How NYU will save New York, and other entrepreneurial insights

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.

(HT Coordination Problem by Peter Boettke)

Is aid sometimes for ruling party members only?

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.

How foreign aid was invented by accident

Truman’s Inaugural Address on January 20, 1949 is usually taken as the beginning of foreign aid, after it included these stirring words:

Fourth, we must embark on a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas…More than half the people of the world are living in conditions approaching misery….For the first time in history, humanity possesses the knowledge and the skill to relieve the suffering of these people….  And…we should foster capital investment in areas needing development.…this program can greatly increase the industrial activity in other nations and can raise substantially their standards of living.

Foreign Aid was at first referred to as the Point Four program because it was the 4^th point in the speech. I recently stumbled across an old article by a participant in the 1949 events, Louis J. Halle.[1]

The events were roughly these. Halle worked for the State Department and one evening in 1948 had a conversation with the Deputy Director of American Republic Affairs (DDARA) about a program of technical assistance that only covered Latin America. The two agreed something similar could possibly be useful other places.

In November 1948, the President’s speech-writing assistant asked the State Department for some proposals to include in the Inaugural Address. A meeting happened and they came up with three proposals. The Director of Public Affairs called for additional ideas. The DDARA remembered the evening conversation and said something like "how about a program of technical assistance for undeveloped countries, like that in Latin America?" The fourth proposal was noted and the meeting adjourned.

The proposals went through the regular clearance procedures in the State Department. The fourth proposal was killed in the clearance process. Halle thought it was probably because officials thought it would be irresponsible to announce such a program when nobody had a clue about what it would mean in practice. So only the first three points were sent over to the White House for the Inaugural Address.

Then the speechwriting assistant called the State Department’s Director of Public Affairs back a few days later complaining that the three proposals were boring. The President wanted something original. As Halle describes it:

At this juncture, without proper time for reflection, the Director of Public Affairs found himself standing on the shore of his own Rubicon. He took a deep breath, and crossed over. There had been a fourth point, he said, but it had been thrown out. What was it? The Director told what it was. “That’s great,” said the voice from the White House, and “Point Four” went back in again.

Halle says nobody gave the matter another thought until the delivery of the address. To continue his narrative:

“Point Four” was a public-relations gimmick, thrown in by a professional speech-writer to give the speech more life. When the newspapers dramatized it in their principal headlines on the morning of January 21, the White House and the State Department were taken completely by surprise. No one – not the President, not the Secretary of State, not the presidential assistant or the Director of Public Affairs –knew any more about “Point Four” than what they could read for themselves in the meager and rather rhetorical language of the speech….It was only now, after the Inaugural Address had been delivered and the “bold new program” acclaimed all over the world, that machinery was set up in the government to look into the possibilities of such a program and make plans.

President Truman was asked six days later about background on the origin of Point Four. He replied with a good story that had no relation to the reality:

The origin of Point Four has been in my mind, and in the minds of the Government, for the past two or three years, ever since the Marshall Plan was inaugurated. It originated with the Greece and Turkey propositions. Been studying it ever since. I spend most of my time going over to that globe back there, trying to figure out ways to make peace in the world.

We want always to think our leaders take intentional, decisive actions , especially on something so important as foreign aid. It's hard to say in this case to what extent it was an "accident," or whether the fundamentals made aid an accident waiting to happen. But it's good for the soul to realize that policies can happen by accident more than we are usually willing to accept.

---

[1] ON TEACHING INTERNATIONAL RELATIONS , Virginia Quarterly Review, 40:1 (1964:Winter) p.11. I found the reference in Gilbert Rist's wonderful book, The History of Development: from Western Origins to Global Faith (3rd edition 2009)

Top economists on Twitter

Tim Harford gives his Top Ten economists on Twitter. The one most known to this readership is @dambisamoyo. Then Tim adds another category:

Honourable mentions – a subjective combination of econ tweeters who are popular, interesting or under-appreciated

I will overlook Tim's blatant self-promotion of including @TimHarford on this list, in return for blatantly noting that he also includes @bill_easterly.

