There is a good and a bad way to make the cover of the the New York Times, and yesterday's article on the potential collapse of the Indian microfinance sector was not the good way. But we're happy the Times is paying attention. We've also been tracking the recent developments in India and you can read our take on the FAI blog, in Forbes India and the Harvard Business Review.
I don't think it is possible to determine statistically whether aid makes a lot of difference to how quickly a country develops. But there is a very good case for aid on different grounds: that it enables people to live better lives in the meantime.
Though the effects of aid on development are uncertain, there is a huge amount that industrialised countries can do – or not do – which affects how quickly countries develop. The policies of rich countries on trade, investment, migration, the environment, security and technology can make a huge impact on how quickly poor countries are able to develop.
Yet we tend to judge industrialized countries too much according to how much aid they give, and too little to how they behave in all these other ways.
The Center for Global Development provides an essential service by ranking the rich each year so we can see how we are doing. They use a series of quantitative measures on all these dimensions to create a composite picture of how a country's policies affect development. The 2010 results are now in.
The overall rankings in the 2010 Commitment to Development Index
For people in the UK who feel smug about the UK's approach to development, the Commitment to Development Index makes pretty sobering reading. The UK is in 16th place, out of 22 countries in the index.
The UK has fallen ten places since 2005, when it was in joint fifth place, after only Denmark, Sweden, Netherlands and Norway.
The UK is one of only three countries to have got worse rather than better since the index began in 2003. (The other two are Denmark – which started at the very top, and Switzerland.) And this isn't a point about the change of government: Britain was 16th last year too.
Given that the UK has a relatively generous and effective aid programme, why does it come so far down the league of overall impact on development?
In short: arms exports.
The Commitment to Development Index uses three measures of a country's security policy. It tallies the financial and personnel contributions to internationally mandated peacekeeping operations and humanitarian interventions. It rewards countries that base naval fleets where they can secure sea lanes vital to international trade. And it penalizes arms exports to undemocratic nations, on the grounds that putting weapons in the hands of despots can increase repression at home and the temptation to launch military adventures abroad.
The UK is by far the worst of the the 22 nations in the index on selling arms to poor and undemocratic governments. UK arms exports, weighted for undemocratic and unaccountable states, are four times worse, as a share of GDP, than the next worst arms exporter, the United States.
The bars shows the scores from 2003 to 2010in each of the 7 dimensions
As well as being stand-out bottom of the pack on arms exports, the UK does badly on migration policy, because it takes too few unskilled immigrants and students for its size; and technology policy both because Government R&D spending is unduly focused on defence, and because the UK tends to pursue intellectual property rights policies that are not in the interests of poor countries, such as allowing patents on plant varieties, and pushing to incorporate into bilateral free trade agreements "TRIPS-Plus" measures that restrict the flow of innovations to developing countries.
Critics of aid often argue that we should focus more on helping countries to develop, rather than what they call "handouts' to poor countries. In that context, they usually mention the need for more open trade with developing countries. That is certainly important. The Commitment to Development Index suggests that they should also be advocating changes in UK policy to: reduce arms sales to undemocratic countries, accept more unskilled immigrants, increase the number of foreign students, remove patents on plant varieties and stop arguing for TRIPS-plus.
The UK gets credit for its environmental policies, mainly because it has done relatively well on limiting carbon emissions and because of high petrol taxes. Global warming has a disproportionately negative impact on developing countries, so these measures have an important impact on developing countries.
Many British people are proud of the UK's commitment to reducing poverty in developing nations, and Britain's model of an independent development agency within Government led by a separate Cabinet Minister is widely admired. But is it working? Judging by the scores in the 2010 Commitment to Development Index, the UK is doing a better job at securing and spending a rising aid budget than it is at getting the rest of government to pursue development-friendly policies.
This is the third in a series of blogs where we take a look at the issues and the countries that will be at the forefront of the development agenda, not now, not next year, but over the next 2 to 5 years—thus, "after tomorrow"1.
There is now a budding consensus on what reduces poverty: it is
If access to money is not the sole determinant of the things that comprise "development" how can its absence (as in below a $1.25 a day threshold) be the sole determinant of a lack of development? 
Margaret Wente in Toronto Globe and Mail perceives a growing backlash against humanitarian aid, that it may be doing more harm than good in Africa (she concentrates on seemingly everyone's (including ours) recent favorite example of Ethiopia).
I'm quoted in the article accurately. Contrary to some perceptions (not in Wente's article) however, I have never made a general argument that aid does more harm than good, or called for aid to be abolished or even cut. I said aid "has done so much ill and so little good" in the subtitle to the White Man's Burden. The "ill" is well covered in Margaret Wente's column and is similar to the recent posts on this blog about aid financing autocrats and political repression, with similar examples in my book. However, I have also given examples of aid successes, particularly in health (vaccinations!) It is very hard to conclude what the net effect of the ill and the good is, and I've never attempted to do so.
Instead I think the viable arguments are that (1) aid's record is sufficiently disappointing that it is unlikely to ever be the main driver of successful development, (2) if aid were more accountable it would do less ill and more good.
Here on the blog, we've been following the progress of the Millennium Villages Project, a joint effort from the UN and Columbia's Earth Institute that has introduced a package of development interventions in health, education, agriculture and infrastructure into 14 "clusters" of villages throughout 10 African countries.
In response to a critical paper by Michael Clemens and Gabriel Demombynes, the MVP architects published a statement last week that they said would "clarify" some "basic misunderstandings" about the project. This statement caught our attention because—I would argue—what it is actually doing is seeking to reframe the debate about the project, and redefining project success in different, less ambitious terms.
"The primary aim" of the project, the MVP architects write, "is to achieve the Millennium Development Goals in the Project sites, as a contribution to the broader fulfillment of the MDGs (Evaluating the Millennium Villages: A response to Clemens and Demombynes, October 2010, emphasis in the original). Also important, they say, is to clarify what the MVP is not: "The MVP is not testing a rigid protocol for implementing MDG-based outcomes…The MVP is not claiming or aiming to provide a unique or "optimal" model for achieving the MDGs."
This sounds fine unless you've read the many other MVP project reports and documents that clearly outline other, different, major goals and indicators of success.
For example:
So, in this context, what's even more revealing about this new statement is what it does NOT say. It does not mention that the improvements to the villages will be self-sustaining, or even moving towards self-sustainability by 2015, although that notion was at one point advertised as a "central proposition underpinning the Millennium Villages concept" (MVP FAQ, late 2006). In this case, the clarification seems more like a retrenchment, a moving away from the ambitious claims made at the project's optimistic outset.
The new MVP definition also backs away from talking about interventions "undertaken as a single integrated project" that will serve as "proof of concept that the poverty trap can be overcome" (as stated in the PNAS paper cited above). In fact the impact of the project as an integrated whole can't be demonstrated, the MVP authors argue, because some of the same improvements at work in the Millennium Villages (insecticide-treated bednets, subsidized fertilizer and seeds, for example) are also present in many of the surrounding villages.
Before, the project was defined in its own materials as a research experiment (a "proof of concept" carried out first in "research villages") to prove that a package of development interventions delivered in a particular way can help lift the very poorest people living in rural Africa out of poverty forever. In today's new formulation, the MVP is a means to show that by spending an amount roughly equal to 100 percent of the village's per capita income on already "proven" interventions, for a period of 10 years, it can allow that village, for at least one moment in time in 2015, to step across the finish line demarcated by the Millennium Development Goals.
If the project continues to define success in these narrower terms, it will effectively shift the focus away from any obligation to show that the positive things achieved in the Millennium Villages are self-sustaining beyond the 10-year life of the project, or to prove that they are actually a result of the project itself.
POSTSCRIPT:
Screen shot of the top of World Bank's Africa Can…End Poverty Blog last Friday:
That notice was removed; here's what the same blog tells us, at the bottom of the post, today:
UPDATE: Another view from Chris Blattman.
As Amartya Sen has shown, famines in our times are not true natural disasters, but more often the consequence of bad governments and their bad policies. Revisiting the era of Live Aid for a book review in The New Republic, David Rieff gives evidence of how the Ethiopian famine was framed as a natural disaster rather than a political one, so as not to "complicate" the picture for viewers:
… Michael Buerk's first BBC report from the famine zone opened with the words, "Dawn, and as the sun breaks through the piercing chill of night on the plains outside Korem, it lights up a biblical famine, now, in the twentieth century." Apart from the facts that it was dawn and there was a famine, nothing in what Buerk said was right. It was precisely not a biblical famine, in the locusts/great flood/visitation-from-God sense that Buerk was evoking. It was, rather, a man-made famine—the direct and in all likelihood inevitable result of deliberate policies in Addis Ababa by the Stalinist government of Mengistu Haile Mariam. That is to say, it was a famine that was more likely to occur in the twentieth century—the heyday of man-made famines—than at any other time in human history.
The book under review, by Peter Gill (also reviewed by Bill in the Wall Street Journal), takes stock of what's happened and what hasn't in Ethiopia since Geldof et al admonished us in 1984 to "pray for the other ones" living in a "world of dread and fear/ Where the only water flowing/ is the bitter sting of tears":
[Gill's] book is not just a look back at the great controversies of the famine years of the mid-1980s, but also an attempt to understand whether, as he puts it, "beyond the challenges of famine forecasting and hunger relief, are there [now] Ethiopian political institutions and policies in place to deliver the transformation known as 'development'?"
