The Great Manhattan Africa Luxury Coffee Tour

Welcome to Manhattan, tourists! Today's tour will accomplish three things: (1) you will find great coffee places, (2) you will find great coffees from Africa, and (3) you will end poverty in Africa. OK, both coffee people and aid people tend to exaggerate, so don't take (3) literally, unless you are from the Earth Institute.

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What better place to begin Manhattan coffee mania than at Stumptown Coffee Shop? This place takes African coffee so seriously, there are two varieties from Burundi and two from Rwanda, and if you give up your first born child,  you can take back a pound of beans to Ohio.

Next is Café Grumpy, where they have a $10,000 machine to brew the clean, sweet, complex $12 cup of coffee from Nekisse, Ethiopia.

Down 7th Avenue to Irving Farm (Go Rwanda!). {Full disclosure: I have a personal connection to Irving, but they're great anyway.} On to Third Rail, rated the best coffee in Manhattan by somebody, and also selling killer Yirgacheffe from the birthplace of coffee. And no, they don't have a bathroom -- this is Manhattan, you can pee when you get back to Iowa.

Moving east we get to La Colombe, accidentally discovered by coffee-illiterate Chris Blattman next to his office. They sell coffee labelled Afrique, which I am pretty sure is in Africa. Sometimes there's a bit of a wait. What part did you not understand about "no bathroom"?

And then just a little further east is Gimmee Coffee, which turns Rwandan coffee into espresso so delicious and thick that you stir it with the hunting knife you brought from Idaho.

Even farther east is the Roasting Plant in a gentrifying former immigrant slum on the Lower East Side.  It embodies the coffee-phile obsession with fresh roasted coffee, so your $24/lb Ethiopian Harrar turned brown right before we walked in.

Now that you've drunk enough coffee, reach with your shaking hands for your Gold Card to buy yet more coffee beans. Whole Foods, Dean and Deluca, and even Murray's Cheese Shop sell Fair Trade, which is almost as good as Unfair Trade for transferring income from rich NYC to Kayanza, Burundi.

If you want to keep things simple, tourists, our last stop is Porto Rico Coffee Importers, which sells many African coffees,  but no spiel on "helping the poor Africans".

Manhattan's pampered and discriminating coffee fanatics don't buy from African producers out of pity, they buy from African producers because they supply wonderful coffee.

Thanks for coming, tourists, have a nice trip back to Indiana. Don't forget mail order.

Toppling Qaddafi

Who was that madman ranting about his hallucinations on Libyan TV, desperately in need of an anger management intervention? Oops, that's the ruler of the country. He has gotten even more ridiculously scary since our last post.

A small group of young people who have taken drugs have attacked police station like mice ... However there is a small group of sick people that has infiltrated in cities that are circulating drugs and money.

This bunch of greasy rats and cats.

Libya wants glory, Libya wants to be at the pinnacle, at the pinnacle of the world...I am a fighter, a revolutionary from tents ... I will die as a martyr at the end...to my last drop of blood. ...You men and women who love Gaddafi ... get out of your homes and fill the streets. Leave your homes and attack them in their lairs. They are taking your children and getting them drunk and sending them to death. For what? To destroy Libya, burn Libya. .. Forward, forward, forward!

Sympathies to the courageous Libyans fighting for their freedom against this crazed tyrant.

What can the rest of the world do? The usual "don't just stand there, do something" could result in counter-productive actions. Any military intervention would play into Qaddafi's hand, especially since there really is nobody that can be trusted to do a "neutral humanitarian" intervention.

Trade embargo not a good idea -- why punish the Libyan people? Libya's opening to tourism and trade with the West in the last few years has arguably made this current revolt more possible, not less possible.

(True confessions: I went to Libya myself for a trek in the Sahara over Christmas holiday. And I have to also confess that, even being extremely skeptical of "benevolent autocrats," I too was deceived that "Qaddafi had changed.")

Too many NOs for you? Well here's some Constructive NOs: NO to any aid to Libya, NO to any caving in to Libyan government contract blackmail, NO to arms sales, NO to "colonial reparations." NO to "slavish" courting of Qaddafi (Feel free to apply any of all of that to you, Prime Minister Berlusconi).

YES to freezing foreign assets of the Qaddafi family, which the FT reports to be substantial (OK, Swiss?)

African export success: finding the needle when you're not sure which haystack

Export success in Africa is a matter of finding a rare Big Hit, with the added complication that it won't stay a hit, and that in a few years you will need a new Big Hit.

This from a new NBER working paper by Ariell Reshef (U. Va.) and myself. We also tell some stories of the individual successes, some of which involve the local government.

The news is not that Africa is different from the rest of the world in this, but that it's the same.

This unstable uncertainty holds regardless of whether you include or exclude oil, minerals, and other export commodities. And so does the concentration of success -- the top-ranked non-commodity export is 23 times larger than the 10th ranked export.

The stereotype of African countries as unchanging mono-exporters based on some unchanging natural endowment just turns out to be...wrong.

Coping with such remarkably high and unstable uncertainty (the "unknown unknowns") as to what will be a hit seems like an a priori case for a lot of decentralized, highly motivated seekers and experimenters. We don't exclude ANY possible government involvement -- at the very least, governments need to be nimble to adjust regulations and infrastructure to support any new success that comes along from private entrepreneurs.

