"Inside Job", a must see documentary
On the way back from India, I watched the documentary Inside Job, which tells the story of the global financial meltdown of 2008. Through a series of interviews, knitted together like a thriller, it shows the different issues directly or indirectly related to the burst of the bubble, leading up to a domino-like collapse of the financial pyramid scheme the US government had tolerated to exist.
In a nutshell, loan sharks were encouraged to approve mortgages (even worse, "to chase people aggressively to take a mortgage), for people who had no collateral, nor any means to pay off the mortgage.
As it was an easy way to make a quick buck (for the banks, the bank reps, etc..), these mortgages were issued on a massive scale, even though everyone knew these loans were going to fail. And once a mortgage failed, there'd be no way for a bank to get something of value against the loan failure, as there was not collateral.
That was the basis: a bubble-loan. Or even worse: a bubble everyone concerned, knew would burst. But banks were happy: on paper, they issued loads of loans, cash was flowing, turn-over peaked. Bank reps got commissions on the loans, and the economy got a (short-term) boost.
The banks concerned where AAA-rated giants, so when they were selling those mortgages amongst each other, nobody asked any questions. Worse, those banks invented a financial scheme, valued as first class investments, where they insured themselves against the losses of the loans, and traded that insurance amongst each other, as real values, again on a massive scale.
In short: they were betting on a horse to win and at the same time, they were betting on the same horse to loose. But there was no real horse. Everyone just pretended.
The US treasury and US oversight mechanisms knew what was going on, were warned about the bubble, but did not want to regulate the whole pyramid scheme, as it involved that much money, they feared regulation would break the speed of the economic revival. So bankers were left to do as they pleased.
Of course, the bubble burst, and the whole pyramid scheme collapsed in no time, pulling down all foreign investors in those banks, and causing the first real international financial meltdown. As a consequence millions of people around the world lost their job as all of a sudden, the economy was left with no liquidity and companies had to close their business. Banks went out of business, and many people lost their savings, real savings.
This is not a happy-happy movie. I can not believe how it is possible for a government to allow the financial industry to free-wheel, purely for the short-term gain of the economy, knowing on forehand that it would only be a few years before it collapsed.
On top of that, it is impossible for me to imagine how such a large part of the US economy could have been based on "void". On something which was not real, had no real value. But then again, we are talking about the same government that allowed the Internet bubble to be built in the late 90's, collapsing in 2000.
Worse is the realization that because of the US' greed for easy money, the rest of the world suffered. It is not only the greed, but the deeply instilled financial and economic individualism pulling everyone in for a quick buck. The documentary has a short sideline about the academici, who knew what was going on, but did not say anything... Simply because there was a revolving door mechanism where economic experts from different universities were consultants for the banks involved, and paid high fees to write academic papers glorifying the bubble itself.
And to top it all off, many people who sat at the core of the 2008 meltdown, are still in power, either in corporations, or in the current Obama government.
Fast food, Fast money, Fast wars,... As they say.. "only in the US!"...
Disgusting. The only good thing that came out of it, is that internationally, the US is getting more and more resistance. A dynamic that Bush started in 2003, while invading Iraq, continues: nations are starting to realize that the "US way" is not the way to go, and move back to their own ground, economically, financially, culturally...
And that is a good thing for the equilibrium of the world.
Food prices are at a record high again.
[i-International food commodity prices]
The warning lights came on several months ago, and now we are at a point where the basic food commodity prices are at a new record high.
Prices on the international markets are even beating the prices of the 2008 food crisis, which caused severe unrest in many countries:
[i-FAO International food commodity prices]
For more details, check out the FAO World Food Situation page
While the record food prices have not hit the mainstream news, it is worthwhile considering that in the past centuries, many revolutions were rooted in the lack of food availability. Now relate that to the current turmoil in Libya, Egypt, Tunesia, Bahrain and Yemen. There seems to be a strong link between the food prices and the current civil unrest. In most cases, it was even predicted.
I think 2011 will be a tough year. But the situation is not hopeless. The Economist just published an article "What is causing food prices to soar and what can be done about it?", in which they highlight the importance of non-profit/non-commercial agricultural research, something which has come dear to our heart, here on The Road (read my earlier article "Cutting agricultural aid research or how to dig your own grave")
Check the latest articles about food prices on Humanitarian News, and get updates via a customized RSS feed.
More articles on The Road about the international food crisis
Haiti: how we make poor countries poorer
President Clinton apologized on March 10 for the role that his government played in destroying a big part of Haitian agriculture: "It may have been good for some of my farmers in Arkansas, but it has not worked. ... I have to live every day with the loss of capacity to produce a rice crop in Haiti, to feed those people, because of what I did."Need I to say more?
