With the cash transfers, the people can decide for themselves how to meet their most urgent needs

TO BE NOTED: From Aid Watch:

"How to help the poor have more money? Well, you could give it to them

by Laura Freschi

In 2007, people in the Western Province of Zambia lost their homes, their livestock and their crops when heavier-than-normal flash floods swept through their area. USAID’s office of disaster assistance stepped in with $280,000 worth of with seeds and fertilizer, training for farmers, and emergency relief supplies.

Two NGOs working in Zambia, Oxfam GB and Concern Worldwide, tried a different approach: they handed out envelopes stuffed with cash—from $25 to $50 per month per affected family, with no strings attached. An evaluation found that common fears about cash transfers—that the cash infusion will cause inflation in the market, that the money will be squandered, or that men will take control of the money—were unrealized.

What did people buy with the money? The list includes maize, beans, salt, cooking oil, meat, vegetables, clothes and blankets, paraffin, transport, soap and body lotion, and lots of other mundane household items. They also loaned it to friends, used it to pay back debts, purchased health care, education and transport, and rebuilt their homes. Only a very small fraction of the money (less than .5%) was spent on “unproductive” items, like liquor for the men.

Unconditional cash transfer programs can be fast and cost effective. With no technical experts’ salaries to pay, and no trans-Atlantic shipping costs for US-produced food aid, more of the cash can go straight to the recipients (in the case of the Concern Worldwide project 27% was spent on program administration, while 73% was distributed in the cash transfers.)

Cash transfers also acknowledge that poor people are capable of making good economic decisions without the help of outside experts armed with needs assessment checklists. An evaluation of another Oxfam cash transfer program, this one in Vietnam (summary here), found that villagers made sophisticated investment decisions, choosing whether to invest in seeds and fertilizer, family coffins and tombs, cows and buffalo, home improvements, debt repayment, and /or community roads.

As Duflo and Banerjee document in their study on the economic lives of the poor, the rich often assume that poor people have few choices about where to spend their money. And this notion allows aid agencies to assume the paternalistic role of decision-maker for the poor. Yet Duflo and Banerjee note that subsistence accounts for a lot less than 100 percent and the “poor do see themselves as having a significant amount of choice.”

Cash transfers have plenty of potential drawbacks, as these studies also point out. Handing out large amounts of cash comes with its own set of logistical hurdles and could invite theft or corruption. And what if this approach puts women and children at a disadvantage, while men take and spend the cash? There are improvements to be made, in targeting the right population, and equipping people with better tools (like financial training and savings accounts) to help them make the most of the money. Two studies by Innovations for Poverty Action and the Poverty Action Lab at MIT in Morocco and Indonesia (both ongoing) should shed more light on when and how cash transfers can be most effective. (See also studies collected by the UK-based Overseas Development Institute).

When USAID provides blankets, seeds and fertilizer to flood victims, they are doing their best to decide for the victims what their most urgent needs are. With the cash transfers, the people can decide for themselves how to meet their most urgent needs. This gives people who have lost their livelihoods, belongings or loved ones a new feeling of control over their lives, builds money-management skills, and restores to them their power to make economic decisions. If you were in their shoes, which would you prefer?

Posted by Laura Freschi"

When you see men voluntarily breaking rocks in the hot sun to build their village’s community center, you think they must really want it.

TO BE NOTED: From Aid Watch:

"Skepticism Takes the Day Off

By William Easterly

When you see men voluntarily breaking rocks in the hot sun to build their village’s community center, you think they must really want it. I saw this on a visit to a project by The Hunger Project in the Eastern Region of Ghana. The Hunger Project believes in people helping themselves.

Sure the skeptic would naturally seek more systematic and rigorous evaluation, and could think of plenty of things that can go wrong in any aid project. But let’s give skepticism the day off and salute the people who work so hard to help themselves and those who help them do so, against tough odds.

A salute to Dr. Naana Agyemang-Mensah, the hard-driving Director of the Hunger Project-Ghana, who works long hours to mobilize communities to help themselves. To the midwife in the birthing room in the completed community center, who lowers the mortality risk for mother and baby. To the microcredit bank in the community center, who gives loans to the members and makes sure they repay. To the food bank volunteers, who store food for the hungry season until the harvest.

Another salute to Professor George Ayiteey, whose Free Africa Foundation distributes insecticide-treated bed nets to the dusty remote villages I visited today. To G.B.K. Owusu, the local coordinator, who follows up with the chiefs and residents of each village to make sure the nets are reaching them (see net in use below).

