Tag Archive | free market

Apparently, “the Aid Debate is Over.” We Can All Go Home Now.

I was just checking out Bill Easterly’s (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) article in the January issue of Reason, “The Aid Debate is Over.” (I wonder if he noticed that he had written an article called “The Big Aid Debate is Over” back in October of 2013.)

Yet again, Easterly uses Jeff Sachs as his academic punching bag. Sometimes I wonder if those two really just like each other a great deal, but go to great lengths to hate on each other in public.

I’m somewhat interested in his derisive tone towards technology:

Jeffrey Sachs’ formula for ending poverty was appealingly simple. All the problems of poverty, the famous Columbia University economist argued, had discrete technological fixes. Bed nets could prevent malaria-spreading mosquito bites. Wells could provide clean water. Hospitals could treat curable diseases. Fertilizer could increase yields of food crops.

Through a recent book on Sachs by Nina Munk (author of: The Idealist: Jeffrey Sachs and the Quest to End Poverty), he goes on to expose the failings of Sachs’ “Millenium Villages” experiment. Sachs wanted to test the hypothesis that throwing money at the poor and solving their basic ills would get the wheels rolling and free them from the chains of poverty for good.

Sachs’ technical fixes frequently turned out to be anything but simple. The saga of Dertu’s wells is illustrative. Ahmed Mohamed, the local man in charge of the effort, discovers that he needs to order a crucial part for a generator that powers the wells. The piece takes four months to arrive, and then nobody knows how to install it. Eventually a distant mechanic arrives at great expense. A couple of years later, Munk returns to find Mohamed struggling with the same issues: The wells have broken down again, the parts are lacking, and nobody knows how to fix the problem.

Easterly then moves on to use Sachs “failures” to criticize the current trend in development which uses small targeted programs which lend themselves to easy evaluation and implementation. People will often work on localized water development programs, or experiment with ways to help small farmers. Behavioral economists will attempt to use cash incentives to get parents to send their children to school. The thinking is that if projects are too big, they become unwieldy and impossible to properly implement.

Easterly believes that development should come from releasing countries from the shackles of bad policy. If the economic policy of a country is too intrusive or bureaucratic to allow the market to function properly, the policy should be changed.

We can now see that aid and development are two distinct topics that should each have their own separate debates. If today’s development economists talk only about what can be tested with a small randomized experiment, they confine themselves to the small aid conversation and leave the big development discussion to others, too often the types of advocates who appeal to anecdotes, prejudice, and partisanship. It would be much better to confront the big issues, such as the role of political and economic freedom in achieving development.

I mostly agree with Easterly’s position. The problems of poverty are mostly problems of the market. Even within Kenya, for example, high value companies must follow a Kafkaesque bureaucracy to do business, following 10 procedures and taking an average of 32 days from initial application to license. To put it in perspective, in the States, you’ll have to jump through 6 hurdles and it will take you five days. In developed countries, that’s considered extreme. In New Zealand, there’s only one step and it takes all of four hours.

Setting up a fruit stand may be easy, but profits slim, business slow and tax revenues are impossible to collect. Setting up a new wage paying transport company to move massive amounts of fruits from producers to markets efficiently is a bigger bureaucratic challenge, though the long term benefits are massive. Reducing the number of gatekeeper would go a long way to allowing these industries to grow.

However, aid and social programs are not ineffective. Though Easterly loves to beat up on Sachs, painting aid with a broad brush is unsatisfying. Sure, the water pump in one village may break, parts may be difficult to obtain and expertise hard to find when things go wrong, but the simple fact is that some people are getting water where they couldn’t before. Internationally funded distributions of bed nets have reduced malaria incidence and mortality all across the continent. There are a lot of kids alive today who would have died a decade ago.

Naively, I measure social progress through dead kids. There’s no way to measure the level of devastation that families feel when children needlessly die and the negative impacts on society and development are vast. Anything which keeps kids from dying is a good thing.

