Deadly Dysfunction ... A Dangerous Situation
Reduced expectation of life
In the “north” poor economic performance increases unemployment or
reduces wages somewhat ... not good, but not life threatening. In the “south”,
poor economic performance translates into death.
When a company fails, it goes bankrupt and closes down. There is hardship,
but everyone can move on. When a community or country economy fails,
there is no moving on ... and the way things get back into equilibrium is that
people just die faster. In many poor countries in the “south”, for a variety of
reasons, expectation of life has been reducing catastrophically.
The organization and structure of the relief and development sector just does
not work well enough. There is much more an ability to talk, than an ability
to act ... even when there are practical solutions that would work ... and
there are people at risk of dying prematurely.
Even when there is war and violence, even when a family is displaced, even
where there is a failed state ... people still have to feed themselves. If life is to
go on, there have to be some basic activities that have to go on. And when
they do not, people die.
It is a global disgrace that so many people do die ... that there is so much war
and violence and failed states, but it is also amazing that so many people are
able to keep going in such disastrous circumstances. It is impressive how
much continues when the formal organizations of society have all broken
down.
Too Much Death
My perspective on financial and economic analysis changed when I first saw dead
young children ... in what was meant to be a rich “south” country. I realized for the
first time that my underlying mindset that more wealth meant more socio-economic
progress was just plain wrong. This was in 1974.
While there is nothing wrong with good analysis ... it can never be good if it does not
include all the factors ... and the impact on human beings needs to be a big part of
this. Sadly neither corporate MBAs or development economists seem to put the
human dimension into their analysis.
Organizational performance
The fact of organizational dysfunctionality is not high on anyone's agenda.
Performance analysis is not being done. Very few of the organizations in the
relief and development sector are able to point at the value adding that they
are doing, though many are able to describe something of the activities they
are supporting. These organizations are not using the relationship between
what things are costing and the value being derived as a critical metric of
socio-economic performance.
In the main, these organizations are “policy” organizations rather than
operating organizations. Efficient operating organizations are missing. The
gap has been filled to some extent by NGOs, but many of these organizations
have limited capacity and not enough of the technical knowledge needed.
Though many of these organizations have a certain effectiveness in some
areas, they are not, in general, effective in the overall delivery of successful
relief and development. They stay involved more because they have “an
example” of success, rather than a complete portfolio of success. Or they stay
involved because they have convinced donors that they are worth funding, no
matter what is actually going on in the field.
Dysfunctional Organizations
I attended an conference on management and organization some years ago. A lot of
the discussion was about information, decision making, human resources and the
structure of organization. There were great presentations by high profile IT experts
and by well known CEOs,
But at the end of the conference my one liner about the typical organization that had
been described was that the IT functioned well as the nervous system of the
organization, that the CEO's office functioned well as the brain of the organization ...
but there was no neck to join the two pieces together.
And more recently in my thinking about the relief and development sector I see the
multiple organizations that dominate the sector as a huge head thinking hard about the
problem, with hardly any hands to do the necessary implementation.
Dysfunctional process
The relief and development sector does not function in an efficient “process”
mode, but rather, it functions just as all “bureaucracies” function, as a chaotic
mix of politics, expertise and crisis. Nothing happens until it is “too late”, and
the real reason for decisions is rarely very much in evidence on the surface.
There really is no process, and little is done of systems analysis.
What Dysfunction Looks Like
In the relief and development sector, the process works something like this.
There is no rain ... and the crop fails. The experts know that this has happened, but
“not to worry” this happens quite often. Some people have enough food stored away.
Some people do not. But on balance not a big deal.
The next year there is no rain ... the crop fails again. Now this might be a problem.
Time for study. Call in consultants to visit the area and write reports about what we
already know ... or certainly ought to know.
If the information stays out of the media ... nothing probably has to be done. If the
malnutrition and death gets into the media, the studies show we are on top of the
problem.
If the media gets the stories ... then we can go about raising money to do some
practical helping ... we can convene a conference on the merging crisis ... otherwise
... not to worry.
The relief and development sector as a whole is organized in a way that makes
success very difficult. Even for an efficient individual organization, trying to
operate effectively in the sector is a challenge. The golden rule applies ... “if
you have the gold, you make the rules” and this puts the donors in total
control of the agenda. For donors that are government agencies, this means
that donor country politics is in play. Since most individual voters have little
knowledge of or interest in international relief and development issues, from
the voter perspective less assistance money seems to be better. Since
beneficiaries are not part of donor country politics, beneficiary needs are not
important. For philanthropic foundations, the issues are different, but the
result is similar.
Relief and Development Organizations
The relief and development sector
The types of organizations that are involved in relief and development run the
gamut from governmental organizations and parastatals, non-governmental
organizations (NGOs), multinational companies, local businesses,
commercial and multilateral financial institutions, organized religions and
faith based organizations, professional organizations, to community groups.
Many of the organizations that make up the relief and development sector are
well known. They include the World Bank, the UN and its specialized
agencies such as UNICEF, FAO, WHO, UNHCR and so on, and bilateral
development assistance agencies like USAID, CIDA, SIDA, DFID and so on.
While they are well known, and the media gives their press releases a good
share of coverage, there is little or no public information about their
performance.
Based on performance, the relief and development sector is dysfunctional, at
any rate in so far as contribution to value adding development in places where
the beneficiaries are located.
The government budget of many countries in the “south” gets a majority of its
funding from donors, and international sources. Most of these fund flows are
used for government services, some of which have social value, and some are
associated with the both legitimate and illegitimate military and security
activities.
In the aggregate it is difficult to find anything like the value creation that one
would expect given the scale of official development assistance.
Improving Relief and Development Performance
Years ago, I had hoped that improving relief and development performance might
have some of the same dynamic I had experienced in the corporate sector.
I thought a good project ought to be expanded or replicated ... but when I tried to get
the system to continue a very successful project (The Shenge Project ... box page
nnn) I was able to accomplish absolutely nothing. It was a classic case of bureaucratic
bungling, with absolutely nobody willing to take any responsibility and nobody
accountable. This was 15 years ago. But nothing significant seems to have changed.
Disastrous decision making processes
Most of the relief and development sector has a very rigid process for decision
making. It does not have much in the way of performance metrics, and does
not have much need for the sort of decision making associated with
improvement in what is going on. Ad-hoc decisions to improve performance
are practically unknown. This should not be surprising. The processes come
from founding member government and public sector governance years ago
... nothing from the enterprise world, and not much can ever be changed.
But even where there is information about ineffective projects, it is not easy
to get bad projects terminated.
Value Destruction in South Sudan
For years and years UNDP funded a small capacity building project in South Sudan.
The project consisted of a single CTA working in an advisory capacity with the local
government. The expenditures were a generous UN rate salary together with normal
living and transport allowances ... perhaps 50 times what he would have earned in a
government job in his home country. The CTA had an office in the government
administration building and by all accounts was “on seat” around 10 hours per week.
The project goals were never achieved, but every year someone in the local
government wrote glowing letters asking that the project be continued, and it was,
over and over again, despite considerable staff objections. Nobody knows who was
paying who, but it is almost certain that this was the underlying problem.
The responsible officer at UNDP headquarters tried to get this project closed down,
but could not. The letters carried weight with the decision making committee.
Too much planning
The relief and development sector is big on planning. In most well
run organizations, there is planning. However, there is and a big
difference between good planning in the best corporate organizations
and the less than mediocre planning that pervades the relief and
development sector.
Good planning for national socio-economic development is a
challenge, and requires a lot of effort and experience in order to get a
sensible balance between a host of competing needs and limited
resources. At its worst national planning is a disaster, as was Gosplan
for the Soviet Union, and, I would argue, World Bank planning, in
the relief and development sector.
Planning is not being done to optimize resource use and maximize
socio-economic development progress. More often planning is done
to satisfy donor procedures and justify using the organization being a
funded as an intermediary for delivery of program activities. There is
a lot of planning for incorporation into funding proposals, but rather
little planning to optimize relief and development spending on the
ground at the country level and practically none at the community
level.
Learning organizations and institutional memory
My experience in the corporate sector suggested a continuum of
learning. Corporate organizations that refused to learn from their own
experience, and failed to integrate information from the world around
them, very quickly found themselves in financial difficulties ... and
were soon out of business.
In contrast the relief and development sector seems to be stuck in a
deep rut ... with each organization doing what it does in a way that
seems to learn nothing from the past, and nothing much from the
world that is swirling around them.