Beginning in the 1980s, subsidized U.S. rice wiped out thousands of Haitian rice farmers and made the country dependent on imported food. (Full)
Picture courtesy Standeyo Read the full post...
The Monfort Plan: An interview
[i-Jaime Pozuelo-Monfort]Yesterday, we had Jaime Pozuelo-Monfort introduce his new book, The Monfort Plan himself. Today, we are fortunate to catch him for an interview.
The Road: Reading through the dissertation, I see in front of me an idealist, a dreamer, a marketeer, and a politician. Which one are you?
Jaime: I am a realistic dreamer, a utopic idealist. I am the multidisciplinary European and an aspiring candidate to Chief Dreamer. Nothing can be proven if it is not implemented before. This is a Journey, the Journey of our lifetime. As such it may or may not lead to the final destination. We will know in 2050.
The Road: In what way does plan differ from all other attempts. What makes it unique?
Jaime: It incorporates imagination and creativity, suggests a realistic and implementable forward-looking action plan and proposes the best team of Expert Dreamers that have ever served the global public interest and a group of six countries that become the founding members of The New Architecture of Capitalism.
The Road: What are the 6 countries in subsaharan Africa do you have in mind you mention "that have shown their determination to build up a basis upon which they can prosper"
Jaime: From West to East: Namibia, Botswana, Lesotho, Mozambique, Tanzania and Madagascar
The Road: You make many analogies to the post WWII Marshall plan. But if anything, that was a massive injection of cash into a continent. A multitude of that amount has already been poured into Africa. Why has the impact been so small so far?
Jaime: Microfinance was not exploited. Economies of scale were not implemented. The middle man was not eliminated. The population was not incorporated to the vision. Developed countries did not reform areas such as trade or agriculture. The Bretton Woods Institutions did not help with their structural lending programs of the 1980s and 1990s. The Cold War fed and exacerbated the burden of civil wars.
The Road: If you would suggest a new cash injection, where would that come from, now that aid organisations are even struggling to meet the immediate short term needs.
According to FAO, 1/6th of the world population is hungry. Of which probably 150 million die if they did not receive food aid. But yet, aid organisations are unable to raise even enough cash to feed the dying. Nourish the sick. The L'Aquila promises all seem to be hot air.
Jaime: Innovative financing for development is an area that has not been much explored. I call it positive shock therapy. I call it the value of consensus. There are vast amounts of funds hungry to obtain higher returns with long-term opportunities. There are a myriad of new opportunities that the book will discover.
The Road: You mention microfinancing as part of your theory for economic development, including the development of the public sector. But microfinancing is based on individual entrepreneurship. It seems like the public sectors you mention are typically not individual neither entrepreneurship, but public services. How would you link those public services to the drivers of the success of microfinancing, which were "putting the initiative and responsibility on the individual"?
Jaime: Two different areas. The universalization of microfinance through two new organizations (Bank for the Poor and Yunus-Fund) focuses on microbusiness expansion. The delivery of global public goods aims at providing a social fabric that will contribute to building up an educated and healthy workforce from which entrepreneurs will arise.
The Road: Reading through your dissertation, it looks like you concentrate on politics, and global structures as the solutions.
Jaime: This is am ambitious vision that spans over forty years, the Glorious Forty and targets the eradication of extreme poverty through the increase of average incomes and the shrinkage of the global income distribution. Average incomes have to be boosted up and inequality has to be brought down.
The Road: You would like to start "a supranational organization that accepts new members on an ex-ante conditionality clause". I have visions of lavish state dinners and the typical political gatherings which mean nothing, change nothing, cost a lot. Name me one geo-political organisation that makes a change or has made a change in the past.
Jaime: European Union, SADC.
The Road: One of the theories going around is the that first world likes a poor Africa, likes conflict in mineral rich areas. It gives them cheaper access to the natural resources.
Jaime: I do not believe in conspiracy theories. I think our political and economic elites lack the vision of the great men of the 1940s and 1950s. I think we continue to maintain and perpetuate the national interest over the global interest. We must transition from a world that defends North-American or European nationals to a world where everyone has the opportunity to move forward. It may sound idealistic, I call it utopic.
The Road: Many regions of Africa are poor, simply because "the physical environment" does not allow prosperity. Desertification, continuous floods/droughts,.. Others because of the geo-political climate. Maybe it is no longer the battlefield of a cold war: communist versus capitalist countries, but a new hot war: christian versus muslim countries. All fought out in Africa?
