From Aid to Equality
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For the new From Aid to Equality blog, click here.
All men are created equal. Except blacks. Except women. Except gays. American history shows the erosion of the Excepts, although never complete. Yesterday's repeal of Don't Ask, Don't Tell was another small victory for freedom. Let's celebrate, while never losing resolve to keep moving towards complete equality and liberty for All.
Out of every $100 of U.S. contracts now paid out to rebuild Haiti, Haitian firms have successfully won $1.60, The Associated Press has found in a review of contracts since the earthquake on Jan. 12. And the largest initial U.S. contractors hired fewer Haitians than planned.
Discouraging news from an AP article out this week. The article tells the story of one 40-year old Haitian construction supply business. Despite playing by the rules and working to establish a reputable business, owner Patrick Brun says he hasn’t won any US government contracts:
“You can imagine that if we can't win the contracts ourselves, we become totally dependent on foreign companies and nonprofits, and there is not much hope in that," he said. "We may not have the extended capacity of a U.S. company, but we are respectable. We keep good books and records, we have foreign suppliers, we have good credit, we pay our taxes and our customs dues.
The piece also quotes Clare Lockhart, of the Institute for State Effectiveness, whom we’ve featured on this blog. Drawing on her experience of missteps in Afghanistan, she argues that contracting with local firms is a vital step in reconstruction:
"You can't just provide manual jobs. You need to contract with companies so that the middle tier managers and owners of companies have a stake in the legal system and rule of law, and ultimately a stake in the success of their political system and their economy," she says.
So why is so little US funding going into the local economy to help build the capacity of local, Haitian businesses, while the overwhelming majority ends up with foreign firms? Dealing with known contractors theoretically lets USAID act quickly and avoid corruption, as the article points out. But also to blame are outdated procurement practices that fail to encourage USAID to engage local firms.
USAID’s plan for procurement reform, included as part of its ongoing reform effort “USAID Forward” as well as the whole QDDR fanfare, does acknowledge that in order to “strengthen local civil society and private sector capacity,” it will need to actually contract with more than a handful of local NGOs and businesses. The specific targets USAID has set for itself are not cited in those publicly available documents, but an internal USAID document sent to Aid Watch shows how far the agency has to go:
By FY 2015, USAID will increase its direct grants to local nonprofit organizations from 2.46% to 6% of its program funds and will increase the number of partners from 424 to 1000. By FY 2015, USAID will increase its direct contracts to local private businesses from 0.83% of its program funds to 4% and will increase the number of partners from 322 to 600.
Now, hopefully USAID’s laborious procurement reform process will end up benefitting deserving businesses like Patrick Brun’s, waiting in the wings in Haiti.
Like the Blattman, we want to remind you of the aid blog popularity contest, on which voting ends tomorrow. Millie (see left) wants you to know that we are announcing this purely as a public service announcement and we would never stoop to any cheap electioneering tricks like appointing a new celebrity spokesdog. In the FT, all the academic development econ (micro) heavyweights line up in a stern defense of microcredit, despite the India troubles.
It has long been the standard practice in medical testing: Give drug treatment to one group while another, the control group, goes without. Now, New York City is applying the same methodology to assess one of its programs to prevent homelessness. Half of the test subjects — people who are behind on rent and in danger of being evicted — are being denied assistance from the program for two years, with researchers tracking them to see if they end up homeless.
The city’s Department of Homeless Services said the study was necessary to determine whether the $23 million program, called Homebase, helped the people for whom it was intended. Homebase, begun in 2004, offers job training, counseling services and emergency money to help people stay in their homes.
From Wednesday's New York Times.
It’s interesting to watch the debate over the ethics of randomized control trials arrive at our own shores, and to see New Yorkers up in arms over homeless people being treated “lab rats" or “guinea pigs.”
I understand why these experiments make the public uncomfortable, but to me the important fact is that the organization profiled in this article does not have enough funds to give support to everyone who applies, and also faces future funding cuts (according to the reporter). If this experiment is just a different, more deliberate way of deciding who gets support and who doesn't, AND if we can learn something useful about the effectiveness of different methods for keeping people off the streets, then I don't see it as unethical.
Thanks to Wikileaks, we have a new appreciation how seriously Clinton takes that whole 3Ds thing (Defense/ Diplomacy/ Development). We all should work together, which apparently means all work for the Defense (cum Intelligence) establishment. According to a secret July 31, 2009 cable signed by Clinton, now available thanks to Wiki the on NYT web site, she asked all US government staff at UN, even over and above her own diplomats (does that include aid staff also?) to spy on everyone else at the UN:
Important information often is available to non-State members of the Country Team whose agencies participated in the review of this National HUMINT Collection Directive...The intelligence community relies on State reporting officers for much of the biographical information collected worldwide.
they should collect things like
internet and intranet "handles," internet e-mail addresses, web site identification-URLs; {SO MUCH FOR ANONYMOUS BLOGGING AND TWITTER!}, credit card account numbers; frequent flyer account numbers;
Her country spying priorities are interesting:
3. (S/NF) Priority issues and issues outline:
A. Key Near-Term Issues 1) Darfur/Sudan (FPOL-1) 2) Afghanistan/Pakistan (FPOL-1) 3) Somalia (FPOL-1) 4) Iran (FPOL-1) 5) North Korea (FPOL-1)
Should we be grateful that nothing resembling Economic Development or Global Poverty shows up on her issue list for her spies to report on? Or sad that she is revealing the true US government lack of interest in development?
B. Key Continuing Issues 1) UN Security Council Reform (FPOL-1) 2) Iraq (FPOL-1) 3) Middle East Peace Process (FPOL-1) 4) Human Rights and War Crimes (HRWC-3) 5) UN Humanitarian and Complex Emergency Response (HREL-3) 6) Proliferation of Weapons of Mass Destruction (WMDN-5H) 7) Terrorist Threat to UN Operations (TERR-5H) 8) Burma (FPOL-1)
Clinton has denounced Wikileaks for harming national security.
Well, Secretary Clinton, couldn't you also work in an apology for turning your staff into spies and the UN into even more of an ugly spy nest?
by David Roodman, Senior Fellow at the Center for Global Development As Vivek Nemana reported here, the Indian microcredit industry has pitched into what appears to be a replay of the American subprime debacle. I just spent a week in India, talking to nearly everyone. I learned there were so many complexities—history, politics, institutional rivalries— that to just view events through the foreign lens of the subprime crisis is…actually about right.
The microcredit industry indeed appears to have grown irresponsibly fast, partly out of pursuit of profit. But this is not a simple morality play. The state government’s response (an October 14 ordinance) is draconian, tantamount to banning mortgages after a mortgage crisis. Why such a crackdown? The rise of private microcredit threatened a big, World Bank–financed government program that provides credit and other services.
Until last month, India was home to the fastest microcredit expansion the word has seen. Between 2003 and 2009, the number of microloans shot from 1.0 million to 26.7 million. Unlike in Bangladesh, which India recently surpassed in number of microloans, investor-owned, for-profit companies do most of lending in India. SKS Microfinance went public in July, earning tens of millions of dollars for founder Vikram Akula, venture capitalist Vinod Khosla, and others. This inevitably led many to blame the hypergrowth on pure greed. I don’t doubt that pursuit of profit played a big role, but Akula’s new book also persuades me that he concluded—along with most of the Indian microcredit industry—that reaching the poor required being profitable enough to attract serious venture capital.
Nipping at SKS’s heels were other microcreditors, also based in Hyderabad, which helped make Andhra Pradesh India’s microcredit hotbed. Villagers experienced the arrival of 2, 3, 4, even 8 or 10 microcreditors within the last few years, all eager to press loans into the hands of women. Loan officers learned that they could line up customers more quickly in villages where their competitors already operated, for there the women would have been educated in the mechanics of microcredit—and might want new loans to service old ones. So loans were heaped on top of loans.
Even Vijay Mahajan, the president of the microfinance industry association, has been bluntly critical:
In their quest to grow, they kept piling on more loans in the same geographies…That led to more indebtedness, and in some cases it led to suicides.
Unfortunately, while loan disbursement became irrationally exuberant, loan collection remained insistent. Microcredit is about mass-producing low-quality services in order to keep costs in line with the small amounts transacted. For the machine to run efficiently, clients must keep up on their payments. Microlenders also pounce on delinquency to prevent it from snowballing, so that women will not ask, “Why should I pay if she is not?” Loan officers now stand widely accused of harassing borrowers, yelling at them outside their homes, even threatening violence. The pressure has been blamed for at least 54 suicides. While the allegations are individually dubious, arising as they do in a politically charged, media-scrutinized environment, the link to suicide is plausible. Microcredit is the least flexible, least forgiving form of credit available to the poor of Andhra Pradesh, thus most likely to push them over the edge.
So the Andhra Pradesh government responded to a real problem. However, its response is also a real problem. As I explain on my blog, the October 14 law has frozen microcredit in across the state; it contains provisions that would be unconstitutional in many countries; and it could bankrupt several lenders. The law is defending a rival government program that provides credit and other services to millions of women in self-help groups. Because these groups are communal rather than corporate, they tend to be more lenient than microcreditors. When cornered, women with multiple loans default on self-help group loans first. Thus did the public and private programs collide.
