Monthly Archives: November 2010

The Aversion to Government-Run Development Programs

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Andrew Sullivan of The Altlantic writes a popular blog about politics, economics, culture, and anything else he finds interesting or relevant at the moment.  With 20-30 posts today, it has the depth of a traditional blog and the breadth of a link aggregator. The relative exposure he gives a subject depends on how much he likes the people who are writing about it.  He is a fiscal conservative and likes the idea of market-driven, bottom-up development.  Over the past year, international aid and economic development have been getting a lot more play after he discovered Aidwatch and Texas in Africa, two popular blogs written by development economists.  Most recently, Sullivan linked to an article in the NY Review of Books by William Easterly, author of the former blog, about the misuse of aid dollars to generate political support:

Human Rights Watch contends that the government abuses aid funds for political purposes—in programs intended to help Ethiopia’s most poor and vulnerable. For example, more than fifty farmers in three different regions said that village leaders withheld government-provided seeds and fertilizer, and even micro-loans because they didn’t belong to the ruling party; some were asked to renounce their views and join the party to receive assistance. Investigating one program that gives food and cash in exchange for work on public projects, the report documents farmers who have never been paid for their work and entire families who have been barred from participating because they were thought to belong to the opposition. Still more chilling, local officials have been denying emergency food aid to women, children, and the elderly as punishment for refusing to join the party.

This is a bit like saying that Miss Lippy’s car is green.  This dynamic is not new, and it is certainly not undocumented.  Easterly has been arguing for years that foreign aid in the hands of the local government is misdirected.  But this is on Andrew Sullivan’s blog, which is generalist, and it may well be a new concept, or at least a new example, to his readers.  But this is a concept I have seen in action and heard anecdotally often.  Two cases, in particular, come to mind.

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The Pope Endorses Condom Use

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In a possible Joe Biden moment, Pope Benedict allegedly softened his position on condom use in an interview with a German journalist this past summer.   His remarks are being hailed as groundbreaking, even though the context is decidedly limited.  The New York Times:

The pope’s statement on condoms was extremely limited: he did not approve their use or suggest that the Roman Catholic Church was beginning to back away from its prohibition of birth control. In fact, the one example he cited as a possibly appropriate use was by male prostitutes.

Still, the statement was something of a milestone for the church and a significant change for Benedict, who faced intense criticism last year when, en route to AIDS-plagued Africa, he said condom use did not help prevent the spread of AIDS, only abstinence and fidelity did.

There is no doubt that this is a positive development.  But, unfortunately, the Church is not starting from a very progressive base to begin with.  It is a bit like commending the Ugandan government from toning down legislation calling for the execution of gays.  Life in prison is better than death, but it is still unequivocally wrong.  The Vatican’s stance on the use of contraceptives in the past has been irrational and downright dangerous.  First, I will give some background on the role of the Catholic church in developing countries.

The long-term assimilation effects of colonization by the Spanish, coupled with the work of missionaries throughout Africa, South America, and parts of Asia led to the spread of Catholicism in the developing world.  Now, most of the Catholic church’s constituents hail from outside of Europe.  The nations with the most Catholics are Brazil (74%, 145 million people), Mexico (91%, 105 million), and the Philippines (74%, 75 million).  Of the billion or so Catholics in the world, a third come from these three countries.  Another 158 million Catholics live in Africa, and hundreds of millions more in South and Central America.  As a comparison, the United States has 68 million baptized Catholics, putting it in fourth place overall.  In other words, the majority of the world’s Catholics live in someplace other than the West.  And when the Pope speaks, Catholics all over the world are listening. Continue reading →

Reading: 11/14-11/20

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1.  Foreign Aid for Scoundrels, William Easterly, New York Review of Books:  Government-to-government aid props up anti-democratic dictators to the detriment of the people.  Bono doesn’t want you to know how the sausage is made.