Jaime: I think academia has shown that this is a myth. I think there has been a vision implemented for Western Europe. I think Western societies to which I belong lacked the ambition and the belief that change can be brought on board. There are solutions to the great evils of our time. We have simply ignored that creativity and imagination can propose forward-looking policies that tackle once and for all the very roots of poverty and conflict. There are interests nobody dared to touch. Incentives can be aligned between rich and poor to move forward together.
The Road: Let's take 3 troubled countries in Africa. Can you detail how your theory would aid DRC, Somalia, Darfur.
Jaime: Difficult. I argue that the six countries where the New Architecture of Capitalism may emerge are in the southern cone of Africa largely for three reasons: proven willingness to be part of an ex-ante conditionality scheme, low political risk and high peace index, and a recent history of supranational cooperation. In addition four of the six countries are categorized as Least Developed Countries according to the United Nations. It is important to first build up a successful pilot.
The Road: Your dissertation concentrates on Africa. How about poverty in the Middle East, Asia?
Jaime: If accomplished, the new scheme could enlarge to other candidate countries in sub-Saharan Africa, Latin America and South Asia.
The Road: Jaime, thanks for your time, and the best of luck with your book, and your endeavours!Jaime graduated from Universidad Politécnica de Madrid in 2000 with a master’s and a bachelor’s in telecommunications engineering. He also studied two years as an exchange student at Télécom Paris and Universität Stuttgart. Subsequently he earned master’s degrees in business administration from Collège des Ingénieurs in Paris, in financial economics from Universidad Carlos III de Madrid, in financial engineering from the University of California at Berkeley, in economic development from the London School of Economics, and in public administration from Columbia University.
He currently pursues a master’s in international law and politics at Georgetown University and a master’s in public health at the London School of Hygiene.
He has worked in the technology sector in Madrid, Stuttgart and Paris, and in the financial industry in New York City and London.
His interests lie in the interaction between financial economics and economic development. He is a columnist in written and electronic press.
"The Monfort Plan" is available via Amazon and Wiley Finance
More interviews on The Road.
The Monfort Plan: Capitalism redefined
The Monfort Plan[i-The Monfort Plan]It is not often we let authors present their own book, here on The Road. This time, I make an exception. It is not often we stumble upon books with new and positive ideas, after all.
When Jaime Pozuelo-Monfort told me about his new book, "The Monfort Plan" (available on Amazon and via Wiley Finance), I asked him two things: to summarize his book, and to answer a number of questions I have in an interview. Today, we feature Jaime's book summary:The Monfort Plan (Wiley Finance, April 2010) presents the new architecture of a redefined capitalism. This summary piece introduces the five year action plan and explains why a new architecture may be needed in today’s environment.
Today’s capitalism is based on a vintage architecture that dates back to the 1940s and the American effort to pull the world away from Nazi Germany and Soviet communism. It was then when the four institutions of this old architecture were designed: the World Bank, the International Monetary Fund, the United Nations and the GATT. The old architecture designed by the Bretton Woods elites served a purpose: it contributed to the economic resurgence of Western Europe and brought peace to a continent that had fought wars for centuries.
Subsequent to the design of the new architecture the Truman Administration proposed and implemented the Marshall Plan, the plan for the economic recovery of 17 countries in Western Europe. The plan enabled the vision of Jean Monnet to come up with a European Community of Coal and Steel, the parent of the European Union. These were times of courage and vision. The great changes of the 1940s and 1950s were precipitated by the devastation of the two World Wars and the economic collapse of the Great Depression. The environment set the basis for thirty years of phenomenal economic growth on both sides of the Atlantic.
The second half of the twentieth century had two flavours that modeled the world's geo-political pattern of both Hemispheres: the cold war and the emergence of neoclassical economics fathered by Milton Friedman and Alan Greenspan and implemented by Ronald Reagan and Margaret Thatcher. Neoclassical economics brought about an increasing mathematical sophistication where economic sub-fields such as financial economics prospered thanks to the work of gifted mathematicians such as Merton, Black or Scholes. Monodimensional utility functions prioritized profit maximization over other variables such as human dignity or environmental sustainability. Academia was captured in the allure of models. Our economic policy-makers were constrained by mathematical models that worked on paper.
We continued to live in the world of the nation-state that defends a realist foreign-policy agenda based on the welfare of its citizens and the non-cooperation of states. Priorities were national but not global. A silent cold war was fought in the Northern Hemisphere, with cruel civil wars taking place throughout the Second World War, aggravated by the supplies of either side.