In sum, we think there is just as much a role for entrepreneurs in Africa, and just as little role for centralized and systematic government industrial policy, as in the rest of the world.

The transparent US government to development advocates: drop dead

Robert Strauss, a Madagascar-based consultant, filed a Freedom of Information Act request last March to find out more about the US government decision to remove Madagascar from its list of countries eligible to receive trade preferences  under AGOA. This is a decision we have blogged about many times, since it has cost thousands of Malagasy textile workers their jobs, without having any discernible effect on the leaders responsible for the 2009 coup and subsequent governance gridlock that landed Madagascar on the US Trade Representative's hit list in the first place. We also wondered why Madagascar was singled out when dictatorships like Cameroon are still eligible for AGOA.  Strauss requested: Four months later, the USTR replied:

We have already had a fruitless dialogue with Ms. Hamilton, so that's just a cover for the cover-up on what really caused the US government to do something so destructive to blameless textile workers in Madagascar.

Development: Say it with flowers

Cut flower exports get a lot of development buzz. I'll make this into a bleg for anybody who can contribute some systematic knowledge on this. Of course, I first did my own exhaustive research on this, in the form of a 10-minute chance conversation with a flower importer for a major chic retailer in New York. The flowers shown from South Africa and Ecuador surprised me. I didn't know Ecuador had cut into the famous Colombia success story in providing America's roses, and I didn't even know South Africa WAS a flower exporter, especially to the US. She told me that many flowers have a longer shelf life than I thought, like 12 days, giving time to fly them long distances.

The South African flowers went to Amsterdam (the center of the global market) to Miami (the entry point for all flowers to the US, possibly chosen by customs to catch drugs mixed with the flowers) and then to New York. Africa's most famous success story is Kenyan cut flowers to Europe, currently being somewhat displaced by Ethiopians.  According to a co-authored paper that I will discuss in a future blog, Uganda was a competitor in this market until increased fuel prices after 2003 drove their firms out of business; Ethiopia's flower exports took off at the same time because of some combination of better flowers, government subsidies, and foreign aid subsidies (the latter obviously merits more investigation on its own). Other small African exporters have been Zimbabwe, Zambia, and Tanzania.

My own informant had visited Cote d'Ivoire as a possible source for the US market, but the international flights were to Paris, and Abidjan to Paris to Amsterdam to Miami to New York was a few airports too many.

Flower exports could be beautiful in theory: good horticultural land + cheap labor + air transport = earnings for poor people. But may be not if they have to go through 5 airports.

Anybody like to respond to this bleg with some more flower information?

The Millennium Development Goal that really does work has been forgotten

UPDATE 12 noon: this  is a dueling oped with Sachs on ft.com, debate has moved on and even some agreement (see end of post) from a column in the on-line Financial Times today ; for ungated access and a picture of the handsome author go here. The Millennium Development Goals tragically misused the world’s goodwill to support failed official aid approaches to global poverty and gave virtually no support to proven approaches. Economists such as Jeffrey Sachs might argue that the system can be improved by ditching bilateral aid and moving towards a “multi-donor” approach modelled on the Global Fund to Fight Aids, Tuberculosis and Malaria. But current experience and history both speak loudly that the only real engine of growth out of poverty is private business, and there is no evidence that aid fuels such growth.

Of the eight goals, only the eighth faintly recognises private business, through its call for a “non-discriminatory trading system”. This anodyne language refers to the scandal of rich countries perpetuating barriers that favour a tiny number of their businesses at the expense of impoverished millions elsewhere. Yet the trade MDG received virtually no attention from the wider campaign, has seen no action, and even its failure has received virtually no attention in the current MDG summit hoopla.

This is all the more misguided because trade-fuelled growth not only decreases poverty, but also indirectly helps all the other MDGs. Yet in the US alone, the violations of the trade goal are legion. US consumers have long paid about twice the world price for sugar because of import quotas protecting about 9,000 domestic sugar producers. The European Union is similarly guilty.

Equally egregious subsidies are handed out to US cotton producers, which flood the world market, depressing export prices. These hit the lowest-cost cotton producers in the global economy, which also happen to be some of the poorest nations on earth: Mali, Burkina Faso and Chad.

According to an Oxfam study, eliminating US cotton subsidies would “improve the welfare of over one million West African households – 10 million people – by increasing their incomes from cotton by 8 to 20 per cent”.

Brahima Outtara, a small cotton farmer in Logokourani, Burkina Faso, described the status quo to the aid agency a few years ago: “Cotton prices are too low to keep our children in school, or to buy food and pay for health.”

To be fair, the US government has occasionally tried to promote trade with poor countries, such as under the African Growth and Opportunity Act, a bipartisan effort over the last three presidents to admit African exports duty free. Sadly, however, even this demonstrates the indifference of US trade policy towards the poor.

The biggest success story was textile exports from Madagascar to the US – but the US kicked Madagascar out of the AGOA at Christmas 2009. The excuse for this tragic debacle was that Madagascar was failing to make progress on democracy; an odd excuse given the continued AGOA eligibility of Cameroon, where the dictator Paul Biya has been in power for 28 violent years. Angola, Chad and even the Democratic Republic of the Congo are also still in. The Madagascan textile industry, meanwhile, has collapsed.

In spite of all this, the great advocacy campaign for the millennium goals still ignores private business growth from trade, with a few occasional exceptions such as Oxfam. The burst of advocacy in 2005 surrounding the Group of Eight summit and the Live 8 concerts scored a success on the G8 increasing aid, but nothing on trade.

The UN has continuously engaged US private business on virtually every poverty-reducing MDG except the one on trade that would reduce poverty-increasing subsidies to US private business. And while the UN will hold a “private sector forum” on September 22 as part of the MDG summit, the website for this forum makes no mention of rich country trade protection.

The US government, for its part, announced recently its “strategy to meet the millennium development goals”. The proportion of this report devoted to the US government’s own subsidies, quotas and tariffs affecting the poor is: zero. News coverage reflects all this – using Google News to search among thousands of articles on the millennium goals over the past week, the number that mention, say, “cotton subsidies” or “sugar quotas” is so far: zero.

It is already clear that the goals will not be met by their target date of 2015. One can already predict that the ruckus accompanying this failure will be loud about aid, but mostly silent about trade. It will also be loud about the failure of state actions to promote development, but mostly silent about the lost opportunities to allow poor countries’ efficient private businesspeople to lift themselves out of poverty

UPDATE: this was a dueling piece with an oped by Sachs today on FT.com.

One of us also got a prestigious slot in the print edition of FT :>)

Surprising new agreement with Sachs, where he says:

{Bilateral aid doesn't work because it's} "largely unaccountable," "programmes are scattered among many small efforts," {and it creates mainly an} "endless spectacle of visiting dignitaries from donor countries."

Continuing disagreement with Sachs when he says:

The most exciting example {of success} is the Global Fund to Fight Aids, TB and Malaria. ...while a decade ago all three diseases were running out of control, now all are being reined in with millions of lives saved.

Jeff, could you clarify a bit what you mean saying that AIDS is "being reined in" when for every 100 people added to AIDS treatment, 250 people are newly infected with HIV?

Be careful what you export

Our distant ancestors had a biological constitution awfully similar to our own, and, like us, only 24 hours in a day. Arguably the main reason we have so much better lives than them is that we have better ways of doing things (broadly conceived). So it makes a great deal of sense that much of the work in development planning and foreign aid consists in exporting ways of doing things. Technology and scientific know-how are the most easily obvious examples, but we also export methods of organization and governance. People in poorer nations don't have the nice things we do, so it must be because their ways of doing things aren't as effective as our own. If we could just convince them to do things the way we do them then everyone would be rich, and Bill wouldn't get any reception in Ghana either. So wealthy nations have spent a lot of time trying to export their newest and best makes and models of laws, regulations, and government agencies to the rest of the world.

One problem with this approach--one among many--is that it assumes that our every institutional and organizational innovation is beneficial. We call this "Whig history." And while it's hard to argue that wealthy nations don't have an overall mix of institutions better adapted to producing wealth, it's quite another to assume that they're superior (at wealth production) to poor nations' institutions on every margin. It could be that the evolution of our ways of doing things has taken a wrong turn in one or more spheres of activity.

Two recent articles raise the concern of Whig history, in ways relevant to ongoing debates in development. Eustace Davis writes at African Liberty that:

Governments world-wide are struggling to solve the problem of deficiencies in their schooling systems.  Politicians, teachers, educationists, administrators, employers, parents, politicians, policy analysts and students have differing ideas on how the problem should be solved.  All agree that something is wrong.  All have ideas on the kind of tinkering that is needed to fix the problem. The framework within which schooling functions is seldom or ever questioned; a framework that is little changed since schooling was nationalised in England in the late 19th and in the US in the early 20th centuries...

Schooling systems everywhere have become frozen in time. Schools are configured much as they were, and function in the same way they did, a century ago. A 1910 child would feel very much at home in a ‘modern’ school environment, whereas everything else in the world we live in has changed dramatically over the past 100 years.

Davis is concerned that the whole world copied England's public educational institutions after they changed for the worse (see also James Tooley's work on this topic).

And this article reports on the work of historian Eckard Höffner on 19th century Germany's copyright law, or lack thereof. Höffner argues that the absence of copyright law facilitated the spread of knowledge that was critical to Germany's industrialization and flowering scientific community. There is certainly no shortage of debate about the role of intellectual property in international development, but most of it assumes that IP law is wealth-enhancing in wealthy nations. Are we sure? How sure should we be before we export our IP laws?

Are these convincing examples of Whig history gone wild? Are there others?

Help the world's poor: Buy some new clothes

This is a guest post written by Benjamin Powell, an assistant professor of Economics at Suffolk University and a Senior Economist with the Beacon Hill Institute.  He is the editor of Making Poor Nations Rich, and is currently writing a book entitled No Sweat: How Sweatshops Improve Lives and Economic Growth. Back to school shopping leads many people to buy apparel that was made in sweatshops. Rather than feel guilty for “exploiting” poor workers, shoppers should rejoice.  Their spending is some of the best aid we can give to people in poorer countries.

When workers voluntarily take a job they demonstrate that they believe the job is the best alternative available to them – even when that job is unsafe and the pay is very low compared to wages in the United States. That’s why economists with political views as divergent as Paul Krugman and Walter Williams have both written in defense of sweatshops.

