Former World Bank economist William Easterly says that foreign aid has too often been run in the interests of corrupt dictators and self-congratulatory bureaucrats, to the point where in some cases it’s actually intensified the suffering of the poor.
Michael Duffy: Since WWII the developed world has spent about $US2.3 trillion on foreign aid to the Third World, yet it’s achieved surprisingly and frustratingly little. Those poor countries that have managed to achieve prosperity have often done so in spite of rather than because of Western assistance. These apparent paradoxes are ones we need to investigate and understand if we’re going to help the world’s poor. Bill Easterly is Professor of Economics at New York University and a senior fellow at the Centre for Global Development. He’s just written a confronting and fabulous book on the subject, it’s called The White Man’s Burden. He joins us now. Bill, welcome to the program.
William Easterly: Thank you, it’s good to be here.
Michael Duffy: I know you’re sceptical about a lot of foreign aid today, but this wasn’t always the case, was it? You used to be a believer yourself.
William Easterly: Yes, I went to work for the World Bank right out of graduate school and really hoped that I could do something good working for the World Bank for the world’s poor.
Michael Duffy: And what changed your mind?
William Easterly: Well, it was really just the accumulation of experience at the World Bank. I realised, first of all, how much effort gets diverted into just sheer bureaucracy, writing reports that are read by other people writing reports to write their reports, and nothing getting to anyone on the outside, much less the poor people. Then there was just the gradually accumulating record of failure that I witnessed.
Michael Duffy: You quote a lot of that in your book. Is it fair to say that probably that’s only reached a critical mass in the last few years?
William Easterly: Yes, I think with what were called structural adjustment loans by the World Bank and IMF which were foreign aid loans made conditional on the countries doing a lot of reform, those loans were started in 1980, so I came on board in the World Bank just as those loans were becoming very numerous and very popular, and yet by the late 80s and early 90s it was becoming clear that this treatment wasn’t working. Either the countries were not doing the economic reforms or even when they were doing them they turned out to be poorly designed reforms that had been thought up in Washington and really didn’t work that well in poor countries. The response was there was very little economic growth, sometimes even negative economic growth or people’s living standards were actually falling in response to World Bank sponsored conditional aid. So that’s when I really realised that it was not achieving what it was supposed to.
Michael Duffy: Just giving us some sort of an overview, you talk about $US2.3 trillion…in very general terms can we say where most of it went?
William Easterly: Geographically we can say that the region that received the most foreign aid was Africa, they got $568 billion of that, despite accounting for much less of the developing world’s populations than, say, Asia. Unfortunately it was precisely in the most aid intensive continent that there were the biggest disappointments. After $568 billion in aid over 43 years since the era of independence in Africa, there has been virtually no rise in living standards of the average African, and I think that is very sad. It’s heartbreaking to see all this money spent and not achieve effects for what are after all very poor, desperate people living on a margin of subsistence.
Michael Duffy: Your book has an interesting conceptual basis that really goes beyond the issue of foreign aid. You divide people in planners and searchers. Would you mind telling us about that difference?
William Easterly: Yes, I realised that that bureaucratic approach to poverty was a lot like central planning in the old Soviet Union. You know, the bureaucrats at the headquarters decide how much everybody needs of each thing and then they just announce that these things are going to be delivered and it’s all put in one big comprehensive plan to end the sufferings of the poor and to end poverty all together. But of course all the problems with central planning surfaced once again in foreign aid. The planners, the bureaucrats at the centre, can never have enough knowledge as to what each individual actually needs or wants. What’s worse is that all the people along the way are not really motivated to do the job and deliver the goods to the poor. So the wrong things are allocated, and even when the things are the right things for the poor consumer, they never reach the poor. That’s really the break down of the whole planning approach of foreign aid.
Michael Duffy: And you said one aspect of planners is they’re often enthusiasts for something you call the ‘big push’. Can you give us an example of that in foreign aid? What’s the ‘big push’?
William Easterly: This is an idea that’s been resuscitated a lot by people like Jeffery Sachs, the Columbia University economics professor. But this is really an idea…although he’s talking about it in his recent book and it’s even gotten a level of notoriety where Bono is talking during U2 concerts about the big push and how we can lift Africa out of poverty by foreign aid, this is an idea really goes all the way back to the 50s when it was thought that poor countries were in a poverty trap, they couldn’t get out of poverty on their own, they needed a big injection of foreign aid to give them enough saving with which to invest in factories and equipment that could raise their productivity. This idea was actually already tried and it didn’t work because the money that went into these poor countries often got diverted into corruption or just into sheer inefficiency and bureaucracy and never made it into investments. The investment was often very poorly conceived, like the $6 billion steel mill in Nigeria that has never yet produced a bar of steel because it’s a state owned enterprise where no one has any incentive to make anything work.
Michael Duffy: I guess this is one of the most shocking things for me about the book, the realisation that we now do actually have something like 50 years of empirical evidence and we can actually start to test these ideas that people have come out with now and see what happened to them.
