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by William Easterly

  When I recently flew to Chile during the U.S. summer, my flight was crowded with American college students bringing their skis and tourist dollars to Chilean winter resorts. The road from the airport to Santiago was a new four-lane highway that put to shame the traffic-choked trip from Manhattan to LaGuardia on the other end. In a nice example of South–South globalization, Senegalese singer Youssou N’Dour was playing on the radio in the taxi.

  Fig. 38. Chile Per Capita Income in U.S. Dollars

  When it suited them, Chileans borrowed freely from American economic models, as implemented by the famous Chicago Boys—disciples of Milton Freedman trained at the University of Chicago. A disproportionate number of my colleagues ever since graduate school have been Chileans—most of whom are now back in Chile, running the economy and government. Foreign aid, the World Bank, and the IMF were never more than trivial players in Chile during its discovery of a free-market democratic model.

  Homegrown Development

  The success of Japan, China, the East Asian Tigers, India, Turkey, Botswana, and Chile is turning into a comic relic the arrogance of the West. Americans and Western Europeans will one day realize that they are not, after all, the saviors of the Rest.

  Even when the West fails to “develop” the Rest, the Rest develops itself. The great bulk of development success in the Rest comes from self-reliant, exploratory efforts, and the borrowing of ideas, institutions, and technology from the West when it suits the Rest to do so.

  Again, the success stories do not give any simple blueprint for imitation. Their main unifying theme is that all of them subjected their development searching to a market test, using a combination of domestic and export markets. Using the market for feedback and accountability seems to be necessary for success. But we have seen in chapter 3 that creating free markets is itself difficult, and the success stories certainly don’t all fit some pristine laissez-faire ideal.

  We know that gross violations of free markets and brutal self-aggrandizing autocrats usually preclude success. Beyond that breathtakingly obvious point, there is no automatic formula for success, only many political and economic Searchers looking for piecemeal improvements that overcome the many obstacles described in chapters 3 and 4.

  Nor is self-reliance a magical panacea for poor people—many unlucky poor people, no matter how hardworking, live in states run by gangsters or simply in complex societies that have not yet discovered the elusive path to development. Western assistance, suitably humbled and chastened by the experience of the past, can still play some role in alleviating the sufferings of the poor. In the next chapter, I examine how Western assistance could do much more than in the past, once it is freed of utopian goals.

  SNAPSHOT: THREE CLASSMATES FROM KUMAWU

  ROLAND AKOSAH, ROBERT DANSO-BOAKYE, and Yaw Nyarko together attended the Tweneboa Kodua Secondary School in Kumawu, a town of about ten thousand people in the Ashanti region of Ghana. It was not easy being a student at this school. Water was out most of the school year. Electricity, when it was working, was on from only 6:00 to 10:00 P.M. There were few books; all the students shared the one or two copies available in the school library. But Yaw Nyarko remembers that the teachers were very dedicated and they taught him and his two classmates a lot.

  Together, the three men went on to study at the University of Ghana at Legon, near the capital of Accra. And together, all three left Ghana during the military dictatorship of Jerry Rawlings to get graduate degrees abroad

  Roland Akosah, who got an MBA from Wharton, then worked for many years at IBM and United Technologies in the United States, had grown up in poverty; his mother had had no formal education. He decided to return to Ghana and start his own investment bank, Eno International, in 2000. Eno International has raised capital in Ghana and the United States to put money into pharmaceuticals and consumer electronics. It is buying up citrus groves with the aim of eventually starting an orange juice factory. *

  With help from family and friends, Robert Danso-Boakye got an M.S. in International Banking and Financing in Edinburgh and a M.Phil. in Economics from the University of Surrey. His mentors persuaded him to return to Ghana in the late 1980s to participate in the new opportunities created by the deregulation of banking. Today he is in senior management at Trust Bank in Accra.

  Yaw Nyarko got a Ph.D. in Economics on a scholarship from Cornell University. He became a well-known expert in game theory, writing articles such as “On the Convexity of the Value Function in Bayesian Optimal Control Problems.” After a stint at Brown University, he joined the Department of Economics at NYU, where today he is my colleague. He is also the vice provost for global affairs at NYU, where he has helped develop an NYU study-abroad site and research site in Accra. It is based at Ashesi University, the dynamic private university started by Patrick Awuah, and the University of Ghana at Legon. Yaw has donated his own time to teach economics to the eager undergraduates at Ashesi. He has even more ambitious plans: starting an interdisciplinary research center at NYU called Africa House.

  Roland Akosah is skeptical about what foreign aid has done for Ghana. “We have a horrible reputation. Not only do people think we are panhandlers, we are panhandlers. It’s up to us to improve our own economy.” Yaw Nyarko adds that foreign aid “distorts incentives.” He thinks “it makes people look to others to solve their problems.”

  CHAPTER ELEVEN

  THE FUTURE OF WESTERN ASSISTANCE

  We shall not cease from exploration

  And the end of all our exploring

  Will be to arrive where we started

  And know the place for the first time.