Projects and Programs
The project and the project cycle
The project form of organization and the project cycle are part of the
reason why relief and development has failed. The “project” form of
organization dominates the relief and development sector, but it is not
an organizational form that well suited to relief and development
interventions. The project cycle the following elements:
- Identification;
- Preparation;
- Appraisal;
- Negotiation;
- Implementation; and,
- Evaluation.
The project form of organization suffers from:
- a short life;
- an impermanent artificial structure;
- issues of starting up;
- issues of closing down; and,
- all sorts of economic distortions, not least of which pay scales.
My Experience with World Bank Projects
Over the years I have worked with many World Bank projects and have
worked at each of the stages of the project cycle. Almost all of the projects
them are designed so that they are almost impossible to manage. They are too
complex. They are often too big. They are often too constraining. They are
too rigid. They do not go on long enough. They are just plain unmanageable.
It is really no surprise that the projects end up costing a lot, creating debt, and
not accomplishing very much. Too much money is spent on identification,
preparation, appraisal and negotiation, and the management and oversight
dimension of implementation is almost totally absent. The ex-post evaluation
stage is too little and far too late.
The “project” form of organization is arguably the best way to
organize for a “one-off” project such as the construction of a dam,
bridge or power station, but this form of organization is unsuited to
providing financial support for routine activities of public institutions
like education and health.
The project form was adopted as a means to accelerate development,
but has probably had the reverse effect. Rather than addressing the
fundamental causes of development delay, the project approach
simply avoids problems, rather than solving them. After multiple
generations of 'projects' the problems still remain, and may well
have been aggravated.
People in the project structure
The damage done to government and civil services cadres by
“projects” recruiting good people out of the permanent government
system into the project is a serious and a huge cost to the “south”.
Worse, good people have also had their local careers disrupted,
though some have been able to move from the local “project” to being
part of the international elite in the relief and development sector.
Whatever happened to the “multiplier effect”
I learned my economics in a Keynesian environment. The
“accelerator” and the “multiplier” were two ideas that were central to
my understanding of how an economy worked ... as well as savings
and investment. In my world of economic analysis, all of the different
components of the economy were linked together in a coherent way.
Over the years Keynes dropped out of favor in academic circles,
which was a pity. The Keynesian multiplier helps explain a lot what
happens when World Bank projects start, and what happens when
World Bank projects end. And Keynesian thinking helps in
understanding why places with no investment never make much
progress.
Project complexity
Project planners at the World Bank and the other development bank
seem to love complexity. I have been told many times that a World
Bank project needs to be a certain scale in order to be efficient, but if
anything, the World Bank has accomplished a level of complexity
that ensures dis-economies of scale rather than economies of scale.
With a multitude of activities, comprehensive relief and development
means complex linkages, which in turn leads to complex
organizations. In almost all cases, project organizations have become
very complex, World Bank projects especially. With complexity it is
difficult, if not impossible, to have clarity and accountability. All the
organizations in the relief and development sector seem to believe
that complexity is not only acceptable, but desirable. Complex is not
a solution, but a problem.
The Education Sector in Brazil
I did an analysis of a World Bank plan to help with financing of the education
sector in Brazil, and tried to design a management information system that
would enable the Bank staff to monitor project progress.
As a practical matter the project was designed so that it could not be
effectively monitored by the World Bank independently.
That is not to say the Government of Brazil, and in particular, the Ministry of
Education and the Ministry of Finance could not effectively monitor the funds
using their routine budget control procedures and budget execution
accounting systems.
But the World Bank and other donors have systemically avoided using
Government control systems in favor of their own, and in the process have
weakened the Government systems and created parallel systems that serve to
confuse rather than to control. And the confusion has in turn, facilitated
diversion of funds rather than making it more difficult.
Projects are sometimes not planned right
Projects sometimes go wrong because the basic planning and
preparation of the project is done badly. The World Bank holds itself
out to be very good at what it does, but I am not so sure. There is very
little independent and objective analysis and feedback ... and to the
extent that it exists it is not easy to see. The following is an example
of really bad planning and project preparation, that really should
never have been permitted ... but it happened.
Shrimp Project in Yemen (YAR) ... Project Preparation was Wrong
I was recruited to join a World Bank mission to Yemen (YAR) to help assess
progress on a World Bank funded shrimp project based in Hodieda. I had
been the CFO for Continental Seafoods Inc (CSF) that had carried out a
thorough fisheries (shrimp) resource assessment for the Yemen Red Sea area
some years before.
