Monday, January 25, 2021

Leave poverty alleviation to developing countries

Lant Pritchett reiterates his position on the primacy of economic growth.
Broad-based growth, defined as the process that raises median income, is far and away the most important source of poverty reduction. There is no instance of a country achieving a headcount poverty rate below 1/3 of its population (at moderate poverty line of $5.50) without achieving the median consumption of that of Mexico. This is not to say that there do not exist anti-poverty programs that are cost-effective and hence should be expanded, or, conversely, that there are anti-poverty programs that are not cost-effective (or even have zero impact on poverty) and should be cut back or eliminated. Analyses of these types of programs would enable a more efficient use of resources devoted to poverty reduction. But large and sustained improvements in global poverty will almost certainly have to focus on how to raise the productivity of the typical person in a poor country, which is a key source of national income growth.
And this from a review of an older book by Partha Dasgupta which tries to explain economics in terms of the lives of two ten year olds - Becky in a US midwestern suburb where her father works for a firm specializing in property law, and Desta in a village in southwestern Ethiopia, where her father farms half a hectare of land.
Perhaps the best that Becky’s world can do for Desta’s is to offer financial and technical assistance so as to promote and support local enterprises — including those involving education and primary health care — that people there are all too keen to create even as they see from a distance how people elsewhere have been able to improve their conditions of living. And perhaps the best that Desta’s world can do for Becky’s is to alert it to the enormous stresses economic growth there has put on Nature. There is, alas, no magic potion for bringing about economic progress in either world.
I am strongly inclined to argue that foreign aid should be confined to either development of pure physical infrastructure or for R&D or for state capacity building and should avoid advocating or supporting specific social development programs in areas like health, education, nutrition, agriculture etc. As I will try to explain, there is something about social development programs that demands that these societies struggle hard on their own to make difficult collective social and political choices.

If one looks at international development landscape and examine where the vast majority of thinking and attention is focussed, it is clear that poverty alleviation dominates economic growth.

It may be true that the share of spending on growth, in the form of aid assistance to develop infrastructure assets, is higher. But that is also because of the inherent capital intensive nature of those assets. Spending a billion dollars on a highway is several fold easier than spending a quarter of that to truly improve learning outcomes (not just construct school buildings).

As an illustration of the skewed priorities, how much of attention in today's mainstream international development is focused on improving tendering and contracting or third party quality audits for engineering works? How much is focused on addressing affordable housing or traffic congestion? How much on more effective utilisation of and equitable outcomes from irrigation systems? Instead, the attention on specific education and health programs or cash transfers or social protection is disproportionately large. 

Or take the example of the whole effort at outcomes-based financing and evidence-based policy making aimed predominantly at poverty alleviation. It is safe to say that these two phrases have become de rigueur in development circles, essential virtue signalling ingredients for donors and philanthropies to approve projects. They have gradually become the primary focus of economics research, both by academic researchers and by those in multilateral organisations and international think tanks. The program design agendas of multilateral and bilateral institutions and philanthropies are dictated by these two considerations.

It can appear pretty asinine to find fault with such apparently universal of ideas. Who would not want to focus on outcomes or base decision on evidence? That's a different story. I have critiqued the prevailing discourse on the former hereherehere, and here, and the latter hereherehere, and here with illustrative examples.

Back to external financing of development. What can be the main arguments against?

Externally advocated ideas like universal basic income, conditional cash transfers, a particular model of remedial instruction in schools, nudges, performance payments, community health workers, development impact bonds, technology solutions etc can have adverse unintended consequences in the long-run.

For sure, the practitioners and opinion makers in developing countries should become exposed to these ideas. They should be discussed and debated in the public domain. But they should make choices using their own resources. External funding, however well intentioned, cannot avoid unwittingly forcing choices on resource strapped countries.

These over-intellectualised and over-scholarized responses in the form of logically appealing and sanitised pilot evidence-based ideas and the financing to implement them prevents systems from facing up to the reality. It detracts societies and polities from traversing the path of hard and long-drawn collective struggles and making difficult trade-offs and attendant choices. It fails to account for the path dependencies and collective learnings required to succeed in addressing complex problems. It converts what are essentially social and political choices into technical fixes.

If Kenya needs to fix its school education system, its stakeholders need to grapple with the real reasons why children are not attending schools, why teachers are not accountable, why the quality of instruction is so poor, and prioritise resource allocation and make political choices accordingly.  There is a path dependency associated with reaching the destination. Technical solutions are a diversion from the real task.

For example, take the issue of teachers accountability to the parents. A biometric attendance solution is a good innovation but in a complex system can at best offer the illusion accountability and that too for a short-time, while also postponing the imperative to undertake the reforms like making the school and teachers accountable to the local community.

