Developing countries, since the end of the Second World War and the unset of the “Cold War,” have relied on material assistance of all sorts from their economically advanced counterparts. The establishment of the Bretton Woods institutions – The World Bank, and the International Monetary Fund – to facilitate such assistance increased cost to aid recipients through bureaucratically induced ‘deadweight’ loss. But as the years of economic assistance to developing countries dragged on, it soon became clear, even to the least interested observer, that there is a serious misalignment between the interests of both givers/lenders and receivers. This misalignment of interests has been the perennial source of unsustainable debt burden, misallocation of social resources, and the culture of dependency amongst African nation-states that continue to look to developed countries for development assistance.
A recent work by Lant Pritchett, “Can Rich Countries Be Reliable Partners for National Development?” brings this growing tension and reality to the fore again.
Professor Lance Pritchett:
Forty-three years ago, the then-President of the World Bank, Robert McNamara, went to Somalia. As a partner in that country’s attempts at development in 1972, the World Bank pledged a loan of $32 million to build a port in the capital Mogadishu. The port was built and, while development went off track into conflict, the port still exists, still operates, and generates what few resources the struggling Somali state controls. Building a port was welcomed and seen by all as core to the mission of the International Bank for Reconstruction and Development, one of the five institutions that make up the World Bank Group.
In 2014, Jim Young Kim was the first World Bank President to visit Somalia since McNamara. What the World Bank chose to highlight in its official publicity about Dr. Kim’s visit was that it had figured out a way to use mobile phone surveys to track the poverty status of people in Somalia on a quarterly basis. Imagine the joy and celebration among Somalis to know that the World Bank was going to promote Somalia’s national development not with a port upgrade, or a road or electricity or water, or even a school or a clinic, but by being able to track and tell them every quarter just how poor they really are—something I suspect they know quite well already.
Now consider the fact that America’s bilateral assistance agency, USAID, recently changed is mission statement to read: “we partner to end extreme poverty and to promote resilient, democratic societies while advancing our security and prosperity.” This mission statement is particularly revealing, as USAID’s goal isn’t to promote “prosperity” in countries where prosperity is lacking—there, only “extreme poverty” matters—whereas it is a goal of USAID to promote the prosperity of the United States, where prosperity is already widespread.
While “ending extreme poverty” in foreign lands might seem a noble goal, the penurious definition of “extreme” poverty—the “dollar a day” standard—excludes five billion people who are poor by OECD standards, but whose poverty is judged by USAID not to be a concern, as it is not “extreme.” Raising the incomes and prosperity of the typical (median) person in 19 of the 20 largest countries in the world (countries with over four billion people) is apparently now somehow not part of USAID’s mission. We thus have to ask ourselves, in all seriousness, how are democratic societies in the developing world to partner with an organization that doesn’t seek to benefit their median voter?
Across the board, rich countries are backing away from the national development goals of poor countries, such as broad-based prosperity and effective government—i.e. productive economies, capable states, citizen controlled polities, and modern social interactions—towards a narrow agenda of low-bar goals, such as reducing “dollar a day” poverty; “completing primary schooling” (with no mention of quality of learning or education beyond primary); accessing basic water and sanitation; or focusing less on health and more on specific diseases. This is what I have called the “kinky development” agenda, as it doesn’t attempt to raise well-being across the board in developing countries, but just “kink” the distribution at arbitrarily low levels.
This commitment to the kinky leads countries like the United States to be fickle partners in development. Consider in this context the “Power Africa” initiative announced by the Obama Administration in June 2013 to improve access for the 600 million Africans who lack electricity. The press brief claimed: “Power Africa will build on Africa’s enormous power potential, including new discoveries of vast reserves of oil and gas, and the potential to develop clean geothermal, hydro, wind and solar energy.” Of course coal—which in 2013 supplied 39 percent of all American electricity—is not mentioned, because both the US and the World Bank had announced a ban on funding coal plants. But then America’s 2014 Appropriations Act declared that the Secretary of the Treasury shall instruct the United States executive director of each international financial institution that it is the policy of the United States to oppose any loan, grant, strategy or policy of such institution to support the construction of any large hydroelectric dam.
Senator Patrick Leahy, whose state of Vermont relies on hydropower and who endorses hydropower for his state, was able to insert a clause to block support for precisely what Power Africa supports, and to do so with more or less political impunity. Perhaps promoting energy source diversification is why President Obama, while touring a power plant in Africa, thought it politically expedient to promote the Soccket ball. For those of you who still have not been introduced to this technological marvel, the Soccket ball is a soccer ball containing a battery that is charged by the kinetic energy of being kicked. This contraption is perhaps one of the best illustrations of the gap between development realities (the average Ethiopian consumes 52 kwh of electricity and the average American 13,246 kwh) and the “solutions” being proposed by the world’s elite: ban coal and limit hydro and if Africans want power, let them kick some soccer balls around.
