best response is not to have increasingly convoluted advice by experts, but to let individuals with local knowledge roam free by trial and error

TO BE NOTED: From the FT:

"False Economy

Review by William Easterly

Published: April 13 2009 04:25 | Last updated: April 13 2009 04:25

Parched Residents of the Nile Delta collect water. The quest for water underlies Egypt’s agricultural policy

False Economy: A Surprising Economic History of the World
By Alan Beattie
Riverhead $26.95 336 pages
Published in the UK in June

False Economy is a book about how economic triumphs and disasters have shaped the world – and why it’s so hard to change the course of history once decisions have been made. The book’s central idea is that our smart or stupid choices determine whether a country’s economic development is successful – but that success is still often a surprise.

The reader has to work to arrive at this or any other central idea, however. For much of this fascinating but sometimes maddening book, Alan Beattie, the FT’s world trade editor, seems to follow Mark Twain’s famous preface to The Adventures of Huckleberry Finn: “Persons attempting to find a motive in this narrative will be prosecuted; persons attempting to find a moral in it will be banished; persons attempting to find a plot in it will be shot.”

Some themes took shape as I read – but they were often contradictory. We should learn the lessons of economic history, says Beattie, yet those lessons are often unclear.

Beattie is a legendary economic journalist, whose analytical judgment is greater than most of his peers by an amount roughly equal to the income difference he reports between Botswana and Sierra Leone.

Each chapter is themed – cities, religion and so on – and the individual stories are mesmerising. The book’s inability to convey a clear point arises because Beattie is too honest to shoehorn all his material into one comprehensive theory of what makes some countries succeed and others fail, including the twists and turns along the way.

Beattie accurately reflects the collapse in self-confidence among economists on our ability to usefully recommend how “developing” countries can rapidly develop. And he’s right about the reasons for this: both success and failure have often caught us by “surprise”, the key word in the book’s subtitle.

We are given many examples of such surprises. Theological theorists of economic success traditionally celebrated Protestantism – until Catholic Ireland, Portugal and Spain took off. They damned Confucianism, then praised it once East Asia grew. The religious determinists are still confused now about whether Islam hinders growth, when Muslim success stories such as Malaysia consistently outperform Christian comparators such as the Philippines.

As for other factors, corruption is a disaster in Africa, but apparently equal levels of corruption don’t seem to hurt East Asia, Beattie shows.

The book is rife with interesting conundrums: the Nile river valley is one of the most fertile places on earth, yet Egypt imports half of its wheat; Peru rather than California has captured the US asparagus market; West Africa is the perfect location and climate to produce cocaine for Europe, but coke is instead made in distant Colombia – then routed through West Africa.

Beattie’s explanations, the best parts of the book, are on his home turf: international trade. In a wonderful exposition that should make it into all undergraduate economics classes, Beattie argues that, fertile Nile or not, Egypt is not so much importing wheat as importing water. Only the Nile provides water for the mostly desert country. Wheat takes much water to grow, so the water imports are contained in the wheat imports. By importing wheat, Egypt conserves its own water for drinking and uses other countries’ water to grow wheat shipped to Egypt. This is a wonderful illustration of how trade allows countries to import scarce resources, buying in the goods that would use them, and export their abundant resources, by selling the goods that use those.

To Beattie, the surprising and sad thing is that there are so few “water” exchanges and other such beneficial trades. This is partly because special interests distort trade. For example, the US preaches free trade to Africa, but prefers to keep out African cotton and give $4bn in subsidies to 10,000 American cotton farmers instead. Why? Senators in those farming states would block any reform of the cotton subsidy.

Is importing Peruvian asparagus a happy counter-example of US free trade policy? Unfortunately not, Beattie tells us. It was part of a drug war programme to subsidise Peruvians to grow asparagus rather than coca leaves, giving them privileged access to the US market.

And the cocaine still pours out of Colombia, not West Africa, because even an illegal export needs good roads to get the coca leaves to the factory and then to the port. West Africa’s lack of good roads, Beattie points out, costs it much more in lost exports than even trade policies such as those on cotton.

Beattie is resolutely agnostic about how to succeed economically, which is admirable compared to the often pompous pronouncements pouring out of international agencies and think-tanks. Yet his examples suggest this agnosticism is a little overdone.

Beattie actually makes a good case for free trade, but is more comfortable pointing out paradoxes than confirming orthodoxy. He is even more uncomfortable giving any strong guidance on overall development success.

But in being so stubbornly agnostic, I think Beattie makes the same mistake as academics such as Dani Rodrik. Both Beattie and Rodrik are determined to explain all medium-term fluctuations in economic growth rates – they can’t accept that some of the idiosyncratic consequences of decisions resist explanation.