  T. S. ELIOT, "LITTLE GIDDING,”

  FOURE QUARTETS, 1943

  AS DEVELOPMENT WORKERS Dennis Whittle and Mari Kuraishi once asked, what would the World Bank and IMF shock therapists advise if foreign aid were a country? They would probably abolish state ownership, do rapid privatization and downsizing, let the market work, and put an end to bureaucratic central planning. I would favor a more gradual approach, of piecemeal reforms for the troubled country of foreign aid.

  Yes, there is still hope that Western assistance can help poor people in the Rest with some of their most desperate problems.

  Official Aid

  A big problem with foreign aid has been its aspiration to a utopian blueprint to fix the world’s complex problems. If you think I will now offer a utopian blueprint to fix aid’s complex problems, then I have done a really bad job in the previous chapters at explaining the problems with utopian blueprints.

  Still, I hope there are some useful lessons that could enable Western assistance to make incremental progress. If the utopian goal distracted attention away from holding aid agencies accountable for tangible outcomes, then step one is to give up the utopian goal. The utopian agenda has led to collective responsibility for multiple goals for each agency, one of the worst incentive systems invented since mankind started walking upright. There has also been the incentive bias toward observability, which has led to unproductive efforts at producing things that made a big splash.

  The utopian agenda has also led to an unproductive focus on trying to change whole political systems. The status quo—large international bureaucracies giving aid to large national government bureaucracies—is not getting money to the poor. Conditions on aid don’t work to change government behavior.

  When you are in a hole, the top priority is to stop digging. Discard your patronizing confidence that you know how to solve other people’s problems better than they do. Don’t try to fix governments or societies. Don’t invade other countries, or send arms to one of the brutal armies in a civil war. End conditionality. Stop wasting our time with summits and frameworks. Give up on sweeping and naive institutional reform schemes. The aim should be to make individuals better off, not to transform governments or societies.

  Once the West is willing to aid individuals rather than governments, some conundrums that tie foreign aid up in knots are resolved. Those so unlucky
as to have warlords or kleptocrats as leaders will still be eligible for aid. The West can end the pathetic spectacle of the IMF, World Bank, and other aid agencies coddling the warlords and kleptocrats. It can end the paternalism and hypocrisy of conditionality. It can end the inherent contradiction between “country ownership” and dictating conditions from Washington.

  Remember, aid cannot achieve the end of poverty. Only homegrown development based on the dynamism of individuals and firms in free markets can do that. Shorn of the impossible task of general economic development, aid can achieve much more than it is achieving now to relieve the sufferings of the poor.

  Put the focus back where it belongs: get the poorest people in the world such obvious goods as the vaccines, the antibiotics, the food supplements, the improved seeds, the fertilizer, the roads, the boreholes, the water pipes, the textbooks, and the nurses. This is not making the poor dependent on handouts; it is giving the poorest people the health, nutrition, education, and other inputs that raise the payoff to their own efforts to better their lives. (Just like a National Science Foundation fellowship to get a Ph.D. once increased the payoff to my own efforts to pursue a career.)

  I don’t mean to imply that all aid should be for projects. Other areas of aid agencies’ possible comparative advantage could include distilling practical knowledge on operating banking systems or stock markets, giving advice on good macroeconomic management, simplifying business regulations, or making piecemeal reforms that promote a merit-based civil service.

  Unlike many other aid commentators, I am not saying that it is easy to implement these solutions, that my solutions will work, or even that these solutions are obviously right. No, no, and no. There are good reasons why these solutions are not happening already. It is partly because of the social complexity of making even simple interventions work—which will remain troublesome.

  But it is also due to some factors that could be changed. It is partly because the rich countries don’t care enough about making aid work for the poor, and are willing to settle for grand utopian Plans that don’t work. It is partly because nobody is actually held accountable for making this intervention work in this place at this time. My suggestions here could be ludicrously misguided; they should be subject to skeptical examination and ex post facto evaluation just like everything else.

  Above all, this book is not a Plan. It points instead to the Searchers with knowledge of local conditions, experimental results from interventions, and some way to get feedback from the poor, who will find out (and are already finding out) all the variable and complicated answers of how to make aid work.

  I will plunge recklessly ahead with some suggestions, just because the current system is unacceptable. This book has presented some historical lessons that could guide the Searchers.

  Fix the incentive system of collective responsibility for multiple goals. Have individual accountability for individual tasks. Let aid agencies specialize in the sectors and countries they are best at helping. Then hold the aid agencies accountable for their results by having truly independent evaluation of their efforts.

  Perhaps the aid agencies should each set aside a portion of their budgets (such as the part now wasted on self-evaluation) to contribute to an international independent evaluation group made up of staff trained in the scientific method from the rich and poor countries, who will evaluate random samples of each aid agency’s efforts. Evaluation will involve randomized controlled trials where feasible, less pure statistical analysis if not, and will at least be truly independent, even when randomized trials and statistical analysis are not feasible. Experiment with different methods of simply asking the poor if they are better off. Mobilize the altruistic people in rich countries to put heat on the agencies to make their money actually reach the poor, and to get angry when the aid does not reach the poor.

