Tuesday, May 18, 2004

A Master Salesman of Ideas Which Look Sensible but Aren't

Daniel Davies (aka Dsquared) has a remarkable gift for wrapping terrible ideas up in fetching garb, and it is hard to find a more striking example of this gift on display than in this Crooked Timber post rubbishing World Bank President James Wolfensohn's push for "rights-based lending", i.e, rewarding good government instead of corruption and ineptitude in the lending process.

“Rights Based Lending” is what used to be called “Politicisation of the Aid Process”, but with the cuddly face of a modern humanitiarian intervention. The idea is superficially plausible; that the World Bank should only lend to countries with a good human rights record (or in its stronger form, only to actual democracies). It’s an idea which has a certain amount of support, usually from dissidents in middle-income countries and it appears to be gaining some traction on the soft left in the developed world.

As the title above implies, it’s an idea which looks sensible but isn’t. “Don’t lend to tyrants” is a good slogan, but that fact is that tyrants are the government of a very large proportion of the poorest people in the world. If anyone is seriously advocating rights-based lending, then they have to look through this list and tell us with hand on heart that they think the world would be a better place without some or all of these projects.

In a masterful use of the appeal to emotion, Davies then proceeds to give a laundry list of projects with titles guaranteed to tug at the humanitarian heartstrings of his readers. Nowhere in his writeup do we see any questioning of the notion that just because a project claims as its goal "tuberculosis control in China" or "earthquake-proof houses for the poor" in Algeria, it necessarily means that the money will get used for any such purpose, or that even if it is, the unforeseen negative side-effects of the project won't end up outweighing any good done by it. For Dsquared, one can simply take it for granted that any money lent with good intentions will be used honorably and to good effect. What makes this all the more unfathomable is that he's more than willing to acknowledge that there are severe difficulties in trying to ensure that aid money is responsibly used once disbursed:

The reason that Wolfensohn’s suggestion of a rights-based approach to lending has been opposed by “countries as diverse as the UK and Chile” every time he has mentioned it in the past is that it is a bad idea. In principle, one might be able to design an approach which carried some element of rewards for reforms without making people suffer (although the IMF would be the more obvious vehicle for this, as it makes policy loans to governments rather than project loans). But such an approach would require very careful design of a specific proposal, coupled with the very best possible political will in the world to make it work as a force for human rights rather than an instrument of the foreign policy of the largest World Bank board members. Such a proposal and such political goodwill is entirely lacking at present.

Are we then to proceed on the assumption that such World Bank lending as does presently occur does so without any regard for "the foreign policy of the largest World Bank board members?" This is clearly an absurdly false claim, and we already are living in a state of sin. It is a pipe dream to expect nations with leaders accountable to electorates to lend billions at sub-market rates to other countries, without expecting anything on behalf of their voters in return. Attacking performance-based lending on the basis of a spurious "politicization" is nothing more than a red herring.

The reality of the World Bank's lending, as attested well enough by William Easterly's The Elusive Quest for Growth, is that not only has World Bank lending been underwhelming in its effects on the performance of its recipients, but that the perverse terms under which the World Bank has lent money to poor countries have served to encourage the very unaccountability and tyranny that Davies gives a rhetorical shrug of the shoulders to as simply being one of the givens of life. Nothing is more fungible than raw cash, and when World Bank loans are given to dictators and kleptocrats, they simply free up other funds for looting and for building up the Eternal Leader's state apparatus of terror. Indeed, implicit in Davies' own argument is the idea that rotten Third World governments cannot be counted upon to look after "tuberculosis control", "slum upgrading" and "polio eradication" on their own initiative and without the carrot of aid to prod them into doing so; if Davies believed otherwise, he wouldn't be opposed to rights-based lending. But then the question arises - if you lend General Akasombo $200 million for literacy projects and fail to penalize him for spending it all on marble palaces and whores flown in from Paris, why do you expect that he'll do any better when he comes around asking for the next tranche of $200 million?

William Easterly has done a far more thorough job in his book of outlining the various ways in which institutional lending by the likes of the World Bank have rewarded failure than I could ever do in the space of a single blog entry. I'll make do with saying that the interests of rulers and the ruled aren't always necessarily aligned, and that this is particularly the case when the rulers are tyrants and cliques of thieving oligarchs, and to expect such elites to use foreign loans and aid to pursue policies like mass education and commercial prosperity that might serve to weaken their hold on power is a sign of either extreme stupidity or optimism of a religious quality. If foreign loans were as effective in alleviating suffering as Daniel Davies makes them out to be, Tanzania, Ghana and Nigeria ought to be veritable paradises by now, but nothing of the sort is true. On the contrary, when we look at the histories of these countries, we see that what foreign loans have made possible is the imposition of even more suffering on those who were intended to benefit from them. Foreign loans financed hare-brained economic and social schemes that would have collapsed far earlier, and with much less ruinous consequences, without the borrowed cash to keep them propped up, and when the "visionaries" who launched these crazy schemes were gone from office, it was their impoverished, illiterate masses who had to bear the burden of servicing all those debts that had been accumulated buying Mercedes Benzes and apartments in London's Knightsbridge and Kensington suburbs.

If Daniel Davies had devoted his talents to pleading for the abolition of all subsidized foreign lending, not only would he proffered a far more effective solution to the problem of "politicization" about which he claims to be so concerned, but he also would be advocating on behalf of a policy proposal that stands a chance of doing far more real good for the suffering poor than the status quo, which despite its beneficial effect in salving the consciences of rich Westerners, actually serves to help keep millions of people in misery, in so far as it gives us a situation where perpetual spendthrifts and paupers like Tanzania get far more aid over the decades than more responsible ones like Taiwan. In a commercial situation, a bank manager who gave bigger and more generous loans to the customers who were known defaulters would soon be out of a job, but we are somehow supposed to believe that the normal rules of incentivization are magically suspended once we turn to government-to-government lending. I say abolish the World Bank and be done with it.