The study was funded by the FAO. It was designed to be sufficiently
thorough to enable an investment decision to be made about shrimp fisheries
development. Most resource studies carried out by FAO at the time were far
less intensive, and the results therefore much less reliable, and unsuitable for
investment justification.
After the study which lasted for more than a year, CSF concluded that the
Yemen shrimp resource did not have enough potential for our company to
consider investing. We concluded that perhaps two shrimp trawlers could
operate profitably, but that only two trawlers would not be economically
viable for our company to operate in Yemen.
I was curious how the World Bank and the government had decided to finance a
shrimp fishery project based on the same resource, and based, in principle, on the
CSF/FAO resource study. The project planned to put in 20 trawlers instead of the 2 we had recommended. They seemed to be arguing, that with economies of scale everything would be
all right. Wrong ... as any competenet fisheries economist knows ... the limiting factor is the shrimp resource, which now gets shared
between 20 vessels in instead of two, and there are costs for 20 trawlers rather than
two trawlers. Financially, this project had to be a disaster.
Something had gone terribly wrong with the project preparation. It turned out that
the project preparation had been done using an Arabic summary (not even a complete
translation) of the CSF/FAO report that now contained the idea that the whole of the
biomass could caught ... and not just the sustainable yield.
But how had this gone uncorrected in the appraisal process? Probably because the
World Bank was frequently using agriculture experts rather than fisheries experts to do project indentification and planning.
... and they do not know enough to do the analysis right.
Development Investment
Excessive unproductive investment
The planning by the World Bank and the other relief and development sector
institutions and their favored international consultants has been poor to say
the least. Very little that I have looked at over a period of more than three
decades gets a passing mark from me. Much of the planning is little short of
incompetent, though brilliant if the goal is, as John Perkins has suggested, to
create the largest amount of economic chaos and justify procurement from
the donor's home country. The situation in the fisheries sector in Burma is an
example (See Box).
The Fisheries Sector in Burma
I did some work for the World Bank in Burma related to the fisheries sector. The
sector was operated by the State through the Peoples Pearl and Fisheries Corporation
(PPFC) and was funded largely by international loans, both official development
assistance (ODA) and private sector loans.
I don't think the World Bank often uses accountants and former CFOs in its missions.
I learned a lot more about PPFC than the World Bank wanted to know. It's chief
accountant was very competent as well as a large staff of accounting clerks, and there
were a lot of accounting data in routine reports and easily accessible. As is common,
very few people in positions of power used these accounting reports ... including the
international experts ... and the result was dramatic over-investment in the fisheries
sector, with absolutely no way that the many loans could be repaid from the revenues
of the fisheries sector.
The PPFC accountants knew the problem, but nobody was listening. Bottom line,
perhaps as much as 10 times the investment that would have been prudent had been
made through PPFC ... and much of PPFC's fishing operations were not operating
profitably. Why not?
While the fisheries sector in Burma became a disastrous mess, the builders of
fishing vessels and the suppliers of fishing gear all around the world were very
content. They were paid good money to manufacture everything, and people
were put to work in their respective countries ... and the people of Burma
were saddled with a value destroying fishing sector and debt.
Even the financing that was in “grant” form ended up making the country
poorer. If the investment cannot produce value during its operating life, even
grant financing is undesirable.
Waste in investment
The “south” needs investment in its infrastructure, but so little of what really
needs to get done gets funded. The process is dysfunctional and there seem to
be no checks and balances that work.
In my first visit to Africa I was told about the Liberian road rebuilding that
had been financed several times ... and a visit to South Sudan some time later
showed considerable spending, but not much for anything of serious
economic value.
Tarmac Roads in Equatoria, Sudan
I worked in the south of Sudan in the 1980s. It was an interesting learning
experience, to say the least.
As I recall the Canadians had brought road construction equipment into the area. It
was in a yard in Juba, and had been for some years. Apparently it had been donated
by Canada, but was used equipment without spare parts. I don't think it ever did
anything. USAID had also done some road construction, but their beautiful tarmac
roads were limited to the confines of the USAID compound. Kuwait had done a few
miles of tarmac road construction, basically from the airport to the Government
Buildings, past a new mosque that Kuwait had financed and just a few weeks before
the Emir of Kuwait made a visit to Juba to open the mosque.
The most important road in the area was the road between Yei and Juba. Improving
this road to a reasonable all weather standard so that the separate markets of Yei and
Juba could interact without a transport constraint would give a payback measured in
just a few months. Why did the international relief and development sector do
absolutely nothing useful?