Sweatshop jobs are often far better than the vast majority of jobs in the countries where they are located. David Skarbek and I researched sweatshops that were documented in U.S. news sources (or see here for my shorter, more general defense of sweatshops). We found that sweatshop worker earnings equaled or exceeded the average national income in 9 out of 11 countries we studied. Working in a sweatshop paid more than double the national average in four of the countries.

Sweatshops can also play a crucial role in economic development. Sweatshops bring investment, better technology, and the opportunity for workers to build skills. It was not long ago that sweatshops existed in many now-wealthy Asian countries.

New York Times columnist Nicholas Kristof wrote that “We need to build a constituency of humanitarians who view low-wage manufacturing as a solution” for poverty in the third-world.   I hope many AidWatchers will join that constituency by defending sweatshops.

African Export Success: Shooting Fowl while riding an Antelope

Contrary to the image of African countries as static mono-exporters, it is unpredictable from one period to the next which will be the top exports in each country. Consider this picture of Tanzania’s top exports in 1998 and 2007.

This is pattern of rapidly changing success is the norm across African countries. If you take the top 100 exports in each country in 1998 (or the first year in which data is available), its correlation with the rank of those same exports in 2008 is only .29.

Moreover, almost none of the changing success is explained by global commodity prices. In fact, there is little difference in the dynamic changeability of African commodity export performance and that of the continent’s non-commodity export performance. Nor is there any difference between how much global prices explain commodity exports (which is hardly at all) compared to non-commodity exports.

The usual stereotype of African exports as just given by a natural commodity or mineral endowment, with fluctuations mainly explained by global commodity prices, is just ... wrong.

These findings were featured in a paper by Ariell Reshef  (UVa) and myself in the National Bureau of Economic Research conference on African  Development Success July 18-20 in Accra.

What does it all mean? Actually, the patterns in Africa were similar to those in non-African countries. In all cases, succeeding in exports requires aiming at a moving target. Who will do better under these conditions, state industrial policy planners or decentralized entrepreneurs with specialized knowledge of what is working and what is not in each sector?

US food aid policies create 561 jobs in Kansas, risk millions of lives around the world

I read recently the First Law of Policy Economics: Every inefficiency is someone’s income. US food aid policy is definitely no exception, and it is riddled with inefficiencies.

Exhibit A: This invitation from a coalition of big US shipping interests to an event in Washington today. At this event, USA Maritime will have tried to convince lawmakers and their staff that ancient and outdated US food aid legislation, which requires virtually all US food aid to be bought in-kind from the US, processed and bagged in the US, and shipped on US-flag ships to even the most far-flung destinations, should not be altered.

Let us leave aside for a moment that the report recommending favorable policies for the US shipping industry was bought and paid for by the US shipping industry and may not be the most objective or trustworthy source on the subject.

The main thrust of the shipping industry’s argument is that handling, processing and shipping food aid creates US jobs—13,127 of them to be exact—and boosts US industry, leading to this actual headline: “Food For Peace Program Produces More Than 870 Iowa Jobs.” If these policies were removed, they argue, it would be less profitable to operate a ship under the US flag, the US-flag fleet would shrink, and American jobs would be lost.

“Did you know,” reads the invitation, “that these programs have positive economic consequences for our economy at home?” The report tries to quantify one benefit of current US food aid policies, but (obviously) does not discuss the considerable costs of these policies to US tax payers, to the US’s reputation and credibility abroad, and most importantly to programs’ intended recipients—the millions of hungry and malnourished people fed by the world’s largest food aid donor every year.

The shipping industry’s arguments don’t hold water for many reasons. Here are two of the big ones:

First, assuming that you did want to subsidize the US Maritime industry, US food aid policies that create an overpriced, uncompetitive oligopoly are NOT a good way to do it. There are much cleaner, simpler and more effective ways to support US Maritime, such as direct payments to vessel owners. There is no reason to bundle shipping subsidies in with humanitarian aid other than the deeply cynical logic that it’s easier to rally public and Congressional support around money for starving children than around padding to the bottom line of multinational shipping conglomerates.

Second, current US food aid policies are NOT an effective or efficient way for the US to achieve what should rightly be the primary objective for food aid. According to the government’s own accountability office, buying food locally in sub-Saharan Africa (which is where the majority of US food aid goes) costs 34 percent less than shipping it from the US, AND gets there on average more than 100 days more quickly, AND is more likely to be the kind of food people are used to eating. I am not arguing that cash aid is ALWAYS better than food aid, only that any reasonable food aid policy would allow aid agencies the flexibility to determine what kind of assistance works best in each situation.

Despite resistance from all three sides of the iron triangle holding this legislation in place, innovators have managed to break loose about $400 million for pilot and supplemental programs over the last two years to buy food locally or regionally. This is still a small sum compared to the roughly $2 billion that the US spends annually, but it is progress.

With today’s lame report, the big shipping companies behind USA Maritime are asking us to value a few thousand American jobs in a declining and uncompetitive industry over America's humanitarian reputation abroad AND the lives of the millions more people around the world who would benefit from reform to US food aid policy.

Do we even have to say it? This is NOT a fair trade.