Looking in hindsight, one can emphasise the favourable factors, minimise the unfavourable factors and produce a plausible explanation. Sometimes these explanations will be orthodox economics 101 (free trade worked!); other times they will be heterodox (government industrial policy worked!). But these “explanations” cannot really be proved or disproved; each particular bout of success or failure is special. Ultimately, they give little guidance – to other countries, or even to the same country in a future period.

Economics has a better track record explaining very long run patterns of success or failure – explaining the level of development (per capita income) more than the economic growth rate. This requires economists to swallow our professional pride and admit that many fluctuations around very long run paths are indeed surprising – they will always resist explanation or prediction.

Even the long run patterns don’t explain everything; any prescription has counter- examples. We must give up the search for the grand unified theory of short run and long run growth and development, a bitter pill indeed. But at least this would keep us from chasing the ephemeral “miracles” for their unstable “lessons”, and keep us from trying to squeeze a prescription out of every last counter-example. Instead, we’d stick with ideas that, on average, for most countries, have stood the test of time.

Beattie’s supremely entertaining and informative book is a great reminder that the details of success are often impossible to predict or prescribe: no one can work out how to achieve each component. The best response is not to have increasingly convoluted advice by experts, but to let individuals with local knowledge roam free by trial and error to find their own successes.

So in the end, the economics profession does have more sensible things to say about achieving long-run success than Beattie allows: (relatively) free individuals, free markets, free trade, free thinking, and institutions that support all of the above.

William Easterly is 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’ (Penguin) and writes the blog ‘Aid Watch’

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 "

Poor countries, especially those in Sub-Saharan Africa, are facing an unprecedented crisis.

From Africa Can... End poverty:

"Responsible aid in a time of crisis

Submitted by Shanta on Thu, 01/29/2009 - 00:05.

My friend, former colleague and one-time co-author Bill Easterly, in his inaugural blog post, takes issue with Bob Zoellick’s Op-Eds in the New York Times and the Financial Times on the need for more aid to poor countries in the wake of the global financial and economic crisis. Bill’s argument is that Bob is calling for more aid without specifying what results that additional aid will achieve, so that the World Bank is not being held accountable for anything.

I agree with Bill that, in normal times, aid and, more generally, public spending is insufficiently linked to outcomes. When people are not accountable for outcomes, much of the aid or spending is wasted. We have made this point separately (see here and here) and jointly.

But these are not normal times we are living in. Poor countries, especially those in Sub-Saharan Africa, are facing an unprecedented crisis. Private capital flows, which had been rising faster in Africa than any other region, are drying up or reversing. Remittances, estimated at $20 billion a year to the continent, are also slowing because, for the first time, the crisis started in the sending countries (77 percent of remittances to Africa come from the U.S. and Western Europe). And the fall in commodity prices is sending many commodity exporters into a recession. Previous growth decelerations in Africa have been associated with increases in poverty, infant and child mortality and out-of-school children. Worst of all, just when economic reforms were beginning to take effect in Africa (growth had been sustained for ten years and accelerating over the last three), people are being asked to tighten their belts—for a crisis that is not even remotely their fault.

In these circumstances, the role of foreign aid is different from its usual role. It is to substitute for the private capital and transfers that had been flowing into the continent, but are slowing because of the financial crisis in the U.S. and Europe. It is analogous to President Obama’s fiscal stimulus in the U.S., which will use public spending to replace the shortfall in private consumption and investment to keep output from falling too fast. The purpose of aid is to reduce the size of the growth deceleration that African countries will experience. This is the result we are seeking to achieve with additional aid. Such results are hard to measure precisely—we would need to know the size of the growth deceleration in the absence of additional aid—which is why Bob Zoellick suggested possible activities that the money could be spent on. Of course, each country will have to tailor its spending according to its particular needs and circumstances. When they do, we will, as we increasingly do now, develop monitorable indicators of performance to hold them and us accountable."

Me:

"Funding for your proposal

Submitted by Don the libertarian Democrat (not verified) on Thu, 01/29/2009 - 21:06.

"The purpose of aid is to reduce the size of the growth deceleration that African countries will experience. This is the result we are seeking to achieve with additional aid. Such results are hard to measure precisely—we would need to know the size of the growth deceleration in the absence of additional aid—which is why Bob Zoellick suggested possible activities that the money could be spent on. Of course, each country will have to tailor its spending according to its particular needs and circumstances. When they do, we will, as we increasingly do now, develop monitorable indicators of performance to hold them and us accountable."This seems like a sensible proposal. Where do you expect the money to come from? Simply the World Bank? Other ideas?"