2.  Indian Microcredit Faces Collapse from Defaults, New York Times:  Irrational exuberance combined with dirty politics could spell disaster for microfinance institutions in India.  Perhaps a bubble in India is the first major milestone in the mainstreaming of microfinance

3.  Patient Capital for an Africa that Can’t Wait, Thomas Friedman:  The trademark pragmatism of Thomas Friedman is on display in this column about innovations in market-driven development in Africa.

4.  Local Capacity Building and Business Development at the Base of the Pyramid, Next Billion:  An interview with Simon Winter, senior VP of development with Technoserve, talking about smart and sustainable development.

5.  Haiti, Ten Months Later, The Boston Globe:  A photojournalist’s perspective of the staggering devastation that is still the norm in Haiti

6.  In Haiti, Can Microlending Save the Economy?, New York Times: The importance of microfinance institutions in post-disaster recovery efforts.  I discussed this topic in a post on the Kiva Fellows blog several months ago.

A New Chapter: Working with Technoserve in Ghana

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In less than two weeks, I’ll be moving to Ghana to work as a consultant with an organization called Technoserve.  It is my first time to visit West Africa and am excited to learn about the region.  Technoserve works to strengthen the economies of the countries it serves by making the industries more efficient and profitable.  Founded in the 1970’s, Technoserve began in Sub-Saharan Africa and has since expanded to Latin America and India.  Most projects involve agriculture, since the majority of the world’s poor are subsistence farmers, though some focus on tourism, energy, and other sectors.  The CEO, Bruce McNamer, explains Technoserve’s approach to economic development in a recent article from the McKinsey Quarterly:

There are significant possibilities in Africa to unlock value in different industry sectors, and these possibilities will grow over time. Success, however, will require the government and business to adopt a strategy based on an analytical and market-oriented approach, customized for the sector and focused on helping enterprises and people make money. While ultimately reliant on commercial incentives and viability, this strategy will probably require up-front, subsidized investments to seed the market, as well the coordination of stakeholders and interventions across the value chain.

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The Long-Awaited Beard Update

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While going through my normal Tuesday afternoon routine of looking at pictures of myself, I realized that it has been almost exactly one year since I began growing the beard. In fact, loyal followers of this blog know that regular updates on the progress of my unsightly (n. displeasing to the eye) beard were once a staple of the Journal. As I have grown more self-important, I shifted the focus to subjects that would make me sound like I knew something about international development, when, in fact, I do not. But, like the prodigal son, I will return to the low-brow self-criticism that was a hallmark of this blog one year ago.

Unfortunately, not much has changed.  Below is a picture taken last December on a trip down the Mekong River in Vietnam.  I’ve highlighted the problems I faced then:

As you can see from the picture above, I could have a rockin’ beard were it not for the bald spot right in the middle of my chin.  I suppose that, by that logic, bald people assume that they could have a rockin’ mane were it not for the fact that their scalp contains a circular area upon which no hair grows.  Sometimes life gives you lemons, so you make lemonade, except that lemonade has salmonella and you become sick.  This is what happened when I grew my beard.  I went to my father’s office yesterday to use the fax machine.  His office manager, who I hadn’t seen in a few years, pointed to my face and said “What’s that?”  “A beard,” I said.  “It’s a bit misshapen, I know.”  “Well, you know, it takes some time to grow.  How long have you had it for?” she asked.  “A year.”  Awkward silence.  Onto the next subject.

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Do Elections Improve Economic Policy? Democracy in Burma

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Today, the people of Myanmar for the first time in twenty years will elect a new government.  Actually, they will simply participate in a rigged election process that will legitimize the repressive military regime that has controlled the country by force for the past half-century.  Under pressure from the West and perhaps craving a bizarro sense of legitimacy, the military is holding elections for the first time in twenty years, yet it has effectively guaranteed that the country will remain under its control.  No matter what, the military will maintain 25% of the seats in parliament and will control three key cabinet posts (defense, interior, and border).  The two main political parties are offshoots of the military.  And the ethnic regions in the east and north will not even be given the chance to vote, as it is “too dangerous” to man polling stations in these regions.   No foreign journalists or elections monitors will be allowed in the country and the flow of information has been stifled as the Internet is all but crippled.   Not exactly ideal conditions for creating a fair and truly participatory democracy.