My view is that the macro and micro level development strategies need to work in tandem. Bed nets need to be distributed and water pumps provided. Aid programs which increase access to capital and training need to be strengthened. Evaluation of programs will be important to insure that waste is minimized and report successes. But we also need to see the end of unnecessary regulatory hurdles which do nothing but foster corruption and hamper the ability for countries to develop their market sectors.

Aid programs and market oriented regulatory reform developing countries will insure that short term problems are ameliorated and insure long term sustainability of current gains. While probably patently obvious, a combination of these two strategies will go a long way toward improving the public health and making sure that kids don’t die.

Where is the happy medium between free markets and social justice?

Clearly, if American politics are any indication, no one knows.

I’ll have to make this short, but an interesting article appeared in this mornings NYT: “Questions for Free Market Moralists” from Oxford trained philosopher and musician Amia Srinivasen.

Not being a political philosopher myself, much of philosophical the debate on justice, markets and freedom is foreign to me, though I’ve long been interested in the work of John Rawls and his monumental 1971 work “A Theory of Justice.”

Rawls explored the limits of distributive justice, that is, how goods, services and rights can be equitably pass around in a society to maximize benefits to both individuals and society. In a Rawlsian society, each individual has equal access to the same rights and opportunities as all others. Moreover, inequalities (assumed to be inevitable) are arranged such that they benefit the weakest members of society.

Nozick, penned the 1974 book “Anarchy, State and Utopia” (which I have not read) in response to Rawls’ work. He argued that goods and services can only be justly distributed through pure free exchange. The state then serves merely to facilitate exchange by protecting the rights of property.

Srinivasen rightly indicates that most large democracies are decidedly Rawlsian in construction, but that ideologies, particularly in the United States, are swinging toward Nozick (though people might argue that we are becoming more Randian than Nozickian).

Rawls and Nozick represent the two poles of mainstream Western political discourse: welfare liberalism and laissez-faire liberalism, respectively. (It’s hardly a wide ideological spectrum, but that’s the mainstream for you.) On the whole, Western societies are still more Rawlsian than Nozickian: they tend to have social welfare systems and redistribute wealth through taxation. But since the 1970s, they have become steadily more Nozickian. Such creeping changes as the erosion of the welfare state, the privatization of the public sphere and increased protections for corporations go along with a moral worldview according to which the free market is the embodiment of justice. This rise in Nozickian thinking coincides with a dramatic increase in economic inequality in the United States over the past five decades — the top 1 percent of Americans saw their income multiply by 275 percent in the period from 1979 and 2007, while the middle 60 percent of Americans saw only a 40 percent increase.

Nozick’s libertarian position (like Rand), however, leads to some inevitable moral quandries. Is pure “free trade” always fair? Is the exploitation of workers facing few other employment options, and the resultant maximization of profit fair to society?

The problems with Nozick’s position is a problem inherent in neo-classical assumptions that supply and demand markets are based on perfect information between buyers and sellers. It is assumed that buyers know all prices and can make informed choices on purchases.

We know this not to be the case, which is exactly why health markets in the United States are so inefficient and prices so vastly inflated. If one is unconscious from a heart attack, does one really have time to shop around for the best deal possible? Our market approach to health care in the United States has created a system that is neither fair nor efficient.

But the issue here is one of morals. Is it acceptable that we allow for example, loan sharks to exploit the desperate conditions of poverty, or that we allow the poor to sell their organs (or even their daughters), or that we allow the Wal Marts of the world to pay absurdly low wages and offer few benefits, simply because they operate in unemployment-endemic areas of the country?

to concede that there is more to freedom than consent, that there is such a thing as nonviolent exploitation, that people shouldn’t be rewarded and punished for accidents of birth, that we have moral obligations that extend beyond those we contractually incur — this is to concede that the entire Nozickian edifice is structurally unsound. The proponent of free market morality has lost his foundations.

Clearly, there is no happy medium between equality and freedom. What one might call freedom, for example, from exploitation, will be seen as an imposition of the other to realize his or her economic dreams.

OK, gotta go.

%d bloggers like this: