cushioning the blow to poor countries, they can’t agree what to do anyhow, and they really don’t know the solution in the first place. So let’s put the IMF in charge! And then blame the IMF when things continue to go badly!

In other news, the G8 Finance Ministers hid out during the meeting in a previously unknown place called “Lecce” somewhere in Italy in a medieval castle, but still couldn’t escape protesters who shouted out their own much shorter communiqué: "G8, economy, lies."

Here’s a US development program working – stop it immediately!

“[O]pen trade and international investment are the surest and fastest ways for Africa to make progress,” President Bush said when he signed an extension to the African Growth and Opportunities Act (AGOA) in 2004. Originally signed into law in 2000, AGOA removes US quotas and duties for thousands of products coming from some 40 sub-Saharan African countries.

AGOA has led to an overall increase of 8% in non-oil exports to the US, according to recent research. And Madagascar has been one of the program’s clearest success stories. The island nation’s exports tripled in the first three years of the program, led by strong growth in the apparel and textile sector. This sector remains vibrant in spite of the huge encroachments by China on African textile competitiveness since 2005, as well as the more recent shrinkage in global demand: textiles still account for 60% of Madagascar’s total exports, and 100,000 people are employed in the formal sector alone.

So why is the US now threatening to revoke AGOA in Madagascar?

The US government is using AGOA as a political lever to force President Andry Rajoelina’s questionable government to hold elections within the year. The textile exporters association says that the loss of AGOA would lead to downsizing and possibly even the collapse of the entire industry. Tens of thousands of jobs, and tens of millions of dollars of investment stand to be lost.

A letter that Aid Watch obtained addressed to the association of Malagasy textile exporters from the US trade rep warns ominously: “The recent events in Madagascar will be taken into consideration as the U.S. Government begins its review of Madagascar’s eligibility for AGOA in the coming months. As you know, respect for the rule of law is a condition of eligibility outlined in the AGOA legislation.”

The reasoning seems to be that political instability and violations of democratic procedures hurt the Malagasy people, so the natural US government response is to—hurt them more by taking away their jobs?

But a look at the AGOA eligibility requirements shows there is some room for interpretation. There must be, if non-shining examples of democracy like the DRC, Guinea, and Guinea Bissau get to stay on the list while Madagascar is kicked off. It turns out that the AGOA FAQ page contains a disclaimer: “Progress in each area is not a requirement for AGOA eligibility” [emphasis added].

So the USTR is not required to take Madagascar off the AGOA list, and it should not. Attorney and global regulations enforcement expert Jason Poblete said via email that “a country-wide sanctions regime is not likely warranted” and recommended a more targeted approach, such as adding the coup leaders to the list of "specially designated nationals" restricted from doing business with the US.

Another time for invoking Amanda’s Love Actually test— better for the USTR to do nothing, stay home, and watch a movie.

Nation’s 12-year-olds protest Results-Based Management

Results-based management (RBM) is where you come up with indicators of results and try to get civil servants (national or international) to meet targets for these indicators. The emphasis on results would be welcome except for the ability of wily bureaucrats to manipulate the indicators in ways that do not improve performance. In development, RBM has already achieved results – another acronym to replace RBM: MfDR – Managing for Development Results.

The US already has RBM in the form of the No Child Left Behind Act, which rewards public schoolteachers when their students score high on standardized tests. Some of the pitfalls were revealed when I interviewed one of the customers --a 12 year old rising 8th grader in an average public school -- about how this was working out. She said “Teachers remind us everyday about the test, and they spend more time teaching us how to phrase answers to test questions than actually teaching us facts.” Finally, the nightmare was over: “And then after the tests were over and taken, they stopped teaching, and the rest of the year we watched stupid movies.” (Less anecdotally, academic evaluations find this Act to have had some payoffs for the worst schools, but note the idiocy of applying it universally to previously well-performing or even average schools.)

In development RBM, i.e. MfDR, the manipulation of indicators for performance is even more brazen and distant from the well-being of any real person. MfDR meetings agree on performance indicators that include – more MfDR meetings. Success on this indicator includes the Monterrey Consensus (2002), Rome Declaration (2003), Washington: First Roundtable on Development Results (2002), Marrakech: Second Roundtable on Development Results (2004), Paris Declaration (2005), Hanoi: Third Roundtable on Managing for Development Results (2007), Accra: Third High Level Forum on Aid Effectiveness (2008).

