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 
February 14th, 2006
Bill Easterley in the Post
(Via Africa Unchained) William Easterly writes in the Washington Post.
Economic development in Africa will depend — as it has elsewhere and throughout the history of the modern world — on the success of private-sector entrepreneurs, social entrepreneurs and African political reformers. It will not depend on the activities of patronizing, bureaucratic, unaccountable and poorly informed outsiders. Development everywhere is homegrown.
February 11th, 2006
Guest Post 2: Response to Theroux, Africa, Bono etc
Hari Chandra responds to the previous post linking to the Paul Theroux op-ed in the Times as well. Hari is with the Blackstone Group.
Why I wish Bono would, despite his best intentions, stick to U2 and why Paul Theroux doesn’t quite get it either
As much as I love Bono’s music, he and his ilk (Geldof et al) have sadly done a great deal of harm to Africa’s ongoing process of economic development by sustainning a perception of Africa as a charity case. I would hardly make unsubstantiated claims about magnitude, but every moment that the “Save Africa” culture propogated by Bono and others captures the world’s imagination is another moment that hope for widespread prosperity in Africa is deferred.
Certainly, the causes of debt relief and increased aid raised by the “Save Africa” crowd are, in the right context, worthy. Debt relief should never be a goal in itself. Countries must prudently incur debt in order to develop and lenders should expect repayment in order to continue providing necessary capital. However, I submit that there may be cases where debt relief may be required to erase the errors of a kleptocratic former regime, provided that new creditworthiness is established. Foreign aid also clearly can be helpful in certain circumstances, particularly for humanitarian relief, cases of very clear market and government failure (which are rarer than commonly publicized) and public health, particularly, as Sheri mentioned, in the case of HIV/AIDS, but has its own problems when it is a substitute for real investment capital.
However, the centralization of debt relief and aid, even when coupled with a demand for better governance, as a plan to “Save Africa” creates a notion among investors and policymakers of a sub-Saharan Africa that reeks of a bad Oxfam advertisement (e.g. with 12 pounds a month, you can ensure that little (insert African name) can have a good meal every day). The “charity case” notion makes sub-Saharan Africa out to be a pervasive basket case, constantly facing starvation, disease, civil war etc when the reality for much of the continent is very different. Certainly, there are pockets of the continent that fit the charity case notion, but nowhere in this worldview is the Africa of improving governance, return of the rule of law, vast natural resources and a pragmatic, entrepreneurial culture, that exists in many parts of the continent and are arguably the foundation for the next rapidly developing economic region, given access to capital. As long as the negative, charity case, perception of Africa exists globally, it is a critical impediment to real prosperity.
Theroux is wrong as well. Africa absolutely needs “more money”. However, the money it needs the most is not foreign aid, is not debt relief, is not even money for public health programs. Except in limited and specific circumstances, Africa does not need charity. Africa needs “more money” in the form of huge amounts of global risk capital, equity and debt, that can build the industrial and manufacturing base that can employ millions and provide even more with the basic tools of prosperity, support the entrepreneurs building a service industry, provide access to global trade markets for many more people, etc. Certainly capital is not the only thing that Africa needs but it can create a virtuous cycle, funding the educational institutions needed for a professional middle class, supporting the civil society that a sizeable middle class engenders, ultimately allowing Africans to take ownership of their resources.
The “Save Africa” message frightens this absolutely necesary capital, creating an image of a civil society and economy that are destined to fail without aid, when the reality could be sucess with capital investment. I am confident that the African market could provide attractive returns for significant investment capital but my experience is that the market tends to view Africa as a charity case and not worthy of consideration of real investment dollars. This is in no small part due to the branding of Africa that Bono and others create. Though the branding issue is very significant, this is not just a branding problem. A culture where debt relief and aid are seen as real solutions is unlikely to engender the discipline and pragmatism necessary to attract the vast amount of capital that Africa needs to develop.
PS: There are other things troubling about the Theroux piece like issues about free movement of people but this post is already too long.
February 11th, 2006
Guest Post 1: Response to Theroux, Africa, Bono etc
This was a note written by Sheri Willoughby, in response to the previous post linking to the Paul Theroux op-ed in the Times. Sheri is with the World Resources Institute.
Why I still love Bono
Debt-relief – What is Theroux’s bone with debt-relief? Forgiving third world debt is a step in the right direction for Africa – and Bono has been a highly effective champion for it. The next step is to change the lending & governance systems to prevent crippling debt from happening again.
AIDS – When Theroux was a Peace Corps volunteer in Malawi – this wasn’t part of his paradigm. Now 15% of the population has HIV or AIDS and the average lifespan is 39 years old. That Bono is raising awareness and money to fight this and other preventable diseases should help Theroux stomach Bono’s 10-gallon hat & sunglasses!
I do agree with Theroux that the “more money” platform is flawed in the current way that international aid money gets dispersed (i.e., almost none getting to the intended recipient; its tendency to destroy nascent local markets, feed corruption, legitimize dictators).
However, I thought Theroux’s argument that Peace Corps volunteers led to Malawi’s unraveling via brain drain gave the Peace Corps way too much credit. In which developing countries don’t educated people try to leave to seek better opportunities and/or support their families back home? Theroux’s final conclusion that Africans need to stay in their countries in order to work out their problems is unrealistic.
I agree with Bono that there is no justification for extreme poverty in 2006 – and yet the decisions we make, the leaders we choose, and the policies we support effect that status quo. Bono is doing his job as a rock star to inspire us to change the world, and then he’s going out and changing it himself. Rock on, Bono!
February 11th, 2006
Paul Theroux on Africa, Aid and Bono
There are few travel writers I enjoy more than Paul Theroux, and I consider Dark Star Safari one of the better books I’ve read about Africa. There are few singers I enjoy more than Bono. So, when one talks about the other, it becomes instantly interesting as far as I am concerned, even if this NYT op-ed has Theroux tearing into the aid industry that Bono actively champions.
If Malawi is worse educated, more plagued by illness and bad services, poorer than it was when I lived and worked there in the early 60’s, it is not for lack of outside help or donor money. Malawi has been the beneficiary of many thousands of foreign teachers, doctors and nurses, and large amounts of financial aid, and yet it has declined from a country with promise to a failed state. In the early and mid-1960’s, we believed that Malawi would soon be self-sufficient in schoolteachers. And it would have been, except that rather than sending a limited wave of volunteers to train local instructors, for decades we kept on sending Peace Corps teachers. Malawians, who avoided teaching because the pay and status were low, came to depend on the American volunteers to teach in bush schools, while educated Malawians emigrated. When Malawi’s university was established, more foreign teachers were welcomed, few of them replaced by Malawians, for political reasons. Medical educators also arrived from elsewhere. Malawi began graduating nurses, but the nurses were lured away to Britain and Australia and the United States, which meant more foreign nurses were needed in Malawi.
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Africa is a lovely place - much lovelier, more peaceful and more resilient and, if not prosperous, innately more self-sufficient than it is usually portrayed. But because Africa seems unfinished and so different from the rest of the world, a landscape on which a person can sketch a new personality, it attracts mythomaniacs, people who wish to convince the world of their worth.
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Africa has no real shortage of capable people - or even of money. The patronizing attention of donors has done violence to Africa’s belief in itself, but even in the absence of responsible leadership, Africans themselves have proven how resilient they can be - something they never get credit for. Again, Ireland may be the model for an answer. After centuries of wishing themselves onto other countries, the Irish found that education, rational government, people staying put, and simple diligence could turn Ireland from an economic basket case into a prosperous nation. In a word - are you listening, Mr. Hewson?