And finally, once again to the men at work in the hot sun to build their own community center – a better image for aid than the stereotypical helpless child.

Posted by William Easterly "

"profound and all-pervasive nature of corruption in Tajikistan,"

TO BE NOTED: From Aid Watch:

"Thieves and Donors: Agencies Struggle to Respond to a Little Constructive Criticism on Tajikistan

By Laura Freschi

Last month, the International Crisis Group came out with a report describing the "profound and all-pervasive nature of corruption in Tajikistan," and recommending that the international donor community "institute a totally new framework for the provision of aid to Tajikistan."

Since "most" of the substantial amount of money provided by international donors (some $300 million in 2006) "is believed to be lost to corruption before it gets anywhere near its intended recipients" the ICG reasonably recommended that donors take another look at whether it is good idea to give Tajikistan direct budget support (that is, provide cash directly to the Ministry of Finance to go into the budget for public spending). If the government doesn't get into shape, they said, donors should keep on funding humanitarian relief but cut off direct budget support.

We wondered what Tajikistan’s donors would say about these recommendations. In an ideal universe of flexible, accountable aid, surely donors would welcome impartial, externally-funded research. They would have in place some mechanism to evaluate the recommendations and determine whether existing aid programs should be tweaked or even discontinued in light of new findings...right?

To their credit, the donors we spoke with were aware of the ICG recommendations, and all responded (though some more slowly and reluctantly than others) to our questions.

The IMF told us that the majority of the ICG findings didn’t apply to them: the IMF doesn’t give direct budget support, and it doesn’t fund specific projects. As it happens, though, a new IMF loan of $120 million was announced the same week the ICG report came out. The loan will go the central bank to bolster Tajikistan’s foreign currency reserves. "As is the case in all IMF programs, we will also conduct a safeguards assessment that seeks to confirm that IMF resources are used as intended" said the IMF rep in an email message. We just wonder if this is the same safeguards assessment that was conducted before the last six misreporting incidents between Tajikistan and the IMF, the most serious of which required Tajikistan to give back some $50 million dollars and hire Ernst and Young to conduct an independent audit of the National Bank.

So who is giving direct budget support to Tajikistan? The World Bank’s portfolio for 2006 to 2010 includes $30 million in direct budget support. A new agreement, also reached the same week that the ICG report came out, will add $20 million to that figure, bringing budget support to 30 percent of the World Bank’s total grants in Tajikistan.

Reached via email in Dushanbe, the World Bank rep said of the ICG report: “We do not find ourselves in a position to comment on those recommendations…what we can say though is that the World Bank is aiming to support the people of Tajikistan…and the monitoring and audit systems in World Bank-funded projects are carefully designed to ensure that the funds reach those whom they were intended for.”

At the same time, though, the World Bank rep sent us a case study commissioned by Brookings (forthcoming) on aid effectiveness in Tajikistan. This report’s key conclusions are worth quoting at length:

The existing aid coordination architecture and interaction mechanisms between the Government and development partners are unable to ensure efficient use of foreign aid resources being provided to Tajikistan. As a result, planned (or expected) results and impact are substantially different from those realized on the ground. External assistance...has resulted in the perverse situation of a lack of incentives and inability to focus on and pay attention to the long-term determinants of domestic growth and appropriate political and economic institutions.

What do you think? Are donors in Tajikistan and elsewhere doing enough to safeguard aid funds and make sure they reach the poor? Or are they taking the path of least resistance, responding to strong institutional incentives that require donor organizations to keep the money flowing? What more do you think can be done?

Posted by Laura Freschi on March 16, 2009 7:11 PM | Permalink"

get desperate to save the core principles that lead to prosperity and development

From Aid Watch:

"Jeff Sachs is Right! (at least about one thing)

By William Easterly

When the global economy is in free fall and everyone else seems ready to throw each and every Econ 101 principle out the window, we economists – including some previously heterodox – get desperate to save the core principles that lead to prosperity and development.

See Economists Go Back to Basics at Forbes.com.

Posted by William Easterly on January 30, 2009 8:09 AM | Permalink"

Leaders Go Left, But Economists Get Back To Basics
William Easterly 01.30.09, 12:00 AM ET

The conventional view at Davos is that a previous consensus in favor of free enterprise has taken a huge beating from the Great Crash of 2008-2009. What is much less known is that many economists are not willing to play along.

