Our Word is Our Weapon

Owen Barder has written what looks like an interesting note on the debate around attaching conditions to overseas aid. Broadly speaking, he’s against it. I haven’t read the full note yet, but I think he makes an excellent couple of points on aid effectiveness in the comments to his post:

if our aim is to ensure that we allocate aid to countries where it will do the most good, in terms of reducing poverty, then according to the same studies that find that aid is more effective in good policy environments, we would get huge benefits from allocating more of our aid to countries with low incomes and large numbers of poor people. The benefits - in terms of increasing the bang for our buck - of targeting the poorest countries far exceeds the benefits of trying to discriminate between good policy environments and poor policy environments. So if we are serious about increasing the poverty impact of our aid by improving its allocation, this is where we should start. Leaning towards good policy environments will help too, but the size of the benefits is an order of magnitude smaller.

Second, the statistical evidence for the benefits of targeting aid on good policy environments is not as strong as our intuitions would suggest. Some studies find a positive effect - the marginal aid dollar may be 30-50% more effective in the best policy environments compared to the worst - but many studies have failed to find any correlation at all; and the statistical relationship is fragile. And we should not fall into the trap of thinking that aid given to poor policy environments is not effective: all of the studies find that aid is effective even in poor policy environments (albeit more effective if policies are better).

I should probably wait until I read all of Owen’s note, but for now here’s my two cents: detailed policy conditionality is likely to be self-serving (from a donor point of view) and counter-productive, and requiring officials in poor countries to report in exhaustive detail on how every single penny was spent is a waste of resources. Donors should, though, enourage recipients to improve the processes by which they assess needs, allocate expenditure, monitor outcomes and make themselves accountable to their own people. And while untied aid in the form of direct budget support is usually the most effective kind, donors should not hesitate to suspend or withdraw such support (or channel the same resources through NGOs in the same country) if recipient governments engage in the kind of authoritarian abuses recently seen in Ethiopia.

I know I should spend more time doing serious analysis and less time jibing at free-marketeer think-tanks, but there are two reasons why I don’t: firstly it’s easy, and secondly they keep serving up such irresistable opportunities.

For example, here’s Paul Staines of the Globalisation Institute on corrupt think-tankers who produce ‘research’ to serve the interests of their corporate sponsors:

So how can I get into this game? Maybe I should develop a passionate interest in global warming. The London-based International Policy Network said it’s “a myth”. Ker-ching! It received $250,000 from Exxon for “climate change outreach”. IPN wonks are multi-taskers; they are software experts as well. Free open-source software is, they say, bad for economic growth. Ker-ching! Microsoft electronically transfers its support. Mr Bandow himself was at IPN’s launch of its Big Pharma-funded Campaign for Fighting Diseases. Coincidentally, pamphlet after pamphlet from IPN recommends policies that would further boost the gargantuan profits of Pfizer, the world’s biggest pharmaceutical corporation. Is this ethically suspect cash for policies? Nobody is getting fired at IPN.

It’s worth noting that two of the other platforms the multi-tasking IPN likes to promote are free trade and cutting back overseas aid. Presumably Paul thinks we should be just as sceptical of that ‘research’ too?

Anyway, he goes on:

John Blundell, the director-general of the respected Institute of Economic Affairs, despises these “wonk whores”. He says: “Global companies are buying up think-tanks left, right and centre. Large cheques come attached to particular policy recommendations and senior corporate types sit on committees ready to ‘candle-snuff’ dangerous ideas.”

Shocking stuff. But it raises a few questions:

• If John Blundell despises “wonk whores” like the IPN so much, why is he still one of their trustees? And isn’t this also slightly inconsistent coming from a director of the Atlas Foundation, itself a major recipient of funds from Exxon?
• Was Paul’s boss Alex Singleton a “wonk whore” when he used to work at the IPN?
• How much corporate sponsorship does the Globalisation Institute receive, and from who? They don’t volunteer the information, and for a group so concerned with think-tank transparency they’ve been pretty tardy making their annual returns to the Charity Commission.

Over at the Freedom Institute, which in another fine example of free-marketeer grandiloquence styles itself “Ireland’s Centre for Social, Economic and Political Studies”, Richard Waghorne has an interesting post about where the aid donated to the countries affected by last year’s tsunami came from. Basing his analysis on these figures from Foreign Policy, he says

Globally, as much aid was given privately as was given by the state.

Not true. This chart shows that the combination of aid from governments and international financial institutions (which comes from the states that constitute them, after all) was larger than that from private donors:
.

Waghorne continues,

In the US, the amount given privately was almost twice that of the amount delivered by the administration. This pattern is unique to the United States; the only other country with a significantly larger private than public contribution being the United Kingdom.

Again, not true. Private donations from the US were 82% higher than state aid (I’m using the amount allocated here rather than pledged, since that reflects what was actually delivered rather than simply promised - the gap between pledges and allocations is a significant but separate issue), but in Germany the figure was 93% ($664m to $345m).

Those who criticised the US at the time for the size of its public contribution (which was, incidentally, the largest) do Americans an injustice.

