Tag: G8

Poverty: a state of being extremely poor; inferior in quality or insufficient in amount; our generation’s greatest problem; the world’s worst disease; a trap. The definition of poverty is one that is not difficult to grasp, yet so many do not understand how or why it plagues our world of riches. Our world is plagued by poverty and, contestably, Africa is the hardest hit due to it’s historical status of being relegated to unimportance. While poverty continues to take lives day after day the power wielding countries, institutions, and agencies argue over a solution. That solution is called development. Leaders, institutions, philanthropists all argue as to how development should be facilitated, what the best facilitator is, and how aid should be implemented. Is aid the best facilitator of economic development to bring an end to poverty?

Almost two years after Ghana’s President received word from the Group of 8 that aid would be increased to Africa, Ghana will celebrate being the first independent African country. Ghana is an African country that was very near economic collapse, but through the process of reform, gained economic stability. The current President is expected to step down after serving two years and it looks as though Ghana’s days of coups and unrest will long be over. Ghana has become an economically stable country by way of economic reform, which brought in foreign aid from the institutions and investment from the rest of the world. This is seen as a limited success as far as African countries. Ghana has shown itself to be a good reformer and much of that success has been attributed to aid. But why is Ghana such an isolated case of the success of aid from institutions?

The Trap or A Missing Right?

Jeffrey Sachs, the director of the Earth Institute at Columbia University, claims that there is a poverty trap and that the only way to get out of it is by climbing up the ladder of development. He states that this is the greatest tragedy of our time; that one-sixth of the world is not even on the development ladder. The reason that one-sixth of the world is not on the ladder is because of the ‘poverty trap.’ They are trapped because of many reasons: disease, isolation, climate, etc., but why? Sachs tells us that this one-sixth is trapped because their families and governments lack the financial means to invest in their own development. The world’s poor need to get a foot up on that ladder, but how? How does one invest in themselves?

Capital is the answer to the poor’s problem – at least that is what Hernando de Soto believes. In his research on the ‘mystery of capital’ de Soto claims to have found that all the poor need is access or ability to use the land and property that they reside on. They have material things, but cannot use their land as a resource to create capital. De Soto says that, “Capital is the force that raises productivity of labor and creates the wealth of nations.” The problem here is that governments have to open up their property systems to the poor and many are not inclined to do so. The processes for land ownership are lengthy and difficult in many LEDCs, so for many people owning property is not worth their time. De Soto fights for an impractical approach to bringing the world’s poor out of poverty. Balaam and Veseth note that de Soto’s argument for property-rights reform could not alleviate LEDC poverty, however such as step may be necessary for the success of ‘the beautiful goal.’

De Soto’s argument is supported in a slightly more practical manner by C.K. Prahalad, who says that there must be a goal to ‘democratize commerce.’ He supports his claim by giving examples of the poor as micro-producers. Prahalad argues that, “We know aid is not the answer to that kind of mass poverty. Subsidies, grants, and philanthropy may have a role to play, but the real solution is local development of the private sector. That requires specific actions that take into account the historical background of the country at hand.” Prahalad makes an excellent point at that there needs to be an understanding of country situations. He tells us that aid has a place, but where is that place?

Property rights are seen by many to be central to investment and the economy of development. Like de Soto they argue for its quick implementation. In regards to property ownership and its use to become developed it seems that Ghana eased from communal to individually owned land system. In the Ghanaian culture property held high importance and even though Ghana had to move from a communal model to individualistic, it was smooth. Property rights were granted to those who had planted or cultivated certain sections of land. This changeover of property rights was facilitated by stable, well-defined laws and customs in regards to the governing of land. The courts also recognized the existence of ‘family land’ and land belonging to larger kinships. This preset tradition of land ownership allowed Ghana to easily transition and permit people to use land as a means of creating capital.

Whose Consensus Should We Use?

Governments can hinder development, people are restricted from development, and societal institutions push the criteria for development. The Washington Consensus is the list by which all must abide in order to receive foreign aid. The Consensus promotes a strong neo-liberal agenda to deregulate economy, privatize government enterprises, create low inflation, low government debt, and open to domestic and international markets. The institutions use the Consensus in a fair amount of disagreement in regards to implementation. The Washington Consensus was a form for economic development that pushed free trade and capital mobility. The issue of free trade versus fair trade is a complete other paper, but the for ‘free’ forces LEDCs to spend funds on making reforms as opposed to implementing programs to serve its people. This causes poverty to continue in LEDC and although the Consensus made an irresistible possibility within reach it also brought the possibility of devastating collapse and risk.