Scale and Complexity
Economies or dis-economies of scale
One of the reasons why projects and organizations do not work is because
they are the wrong scale. The idea of “economies of scale” is taught at schools
of business, and in economics classes throughout the educational
establishment, but while it has some validity at the “Economics 101” basic
level, it cannot be simply applied in the real world. It is particularly
questionable in the “south”.
In the relief and development sector, there are more dis-economies of scale
than economies scale.
In some industries bigger produces efficiencies, in other industries bigger can
reduce profit.
Take the case of the capture fishing industry. The best scale for profitability is
largely determined by the nature of the fish resource.
Scale in the Fishing Industry
The fishing industry is a classic case of less being more. Too many fishing boats can
quickly ruin a fishery. It has happened over and over again, and the fishing industry
knows this.
I have worked on this problem over and over again both as the CFO of a fishing
company, and later as a consultant in the relief and development sector. Decision
makers outside the fishing industry don't seem to understand the issue of scale. The
World Bank, FAO and others ought to know better, but they have funded the
expansion of fisheries way beyond what the fishery resources can handle over and
over again.
The concept of sustainable yield is critical in fisheries development planning ... and if
the goal is maximum industry profit, then an even lower level of fishing investment
and fishing effort is usually advantageous.
Experts who have only Economics 101 understanding of economies of scale usually
get fisheries planning wrong, and cause a lot of long term damage.
For a government department in the “south” it may be more efficient to haver
many small departments than a single large department. Many small
departments might be a better way for government to be compatible with the
larger society than a single big department.
Complexity
Relief and development is complex ... and the sector is also huge. Put
together huge and complex is unmanageable.
The organizational structures that have worked the best for corporate
stakeholders have been very simple. Coca Cola sells one product (not quite
true any more ... but it is really a one product company. McDonalds sells
hamburgers in fast food outlets, now billions of them all over the USA and
around the world. Mass production of cars, and mass production of
everything else is the way to go. Not very many different types of telephone
are sold to everyone on the planet. Large scale does have advantages. But in
every case that works, the scale is on top of something that has been made
simple, and still works very well.
Anything to do with human beings and change is not simple. Treating people
like bits of machinery does not work unless it is in a very structured setting
and the incentives are right. McDonalds has done this ... but the relief and
development sector has not, and probably cannot, and should not.
Wall Street and the financial community has got used to thinking in large
terms. They want big projects with at stake and huge potential for
profit. They mainly want to invest in huge low risk high return situations ...
and there are few of these in the “south” ... or at any rate in the “south” that
will be outside sectors like energy and mining.
Anything involving people is going to have some level of complexity, but the
actual activities associated with relief and development should not be
complex. In almost all cases, however, they are complex, and the World
Bank especially, but also other organizations in the relief and development
sector, seem to believe that complexity is not only acceptable, but desirable.
In my private corporate career the idea “Keep It Short and Simple” - the KISS
principle was always being invoked. The relief and development sector does
not seem to have ever heard of it.
Large Scale Foreign Direct Investment
Value analysis ... value destruction
In the corporate world, the goal is to earn profits ... the more the better.
There ought to be an equivalent measure in the relief and development
sector, but there is not. The idea of value adding and value destruction is a
useful way to think of performance in the relief and development sector.
When relief and development activities are looked at using a value analysis
methodology, it is possible to sort out the good from the bad in a reasonably
objective way. The problem is that it has never been done in a systematic way
and on a meaningful scale.
Though the metrics are incomplete, there are enough data points to know
that the value proposition for the big economic actors is very favorable for the
investor, and more or less bad ... value destruction ... for the local
community.
Foreign direct investment (FDI)
There are many big global industries that operate in the “south” and generate a
lot of value, but not much of it remains in the “south”. The value chain, endto-
end is very profitable, but little of this profit is shared with stakeholders in
the “south”. As far as a small community in the “south” is concerned, almost
all foreign direct investment results in value destruction for the community.
Very little accounting of this is ever done ... it is not one of the GAAP
(Generally Accepted Accounting Principles) requirements ... even though it
is of tremendous importance in explaining the terrible failure of the relief and
development sector.