  With specialization on a small number of tasks and the fear and reward induced by independent evaluation, maybe agents of aid will be willing to keep exploring different means of fixing a problem, such as malnutrition, until they get it working. Agents of aid can experiment with different delivery mechanisms: an NGO, private firms, social entrepreneurs who scout out ways to help the poor, maybe even a decently functioning local government agency. Specialization on modest tasks and evaluation for whether you have accomplished them will transfer power from Planners to Searchers.

  Although I think the existing bilateral or multilateral aid agencies and poor-country governments have done a bad job, they might be able to perform better once they are held accountable. Official aid agencies and national government bureaucracies should remain on the list of possible vehicles for delivering development services. Again, all that matters is what works to get help to the poor.

  How to fix the bias toward observability? If you evaluate tangible results, won’t that just increase the bias toward doing things that are observable? Here I think we need a healthy dose of pragmatism. It is hard to think of any incentive system that is going to successfully reward invisible effort toward producing invisible outcomes. Give it up. A cow will always be a cow. Instead try to find where useful interventions intersect with observability. Let international aid agencies go ahead and do the observable things, but make sure that the evaluators hold these agencies accountable for getting results for the poor with those things. The evaluators will give zero marks for empty public gestures such as summits and frameworks.

  In making these reforms, there are many pitfalls. Reformers have to gird themselves for all the ways the wily aid bureaucracies will appear to be making the necessary changes while preserving the politically powerful status quo. The aid bureaucracy is marvelously skilled at adopting the rhetoric, if not the substance, of any criticism directed its way. Indeed, the aid agencies claim they are already adopting the approach of “managing for results.”

  Yet another report has shown up on my Web browser, “Managing for Development Results, Principles in Action: Sourcebook on Emerging Good Practice,” prepared in April 2005. The unnamed authors call themselves the “Joint Venture on Managing for Development Results for the DAC Working Party on Aid Effectiveness and Donor Practices.” Their work is “back-ground information” that is “Forwarded to High-Level Forum on Aid Effectiveness.”

  Just how much the aid industry still does not get the flaws of top-down planning and collective responsibility is shown in how the sourcebook team describes development agencies as already “managing for results”: “Development agencies are creating results-based country assistance strategies in close dialogue with each other and with national governments. During this process, multiple agencies negotiate a process for working together to support country outcomes.1

  There is also the risk that aid agencies will do “cream skimming”—that is, selecting the most promising projects in order to show results, possibly even ones the government would have done on its own without aid. When agencies do this, their aid frees up government resources to be spent on something bad, like the army. This “fungibility” of aid money is something that aid analysts worry about, but perhaps is less of a worry when there are so many things failing. At least make sure that the cows deliver the cream.

  The obstacles to reform are formidable. Still, we can try to think of creative aid mechanisms toward addressing the problems, over and above the specialization and evaluation that I discuss here. Many good-hearted people are searching for solutions to the problems of the world’s poor, much closer to the bottom than the experts at the top. From some of these efforts, new and promising ideas will emerge, and some are already emerging.

  Making PROGRESA

  Fifty-year-old Emma García cooks about 250 tortillas a day for her extended family in her smoky dirt-floor kitchen in Buenavista, Mexico. About sixty-two poor and malnourished families live in Buenavista, in the state of Michoacán, with no paved roads, no running water, and no sanitation. The only economic activity in the village is subsistence farming. Children are kept out of school to work in the fields;
those who do go to school have trouble concentrating on anything other than their empty stomachs.

  In 1997, the Mexican deputy minister of finance, a well-known economist named Santiago Levy, came up with an innovative program to help people like Emma García. Called PROGRESA (Programa Nacional de Educación, Salud y Alimentación), the program provides cash grants to mothers if they keep their children in school, participate in health education programs, and bring the kids to health clinics for nutritional supplements and regular checkups. Since the Mexican federal budget didn’t have enough money to reach everyone, Levy doled out the scarce funds in a way that the program could be scientifically evaluated. The program randomly selected 253 villages to receive the benefits, with another 253 villages (not yet getting benefits) chosen as comparators. Data were collected on all 506 villages before and after the beginning of the program. The Mexican government gave the task of evaluating the program to the International Food Policy Research Institute (IFPRI), which commissioned academic studies of the program’s effects.

  The academic findings confirmed that the program worked. Children receiving PROGRESA benefits had a 23 percent reduction in the incidence of illness, a 1 to 4 percent increase in height, and an 18 percent reduction in anemia. Adults had 19 percent fewer days lost to illness. There was a 3.4 percent increase in enrollment for all students in grades one through eight; the increase was largest among girls who had completed grade six, at 14.8 percent.2