Major changes have to be brought on board if the great evils of our time persist. Today’s world continues to be a world dominated by extreme poverty and inequality. Today’s world maintains a status quo where a vintage architecture works for the developed world. We are reluctant or unable to move forward because we are afraid of losing the privileges the old architecture awarded to the victors of World War II. We are unwilling to reform because our political elites are afraid to lose popular support if they remove agricultural subsidies, or give up representative power at the Bretton Woods Institutions.
When approaching the geo-political environment of a world in desperate need of creative policy-making it is easier to propose a radically different new architecture, designed to cope with the challenging and increasing problems of the planet, than it is to reform the current architecture. Today’s crisis opens up a window of opportunity where intellectual exercises that propose new ideas ought to be considered by our political elites. But this will not happen. There is a gap between the world of creative policy-making and the inability of our political elites to embrace change and reform. Our political elites continue to live in the world of the nation-state, where citizens reward myopic policy-making that prioritizes our interest over that of the vulnerable.
The reality is that there is only one way out of the crisis with many possible final destinations: we have to incorporate the extremely poor countries to a new order where we undertake reform conducent to the elimination of the great evils of our time.
The Monfort Plan proposes a five year action plan to redefine capitalism and eradicate extreme poverty. The Monfort Plan also presents the team of one hundred Expert Dreamers that could be brought on board to implement the action plan. The action plan gives specific detail on how to accomplish change starting in six countries of Subsaharan Africa that have shown their determination to build up a basis upon which they can prosper.
The Monfort Plan reviews and identifies today’s vulnerabilities and explains why the current order is perpetuated. It then proposes an Axis of Feeble that has to be defeated. In order to do so reform has to be brought on board of six areas, namely agriculture, trade and labour rights, extractive industries, small arms trade, international financial architecture and brain drain.
In the book the lessons from the success of the Marshall Plan are drawn. The action plan proposes a new Marshall Plan for Africa, called the Annan Plan that would boost agricultural productivity on Subsaharan African soil. It also proposes four new organizations that would universalize microfinancial services for the extreme poor in order to deliver, through the microfinance network, global public goods including universal healthcare, education, water and sanitation.
The Monfort Plan also proposes innovative financing that could contribute to creating the Poor’s Endowment able to finance the delivery of global public goods through the microfinance network over the next forty years.
The action plan seeks to replicate the success of the European Union in the development space. By creating a supranational organization that accepts new members on an ex-ante conditionality clause, developing countries could have a phenomenal incentive to embrace reform in order to join a new architecture that will deliver global public goods for free to all the extreme poor for for the next forty years, or until the poor leave extreme poverty behind. Economic growth per se is a necessary condition to pursue global prosperity, but in itself does not suffice.
We need to become, one more time, men and women of stature and embrace the vision of the great men of the twentieth century. We need to become disciples of Marshall and Truman to defeat, once and for all, the great evils of our time. There is a window of opportunity. There is no other exit out of the crisis. Let the Glorious Forty begin.
Read on: our interview with Jaime.
More book reviews on The Road.
China in Africa: The Future?
This video gives an excellent snapshot of the economic development in Angola, a country I have not been to since 1995, and its business with China.
[Loband: Object Removed -]
Angola, just like DRC, is one of Africa's mineral richest countries, so no wonder there is quite an interest for its natural resources, only to be challenged by logistical nightmares.
There is a lot to be said about the deals China makes all over the world, securing oil, buying or leasing agricultural land and concluding massive hybrid aid/business contracts. Just today, I stumbled upon the following two press articles:
From the Chinese Press Agency:
China provides US$600,000 of humanitarian aid to DR Congo.
From Reuters:
Congo to push forward with $9 bln Chinese mining contract.
Says enough, I think. Two views, two perspectives, two sides to probably the same story. As government to government aid has clearly failed in the past decennia (read 'Dead Aid'), maybe the business deals are the only true form of development for Africa.
If only the economic profits would also benefit the less fortunate in Africa.
Video discovered via Time of the Leopards
The end of the US Dollar as we know it.
[i-Bailout? Money Pit!]
The New York Times published an interesting overview of the programs the US government is financing to support the struggling economy.
Beyond the $700 billion bailout known as TARP, which has been used to prop up banks and car companies, the government has made commitments of $9.9 trillion. $9.9 t-r-i-l-l-i-o-n. (If you want to have an idea what one trillion dollars looks like, check here this post).
- The Government as Investor: $5.4 trillion
Includes direct investments in financial institutions, purchases of high-grade corporate debt and purchases of mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae.- The Government as Lender: $2.3 trillion
A significant expansion of the government's traditional overnight lending to banks, including extending terms to as many as 90 days and allowing borrowing by other financial institutions.- The Government as Insurer: $2.1 trillion
Includes insuring debt issued by financial institutions and guaranteeing poorly performing assets owned by banks and Fannie Mae and Freddie Mac.(Full)
There seems no end to the money pit left after 8 years of mismanagement in the US. So no wonder that a UN panel recommends the world to ditch the US dollar as its reserve currency in favor of a shared basket of currencies.
