Category Archives: Development Economics

The Silver Bullet of Conditional Cash Transfers

There is a new paper from DFID (the British overseas development assistance authority) about the usefulness and effectiveness of conditional cash transfers. I have written a few times about this topic in early 2011 and way back when in 2010 (see here and here) and have always been pretty bullish on the use of them as tools for poverty alleviation. Conditional cash transfers effectively pay the poor in exchange for meeting certain requirements regarding healthcare and education. Welfare programs for individuals and families are contingent on achieving certain targets. For achieving a certain school attendance rate for children, a family will receive a certain amount of money. For bringing your child to the doctor a certain number of times per year, you get money from the government.

The advantage of these schemes is that they offset the opportunity cost of keeping your child in school, or the actual cost of bringing your child to the doctor. So, by creating incentives around behavior modification, you can more effectively target the root causes of poverty. Good decision-making becomes in the best financial interest of families, and mitigates the costs of neglect.

What they do not address are systemic problems. For example, within education, conditional cash transfers aren’t going to build more schools, improve teacher training, reduce class sizes, or provide additional jobs for people once they get out of school. Nor will they improve the quality of healthcare delivery or the caliber of physicians. This gives some people pause. This is from the report:

Well-designed and implemented cash transfers help to strengthen household productivity and capacity for income generation. Small but reliable flows of transfer income have helped poor households to accumulate productive assets; avoid distress sales; obtain access to credit on better terms; and in some cases to diversify into higher risk, higher return activities. These intermediate outcomes help draw poor people into the market economy on terms that allow them to benefit from and contribute to growth.…

There is robust evidence from numerous countries that cash transfers have leveraged sizeable gains in access to health and education services…However, transfers have had less success in improving final outcomes in health or education. Cash transfers can help the poor overcome demand-side (cost) barriers to schooling or healthcare, but they cannot resolve supply-side problems with service delivery (e.g. teacher performance or the training of public health professionals). Cash transfers therefore need to be complemented by ongoing sectoral strategies to improve service quality.

The whole notion of a silver bullet is a non-starter for me. Continue reading →

Kiva Launches Green Loans Category

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A little more than one year ago, I was working with Negros Women for Tomorrow Foundation, a microfinance in the Philippines. NWTF was distributing low-cost solar lanterns to its clients. The clients were prone to constant brownouts due to the poor state of the electrical infrastructure in the rural areas, so the lanterns gave them a way to keep their businesses open after dark or let the children do work after the sun goes down. Having limited access to light, or having to rely on costly alternatives (battery-powered lanterns and kerosene) can really rain on a person’s parade. So, in conjunction with Kiva, we worked to get those loans for the solar lanterns up on the site. On Earth Day 2010, the relationship was consummated and celebrated with a blog post by yours truly on the Kiva blog, which you can see here.

Well, now it is official. Kiva has launched a green loans category on its website (something we were trying to facilitate last year, and succeeded in developing a tool to lower the cost of putting low-cost lanterns on the site). Here is the press release:

Help people live sustainably around the world. Green loans promote clean and renewable sources of energy by funding organic fertilizers, stoves, drip irrigation systems, solar panels, biofuels, and more.

In some countries, families are using solar panels to power their first light bulbs! However very little of the world’s solar production is in use in the developing world. Green loans enable you to invest in environmental sustainability while providing capital to those in need. Not only do these loans generate clean energy, they also promote a more sustainable lifestyle and environmentally friendly habits.

So sign up to Kiva today and do the Lord’s work by helping electrify the non-electrified and do you part to save the world (or something like that).

Cutting Foreign Aid: How the Tea Party Is Hurting America

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“We must address the root causes of terrorism to end it for all time. I believe putting resources into improving the lives of poor people is a better strategy than spending it on guns.” – Muhammad Yunus

Today I went to visit a large-scale maize farmer in Wamale, thirty minutes outside of Tamale, the capital city of the Northern Region in Ghana and home to a predominantly Muslim population. We had a discussion in the home of the village chief, who farms 200 acres of land. On the wall of his palace (or compound), is a 2010 calendar with a picture of Ayatollah Khomeini on it and a poster about how to plant maize properly, with the insignia of USAID at the bottom. This is an interesting test case into the relevance of soft power.

With the new cuts from the US federal budget, the most politically-expedient entity – foreign aid – is slated to get the axe. There is an interesting back and forth discussion between two experts on the subject – for and against – at NPR. In an article titled “Cutting Foreign Aid Doesn’t Help,” Joseph Nye makes the case that slashing the aid budget is a bad idea:

It sounds like common sense, but smart power is not so easy to carry out in practice. Diplomacy and foreign assistance are often underfunded and neglected, in part because of the difficulty of demonstrating their short-term impact on critical challenges. The payoffs for exchange and assistance programs is often measured in decades, not weeks or months. American foreign-policy institutions and personnel, moreover, are fractured and compartmentalized, and there is not an adequate interagency process for developing and funding a smart-power strategy. Many official instruments of soft or attractive power — public diplomacy, broadcasting, exchange programs, development assistance, disaster relief, military-to-military contacts — are scattered around the government, and there is no overarching strategy or budget that even tries to integrate them.

