Aid, Live 8 and all that

This week’s column comes out of the conjunction of my reading Jeffrey Sachs book on how we can cure extreme poverty in a couple of decades and the mounting hype about Live 8. Sachs’ book is exciting in a way, though one also becomes aware fairly quickly that one is dealing with an ego that’s out of control.

The book has a very strange structure. It begins with some worthy introductory chapters and I was thinking ‘this guy needs a better editor or a ghost writer’. Then we get a bit of a credo on ‘clinical economics’. This is quite a good critique of modern economic advice to countries in crisis. But what it is critiquing is not all that hard to critique.

In any event, the book proceeds from this chapter to Jeffrey’s exciting adventures sorting out economic crisis. He succeeds in Bolivia and Poland and is less successful in Russia because the problems are much harder, and he has less help from those within and outside the country. Without wanting to offer myself as an authority on the subject matter (of stabilising economies in crisis and the international political and economic context of doing so), all this seemed OK to me. Then we get India and China who have also called up Jeffrey and got his advice. He argues in these two chapters that India and China are not success stories for ‘gradualism’ in reform. That each reformed very quickly in certain respects. Again, he probably overstates his case, but the case is certainly of interest.

But Sachs then segues back into third world poverty, with some good chapters on geography and health and then a grand plan for eliminating poverty very much along the lines of past plans and big pushes. Now solving Bolivia’s and Poland’s problems with hyperinflation was to a substantial extent a technocratic exercise although of course the politics had to be integrated into the exercise. But Sachs won’t really take seriously – except as a debating point to be dispatched – that solving poverty is not a technocratic exercise.

He does discuss all the nay-saying about poverty. Corruption etc. But he doesn’t take it very seriously saying that Africa is corrupt because its poor not poor because its corrupt. Well maybe but it doesn’t really help if that means all one’s aid dollars disappear out the back door and into a Swiss bank account as quickly as they arrive.

John Kay, an excellent English columnist is sceptical of Sach’s vision as he outlines here. Read Easterly’s stuff on this if you want to get very depressed about it all. (Check out Easterly’s Table 1 (which I’ve extracted here) if you really want to feel that we’re going round in circles)

But while I find Easterly’s stuff pretty persuasive, its also arguing a line. Of course his case needs to be needs to be argued, but neither is it the whole story. I think that all sorts of good things could come out of major health initiatives. And as Sachs argues there are very poor countries that are reasonably well governed where our money won’t simply disappear into Swiss bank accounts.

So I think it’s a good time to open our hearts and our wallets. So long as we open our eyes. The most worrying thing about Easterly’s critique is his argument backed by good evidence that reporting by euphemism, priority setting by lowest common denominator and progress by forgetfulness are entrenched in the system.

Even if that’s true then, even if we get more of the same, each of the dollars we send in will probably still do more good than they would back here. But I’m hoping that maybe we can learn something, even if we do it slowly. And I think we are though I still expect we’ll take a steps or two backwards for each few steps we take forwards.

As Easterly himself says in this ‘spirited exchange’ between himself and Sachs (shitfight is another word for it):

Why didn’t aid officials implement his easy solutions to world poverty already, after half a century of foreign aid? How will his top-down, many-pronged solutions conceived in New York get feedback from the faraway poor on whether they are actually getting what they most need? For example, Sachs says that modest sums would control malaria in Africa. Doesn’t he have a little curiosity about why this easy problem wasn’t solved with some of the $568 billion (in today’s dollars) in foreign aid given to Africa over the last 43 years? . . . And yet there was progress in other areas, like increased vaccination and access to clean water in Africa. Shouldn’t we examine why these things worked and others didn’t? The piecemeal approach doesn’t mean less money or less effort for the poor; it means redirecting resources away from the utopian schemes at the top (that have already failed) toward rewarding those at the bottom who find things that work for the poor.

And yes Rafe – Easterly does quote Popper in defence of a piecemeal approach!

____________________________________________________________________________________________Live 8

Last September over 77,000 people watched Port Adelaide beat Brisbane in the AFL Grand Final. In the four days after the game or the four days before (take your pick) more people died in the third world of extreme poverty than there were people attending that game.

As ex-Harvard economist Jeffrey Sachs says, each day newspapers should report on page one “More than 20,000 people perished yesterday of extreme poverty”. But it’s not news.

However, for a short space of time, it is news. A tsunami of hype (and hope) will crash upon us in early July. Millions will attend concerts. Billions more will watch them on tele. The G8 leaders meet at Gleneagles for their summit on third world poverty and climate change (No-one could accuse them of picking easy topics). And another 20,000 people will die each day.

I’ve been reading Professor Sachs’ hubristically titled new book “The End of Poverty: How we can make it happen in our lifetime”. It’s as close as you’ll get to ‘the book of the concerts’ complete with a preface by Bono. Sachs wants us to dramatically lift aid from its current paltry level, make it smarter, reduce trade barriers and fight corruption.

Likening himself to a doctor making ‘house calls’ in economic crises, Sachs calls for a new kind of ‘clinical economics’ more attuned to countries’ specific circumstances than the ‘one size fits all’ advice economists often dish out.

He explains how little attention has been given to African countries’ land-locked geography and their susceptibility to disease and how much it explains Africa’s plight. As Sachs points out, all the way back to Adam Smith economists have observed how beneficial access to the sea is with the access it provides to global markets. The land-locked countries of Africa must access the global market though the ramshackle transport infrastructure of their neighbours.

Sachs’ sub-Saharan Africa is the malarial ‘perfect storm’. Elsewhere mosquitoes sup on both humans and cattle. For technical reasons this dietary dilettantism dramatically reduces their efficiency at spreading infection. Africa is hot, humid, and home to the world’s choosiest mosquitoes dining exclusively on humans.

Sachs argues, that a syndrome of unpropitious circumstances enchain the poorest countries in a hand to mouth existence that prevents them investing in their future. To take just one compelling example, a lot of Africans would be richer if their communities could escape the scourge of malaria. But many can’t afford anti-malarial mosquito nets.

Obviously in such circumstances aid can transform the vicious circle of poverty into a virtuous one of growth. That’s the logic we use when we forgive bankrupts their debts just as we’re intending to forgive the poorest countries theirs. Just considering our own self-interest, we won’t gain much by holding them to debts they can’t sustain. Freed of their debts they have a chance to invest and grow and benefit their trade and investment partners as they benefit themselves.

Sachs’ plan involves more than doubling aid to 0.7 percent of developed economies’ income. Developed countries signed on to lift our aid to this level decades ago. And the Marshall Plan which restored post war Europe and so prevented the slide into economic misery that followed the previous world war cost the US 1 percent of its economy. (Right now it spends a little more than one tenth of this.) Aid would be invested in agricultural inputs, basic health, education, power, transport and communications infrastructure and safe drinking water and sanitation.

Though criticising economists’ past disregard for empirical detail, Sachs pays surprisingly little attention to the previous disappointments of similar schemes. As major development authority William Easterly notes, Sachs is pretty light on about all these things:

“bad history (including exploitative or inept colonialism), ethnic and regional conflicts, elites’ manipulation of politics and institutions, official corruption, dysfunctional public services, malevolent police forces and armies, the difficulty of honoring contracts and property rights, unaccountable and excessively bureaucratic donors and many other issues.”

Easterly isn’t even in Sachs’ index. Easterly isn’t anti-aid, but he’s very sceptical of Sachs-style ‘big pushes’ for development. Indeed, he quotes some fine words remarkably like Sachs’. They’re from President Harry Truman in 1949. Big pushes have been tried before and have failed for the myriad reasons I’ve quoted above.

So how should we feel as we watch those concerts on July 2nd? Any reading in the area will show you that the problems outlined by Easterly are tenacious ingrained, both in the countries receiving aid and the agencies doling it out.

I for one will dig further into my pocket. I’ll vote for politicians offering to do it for me. And just as importantly, I’ll support politicians who support intolerance of corruption. There’s at least some evidence that we’re making progress on this score and it’s being built into aid programs like the Bush Administration’s Millennium Challenge Account.

I know some of the aid will be wasted, as it has been in the past. And I know that saying that we can “make poverty history” is about as responsible as another promise Australians remember.

But despite the notoriety of Bob Hawke’s promise that “no child will live in poverty”, the policies behind it actually did deliver on the words of the speech from which he read that “no child need live in poverty”. They massively helped poorer families in a world growing more unequal. They still do. No doubt some family payments go astray. But, like foreign aid, a lot gets through. It’s the best we can do in an imperfect world.

I’m skeptical of Sachs’ and Bono’s and Sir Bob G’s Big Plans and Promises. But I want to say that I did what I could. So do lots of others. Maybe you’re one of us? If we achieve a quarter of what these guys are shooting for, we’ll help three hundred million people lift themselves out of extreme poverty.

All by increasing the amount we spend on aid currently one cent in each four dollars we earn by another two cents, or what we spend now on our pets!