What don’t make sense in trade don’t make sense in aid

Common sense principles in international trade are surprisingly useful for aid as well. Here's a list of overall principles that help explain some of the most discussed aid dos and don’ts on this and other blogs. 1) Don’t trade low value items with huge transport costs. No exporter or importer in their right mind would ship bulky low-value items large distances, which is why things like construction materials are often locally-sourced. Aid examples: Nobody wants your old shoes, 1 million shirts. 2) Don’t send coals to Newcastle. Nobody exports food to a food-abundant region. Well nobody but US food aid, which ships food from Nebraska to the Horn of Africa, when there is plenty of food already in the region (it’s just badly distributed inside the region, which is what wise food aid could correct). 3) Don’t do dumping; it is illegal. Exporters are not supposed to charge a much lower price abroad than they do domestically, driving local producers out of business – that’s called dumping, and it’s illegal under WTO rules. Wait, unless the dumper is USAID and it's called food aid. Actually, US food aid violates all of these first three principles. 4) Do export goods intensive in abundant resources; don’t export goods intensive in scarce resources. Many aid projects designed to promote poor country exports in a promising product violate this rule when they make the project dependent on the scarce and expensive resource called International Expertise. Small-scale handicraft projects heavily dependent on foreign experts are particularly gross violators.

Actually, ANY aid project should be designed to maximize use of abundant resources and minimize use of scarce resources. This is one of the defects of the Millennium Village approach – it’s intensive in the use of expensive foreign expertise, and so is not scalable.

5) The most gains from trade come when something is cheap in the exporting country and expensive in the importing country. Thank goodness the US does not try to grow its own bananas at some enormous expense, when they are cheaply bought from Central America and Colombia. Antibiotics can be cheaply made in rich countries but would be very expensive to produce in African countries, which is why aid projects that provide antibiotics cheaply make a lot of sense (actually private trade in antibiotics happens for the same reason, but doesn’t reach the poorest of the poor). Antiretroviral drugs, unfortunately, are expensive in the exporting country, so they are not as good an aid deal as antibiotics.

Of mangos and plastic crates

Sometimes the things that keep people in poverty seem so small and so insignificant, and the remedies seem so simple, that it’s hard for people from rich countries to understand why they remain impoverished.

Jelen, a Haitian farmer living on about $2 a day, can’t get enough water to her mango trees, even though there is a river just beside her property. She needs a simple canal dug from the river to irrigate her trees. But this investment remains out of reach for her.

Many small Haitian mango farmers, including Jelen, could increase their income if their fruit didn’t get bruised and damaged on the way to market. If the farmers would just protect their fruit by storing and transporting it in basic plastic milk crates, then one of Haiti’s biggest mango exporters says he could sell twice as many mangoes to picky American consumers.

This is the story told in a segment of this week’s This American Life. I’ve always loved this National Public Radio program for the way it tackles big, complex issues by weaving together the stories of ordinary people, and I’d always hoped they would take on foreign aid.

In this particular segment, produced by Planet Money, we meet the mango exporter, named Jean-Maurice, who first tries simply driving out to the farmers and giving them the plastic crates. This fails completely, as the crates get broken, or used as chairs or in schools as bookshelves. The farmers probably don’t know where their fruit ends up, and can’t easily imagine the American consumers for whom it would be so important that their mangoes arrive unblemished.

The business man Jean-Maurice overcomes his distrust of NGOs to partner with an organization that will train farmers how to clean and store their fruit using the crates. The NGO’s job will be to explain why they should change the way they harvest and store their mangos, connect that to a future increase in profits, and distribute the crates.

But once the NGO is involved, Jean-Maurice—known to friends as “the Mango Man” – and the Haitian farmers are plunged into an unfamiliar world of paperwork and regulations. The USAID-funded NGO requires a piece of land from which to distribute the crates, and this piece of land has to be donated by agreement from the group of 60 farmers that owns it. They also need the deed, which was never transferred from its original owners, and resides in an expatriate Haitian’s New York basement. The partners finally complete these Herculean tasks and are ready to start…a few weeks before the earthquake hits.

After the devastation of the earthquake, of course, comes the international outpouring of concern, attention and money, and the arrival of development experts from all over the world. The correspondent asks:

But what if now there’s an opportunity to take all the attention, all the money, and work together like never before? What if this is the shot? Instead of solving one small problem at a time, to address all the country’s problems, all at once?

I won’t ruin the ending by divulging whether the correspondent’s optimism remains in place by the time the story is over. But don’t miss her conversation with USAID’s Deputy Director in Haiti, towards the end of the segment.

The whole episode is a fascinating look into the aid world and Haiti. You can listen or download it here.

(photo credit)

Oops, did I just prove "Confessions of a hit man" conspiracy?

Ray Fisman in Slate takes my paper with Daniel Berger, Nathan Nunn, and Shanker Satyanath on Commercial Imperialism as partial confirmation of John Perkins' allegation of a global conspiracy to take down poor nations for the benefit of rich corporations. This is fun, so let's run with it. Of course there's a eeny weeny difference between conspiracy theories and social science that just says, yes, CIA interventions could have been helpful to US corporations making a few export sales in US client states (Fisman knows this as he makes clear in the article). The full-fledged conspiracy version has the World Bank coordinate and centrally plan the actions of myriads of large corporations, US government agencies, and other aid agencies, all with their own separate interests, to all work for the general obscene profit of all corporations. Which is a bit implausible when the World Bank can't even plan malaria control.

Alright, you got me, I'm part of the conspiracy. They threatened my dog Lucy if I did not recant my candid research. Which is also kind of the problem with conspiracy theories: if there is no evidence for them -- it just means the conspiracy hid the evidence! Conspiracy theories never go out of fashion because it's impossible to disprove them.

The NYT today had a front pager about a conspiracy theory in Pakistan that sees a vast effort to destroy Pakistan led by an American "think tank." I wonder which one? Some think tanks I know (NOT including my good friends in think tanks) could possibly wield deadly weapons of mass boredom.  Let me investigate further and get back to you.

Unfortunately for those fighting the proliferation of conspiracy theories, the US military is doing it's best to spread mass paranoia about Americans everywhere. According to the headline story in yesterday's NYT, General David Petraeus has ordered a vast secret intelligence gathering program around the world, among other things:

General Petraeus’s September order is focused on intelligence gathering — by American troops, foreign businesspeople, academics or others — to identify militants and provide “persistent situational awareness,” while forging ties to local indigenous groups.

Thanks a lot General Petraeus! Now no American academic can go anywhere in the world with being seen as a spy. John Perkins knew it all along...

Commercial Imperialism? Political Influence and Trade During the Cold War

We exploit the recent declassification of CIA documents and examine whether there is evidence of US power being used to influence countries' decisions regarding international trade. We measure US influence using a newly constructed annual panel of CIA interventions aimed at installing and supporting leaders during the Cold War. Our presumption is that the US had greater influence over foreign leaders that were installed and backed by the CIA. We show that following CIA interventions there was an increase in foreign-country imports from the US, but there was no similar increase in foreign-country exports to the US. Further, the increase in US exports was concentrated in industries in which the US had a comparative disadvantage in producing, not a comparative advantage. This is consistent with US influence being used to create a larger foreign market for American products. Our analysis is able to rule out decreased bilateral trade costs, changing political ideology, and an increased supply of US loans and grants as explanations for the increase in US exports to the intervened country. We provide evidence that the increase in US exports arose through direct purchases of US products by foreign governments.

This is the abstract for an NBER Working Paper just released, which I co-authored with Daniel Berger, Nathan Nunn, and Shanker Satyanath. Read the whole thing here.

Rwanda’s coffee success story

A walking tour through some of the trendiest coffee shops in the NYU vicinity reveals a common element: creatively packaged, expensive Rwandan coffee for sale.

Given our long-standing interest in 1) good coffee and 2) the potential of entrepreneurship for development, this phenomenon clearly merited investigation. The work of Karol Boudreaux, who has been following the Rwandan coffee sector for several years, helps to sketch the outlines of a partially donor-funded development success story now unfolding.

The history of coffee in Rwanda is intertwined with the country’s political fortunes, and stretches back to the 1930s when the Belgian colonial government required Rwandan farmers to plant coffee trees, while setting price restrictions and high export taxes, and controlling which firms could purchase coffee. These policies helped create a “low-quality/low-price trap” that would bedevil the post-colonial governments that continued similarly heavy-handed policies. They also ensured a national distaste for the stuff—reportedly even today many Rwandans prefer tea.

In the late 1980s global coffee prices plummeted, and the economic devastation following Rwanda’s 1994 genocide wiped out what remained of the struggling industry. In 2000, there was no functioning infrastructure to wash and process coffee beans, meaning that what little coffee was produced was of poor quality.

Fast forward ten years to today: Rwanda has a National Coffee Strategy. Rwandan specialty coffee is winning international competitions, commands some of the world’s highest prices, and is sought out by Starbucks, Green Mountain Coffee, Intelligentsia, and Counter Culture Coffee. There is preliminary evidence that the coffee industry is creating jobs, boosting small farmer expenditure and consumption, and possibly even fostering social reconciliation by reducing “ethnic distance” among the Hutus and Tutsis who work together growing and washing coffee.

How did this happen? First, the Rwandan government lowered trade barriers, and lifted restrictions on coffee farmers. Second, Rwanda developed a strategy of targeting production of high-quality coffee, a specialty product whose prices remain stable even when industrial-quality coffee prices fall. Third, international donors provided funding, technical assistance and training, creating programs like the USAID-funded Sustaining Partnerships to Enhance Rural Enterprise and Agribusiness Development (SPREAD). SPREAD's predecessor started the first Rwandan coffee cooperative as an experiment in 2001, and the project continues its work improving each link in newly-identified high-value coffee supply chains.

Some problems and constraints still plague the Rwandan coffee sector. For example, transport costs remain high, and poor management at some coffee cooperatives points to a persistent need for good training and financial management skills.

Still, Rwanda’s revenues from coffee are still growing in the face of global recession, and these revenues bring real benefits to Rwanda’s rural poor.

Worst in Aid: The Grand Prize

Hillary Clinton recently declared: “We are working to elevate development and integrate it more closely with defense and diplomacy in the field…The three Ds must be mutually reinforcing.” Clinton says that the 3D approach will elevate development to the level of diplomacy and defense. Unfortunately, it could instead lower development further to an instrument employed to achieve military or political priorities. Clinton foresaw these objections: “There is a concern that integrating development means diluting it or politicizing it – giving up our long-term development goals to achieve short-term objectives.” She said reassuringly, “[t]hat is not what we mean, nor what we will do.”

But it’s too late. Sacrificing long term development aims for short term military and diplomatic objectives is what the US already does, and the 3Ds is making it worse. That’s why the Grand Prize for the Worst in Aid goes to…the 3D approach, nominated by an anonymous reader.

References to the "3D approach,"… have become so pervasive in foreign policy, development, and national security circles that they have taken on the status of self-evident, common wisdom. - J. Brian Atwood, former USAID administrator, February 2010

The frequent contradiction between defense and development is the most obvious instance of 3D dissonance. A coalition of eight NGOs in Afghanistan lamented that “[d]evelopment projects implemented with military money or through military-dominated structres aim to achieve fast results but are often poorly executed, inappropriate, and do not have sufficient community involvement to make them sustainable.” Nonetheless, increasing amounts of aid get channeled through the military, “while efforts to address the underlying causes of poverty and repair the destruction wrought by three decades of conflict and disorder are being sidelined.”

An Oxfam case study on programs to reform the security sector in “frontline” states like Iraq illustrated another way in which narrow military goals (to train and equip soldiers and police) are not entirely compatible with development goals. The report found that an increasing reliance on military contractors rather than civilians “has strongly reinforced the focus on operational capacity over accountability to civilian authority and respect for human rights.”

In the battle of the Ds, enervated development loses to pumped-up defense, and not just in Afghanistan and Iraq. The trend goes two ways: USAID is compelled to spend more and more of its budget on states that are strategically and militarily important (The 2011 foreign aid budget allocates 20 percent of State and USAID money for “securing frontline states.”) A development priority like India (with a huge chunk of the world’s poor) loses out. At the same time, a growing proportion of what the US calls Official Development Assistance flows through the Pentagon rather than USAID.

Frequent readers of the blog will already be familiar with our final example. On Christmas Eve in Madagascar, President Obama bowed to the exigencies of diplomacy when he punished the nondemocratic government of Madagascar by taking away trade access to U.S. markets. But this same action was disastrous for development.  Already, tens of thousands of jobs created textile exports to the United States under the African Growth and Opportunity Act (AGOA) have been lost. Factories are closing, increased competition among street workers is pushing down wages, and the effects are spilling over into neighboring countries that made inputs to Madagascar’s factories. Any claim that the Madagascar AGOA delisting was part of a high-return Diplomatic initiative to promote Democracy became a wee bit more tenuous when we saw Angola, Cameroon, and Ethiopia named on Christmas Eve as still eligible for AGOA.

[We could go on -- This week brought another collision of development and defense/diplomatic goals in Somalia.]

The lie that underlies the 3D framework is that development, diplomacy, and defense are complementary (or totally “mutually reinforcing”); that there are no difficult choices to be made. Alas, politicians are fond of denying the existence of tradeoffs (we are not trying to pick on Hillary in particular; many politicians are guilty of this).

The only 3D strategy that makes sense for development is one that acknowledges the frequent conflicts between these three very different goals as natural outcomes of their different agendas.  Then we can hold our politicians accountable when they sacrifice Development big-time to achieve small-time (or sometimes illusory) Diplomatic or Defense goals.

Chronicle of a death foretold

When the article Madagascar: Textile Industry Unravels came across our desks yesterday, we were saddened but not surprised. That’s because people on the ground have been predicting this outcome (and Aid Watch has been stubbornly blogging about it over and over). Multiple critics have protested ever since the US government, hoping to force President Andry Rajoelina’s questionable government to hold elections, first threatened to remove preferential trading rights for Madagascar. The Malagasy textile industry was a clear success story of the US African Growth and Opportunity Act (AGOA), which removed US quotas and duties from thousands of products from eligible African countries. Madagascar’s exports tripled in the first three years of the program, and the textile sector, which made up 60 percent of Malagasy exports, accounted directly for 50,000 jobs and indirectly at least 100,000 more.

The US pulled the plug on AGOA at the end of December and import duties of up to 34 percent were reintroduced. Now we are starting to see the effects in the formal and informal economy:

• Factories closing and factory jobs lost: “As lead times [expire] on orders placed before the agreement [came to an end], factories are laying off workers and we are seeing an explosion in the numbers of unemployed,” said the director pf the Association of Free Trade Business in Antanarivo.
• Increased competition among street traders now that former factory workers are pushed out to sell goods in overly crowded street markets (and lower wages now for both): “‘I used to be able to earn 20,000 ariary ($9.30) a day,’ said Soloniaina Rasoarimanana, who has been selling clothes from a pavement stall for 10 years. ‘Now, with the political crisis and more competition, I earn around 5,000 ariary ($2.30) a day.’”
• Knock-on effects in neighboring countries (Mauritius, Swaziland, Lesotho, South Africa) which made inputs like zippers to Madagascar’s factories.

Among the effects we are NOT seeing: signs of increased interest in arriving at a power-sharing agreement or instating democratic governance on the part of Rajoelina’s government.

Ineffective sanctions, effective job destruction.  An unaccountable branch of the US government hurts poor people far away who have no voice in US politics. Deeply saddened…we don’t know what more to say.

Madagascar textile workers ask President Obama to keep their jobs for Christmas, but nobody is listening

Here's an excerpt from an ad that appeared in the print edition of Politico today, paid for by the owners of apparel factories in Madagascar and one of their American investor partners. We have blogged about this seemingly obscure issue already many more times than you, our patient readers, may have wanted, but we see this as one of those rare, clear opportunities for the US to do good by first doing no harm. And yet US leadership seems blithely set on a course of action that will punish vulnerable textile workers and their families without touching the fortunes of the political elite responsible for Madagascar's current predicament.