The obstacles to integrating America’s soft- and hard-power tool kit have deep roots, and the Obama administration is only beginning to overcome them, by creating a second deputy at State, reinvigorating USAID, and working with the Office of Management and Budget. Increasing the size of the Foreign Service, for instance, would cost less than the price of one C-17 transport aircraft, yet there are no good ways to assess such a tradeoff in the current form of budgeting. Now, that progress may be halted.

Now, over to former UN ambassador Ken Adelman, who thinks that the “soft power” impact of foreign aid is overrated: Continue reading →

A Lesson about Statistics in Development from David Simon

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David Simon, the creator of the greatest television show ever made, The Wire, is interviewed by Bill Moyers in Guernica magazine. The topics vary, but one particular answer to a question about the relevance of “facts” in understanding the nature of a problem – or the progress and impact of the solution – resonated with me.

One of the themes of The Wire really was that statistics will always lie. Statistics can be made to say anything. You show me anything that depicts institutional progress in America: school test scores, crime stats, arrest reports, anything that a politician can run on, anything that somebody can get a promotion on, and as soon as you invent that statistical category, fifty people in that institution will be at work trying to figure out a way to make it look as if progress is actually occurring when actually no progress is. I mean, our entire economic structure fell behind the idea that these mortgage-backed securities were actually valuable, and they had absolutely no value. They were toxic. And yet they were being traded and being hurled about, because somebody could make some short-term profit. In the same way that a police commissioner or a deputy commissioner can get promoted, and a major can become a colonel, and an assistant school superintendent can become a school superintendent, if they make it look like the kids are learning and that they’re solving crime. That was a front-row seat for me as a reporter, getting to figure out how once they got done with them the crime stats actually didn’t represent anything.

I have not spent long in the world of development, but I have had a chance to understand the mechanics of this world. I believe that my own project- one that has taken an innovative market facilitation approach to agriculture economic development – is making the right moves. But through conversations with career development workers who have been part of the system for a long time and have seen how the sausage is made at the highest levels, I have found that the same principle largely holds true in the world of aid and development.

Typically, the way it works is that governments allot a certain amount of money to be used for development in countries chosen based on the strategic interest of the donor in the country and the broader region. Aid is often used as a carrot to gain leverage in a country. For food aid (much is which is necessary in certain cases), developing countries serve as a repository for food surpluses from the donor country. The other day someone told me that a certain affluent Asian country (not China) is obligated to purchase rice from other countries as part of a WTO agreement. This country is self-sufficient in rice and is an exporter itself, and the rice farmers in that country would be very angry if imported rice from other countries was brought in and sold to consumers. So this country buys rice from other countries, as part of its obligation, and then ships it to developing nations, flooding the local market with cheap, low-cost rice. In doing so, the local rice farmers become uncompetitive serving the domestic market, and are forced to sell at a loss or switch to another crop. As the cycle continues, these recipient nations become more dependent on foreign food aid, as opposed to moving in the direction of self-sufficiency. In addition, the local consumers gain a taste for imported rice, which may or may not be readily available or even well-adapted to local growing conditions. The end result? Dependency.

Continue reading →

CNN is a Joke

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CNN is supposed to be a serious news outlet. To see its penchant for outrageous self-calls, one need look no further than its slogan, “the worldwide leader in news.” Of course, it’s not, and never has been. If BBC and Al Jazeera are Hemingway, CNN is R.L. Stine (though CNN International, and specifically Fareed Zakaria, are pretty good). But CNN.com, the website component of CNN, makes the television network look like The Sun Also Rises.

Its hard-hitting news stories, with titles like “Zsa Zsa Gabor to be a mother at 94?,” and a section between the “Opinion” and “Travel sections called “The Royal Wedding,” have led me to check my pre-conceived notions about the worldwide leader and take it with a grain of salt. But something I read today was truly pathetic. CNN has re-posted an article from Vice magazine, a hipster bible, with the following caption:

The staff at CNN.com has been intrigued by the journalism of Vice, an independent media company and Web site based in Brooklyn, New York. Motherboard.tv is Vice’s site devoted to the overlap between culture and technology. The reports, which are being produced solely by Vice, reflect a very transparent approach to journalism, where viewers are taken along on every step of the reporting process. We believe this unique approach is worthy of sharing with our CNN.com readers.

For one thing, I can’t stand hipsters. But that is an aside. The article is titled “Inside the Criminal World of Ghana’s Email Scam Gangs.” It details the rise of internet scamming in West Africa, and Ghana in particular. The authors – in a hip, “I care about shit, but I don’t give a fuck” kind of way – talk about something called Sakawa, which is a specific Internet scam:

In the same way that hip-hop went from a music style into a descriptor for everything from pants to dancing to potato chips, Sakawa (which originally referred to a specific credit card scam) now means pretty much anything involving money — if you wear a bunch of flashy brand-name clothes you’re dressing “Sakawa,” if you’ve got a nice car it’s a “Sakawa” car — all of which makes sense considering internet scamming is the only way most Ghanaians can afford this.

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Product (RED) and the Dishonesty of Cause Marketing

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There is a good blog post on Aidwatch, Big Willy Easterly’s cynical aid-takedown machine, about the role of celebrities in promoting development and their relative benefits. This post is just Bill being Bill, railing against the status quo. In this post, two guest bloggers, Lisa Ann Richey and Stefano Ponte, who have just authored a book about the topic, titled Brand Aid, discuss the problem of “cause marketing”:

In the book, we examine what happens when aid celebrities unite with branded products and a cause. The resulting combination—what we call “Brand Aid”—is aid to brands because it helps sell products and builds the ethical profile of a brand. It is also a re-branding of aid as efficient and innovative, based on “commerce, not philanthropy.”

In the case study of Product (RED), a co-branding initiative launched in 2006 by Bono, we show how celebrities are trusted to guarantee that products are “good.” Iconic brands such as Apple, Emporio Armani, Starbucks and Hallmark donate a proportion of profits from the sale of RED products to The Global Fund to finance HIV/AIDS treatment in Africa. In essence, aid celebrities are asking consumers to “do good” by buying iconic brands to help “distant others” —Africans affected by AIDS. This is very different from “helping Africa” by buying products actually made by Africans, in Africa, or by choosing products that claim to have been made under better social, labour and environmental conditions of production.

In Product (RED), celebrities are moving attention away from “conscious consumption” (based on product information) and towards “compassionate consumption” (based on emotional appeal). To us, this is even more problematic than the risk of negative media attention that celebrities bring to development aid.

This reminded me of an article in the New York Times from 2008 about Project (RED), which revealed this tidbit of information about the project:

In its March 2007 issue, Advertising Age magazine reported that Red companies had collectively spent as much as $100 million in advertising and raised only $18 million. Officials of the campaign said then that the companies had spent $50 million on advertising and that the amount raised was $25 million. Advertising Age stood by its article.

I remember not being so surprised when I read this, but still a little ticked off. My take on corporate social responsibility is that it can often be disingenuous, dishonest, or, as worst, deliberately misleading. I like the idea of money in development that is not politically-motivated, which is also, frequently, dishonest and disingenuous. I also like the idea of profit-oriented businesses with not much tolerance for wasting money allocating resources to some of these causes. But I think it masks some of the real problems, which are systemic and global, and provides a cover for the perpetrators of those problems. “Cause branding” is a relatively low-cost and easy investment for a business to make, without actually having to produce the results it needs. For Starbucks, a $100 million campaign is pocket change, and to raise only $18 million to the Global Fund – an organization that has been recently skewered in the press for corruption and waste – is a travesty. (My intention is not to villify the Global Fund, which has seen much of its funding put on hold because $34 million, or 0.3% of the total, was potentially lost due to corruption – which is pretty damn good considering the track record of other projects). Continue reading →

Market Facilitation and the Benefits of NGOs

The Scourge of NGOs

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Right now I am up in Tamale working with the ADVANCE office here. I am meeting with maize farmers to help them think about how to invest in yellow maize production. There is a financial institution that is providing credit to farmers in an effort to spur investment in yellow maize and soya beans. They are offering a loan facility at 18% annual interest, which is much lower than the typical 30% that financial institutions offer for agriculture loans. Being up here, I have had the chance to see the destructive power of non-government organizations, otherwise known as NGOs.

I have only been here for a few days, but I have colleagues that have been here for months and have been able to talk to them at length about the challenge of using a market facilitation approach in a city that has been described to me as the “NGO capital of the world.” In a post on the subject, a friend and colleague working with Engineers Without Borders describes it well:

Tamale is the NGO capital of Ghana, with a disgusting and disproportionate number of signposts, land cruisers, air conditioned offices with generators, and hotels with conference centers. I think that pretty much every possible permutation of the words sustainable, community, rural, development has been used to create an NGO acronym.