These events should be cause for introspection at the World Bank, which has financed both sides, but especially the government’s self-help group support program (with $1 billion or so). The latter may well be doing much good. But World Bank money has also beefed up a political economy hostile to private sector solutions.
Perhaps the heedlessly expanding Indian microcredit industry deserved a smackdown. But what matters most is not what is fair to the microcreditors but what is best for the poor. The Indian government has built an impressive 50-year track record failing to meet the financial service needs of the poor. Under the right circumstances the private sector can help fill the gap. The goal should be to reform microfinance, not kill it.
Here is an NYT headline and a WSJ headline on the same Pentagon report last Tuesday. Reports produced in large bureaucracies have to interpret the "facts" so as to please competing interest groups within the bureaucracy, as I can testify from my World Bank experience. The result is usually a report with a very unclear message. If I was not feeling so lazy on a Sunday morning, I could cite a lot of aid reports with the same problem as the Pentagon report.
Health care systems worldwide are wasting up to 40 percent of their funds, but more money is needed to boost their capabilities, according to a new report from the World Health Organization. In an analysis of how countries pay for health and what they get in return, the United Nations agency concluded that despite these losses even more funds need to be invested in health care.
This article by AP reporter Maria Cheng on the WHO’s newly released 2010 World Health Report explores some of the biggest inefficiencies in global health spending.
Of the approximately $5.3 trillion the world spends on health care every year, about $300 billion disappears in mistakes or corruption, according to European Health care Fraud and Corruption Network, quoted in the report. Up to a quarter of the money governments are supposedly using to buy drugs are somehow lost along the way, costing developed countries up to $23 billion a year, the report said.
WHO says some countries pay almost double what they should for drugs and that, and that at least half of the medical equipment in poor countries is unusable. Much of the medical equipment donated to developing countries is also useless, it said.
"In some countries, almost 80 percent of health care equipment comes from international donors or foreign governments, much of it remaining idle," the report says.
It said most of the medical equipment shipped to the Gaza strip after 2009 simply sat in warehouses.
The AP article also quotes Bill who points out the irony of asking donors for more money when it’s clear so much better use could be made of the funds already spent:
"How do you make an impassioned plea for spending more money when we're wasting so much?" asked William Easterly, a foreign aid expert at New York University.
He said much of the problem in developing countries is that while donors have spent billions on things like drugs, vaccines and malaria bednets, little has been spent on the health workers needed to distribute them.
"Medicines and vaccines don't administer themselves," Easterly said.
He also criticized U.N. agencies and major donors like the Bill & Melinda Gates Foundation, who have mostly avoided investing in health systems, preferring instead to build separate programs for illnesses like malaria, polio and AIDS.
"That is like doing aerial bombing at 35,000 feet without knowing what you're hitting on the ground," Easterly said. "But investing in medicines for AIDS and malaria makes for much better publicity than investing in health systems."
Read the whole article here.
Vivek Nemana is a graduate student in economics at New York University and works for DRI.
The impending collapse of the microfinance industry in Andhra Pradesh, one of India’s largest states and a major hub of microfinance, is the ultimate example of a silver aid bullet…not being a silver aid bullet at all. The New York Times reports:
India’s rapidly growing private microcredit industry faces imminent collapse as almost all borrowers in one of India’s largest states have stopped repaying their loans, egged on by politicians who accuse the industry of earning outsize profits on the backs of the poor.
Responding to public anger over abuses in the microcredit industry — and growing reports of suicides among people unable to pay mounting debts — legislators in the state of Andhra Pradesh last month passed a stringent new law restricting how the companies can lend and collect money.
Even as the new legislation was being passed, local leaders urged people to renege on their loans, and repayments on nearly $2 billion in loans in the state have virtually ceased. Lenders say that less than 10 percent of borrowers have made payments in the past couple of weeks.
The FT apocalyptically adds:
The crisis that began in Andhra Pradesh threatens to spill over to the entire sector, with other states already feeling ripples against the industry. That could trigger a wave of bank defaults nationwide and a rural liquidity squeeze.
But is microcredit really as bad as it seems? Last month, the Wall Street Journal wrote:
Microlending companies say that often where they have investigated suicides attributed to their lending, they have found that microloans were among the smallest of the many problems of the people that have killed themselves.