This trend of “defining development down” among the development agencies controlled by rich countries makes them increasingly unreliable and irrelevant partners for citizens and governments of developing countries. Because of this, developing countries are turning to, and creating new, alternatives. In 2012, a once small organization called the Development Bank of Latin America (CAF) funded more infrastructure in Latin America than the World Bank and the Inter-American Development Bank combined—an expansion driven by the increasing difficulty of doing infrastructure with the multilateral banks. A BRICS bank was announced in July 2014. And a few months later, the Chinese launched an Asian Infrastructure Investment Bank (AIIB) with 21 country signatories (not including the US).
How did we get to the impasse in which rich country mainstream development agencies have become increasingly irrelevant to the developing world—so much so that developing countries would rather found and fund their own new organizations than work with existing ones? I argue that this is due to two large shifts.
Firstly, the developing countries are increasingly less reliant on official development assistance (ODA) flows for financing, and hence are increasingly less tolerant of established practice that the lending/granting organizations impose the terms under which development assistance happens. This is primarily the result of development success: through a combination of economic growth, greater macroeconomic prudence, and an expanding array of willing lenders and foreign exchange sources (such as resource rents from high commodity prices), many countries have become less dependent on donors.
Secondly, the coalition that supports aid in the West has changed significantly towards a political base that is “post-materialist,” which makes it is less and less supportive of material gains as an important objective of assistance. This has shifted the political center of gravity in discourse about assistance in the West away from the priorities of the developing countries themselves.
This is not to romance the past—for, after all, had previous national development strategies succeeded in their vision we wouldn’t still be talking about development. Nevertheless, I argue that the path forward for mainstream development will have to come from a remaking of development organizations. A much larger role for the emerging middle income countries will have to be established because the West, given its own politics and lack of leadership, can no longer be a reliable partner for the legitimate development of countries’ aspirations in the developing world.
Diverging Stances
Rich country governments have a difficult time being reliable partners for the national development priorities of developing countries, because their citizens are themselves prosperous—and have been for some time. As early as the 1970s, sociologist Ronald Inglehart pointed out a trend towards “post-materialism.” He defined this to mean that as people have more material goods, they will put less priority on more material goods as an objective whilst, placing higher priority on non-material aspects of life such as self-expression. The World Values Surveys (WVS)—an ongoing series of surveys exploring peoples’ values and beliefs—have documented extensively that the measure of “post-materialism” is much higher in richer than poor countries, and has been rising over time.
It is important to stress that citizens of rich and poor countries can have different expressed priorities even if they have exactly the same underlying values, because they experience different material conditions. The easiest way to understand the difference between expressed priorities and underlying values is by analogy with Engel’s Law. Engel’s Law—which was established by the pioneering nineteenth-century economist and statistician Ernst Engel—says that as people have higher levels of consumption spending, the proportion of their spending on food declines. Engel’s Law is one of the most widely replicated and reliable associations in economics. Its validity isn’t due to the fact that as people get rich they acquire different preferences for food. Anyone becomes satiated with food (in the jargon, marginal utility declines) and hence at the margin there are more attractive spending opportunities; while food spending does increase with income, it does so less than one for one, so the share declines. Engel’s Law doesn’t represent different values; it represents different choices based on different options because of different material conditions.
In a 2013 study for the Center for Global Development, co-authored with Marla Spivack, we showed that the poor in rich countries spend around 15 percent of their budget on food, while the typical person in a poor country typically spends around 50 percent. This isn’t because people place different values on food or because their preferences differ, it is just that the poor in rich countries are much richer than typical persons in poor countries, and hence have much higher food consumption and hence at the margin spend less of their incremental dollar on food.
Across four waves of the WVS from 1995 to 2014, people in more than 80 countries were asked to prioritize among four separate goals for their respective nations: higher economic growth, strong defense, giving people more say about how things are done, and more beautiful cities and countryside. Rather than focus on “material” (growth and defense) versus “post-material” (more say and beauty), I have excluded the “strong defense” responses and calculated what fraction of people named “high economic growth” as the first priority for their country. Two facts emerge from the analysis of these data.