Instead, the crisis seems to have scared many economists of all kinds--including some previously heterodox--to reassert the orthodox recommendations of Econ 101.

I knew something very different was going on among economists when the world's leading trade skeptic, Dani Rodrik of Harvard, the intellectual protector of protectionists, said on his blog on Dec. 31 that protectionism would be catastrophic right now.

A very diverse group of leading economists of all ideological stripes met at a preparatory conference for Davos in Dubai in November 2008. They said in a formal statement that one of their chief tasks is "advocating against the deregulation backlash." An update right before Davos by this same group stressed the importance of "openness to trade" and "competitive markets."

Then there's another school of thought that asks WWJD? What would Jeff do? Jeffrey Sachs has spent more than two decades calling for the U.S. government to spend huge sums on anything that moves, from Bolivia to Poland to Russia to global health to Africa to global warming. But on Wednesday, Jan. 28, as Davos opened, Sachs suddenly announced that he is now a U.S. deficit hawk.

"Without a sound medium-term fiscal framework, the stimulus package can easily do more harm than good, since the prospect of trillion-dollar-plus deficits as far as the eye can see will weigh heavily on the confidence of consumers and businesses, and thereby undermine even the short-term benefits of the stimulus package."

He sounds like one of those IMF fiscal austerity priests issuing a stern reprimand to some benighted land--like those that prior to Wednesday he derided at every opportunity. But on today's deficit dangers at home, I had to agree with Jeff Sachs for the first time in over a decade.

Until recently, there had been over two decades of economists flogging a dead horse called the Washington Consensus, which was an economic policy view summarized by John Williamson in 1980.

That consensus included guess what: deregulation, openness to trade, competitive markets and fiscal austerity. It was bad that these ideas had a "Washington" label attached, because the World Bank and IMF often forced such principles--and very specific reforms that they thought, often erroneously, followed from such principles--down the throats of poor country governments. Such coercion violates democratic rights of poor people, but it doesn't mean the original Consensus principles were bad in of themselves--they were mild assertions of mainstream economic ideas.

What is going on? I think we economists love to speculate about heterodox theories when times are good and we feel free to discuss experimental alternatives to economic orthodoxy (and nobody is paying us much attention during good times anyway). But when the global economy is in free fall and everyone else seems ready to throw each and every Econ 101 principle out the window, we get desperate to save the core principles that lead to prosperity and development.

Free trade does create opportunities for firms and workers doing what they do best. The government can't forever spend money it doesn't have. Competitive markets reward innovation and efficiency and punish customer-abusing would-be monopolies.

Rapid deregulation has its risks, which we have learned that financial regulators should manage carefully, but too much regulation is far worse. This is what the Principles textbooks teach us. These ideas made their way into Principles textbooks by some process of natural selection--they were the ideas that stood the test of time in economics, because they were associated with the steady climb toward prosperity of the rich countries and, in the last half century, of the global economy.

There are variations around these core ideas of course, but the variations are always grounded in a home of sensible economics 101. In the midst of the scariest crises of our lifetimes, economists are coming home.

William Easterly is an economics professor at New York University and the author of The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good."

Moi:

Aid Watch
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"There are variations around these core ideas of course, but the variations are always grounded in a home of sensible economics 101. In the midst of the scariest crises of our lifetimes, economists are coming home."

I'm trying to understand this statement logically. In a crisis, economists go back to textbooks. How then do textbooks change, or is economics a set of simple truisms like Poor Richard's Almanac?If I understood Kuhn correctly, it is crises during which science advances. Perhaps I'm wrong about Kuhn, or economics isn't a science.

Sadly,for some at least, life and science are full of paradoxes and violations of common sense. It might well be, for example, that, in our system in the US, the only way to enforce moral hazard is to take over some banks, and then return them to the private sector scrubbed clean. Paradoxically, you might have to nationalize in order to keep our welfare state functioning. Why? Because that's what the banks fear most.

You say go back to basics. I agree. Try Walter Bagehot and Irving Fisher and Adam Smith for starters. Keynes is good as well, also Hayek, because economists were still then practitioners of political economy. My personal favorite has always been Jevons, even though I haven't read him in years. Skip the current textbooks.

Will they help us? A little. We'll solve this mess in our own way and in our own time, and people will still be arguing about it forever. I've generally found in life that I end up saying "Why wasn't this in the textbooks?"

Posted by: Anonymous | January 30, 2009 8:23 PM