And in a Journal Op-Ed:
Up until a month ago, at the biggest lenders, less than 2% of borrowers in the state were missing payments on their microloans. The payment crisis, where people abandoned their repayment schedules, happened only after [Indian politicians] told borrowers they didn’t have to pay. If this borrowers’ rebellion was triggered by dirty lenders, one would imagine the default rate would have expanded gradually before tipping into crisis.
Doesn’t quite sound like the end of microfinance as we know it, but we’ll keep our ears perked. Can micro-lending be both for-profit and sustainable for development? ------------------- Image Credit: neytri
This according to a Wall Street Journal article. Archbishop Dolan's blog is here.
The future of social media is even brighter than I thought.
Occasionally Archbishop Dolan touches on development in his blog, like this post on a 19th century Haitian saint. He also talks a lot about insulting stereotypes of Catholics in the media, which maybe Aid Watch should add to its campaign against insulting stereotypes (do you want to hear the one about reversing conditional probabilities on Catholic priests?)
By the way, Your Holiness, we would welcome a guest post on Aid Watch. In return, I can give you some unsolicited PR advice on handling all that bad publicity Your Church is getting about sexual abuse of altar boys. (If you are wondering how I know anything about PR, I have learned a lot from the stupid responses of aid agencies to aid critics.) Advance Hint: don't get defensive, don't attack the attackers, just keep expressing sorrow and regret about the abuses.
Margaret Wente in Toronto Globe and Mail perceives a growing backlash against humanitarian aid, that it may be doing more harm than good in Africa (she concentrates on seemingly everyone's (including ours) recent favorite example of Ethiopia). I'm quoted in the article accurately. Contrary to some perceptions (not in Wente's article) however, I have never made a general argument that aid does more harm than good, or called for aid to be abolished or even cut. I said aid "has done so much ill and so little good" in the subtitle to the White Man's Burden. The "ill" is well covered in Margaret Wente's column and is similar to the recent posts on this blog about aid financing autocrats and political repression, with similar examples in my book. However, I have also given examples of aid successes, particularly in health (vaccinations!) It is very hard to conclude what the net effect of the ill and the good is, and I've never attempted to do so.
Instead I think the viable arguments are that (1) aid's record is sufficiently disappointing that it is unlikely to ever be the main driver of successful development, (2) if aid were more accountable it would do less ill and more good.
Wonderful article by Ed Glaeser in City Journal on how entrepreneurs are the heroes of New York's success, from the days of pre-Civil War packet shipping and sugar refining, then the garment business, and more recently the Great Finance Sector. OK that last one looks a little shaky right now, but Ed talks about how something new always comes along if the city just manages to hold on to enough entreprenurs to find the Next Big Thing.
One thing that Ed says helps hold on to the entrepreneurs: great universities. You're welcome, New York, glad that we NYU profs could do our part to save your keister.
From our newly-published blog post for the New York Review of Books:
Foreign aid observers have often worried that Western aid to Africa is propping up autocratic regimes. Yet seldom has such a direct link from aid to political repression been demonstrated as in “Development without Freedom,” an extensively documented new report on Ethiopia by Human Rights Watch. Based on interviews with 200 people in 53 villages and cities throughout the country, the report concludes that the Ethiopian government, headed by prime minister Meles Zenawi, uses aid as a political weapon to discriminate against non-party members and punish dissenters, sending the population the draconian message that “survival depends on political loyalty to the state and the ruling party.”
The aid agencies say their own investigations fail to find widespread evidence of the misdeeds that the report documents—withholding government-provided seeds, fertilizer and microloans from non-party members, barring suspected critics of the regime from food for work programs, and denying emergency food aid to women, children and the elderly for refusal to join the ruling party. However, some aid officials admitted to Human Rights Watch (HRW) knowing about them:
As one western donor official said, “Every tool at [the government’s] disposal—fertilizer, loans, safety net—is being used to crush the opposition. We know this.”
Our post concludes by suggesting ways that the aid community might help Ethiopians rather than their rulers.
We of course welcome alternative views, including criticisms of the HRW report and HRW's operations in Ethiopia.
Nick Kristof has one answer: Focus on the individuals in the story, leaving the aid bureaucracies just outside the frame. Make readers care about places and people they will probably never see by bringing them stories of hope and inspiration: the American woman who leaves behind her family to help rape survivors in the Congo; the orphan boy in Zimbabwe who dreams of and gets a bicycle. Philip Gourevitch, writing in the New Yorker this week, has another:
Read More & Discuss…Surely at least we who work in journalism can do a public service by treating humanitarianism the same way we treat other powerful public interests that shape our world…Why should our coverage of them look so much like their own self-representation in fund-raising appeals? Why should we (as many photojournalists and print reporters do) work for humanitarian agencies between journalism jobs, helping them with their official reports and institutional appeals, in a way that we would never consider doing for corporations, political parties, or government agencies? Why should we not regard them as interested parties in the public realms in which they operate, as giant bureaucracies, as public trusts, with long records of getting it wrong with catastrophic consequences, as well as getting it right?
