Wednesday, April 13, 2011

Reading the Blue Sweater

Jacqueline Novogratz’s The Blue Sweater was a moving memoir of her time in Rwanda and I enjoyed this book very much as such. Others seem to want to portray it as a testimony as to why aid does not work even though her reflections on what works and what doesn’t (in my reading) is not really central to her book. This is one of many observations (for instance, Bill Easterly’s The White Man’s Burden) that simply handing out money does not really put into place a mechanism for sustaining income generation by the people targeted by aid-heads. Yet, it is far from clear to me that giving them a stake in a project via lending versus grants is a better recipe for success and my sense is that the successes tend to be highlighted more often than the failures. The catchword of the day for these anti-aiders is of course, micro-lending.

My view is that if micro-lending were such a powerful tool for lifting the poor out of poverty, then life in Bangladesh should have improved by leaps and bounds. For instance, in 1980, Bangladesh was ranked in the bottom 11 percent in the Human Development Index (out of 95 countries), while in 2010, it had improved it’s position to 24 percent (out of 169 countries). It’s score went from 0.26 to 0.47. (11 and 24 percent of the countries in 1980 and 2010 had lower scores respectively.) Assuming that all of this change was a result of micro-lending, then one might be able to say that the quality of life in Bangladesh has almost doubled in 30 years as a result of micro-lending. This is close to a growth rate of 2 percent per year continuously compounded. (0.47/0.26 approx 1.02^30) When measuring the quality of life, starting from a low base has the advantage that there is more to gain (since a developed country with already a high HDI would not change by much).

How does this change compare to other countries where micro-lending might not have been as prevalent? (Prevalence in Bangladesh is assumed to be higher and is asserted rather than from any documented evidence only because it is considered the birthplace of micro-lending, Grameen bank, etc.) Nepal in 1980 moved from 0.21 to 0.43 in 2010, and Benin from 0.26 to 0.43. In light of this then the gains made in Bangladesh do not seem as impressive.

It is not clear to me that aid is dead, nor should it be. Novogratz points to all the aid projects like basket weaving where women are paid and trained to make baskets but no market exists for baskets. This is a dead aiders example of a project that does not sustain income generation. Once the project is completed, i.e. when the people are trained to make baskets, the aid agency chalks this up as a success and moves on to other projects. One of the quotes from the book that MR makes in the above link is the following:

Philanthropy can appeal to people who want to be loved more than they want to make a difference.

For MR, which champions markets in everything, it is noteworthy that the market in question here is not baskets (or pots, or whatever the project at hand is), but is love, or a more technical term, the warm of glow of giving. So perhaps Africa has a comparative advantage in not for “mercenaries, missionaries and misfits” (as Novogratz says) but as an outlet for “warm-glow” products. Aid is not aid if philantropists are buying “warm-glow” units. After all is this any different from monthly subscriptions that sponsor a child in a third world country?

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