The proposal is to create something like the old Ecu, or European currency unit: a hard-traded, weighted basket. (Full)
My suggestion is to ditch the US dollar not only as a world reserve currency, but also as the main currency used within the UN system, where all the accounting is done in the greenback.
Cartoon courtesy Analytical Wealth Read the full post...
The economic crisis: And the biggest loosers are...
[i-the most vulnerable countries]
According to the IMF (International Monetary Fund), the global financial crisis will significantly worsen the budgetary position of many Low Income Countries (LIC) governments up to the level where they will need international aid to be able to survive the crisis.
Why are LIC countries particularly vulnerable? Because they don't have a buffer more developed countries have...
On one hand, government revenues are expected to suffer as economic activity slows and commodity prices fall. Potential declines in donor support and tighter financing conditions will likely impose further pressures on their budgets.
On the other hand, many countries will need to increase spending to protect the poor, and additional spending pressures may arise from currency depreciation and rising interest rates, which could raise debt service costs.
The most vulnerable countries are: Albania, Angola, Armenia, Burundi, Central African Rep., Congo DRC, Côte d'Ivoire, Djibouti, Ghana, Haiti, Honduras, Kyrgyzstan, Laos, Lesotho, Liberia, Mauritania, Moldova, Mongolia, Nigeria, Papua New Guinea, St. Lucia, St. Vincent & Grenadines, Sudan, Tajikistan, Vietnam and Zambia.
Baseline projections for 2009 foresee a total balance of payments shock of US$165 billion for these countries. They will need at least US$25 billion of financial assistance to offset the impact of the shock on their international reserves. The needs could be much larger — approaching US$140 billion in a “bad case” scenario. (The full IMF report)
What does one TRILLION dollars look like?
With the stimulus package, the US debt and the war in Iraq, we have entered the era of trillion numbers.
Trillion. That is a million times a million. A thousand billion. A one followed by 12 zeros. 1,000,000,000,000,000,000.
So... how does a trillion dollars look like?
Well, in true dimensions, here is a million dollars in $100 dollar bills:
[i-one million dollars]
Pretty un-impressive, I think. Fits in my lunch bag. One million. Phew. Peanuts.
But here is what one trillion looks like:
[i-one trillion dollars]
NOW we're talking....
(Note the guy is still standing on the left, next to the money heap.)
Do you understand now in how much trouble the US economy is? With a bailout package of 8.5 trillion. With the national debt going over 10 trillion? (and that was before the current crisis and bailout...
Oh and what it means when people say the war in Iraq costs 3 trillion?
A BIG thank you to PageTutor, check out his full post for the steps from one dollar to 1 trillion.
THE answer to the US economic crisis: the Pelosi GTxi SS/Rt Sport Edition
Within a while, we won't even remember this temporary economic hiccup anymore. US Congress has found the solution to save the economy with the Pelosi GTxi SS/Rt Sport Edition.
Not only will it beat the pants off any imported car (for the time while importing cars is still legal), it will save the economy, save your wallet, save the environment AND is safe too.
Here is the answer:
[Loband: Object Removed -]
More satire on The Road.
Discovered via PreSurfer.
Picture of the Day: Redundant in Dubai
[i-Redundant in Dubai]
This picture symbolizes the current economic downturn in Dubai more than anything else. A 'made redundant' Porsche owner uses his sports car to advertise for a job.
I discovered this post via Seabee at Life in Dubai one of the blogs I follow. He describes daily life in the Emirate as experienced by an expat. Sharp and funny.
The Daily Telegraph picked up on his post and interviewed the Poor Porsche Owner...
More Pictures of the Day, more on Dubai on The Road.
Should China bail out the West?
[i-Red dollar]
A provocative thought from "Good" Magazine:
Bailing out the West could prove the final capstone in China’s global ascendancy, signaling, like the United States’s dominance of the post-WWII globe, that Beijing has arrived as a power—and even has lessons to teach other nations.Read the full post...
A rescue would show that Beijing’s model of development—one that doesn’t involve messy things like democracy—can stand up to the Western democratic gospel preached since World War II.
And once shy of promoting its model, China now may be ready to play the leader. In recent years, Beijing has started touting its success to other nations through annual training programs for thousands of officials from across the developing world. (Full)
Aid is dead. Long live aid.
[i-aid (eh) tintin in congo]
Dambisa Moyo was born and raised in Zambia. She has a PhD in Economics from the Oxford University, a Masters from Harvard and an MBA in Finance from the American University in Washington DC.
She previously worked for the Worldbank, and in debt capital markets at Goldman Sachs. (Full)
[i-Dambisa Moyo]Just to illustrate she is not "just anyone" when one considers the insights registered in her book "Dead Aid", subtitled "Why aid is not working and how there is another way for Africa".
From her website:
In the past fifty years, more than $1 trillion in development-related aid has been transferred from rich countries to Africa. Has this assistance improved the lives of Africans? No. In fact, across the continent, the recipients of this aid are not better off as a result of it, but worse—much worse.
In Dead Aid, Dambisa Moyo describes the state of postwar development policy in Africa today and unflinchingly confronts one of the greatest myths of our time: that billions of dollars in aid sent from wealthy countries to developing African nations has helped to reduce poverty and increase growth.
In fact, poverty levels continue to escalate and growth rates have steadily declined—and millions continue to suffer. Provocatively drawing a sharp contrast between African countries that have rejected the aid route and prospered and others that have become aid-dependent and seen poverty increase, Moyo illuminates the way in which overreliance on aid has trapped developing nations in a vicious circle of aid dependency, corruption, market distortion, and further poverty, leaving them with nothing but the “need” for more aid.
[i-Clooney in Darfur]Debunking the current model of international aid promoted by both Hollywood celebrities and policy makers, Moyo offers a bold new road map for financing development of the world’s poorest countries that guarantees economic growth and a significant decline in poverty—without reliance on foreign aid or aid-related assistance.
Dead Aid is an unsettling yet optimistic work, a powerful challenge to the assumptions and arguments that support a profoundly misguided development policy in Africa. And it is a clarion call to a new, more hopeful vision of how to address the desperate poverty that plagues millions.
There are a series of interesting articles covering her book and her opinions:
- The Anti-Bono (NY Times)
- Aid dependency blights Africa. The cure is in the credit crisis. (Independent)
- The road to ruin (Guardian)
- Everybody knows it does not work (Guardian)
More here.
Of course the aid "industry" has reacted. But barely. As of today, a Google search only shows two articles: A half-assed reply by the co-founder of "One" in the Financial Times, and a more relativating answer by the CEO of SOS Children UK.
Update: Feb 23: Another half assed answer by Oxfam
Dambisa clarifies in one article:
She makes it clear at the outset what kind of aid she means. She does not mean humanitarian or emergency aid, mobilised in response to calamities; she does not mean charity-based aid, given to specific organisations and people on the ground, in order to achieve specific things (she sits on the boards of several charities, one of which distributes antiretrovirals); she is hopeful about a new attitude to food aid, whereby the money is used to buy food from farmers within a country, and then distribute it to those in need, instead of flooding the place with foreign food that undercuts local growers. What she means is "systemic aid", the vast sums regularly transferred from government to government, or via institutions such as the World Bank. (Full)
My response, as an aid worker, is this:
1. Don't limit the discussion
If one limits the discussion only to aid given to a government (bilateral or via IMF/Worldbank), we are limiting the discussion too much. We do need to question any form of aid. Even though aid given to government institutions is an obvious (and easy) target of criticism.
But also humanitarian aid, emergency aid, should be looked at. Why, after decennia of foreign aid, is the West still crawling over each other to provide relief in cases of natural disasters? What is done to institutionally ensure these countries (which are always the same, by the way), can (mostly) take care of their own disaster response?
2. Aid has proven to be ineffective.
It is clear that traditional aid does not work. And has never worked. Otherwise aid organisations would have been able to prove at least some progress in countries like Somalia, Ethiopia, DRC, Afghanistan,...
If it took us 40-50 years to come to that conclusion, so be it. A pity of the money wasted, but at least let's start changing the mechanics now.
link[i-link]3. But everybody was happy?!
Aid has been a self-fulfilling and self-fueling economic mechanism. I have always said there are three markets in the world economy: the official market, the black market and the aid market.
All three keep the world economy turning. Unfortunately mostly the "first world economy". Here is how I see it work:
- Too many donor governments are all too happy to channel foreign aid through whatever means. After all, they need to look good on the Millennium Development Goals (MDG) performance scale. And it is good for public opinion. Helps get people re-elected.
- Too many aid organisations are all too happy to transform that donor money into projects. After all, they need to sustain themselves. No, or hardly ANY aid agency will turn down money from a donor. No matter how ridiculous or un-needed the targets are (hats off to MSF for refusing more Tsunami aid two weeks after the disaster, stating they had sufficient funding. Which aid agency would have the courage to do that?)
- So one loves to give, the other loves to accept. All happy-happy.
- Foreign "aid" as such is an industry by itself. It employs people, it keeps "the economy" running. But whose economy?
No surprise a lot, if not most, of the goods procured by aid organisations is produced in "the West". Many services are procured from companies in "the West". In this aspect, not much difference between "a war in Iraq" and "foreign aid", is there? Both are wagging the dog of 'our economy'.
- Foreign "aid" has been targeting mostly countries a donor country had a political, economical or military connection with. "Aid" was just a way of keeping government counterparts happy. No matter if the aid was effective or not. It kept the targeted country as an ally. We got cheap resources from them, or they did not 'fall' into the hands of the communists, or more recently in the hands of the islamists.
4. The worst was if aid would actually work
For the 'west', it has always been best if a developing country sitting on a lot of natural resources (oil, diamonds, gold, minerals) was unstable.
It was a way to get those resources cheaply. During the Angola civil war, their oil was sold for many years in advance, only to keep the cost of war going.
Look around you: which countries have gone through the most devastating levels of poverty and civil war? Liberia, Sierra Leone, Angola, DRC, Somalia, Sudan... I bet you if we make a top 10 list of the countries (in the world) with the longest civil wars, and you tick those with abundant natural resources, you would be surprised of the correlation.
OK, I will relativate: natural resources or a country's strategic (political, religious or geographical) position.. Should cover all on the top 10, top 20 list.
So if aid would have been effective, and would have brought peace, prosperity or stability, in what way would it not have been decremental to the Western Economy? God forgive if a country like that would become an economical power. An independent political entity with its own mind. Gosh, think what that would have done to the political position of the powers-that-be?
[i-Clooney in Darfur]5. So what is the way out?
- I agree with Dambisa: government to government aid does not work. As electorate, we should hold our governments accountable to give us real and verifiable figures of effectiveness.
- Worldbank aid does not work. Same thing: Show us verifiable figures of effectiveness.
- Effectiveness of aid in no matter what shape or form, should be measurable along the same criteria. Criteria should include clear and concrete targets from the onset, and measures of achievement. Aid should measured by the effectiveness for the individuals targeted, not by the effectiveness for institutions (which can not be measured).
- Any aid organisation, any humanitarian organisation should work on a voluntary funding basis. No guaranteed annual funding. Funding per project. You don't perform? Next time you don't get funding anymore. Worldbank the first to start.
- Aid, any aid, should be audited by external bodies. Objective figures should be provided for overhead.
- Aid, any aid, should be governed by the same measures of governance quality as the commercial market (as long as it is not the US-standards of governance. We all saw where that one brought us).
Why don't we apply ISO-9002 to aid? Let's make an ISO standard for aid. After all we spent trillions on aid. And it our money. Us, tax payers, need to know. We cry foul when we see the government wasting money on ineffective road building or useless prestige projects, but don't cry foul when we pour billions over the 'poor'? Because we get soft hearted when seeing children crying on TV? Think what you do to that child to ensure it stops crying the next year. And the year after. And the year after.
OkayOkayOkay. I am getting off my soapbox now.
Pictures courtesy deadaid.org, AP, princeton.edu and Logan Abassi (MINUSTAH) Read the full post...
Sign of the times: the meaning of "Aid"
[i-link]
On one of the pages in my NewsFeeds site, I filter news sources based on certain keywords.
In three feeds, I filter on the keys "aid", "aid worker", "aid work". It is remarkable how in the past months the articles these filters display, have shifted from "foreign aid" or "humanitarian aid" to financial assistance for the crippled economy. In the "first" world.
Would this be a sign of the times where "aid" turns solely towards domestic issues?
Picture of the Day: Foreclosure
[i-World Press Photo of the Year 2008]
A black-and-white image by American photographer Anthony Suau was voted as the World Press Photo of the Year 2008.
The picture shows an armed officer of the Cuyahoga County Sheriff’s Department moving through an evicted home in Cleveland, Ohio, following a mortgage foreclosure. (Full)
More Pictures of the Day on The Road.
Picture courtesy Anthony Suau, AFP/Getty Images
Economic downturn hitting charity and aid work
[i-a young ugandan family cooks a meal]
Back in October, I predicted the economic turmoil would soon result in a new humanitarian crisis.
Three news bulletins caught my eye today:
Nonprofit organizations have an estimated $166-billion worth of construction and renovation projects in the US on hold because of the economic downturn. (Full)
World Bank President, Robert Zoellick, estimated that the global economic crisis will cause up to 53 million more people to live on less than $2 a day. (Full)
UK aid agencies cut staff to make up for the weak UK pound (Full)
Picture courtesy T.J. Kirkpatrick/Momenta via Scarlett Lion
2009: the year of the food catastrophy?