An idea like a Development Impact Bond to realise learning outcomes in education or change behaviours among prisoners in developing countries is mind-boggling in its ignorance. It is a seriously damaging digression from taking on real challenges. Like the PPPs, it peddles the irresistible illusion that governments need not bother about implementation challenges and can straight contract for outcomes, thereby generating value for money from public expenditures. In the context of concessions and Special Economic Zones (SEZs), Paul Romer famously postulated the test that a concession which cannot be gradually expanded beyond the SEZ to cover the entire country is inherently unsustainable. 

Or, a cash transfer program to overcome a state provisioning failure in housing or schooling or food security. It diverts attention and effort away from what is critical to enabling each of these in a sustainable manner, the hard and messy task of fixing state capacity. A cash transfer solution to each of these without fixing state capacity is like band-aid on gangrene.

World Bank and multilateral programs in areas like health and education are inherently biased towards getting money out of the door, with some capacity building trainings and governance related conditionalities attached whose compliance are most often perfunctory. This invariably gives a preference for physical infrastructure and personnel recruitment based initiatives, where pushing money out will be easy. Most often these programs are designed based on some standard universal template and pushed on to a system chronically deficient on multiple dimensions to implement them.

1. The main problem with external engagement in social development is that it distorts with ideas and money. The ideas are most often motivated by values, world-views, and concerns of those offering them, which are very different from those of the locals. External resources invariably prioritise interventions around these ideas. For all professions of high-sounding phrases like evidence-based policy making, outcomes-based financing, and systems thinking, the inherent biases and limitations of outsiders cannot be circumvented.

The problem is that this, especially because the ideas are also backed by aid money, ends up distorting the priorities of the developing country governments. The colonial hangover and the deeply entrenched faith that what comes from the likes of World Bank and Harvard Professors is "scientific medicine" for public policy, means that these ideas get embraced with limited resistance. For practitioners and opinion makers in developing countries adopting them becomes the default path for their countries to develop and is perceived as constituting progress.

2. Such entrenched inclinations effectively displaces all the struggles that the citizens of these countries have to undertake to diagnose their problems, internalise it, prioritise solutions and resources, and implement them. And by struggles, I mean everything from the public debates to political discussion, and focusing bureaucratic effort to prioritising financial resource utilisation. Countries need to go through the hard and long-drawn struggles and iteratively figure out what works best for them for a problem at this point in time.

Development is a long-drawn political process which involves struggles among interest groups, civil society organisations, political parties etc. Neither is there any technical short-circuit to this struggle nor is it desirable. In fact, limiting such struggles is likely to only create weak institutional scaffoldings. The works of Francis Fukuyama and Daron Acemoglu/James Robinson are just two exhibits. 

3. Another problem is that external engagements view social development as a self-enclosed and planned intervention to be implemented in finite time to realise definite end-state outcome. The objective invariably is to "solve" the problem. Unfortunately most social development "problems" defy this approach. These problems have no definitive "end" or "solution". Engagement with them is at best a long-drawn journey with uncertain paths and no definite destination, and involves work in multiple dimensions.

4. It also creates negative externalities. Such aid programs do not only suffer from the problems of isomorphic mimicry. Far more importantly, given scarce state capacity and political attention bandwidth, such programs also end up displacing implementation bandwidth from other more important measures.  Second, it allows politicians to get away with marginal tinkering by seen to be doing something new and big, instead of engaging with the real issues. Very valuable political attention bandwidth gets taken up by ideas that are mostly glossing over the real problems.

None of these are comments on the substantive merits of external ideas. In fact, many of them may actually be very promising. But the point is whether for this country at this point time (with all its problems and limited capabilities to address them), is prioritising this idea over others a good thing to be doing? The aim of this post is only to highlight the distortions that creep in when an appealing external idea gets introduced.

Like with anything, this too should not be taken to its extremes. I am not advocating autarky and isolation from ideas. Neither am I advocating a return to some old Luddite approaches. I am only suggesting that developing countries should keep their doors and windows open to ideas from outside but not be encumbered by them. They should undergo all the struggles required to prioritise their problems, figure out solutions, apportion scarce resources, and fight the implementation battles. They have to go through what Beckett said, "Ever try, ever fail, try again, fail again, fail better".

Isn't it telling something profound that the biggest development stories of our times, East Asia and China, have been without any of these new ideas and have been built on equitable access to opportunities, pragmatic governance, and plain simple economic growth, ingredients that every one of today's developed countries too had in their growth phases? Developing countries should read Joe Studwell.

This verse from the Chapter 6 of Bhagavad Gita applies just as much to countries as it does to people. Lift your selves up your Self!

No comments: