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March 1st, 2006

Jagdish Bhagwati Writes Bono a Letter

Jagdish Bhagwati wrote an op-ed in the Financial Times yesterday, in the form of a gentle letter addressed to Bono. As you can imagine, Bhagwati takes on the development aid lobby and explains why it is that an aid-driven approach has never really worked in Africa.

The key problem in much of Africa is what has long been called the “absorptive capacity” problem: will aid be used productively or will it be wasted? This issue was understood by the pioneering development economists Paul Rosenstein-Rodan and Gunnar Myrdal. The former famously estimated aid requirements in the 1960s by reference to this notion. He calculated how much investment was required to help accelerate the growth rate of an aid recipient, based on an assessment of that country’s ability to manage such growth. Foreign aid would then be given to finance the investment, provided that the recipient made a matching effort to increase domestic savings as well.

But many economists became sceptical. They argued, with substantial empirical evidence, that when aid was provided, the recipients were likely to reduce, rather than increase, their own savings efforts. This was an early recognition of the “aid curse” that afflicts some aid recipients. Uncritical proponents of aid deny this effect even as they talk of the “oil curse”; as if largesse from the windfall of oil earnings is somehow more corrupting than largesse that comes from aid donors.
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Absorptive capacity is far less of a problem if increased aid for Africa is spent outside the country. Spending can be increased in the rich countries to develop vaccines and cures for diseases that severely afflict Africa, such as Aids and malaria. Research on cures for diseases such as yellow fever and sleeping sickness should be well financed. Since much of Africa suffers from huge skills shortages for virtually every developmental problem, education and training of African students in western universities could be vastly increased. They will mostly stay abroad. But then the west should develop and pay handsomely for programmes where they can contribute in other ways, such as short-term visits to train others, for instance. Until these shortages ease years from now (as they did in the 1990s in India; the “brain drain” was a big issue there in the 1950s) as more nationals are trained and find return attractive, surely we could send out more of our own. I have advocated programmes such as a Grey Peace Corps that would find our aged and retired doctors, engineers and other professionals jobs in Botswana, Zambia and other African nations.
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How, then, are we to translate the enthusiastic altruism that you have generated, dear Bono, into larger, sustained flows of aid? Surely the answer is to go after personal, rather than governmental, flows. Personal spending on aid typically runs into softer budget constraints. With all the charitable spending I do, I could always forego a dinner at Maxim’s and eat at McDonald’s instead, pledging another $100 to the Geldof-Bono aid fund. So, if you take seriously the estimated audience for Live8 concerts at 2bn, halve it for those who were there for a lark or are impoverished themselves, and halve it again for those who attended the concerts twice, you would have half a billion who could sign up for an average pledge of $50 a head as a supplement to their normal giving, yielding a net sum of $25bn outright. The money would be worth almost twice that amount in actual aid, since they would be grants whereas most aid consists of loans that must be repaid.

This would mean abandoning some of your current allies. But you can do nothing less if your efforts are to yield results. In a recent interview, you said that you expected your music would endure forever but poverty would have ended in a hundred years. I wish you good luck on your music. But not even a hundred years would suffice to end poverty if you fail to correct your course.

Read what you will into Bhagwati’s comment about Bono’s current allies :)

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