William Easterly: Yes, and what seems remarkable and really sad to me is that the same ideas that have already failed decisively over 50 years are still being inflicted on the world’s poor. People like Sachs and Bono are still pushing these same old ideas of just throw money at the problem and that will end poverty.
Michael Duffy: Bill, in contrast to the planners, you talk about people who are searchers. What does that mean and why are they better?
William Easterly: Poverty, historically, has always been ended by what we could call searchers who are people who have an incentive to find something that works. Who are these people? Well, they’re first of all small business owners and large business owners and free markets who make a profit by giving the consumer what they want. So they have incentive to search for what the consumer wants, to search for things that work to meet the needs of the consumer, and so the free market does a very good job of meeting the needs of consumers. Of course when they find those things that meet consumers’ needs they also create jobs, they give jobs to poor people and poor people become less poor as they become productive workers producing things that people want. In democratic societies we have political searchers who are trying to solve particular problems when they arise because the voters will punish them if they don’t deliver on solving particularly pressing problems like streets in disrepair with potholes, or education systems that are failing. Anything that affects the voters directly, they will search for an answer to find something that pleases the voters because otherwise they will be turned out of office. But unfortunately that searching mentality is really not there in foreign aid. Poor people have no way of registering their displeasure with the aid business when it fails to satisfy their needs or voting out of office the aid bureaucrats when they fail.
Michael Duffy: This is a very big thing in your book for me, the need for feedback and accountability. With the planners, even though there are lots of reports written, no one is really accountable for failure.
William Easterly: Yes, I think that’s why the same old failed ideas are being tried all over again because no one was held accountable the first time around when there was failure.
Michael Duffy: One of the saddest chapters in your book is the one where you describe how planners often end up supporting gangsters, corrupt governments or at least dictators in Third World nations. Why does that happen so often and why do you think planners have been blind to it for so long?
William Easterly: It’s just like an intellectual dead end that foreign aid has gotten stuck in. We forget that these governments and poor countries are a very recent vintage and sometimes the whole state is really pretty artificial, just a hodgepodge that was thrown together when some coloniser drew boundaries. We treat them as if these were mature sovereign states that developed much more slowly over many, many decades and centuries like Western Europe, North America and Australia. So we think that we need to give foreign aid through the sovereign national governments of poor countries, but because of the artificiality and the recent vintage of these states they’re often very dysfunctional; they’re captured by gangsters who are supported mainly by the foreign aid donors themselves and by their control of the army, and they really don’t have the interests of their people at heart.
Michael Duffy: So in some cases aid is not just being not good, it’s actually been bad in the sense of propping up these bad governments.
William Easterly: Absolutely, yes.
Michael Duffy: One of the themes of your book, it seems to me, is continuity, the way that Western thinking about the Third World and even some Western actions haven’t changed all that much from the colonial period to the aid period we’re now in. I imagine that idea has upset a lot of your former colleagues.
William Easterly: Yes, it is a controversial idea that really there is a lot of continuity between the colonial era and today’s era of foreign aid. There’s not quite the same racism that there was in the colonial era fortunately today, but there is still very much the mindset that the Western experts, the white man (to put it in politically incorrect terms) are the ones who have the answers and really know better than the poor people themselves how to solve their own problems. That, I think, is really an unfortunate legacy of Western thinking, it’s really arrogant and it’s paternalistic and it really just deserves to be buried once and for all.
Michael Duffy: I guess the last thing anyone wants to do is to despair, so can you give us some examples of what does work? What should we be doing?
William Easterly: There are some searchers in foreign aid, so all is not lost. There are really creative people, one of the most famous being Muhammad Yunus who founded Grameen Bank in Bangladesh and really invented the whole idea of micro credit. That is loans to very poor people in very small amounts that enable them to start to lift themselves up. Recently the Grameen Bank has diversified into cell phones, which is another really creative trend. Cell phones in poor countries are really a lifeline. They’re not just for teenagers talking to their boyfriends, they’re for summoning medical help when there’s a medical emergency from the local health clinic, or they’re for running their business. There’s an example that I have in the book of a fisherwoman on a Congo river who is illiterate, has no education but she does have a cell phone. She has no refrigeration so she needs to sell her fish right away, so what she does is she catches fish and then she calls up her customers and says, ‘I have fish. Come down to the river and get my fish.’ These cell phones are spreading like wildfire through Africa, through South Asia and creating a lot of productive opportunity for poor people. That shows the kind of dynamism that is really there at the bottom that I think is ultimately the best hope for the poor countries, the home grown dynamism and entrepreneurial resourcefulness of poor people themselves.
Michael Duffy: Is there a growing acceptance of some of the things that you’ve been talking about today?
William Easterly: I think there is a gradual shift in mindset, that people are realising that the old models are really not working and we really need something new.
Michael Duffy: That’s good, at least there are some grounds for hope there. Bill, thanks very much for talking to us today.
William Easterly: My pleasure.
Michael Duffy: William Easterly is Professor of Economics at New York University and a senior fellow at the Centre for Global Development. We’ve talking about his new book The White Man’s Burden which is published by Penguin but not, alas, in Australia.
Source: ABC Radio National, Counterpoint , 17/6/06