There are numerous examples of exploitive exploitation in energy, in mining,
in timber, in rubber, banana, palm oil, coffee and tea plantations and in
general commerce and construction. There is growing talk about corporate
social responsibility, the double or triple bottom line and so forth, but much
less application of these principles. Post colonial FDI has not proved to the
source of value creation for the “south” that it was projected to be 50 years
ago.
Diamonds
Diamonds ought to be a huge source of wealth for Africans, but this has not
been the case.
Blood Diamonds
With a few guns and a team of thugs, it is possible to take over a village in the middle
of Africa and take possession of a source of diamonds. The villagers do all the hard
work, and get almost nothing. They have no say in the matter.
These rough diamonds can be sold in any number of markets where the rough
diamonds will easily blend into the aggregate global diamond flows, and soon they
will be turned into high priced gem stones and become available for sales to the
world's beautiful people at interestingly high prices.
Killing for diamonds is the norm and not the exception. De Beers, famous for their
diamond cartel of diamonds, to their credit, have served to reduce death for
diamonds, but the diamond arena outside De Beers and a few other corporate
operators remains a free for all where ruthlessness wins.
Though diamonds have a huge retail value, very little of this value has been of socioeconomic
benefit for Africans.
A large part of the diamond industry is controlled by a De Beers organized
marketing cartel and a number of powerful intermediaries all the way to the
retail sale. But there is also a substantial informal trade in diamonds that is
large enough to fund war and violence killing hundreds of thousands (maybe
millions) and displacing millions.
Almost none of the diamond's value benefits ordinary Africans. In the
informal diamond sector, the value chain is controlled by thugs with guns,
and the village sees none of the value.
Oil
How is it that places where oil is produced are not all rich and developed?
The value chain seems to be designed so that places rich with oil are populated
with poor and disenfranchised, and oil companies and an elite community of
rich and powerful local people share the oil wealth amongst themselves.
Oil Poverty
Oil should be a huge source of wealth for any country with exploitable reservoirs, but
is not. I have done work in Nigeria intermittently since the early 1970s, just after the
Biafra war ended. I worked in the oil areas, not as an oil company executive, but in
the fishing business. I was involved with building shore facilities for our trawler fleet
and we fished in the sea where oil companies were drilling and pumping oil. Some
years later I was team leader in the Niger Delta for an IFAD appraisal mission to fund
artisanal fisheries in areas where there was extreme poverty next to multi-billion
dollar oil industry activities.
The local population had no power or influence. They were completely “put upon” by
everyone and totally excluded from both the oil wealth and the pool of national
wealth.
Why? There is no nice answer.
Globalization
Good for the “north”
Globalization ought to be a good thing, but there is not a global market with a
flat playing field, but one that is controlled in all sorts of ways. The global
economy and the relief and development sector have two parts:
- is the international monetized economy; and,
- there is the informal and largely un-monetized economy.
The international monetized economy reaches the
elites in capital cities, and wherever there are pools of foreign direct
investment, but that is only 20% of the people of the “south”. The informal
sector and the un-monetized sector ... also often remote and rural has no part
in the globalization discussion.
In fact, more than 50% of the world's population has little knowledge of
anything beyond what they can see and have personally experienced ... some
3 billion people. Included in this huge number are a high proportion of
children, and a large proportion of these children will die prematurely, and of
those that survive, many will never get an education.
Globalization ought to be helping, but it seems more than helping, it is
polarizing and facilitating value flows from poor places in the “south” to the
already rich countries of the “north”.
Level Playing Field
Nobody wants a level playing field ... everyone wants a playing field that favors “my
side”. It is a version of the Golden Rule.
Globalization has created an interesting “playing field” that is less level today than
perhaps at any time in history. Those with power and influence it is possible to get the
playing field tilted in their favor, and the playing field looked at from the perspective
of the global poor and disenfranchised it is about as level as the Himalayas.
There are a lot of techniques that are being used to manage the playing field in favor
of the establishment. One is the widespread application of the “rule of law” that
makes it legal to do things that are blatantly wrong, though they do generate profits
and wealth for the elites.
With so little transparency it is very difficult for the ordinary person to have any idea
how globalization has distorted the level playing field concept.
Subsidies and unfair trade practices
Subsidies dramatically distort economic activity. The “north” has a big system
of subsidies, mainly, but not exclusively in the agriculture sector. The scale of
subsidy is substantial, typically larger than the fund flows into international
relief and development. Subsidy is difficult to end in a democratic system
because beneficiaries of subsidies wield considerable political power, and
ending subsidy is fraught with political risk.