The International Monetary Fund and World Bank are very often criticized and reforms within the institutions are called for. However, outside the institutions stand NGOs who fill the gap and many times create longer-lasting and more effective results for the poor of the world. Easterly is a strong critic of the aid agencies and he makes a very strong and compelling argument against them. Ghana has received a large number of loans and aid from the institutions. Easterly notes that in many recent cases of heavy involvement by the aid agencies end in collapses into anarchy. Stiglitz tells us that the Washington Consensus assumes perfect information, perfect competition, and perfect risk markets – an idealization of reality has little relevance to LEDCs.

Sachs writes about Ghana’s poverty reduction strategy. He notes that the government of Ghana reached the conclusion that a major scaling up of the public investments in the social sector and infrastructure, which estimates a required donor aid around $8 million. The Ghana strategy was well designed and argued, but the donors dropped and rejected the plan. Sachs argues that there needs to be a harmonization of aid. The many bi-lateral aid groups need to work together for larger projects, but for smaller-scale projects a more specified aid is required.

The Downside of Backward

Aid has become a dangerous word in today’s globalized, polarized, prioritized world. Another problem is that aid, as a term, is a very broad topic. For the purposes here, aid refers to financial support to increase economic development. The ‘grandiose’ plan of making poverty history or ending poverty brings about the desire to create the ideal aid agencies, administrative plans, and financial resources. Over the past sixty years the West has pushed reform schemes, agencies, and numerous plans all to end poverty. This has created a massive $2.3 trillion failed push by the aid industry to meet this ‘beautiful goal.’ William Easterly has argued that, “this evidence points to an unpopular conclusion: Big Plans will always fail to reach ‘the beautiful goal.’ Easterly tells us that Planners will always fail and their plans will always fail because they ask the question of what does the end of poverty require of foreign aid? When instead we should be searchers and ask, “What can foreign aid do for poor people?”

Balaam and Veseth tell us that the nature of aid flows has drastically changed from the time of the Cold War until now. During that time less aid was given because of security reasons, but now multilateral aid is channeled through institutions such as the World Bank. In the 1990s the World Bank changed its priorities to “fill in the gaps” due to many projects being funded by the private market and non-governmental organizations (NGOs). This shift made less economically developed countries (LEDCs) more dependent on other sources of funding.

If a LEDC has to depend on another source of funding besides the established institutions, as flawed as they may be, they will most likely look for the easiest way to get that funding. Ghana recently received, in June of 2006, a $66 million loan from China to fund its development projects. This is an extremely different and what some would call ‘backward’ step for Ghana. The Ghanaian experience with foreign aid has been to adopt reforms and partner with the institutions. In this case Ghana has strayed from the accepted conventions of the foreign aid industry. China is seen as a rogue aider in that they are undermining the development policy of the foreign aid institutions. By not placing restrictions on aid usage or democratic reforms, China is taking the foreign aid market by storm, as the World Bank is put out of business. China is not the only supplier of rogue aid, but it is the most prolific. What does this all mean for the aid industry?

It can only mean one thing and that speaks to the effectiveness of the aid institutions and the aid suppliers of the West. Ghana the star of economic reform, democracy in Africa, and years of peaceful independence is seeking rogue aid – there is no place anymore for utopias and institutions and big plans.

Utopia is Not Possible?

If the big plans won’t work than what will? Easterly says that the big problem with foreign aid is that is aspires to a utopian blueprint to fix the world’s complex problems. This is where we must refer back to Easterly and his explanation of a ‘searcher.’ Easterly helps us to understand that, “A planner thinks he already knows the answers; he thinks poverty as a technical engineering problem that his answers will solve. A searcher admits he doesn’t know the answers in advance; he believes that poverty is a complicated tangle of political, social, historical, and technological factors. A searcher hopes to find answers to individual problems only by trial and error experimentation. A planner also believes outsiders know enough to impose solutions. A searcher believes only insiders have enough knowledge to find solutions, and that most solutions must be homegrown.” Easterly pushes for giving more assistance and aid to searchers and not planners because the utopian plan is not possible.