So, for example,

“The third day of the Third International Roundtable on Managing for Development Results provided a setting for each of 35 county delegations to meet as a team to sketch out initial thoughts on how to mobilize resources within their own countries to initiate and further implement some steps discussed in the context of each of the major themes discussed during the event. Each country team started a Country Action Planning Process, the results of which will help the donor community at the country level target resources at overcoming current gaps in capacity and also to provide input into discussions on managing for results and aid effectiveness at the Ghana high level forum (February, 2008).”

The World Bank has recently published the 3rd edition of its Sourcebook, “Emerging Good Practice in Managing for Development Results:

“Emerging best practice” included the World Food Program in Guinea Bissau and DR Congo:

“Toolkits with clear guidance on managing for development results, with a focus on results-based M&E, are available for WFP and implementing partners’ staff in DRC (Results-based M&E Toolkit, version 1, June 2004) and in Guinea-Bissau (Results-based M&E Toolkit, Version 1, June 2006). These toolkits reflect up-to-date MfDR concepts, principles, and good practices, and draw on results based M&E toolkits of other international organizations, including within WFP. The toolkit produced for WFP Guinea-Bissau is also available on the WFP website (www.wfp.org) as one of the few reference documents for other WFP offices worldwide. A copy of these toolkits is available upon request.”

A much more positive result of MfDR was the City Council of Nairobi setting itself a goal to increase immunization rates from 75 to 85 percent, and then they actually reached 88 percent. Alas, examples like this of actual people getting better off through MfDR are few in the Sourcebook. (Immunization may be one area less subject to manipulation and bureaucratization, where MfDR could have a positive impact.)

Elsewhere, MfDR seems like an exercise for bureaucracies to monitor themselves on -- being bureaucratic. Am I missing something?

Stop me before I Sachs again

Jeffrey Sachs strikes again.

I’m so sorry readers, I know this is getting really, really OLD. But Sachs unveils such a bizarre geographic theory of Africa’s poverty, with such misguided implications for aid policy, that I am forced to respond. I can’t help myself, the stakes are too high. Suggestions for corrective therapy would still be welcome.

At least now we have finally gotten away from personal attacks, so let me say that Sachs is an inspirational and hard-working intellectual. His ideas on Africa are only sometimes totally wrong, the other times they are only fatally wrong.

Summary in brief of Sachs’ geography theory: a region will be poor IF they are tropical, IF rainfed, IF landlocked, and IF they have the wrong mosquitoes – which, yes, fits many African countries. With enough IFs, you can fit ANY theory to any set of facts. If I am a short, balding, grey-bearded, bespectacled, white male economic development professor residing in Greenwich Village, I will be writing this post right now – it fits the facts.

Sachs also has a rather convoluted “aid works” narrative in this column. He says aid was high enough and went to the right things enough to achieve great things in Africa on health and education. So why didn’t it create economic growth? Because aid wasn’t high enough and didn’t go to the right things enough.

The other problem with Sach’s geography story is that it has already been refuted by other economists. The consensus among several academic papers is that destructive governments rather than destructive geography explains the poverty of nations. Acemoglu, Johnson, and Robinson (2006), Easterly and Levine (2003), and Rodrik, Subramanian, and Trebbi (2004) all tested the geography story against the institutions story and came down on the side of institutions.

So Robert Mugabe was a lot worse for Zimbabwe than the Anopheles mosquito. Corruption is more fatal for oil-rich Nigeria and Angola than latitude. Bad health has more to do with bad health systems than bad parasites. Other factors that Sachs mentions such as illiteracy and poor infrastructure are also symptoms of bad government services.

Of course, it is a lot easier to justify giving a lot of aid to African governments if they are helpless victims of geography rather than (mostly) just being – bad governments. Is this why Sachs insists on a bizarre geographic theory of Africa’s poverty and is oblivious to the bad governments that many courageous African dissenters have protested at great sacrifice? I don’t know, but I do know aid does a lot more good when it goes to poor individuals, and not to poor governments.

References

Acemoglu, Daron, Simon Johnson and James Robinson, “Institutions as the Fundamental Cause of Long-Run Growth”, in Aghion and Durlauf, Handbook of Economic Growth, 2005

Easterly, W. and R. Levine, “Tropics, germs, and crops: the role of endowments in economic development”, Journal of Monetary Economics, 50(1), January 2003.

Rodrik, D., A. Subramanian, and F. Trebbi, “Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development”, Journal of Economic Growth, vol. 9, no.2, June 2004

Sachs, Jeffrey, John Luke Gallup and Andrew Mellinger, "Geography and Economic Development,", International Regional Science Review, Vol. 22, No. 2, pp. 179-232, August 1999.

It’s going so badly, let’s do more of the same!

Efforts to curb corruption in Afghanistan are failing, says a new USAID report. Based on dozens of interviews and a comprehensive review of existing studies and polls, the report describes the sources of corruption, which include the huge volume and variety of international aid pouring into Afghanistan, 30 years of conflict that have weakened state institutions and disrupted social relationships, and Afghanistan’s role in the illegal opium trade. Afghanistan is now the fifth most corrupt country in the world (following a rapid ascent from number 42 in 2005) according to Transparency International figures.

The report allows that on the whole, efforts to fight corruption in Afghanistan are failing to do the trick: “Seven years after the fall of the Taliban government…corruption has become a system, through networks of corrupt practices and people that reach across the whole of government to subvert governance.”

But the report does not detail specific failings of any recent USAID or other donor-funded activities (nor are failings to be found among the success stories that pass for information on the Afghanistan country page.) Could USAID explain how concerted efforts are failing to defeat corruption as a whole when each individual project is successfully meeting its targets? (Curiously, the consulting firm contracted to write the report is also being paid to implement a four-year USAID project to fight judicial corruption in Afghanistan.)

One of the six recommendations for future action in the report is to provide more resources and support for the High Office of Oversight (HOO), the anti-corruption agency which has until now has shown an “apparent unwillingness” to go after high-level corruption. The report notes that “often the officials and agencies that are supposed to be part of the solution to corruption are instead a critical part of the corruption syndrome.” How is the solution to aid money being stolen to give additional aid money to those who are stealing it?

The report, which was released to little media coverage in March, comes at an inconvenient time for the Obama administration, which has recently announced plans to increase aid to Afghanistan and Pakistan, and to funnel more of that aid through the government as both a sign of increased trust and a way to build government capacity (see for example Ken Dilanian's article on the report in USA Today). In fairness to USAID, political pressure surely has a lot to do with the way aid money is spent in Afghanistan.

It’s great news that the international community is recognizing how bad corruption has become in Afghanistan and resolving to renew the fight against it. Efforts to build “governance capacities in transparency and accountability;” fight corruption where it impacts people in their daily lives; and change “the culture of corruption”—as the report proposes—are sorely needed. But given the sorry state of the status quo, there is a distressing use of the words “continue,” “increase,” and “expand” throughout the recommendations. If something hasn’t worked in the past, why do we assume that more of that same thing will work in the future?

p.s. When we called USAID's Afghanistan desk to get their perspective on the report's findings, we were told that our inquiries needed to go through the press office. Fair enough. But it's two days later and we're still waiting...

Am I attacking Sachs too much?

Dear Readers,

Let me respond to those concerned about the tone and divisiveness of this debate (and a little bit about my levity).

In the Huffington Post, my column says (please read both Sachs' and my column):

Jeffrey Sachs, the world's leading apologist and fund-raiser for the aid establishment, has responded here with a ferocious personal attack on Moyo and myself, "Aid Ironies."

Allow me to defend myself (I'll let the formidable Moyo handle herself). It's not so much my pathetic need to correct slanders, as if anybody cared. Sachs' desperation shows when he peddles what I will show he knew were falsehoods. Besides, the sight of two middle-aged white men mud-wrestling on African aid may entertain the audience.

First, in the intellectual world as in the legal one, the accused has a right to face his accusers and mount a proper defense.

Second, the purpose of debate is to facilitate the emergence of the best ideas and to shoot down the worst ideas. I'm not always so cocksure I am right, but it is clear to me intellectually that Sachs' ideas are wrong, and I will combat them accordingly. An artificial consensus that stops the process of shooting down bad ideas is not a healthy intellectual practice. Sachs himself seems to keep trying to shut down the debate. From my column at Huffington:

Instead of Sachs' attempt to shout down critics with slanders and falsehoods, let's have a climate of open debate in which we learn from past mistakes, the guilty suffer, the good are rewarded, and we can hope that aid does start to reach the poor.

Finally, about my occasional levity. I believe in the maxim I heard long ago: "Take your work seriously and yourself lightly." The levity is because I don't take myself too seriously (if I ever do, please let me know). I take the work very seriously indeed.

Let me know if I have addressed your concerns.

All the best, Bill

Sachs Ironies: Why critics are better for foreign aid than apologists

Official foreign aid agencies delivering aid to Africa are used to operating with nobody holding them accountable for aid dollars actually reaching poor people. Now that establishment is running scared with the emergence of independent African voices critical of aid, such as that of Dambisa Moyo.

See post from Huffington Post.

Aid works! – well at least, for Chivas Regal

Douglas Alexander, British Secretary of State for Development, recently challenged me to stand with the poor and feel their pain at a public event sponsored by NDN. As a privileged politician, he has recently traveled to a few places where he has met some Africans and feels comfortable quoting them as representatives of the whole continent. He made clear that in fact Trevor Manuel, the Finance Minister of South Africa, was the voice of Africa (certainly not Dambisa Moyo.) His source for this fact was: Trevor Manuel. The voice of Africa then told Mr. Alexander, “We need aid and we need to spend it effectively.” Alas, even with his chosen representative, Mr. Alexander seems to have heard only the first three words of this quote without the rest.

Having spent the last ten years working among some of the poorest, most marginalized people in Africa in a remote area of South Sudan, I believe that poor people can and should be helped – I have no disagreement with Mr. Alexander on this. For example, Mr. Alexander interviewed poor people in World Food Program food distribution line in south Ethiopia, while I as an NGO worker have arranged WFP food for tens of thousands of people in a remote county in South Sudan. We both agree that starving people should be fed and aid organizations can effectively distribute food.

Where we part company is Mr. Alexander’s seeming indifference to how you help poor people (unfortunately all too common among aid officials). Aid can facilitate worthy projects or encourage greed and graft.

Regarding aid accountability, Mr. Alexander said he would make sure schools in Kenya have a poster on every school room door so that parents know how many teachers or classrooms DFID has funded. Mr. Alexander has accountability confused with self-promotion! What should happen is that the community adopts the school as their own, so that they govern and monitor the school themselves, and are accountable for the results (and then judge DFID by how much they facilitated this).

Surprising things happen when the locals are in charge. My husband has just returned from a visit to the schools our NGO sponsors in South Sudan, where he was surprised and impressed by the results of the last eight years – not so much of our NGO’s efforts but of the communities’ efforts. With minimal increase in financial support, the schools have doubled in size by their own choosing. Even though the demands are beyond our comprehension, so are the hearts of the school principals. They find it impossible to turn away any student that comes prepared to learn and we have given them the freedom to manage their own schools. The result is the schools have burst their buildings several times over and classes meet most of the year under trees. There are no doors to put posters on and the communities feel they have control over their own destiny.

Even more ludicrous was Mr. Alexander’s parting response to me, that the UK and US should be motivated to lift poor Africans out of poverty so they can consume more of our goods. His example was that China is the largest export market for Scottish Chivas Regal whisky, so Americans should help develop Africa to consume our goods. I wonder if he thinks more Africans consuming Jim Beam would be the outcome of a successful development strategy?

Find video of Mr. Alexander's full speech here, and the accompanying Q&A here (specifically, the question at 13:15 and the answer at 16:55).

Somewhere myself between accountability and self-promotion: Our NGO is called Servant’s Heart and you can check us out on our website.

When Doing Nothing Equals Increased Aid

Nice dialogue going on here with the blog that is the scourge of wicked human rights violators everywhere, Wronging Rights (a blog that is also wickedly funny). Among other things, I worried that one of the posts on Mahmood Mamdani by Amanda Taub might be using the classic way to attack critics of infeasible, utopian schemes everywhere, which is to demand that the critic come up with their own utopian scheme to solve all problems. Amanda came back with a complete disavowal of any such intention:

So, anyway: here at Amanda HQ you'll find a wholehearted embrace of doing nothing, when all of the proposed somethings to do are crummy. If a proposed policy doesn't pass my "is enacting this policy more likely to reduce suffering and end conflict than staying in to watch Love Actually again?" test, then I for one would vote for movie night.

Sorry, Amanda, I should never have doubted you – you have got it completely right (except could The Godfather be another option?)

It’s amazing how many politicians fail Amanda’s Love Actually Test. Suppose there is a terrible problem and there are only two options:

(A) Do nothing.

(B) Do something to make the problem worse.

All politicians choose (B) of course! Two random current examples are: (1) Run a “War on Drugs” to subsidize violent criminals and destabilize Colombia, Mexico, and Harlem, (2) drop bombs to kill innocent civilians so as to help terrorism recruiters and destabilize Afghanistan, Pakistan, and Queens. I am sure faithful readers can come up with more.