President Obama: Please don’t harm one half million of the poorest people in Africa.

Your advisors have recommended that you decertify Madagascar as a beneficiary country for benefits under the Africa Growth and Opportunity Act (AGOA). This action will revoke the duty free treatment for products such as trousers, t-shirts and sweaters produced in Madagascar next year—re-imposing steep US import taxes as high as 32% on a polyester t-shirt. This action will make garments produced in Madagascar uncompetitive with similar products made in China — which already produces 100 times more apparel for the US market compared to Madagascar.

We ask you to consider the human tragedy of an action that will wipe out 100,000 good jobs in the Madagascar apparel sector created under AGOA. Surely there is a way to send a strong message to feuding politicians in Madagascar — without punishing innocent workers and their families who have nothing to do with the disputed control of Government. Your advisors will tell you that they are doing this to help people in Africa.

We respectfully disagree.

While we hope that the continued destabilized situation in the Government of Madagascar is hopefully only temporary, we know that the exit that results from AGOA decertification from the country of our American retail customers will be permanent.

Over 28,000 of our employees signed a petition to President Obama asking him to save their jobs. A copy of that letter can be viewed at www.gefp.com.

USTR Replies to Our Campaign to Save Madagascar Jobs

After sending an email to Constance Hamilton, Deputy Assistant U.S. Trade Representative for Africa, we received the following email in response: Thank you, Mr. Easterly, for your email. We of course, want to have as many sub-Saharan African countries as possible be eligible for AGOA benefits. We are working with all the countries, including Madagascar -- to encourage their governments to abide by the AGOA eligibility criteria, particularly rule of law. There has been some recent progress amongst the Malagasy actors involved which gives us some hope. But at the end of the day, an unstable political environment, no regard for rule of law, etc. will undermine Madagascar's future, ongoing investment, and the lives of its people more than any one preference program or initiative. We hope that it is their understanding of that point that will keep them moving forward with restoring democracy and rule of law in Madagascar.

Regards, Connie Hamilton

Hopeless cause of the week: save Madagascar!

Aid Watch has a stubborn attachment to excellent but possibly hopeless causes… Madagascar, a country we first blogged about in June and then again in August, may be down to its last few days as regards AGOA, the US preference program that underpins about 50 percent of the country's $500 million textile industry.  Because of the change of government that took place in Madagascar in March, the US has been steadily threatening to suspend its AGOA eligibility unless the country returns pronto to constitutional government.  A committee consisting of representatives from State, Commerce, Labor, Treasury, USAID, the NSC and the USTR has been deliberating for several days on whether Madagascar's transgressions merit suspension from AGOA.

With little likelihood that egregious democracy and human rights violators like Gabon and Angola will be suspended from AGOA, it's hard not to be cynical about why Madagascar has come under such scrutiny for a regime change in which a highly experienced kleptocrat was replaced by a less experienced one.  Or why, suddenly, there is such concern about a return to constitutional government when it's not at all clear that Madagascar's leaders over the last 40 years have ever placed the interests of their people above their own.  We can be fairly sure that if Madagascar were pumping oil instead of just looking for it the country's AGOA status would not even be under consideration. Still, we’re going to try not to be cynical.

We don’t know WHAT the AGOA eligibility committee on Madagascar is talking about. (The committee doesn't actually make the final decision on AGOA.  They make a recommendation to the president who typically announces who's in and who's out around Christmas time.)  But we imagine the discussion breaks down in two ways.  On one side, there are the idealists who believe that the AGOA goals of promoting democracy and good governance will never be achieved unless the US gets serious about sanctioning individuals who overthrow democratically elected governments.  After seeing Madagascar's political leaders backslide, prevaricate and just plain lie about their intentions in on-going negotiations brokered by the AU, SADC and the UN, the idealists are skeptical about whether these leaders - none of whom is a poster child for good governance - are serious about resolving their long standing differences.  The idealists are probably right.  These political adversaries, who have overthrown one another like kids playing leapfrog, despise each other.  We can expect that, AGOA or no AGOA, political friction, back-stabbing and jockeying for position will continue in Madagascar for years to come - just like in most countries.

On the other side of the committee table, there are the realists who recognize that cutting off AGOA is unlikely to have any effect on those behind the overthrow of the previous government but will vaporize millions upon millions of dollars of foreign investment in Madagascar, some of it by US companies, and dump tens of thousands of young female workers trying to feed their kids into the streets.

So what to do?  Cancel AGOA in support of a principle that will do nothing to advance good governance in Africa, or continue it and support workers and investors who had nothing to do with the whole business?  Forgive us for our presumption that this is a fairly obvious call.

This is an interesting test of whether independent observers who actually care about Madagascar have any effect on US government decisions in our democracy, or whether the departments concerned simply act with impunity to pursue their own interests and agendas. The rest is up to you, most esteemed AGOA committee. -- Update: Take action on this cause! Send an email to Florizelle Liser (Florie_Liser@ustr.eop.gov), Assistant U.S. Trade Representative for Africa, telling her not to cancel AGOA in Madagascar.