At a practical level, there is a serious crowding of NGOs who are doing agriculture work, and even more specifically those taking a Value Chains or Market Facilitation approach. I’ve had a chance to participate in 3-4 different forums/workshops that involve different projects with similar philosophies, and even sat around the table during a discussion on collaboration between 3 projects and 1 “private” sector aggregator. I use quotations because there is a growing number of businesses which have been targeted by projects like ADVANCE, whose core business is slipping from profit through sales, to money through grants, trainings, per-diems and the like.

In fact, I was supposed to meet with a maize nucleus farmer (someone who has a large farm and buys from smallholder farms, provides them with financing to pay for seeds and inputs, and sells the produce to a buyer), but he is unable to meet on Saturday (my birthday) because he is attending a course on “NGO Management.” There is so much free money in the system that the market is completely distorted.

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The Battle for the Soul of Microfinance

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Microfinance is going through some major growing pains right now, hitting its first major challenge since it hit the mainstream in 2005 after Muhammad Yunus won the Nobel Peace Prize. The “silver bullet” of poverty alleviation that brought credit to those previously thought unworthy of a loan has seen an onslaught of criticism for failing to deliver on the lofty goals that its evangelists believed it could achieve (lesson: don’t overpromise).

Studies have shown that the impact of providing credit and Bridging Loans to poor women does not have a dramatic effect on poverty alleviation, and the success stories, at least in recent months, have been trumped by tales of aggressive loan-recovery tactics and suicides among poor borrowers in India. Portfolios of the Poor, a book written by four development economists with a healthy skepticism about the transformative effects of microfinance but optimism about its marginal impacts, showed that access to credit is actually less important than savings – access to a safe place to keep your money.

The big schism in microfinance since 2008 has been about where to get the money for operations. On one side, there is a group that believes microfinance must always focus on serving the needs of the poor and resist temptation to exploit borrowers with overly-exorbitant interest rates (I say “overly” because interest rates are, well, exorbitant). This camp, led by Muhammad Yunus, the spiritual and, until recently, actual leader of the Grameen Bank, condemns a profit motive. Instead, microfinance institutions (MFIs) should charge interest rates that will cover expenses and will finance expansion efforts. In other words, MFIs should be financially and operationally sustainable, but nothing more.

Proponents of the other side believe that, for microfinance to achieve its true potential and reach the billions of poor people without access to credit, it must tap into the vast financial coffers of the capital markets. To do so, microfinance needs to become attract investors with, at the least, a hybrid model focused on financial returns and social impact. There are still only a handful of MFIs of adequate scale to access the same type of capital that a normal company might access, at commercial rates.

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Commodity Speculation, Rising Food Prices, and Goldman Sachs

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Old habits die hard, and the motor patterns in my fingers that brought me to the Drudge Report so many times when I worked in a cubicle in Boston once again led me to page the other day. Living up to its reputation for sensationalism, it featured a headline recently about the escalation of food prices around the world. Unfortunately, while Drudge is usually over-the-top, rising food prices are no laughing matter. In 2008, the rising cost of our daily bread led to food riots around the globe and massive destabilization in developing countries, most prominently in Haiti. It alerted food-dependent developed countries to a glaring Achilles’ heel, spurring a land grab in Africa that (almost) comically culminated with the South Korean conglomerate Daewoo making a bid for half – yes, half – of the arable land in Madagascar. So when the next food crisis hits, and hit it will, the developed countries with a foothold may think they are food-secure, until the hungry populations of the food-insecure countries serving as their respective breadbaskets see the fields of gold beyond the fence and decide to Mugabe it for themselves. Unless, of course, the landowners (read: nations) deploy armed guards to protect these critical investments, resulting in rioting, bloodshed, and, inshallah, the toppling of governments.

And now, it could be happening again. I sound like Drudge.

Theoretically, commodity prices fluctuate based on the principles of supply and demand. When the demand for grain exceeds supply, prices go up. In the movie Trading Places, Randolph and Mortimer Duke, the lovable racist WASPs, try to corner the market for Florida oranges. They pay Clarence Beeks for an advance copy of the classified crop report, which will determine the price of oranges for the next trading period. Akroyd and Murphy intercept the report and forge a new version, giving the impression that there will be a shortage of oranges due to a long winter. On the trading floor, the Dukes’ trader buys as many orange futures as he can, under the assumption that they will become more valuable once the negative forecast for oranges is released. The other traders see what is happening, and also buy, driving prices up and up. Akroyd and Murphy begin selling at 120, until the crop report is released. When the real crop report is released, which says that this year’s orange yields will be high, the price plummets, and Akroyd and Murphy buy all the futures they sold in the morning, becoming millionaires in the process. This is how commodity trading works.

In reality, this isn’t always the case. Continue reading →