Is aid depressing?

Aid is the most depressing topic in economics.  I don’t know how William Easterly and Jeffrey Sachs stand it.

That is Meg McArdle reacting (in part) to my pointer to evidence that NGOs might be killing entrepreneurship in Africa.

I have good news for Meg (sort of). Aid is only depressing if you start off with the wrong expectations.

Aid is not a mythical goddess, walking through a barren field, greenery spouting in her wake. None of us, including McArdle, really believe such a thing, but we do approach charity as though rapid transformation is possible.

It’s uplifting (well… less depressing) to remember a few things.

1. This takes time. Once upon a time England was the one developed country and a respectable thinker could write a book wondering when the backward nations of France and Italy would ever catch up. The decades that separated growth in Britain and the European continent are mostly forgotten now. But it helps to remember that the accumulation of capital, the diffusion of technologies, and innovation and adaptation in social organization can take generations.

2. Aid can only speed this diffusion or accumulation a little. Ultimately it’s up to the Africans or South Americans or Central Asians. If you’re not from there, the best you can do is help those willing (or unable) to help themselves.

3. When you throw gobs of money and people at an economy, there are going to be side effects. Some of them will be bad. Some will surprise you. The main difference between prescription drugs and aid is that, when we give countries aid, no one makes us give them a four minute speech telling them that aid may cause rashes, stomach pain, and erectile dysfunction.

4. Failure happens. In all big systems. Hollywood brought us Star Wars Episode One. The private sector brought us Google Wave. Western medicine brought us bleeding. In aid, the state of our knowledge is a little closer to bleeding than web programming. That’s actually what makes studying aid so different: we’re going to learn a tremendous amount in our lifetimes.

5. Most of the failures are small, while the victories are huge. Think the falling cost of AIDS treatment. Other important discoveries (they really were discoveries) were “don’t have 200% tariffs on capital goods,” and “Don’t print money to pay your bills.” Lant Pritchett compares aid to piano recitals: “kind of boring and it’s tedious and most of the people are wasting their time. But every now and again by God we make a difference and when we do make a difference it really transforms economies and lives for a very long time”. (Yes, we also have innovations like “let’s displace large populations to new villages!” but these seem to die out faster than the good kind.)

Think about working in aid differently. Aid is hard and messy. But so are a lot of jobs. Example: You can start working in a rich-country finance ministry your whole life, suffer the slings and arrows of excessive partisanship and, if you’re lucky, you’ll tweak the growth rate of your country a notch. And at the end of the day you can go home and tell your kids: “I helped the citizens of this country afford to buy a second flat screen television.” Now THAT is depressing.

Give me aid any day.

20 Responses

  3. Dr Blattman,

    I have followed your blogs for a few years now- and there is always something interesting or insightful here. I’m interested in international development, and I have worked with charities and NGOs. Currently I’m working on my PhD, and it feels so less-frustrating that I would even say “I love academia!”

    I’m from Nepal, a country that is mostly run on aid, with 50 thousand + NGOs and INGOs working to help alleviate poverty. It has taken over so much that building public schools, hospitals or other service centers is someone the NGOs job. When I was in my undergrad, we used to call the aid industry “DollarKheti” (dollar farming). A lot of us thought we would end up working with aid agencies- mainly because that’s were the “good paying jobs” were. A lot of us still hope to get a job with I/NGO so that we earn more.
    I think aid is just wrong. It has confused people, made them more ignorant and shy, made them believe that they don’t know anything because they have no formal higher education. When I was researching in the communities in Nepal, the marginalized people in all the places where aid reached did not know ANYTHING about forest management, while the development worker who did his undergrad in biology, some voluntary work with wildlife conservation, and had this job for 10 months knew all the details and ways of sustainable management. Those women, marginalized groups had been accessing the forest since they were old enough to collect wood. The interesting aspect is: the places where the aid agencies had not reached, the marginalized groups were expressing their thoughts comfortably, explaining what they had been doing, etc, as long as you spoke their language. This was about empowerment… The one good thing that aid agencies claim to have achieved, actually that is not completely true. Yes, a few “previously marginalized” people become “empowered” enough to be able to give speeches in public, but they still struggle with their power relations on domestic and social level. I see no win situation.
    I have come to believe that aid agencies do more harm than good. The only good that they have done is created employment for the local population. The wages are so much higher than local wages that it impacts purchasing power of the locals. I have seen some of my very smart, hardworking friends (those you think will contribute to the society…) shuffling papers and editing notes in the UN office, after they had done some amazing work in their local community. The people who helped expand their local school, found resources to bank the river, led some great sanitation campaigns- I have seen them not able to do innovate projects- they spend time going to the village, holding a “meeting with local leaders”, making some vague statements, and typing reports for years. It just pays more, and with inflation, what else could be your option?
    This is not an exaggeration if I say I see this all over the country.
    I don’t think aid agencies are creating “employment”, I think they are creating “dependency” by eliminating all kinds of social innovation.
    I don’t think aid agencies are doing more harm than good, I think aid agencies are doing HARM, no good to society.
    I know such “cases” are too subjective and not-quantified enough to make a statement, but I think I know and understand the country deeply and contextually than any statistics.