Well, the American government’s contribution was the largest in absolute terms, which is hardly surprising since America has the world’s biggest economy. As a proportion of national income, though, the US state contribution was by some way the lowest, at 0.007% ($814m out of a Gross National Income of $11.7 trillion). So those people who criticised the US government on these grounds were quite right to do so.

Waghorne concludes,

Whether the government has a right to tax money for the purpose of charitable donations is one question, but even for those inclined to say that it does have such a right (or perhaps even a duty) it remains most unclear that government taking responsibility for giving results in more money for charity than a purely private approach would generate.

Does it? Waghorne clearly wants governments to spend less taxpayers’ money on overseas aid to tsunami victims and the like, and if the data shows that private citizens and companies donate significantly more in countries where their governments donate less, he might have a case.

Unfortunately for him, the data shows exactly the opposite. The table below summarises (I’ve used the Foreign Policy aid data and figures for Gross National Income from this OECD spreadsheet).

As you can see, it looks like countries whose citizens and companies gave more aid as a proportion of national income also gave more in the form of state aid. So while the US is lowest in terms of state aid, it is second lowest, behind only Japan, in terms of private giving. Australian and Dutch citizens each donated more than three times as much as Americans as a proportion of national income.

The chart below depicts the same figures on a scatter-plot, and suggests that there is a relatively strong proportional association between levels of state and private aid (or at least there was in the case of the tsunami).

Let me just emphasise that I am not criticising the generosity of individuals and companies in America or anywhere else - anyone who donated some of their own money to such a cause deserves praise. But these figures do raise some interesting questions. Does the generosity or otherwise of governments simply reflect the preferences of their electorates? Or does government rhetoric and policy on aid influence those preferences? Either way, it seems clear that if you want to increase the total amount of aid going overseas (which I presume is what the Freedom Institute wants), slashing back official aid (which also seems to be what they want) is not the way to go about it.

I had been wondering if any of our free-marketeer friends would even acknowledge the bid-rigging scandal in the construction industry - which, if you’re not familiar with it, involves the Office of Fair Trading finding evidence that “bids for construction contracts worth £500m have been rigged … the scale of the anti-competitive practices could be much greater … more than a thousand contracts in just one region - the east Midlands - had been won this year because of unfair cartel practices”.

It seems I underestimated at least one of them - Eamonn Butler of the Adam Smith Institute, who has decided that this is simply more evidence of “naïve or incompetent” government, completely ignoring the substance of the story, which has got nothing to do with insurance requirements or changing specifications, and everything to do with contractor cartels colluding to keep prices up. With such flagrant abuse of market power, maybe it’s no coincidence that the UK has experienced the fastest rise in construction costs in Europe in recent years, up 40% in just three years (see page 67 of this big pdf of housing stats).

Of course, the problem for Butler and other fundamentalist free-marketeers is that they are ideologically committed to a worldview that has no room for such business practices. His writings suggest a belief that there is no such thing as an uncompetitive private market and that just about everything that goes wrong must be somehow the fault of government. Perhaps the Adam Smith Institute should remeber the words of Adam Smith himself, who supported genuinely free markets rather than the accumulation of corporate power:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

Alex Singleton of the Globalisation Institute modestly asks when I’m going to give him some damn credit for saying something sensible about DDT. I’m happy to give praise where it’s deserved, and Alex was quite right to point out the urban myth being peddled by Philip Stevens on the Adam Smith Institute blog. It’s a shame that when I tried to make exactly the same point on the ASI blog it was blocked - it appears that dissent is only permitted from approved channels.

Nonetheless, it’s nice to see Alex talking sense about DDT and malaria. But then I have to wonder what made him change his mind, when not too long ago he was foaming at the mouth on the very same ASI blog about how “If environmentists did not exist, malaria could be eliminated with DDT”. That, surely, is even more of a crazy urban myth than what Stevens was saying. What changed Alex’s mind? Did he, like, open a book on the subject or something?

It’s also strange that when Alex repeated the criticism on his own site, he didn’t think to mention who he was refuting - maybe he didn’t want to embarass his old workmates at the International Policy Network. Philip Stevens’s post says he’s Director of the Campaign for Fighting Diseases, which seems to be some sort of astroturf organisation set up by the International Policy Network, which we have seen before talking rubbish about international aid.

Just so you know, the IPN is apparently a charity (object: “To promote the advancement of learning”), used to be called The International Institute for Economic Research, apparently receives most of its funding from corporate donations, and was in turn set up by the Atlas Economic Research Foundation, the mission of which, according to its former president John Blundell, is “to litter the world with free-market think-tanks” (and which has even published a helpful guide to starting your own free-market institute, though it warns against giving it a dumb name like “Freedom Institute”, which will come as a disappointment to these guys, who otherwise seem to have followed the recipe to the letter).

Blundell has done a pretty good littering job - as well as all this, he is also listed as a trustee for the IPN and the charity correspondent for the Foundation for Education in Economics, now known as, er, the Globalization Institute!

See, I bet you thought I was just rambling there. I have one last question, though (apart from, why would anyone need to download a 1.9mb picture of Alex when there are such good alternatives?) - how come the GI is now called the Globalisation Institute when there were such damn good reasons for spelling it with a z?