[i-countries affected by drought]
This is not a happy picture. Early warning of droughts in US, Australia, South America, Asia and the Horn of Africa are indicating a major drop of food production, which will have a direct impact on the price of food. (Full)
2008 was marked by a spectacular raise in food prices due to a combination of speculation, a push for biofuel production, and a shift of food consumption patterns in countries with a large population. World market food prices have dropped temporarily (see this example for rice market prices). Unfortunately, this drop did not have an immediate effect in the food prices on the market in developing countries, where food continues to be out of reach of the poor. And prices are raising again.
With the early indicators of droughts, we are in for a renewed hike in food prices, which potentially might dwarf the 2008 food price crisis.
More on The Road about the food crisis
Map courtesy Market Skeptics
The Dubai Bubble: burst, melt or expand?
[i-dubai above the trouble or head in the clouds...]
Dubai expects its economy to expand by just under 2.5 percent in 2009 as real estate, construction and exports come under pressure. This growth figure comes in sharp contrast with the usual 8-9% yearly growth. (Full)
The hardest hit is, of course, the real estate market. A local rumour says that Emirates Airlines is still doing well, simply because it is flying so many expat workers back home.
Rumour or not, construction firms in the UAE confirm they are sending some 20,000 Indian workers back home next month. (Full).
Fact also is that almost 60 percent of real estate projects in Dubai, worth a total of $75 billion, are being either delayed or cancelled according to a new report by HSBC. (Full)
It is not just Dubai. Also the Emirate of Abu Dhabi takes serious hits: the leading real estate developers note drops in profit of up to 94% in the last quarter of 2008. Full)
And we have not reached bottom yet. While some property prices have fallen 50%, the prediction is the bottom will only be reached by the 2nd half of 2009. (Full)
Guess Emirates Airlines will continue to be busy repatriating expats for quite a while.
[Loband: Object Removed -]
Who would have thought selling cheap home loans in some US back quarters would have this ripple effect across the globe, hey?
Update: See also:
- Dubai Economy in Free Fall
- List of cancelled projects in Dubai
- Driven down by debt, Dubai expats give new meaning to long-stay car park
More posts on The Road about Dubai
Video discovered via MootBox. Picture courtesy Daveandmairi via A Picture's Worth
Making money while saving lives
[i-waterfilter]
An interesting article in The New York Times about a company supplying good to aid organisations. Does "Making money while doing good" make you feel good? You bet! Can one justify making "Money while saving lives"? You bet! Is there a commercial market for humanitarian supplies? You bet! Is it right to "Make money while saving lives? Guess it depends who you ask the question to.
There are plenty of charitable foundations and public agencies devoted to helping the world’s poor, many with instantly recognizable names like Unicef or the Gates Foundation.
But private companies with that as their sole focus are rare. Even the best-known is not remotely a household name: Vestergaard-Frandsen.
Its products are in use in refugee camps and disaster areas all over the third world: PermaNet, a mosquito net impregnated with insecticide; ZeroFly, a tent tarp that kills flies; and the LifeStraw, a filter worn around the neck that makes filthy water safe to drink. (..)
The company’s main business was facing competition from Asia, and both he and his father found relief work more interesting. Exporting used clothes for distribution in refugee camps was profitable. And there was a market in tsetse fly traps; the flies, which transmit sleeping sickness, are drawn to certain wavelengths of blue light, so the company had to make fabric of the right shade that did not fade in sunlight and did not weaken when permeated with insecticide. (Full)
Picture courtesy New York Times Read the full post...
The last Bush act: banning French cheese
[i-roquefort]
I can not resist this piece of gourmet -slash- political news. One of -what must be- Bush's last acts of.. whashalwecalit.. idiocracy? This must have been part of his war on terror cheese.
The United States, it turns out, has declared war on Roquefort cheese.
In its final days, the Bush administration imposed a 300 percent duty on Roquefort, in effect closing off the U.S. market. Americans, it declared, will no longer get to taste the creamy concoction that, in its authentic, most glorious form, comes with an odor of wet sheep and veins of blue mold that go perfectly with rye bread and coarse red wine.
The measure, announced Jan. 13 by U.S. Trade Representative Susan C. Schwab as she headed out the door, was designed as retaliation for a European Union ban on imports of U.S. beef containing hormones. Tit for tat, and all perfectly legal under World Trade Organization rules, U.S. officials explained. (Full)
Shall we add this to the to-do list of Obama: reinstate the stinky trade relations with France? Read the full post...