    I don’t think the question should be “how to be okay in aid”, I think the debate now needs to move on to, how to eliminate the aid industry?…

  5. “I love the statistic that in 1957 Ghana and South Korea had the same GDPs.” I think you might love it a little too much. No number sums up a nation’s development, which is in part a cultural transition. In 1957, South Korea was still catching its breath from a ruinous war. But it was also catching its breath from decades of a forced march by the Japanese toward universal education and industrialization. That march resumed after the Japanese. The marching orders were instead coming from a Korean elite produced by Japanese education, who staffed institutions that had been put in place by the Japanese. Imperial Japan did terrible things to Korea. But from 1910 onward, Imperial Japan also move them along a development path based on lessons learned in the Meiji Restoration (and later) and applied (sometimes with similar brutality) to its own people. And this is on top of the Hermit Kingdom’s own breakout and movement toward higher technology in the late 19th century. Ghana? It’s not clear to me that the British (and the Dutch and Portuguese) were interested in much more than commodity extraction.

  6. McArdle thinks aid is depressing because it involves brown people improving their standards of living. Remember, she’s a libertarian.

  7. Most successful economies promote themselves for the attraction of Foreign Direct Investment (FDI). South Korea for example. FDI is an important economic pillar and location marketing has become a sophisticated industry in its own right. As Germany is one of the world’s main sources of FDI there are many regions and countries promoting their locations here. However I never see sustained and professional marketing activity by African countries. This would be badly needed here and in other markets in order to correct the mistaken impressions of Africa and to provide information to potential corporate investors in order to kick-start FDI flows into Africa.
    Bodies such as UNCTAD and the World Bank are fully aware of the importance of FDI and regularly issue statistical and strategy reports on FDI in the developing world. But who is actually working on the ground to make these African locations attractive and to proactively sell these African investment “propositions” to would-be corporate investors from Europe and elsewhere? And why is none of the aid being directed in a pragmatic and practical way at this vital area? Because without this work being done Africa will only attract the resource-seeking state-backed investors from Asia which are not interested in transferring knowhow. Africa will otherwise miss out on the indigenous development of industrial sectors and the resulting creation of wealth which has been enjoyed by the likes of South Korea.

    1. We had a program to try to attract FDI. It worked for a while but then we had a change of government (a coup) and the outs became the ins. We lost our biggest market for our biggest employment sector and those foreign owned companies involved have left and left behind 50,000 unemployed. Some members of the new government have been very opposed to FDI. Their beef was that the foreign companies were making too much money and the local companies werent. I think that meant they werent making any money from this investment. Now nobody is making any money in business. The only money being made here is by theft. Most of the FDI companies have left and the ones left are finding their fees and taxes rising dramatically.
      Im asked regularly “what can you do to help our economy?” My question is “why should it be me helping your economy?” It is a regular cycle here. Every time something gets built up a new group of gangsters comes and breaks it down and steals the broken bits.
      All but humanitarian aid has been cut off. Im not sure that’s such a bad thing. I hear the Lord helps those who help themselves. I think that’s good development policy.

  8. eric- Get outside of your American bubble. I’m sure you would trade away a few GDP points. But see the Singaporean apparently doesn’t share your overriding concern with freedom. Coming from a venerable Confucian tradition he probably cares more about his family. Is he wrong? Go ahead and try telling a South Korean that his economic miracle (which many literally died fighting for) is tainted because its “unhealthy.” Tell the millions of Africans to wait a little longer on that job because we Westerners only want to show them “healthy” ways of supporting themselves never-mind what they would do without our moralizing.

