The Reckoning

Aid Dispenser, Do No Harm

white elephant

Taking care of white elephants - this one in Myanmar. 

Photo by Soe Than WIN/AFP/Getty Images

Learning is always possible – I may even learn to spell someday, though the existence of Comment on Slate has mostly obviated the need. But, as I say, learning remains ever possible, and there is evidence that the West’s leading development institutions are experiencing some late life education.

The International Monetary Fund and World Bank, whose doctrinaire Western development wisdom (and non-voluntary policy strictures) helped perpetuate poverty in the developing world during the 1980s and 1990s, have cooperated to create a complex index to measure the effectiveness of public spending in the developing world.

Yawn, you say?  Before you click away, consider what the Public Investment Management Index represents. As its creators note upon its launch this week, PIMI is “a first attempt to identify the strength of the public investment management process in developing countries.”

In effect, the index measures how well – or poorly – government money is spent, including money give to governments by foreign donors. This a key indicator of whether various favorable trends in the developing world, from higher foreign investment to lower infant mortality to high GDP growth rates – can be converted into longterm, measurable improvements in the lives of human beings.

It may surprise some that these two gigantic financial institutions, which have spent trillions between them since being founded after World War II, are only now examining this crucial aspect of government accountability. It’s decades overdue, and past attempts foundered on the notion that, when it comes to impoverished governments that you’re helping, no news is good news – at least once the press release about the original aid has run its course.

But don’t blame the current generation at the IMF and World Bank staffers – they are the reformers. The paternalism that hobbled past aid and development programs is a baby-boom phenomenon, and the PIMI index is a sign of change.

Now, it’s easy to condemn those who blazed the trail – the founding generation. So, to be fair, it’s worth noting that getting things wrong for all the right reasons is one of the pitfalls of being a pioneer in any endeavor. This is true whether you’re a father whose parenting skills progressively improve via trial and error or the world’s dominant nation during the era when, quite suddenly, ignoring the destitution of the planet is no longer acceptable.

The difference between those who ultimately preserve their legacy and those who squander it is the ability to learn from mistakes, adjust, swallow pride and move on.

History throws up man examples of pioneers who went in both directions.

·         Computer pioneer An Wang (who, I heard the younger readers ask?) was an earlier leader in personal computing but lost the script.

·         Monetarist pioneer Milton Friedman, whom Paul Krugman – in spite of differences – calls “a great economist and a great man”* - penned useful correctives to the Keynesian doctrine that dominated his career, but said too little as lesser thinkers turned his theories into a quasi-religion and a major cause of the crash of 2008.**

·         Even Thomas Edison stumbled, sticking stubbornly to direct current (DC) when Westinghouse has clearly demonstrated the superiority of alternating current (AC), before his investors forced reality upon him. His legacy survived, but the company that emerged didn’t feel obliged to use his name, settling on a more generic moniker: General Electric. (Note how GE, sensitive to the value of its link with Edison, tip-toes around the issue in its official history).

But  … I digress.

The “dominant nation” referred to above is, of course, the United States. Unlike any other hegemon, the US felt compelled in its re-architecting of the planet after World War II to create institutions that would improve upon the laissez faire (read: non-existent or ineffective) international legal framework that existed before 1939.

 The United Nations, and the IMF and World Bank which are its financial cousins, went about dispensing the era’s conventional wisdom along with financial aid, infrastructure funds, vaccination and birth control programs, and in the worst cases, emergency responses to famine or epidemics.

The world’s most powerful nations – for reasons both humane and political – launched their own versions of the US Agency for International Development, handing out foreign aid and channelling private sector donations. The system had three basic motives: a genuine desire to “do good,” a salve for the guilt that stubbornly lingered after the imperialist era, and a cynical geopolitical calculus about the “influence” a few hundred million dollars buys you.

Regardless, it would be uncharitable to paint that effort as an abject failure. The period from 1945 to roughly 1990 was the first in which nations began to assume a responsibility for the plight of humans beyond their borders. Previously, this had been the preserve of charitable organizations, usually with a religious bent.  The late 20th Century saw “guns v butter” questions about domestic spending priorities extended to the rest of the world for governments in the US and Europe.

But if this pioneering period of aid was not a total bust, it was certainly misguided. For much of the post-war period, little accountability was applied once the aid was dispensed. Projects with Cold War headline potential – the Aswan Dam, a series of white elephant hospitals and airports in Africa, for instance, often got priority. Military aid usually followed development assistance, often with disastrous effects (see: Pakistan).

Early efforts to bring some “market” savvy to these efforts also fell short. One harebrained British scheme attempted to clear over 3 million acres of East African savannah to grow peanuts, an effort the failed spectacularly after the cash-strapped British treasury had spent £24 million (over a billion dollars in today’s money). “Experts” misjudged how hard it would be to clear the land, as well as the poor results likely when planting water dependent peanuts in drought-prone African soil.

Perhaps the paternalism of it all was the greatest failing of this period, leaving the underdeveloped world almost unchanged in terms of its capacity to do things without outside assistance. As Zambian-born economist Dambisa Moyo has eloquently put it, doling out money to unaccountable African bureaucracies had a surprisingly poor record in ameliorating poverty or disease. It made us feel better, perhaps, and staved off the very worst. But it left behind no skills other than those necessary to quietly redirect the funds from their intended purpose to Swiss bank accounts.

Things have changed, and this is in part (and only in part) thanks to changed attitudes among international financial institutions, donor states and private charities. Democracy and demands for internal accountability have played their part across the planet. Two generations of educational programs that brought the best and brightest of Latin America, Asia and Africa to the world’s great universities also help.

The availability of alternative ways to fund development, from emerging powers like China, India or Brazil, or from investment funds (like, full disclosure, Renaissance Capital), has given a host of countries the policy flexibility denied them when the IMF and World Bank were the only game in town.

And now, finally, we’re getting some of the metrics we need to actually see these changes take root. The new PIMI index joins other relatively recent additions - the World Bank’s “Ease of Doing Business” survey, Transparency International’s “Corruption Perception Index,”   Mo Ibrahim’s “Governance Index,”

Combined with more traditional measures of GDP growth, access to clean water and healthcare, Human Rights Watch and Freedom House ratings and basics like per capita GDP and infant mortality, we’re finally getting a clear picture.

You can never stop learning.


*The link, to a New York Review of Books piece by Krugman in 2007, is worth reading if only for this one quote about Friedman from MIT economist Robert Solow:  “Everything reminds Milton of the money supply. Well, everything reminds me of sex, but I keep it out of the paper.”

**Also worth reading is this Reuters blog post from Nicholas Wappshot about Friedman’s longtime collaborator, economist Anna Schwartz, who died in June at 97. A loyal monetarist for her whole life, apparently she embraced some aspects of Keynesian intervention during the financial crisis when it became clear that austerity was contributing to and likely to prolong the crisis. It’s never too late to be right.