The Rock Star theory of rising inequality and development successes

from Alan Krueger's study of "Rockonomics" Top 1% Rock Stars are getting more and more of Rock Income.

The explanation? Cheaper audio equipment means top stars can capture more of the market. Why listen to the second-rate stars when the first-rate produce an unlimited number of recordings for you to listen to them? (And then you want to go to their concerts too?)

Does this have something to do with the general rise in inequality in the US? In the world?

Are rock stars also a good analogy for other development successes? Stay tuned.

G20 summit's Seoul Development Consensus: please comment

UPDATE: OK I give up, I'll be the bad guy again (see end of post) I present selections of the text of the Seoul Development Consensus for Shared Growth without comment, inviting instead the readers to comment:

Be economic-growth oriented and consistent with the G20 Framework for Strong, Sustainable and Balanced Growth

Prioritize actions that tackle global or regional systemic issues

Differentiate, yet complement existing development efforts, avoiding duplication

Focus on feasible, practical and accountable measures to address clearly articulated problems

In close consultation with our developing country and LIC partners, as well as relevant international and regional organizations with development expertise, we have also identified nine areas, or “key pillars,” where we believe action and reform are most critical to ensure inclusive and sustainable economic growth and resilience in developing countries and LICs. These areas are: infrastructure, private investment and job creation, human resource development, trade, financial inclusion, growth with resilience, food security, domestic resource mobilization, and knowledge sharing. Creating optimal conditions for strong, sustainable and resilient economic growth in developing countries will require reform and transformation across each of these interlinked and mutually reinforcing key pillars.

UPDATE: OK I think I miscalculated, the Seoul Consensus is so completely free of substance that I couldn't get much comment (thanks to the valiant souls below who tried).

So it's my bitter lot in life to play the bad guy who says the obvious nasty things, like:

This summit set the lowest possible expectations on development, and then heroically failed to meet them.

Did it occur to any of the G20 sherpas that it would have been better to say, "we have nothing new on development" than to produce such vacuous babble then actually goes backward even from the dismally modest record of previous summits?

I guess the main puzzle is why the Koreans let themselves be insulted by having this Nothingness named after Seoul.

How England met the Millennium Development Goals

UPDATE: got flamed for saying "England" instead of "Britain." See comments. from a church in Oxford.

A reminder that both maternal mortality and infant mortality were shockingly high in rich countries when they were not so rich...

A reminder that foreign aid and UN resolutions are not the only way to drastically reduce maternal and infant mortality...

A tryst with TOMS

Vivek Nemana is a graduate student in economics at New York University and works for DRI. I remember wanting to save the world when I bought my first (and only) pair of TOMS Shoes. I was a freshman at NYU and involved in a handful of Save the Child Soldiers/Darfur/Fair Trade student clubs. With TOMS, just $50 of my (parents’) money would buy two pairs of shoes – one for me and one for a poor shoeless child somewhere – plus raise a few dollars for one of these clubs. Besides, those shoes were hip.

Looking back—and looking around me now at the high TOMS saturation on campus—I realize that TOMS Shoes is extremely well-marketed, extremely popular, bad aid.

TOMS follows a Buy-One-Give-One (BOGO) model where a customer pays for both pairs of shoes. But buying poor children $25 shoes is simply not cost-effective. Donating clothes to the poor in poor countries is not the same as, say, donating winter clothing to the homeless in New York. For one, shoes don’t cost $25 in the areas where TOMS donates; local shoe salesmen will sell footwear for much, much less. While TOMS insists their giving is considerate of the local economy, they don’t explain how. At its worst, local shoe merchants can’t compete with the continual influx of free shoes. (TOMS produces its shoes in China, Argentina and Ethiopia and gives them in 24 countries.) It’s funny how TOMS can call itself a “movement” and yet get away with offering very little information on the movement’s business practices or measured impact.