Distortion Arising from Subsidies
At one time I tried to export some powdered milk from the USA to West Africa. It
took me a while to figure out all the possible combinations of buying prices in the
USA and Europe that we might be faced with, as well as the likely selling prices in
Africa. If we bought at a price that made a US or European farmer a modest profit the
cost would be around $2,500, but if we were able to buy within the quota of available
subsidized product in the USA the cost would be around $1,200. At this cost, with
transport, insurance and duties we would have a landed cost of (say) $1,450. But if a
competing trader was able to buy in Europe at a subsidized price of $1,000, then his
landed cost would be around $1,200.
It was not clear whether or not the subsidized product would be available from
Europe, but African buyers were not in a position to commit to transaction based on
the US higher costs, because they knew that they also would be stuck if lower cost
product were to come through from Europe.
And the buyers were also careful because from time to time the market would get
flooded with “free” product that was originating somehow through the World Food
Program (WFP) or other donors.
Because the market was all over the place because of the subsidy regimes of the USA,
Europe and WFP, traders had to protect themselves with absurdly high margins ... to
the detriment of the African consumer. It was also apparent that some of the subsidy
“decisions” were also influenced by political and more inappropriate relationships.
Not a pretty situation.
Market economics
The idea of a free market is academically appealing, but the free competitive
market can be a very rough. A decent modern society is unlikely to be
achieved merely by letting free markets to operate without any form of ethical
intervention whatsoever.
There are very different market behaviors in surplus economies and in
shortage economies ... and market behavior changes dramatically when there
are cartels, oligopolies or monopolies. In most market situations there is
some intervention, usually by groups that benefit from the system.
Though markets are difficult and sometimes produce results that are not the
socio-economic best, they are often very much better than prices set by some
political or administrative process. The economy of the Soviet Union was
ruined by a system that made little use of market driven enterprise ... but
though
Development economics
The development economics that I learned as a student 40 plus years ago has
not been applied by the relief and development sector. Economists are
perhaps the dominant discipline in the World Bank, IMF and other parts of
the relief and development sector, but they seem incapable of getting
economic theory to help in the practical arena of real world development. My
economics is essentially Keynesian ... modified by a dose of experience with
engineering, accounting and business.
Bluntly put ... when there is no investment for the future ... then the future is
worse than the past. When there is economic expansion, good things can
multiply ... when there is economic contraction, good things divide.
Look at the poor “south” ... there has been little of no meaningful investment
for years. When a project opens there is some progress, and when the project
closes there is regression.
And all the sophisticated thinking and analysis based on monetary economics
is worth nothing in the analysis of subsistence society where money represents
but a tiny part of economic activity. I sometimes think that monetary
economists solve this problem by assuming that the subsistence economy
equates to zero ... which is a helpful simplification for the formulas, but not
very useful when 60% or even 80% of the society is operating in a subsistence
mode. And even less useful when the biggest monetary fund flows in the
society are being used to buy guns, and the economic and financial data about
this is secret and thus rather easily ignored.
Military ... Relief and Development
Valuable core competence
The military, army, navy, air force, marines have a core competence ... it is
destruction. It is destruction of the enemy's infrastructure and the enemy's
fighting forces. The military are not police, and they are not “nation builders”.
They serve to keep a peace by being a deterrent, and not by being a
proponent of peaceful progress.
In other words the military is not designed to be a force that works effectively
in anything but a war situation, where enemies and the objectives are clearly
defined.
The military are equipped to move men and equipment over long distances
and over difficult terrain quickly. They have the logistics so that they can
maintain a force in remote places for a long period of time. The military
engineers can build emergency structures in difficult conditions better than
any other organization. These capabilities have enormous value in emergency
situations and have value where relief is needed.
But when it comes to development, and human life is not at risk, the military
is an expensive way to operate. For development, there needs to be as much
result as possible, but at the least cost. In development, it is civilian
contractors that should be doing the work, and to the greatest extent possible
it should be local contractors with low costs consistent with the local
economic conditions.
There is no reason why military should not be charged with giving security to
contractors as they go about the business of building ... but it is a limited
assignment.
A military group cannot be expected to be police. Police work is very
different. Police need to know the neighborhood and know the issues in the
area, and be able to work with local people in getting local issues resolved.
Military has only a very limited potential in the development arena.
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