Here’s a brainstorm. Doing something to make things worse, that is equal to negative aid. If you change from doing something bad to doing nothing, that is equal to a decrease in negative aid. A decrease in negative aid is equal to an increase in positive aid. Therefore, doing nothing = positive aid. QED.

Hey politicians, here is a way to increase aid, get results, at reduced costs! Buy now while supplies last! Just go over to Amanda’s and watch Love Actually!

How to help the poor have more money? Well, you could give it to them

In 2007, people in the Western Province of Zambia lost their homes, their livestock and their crops when heavier-than-normal flash floods swept through their area. USAID’s office of disaster assistance stepped in with $280,000 worth of with seeds and fertilizer, training for farmers, and emergency relief supplies. Two NGOs working in Zambia, Oxfam GB and Concern Worldwide, tried a different approach: they handed out envelopes stuffed with cash—from $25 to $50 per month per affected family, with no strings attached. An evaluation found that common fears about cash transfers—that the cash infusion will cause inflation in the market, that the money will be squandered, or that men will take control of the money—were unrealized.

What did people buy with the money? The list includes maize, beans, salt, cooking oil, meat, vegetables, clothes and blankets, paraffin, transport, soap and body lotion, and lots of other mundane household items. They also loaned it to friends, used it to pay back debts, purchased health care, education and transport, and rebuilt their homes. Only a very small fraction of the money (less than .5%) was spent on “unproductive” items, like liquor for the men.

Unconditional cash transfer programs can be fast and cost effective. With no technical experts’ salaries to pay, and no trans-Atlantic shipping costs for US-produced food aid, more of the cash can go straight to the recipients (in the case of the Concern Worldwide project 27% was spent on program administration, while 73% was distributed in the cash transfers.)

Cash transfers also acknowledge that poor people are capable of making good economic decisions without the help of outside experts armed with needs assessment checklists. An evaluation of another Oxfam cash transfer program, this one in Vietnam (summary here), found that villagers made sophisticated investment decisions, choosing whether to invest in seeds and fertilizer, family coffins and tombs, cows and buffalo, home improvements, debt repayment, and /or community roads.

As Duflo and Banerjee document in their study on the economic lives of the poor, the rich often assume that poor people have few choices about where to spend their money. And this notion allows aid agencies to assume the paternalistic role of decision-maker for the poor. Yet Duflo and Banerjee note that subsistence accounts for a lot less than 100 percent and the “poor do see themselves as having a significant amount of choice.”

Cash transfers have plenty of potential drawbacks, as these studies also point out. Handing out large amounts of cash comes with its own set of logistical hurdles and could invite theft or corruption. And what if this approach puts women and children at a disadvantage, while men take and spend the cash? There are improvements to be made, in targeting the right population, and equipping people with better tools (like financial training and savings accounts) to help them make the most of the money. Two studies by Innovations for Poverty Action and the Poverty Action Lab at MIT in Morocco and Indonesia (both ongoing) should shed more light on when and how cash transfers can be most effective. (See also studies collected by the UK-based Overseas Development Institute).

When USAID provides blankets, seeds and fertilizer to flood victims, they are doing their best to decide for the victims what their most urgent needs are. With the cash transfers, the people can decide for themselves how to meet their most urgent needs. This gives people who have lost their livelihoods, belongings or loved ones a new feeling of control over their lives, builds money-management skills, and restores to them their power to make economic decisions. If you were in their shoes, which would you prefer?

Dani Rodrik’s moody industrial policies – the final questions

Dear Dani, Thanks for your reply to my post.I am a bit frustrated with your statement that industrial policy just has different effects in different countries. If we just say “it works” with good outcomes and “it doesn’t work” with bad outcomes, then there is no way of contradicting this with evidence. ANY policy could pass this test. This kind of “theory” fits past data but cannot predict future outcomes – how do we know what side of the bed industrial policy will wake up on tomorrow?

I know you don’t actually fall for this, but I don’t understand how you actually get around this problem with your “growth strategies” approach. If the effects of every policy are different in every country, what is your evidence base for recommending any particular policy in any country ever?

This jibes with the observation that tons of effort to replicate East Asian Tiger success elsewhere has not actually worked to produce Tiger-like success anywhere else.

Your work has done a lot to convince us all about our inability as “growth experts” to make general recommendations on how to raise growth. But then you seem to recommend more intensive use of “growth experts.” I would go in the other direction and find approaches to development that don’t require these clueless “growth experts,” like systems with a lot of local feedback and accountability – lots of political and economic competition with freedom of choice of consumers, investors, and voters.

Best regards,

Bill