On a long plane plane ride to India, I read the “The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good ” by William Easterly – the guy that Bill Gates had a strong reaction to recently on a panel discussion in Davos earlier this year. Thanks to Mora for suggesting and lending the book to me.
From “Bill Gates Issues Call For Kinder Capitalism,” January 24, 2008, Wall Street Journal…
“If we can spend the early decades of the 21st century finding approaches that meet the needs of the poor in ways that generate profits for business, we will have found a sustainable way to reduce poverty in the world,” Mr. Gates plans to say….
To a degree, Mr. Gates’s speech is an answer to critics of rich-country efforts to help the poor. One perennial critic is Mr. Easterly, the New York University professor, whose 2006 book, “The White Man’s Burden,” found little evidence of benefit from the $2.3 trillion given in foreign aid over the past five decades.
Mr. Gates said he hated the book. His feelings surfaced in January 2007 during a Davos panel discussion with Mr. Easterly, Liberian President Ellen Johnson Sirleaf and then-World Bank chief Paul Wolfowitz. To a packed room of Davos attendees, Mr. Easterly noted that all the aid given to Africa over the years has failed to stimulate economic growth on the continent. Mr. Gates, his voice rising, snapped back that there are measures of success other than economic growth — such as rising literacy rates or lives saved through smallpox vaccines. “I don’t promise that when a kid lives it will cause a GNP increase,” he quipped. “I think life has value.”
Brushing off Mr. Gates’s comments, Mr. Easterly responds, “The vested interests in aid are so powerful they resist change and they ignore criticism. It is so good to try to help the poor but there is this feeling that [philanthropists] should be immune from criticism.”
also see Easterly’s rebuttal.
Easterly is former research economist at the World Bank now at NYU. in his book he looks at the successes/ failures of international aid interventions (financial + military) by “The West” and makes the case that they have done more harm than good during the past 50+ years.
Most of Easterly’s book makes sense to me and I agree with Easterly that philanthropic/aid agencies are not “above” criticism – their hyped up expectations do not necessarily make things better and sometimes they make things worse by standing in the way of more realistic, lasting solutions… but,
- I agree with Gates on one thing, that you can get into trouble measuring national economic development using aggregate GDP (growth) instead of measuring the purchasing power of the bottom pyramid (half or quarter) of earners in the economy. Easterly cites India as a success story of development showing a chart of exponential GDP growth over 20-40 years using the Indian IT industry as an example. Despite this progress, the failure is that 50 years after Indian independence close to half of all Indians (400-500 million people) still live on less than $1 of $2 per day.
- Easterly says new (niche) market creation is limited by social and legal barriers to trust and property rights and therefore must take place indigenously – there is not much we can do about it living in “The West.” I think we have not yet explored the potential of the Internet to overcome these constraints and help diversify agricultural economies (long tail). See my essay “Opening Niche Markets in Rural India using the Internet”
- Style. Though his analysis is very compelling and data-driven with graphs, stories of people, case studies of developing nations, and world history, to me the title seems a bit polarizing or stuck in the past and the tone of the writing is funny bit also feels a bit sarcastic. Perhaps it is discouraging to visionaries and optimists who want to break from the past. In his book he takes aim at Bono and Jeffery Sachs’ “The End of Poverty.”
I tried to capture the main ideas of the book… sure I missed something but I think it’s mostly here.
— Top-down “planners” at large institutions like the World Bank will mobilize resources on the basis of utopian agendas and large-scale “big pushes” that attract donor governments and private institutions (in US, UK, and The West). These visions are never achieved because they lack feedback from the people (Africa, Asia, and “The Rest”) whom they are intended to benefit, i.e. the poor. On the other hand, he notes that the World Bank produces very high quality economic research.
— Unlike market-driven firms or (legitimately) elected officials the planners are accountable to donors, not the poor. planners’ jobs are not dependent on serving the poor but rather to indulge donors’ unrealistic expectations which may never materialize. The “planners” efforts do more harm than good (large part of what the book is about). The failures of these big pushes become self-fulfilling as donors redouble their efforts, bureaucracy becomes bloated, and they begin to measure progress based on volume of aid disbursed not impact on the poor. incentives of planners and poor people are not sufficiently aligned – this is called the principal-agent problem
— Bottom-up “searchers” (NGOs, entrepreneurs, profit-seeking companies) who are on “the ground” in developing countries can get direct feedback from the poor people they serve and make real impact on the their lives. they set realistic, achievable goals unlike the planners. Too little money is going to support the searchers. several case studies.