Consider how else you could spend those $25 you invested. If the aim of wearing shoes is to prevent soil-borne diseases such as hookworm, then $25 would go much further if invested in sanitation. You might give to an NGO that builds latrines, for example, which serve more people and last years longer than a pair of shoes. (For an extensive explanation of these and other problems with the TOMS model, read Peace Corps volunteer Zac Mason’s blog or the Good Intentions are Not Enough blog.)

So why did I buy TOMS that day? I’d venture that my personal reasons weren’t all that different from hundreds of other college kids like me. We come to college wanting to do good. At the same time, we want to buy cool things. So it’s exciting when these two come together, and we get the chance to give back as we consume. TOMS is literally a prime example of what Slovenian philosopher Slavoj Zizek calls “cultural capitalism”: you combine acts of goodwill with acts of consumption (Zizek sees this as a sort of personal redemption for being a consumer).

We buy TOMS Shoes or Fair Trade chocolate or poverty-fighting water bottles because we genuinely want to help. But in the frenzy of do-gooder consumption we stop thinking all the way through. We fail to ask how our money will help, and we overlook how our good deeds might actually do harm. We forget that what we want to do for others might not be the same as what they really need.

It’s too convenient to hand our credit cards to businesses that promise to do good; making a real difference also requires information, accountability and careful consideration. We talk extensively on this blog about NGO accountability. Shouldn’t customers ask the same of their favorite social entrepreneurs?

-- Photocredit: Flickr user loveandmusic18

G20 relieved no longer has to pretend to care about poor

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.

Why doesn't the other gender care about Gender?

Thirty years on, it is proving harder than many of us had hoped for gender and development policy and practice to move beyond familiar stereotypes – women as abject victims or splendid heroines, men as all-powerful perpetrators. Axioms abound: ‘women are the poorest of the poor’, ‘women give more priority to others – men invest more resources in themselves’, ‘women live in a more sustainable way than men and cause less climate change’, ‘women are the antidote to the financial crisis’.

Representations of men are limited and limiting. The ready association of the words “men” and “masculinity” with brute force, brash competitiveness and brazen prerogative makes those on the receiving end of the exercise of masculine power decisively female.

These complaints about Gender promoting gender stereotypes come from the journal Contestations, in an article by the always thought-provoking Andrea Cornwall and Emily Esplen.  They call for moving beyond stereotypes and actually involving Men in the cause of better lives for Women. They wonder why they have few male takers for their recommended actions:

Why ... do we see so few men actually taking up these actions – even the men around us who declare themselves sympathetic allies?

Along with lots of bad reasons that don't reflect well on men, it could also reflect a few men put off by a cause that, according to the authors, perpetrates the "all men are evil" stereotype.

Is there evidence for the absence of an aid effect, or is there just absence of evidence?

Aid policy was based on the premise that aid raises growth, but …{a major} study of this question was saying that this premise was false.

This quote refers to the Rajan-Subramanian paper (later published in a peer-reviewed journal) that was unable to reject the hypothesis of a zero effect of aid on growth. As I never tire of pointing out, we often get our conditional probabilities mixed up. Based on standard statistical methodology, the (1) probability of failing to reject the zero effect hypothesis is high when the effect is indeed zero. Unfortunately, the author of the quote incorrectly thinks this implies the opposite probability is high -- (2) the  likelihood that the effect is indeed zero when you fail to reject the hypothesis of zero. This likelihood can actually be quite low even if the first probability is high. Absence of Evidence does not constitute Evidence for Absence.

Who is this nincompoop?

This 2006 quote is from  William Easterly. Oops. Those cognitive biases are even stronger than I thought.