The first fact is that people in developing countries overwhelmingly respond that growth has highest priority of the offered choices. In the median country, fully three quarters of citizens named “high economic growth” as their top priority. Only in two developing countries was growth not the top priority of a majority: in Rwanda, where most named “strong defense;” and in South Korea, which in 1995 was already both a prosperous and rapidly growing economy. Only in the prosperous West is economic growth not a priority, falling below 50 percent (in at least one wave of the survey) in Finland, Sweden, Norway, the Netherlands, the United Kingdom, Japan, France, and Australia.
The second fact that emerges from the data is the extent to which people prioritize material goals declines with the economic prosperity of the country, as proxied by GDP per capita in purchasing power parity. The decline in the fraction of the population which has high economic growth as its first priority produces a substantial gap between citizens of the richest and poorest countries. The countries at the 10th percentile—with GDP per capita in PPP of only $1,117—have 89 percent of respondents listing “high economic growth” as their top priority; in the 90th percentile, only 65 percent did so. Citizens in continental Europe are even less focused on growth, with only 53 percent having “high economic growth” as a priority. This means one in four fewer citizens in rich, as compared to poor, countries has high economic growth as a top priority, and a staggering one in three less in Europe compared to poor countries.
This yawning gap between the priorities of the rich world and poor citizens isn’t just about economic growth. In another 2013 Center for Global Development study, Benjamin Leo used the authoritative Afrobarometer and Latinobarometer surveys to document the discrepancy between poor country citizen preferences and US foreign assistance allocations. In Africa, surveys asked the question “In your opinion, what are the most important problems facing this country that government should address?” and grouped the responses into eight broad categories. In Africa, 71 percent mention jobs/income among their top three problems, 52 percent mention infrastructure, and 63 percent name either jobs/income, infrastructure or economic/financial policies as their priority.
Independently of what we may think African priorities ought to be, only seven percent named health, four percent education, and one percent governance as among the top three problems the government should address. Yet of American assistance to Africa from all agencies (e.g. USAID, PEPFAR, and MCC), only six percent goes to jobs/income and only 16 percent to jobs/income and infrastructure. Fully 60 percent of American assistance goes to areas that the Africans surveyed think are distinctly lower-tier priorities.
As with Engel’s Law, this lower priority on material goals as material prosperity increases across countries does not imply people have different “values,” but only that their values lead to different priorities in different conditions. People in poorer countries don’t spend more of their income on food because they like food more, but because they are consuming less food. Similarly, people in poor countries put priority on high economic growth or jobs/income (which includes wages and farming/agriculture) and infrastructure (which includes electricity and housing), not because they are (necessarily) different people or have different underlying “values” from people in richer countries, but because they are poorer and have lower wages, less electricity and, hence, at the margin, the gains from improved material circumstances are larger.
The Reliability Challenge
My argument is not that the leaders of the World Bank—or, for that matter, the creators of the MDGs or the leaders of bilateral agencies—are “making mistakes” in their shifts towards narrower or more concentrated and/or less growth-focused development agendas. Rather, I am arguing that all of these issues illustrate the difficulties and complexities of maintaining a robust political agenda for development assistance in rich countries in the current international environment.
This difficulty has only been exacerbated, of course, by the global economic crisis that began in 2008, and the resulting fiscal pressures on governments in Europe and the United States. This has led to development agendas that have wonderful goals—almost no one objects to a goal of eradicating “extreme poverty” or the allocation of resources for HIV/AIDS, much less doubts the importance of addressing climate change. But since rich country and poor country citizens face very different material realities, their priorities among all of the possible wonderful goals differ. It is, after all, also wonderful to have access to electricity, reliable transportation, reliable urban water, and higher incomes.
The strategic and tactical repositioning to maintain rich country coalitions for development assistance may make receiving any assistance under the terms and conditions available a less and less attractive option for developing countries. They are likely to opt more and more to finance development through their own resources, or by forming new or expanding existing international financial organizations that are more amenable to the development objectives of developing country citizens.
The world is shifting in ways that make it difficult for rich countries to continue being reliable partners for the national development aspirations of the citizens of poor countries. How the tensions between the differing objectives and resistance of national governments will play out in setting the new global agenda for development, as well as in defining the concrete actions of development organizations, remains to be seen.
I suspect that existing development organizations—both multilateral and bilateral—will be unable to remake themselves enough to remain relevant to the national development agendas of poor countries.
It is probable that they will become increasingly limited players, with new organizations rising to prominence as development actors in the twenty-first century.
Lant Pritchett is Professor of the Practice of International Development at Harvard University’s Kennedy School of Government and Senior Fellow of the Center for Global Development. He also worked for the World Bank, and served as a co-editor of the Journal of Development Economics.