…[H]umanitarianism is an industry. So we should examine it and hold it to account as such. To treat humanitarian or human-rights organizations with automatic deference, as if they were disinterested higher authorities rather than activists and lobbyists with political and institutional interests and biases, and with uneven histories of reliability or success, is to do ourselves, and them, a disservice. That does not mean—as the many books I reviewed, and many more still, make clear—taking a hostile stance toward N.G.O.s. It simply means not accepting their hostility to critical scrutiny. It means not letting them claim to do our work for us. It means insisting on asking the questions for which they may have no good answers.
G20 representatives expressed universal relief today in Seoul, Korea that they no longer have to pretend to feel deep concern about global poverty. “Thank goodness for all the grave problems the rich countries face,” said one anonymous and technically fictitious official. “Now we can stick to things we actually care about.” Another gave a representative view: “it’s been exhausting every year since Gleneagles in 2005, going through hours of discussion to come up with enough meaningless actions to show our deep empathy for the global poor.”
“Our statements always stressed the sufferings of those people,” he continued, “but we were suffering too, working far into the night and often missing gala dinners to negotiate the details of the promises that we never intended to keep.”
The New York Times also reports on this story using non-fictional sources.
UPDATE: Martin Wolf on Zoellick's gold standard proposal (see end of post) World Bank President Robert Zoellick has recently been able to work on things normally considered outside his job description. Last month, he informed academics of his new plan for reinventing economic development research. On Monday in the Financial Times, Zoellick tackled virtually all G20 international economic cooperation issues, including reducing US government budget deficits, international agreement on currency intervention, infrastructure investment in emerging markets, and a new Bretton Woods international monetary system based on a return to the gold standard.
According to unconfirmed sources, Mr. Zoellick asked his staff to next work on eliminating penalty kicks in deciding major soccer championships.
UPDATE: Martin Wolf in today's FT:
Yes, it may be reasonable to call for a reconsideration of the global monetary system, as Robert Zoellick, the World Bank president, has done. But gold? Does anyone expect politicians to put placating the world’s most speculative commodity market before worrying about a slump? Whom the gods wish to destroy they first make mad.
Calling the World Bank President "mad" is kind of strong language by FT standards. Maybe Mr. Zoellick should go back to global poverty after all.
A frequent theme in this blog is the importance of local knowledge for development. David Brooks helpfully illustrated in his column today on my home region the Midwest. He brilliantly demonstrates how outsiders can get lost in the jungle in a region not their own. Brooks' Midwest is:
that region of America that starts in central New York and Pennsylvania and then stretches out through Ohio and Indiana before spreading out to include Wisconsin and Arkansas.
Mr. Brooks is apparently unaware from his vantage point on the Far Eastern Coastal Rim that central New York is still in the East, not the Midwest. And there has never been a single Midwesterner in two centuries who ever thought they were in the same region as Arkansas.
The Midwest has lost a manufacturing empire but hasn’t yet found a role.
Um, Mr. Brooks, were you aware that the Midwest has a few farms? Actually some of the best farmland in the world? and that it produces gigantic agricultural exports for the whole world?
Describing the electoral losses of the Democrats, he says:
The old industry towns in the Midwest were the epicenter of the disaster.
Great insight, except for the fact that the only places Democrats won in the Midwest were in the old industry towns. Mr. Brooks, you have just earned a one-month scenic tour to chat with the nonexistent Republican House members in Cleveland, Youngstown, Akron, and Toledo, Ohio; Detroit and Flint, Michigan; South Bend and beautiful Gary, Indiana.
So just to sum up how far a columnist can get without local knowledge, Mr. Brooks has produced some interesting facts that were not facts about a Midwest that was not the Midwest.
If you need a local guide through those remote wastelands, Mr. Brooks, I am at your service. I'd like to talk to you about some of your other columns I really like about things you know about.
Tim Ogden at Philanthropy Action issues a petition for the "rescheduled" (quotes in original) Sachs vs. Clemens/Demombynes debate on evaluating Millennium Villages, which was supposed to happen last Wednesday, to be indeed, well, rescheduled.
He asks for all of us to be watching whether this indeed happens. Aid Watch is always in favor of more Watching, so we support Tim's petition.