Africa, "where nothing ever grows/ no rain nor rivers flow." (Picture taken near Lalibela, Ethiopia)
The elision of the political causes of human suffering in Ethiopia has turned out to be a trend with more staying power than a few of the pop singers in Band Aid. Western governments, donors and academics have kept on admiring and abetting Meles even as he presided (this year) over an election of which Human Rights Watch said "the most salient feature … was the months of repression preceding it," and called the government's performance "multi-party theater staged by a single party state."
As Gill points out, in the development world, Sen's celebrated argument in Development as Freedom that "no famine has ever taken place in the history of the world in a functioning democracy," and its corollary, "that a free press and an active political opposition constitute the best early-warning system a country threatened by famines can have," is considered to be proved, no longer open to dispute. But for Meles, as Gill reports, it is a neo-liberal myth, "not validated by historical facts."
And today, despite some success in growing the Ethiopian economy:
[T]he food security of poor Ethiopians is anything but more assured today than it was a decade ago, and it is anything but clear that the country is any less dependent than it ever was on food aid from foreign donors.
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On October 26, we learned that Kenya's rank in Transparency Interational's Corruption Perceptions Index dropped seven places since 2009. Kenya now ranks 154 out of 178 countries—well below most of its EAC neighbors. But how bad is it, in fact? Will the new Constitution do anything to make the situation better?
In Kenya, no one seriously doubts that corruption is a key constraint to greater growth and prosperity.
Corruption comes in two forms. Petty corruption occurs when citizens are asked for kitu kidogo ("a little something"): to get a document stamped, a service provided, or an infraction overlooked. The amounts are small, but hardly petty to the many victims living on less than $1 a day. Kenya also has large-scale corruption—public purchases made at inflated prices; public benefits handed out to people who are not entitled; fictitious companies being paid for contracts that they never executed.
Ought we to help hungry households with cash or with food? Evidence on consumption and nutrition from a randomized control trial in Mexico:
households do not indulge in the consumption of vices when handed cash. Furthermore, there is little evidence that the in-kind food transfer induced more food to be consumed than did an equal-valued cash transfer.
the in-kind basket contained 10 individual items, and these transfers indeed altered the types of food consumed for some households. While this distorting effect of in-kind transfers must be a motivation for paternalism, households receiving cash consumed different, but equally nutritious foods.
Finally, there were few differences in child nutritional intakes, and no differences in child height, weight, sickness, or anemia prevalence.
Full paper here.
There might be other rationales for sending food over cash. I remember Lant Pritchett describing the decision to distribute rice not cash after Indonesia's 1997 crisis. Rice bags are huge, heavy and inefficient. This was exactly what they wanted–for it is much more difficult for middle men to steal huge, heavy, inefficient things.
With respect to the destination of Ethiopia’s exports, some surprising shifts are taking place. Switzerland has (just barely) surpassed China as the top destination for Ethiopia‟s exports.
In what is probably the start of a longer-term trend, neighboring and regional countries are increasingly among the largest buyers of Ethiopian goods: Somalia and Sudan, for example, are both now individually larger export markets for Ethiopia than is the U.S. or Italy or Great Britain.
From Access Capital’s latest report on Ethiopia.
Regional trade is almost certainly underplayed in most development plans. The absence of a freight rail link from Addis to Kenya or Egypt is an absurdity, hopefully to be rectified.
Michael Clemens and Gabriel Demombynes, both friends and colleagues, sprang a provocative paper on me while on vacation. The basic argument: the Millennium Villages could and should be evaluated. No excuses. Sachs and Macarthur and others at the MV project respond here. And the debate would not be complete without a cannonade from Aid Watch, who suggest that the MV folks are moving their goalposts.
Let me stake out a different position. I've blogged about the Millennium Villages before, on what an evaluation could look like, but also why a rigorous evaluation might be infeasible. While guest blogging, Julian Jamison commented that it might actually be detrimental to a progressive agenda to evaluate too much.
Now, Michael and Gabriel write a good paper, and do a much more thorough job than I ever did, and more or less convince me that a rigorous evaluation is possible. The evaluation they propose, however, is one that measures the aggregate effect of the villages — e.g. "do the MVs reduce poverty?".
This should probably get done. But for me this is not really the interesting question.
First, if the Villages "work", why is that? Maybe it's the combination of schools plus clean water plus agricultural productivity gains plus clinics. Or maybe it's the fact that the local and district and state governments all know that the world is watching this one cluster of villages. So the state basically works the way it's supposed to: services get delivered, they don't send the idiot ag extension officers over there, and someone makes sure the police chief is not a thug.