    I am harsh. But seriously what the heck is “healthy development?” Did the West develop in such a manner? No. Are we “healthy” now? No. Did much of Asia? No. Is it healthy? Not really. But its doing its thing, progressing and adapting like it wants to (or not). And so do we. Why should we insist that poor countries develop “health-ily” whatever that means?

  9. Too often, aid is simply viewed as a foreign policy tool by donor countries. Likewise, within recipient countries, aid serves domestic political purposes. The needs of poor people themselves are usually the last consideration. And, of course, international “aid” comes in the form loans that come with strings attached.

    Oxfam has a sobering but realistic look at aid effectiveness and makes a reasonable case for the possibility of “better” aid: http://www.oxfam.org/en/about/issues/aid-effectiveness

    “It should no longer be conditional on recipients promising economic change like privatizing or deregulating their services, cutting health and education spending, or opening up their markets. Aid should support poor countries’ and communities’ own plans and paths out of poverty.

    At the same time, recipient countries need to have people and policies in place so that the aid is used in an honest and transparent way. Aid will work if people dealing with it both in the north and the south are made accountable.”

  10. I have spent a good deal of time in Afghanistan over the last few years. It may not be representative for obvious reasons but my experience there working with people in higher education is somewhat troubling. At the American University the two most popular courses are how to write grants and how to write the reports for showing how you have spent the grant. It seems to me the whole country’s system distorted by the flows of aid. An interesting thing that I have found in my surveys of college students is that the least popular international group is NGO’s. International corporations are among the most popular. Perhaps the case is too unrepresentative but there seems to be a tendency for the grant-writing sector to out-strip economic development.

  11. I worked in development in a island African country that has had lots of aid for years. I dont any more. The per capita GDP is less now than 50 years ago at independence. That isnt aids fault. Its Bad Management. Not Western management either. All the alphabet agencies are here or have been here. Lots of NGOs are here esp environmental and health ones. They all have ideas. Some good, some better, none really bad. The counter-parties however have ideas too and they range from rapacious, to kleptocratic to merely very, very poorly considered. A gentle Englishwoman, long resident, said the other day the administration of the island “couldn’t organize a piss-up in a brewery”. I think she is being too kind.
    In 50 years the population has grown by 400%. The country will never reach critical mass and be able to move up like a tiger. They missed that boat. The West can and probably will continue to send aid here and all that will do is bandage a hemophiliac. If one was to seek an example of another country to model a future scenario it would be Haiti.
    Aid doesnt depress me. Thinking of years of bad management while receiving aid that might have made a difference depresses me.

  12. loved the sachs slight there at the end, chris! nice article. and in response to justin up top, how about this: “healthy development takes time.” I would trade quite a few GDP points per year for the privilege to not be commanded around by the singaporean government. development->freedom and freedom->development.

  13. The problem is that it has been five decades of throwing money at Africa. Now, fifty years later, we can’t measure very much positive effect. That is 2-3 generations.

    I don’t want us to stop aid, but the facts have to be reconsidered.

    1. andy: just because you can’t measure a positive effect doesn’t mean it’s not there. Just because Africa is a mess does not mean it wouldn’t be a heckuvalot worse if it weren’t for aid.

  15. I agree with most of what you say, except your first point. “This takes time.” Though of course true, its a very dangerous excuse to give failing Aid supporters. Look at South Korea, Taiwan, Singapore (i.e. the Tigers) it didn’t actually take them very long. 50/60 years and they were done. I love the statistic that in 1957 Ghana and South Korea had the same GDPs. Now look at the two countries. Ghana looks to be on the upswing finally (though which watch out for the oil stuff) but the implicit notion behind the “This takes time” phrase is that, sure progress has been slow but that is just how these things are, we are moving in the right direction, etc.” Well thats simply not true. Particularly in Africa we (Westerners and Africans) not always, but as a general rule, have been screwing up royally for the past 50 years. And it shows. Lets wallow in that a little and not try too quickly to soothe each other with kind words. Perhaps then we (again Westeners and Africans) can start making the hard decisions that it will take to put developing nations on the path that South Korea and the other Asian Tigers started on over 50 years ago.

  16. YES!
    The frustration is caused by excessive expectatations of aid workers regarding what kind of a difference they can make, ‘personally’.
    The problem being, that “making a difference” seems to be an integral part of the “deal” aid workers buy into when they decide on a career in the aid industry, as opposed to other jobs. Hence frustration is as rabit, as the one regular people would feel if they didnt get the health insurance that they paid for.