This is the reality of these types of elections.  But this kind of outrageous and brazen election-rigging is not uncommon in countries like Myanmar.  Unfortunately, holding elections in countries that are not ready to have them is a core component of our foreign policy.  According to the theory, when leaders are voted into office in free and consistently-held elections, they have greater accountability in terms of supporting sensible economic policies that benefit the country.  This theory is true…in theory, but not always in practice The belief that elections are a necessary tool for creating economic growth is too simplistic, and lacks an understanding of the institutions that make democracies successful.  In order for elections to actually translate into positive policy reforms and economic growth, a country requires a system of checks and balances that prevents the incumbent party from using illegal means to secure its place in government.  What is happening in Burma right now is a perfect example of how a country without these necessary checks and balances is basically f-ed.

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Microbusinesses as Start-Ups and the Problem of Flexibility

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In a blog post titled “The Rigidity of Microfinance,” Eva Pereira discusses how the structure of microfinance loans inherently stifle risk-taking among clients:

Compared to loans in developed countries, microloans have far shorter repayment cycles, oftentimes as short as a week. In Field’s 2009 study she analyzed the effects of allowing borrowers a two month grace period before repayments began. The study aimed to find out how borrowers would behave without the looming burden of an immediate debt repayment.

As it turns out, borrowers were more likely to start new businesses or invest in existing ones given the two month grace period. Exactly as they had suspected, with the immediate burden of liquidity gone, borrowers put their money into projects with higher profit expectations. While profits overall were substantially higher, the variability of outcomes increased. The high risk, high return bet did not pay off for all. Baseline default rates went from 3% to 11% after grace periods were introduced.

In an effort to stress the importance of having realistic expectations, Field drew comparisons to entrepreneurs in the first world, where as many as one in three startups fail. The rewards for success may have long term residual value for the proprietor and the community. Under the previous model of condensed repayment cycles, the loans had very little impact on the average incomes of the poor. The liquidity demands of the loans made it risky to invest in entrepreneurial ventures.

This is basically one of the core criticisms of microfinance.  Continue reading →

Natural Gas in Papua New Guinea and Oil in Ghana

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This is from the New York Times the other day:

In 2014, ExxonMobil is scheduled to start shipping natural gas through a 450-mile pipeline, then on to Japan, China and other markets in East Asia. But the flood of revenue, which is expected to bring Papua New Guinea $30 billion over three decades and to more than double its gross domestic product, will force a country already beset by state corruption and bedeviled by a complex land tenure system to grapple with the kind of windfall that has paradoxically entrenched other poor, resource-rich nations in deeper poverty.

While the West’s richest companies are used to seeking natural resources in the world’s poorest corners, few places on earth seem as ill prepared as the Southern Highlands to rub shoulders with ExxonMobil. The most impoverished country in one of the world’s poorest regions, it went unexplored by Westerners until the 1930s. Believing that this rugged, mountainous region was uninhabited, the explorers were stunned to find at least one million people living here in one of the world’s most diverse areas, largely in small, distinct communities separated by different cultures, languages and nearly impassable terrain.

More often than not, the discovery or exploitation of natural resources in a country without the resources or good governance to manage the influx of wealth can spell disaster.  I have talked about this concept a few times in Develop Economies, as it pertained to diamonds in Zimbabwe.  This isn’t to say all countries with huge natural resource wealth will mismanage the gains.  Norway, for example, is the third-largest oil exporter in the world, controlling massive reserves in the North Sea.  The country has managed these resources well and, as a result, has a huge public sector, compared to other developed countries, a relatively high standard of living, and a strongly integrated social welfare system for its people.  How resource wealth is managed is most important.

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