If the Villages work, perhaps it's not the aid or the money or the technical expertise or all the other things that Westerners are in a position to give. Maybe it's because there's finally some accountability. And while we outsiders can do a decent job of making the government accountable for 10 villages, there's not much we can do for the other 9,990 in the country. That's up to the citizens themselves.
That to me is the interesting question. And to answer it, the alternative intervention we would need is not a "no Millennium Village intervention" but a "institutions and accountability" intervention. I call it the Villennium Millage project, and I am working to interest the Liberian government on something this as we speak. (I need all the luck you can wish me.)
The second interesting question is whether the whole is greater than the sum of its parts. This is (as I understand it) a fundamental premise of the MVs and (if I read him correctly) the fundamental development theory to which Jeff Sachs subscribes: that poverty is in part a bad equilibrium and needs a big push. Without coordinated action (schools plus clean water plus agricultural productivity gains plus clinics) you may as well be handing our right shoes to some villages and left shoes in others.
I don't subscribe to the strong version of that theory (I view poverty alleviation as something that works on the margin) but there are almost certainly positive interactions between aid interventions. That would be a useful thing to test and understand.
We could get halfway if we could at least figure out whether the Millennium Villages have a level effect (you give more X, and you get more income), or if there's a growth effect (you give more X, and you set a community off on a virtuous circle). Unfortunately I don't think there's enough statistical power (i.e. enough villages) to distinguish between level and growth effects.
Okay, so say we can't evaluate all these more interesting questions. The "do the Millennium Villages work at all?" question is still an important one, right? Yes, but as economists, we should be thinking in terms of opportunity cost. Research opportunities and funds are not limitless in the real world. What's the first and most important king of learning and research we'd like to see? I'm not convinced the answer is a randomized control trial.
The Millemium Promise CEO, John Macarthur, is also a friend of mine (we both worked for Sachs about ten years ago) and I still remember something he said to me: the learning that comes from the Millennium Villages is learning by doing. By trying to make these programs work together, and getting 10 or 15 villages right, the state learns how to do it better (mainly by screwing up along the way). It also shows to the rest of the country that it's doable. No one questions that delivery of public services like roads and schools and agricultural extension and clinics are important. That is a no brainer. The point is to get the government moving and learning and practicing and showing off, in the hopes that it will spread.
By this argument, the kind of research we need to get built around the Millennium Villages are process consultants (to learn how to deliver services better) or people who think about how policy and institutional change actually happens, so the lessons and examples can spread beyong the example villages. We also need lots of close observation so that we can see why some interventions work well together, and why some don't.
Speaking as someone who does rigorous program evaluation for a living, the idea that a rigorous program evaluation is the most useful evidence for most aid projects is kind of absurd. There are other paths to knowledge, especially practical knowledge, and most especially policy change.
When was the last time you met a prominent academic who said: "I study how good ideas actually get transformed into action."? It doesn't happen. The political economy of policy change is a field populated by probably six people we have never heard of. That is a sad state of affairs.
OK. Back to the MV project. They make a similar argument for process knowledge in their response to Michael and Gabriel, but they don't get points for quality of sales pitch. Personally I would be convinced if the MV hit me with a barrage of amazing things they learned about how to do aid better, or examples of how good practices are spreading. These would ideally get peer reviewed, and would have a degree of independence and impartiality, as a check on the enthusiastic nature of the anecdote. (Apologies to the MV folks if this is out there.) I would still like to see a rigorous evaluation, if only to keep those gushing anecdotes in check, but it's not my first concern.
Personally, I think this is a great debate that gets to the root of research in development, and where smart policy people should be focusing their energies (especially as the randomized control trial fad starts to fade).
Sadly, rumor has it that the open debate between Sachs and Clemens/Demombynes at the World Bank has been cancelled. (Aid Watch has that scoop.) If so, that is a shame. I would have liked to see that debate. I'd like to know why it was cancelled more.
In my experience, organizations like the Bank and the MVs operate with a "bad stink minimization" strategy, so calling attention to the quiet cancelling of an important public debate could have good effect. Pass it on, and hope for some courage and conviction to appear on all sides.
I'm attending the Microfinance Impact and Innovation Conference, and Abhijit Banerjee is presenting his Miracle of Microfinance?.
I'd seen versions of the paper before, but there is one new bit (or a bit I missed the first time) that I found insightful:
Microcredit can act like "savings in reverse": the household obtains the loan principal in a large sum, which can be invested, and then group and lender pressure to make regular loan repayments every week provides discipline that may make resisting temptation (tea, cigarettes, etc.) or requests for money from other family members or friends easier.
Not only do they find just this, but that the money not spent on alcohol, tobacco, gambling, and food was spent (in part) on durable goods used in a household business.
The absolute effect is relatively small, but in relative terms quite large: an increase of 20% relative to usual spending on durables.