Sachs states that, “One of the weaknesses of development thinking is the relentless drive for a magic bullet.” This is very ironic because at the end of Sach’s book he argues for a big plan to end poverty, a magic bullet? Sachs outlines four main points for what a donor should do. However he seeks to create an overarching plan for all developing countries to escape the poverty trap. Sachs criticizes the aid agencies as well as promotes their reform and continuation. Easterly on the other hand calls for the West to build a willingness to aid individuals rather than governments. He tells us in his book that the ideas thought to be crazy are the ones that work best and reach the people in need of aid. He outlines a plan for how aid should be used for development starting with development vouchers, which the poor could turn in at any NGO or agency for a vaccine, food, health check-up, etc. Easterly strongly emphasizes getting feedback from the poor on development progress and pushes for aid groups to go back to the basics and be accountable for individual, feasible areas of action.

In her Foreign Policy article, Esther Duflo notes that a good many people have qualms about foreign aid, but that we need to fund what works. “Governments and citizens of poor countries resent the us of aid as a means of buying political support, their lack of control over it, the development fads to which it is subject, and the administrative burden that accompanies it.” This idea of funding what works makes sense and many in the development field advocate for a focus on people.

Many people would like to advocate for the big push, an increase in foreign aid, to eradicate poverty throughout the world, however unfortunately the track record of aid institutions and aid in general shows otherwise. If we are to be donors and fighters of poverty, then we need to understand poverty’s complexity and understand that a pragmatic and effective approach is needed. We need to adopt more the idea of Easterly and support the searchers in their quest to actually save lives.

What does this all mean for Ghana? The country will continue to receive large aid packages from the foreign aid institutions for its stability and rogue aid states for their economic successes. Ghana has become a stable economy and even though the Ghanaian people’s pride is very strong they remain chained to the aid institutions and donors when it would be better for sustainability for their development to have their searchers be supported. Aid funding needs to be linked to the implementation of a successful program to avoid waste by governments. Creating an accountability for foreign aid that provides results will justify the increase of aid to LEDC and Ghana. Today’s society has the access and ability to distribute effective aid that actually helps those in need. The greatest problem that we will face is if our government will have the political will to restore confidence in the abilities of foreign aid. Ghana is a success story of Africa as far as economic development and building a stable government, their success was backed by foreign aid from institutions, and yet many of their people remain unserved. The direction and continuation of poverty reduction in Ghana will depend on the country’s ability to recognize and support searchers with effectively implemented aid.

Bibliography:

Anonymous. “Chinese PM announces Ghana loan.” BBC News, 19 June 2006. . (accessed 3 May 2007).

Anonymous. “Proud Ghana still depends on aid.” BBC News, 15 June 2006. . (accessed 3 May 2007).

Balaam and Veseth. Introduction to International Political Economy. Pearson Education Inc, New Jersey: 2005.

Besley, Timothy. “Property Rights and Investment Incentives: Theory and Evidence from Ghana.” The Journal of Political Economy. The University of Chicago Press, 1995. . (JSTOR accessed on 3 May 2007).

De Soto, Hernando. The Mystery of Capital. Basic Books, New York: 2000.

Doyle, Mark. “Can aid bring an end to poverty?” BBC News, 4 October 2006. . (accessed 3 May 2007).

Duflo, Esther. “Fund What Works.” Foreign Policy Magazine, May/June 2007. 43

Easterly, William. The White Man’s Burden. The Penguin Press: 2006.

Naím, Moisés. “Rogue Aid.” Foreign Policy, March/April 2007. . (accessed 3 May 2007).

Sachs, Jeffrey. The End of Poverty. The Penguin Press, New York: 2005.

Stiglitz, Joseph E. Making Globalization Work. W.W. Norton & Company, New York: 2006.

Tsikata, Yvonne M. “Aid and Reform in Ghana.” World Bank. Preliminary Draft Working Paper, May 1999.

Prahalad, C.K. “The World for Sale.” Foreign Policy Magazine, May/June 2007. 50

Index of blog post series on Ghana.