In a desperate bid to save face, there is SOMETHING defensible you can say about the growth effect of aid based on the Rajan and Subramanian paper. They report the standard error of the estimated coefficient of growth regressed on aid (addressing causality), which implies we can say with 95% confidence that the effect lies between -.06 and .18. So we CAN reject the hypothesis that one percentage point of additional aid to GDP raises growth by anything more than 0.18 percentage points.

As it happens, the standard model of aid, investment, and growth (old-fashioned but still in use today in the World Bank, IMF, and UN Millennium Project) implies that aid goes into investment one for one, and then this investment raises growth. With the usual parameters, this would imply an aid effect on growth of 0.2 or higher. THAT model we can reject.

The most honest statement about the modest growth effects is that they are more difficult to discern in the data ONE WAY OR THE OTHER.

Let us all now feel suitably chastened and humbled.

World Bank President is running out of things to do

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.

Donors seem to think Democracy is Only for Rich, Not for Poor

The international aid system has a dirty secret. Despite much rhetoric to the contrary, the nations and organizations that donate and distribute aid do not care much about democracy and they still actively support dictators. The conventional narrative is that donors supported dictators only during the cold war and ever since have promoted democracy. This is wrong.

Mo Ibrahim said:

All Africans have a right to live in freedom and prosperity and to select their leaders through fair and democratic elections, and the time has come when Africans are no longer willing to accept lower standards of governance than those in the rest of the world.

He knows that recognition of democratic values eventually leads to their realization; lack of recognition continues the subjugation of the poor.

See my whole article at the New York Review of Books

OK let's get really rigorous about using local knowledge on US regions

One great response to Friday's post on David Brooks' less-than-perfect-knowledge about the Midwest was a Discover Magazine blog post by Razib Khan that provided the following evidence-based map:

and for those who missed it in the comments section, here's a story from my favorite news source:

'Midwest' Discovered Between East And West Coasts

"I long suspected something was there," said Franklin Eldred, a Manhattan native and leader of the 200-man exploratory force. "I'd flown between New York and L.A. on business many times, and the unusually long duration of my flights seemed to indicate that some sort of large area was being traversed, an area of unknown composition."

Though the Midwest territory is still largely unexplored, early reports describe a region as backwards as it is vast. "Many of the basic aspects of a civilized culture appear to be entirely absent," said Gina Strauch, a Los Angeles-based anthropologist. "There is no theater to speak of, and their knowledge of posh restaurants is sketchy at best. Further, their agricentric lives seem to prevent them from pursuing high fashion to any degree, and, as a result, their mode of dress is largely restricted to sweatpants and sweatshirts

"We must remember that these people are not at all like us," Conde Nast publisher and Manhattan socialite Lucille Randolph Snowdon said. "They are crude and provincial, bewildered by our tall buildings and our art galleries, our books and our coffee shops."

David Brooks illustrates how clueless Easterners can be without local knowledge about My Midwest

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.

Imagine potential aid recipients saying what THEY think

Twenty minutes outside the small town of Masindi, Uganda is a village called Kikuube…The local council member representing the village is none other than my Mum…I was surprised that she—as a village leader—had never heard of the MDGs. Yet she goes about her day fulfilling tasks meant to improve the welfare of her community; from educating her community about the use of bed nets, to regular home inspections enforcing sanitation codes, to empowering women with micro-loan programs. What does it say about the MDGs when the very people that are supposed to be beneficiaries don’t even know about them?

This quote comes from TMS (Teddy) Ruge, co-founder of Project Diaspora, an organization that involves Africans abroad in sustainable development initiatives in their home communities. His musings on his village leader Mum not knowing about the MDGs were inspired by this year’s United Nations MDG Week, a series of meetings and events in New York much more conducive to talking about all the good the West is doing for the Rest than hearing from the Rest.

(It also made us think about how the international aid orgs are now struggling to credibly include the voices of aid recipients—witness this cringe-inducing IMF video and website about how the IMF consulted with “civil society representatives” during their annual meetings. The carefully chosen quotes from the carefully chosen “representatives” in the video praised the IMF for its openness to dialogue with the ill-defined “civil society,” perhaps right after the IMF did some “capacity-building” on them.)