— On microfinance and microcredit,
Microcredit is not a panacea for poverty reduction that some have made it out to be after Yunis’ discovery. Some disillusionment with microcredit has already come in response to these blown-up expectations. Microcredit didn’t solve everything; it just solved one particular problem under on particular set of circumstances-the poor’s lack of access to credit except at usurious rates from moneylenders.
— Markets are a spontaneous outgrowth of social trust (for transactions) and property rights (for investment), and can’t be planned by aid agencies, foreign governments, or “out of the blue” after an invasion or removal of a dictator.
— Foreign aid has been most effective and made a large-scale impact in people’s lives for things like vaccination, health care delivery, and programs to keep kids/girls in school when compared to other areas in which results can’t be directly measured. dollar for dollar, the recent momentum to offer AIDS treatment ($1000 per person) like Bush’s $15 billion commitment of US taxpayer funds for Africa (30 million infected) is many times less cost-effective compared to preventing the spread of AIDS through condoms (600 million not infected) or even prevention of other life-threatening diseases like malaria, diarrhea, and infant mortality. the spread of AIDS could have been avoided had prevention been a bigger priority since experts have been predicting this epidemic for over a few decades. In AIDS, saving a life gets more “emotional” attention from the public than prevention of AIDS transmission which could save many more lives.
— There have been some success stories, but economic growth in developing countries has not been correlated to aid/intervention by the West. Colonialism and imperialism has resulted in long-term economic stagnation, which he offers as a case study to consider other neo-imperialistic plans to take over weak-states. His claim is that countries develop much faster and better when they are left to their own.
— National financial health has less direct impact on earnings of the poorest people, except indirectly via inflation and government subsidies to the poor.
The IMF’s approach is simple. A poor country runs out of money when its central bank runs out of dollars. The central bank needs an adequate supply of dollars for two reasons. First, so that residents of the poor country who want to buy foreign goods can change their domestic money (let’s call it pesos) into dollars. Second, so those poor-country residents, firms, or governments who owe money to foreigners can change their pesos into dollars with which to make debt repayments to their foreign creditors. What makes the central bank run out of dollars? The central bank not only holds the nation’s official supply of dollars (foreign exchange reserves), it also makes loans to the government [aside from foreign borrowing with bonds] and supplies the domestic currency for the nation’s economy. The government spends the currency [it borrows], and the pesos pass into the hands of people throughout the economy. But are people willing to hold the currency? The printing of more currency [excessive government borrowing from the Central Bank] drives down the value of currency if people spend it on the existing amount of goods – too much currency chasing too few goods… so they take the pesos back and exchange them for dollars. The effect of printing more currency that people don’t want is to run down the central bank’s dollar holdings. Too few dollars for the outstanding stock of pesos is kind of like the Titanic with too few lifeboats. The country then calls on the IMF. So the standard IMF prescription is to force contraction of central bank credit the government, which requires a reduction in the government’s budget deficit [government spending]… forces the government to do unpopular things [like cut subsidies] – disturbance of domestic politics.
— Bad governments (corruption and violent dictators) have been responsible for much of the slow growth in these countries, which are in turn caused by either a colonial past or by historical poverty itself. Foreign aid tends to prop these governments up, and in some cases private organizations working around these governments can lead to much better results.
— Loans are not necessary to balance a national budget, and the IMF’s prescriptions for foreign exchange lending to developing countries and reducing government spending can be way off. This is due to severe accounting irregularities in the books of these countries, uncertainty of how or when markets react to falling currency prices, and how they react to information in the economy (people’s behavior). Lending based on shaky foundations can lead to the self-reinforcing “debt trap” through repeated refinancing of poor countries and propping up of bad governments. the IMF does better in emerging markets, but he says it may be better off to leave the poorest countries alone.
Sri Spot 