Teddy envisioned instead an event featuring just the voices of the potential aid recipients, a platform for people from his home village and others like it to share their experiences on getting by on $1 a day, and their successes in their own communities. Teddy first considered getting a TED license to build on their well-known brand, but decided to create his own model, which he is calling Villages in Action:

On Saturday, November 27, the microphone will be mounted stage center in this little quaint village. We welcome the world to join us in a frank discussion on the state of poor. We’ll discuss the MDGs and what our role is in achieving them by 2015 (and what we were already doing)...I want to challenge the notion that the sustainability of our communities depends on intervention from the West…

His idea to start public discussions about the development goals throughout villages in Africa is an intriguing one. He is looking for technical and financial support for this new project; find him here.

Succeed in Kindergarten, and You're Set for Life

UPDATE: links to studies on pre-school in developing countries (end of post)

This blog has discussed how ancient history of countries and peoples affects development today. Now a new paper shows that your own ancient history also matters: your scores on Kindergarten tests are a good predictor of your earnings as an adult, along with other good adult outcomes.

Raj Chetty presented this paper at NYU on Tuesday: How Does Your Kindergarten Classroom Affect Your Earnings? Evidence from Project Star, written with John N. Friedman, Nathaniel Hilger, Emmanuel Saez, Diane Whitmore Schanzenbach, and Danny Yagan.

Under the project studied, there were random assignments of teachers and students to classes. The striking thing in the findings is the identification of  "Good" and "Bad" kindergarten classes, as shown by more variation in the Kindergarten test scores than would occur with random variation. The "Goodness" of  the classes then have significant effects on their members for all those later life outcomes.

This finding was intrinsically fascinating in itself.  It reinforces a lot of other research about the importance of early childhood for later outcomes, which deserves a lot more attention in development.

The paper has gotten a lot of media attention for something a little different: as showing that "A Good Kindergarten Teacher is worth $320,000."

Actually, Professor Chetty was very careful in the seminar to say that there was no decisive evidence that it was the teacher who was the cause of the "Good" classes (and he never actually presented the $320,000 figure that the media has publicized).

It is certainly plausible that the teacher contributed to good kindergarten outcomes (and Professor Chetty  had some indirect but far from decisive evidence that contributed to the plausibility a little). But as with other groups of individuals: firms, cities, sports teams, book groups, societies ... and now Kindergarten classes ... some of the success and failure is just a mystery. Attributing it all to the "leader" (like the teacher) could be suspiciously close to one of those Fundamental Attribution Errors -- we want to identify group success with one Brilliant Good Person -- but sometimes it just ain't so. So the policy implications of this finding are ................................................. still a bit unclear.

UPDATE: An alert reader sent links to two more papers about early childhood and later outcomes. The sender happened to be the author, but that's OK, please feel free to send links to your own work when it relates to a post! The effect of pre-primary education on primary school performance

(ungated here)

Giving children a better start: Preschool attendance and school-age profiles

(ungated)

In politics as in development, success is fleetingly fleeting

This blog has frequently pointed out that economic growth successes don't last -- rapid growth is fleeting. After last night's election, we are reminded that political success doesn't last either. An action in one direction is followed by an equal and opposite reaction in the other.

The situation of one party having both the Presidency and a majority in the House has been rare in the postwar era, and when it happens, it doesn't last very long.

We often point out that analysis of rapid growth "miracles" is faulty because it fails to notice that the miracles will likely disappear very soon.

Likewise, would behavior of political actors be different -- such as giving moderates in each party much more say -- if both sides fully realized that an electoral "mandate" is a very frail and short-lived creature?

Postscript: this hereby ends the Aid Watch obsession with the elections, we will resume our reguarly scheduled programming tomorrow.